In the Indian state of Odisha, a new PPP with a private operator improved waste collection and disposal, raising the quality of life for the residents of one large city. A targeted, well-developed outreach program was critical to the project’s success and is now being used as a model throughout the state.
The municipal solid waste management system in Berhampur, a city of 350,000 people in the Indian state of Odisha, suffers from a lack of investment and inadequate staffing and management. In addition, like many other smaller cities in India, its solid waste management system is not in compliance with national regulations. Door-to-door collection is provided only in about half of the city, where roads are wider. Households from the economically weaker section, living in other sectors where roads are narrower, deposit their waste at collection points, often on the side of the road. It is then picked up by municipal workers and small private operators, and transported to a dumpsite on the outskirts of the city. What is not collected by them or by street sweepers continues its journey in the drains. Citizens are exposed to health risks resulting from pollution, water contamination, and untreated waste.
To solve this problem, Odisha’s Department of Housing and Urban Development and the Berhampur Municipal Corporation requested transaction advice from IFC to help structure an affordable PPP transaction and attract a private operator. The goal was to improve the collection, transportation, treatment, and disposal of waste and raise the quality of life for city residents. An extensive outreach program, conceived and deployed to reach citizens from all areas of the city, helped ensure that the goals and mission of the new system were shared widely.
Talking “tipping fees”
In most places in India, the municipality covers most of the costs related to management of municipal waste. There is little to no financial contribution from users. As a result, waste management is a cost center on the municipality’s budget. A private operator taking over the management of the waste system will look for reliable revenue sources to recover the costs of building, equipping, and operating the waste collection, transport, treatment, and disposal in an adequate landfill. These revenue sources typically come from the sale of by-products (recyclables, compost, refuse-derived fuel, and power, depending on the optimal treatment solution for the city).
But in India, the sale of by-products, mostly recyclables and compost, is insufficient to recover the investment made in the treatment and disposal segment, let alone the collection part. Therefore the municipality must pay a “tipping fee” to bridge this gap. The real struggle is to set the tipping fee to a level low enough that the municipality can afford it, and high enough that the investor finds the project profitable.
In this case, what the municipality could afford was not enough. The state, therefore, contributed to financing the initial investment for the construction of the treatment and disposal facilities through the provision of a grant and a concessional loan. These instruments are provided by the Odisha Urban Infrastructure Development Fund (OUIDF), a specialized fund of the Housing and Urban Development Department of the state of Odisha, financed by KfW, the German government-owned development bank.
For the tender process, the tipping fee was fixed at an affordable level for the municipality of about $21 per tonne. The portion of concessional loan offered by OUIDF was fixed at 25 percent of the initial project cost. The project was bid out on the basis of the amount of grant required by the private sector to make the project viable, with a cap at 25 percent of the initial project costs.
The municipality also started building consensus among residents regarding the beneficiaries’ willingness to pay for the significant improvements outlined under the project. In the future, this will help the municipality recover some of the expenses toward the tipping fee.
Spreading the word
Officials from Berhampur understood early on that successful implementation of the project depended on the municipality’s ability to raise awareness of its objectives, benefits, and risks. The detailed outreach initiative that emerged alongside the deal introduces the project’s benefits to city residents, employees of the sector, and others who are impacted.
“I am convinced that the stakeholders’ engagement, consultation, and communication strategy will effectively help Berhampur Municipal Corporation,” says Dr. Ajit Kumar Mishra, Municipal Commissioner of Berhampur. “The project has made Berhampur a statewide role model by addressing the specific concerns of all the stakeholders for a clean and better city.”
To recognize the needs of each group and achieve consensus among all parties, the outreach targets:
- Beneficiaries of the project. The municipality is undertaking awareness drives on the benefits of the proposed system to encourage users to adapt their current waste disposal practices to make the city clean.
- Communities living close to new and old sites. This involves informing communities near the proposed new site about the project activities proposed through its life cycle and the technological interventions.
- Employees of the municipality. No city employee shall be retrenched due to private sector participation. The municipality will consult with the sanitation employees and workers to assess potential redeployment opportunities so that the workload is optimized and there is seamless integration of operations between the municipality and the PPP contractor.
- Workers in the informal sector. Programs targeted at rag pickers and other informal recyclers in the system will educate them about their potential reintegration in the new system.
- Government bodies. Internal coordination among the multiple governmental agencies involved across the proposed transaction structure is vital.
- Employees of existing private contractors. While contracts with these existing private contractors will be terminated, the private concessionaire will need to continue to employ them.
- NGOs working in the social and environmental sector. These groups also need to be consulted with and kept abreast of developments.
“A cleaner Berhampur”
The winning bidder, a consortium led by UPL Environmental Engineers Limited, is a large Indian environmental engineering construction firm with 15 years of experience in solid and hazardous waste management, wastewater treatment, recycling, and other environmental projects.
The concession agreement was signed on August 30, 2013 and collection is expected to begin in the spring of 2014. Expected results include:
- Over 350,000 residents, one-third of whom live in low-income areas of Berhampur, will benefit from daily door-to-door waste pickup services without increasing costs to the municipality.
- Environmental and health risks for the city’s residents will be reduced.
- The private operator will construct and manage a composting facility with a capacity of 150 tonnes per day.
- The project will attract total private sector investments of $10.3 million.
- There is high potential for replication in other Indian municipalities; bid documents developed under this project are being used for two other projects in Odisha.
“The citizens of Berhampur are eager to have a clean and hygienic city,” says Berhampur’s Mayor, K. Madhabi. “We are committed to efficient delivery of basic public services in our city. This PPP model is the most affordable solution to deliver our vision for a cleaner Berhampur.”