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Indian Institute of Management Calcutta,India

Participants:

Soubhik Chatterjee

David Touthang

Brij Bhushan Garg

Joyjit Gorain

Madhur Agarwal

BRINGING WATER TO THE

BOTTOM OF THE PYRAMID

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CONTENTS

EXISTING PRACTICES

KEY PROBLEM AREAS

WHAT SHOULD A SUSTAINABLE BUSINESSMODEL ADDRESS?

OUR PROPOSED BUSINESS MODEL:OVERVIEW

ANALYZING KEY COMPONENTS OF OURBUSINESS MODEL & ASSESSING

SUSTAINABILITY

PHASED IMPLEMENTATION THROUGH APILOT PROJECT AND ESTIMATED TIMELINE

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Reducedemand

1

3Off-shoring and

outsourcing

Leanoptimization

4

5

Enable IT

6Optimize

organizationalstructure and

governance

Consolidate andcentralizesupportservices

2

7Developcapabilities

and mindsets

Reducedemand

1

Consolidate andcentralizesupportservices

2

3Off-shoring and

outsourcing

Leanoptimization

4

5

Enable IT

6Optimize

organizationalstructure and

governance

Bottled water companies currentlydistribute water @ Rs. 12 per litre

BottledWater

1 The municipal currentlyprovides water at

economic rates High cost of extension

of in-home pipes makes itan unsustainable model

Current single water pipescreate congestion in water

sharing

CorporationSupply

2

Largely depends on thefactor that slum dwellerscollect dirty and non-drinkable waters fromother easy sources

Provides point-of-usetreatments to that lowquality water collected byvillagers themselves

A dependant model andhence unsustainable

3Point-of-use

watertreatment

Essentially provides free water if stored in aninformal way

Difficulty in formalizing the model owing tostorage & distribution issues

Rainwaterharvesting

4

5

WaterMafia

A class of merchants buywater from the corporationor other sources in bulk

Subsequently they sell it toinconvenienced slumdwellers at high premium

Too small a source tohandle community baseddemand

Lack of effort to scale upbore wells or increase thenumbers

Pond water is unhygienic 6

Bore wells &ponds

Existing Methods Unsustainable for All Stakeholders Financially & InfrastructureWise

The good (but insufficient) and bad ways of current water infrastructure in slums

Credits extended toentrepreneurs and smallorganizations to build

infrastructure or directlydistribute

Unsustainable due toinsufficient demandgeneration and lack oflater stage funding

7Private credit

model

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CONTENTS

EXISTING PRACTICES

KEY PROBLEM AREAS

WHAT SHOULD A SUSTAINABLE BUSINESSMODEL ADDRESS?

OUR PROPOSED BUSINESS MODEL:OVERVIEW

ANALYZING KEY COMPONENTS OF OURBUSINESS MODEL & ASSESSING

SUSTAINABILITY

PHASED IMPLEMENTATION THROUGH APILOT PROJECT AND ESTIMATED TIMELINE

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Quantity of water

Numbers speak for themselves. The problem is grave and escalating!!! (1/2)

Quantity

Water per capita per day(in litres)

30

50

BOPconsumpti

on

WHOstandar

ds

Quantity of water

On an average, 30% of the citypopulation are currently without access

to in-home piped water

About 60% do not have access to homesanitation; lack of water being a principalreason

Only 30% of slum population managewater from community taps, the restmanages it from other sources

Rural population manages water fromunsafe bore-wells and unprotectedponds/lakes which run the risk of getting

dried in extreme summers Many slum dwellers have to walk for

hours to collect and bring back drinkingwater to their homes.

Deep wells in villages provide

intermittent supply as the depth of wateris erratic in maintaining the right levels

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MANAGEMENT

Population densitymakes it difficult toefficiently distributewater to all households

Cost recoverypractices are poor

Significant percentageof water theft andpilferage happens

Presence of illegal

water middle-men whoposes a competitivethreat to any existingmodel

Difficult to switch ruralconsumption patterns

and generateconsumer base

ACCESS

In most slums, onlyabout 5 hours ofwater services isprovided per day

Hence women &children who line upare forced to wait inlong queues

Results in loss ofwork time for

women andeducation forchildren

Villages do notsuffer from suchaccess problems,

but face crisis duringsummers

QUALITY

About 13% of slumtaps are probablycontaminated withdisease vectors like

viruses and bacteria Every year, water

borne diseasecauses 6,300,000cases of illnesswhich leads to 5,600

deaths Slum dwellers

manage otheractivities with highlypolluted water

Rural ponds/lakes

are unprotected,tube-well water is

Issues with the existing model of water supply are large difficult to ignore (2/2)

Quality, Access & Management

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CONTENTS

EXISTING PRACTICES

KEY PROBLEM AREAS

WHAT SHOULD A SUSTAINABLE BUSINESSMODEL ADDRESS?

