THE JOHNS HOPKINS UNIVERSITY

PAUL H. NITZE SCHOOL OF ADVANCED INTERNATIONAL STUDIES

Improving Service Delivery in Developing Countries

Professor Tanvi Nagpal

Bellandur Lake Development:

A Critical Water Asset Management Project

Fall 2015

Final Paper

By Christine Kng Yu Ling

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Contents

1. Project Background 3

1.1. Background and justification 3

1.2. Contribution to Bangalore’s development plan 4

1.3. Linked projects (other national and international initiatives) 5

2. Project Objective 8

3. Project Components 9

4. Budget 12

4.1. Sources of funds 12

4.2. Mitigated costs 13

5. Implementation Schedule 14

Project Budget – Detailed 15

Appendices 22

Bibliography 25

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1. Project Background

1.1 Background and justification

Bellandur Lake is one of Bangalore City’s most important lakes. It is the largest lake in East

Bangalore, at 892 acres, and it has a catchment area of about 37,000 acres. The population in the lake

catchment area was one-third of Bangalore’s population in 2001. The lake’s watershed is a critical

component of the city’s southern and southeastern storm drainage system, as a receptor from three chains

of lakes upstream.

As such, Bellandur Lake is also subjected

to an overwhelming proportion of the domestic and

industrial sewage generated in Bangalore. Studies

show a high amount of fecal coliform present, and

much of the lake has been filled by excessive

sediments and sewage. A large portion of the lake

is weed-covered, and the water is dark, opaque and

emits a foul odor. The chemical pollution of the

lake is also severe - downstream of the lake, toxic,

flammable foam is generated which is lifted by the

wind and carried into the city every time it rains. The toxic foam “carries a stench so strong that it burns

the nose”, and causes an itchy rash “if it comes into contact with your skin”. The lake is a large hazard to

nearby residential health, and there has recently been a revival of strong political discontent with the

situation.

There are three sewage treatment plants that serve the lake, but all are considered to be

malfunctioning or significantly lower in capacity than required. In 1996, the sewage treatment of the lake

was upgraded after a filed lawsuit. Other lawsuits filed in subsequent years (1997, 1999, 2006) resulted in

no action. Even in 2015, the upgraded sewage plant is suspected to release much of the sewage into the

water with no or insufficient treatment. In 2012, BWSSB was gearing up to build a 90MLD sewage

treatment plant, which aimed to “stop channeling sewage water to Bellandur Lake, which will in turn

preserve the lake”. However, the site of this plant is actually downstream from the lake, and it is the

downstream flow from the lake that will be treated at this plant.

No government or private resources are currently diverted to clean up the lake. Stop-gap

measures for some of the most obvious evidences of pollution are in place, such as sprinklers being used

Figure 1 Outflow of Bellandur Lake contains flying toxic foam

that presents a health hazard to passersby and nearby

residents

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to subside the toxic foam, and installations of mesh to stop the foam from flying – especially during rain

when the foam flies into the streets. However, the lake continues to be seriously polluted.

From the perspective of private interest in the area’s development, this has adversely affected

property values nearby. The lake is located in between the city center and the new technology driven

business districts of Whitefield and Electronics City, and its location should be a highly attractive location

for residential and commercial development. However, potential buyers worry about the smell, water

clogging, cancellations of projects because of fickle government policy, and most of all, the long-term

value of the place. As a result, the entire area has “capital values more ‘affordable’ compared to other

upmarket neighborhoods”. For example, a large new clubhouse with adjoining apartments in Bangalore,

Embassy Pristine, has LEED Gold certification and aims for high-end, international clients. The thrust of

its advertising is in its lakefront view. However, comments about this property have all raised the

uncertainty that the polluted lake poses to the property value. (See Appendix 1)

1.2 Contribution to Bangalore’s development plan

Bangalore aims to be a Garden City and “the Singapore of India”, with a living environment more

moderate than other major Indian cities. It is known as the Silicon Valley of India, and attracts IT

companies within India and internationally,

which is a large driver of its growth.

However, the population growth in

Bangalore has significant downsides for its

water resource management. Since 1970,

Bangalore has grown by 632%, and during this

period the metropolitan area lost almost 80% of

its water bodies through groundwater extraction

or reclamation of water bodies for land uses.

Once known as “the land of a thousand lakes”, it

is now known as “a land of sewage tanks” –

only 200 of its original lakes remain, and at least

60% of the remaining lakes are partially fed by

sewage – Bellandur Lake being a classic

example. The raw sewage entering the lakes

directly contaminates the groundwater below, and also easily leaks into the aged piping infrastructure and

percolates into borewells.

