His efforts, spread over 24 months, led to the closure of 15 roadside dumps. Today, Eco Wise, which has invested a modest Rs 1.5 crore over the last year-and-a-half, is on the threshold of recovering that spend and is charting big plans to repeat the act in more cities.

Cut to Osmania University’s former professor GV Ramakrishna, who set up Selco International, a

"In activities such as waste management, you need a concept of tipping fees"-  GV Ramakrishna, CMD, Selco international

Hyderabad-based firm that converts garbage into electricity. For the academic who wanted a break from pure sciences and more into applications, this was a gamble that paid off handsomely. The move, in 1999, helped convert a municipal dumpsite into a processing plant that, after pumping in Rs 40 crore, generates about 6 megawatts of power per hour. His investment in this first-generation, indigenously-developed power plant, from where the Andhra Pradesh transmission utility, AP Transco, gets about 5 mw, would be fully recovered by year-end. That’s not all. Buoyed by the success, Ramakrishna is slated to execute garbage-to-electricity projects in Karnataka, Maharashtra and Gujarat over the next few months.

Thapar and Ramakrishna are just two among the many individuals and corporations that hope to cash in as towns and cities across India upgrade themselves into world-class cities.

For the private sector seeking opportunities in India’s municipal services, it is the start of a feast. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM), launched to beef up creaky infrastructure across 63 cities, is only the beginning. With a budgetary allocation of Rs 50,000 crore to be spent over five years, the project would see urban local bodies roping in the private sector in creating new assets, rehabilitating old structures, and in operations and maintenance. However, the true volume of the business could be much larger.

"Everyone cribbed about India being very dirty, but no one did anything"- Manik Thapar, CEO, Eco Wise Waste MGMT

So would be the task of doing business. Be it in water supply or waste management, the endeavour would be daunting for companies providing the services. For instance, consider the volume of waste water generated by 921 Class 1 cities and Class 2 towns. According to Central Pollution Control Board estimates, 26,254 million litres per day (mld) of waste water is generated in these cities and towns. Against this, the capacity for waste water treatment is only 7,044 mld. Management of solid waste presents yet another challenge. An estimated 1,15,000 million tonnes of municipal solid waste is generated daily. Collection efficiency is 70-90% in metros, but is below 50% in smaller cities. Urban local bodies spend Rs 500 to Rs 1,500 per tonne on solid waste collection, transportation, treatment and disposal. Of this, 60-70% is spent on street sweeping, 20-30% on transportation and less than 5% on final disposal, reflecting what little attention has been paid to scientific and safe disposal of waste.

That’s where private business could come in handy. Cities such as Chennai, Tirupur and Jamshedpur have shown the way when it comes to encouraging private participation in municipal services. CES Onyx, an arm of the French water and waste management giant Veolia Group, recently completed a seven-year contract for collection, street sweeping and transportation of waste in Chennai. Veolia has since won contracts to improve water supply in three towns in Karnataka—Belgaum, Hubli-Dharwad and Gulbarga—and Nagpur in Maharashtra. In Tirupur, a few hours drive from Chennai, Mahindra Water Utilities—a joint venture between Mahindra & Mahindra and United Utilities International of the UK—maintains the industrial town’s water supply and sewerage project. Jamshedpur has been no different. Here, the Jamshedpur Utilities and Services Company (Jusco), a Tata Steel town division unit, has been providing the township with municipal services for years now. In fact, Tata Steel corporatised the division into a fully-owned subsidiary in August 2003 to help transform this profit centre into a commercial customer-oriented organisation. The company now hopes to leverage its experience in the city to emerge as a national player in water, waste water and municipal solid waste management and is close to finalising a deal in Kolkata.

The real challenge in municipal services is not creation of assets, rather the management of service. Globally, many countries recycle about 50% of their waste water and use garbage as compost or fuel for generating power. In India, other than some five-star hotels, only a few cities have a three-stage waste water treatment facility. It is estimated that 30-40% of the treated water is unaccounted for due to leaky underground pipes, unauthorised connections, illegal tapping and sheer official negligence. Even in New Delhi, about 20-30% of treated water remains unaccounted for. This is a common problem that can be contained if there is some degree of accountability in the system.

"As the first step in improving accountability, there is a need to separate the asset owner from the service provider. A service provider has to be responsible to the asset owner through a contractual agreement and meet the performance improvement targets," says World Bank’s Senior Economist Smita Misra. Agrees Jusco’s Managing Director Sanjiv Paul. "There is a need for separating the two, particularly if the private sector has to be involved. And the cost to the consumer has to be kept within reasonable limit."

This would imply that the government would have to continue to spend on creating the physical infrastructure. Since the water boards and urban local bodies do not execute the projects themselves, the step-up in spending would mean more business for companies such as Ion Exchange, Thermax and Subhash Projects.

The reforms menu prescribed under the JNNURM may address a part of the problem. To find a more permanent solution to the urban infrastructure deficit, technology is key along with management expertise. That is where the private sector role becomes pivotal.

Housing and Urban Development Corporation’s former Chairman and Managing Director V Suresh estimates that the country would need to invest at least
Rs 3,50,000 crore over the next 10 years to upgrade urban infrastructure. "Thus, Rs 50,000 crore, together with an equivalent contribution from the state governments, which will be spent in the 63 cities is a small drop," he says. Of this, although 75% of the money is to be spent on urban infrastructure, it would have to be spread across various services, including urban transportation and parking lots. "The funding under JNNURM," says Jusco’s Paul, "would serve more as a viability gap fund."

As cities upgrade with the Centre’s aid, the annual capital expenditure size of local bodies would see a quantum jump. This would require municipalities and other local bodies to engage the management expertise of the private sector, says Promod Mitroo, Director of Veolia Water India. His company, although a global leader, faced tough-going in the initial years. "Now we get invited for discussions," he says.

India, in comparison, is far behind. Most contracts handed over to the private sector for water supply and waste management run for five years. But "private sector participation in the water and waste management sector would build up over the next two to three years," notes Jusco’s Paul. Many big players are expected to jump in the fray as the policy becomes friendlier. Jusco, too, would be bidding for several projects. "We are trying to demonstrate our willingness to participate. Return on investment or payback period would not be the key driver for participating," says Paul.

Going forward, the policy framework should provide enough incentives for the private sector to be in business for the long-term. That would require concession agreements that would leave enough on the table for the company.

"In activities such as waste management, you need a concept of ‘tipping fees’ for a venture to become successful," says Selco’s Ramakrishna, who is in talks with several domestic investors for a private placement that will help raise funds for expansion. The fee charged to individuals, businesses and waste haulers to dump trash in the landfill is fairly common in many countries, including the US, and it helps subsidise waste management programmes, he says.

Mushrooming townships across the country also would open doors for private players. But for large corporations, much of the expansion would depend on how the urban renewal programme rolls out. Critical to the success of JNNURM is state governments’ role in coughing up a counterpart fund. As of now, the handful of contracts awarded in water and waste management are pilot projects. Still, it is an encouraging beginning.