Salt Lake Water Supply and Sewerage Network

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Construction Cost Risk: The project was first estimated to be Rs. 62.2 Cr. But due to additional stations the capital was increased to Rs. 70.09 Cr. which was high for the private developer and they have chance to go into cost over runs. This was mitigated by funding 35% of them by government under JNNURM scheme. As the total cost over runs are only on private developer they need to mitigate this risk by keeping hedge amount regarding to any raise in the project.

Revenue Risk: KMD and NDITA played a critical role in revenue risk by providing concessions to developer to arrive at a satisfied rational water cum sewerage charges and one-time fee to develop the project. This is the better managed risk by even knowing the concern of both the IT companies and the private developer.

Operation Risk: They can have a contract with the NDITA if any discrepancies in the supply of treated water required, the risk should be shared by both the parties.

Financial Risk: In this project due to increase in the estimated capital cost the government funded 35% of the project under JNNURM scheme. If there is any change in the capital cost, then they can change either charging fee or concession period to mitigate the risk.

Force Majeure: In case of any circumstances that prevent the private developer in completing the project, government should give extensions and continue to make reimbursements to the private developer.

Likelihood / Impact

Low

High

High

Financial Risk, Revenue Risk, Construction Cost Risk (Hedge)

Design Risk, Operational Risk (professional risk mitigation)

Low

Delay in obtaining permits

(retained by SPV)

Land Acquisition

(allocation through contracts)

Critique on Actual Risk Mitigation Plan

The management of the revenue risk is the best way they mitigated by providing the rational water and sewerage charges which is agreed by both IT services and the private developer. In any project feasibility study is important but in this they didn’t take measures to do this.

Due to the delay in the land acquisition by government in providing free land, the project got delayed by 6 months. This was the only risk they faced during the project and for all other private developer got full support from the government for smooth operations. The co-operation is from funding the project to allocating the fee.

Conclusion

This project made to understand how a project is being undertaken by a private developer and risks and mitigation plans involved in the pre and post implementation of the project. It also helped in understanding BOT structure. Key learnings are in any project the first level of assessment should be the feasibility study and the government has to give full cooperation to the project developer in all the aspects for the smooth implementation of the project.