Figure 2 Disappeared historic lakes in Bangalore

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Bangalore’s other water resources are also increasingly limited, and the loss of clean water

sources is a serious issue for Bangalore. In 2013, V. Balasubramanian, the former Additional Chief

Secretary of Karnataka and Chairman of the Centre for Policies and Practices conducted an elaborate

study of the water situation in Bangalore, finally concluding that "The Government of Karnataka will

have to evacuate half of Bangalore in the next ten years, due to water scarcity, contamination of water and

diseases." The situation is further exacerbated by the significant depletion in the groundwater level due to

little to no regulation in groundwater extraction, and the drying up of rivers closer to Bangalore. These

two developments have also been an increased drain on the Bangalore government’s fiscal resources, as it

has to pay significantly more for groundwater extraction as the level falls, and significantly more for river

diversion as the water has to be extracted from a further distance.

Other risks which may threaten water security are weak monsoons, which will necessitate greater

withdrawals. Also, inter-state tensions between Karnataka and Tamil Nadu regarding withdrawals of

water from the Cauvery River greatly affect water security risks.

As such, the Bangalore government is increasingly focusing on these issues, despite the prior lack

of coordinated critical action on their part. We anticipate that the government will be eager to find

solutions to these issues which are fiscally manageable, because of the political and physical urgency of

these issues. The scarce and polluted water supply has also affected Bangalore’s ability to position itself

as a global city, and the degrading physical and environmental quality affects the residents of Bangalore.

We see a high likelihood of the Bangalore government being convinced of novel solutions to these

intractable problems.

The Bellandur Lake project can be of strategic importance to the government on several levels:

1. Public opinion of Bellandur lake’s severe pollution. First, the lake is often raised as a key polluted

lake in Bangalore in reports by NGOs and academic studies. The severe and obvious pollution of

the lake, and the related health impacts on neighboring areas, has received in-depth coverage in

newspaper and academic reports. Public opinion of Bellandur lake is extremely negative, and the

responsibility is placed directly on the government’s inability and reluctance to clean up the lake.

2. Lack of prior action on Bellandur lake. Unlike other lakes, the government has not made any

significant attempts to deal with the pollution in Bellandur lake. In this case, the government has a

clean slate to work with. Other lakes (discussed later) have had greater negative opinions, after

lakes that were successfully cleaned up were once again polluted because of a lack of maintenance.

3. Asset importance of Bellandur lake. Lakes are a critical internal water resource for Bangalore, and

are closely tied to Bangalore’s groundwater resources. The gross negligence of lake maintenance

has resulted in the disappearance most of Bangalore’s natural clean water resources, and Bangalore

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has had to draw water from rivers that are not solely under its jurisdiction. Bellandur lake is a large

water asset, and a successful cleanup will be transformative to the nearby areas and also contribute

to Bangalore’s overall water supply.

4. Key example of lake asset management. The transformation of one lake is insufficient to change

the downward trend of Bangalore’s water problems. However, this model can serve as a successful

model for other lakes’ rehabilitations. This is especially important because under the Lake

Development Authority (LDA), other lakes have been placed under a PPP scheme for “asset

management”, which resulted in privatization and exclusion of the poor. This model can provide a

key example of responsible, effective and inclusive asset management by the public and private

sector, which provides a sustainable solution to a public environmental problem.

1.3 Linked projects (other national and international initiatives)

Rehabilitation attempts for the lakes were placed under many different authorities, compromising

the effective management of the lakes. (See Appendix 2 for the diverse actors in lake jurisdictions) Different

authorities (BBMP – ruling party, BDA – development authority, LDA – lake development authority) are

in charge of different lakes in the metropolitan area, and other authorities are also involved in the

management of the lake (BWSSB – municipal water and sewage). Responsibilities ranged from simple

cleanup to structuring public-private partnerships (PPPs) for lake management.

Lake Development Authority’s (LDA) PPP Projects

The LDA was created in 2002 as an overall coordinating body to regenerate and preserve the

lakes, and was given jurisdiction of 3 lakes. It set up several PPPs, where the private partners were to

operate on a 15-year lease to develop, beautify and maintain the lakes. Private parties also committed to

drain and dredge the lakes regularly, and to build water treatment plants to clean lake water and release it

back to the lakes. It was planning for 30 lakes to eventually be involved in the scheme.

