Author : Rasika Gokhale Athawale
It is, though, surprising to see a sudden u-turn of government’s view point on inclusion of irrigation projects under VGF. The Planning Commission in its March 2010 report on infrastructure had pointed out that irrigation projects are the responsibility of the government. The reported quoted that “The investment strategy of the Government primarily relies on promoting investment through a combination of public investment, private participation through Public Private Partnerships (PPPs) and stand-alone private investment. Since private investment would not be sustainable in financially unviable projects in rural infrastructure, irrigation and water resources management, inland waterways and in the economically or situationally disadvantaged regions, they would continue to be funded by public investment. For projects which are financially viable, PPPs are increasingly becoming the preferred mode of project implementation, especially in sectors such as highways, airports, ports, railways and urban transit systems.”
A quick look at statistics can provide some logic to this change of heart. Though India ranks number one in terms of absolute area of land under irrigation (59 million hectares) – it is still just a third of the country’s arable land. This means that if we can provide irrigation facilities to the rest two-thirds arable land, our food production can substantially go up. This not only will lead to reduced food inflation but shall also mean higher employment ratio and faster rural development.
Since water is under the state jurisdiction, the Union Government supports States through the Accelerated Irrigation Benefit Programme (AIBP). The programme requires States to match balance funds in accordance with the contribution from the Centre. The Centre’s contribution may range from 75% for special category states (northeastern states and drought-prone areas) to 10% for developed states. Further the Centre’s allocation remains unutilized if the States fail to make their contributions. The outlay for AIBP in last year’s budget was Rs. 12,600 Cr. Several states in the past have failed to make use of AIBP in the absence of enough funds – and for them support through VGF can help in attracting private investment in the sector.
Basic questions and detailed debates
However PPPs in irrigation pose some basic questions which need a detailed debate. For instance in case of an irrigation project the farmers are the end users and determining their ability to pay is subjective. Further in case where the farmers fail to pay what kind of payment security mechanism shall be provided to the private concessionaire? In many cases PPP in irrigation has been opposed on this parameter with the fear that non-payment by farmers can lead to them losing their lands to the private company. Alternatively can a mechanism be developed where the farmers can pay in proportion to their farm produce – whereby they can directly see the benefits of better irrigation facilities?
Another pertinent question is whether the government shall be willing to give full powers to the Water Regulatory authorities to make changes to water rates, without fearing the political impact of such freedom. In the absence of a sound governing structure, on which the private concessionaire can fall back for a legitimate increase in water rate, the response from private developers would not be very encouraging.
Global examples
If we look for examples globally, there are very limited instances of irrigation projects where PPP models have been tried. One such example is the Guerdane (Taroudant province, Morocco) project which is the world’s first irrigation PPP project. In the year 2004 the project was awarded to Omnium Nord-Africain, a consortium led by a Moroccan industrial conglomerate. The USD 85 million project involves construction, co-financing and management of an irrigation network which envisages water flow from a dam situated 60 miles from Guerdane. The water will be utilized by about 600 citrus farmers. The concessionaire has been given a responsibility to operate for a period of 30 years.
France and Australia are other two countries where different models of irrigation PPP have been tried and tested. In France a private company CACG serves 51000 hectares of irrigated land in addition to providing drinking water services to about 0.2 mn inhabitants. In Australia the Murray Irrigation Company is a farmer-owned company, where the farmers elect their board of directors and staff. This is more like a cooperative.
It is often very hard to decide on advantages and disadvantages for freeing up markets for a public good. The debate on whether water shall be considered as an economic good will draw responses from both sides. On one hand the fact remains that higher water cost can lead to better utilization; along with the fact that profit making motives can put economically backward groups into danger. It is therefore important to establish whether water is to be considered as an economic good or not. If not then it is better to keep private companies at a distance; corollary private companies would themselves not be interested in the sector – even with an assured VGF.
(The author is founder of MindCrunch - a thought leadership consulting firm for infrastructure sector companies)