IL&FS has sought from Atlantis a $25 million facility in equity funding of the project which is being implemented by Tamil Nadu government through the special purpose vehicle New Tirupur Area Development Corporation Ltd (NTADCL). It is one of its kind and the first water supply project to be taken up by the private sector in Asia.

Besides Atlantis, IL&FS is also talking to other US funds like Poseidon Environment Fund and Aqua Water Fund. A top source said the Tirupur water supply scheme which aims to supply 185 million litres of water per day has already got a floating rate bond for $25 million dollars from Financial Institute Reformed Experiment of US and another $25 million from part of the World Bank line of credit to IL&FS.

Debt-equity ratiofor the project is placed at 2.2:1 and the cost of the project is estimated at Rs 1,200 crore, debt being Rs 850 crore and equity Rs 350 crore. For the debt portion IL&FS is also talking to several local banks and FIs including SBI, Canara Bank, Sidbi, IDFC, IDBI and UTI. NTADCL has recently made a presentation to these financing institutions and is hoping to get long tenor debt.

The lenders will have a charge on contracting, receivables, assets and residuary issues as also charge on custom documents. This facility is being extended to provide a good comfort level to lenders who have also been promised escrow on some receivables from bulk water sale by the Tirupur municipality.

Lenders escrow cover will be faciliated by a three-month security deposit from industries and one-month security deposit from the municipality. They will be assured monthly payment this way. Of the gross 185 million litres per day (mld) of water supply, net water supply is estimated to be 175 mld of which 18 mld will be accountedfor by wayside services, Tirupur local planning area (18 mld), Tirupur municipality for domestic consumption (25 mld), Tirupur municipality industrial use (22 mld) and Tirupur local planning area for industrial use (100 mld).

The source said the project is being executed by negotiating with the Bechtel-Mahindra consortium following strict parameters like fixed prices, lumpsum deliveries, timely supplies and turnkey contracts for the project. A 30-year concession for the project from Tirupur municipality and Tamil Nadu government is in place. While the permission to abstract water from the Cauvery river basin has been taken from the GoTN, NTADCL has signed a pact with Tirupur municipality to sell bulk water.

A special feature of the NTADCL negotiations with the EPC contractor Bechtel-Mahindra consoritum is to link the water costs to a basket of indices like power and consumables like chemicals. The licencee will get an operators fee.

Prices negotiated are in two parts. First price will be valid for oneyear and will have an assured post-tax rate of return of 20 per cent. The asking price is Rs 5 per 1000 litres per day for domestic supplies and Rs 40 per 1,000 litres for supplies to industry. Later, it will be linked to an all inclusive price which will be on fixed, lumpsum and turnkey basis.

The current price for water supplies in tankers is Rs 30-35 per 1,000 litres and NTADCL has factored in an inflation component of 6 per cent to 8 per cent in the negotiated price with the Bechtel-Mahindra consortium.

The Tirupur water supply project is to head for financial closure by March as NTADCL is hopeful of tieing up all debt component and equity funding by February of next year. It will also sign an agreement with Bechtel-Mahindra consortium by Decmber, it is said.

One promising feature of the water supply project is that NTADCL estimates that Tirupur municipality will generate a revenue of Rs 80- Rs 100 crore from bulk water sales in the first year which will provide an adequate level of comfort tolenders. But in five-six years NTADCL may well be required to go to the government for further allocations as it cannot see itself servicing industrial consumption beyond 100 mld if demand grows.