Lakes were leased out in 2004, 2006 and 2007, and projects included tourist spots and

entertainment facilities such as artificial beaches, eco-friendly water sports, luxury hotels, and floating

restaurants. However, the private partners used physical barriers such as barbed wire and walls, and entry

fees, to restrict entrance to the now commercial and tourist-purposed lakes.

There was severe criticism of the privatization by the public. The current PPP schemes by the

LDA are deeply unpopular in Bangalore and evidently unsuitable. The Karnataka government concurs

with this, halting the intended 30 projects. To date, 3 or 4 lakes (of the intended 30) have been leased out.

While the LDA justified this choice by the lack of financial and human resources to pay for and

maintain the quality of the lakes, the PPPs were lacking in their structure and included-elements. LDA

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was given ownership and management authority of the lake itself, but not the area surrounding the lakes,

which is managed by other administrative entities. This has two problematic consequences for the private

partner. First, the positive benefit of cleaning the lake is not recuperated by the private partner in terms of

real estate or land prices. Secondly, the pollution caused by those who live or have industry near the lake

is not under their control, and they have to clean up the pollution in the lakes instead of being able to

prevent the cause.

This results in the private partners having to resort to exclusionary practices in order to recover

cost, such as charging for admission, and creating a luxury resort that restricts the lake to high-end uses.

While a cleaned lake itself has positive externalities, the inability of the private partners to share in these

benefits leaves them no choice but to turn the lake into a private good.

One of the main critiques of LDA’s PPPs is that the regular users of the lakes lost their right to

use the common resource. This affected many of the lower-income, who either used the lake and its

resources to make a living, or those who used the lake to wash, or even those who would regularly

perform religious ceremonies in the lakes and could no longer do so without pay.

Yet PPPs have to be included in the solution toolbox, because the financing of these projects

cannot be fully supported by the Bangalore nor the Karnataka government despite the urgent need to

rehabilitate the lakes.

BBMP’s Rehabilitation of Sankey Tank

Sankey Tank covers 37.5 acres in West Bangalore, and it is located in the middle of the suburbs

of Malleshwaram, Vyalikaval and Sadashiva Nagar, and accessible by bus transit (not metro). In 2000 it

was developed into a park under a BBMP initiative, in collaboration with the BWSSB and the Sankey

Park Walker’s Association. It is now also partially under the care of the state forest department.

The park was cleaned up, restored, and the

surroundings were available to the public as open space. It

was seen as generally well maintained, with local amenities

such as a system of paved and landscaped walkways with

shelters and seating areas, a restored island, a rebuilt boat

jetty, as well as a play area, sport fields and a restored

swimming pool. There was even a recent renovation by the

Karnataka state tourism development corporation to maintain

the “Mayura Sankey Boat Club” – to offer pedal boats, row

boats and motor boats for rent. Figure 3 Algae growth at a testing site in

Sankey Tank

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When the reservoir was transformed into a park in 2000, the drainage of industrial effluent and

domestic sewage into the lake ceased. In 2004, there was a “recommendation” released that no new

construction take place close to the lake’s edge.

However, now, in 2015, the lake is once again contaminated by sewage, causing the growth of

algae and threatening plant and animal/aquatic life. Outflows are blocked which reduces the water body’s

self-cleaning ability, and the tank is often a stagnant water body. The buffer zone of 30m around the lake

is being violated, and sewage enters from at least seven points connected to the storm water drains.

Despite the cleanup and the public use of the lake as a recreational facility, the lack of

maintenance by a responsible stakeholder who stands to benefit directly makes it difficult for the lake to

remain clean. Because of the wider sanitation and sewer problems in Bangalore, a lake can only remain

clean if it has a self-contained zone and responsible stakeholders whose benefit from the cleaned lake is

worth the cost of maintenance. The sustained effort that goes into lake maintenance takes significant work

and allocated funding (See Appendix 3).

2. Project Objective

The project is proposed by an independent consultant to a private developer who wants to engage

in an innovative public-private partnership (PPP) with the Bangalore government.

The goal of the project for the developer is to revitalize the lake in a financially profitable way,

while also ensuring the long-term sustainability and results of the project. The bulk of the project costs

will be the private developer’s investment. The main investment strategy is to capture the shared benefit

outcomes from the revitalization of Bellandur Lake, using innovative financing tools such as business

improvement district taxes and option sales. The development of the area as a result of having a clean and

beautiful lake will result in greater asset value in the surrounding neighborhoods for businesses and

residential property. A private waterfront development will also greatly incentivize the developer to keep

the lake clean, as the value of the waterfront is highly tied to the quality of the lake.

