In January 2006, the World Bank awarded a contract to Castalia, a French consulting firm, for developing a pilot project for privatisation of the water system in K East Ward of Mumbai. K East ward, with a population of about one million (water supply wards are not the same as electoral wards; the area contains 11 or 12 electoral wards) is like a large city by itself. The consultancy was funded through a US $692,500 grant from the Private Public Infrastructure Advisory Facility (PPIAF), a multi-donor agency run by the World Bank. If successfully implemented, the pilot will be extended to the rest of the city.

This step flew in the face of several recent developments. Around the world, privatised water supply projects that were once described as model projects - like Metro Manila and Buenos Aires - have collapsed. Nearer home, around the time the K east contract was signed, the Delhi government, facing intense protests, had dropped its plans to hand over management of water in two zones to private companies. The protests using documents obtained under the Right to Information Act had shown that 65 per cent of the Delhi Jal Board's annual operation and maintenance expenditure would have gone simply to pay for 84 experts. And in the process, water tariffs would have shot up almost 10 times.

Apparently ignorant of the developments in Delhi, the project in K east was set in motion. But fairly soon thereafter, the strains began to show. Amidst mounting opposition to privatisation, the pilot project quickly became controversial.

MCGM adopts unconvincing stance

Several questions were raised. Two of these were particularly troubling. Why should a water supply-related contract in Mumbai be awarded by a second party (the World Bank) to a third party (Castalia)? Why did the contract begin with the a priori intention of bringing in privatisation? The first question was simply ignored by the project proponents; the legitimacy of such intervention remains questionable. For the second question, the Municipal Corporation of Greater Mumbai (MCGM) tried a number of answers, each raising more doubts than it answered.

One of the main justifications given for privatisation of water systems worldwide is that public operators are highly loss-making entities and have no money for new investments, and the private sector will bring in this capital. But the water system of the MCGM in general and K East in particular is making huge profits. Total water revenue in just the K East ward is 661.7 million rupees and the operating cost is just Rs.65 million, so the revenue surplus is a whopping Rs.596.7 million or about 60 crore rupees. Naturally, doubts were raised - is privatisation being pushed only to corner a part of this huge profit?

MCGM's first response was to deny that there would be any privatisation; it insisted that the assets would remain under its ownership. This was a specious argument. Privatisation comes in many forms, including management contracts, service contracts, lease, concession agreements etc. Asset sale is only one form of privatisation. Moreover, the Terms of Reference (TOR) given to Castalia were clear that "MCGM envisages to award a "Water Distribution Improvement Contract" to a professional Operator ...". Indeed, the very presence of PPIAF indicates that privatisation is involved, for the PPIAF has been set up with the express aim of " helping developing countries improve the quality of their infrastructure through private sector involvement."

MCGM also claimed that there would be no tariff hike as a result of the project, although evidence from all over the world has shown that tariffs shoot up once privatisation begins. Water tariffs went up 500 per cent in Manila, 300 per cent in Cochabamba, and 700 per cent in Guinea on privatisation. The TOR do not specifically require the consultants to develop the project while maintaining the existing tariffs. On the contrary, the TOR mentions that this project is a part of larger reforms that include "defining a pricing strategy to recover cost"; translated, this means the elimination of subsidies and an increase in tariffs.

24 x 7

It was hoped that the Consultant's report would begin to shed some light on the issues. The TOR required a Second Stakeholder Workshop to be "organised when the project design and contractual arrangement become clearer but before the first draft of the bidding document is issued". This Consultation was held on 2-3 June 2007.

Castalia's presentation at this event repeatedly emphasised 24 x 7 - a reference to uninterrupted water supply at all hours on all days. This is by itself an important aim for any water supply system. Uninterrupted supply has two main advantages. One is that people can draw water when they need, unlike now, when they have to get up at odd hours, their daily schedules made (or disrupted) by the timing of water supply. The second advantage is containing contamination. When pipes are empty most of the time, contaminants can seep in through cracks and fissures. A pipe carrying water for 24 hours a day, on the other hand, will not allow this as the water pressure is acting outwards.

Castalia advocated making the K East system a 24 x 7 system, citing these advantages. Yet, its own studies do not establish these justifications. Take the case of contamination. Castalia tested the water quality for three months - January, February and March 2007. In all cases, it found that the samples met the WHO Excellent standard. It then took the data for 2005 from some other source (not mentioned) and this too showed that water quality was excellent to good, except for the monsoon months. Castalia is now saying that since there is contamination in the monsoon months, 24 x 7 system is required. Yet, it does not mention that the monsoon of 2005 was an extraordinary one, with Mumbai being deluged. Strangely, Castalia did not conduct the tests in the monsoon of 2006.

