"Growth in water business to depend on government policies and timing of on-ground implementation"

Ranen Banerjee, Partner, Government Reforms & Infrastructure Development, PwC and Shivanshu Chauhan, Executive Director, Government Reforms & Infrastructure Development at PwC tell Sarika Malhotra that despite the growing interest, private players in water business are facing teething troubles in India.
 
Some big foreign players are trying to entre Indian water treatment and supply space. For example Degremont etc… what are the reasons of this growing interest?

Banerjee : The growing interest of foreign multinational companies for entering into Indian water treatment and supply space stem from the fact that India is among those regions of world where the awareness and emphasis on improvement of public utilities like water supply has increased in recent years. There is an increasing demand for high-end technology equipments with limited capabilities of indigenous companies to address the same. Also, there is a high potential in advanced water and wastewater system due to introduction of schemes like Smart City Mission, AMRUT, National Mission for Clean Ganga, Yamuna Action Plan(s) etc. Further, plans of Central and State governments to establish large-scale sea water desalination plants across coastal regions of potable water deficit states have made India an attractive destination.
 
What are the biggest challenges faced by water businesses in India?

Chauhan : The water businesses in India can be broadly segmented into municipal and industrial business. Municipal segment constitutes majority part of the overall business, in terms of proportion of envisaged investment. The key challenges being faced by municipal segment range from large lead time between projects conceptualisation and their actual implementation. Delay due to slow decision making for project approval and execution; limited PPP potential due to inherent regulatory/policy issues and the resultant viability issues; financing challenges specially in sewerage/ wastewater sector trouble are some other factors which affect the sector. Also, price sensitivity of large scale municipal projects, awarded purely on financial quotes, is a challenge too. Besides that, the impact of a better technical solution is not taken into account and there is lack of willingness to pay more for better supply of water and sewerage management, still considered as freebies.
 
In the past few years, orders for many water companies are increasing and projections are that Indian market will grow four-fold by 2025. Is it real or a hype?

Chauhan : Due to various plans to improve river water quality and improvement in city utility infrastructure, the government has announced large scale plans for water and wastewater sector. This is expected to give rise to the investment across the value chain and is expected to have a positive impact on the order book position of companies. Some companies such as L&T, VA Tech Wabag, ShapoorjiPallonji have witnessed increase in their order books. However, there are several multinational companies that have faced difficulties developing order book, with some even shutting operations in India. It is likely that the domestics companies would continue to be the primary beneficiaries of the increased investment. This is primarily due to the traditional procurement models where price plays a critical role. Eventually, water business will grow but it will depend primarily on the government policies and the timing of on-ground implementation.
 
Any international examples that India should learn from?

Banerjee : PPP-based water treatment plant in Mundaring, Western Australia, with a capacity of 165 MLD (million liters per day) is a very recent example of a successful PPP (public private partnership) model in which many international firms collaborated to execute the project. The project, first PPP in the Western Australian water industry, included financing, designing, construction and operation and management of new plant for 35 years and the approximate value of contract was around AU$ 300 million. The execution of project started in July 2011 and its commercial operation started in December 2013. The Mundaring PPP example shows how international firms from different countries can collaborate their competencies to deliver a successful PPP project within the desired timeframe. The contract in this case addressed most of the policy and regulatory impediments that are faced in India.