The project will involve the government’s contribution for fiscal and non-fiscal elements. Fiscal

responsibilities for the project include contributing funds for lake rejuvenation (already allocated in other

years) as well as allocating land parcels to the developer. Non-fiscal elements include pressing stronger

regulations for lake pollution, including fines, and also working out the regulatory implications of

transforming the area into a business improvement district and collecting associated taxes.

Government goals involve deriving a long-term and sustainable solution for the maintenance of

Bellandur Lake as a reservoir and water source. The key to the long-term sustainability of the cleanup lies

in the allocation of risks to those who are best able to handle them, and the allocation of reward (financial

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reward, political support) to those who have the power to make the outcome happen. If successful, the

rehabilitated lake will be transformed from a large public liability into a public asset, and also generate

positive externalities such as clean water for the nearby community, mitigated public health costs, and a

lowered risk of water scarcity to the region.

3. Project Components

The PPP will require the allocation of responsibilities and risks to different stakeholders who can

best manage them.

The government stakeholders involved in the management of Bellandur lake tends to complicate

ownership of the problem, similar to many other lakes in Bangalore. BWSSB has publically

acknowledged that it allows sewage water to be dumped into Bellandur Lake. Although the High Court

instructed BWSSB not to do so, but BWSSB “feels that it is BDA who is supposed to give the report on

the action plan to save Bellandur Lake as they had taken up the lake for conservation in 2011.” However,

the BDA is not willing to take up restoration work until and unless BWSSB “ensures that sewage water

will not enter the lake”. Other agencies are also directly and indirectly implicated – BBMP for stormwater

drainage and the revenue department for catchment areas and encroachment.

As such, many of the project components will be carried out from the construction to the

maintenance phases by the developer, and the developer will also recover a significant portion of the reward

from this investment. The next section, the budget, will detail of the innovative financing mechanisms

needed to fund this project, as well as for the developer to gain returns.

Project components Rationale Funding

responsibility

Risks/

Assumptions

Risk mitigation

Initial

cleanup

Simple

bioremediation

cleanup of water

Organic pollution

mainly caused by

untreated

wastewater inflows

BWSSB Funding slow

or

unwillingness

to pay by

BWSSB

Ensure positive

press for BWSSB.

Closer collaboration

(co-funding) with

them on sewage

treatment plant

development and

upgrading.

Capping the bed

with a layer of

sand, sediment

and other organic

materials

Prevents pollution

that settled on lake

bottom from

polluting the water

above – cheaper

than dredging

Developer Standard

procedure

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Industrial

pollution cleanup,

installation of

onsite treating

facilities

Inorganic pollution

mainly caused by

chemical dumping

from industry

Industry Refusal to pay,

low

government

enforcement

capability/

willingness

Work with NGOs to

conduct

investigations into

sources of industrial

pollution, and

release information

about companies’

pollution to media

and advocacy

groups. Have

companies propose

a remediation plan,

incorporating both

lake cleanup and

future on-site

solutions

Mitigation

of further

pollution

Construction of

large-scale

centralized

sewage treatment

plant

(1,300,000gpd)

Main problem with

current plants is

lack of capacity. 4

out of 17 lake

inflow points carry

sewage. Water has

to be cleaned

before it enters

lake.

Developer –

through

contracting

out the

building and

operations

Developer has

the incentive to

closely

supervise

project and

ensure results

Maintenance of

plant

Lack of

maintenance often

results in lowered

capacity of plant

Developer –

through

contracting

out the

building and

operations

Developer has

the incentive to

closely

supervise

project and

ensure results

Other eco-

mitigation

Diversion of

flows by

constructing and

connecting a ditch

around the lake

Flows are diverted

to treatment plant

and in order to

capture surface

runoff

Developer

Standard

procedure.

Maintenance

and upkeep is

important and

may be

neglected

Budget maintenance

costs for the

project’s lifetime

Constructing

filters running

parallel to the

ditch

During rainstorms,

water is treated

before it enters the

lakes

Constructing tree

trenches

To capture and treat

polluted runoff

during rainstorms

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Bioswale, a layer

of grasses

alongside the lake

To slow and treat

offsite runoff

Monitoring Permanent testing

sites construction

Enables consistent

testing and quality

verification

Developer Developer has

the incentive to

closely

supervise

project and

ensure results

Hire staff to

monitor and

evaluate results

with regular

internal reports

and production of

annual reports

Enables consistent

testing and quality

verification.