Morever, 24 x 7 supply has some disadvantages too. Cracks and fissures in a pipe with intermittent supply will leak only for a few hours, when the water is flowing. With 24-hour flow, leakages too will be round the clock. Thus, a 24 x 7 system needs a high degree of leak control, or else the losses will increase dramatically. The system also needs to be continuously maintained under pressure. All this requires large investments, and good operations and maintenance. This can have severe implications for the costs.

Castalia's findings showed an unaccounted-for 110 million litres per day (mld), out of a total of 540 mld that comes into the ward. But, upon persistent questioning from the audience, Castalia admitted that the measurements were carried out with methods prone to high errors. Based on the admitted inaccuracies of measurement, the losses can be 110 mld plus or minus 55 mld - an error of about 50 per cent! While such a high range of error is itself bad enough, what is shocking is that Castalia chose to present its figures without mentioning the range of error - this is simply shoddy engineering. To make things worse for the consultant, the Officer on Special Duty of the MCGM disagreed with the figures presented.

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The second justification is that continuous supply will allow people to manage their schedules better. In K east ward, like many other places, the better-off societies already enjoy 24 x 7 supply, as they have underground sumps and overhead tanks with pumps that store the municipal supply to ensure de facto round-the-clock supply. The real issue is whether the slums and the poorer consumers will get access to uninterrupted supply.

In a 24-hour system, public standposts are the first to be eliminated, as these are seen to be sources of loss - revenue loss as well as water leakage. The case study of Hyderabad (presented by its Water Supply and Sewage Board, at the same Consultation), reported that 33 standposts were eliminated for its 24 x 7 pilot project. What happens to those who depend on such community facilities? They will have to take a private connection, which may be unaffordable. Even worse, a private connection may not be available to all. In Mumbai, unauthorised settlements established after 1 January 1995 are not eligible for muncipal water supply and other services. When such areas do not get private connections, and public standposts are removed, residents are left with little choice but to 'steal' water, breaking the pipes if necessary. This will mean huge increase in losses with a 24 hour flow in the pipes. One cannot talk of 24x7 supply unless even the poorest household can be assured of affordable supply to meet its need. The Castalia report is silent on this.

Incredibly, the report does not say what this shift will cost. It does not mention how these costs will be recovered. It does not say what will be the initial and recurring costs for a new connection. Hence one is unable to say whether the slum population will really be able to benefit from this change. Nor does the report establish the justification for 24 x 7 on health grounds. A simple compilation of costs and benefits would have greatly helped understand what was being proposed, but this too was missing.

Management options

Castalia presented several management options, with increasing degrees of private involvement, showing a clear preference for outsourcing and/or privatisation. Only one of the options was to institute reforms in the public sector itself. Castalia clearly feels that the department will not be able to deliver on this front, especially in the areas of controlling illegal consumption, metering and leakage control. Several members of the water supply department were present in the stakeholder consultation and they readily agreed with this. They said that the problems identified by Castalia are well known. They agreed that the department has the capacity to deliver performance but the system does not allow this to be happen. Nonetheless, there was a groundswell of support for reforms in the public sector itself, and the stakeholders demanded that this option - without privatisation - be exercised first, before alternatives were considered.

This raises a larger issue; employees clamouring for self-reform as the first option is often a dubious exercise. While the water supply department knows the systems better than anyone else, and has highly capable people, it is equally true that often it chooses not to work well. As the Officer on Special Duty (OSD) said, "We have the capacity to run the system, but still, people's problems are galore. People come to us with complaints, no one even looks at them. They wait for hours. We have abandoned the people." No wonder, then, that only the threat of privatisation appears to prompt the public sector to perform in an efficient and people friendly manner. The Delhi Jal Board, for instance, was eager to talk about reforms only so long as the privatisation proposals were around. Once these were shelved, activists report, the Board lost interest in the numerous suggestions for improvement that had come up as alternatives to privatisation.

A secretive process

An important cause for public outrage, as in so many other projects, is that the government's position appears to be dictated by ideological views of consultants and their paymasters, and shows no inclination to include the public. Castalia's presentation of global experiences of private sector participation in water supply was one-sided, leaving out the negative impacts. Stakeholders were called to the consultations without being given a copy of Castalia's findings. The full report has not been made public at the date of writing this article, about 12 days after the consultation. Castalia claimed that its contract has been altered from that of just preparing for the involvement of a private player to one that presents several options. But these changes to the TOR have not been made public. Thus, the process is being carried out in a highly non-transparent way, with only a show being made of seeking inputs and consultation.

All in all, the muddied waters of the K East project have become even murkier.