OUR PROPOSED BUSINESS MODEL:OVERVIEW

ANALYZING KEY COMPONENTS OF OURBUSINESS MODEL & ASSESSING

SUSTAINABILITY

PHASED IMPLEMENTATION THROUGH APILOT PROJECT AND ESTIMATED TIMELINE

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Help address the lost opportunity

cost due to large wait times for waterin urban slums Avg. of 5 Hrs. lost daily,

equivalent to an earningopportunity of ~INR 100/- forurban women

Childrens education suffersdue to such large wait times

Replace illegal water supply methods (e.g. water mafia)at high premium Replace the currently unhygienic

water collected from differentsources

Urban slums are largely unstructured

and unplanned in nature makingdistribution of water a complex task- A proposed model should

therefore look for an optimalstrategy that would help addressthe large wait time issuesat minimal cost for the business

Focus should be on door-to-door

water distribution as that would helpaddress thewait time issues the best

Door-to-door distribution shouldhowever at minimal cost for the serviceprovider

Extending pipelines not a solution

as that would involve large capitalcosts and recurring maintenance costs

Appropriate division of labour toseparate water harvest fromtransportation to households as thatwould increase stakeholder interests

The water should come at anoptimal price for the slum dwellerscompared to existing water facilities

A systematic collection method

from slum dwellers so as to avoiddefault risk for the business

An established cycle of cash-flowgeneration from consumers as wellas other financing methods toenable scaled up solutions andfurther investments

Bridge theDemandVs SupplyGap &othersocialissues

The rightdistributionmethodology

A feasibleinfrastructurebacked withfeasiblefinancingsolutions

The rightpricing and

asustainablecostrecoverymethod

A sustainable and acceptable solution would be the one that addresses thefollowing social, moral and business obligations

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CONTENTS

EXISTING PRACTICES

KEY PROBLEM AREAS

WHAT SHOULD A SUSTAINABLE BUSINESSMODEL ADDRESS?

OUR PROPOSED BUSINESS MODEL:OVERVIEW

ANALYZING KEY COMPONENTS OF OURBUSINESS MODEL & ASSESSING

SUSTAINABILITY

PHASED IMPLEMENTATION THROUGH APILOT PROJECT AND ESTIMATED TIMELINE

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Source andPurification are

not thebottlenecks.

Focus ondistribution,

market creationand financing.

Summarizing the 5 implementation parameters of our proposed business modelDistribution being the key value addition towards a sustainable business model

Source Primary sources of water rain, ground, and lakes

Not a big bottleneck in our proposed model Sources might be altered based on seasonalavailability or on hydro -geographic nature of the landand meteorological patterns (e.g. Desert regions maynot always have rain water)Purification

One time investment in infrastructure to purifywater to be supplied to cluster of slums; Technology

available readilyDistributionDoor-to-door supply in bottles of 20 litresEnsure optimal supply to reduce reversal costCentral to local distribution agency to consumersmodelMarket & Pricing

To be priced at 50 paisa per litre and made availablein 20 lt bottles

Demand Pull system: Water Card (Kanban) system Incremental charges to ensure consistent usage &demandFinancing

Initial financing through USD 1 Bn from Water.orgRevenue generated from consumers to fundsubsequent growth via revenue bonds

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Distribution

Market

Involving local entrepreneurs in the distribution via aFRANCHISE model

Distributor would transport 20 L can of purified water to theconsumers door

Distributor trucks will follow planned travel routes tomaximize distribution system potential

Water to be priced at 50 paisa per liter Incremental charges for consumption above the pre-fixed

benchmark to ensure judicious use of water; Water Cards tobe issued to the consumers to guarantee the same

Demand Pull system: Each family to be given a fixed numberof 20 L cans (say 2). As and when a can empties out, it canbe exchanged with a filled one from the distributor truck

Distribution, Market and Financing

Financing

Water.ORG to issue REVENUE BONDS; revenues collectedfrom distributor to used to service the intersect payments ofthe bonds; Methodology used by Municipal Corporations

Revenue bonds can be swapped with LIBOR bonds toincrease liquidity

Principal from the bonds used to SCALE UP the modelScalability via replicability

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Summarizing the overall flow of our model: distribution is the focus again

WaterCollection

Purificationand Bottlingat the central

location

Distributionby local

entrepreneur

Door-to-Doordelivery toconsumers

Flow of water

Flow of money

A Pilot effort will help get a better understanding of our

model!