Positive public

relations, increases

accountability to

public.

Hire staff for

public education

and outreach at

waterfront and

testing sites to

raise awareness of

lake maintenance

issues and needs

Positive public

relations, increases

accountability to

public.

Existing

sewage

plants

Upgrading and

increase in

capacity of 3

existing plants

Main problem with

current plants is

lack of capacity.

Upgrading of

sewage plants

reduces

overcapacity

problems and

sewage dumping.

Developer,

with

cooperation

with BWSSB

BWSSB

resistance due

to worry about

public

condemnation

of prior

inaction.

Practical

difficulties

with legality of

developer

providing

funding.

Needs-assessment

to decide if

upgrading is

needed, and to what

extent. Developer

collaborates closely

with BWSSB to

generate good

publicity.

Operations and

maintenance of

existing plants

Main problem with

current plants is

lack of capacity.

Current workers

should be able to

maintain upgraded

plant.

BWSSB, in

cooperation

with

developer

BWSSB staff

inefficient and

unable to

maintain plant

High capacity of

developer-owned

plant a workable

alternative.

Developer should

monitor, and can

potentially offer

worker training and

upgrading.

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Waterfront Construction of

waterfront for

lake with leisure

and business

spaces for lease

Important

component of

revenue for the

project. Cleanup of

lake guarantees

soaring value for

the area, and

attraction of people

and businesses to

waterfront. High

IRR (17.25%) of

overall project

solidifies incentive

for developer to

invest in lake

rehabilitation.

Developer Lake not being

cleaned up in

time or

sufficiently to

attract

investors

Engage in

simultaneous

construction of

waterfront and

sewage treatment

plant. Place both

under developer

ownership so that

developer has direct

incentive to produce

the outcome of a

clean lake.

Construction and

maintenance of

public amenities

for use around

waterfront – park,

public restrooms

Provides common

benefit for the

community,

increases

ownership of lake

as a common good.

Developer Standard

procedure

4. Budget

4.1 Sources of funds

This project is diversely structured with 6 sources of funds for the initial cleanup and construction:

Government contribution, options sales, BID taxes, industry fines for pollution, and the remainder is funded

by 32% equity and 68% debt.

Government contribution is relatively small at less than 10% of the total sources of funds required.

However, the government can contribute by mitigating many of the required costs, which are listed in

section 4.2 below. Available government (BWSSB) funding already exists for sewage treatment and

construction, and the funds contributed will be used explicitly for the simple bioremediation cleanup of

water. BWSSB has been publically seen as responsible for the sewage and wastewater pollution of

Bellandur lake, and this targeted funding will help to improve the public perception of BWSSB and will be

for its benefit.

Options sales are an innovative financing mechanism to gain access to capital before and during

the construction period, and also to take advantage of the rising value of the land nearby a clean lake as

opposed to a highly polluted lake. Options can be sold for a portion of the land in the neighborhoods

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surrounding the lake. The option will give holders of the option the right to lease the land at a certain price

from the government, so that they can rent the land at a fixed lower cost when the price rises after lake

rehabilitation. This will be 34% of the initial financing.

Business Improvement District (BID) taxes are a special tax that will be paid by the participants

in the Bellandur Lake Business Improvement District, which will be a formal organization made up of all

the property owners and commercial tenants who are situated in the area surrounding Bellandur Lake. The

participants in the BID pay a tax which is used for redevelopment of the lake, which will then raise their

property values and business prospects, allowing them to recover their investment. Typical tax rates are

based on revenue and range from 0.4 to 2%. BIDs are a standard model for lakes, parks and commercial

districts around the USA, but are a new business model in India, and will require government collaboration

in order to make this possible. BID taxes (from existing businesses) will only be 1.4% of initial financing,

but will be an increasing and steady source of revenue over the operational life of the project.

Industry fines for pollution: Industrial pollution is a significant source of pollution to the lake, and

there is a strong negative public perception of industry and a sense that they are responsible. As such, the

government may be able to legitimately make industry take half the responsibility for polluting the lake –

in this case, they pay half the cost of industrial pollution cleanup – which is 12.8% of overall funding. In

the event of their refusal to pay, pressure can be put on them by working with NGOs, advocacy groups and

the media to conduct investigations into sources of industrial pollution, and then by having targeted

companies propose the financing of a remediation plan.

Lastly, the developer’s equity will fund 13.4% of the project, and debt will fund 29% of the project.

