Edelweiss: Every drop counts
July 10, 2008 · Print This Article · Email It
As water has become scarce, agricultural, industrial, and domestic demand is competing more for a limited supply. The agriculture sector continues to dominate water use owing to its importance in the Indian economy, while industrial demands are increasing as the sector continues to grow.
Data on industrial water usage varies significantly amongst various sources. According to MoWR, industrial water use in India stands at about 40 bcm in 1999. Whereas according to the Central Pollution Control Board (CPCB), in 2000, Indian industry consumed about 10 bcm of water as process water and 30 bcm as cooling water. According to the World Bank, the water demand for industrial use and energy production will grow at 4.2% per year, rising from 67 bcm in 1995 to 228 bcm in 2025E. There have been cases in the past where industries had to be shut down due to shortage of water. Some cases are illustrated below:
In a study undertaken by the Confederation of Indian Industry and the World Bank in 2003, to find out what constituted good investment climate in various parts of India, it was found that water availability is one of the major infrastructural bottlenecks companies in Tamil Nadu face. The study covered 1,099 manufacturing companies in four sectors—textiles, garments, consumer electronics, and pharmaceuticals— in 10 states and listed water as one of the major bottlenecks for future industrial growth in the country.
In 2002, companies like Harihar Polyfibres (Karnataka) and the Indian Rayon plant (Nagda) shut shop for a few day due to non-availability of water.
Investment opportunities in water Given the above facts, we believe, opportunities exist in various verticals of the water sector. We have identified the following verticals: Most of the activity in the water sector is happening in verticals of water infrastructure and water supply augmentation. The concept of private water utilities is still at nascent experimental stages in India. Demand management is likely to be taken up in the later stage of the water investment cycle as higher efficiencies can be obtained from upgradation in water infrastructure, while water supply augmentation can vastly increase the quantum of water supply. We look at the opportunities in the context of the issues dodging various end user sectors in the water industry.
Opportunities in urban/ domestic water demand The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) launched in December 2005 is an attempt towards addressing the institutional shortcomings afflicting urban planning and infrastructure. We believe, JNNURM is likely to catalyze reforms and hence, further investments in the urban water supply sector over the long term. In the following paragraphs we look at the opportunities that are likely to be thrown up if JNNURM is successful in implementing a few economically self sustainable projects in the urban water supply sector.
Jawaharlal Nehru National Urban Renewal Mission (JNNURM) It is estimated that ULBs will require total investments of ~INR 1,205 bn over 2005-12 to upgrade urban infrastructure. Of the total investment requirement, ~INR 500 bn is likely to be provided as grant by the Union government over a seven year period. However, for accessing Union government grant, ULBs are obliged to initiate a set of mandatory reforms listed under JNNURM. The total investment is proposed to be shared among the Union government, state governments, and ULBs in the ratio of 35:15:50 for Category A cities, 50:20:30 for Category B cities, and 80:10:10 for Category C cities.
As of May 2008, projects worth ~INR 285 bn were sanctioned under JNNURM. Water supply projects at ~INR 108 bn form a substantial chunk of the projects approvedWe believe, JNNURM has the potential to address the issues impacting the urban infrastructure sector. To access Union government grants, ULBs need to implement mandatory reforms from the first year of the project, while at least two optional reforms need to be undertaken each year from 2005-12.
Opportunities abound in the urban water supply sector as India takes first tentative steps towards capacity build up. A few leading contractors addressing water supply projects have emerged over the years. While there are a few leading players in the water supply EPC business, as of now, water supply EPC business forms only a small percentage of their total sales. Hence, investors are likely to end up buying a basket of business opposed to solely water supply EPC business.
Leading players in the water EPC business are likely to benefit from the impending capacity expansion in water supply and water treatment projects. However, we believe the pre qualifications criteria in the above projects is not stiff and hence, a larger universe of EPC players can participate in the water supply capacity expansion plans in the country. The water supply contractors industry can be split into three categories:
Large players : Hindustan Dorr Oliver, Ion Exchange, Thermax, Degremont. Medium sized players : Aquatech, Fontus Water. Smaller unorganized players: Over 500. Additionally, in the past few years, many large international players like Veolia Water, etc., have entered the market.
Opportunities in irrigation water demandIrrigation capacity expansion involves investments in the field of water transmission and distribution and water storage. The water transmission and distribution market is by and large dominated by EPC players. Due to low entry barriers the industry has the characteristic of being extremely fragmented and local in nature. Further, weak fundamentals and poor record in implementing projects of government department addressing irrigation across the state and central levels have been a barrier to entry of larger organized players. However, large organized players are present in the water storage market. Some key players addressing opportunities in this segment are:
Opportunities in industrial water demand Water treatment and recycling According to the Central Pollution Control Board (CPCB), the total waste water discharged by all major industrial sources is 83,048 mn litres per day (mld). As per CPCB, only ~21% of the total waste water generated is treated. While the waste water generated per capita has increased over the years, the water treatment capacity has not kept pace. Consequently, the amount of untreated water has been on the rise over the years, which presents an immense opportunity for the water treatment market. Also, the industrial waste water treatment market is expected to grow further on account of growing investments in the high water polluting sectors such as chemicals and petrochemicals, metal processing, power and food processing.
Apart from the above, water is also treated to make it useable for equipment such as boilers, cooling water systems, and heat exchangers. The purpose of the treatment is to minimize the adverse effect of impurities in the feed water. Over a period of time, the quality of water available for the industry has deteriorated which has led to an increasing demand for treatment facilities. A United Nations report in its World Water Forum at Kyoto (Japan) in March 2003 ranked India third from the bottom (out of 170 countries surveyed) in terms of water quality for its inability and lack of commitment to improve the situation.
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