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Location: Slum in MumbaiTarget population: 10, 000

Source Mapping: Since the area receives plentiful rainfalland possess a already depleted ground water reservoir,choice of source: RAINWATER

Purification: Rainwater needs to be purified;Initial investment (Bottling machine, Rain water harvesting,

Purifying machine; ~5 year life): 1 Million USD

Distribution System: 300 Thousand liters of water to besupplied every day; ~24 Trucks needed

Suggested pricing: Rs. 0.50 / litre = 33 cents / dayNet Revenue generated (considering distribution costs,

private player margin, initial fixed costs, operation andmaintenance costs):~ 0.5 million USD / year (for thoseinterested: computation in the last slide)

Financing: If used to service interest of the revenue bonds,can generate 10 million USD (5% coupon rate) which willfund 10 more such projects

Results: RoI of ~ 52%

Pilot effort: Get a better feel for our model

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CONTENTS

EXISTING METHODS & Its FALLACIES

KEY PROBLEM AREAS

WHAT SHOULD A SUSTAINABLE BUSINESSMODEL ADDRESS?

OUR PROPOSED BUSINESS MODEL:OVERVIEW

ANALYZING KEY COMPONENTS OF OURBUSINESS MODEL & ASSESSING

SUSTAINABILITY

PHASED IMPLEMENTATION THROUGH APILOT PROJECT AND ESTIMATED TIMELINE

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Analyzing the key steps of the model

Source mapping/ Infrastructure

Map source of water by conducting a hydro-geological and meteorologicalstudy of the target area

Government support: Leasing land to install the purification and bottlingmachines

Distribution /Market

Appoint local entrepreneur as distributor Distribution of bottles from central location to slum centers in trucks Water Card system and incremental pricing to ensure judicious use of

water Revenue collection by the distributor

Financing

Leverage financial markets; Water.ORG to issue revenue bonds

Revenues collected from the distributor to be utilized to service interestpayments of Revenue Bonds

Revenue bonds can be swapped with LIBOR bonds to increase liquidity Principal of the bonds to use to replicate the model in other cities

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Consumers

Get access to cleanwater at their doorstep

Pay for 20 L cans ofwater

Incremental chargesto ensure judicioususe

Water Card systemto monitor the

consumers

Distributor

Collect 20 L cansfrom the centralfacility

Supply the cansdoor to door

Collect money fromthe consumers

Assured returnsCommodity swapswith Water.org Fund

Water.org

Commodity swaps:Embracing the risksassociated withrevenue collection

Revenue bonds: Getmore money in thesystems

Revenue bondswaps with LIBORbonds to increase

liquidity Principal used by

Water.org toreplicate the modelin other cities

STAKEHOLDERS How do they interact with the system?

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CONTENTS

EXISTING METHODS & Its FALLACIES

KEY PROBLEM AREAS

WHAT SHOULD A SUSTAINABLE BUSINESSMODEL ADDRESS?

OUR PROPOSED BUSINESS MODEL:OVERVIEW

ANALYZING KEY COMPONENTS OF OURBUSINESS MODEL & ASSESSING

SUSTAINABILITY

PHASED IMPLEMENTATION THROUGH APILOT PROJECT AND ESTIMATED TIMELINE

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Secure finances frommarket

Secure land with ahigh water table and

in proximity to apotential customerbase

Purchasemachinery/buildstorage tanks atminimal cost (get

Govt. Help ifnecessary)

Create a demand pull withlocal consumer base byadvertising on abundant butcheap water

Work on word-of-mouthpublicity about easy water

Once the first wave of wateris harvested, transfer it tolocal distribution centresthrough trucks

Involve local communitybased youth to increasedirect participation andpromote sale

Stress on cleanliness andeasy availability as the main

Identify city basedconsumer base and alsoclusters of villages with

pure water demand Distribution has to beexpanded from just bottlebased sale to pipeextended householdfacilities

Arrange for local agenciesfor handling water

distribution and sale

Transformation journey

Initial considerations

(start-up)

Revenue in the short span(

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SOURCE

4321

Month 1

Week

Plant set-up

-permits

-land acquisition

Negotiations

-project planning

-water analysis

-source mapping- need analysis

BackgroundResearch

Today

Month 2 Month 3 Month 4 Month 5 Month 6

Recruitment

Distribution set-up

Marketing

Test run

4321 4321 4321 4321 1 2 3 4

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COST Breaking down the overhead components

62.6

12.949.7

4.7 43.2

11.4

23.4

Assumptions (ifany):-

XYZ

Fixed cost (pro-rated per year) + Operational cost

( in $ 000)

NetInvest-ment

Infra-structure

Oper-ationalCost

Extract-ion

Sto-rage

OtherOperat-Ional cost

Interestpayment

Puri-fication

Trans-portation

Localdistribut-ion

Other