There is a high rate of return to the project at 17.25%, due to revenues generated from the BID taxes and

the waterfront. This project is profitable and attractive to the developer, but also provides incentive to keep

the lake clean, because the value of the assets hinges on the sustained maintenance of the lake.

4.2 Mitigated costs

Land: The government has to provide available land for the waterfront, the new sewage treatment

plant, and the land on which options sales will occur. The government can lease this land to the developer

for no cost in the first five years, since the value of the land is currently low. After the developer’s

developments raise the area’s land value, the land returns to the government as an asset and it can then lease

the land out to earn higher value. During the first five years, the government still gains significant financial

benefit from the increased property and corporate tax values in the area (different from the BID tax).

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Regulation for financial tools: Options sales has been done in India, but BID taxes are new. The

government has to be willing to put in place regulations for both, in order for the developer to engage in

these modes of financing.

Rezoning of area around lake to restrict industrial use: Industrial use next to the lake creates

pollution, and also lowers the value of the neighborhood separate from its generation of pollution. Having

the BDA rezone the area to focus on light industry and services, as well as residential areas, will prevent

spillover from the industries near the lake. This mitigates future cleanup costs for the developer. This is

also beneficial for the government, as their tax base will increase along with the value of the area.

5. Implementation schedule

ProjectAssumptions

(INR unless specified)

City background

City Bangalore

City area 741 km2

Population 8.43 million

Macro assumptions

Inflation 8.1% yoy

GDP $83,000,000,000

GDP real growth 10.3% yoy

Exchange rate 0.015 INR/usd (Nov 2015)

Operational assumptions

Revenue

Business improvement district taxes

Tax rate 1%

Local business revenue in year 0 900,000,000$ INR

Tax revenue in year 0 8,100,000$ INR

Options sales

Sales 200,000,000$ INR

Waterfront revenue

Business leases in year 1 100,000,000$ INR

Government funds for lake rejuvenation

Initial contribution in year 0 55,000,000$

Yearly contributions from year 1-5 20,000,000$

Company fines for industrial pollution

Lump sum contribution 75,000,000$

Costs

Initial cleanup

Simple bioremediation cleanup of water 55,000,000$ INR

Capping the lake bed with a sand layer 10,000,000$ INR

Industrial cleanup 150,000,000$ INR

Initial cleanup overall cost 215,000,000$ INR

Mitigation of further pollution

Large-scale centralized sewage treatment plant capex 17$

per gpd of capacity (for 1000000

gpd plant)

Plant size 1,300,000 gpd

Centralized sewage plant capex 22,100,000$ INR

Large-scale centralized sewage treatment plant opex 2$ INR per gpd of average flow

Maintenance 2,000,000$ gpd

Maintenance periods 2 years

Other eco-mitigation

Ditch construction 2,300,000$ INR

Filter construction 2,000,000$ INR

Tree trenches construction 1,200,000$ INR

Bioswale construction 1,000,000$ INR

Total eco-mitigation construction cost 6,500,000$ INR

Eco-mitigation components O&M (percentage of initial cost) 20%

Monitoring

Permanent testing sites construction 120,000$ INR

Annual wages per staff for monitoring, public education, outreach 1,044,000$ INR/staff / year

Number of initial staff 3$

Annual report production cost 70,000$ INR

Repair and upgrading of existing plants

Capex 4,000,000$ INR

O&M 400,000$ INR/ year

Construction of waterfront

Construction of waterfront 300,000,000$ INR

Annual maintenance of waterfront and public amenities 2,200,000$ INR/ year

Net working capital 40,000,000$ INR

Tax rate

India property tax rate 25.0%

Government discount for project 10.0%

Project tax rate 15.0%

Capex

Centralized sewage plant capex 22,100,000$ INR

Total eco-mitigation construction cost 6,500,000$ INR

Permanent testing sites construction 120,000$ INR

Repair and upgrading of existing plants capex 4,000,000$ INR

Construction of waterfront 300,000,000$ INR

Total capex 332,720,000$ INR

YOY depreciation 10%

Financing assumptions ($MM)

Uses of funds

Initial cleanup overall cost 215,000,000$

Centralized sewage plant capex 22,100,000$

Total eco-mitigation construction cost 6,500,000$

Permanent testing sites construction 120,000$

Repair and upgrading of existing plants capex 4,000,000$

Construction of waterfront 300,000,000$

Net working capital 40,000,000$

Total uses of funds 587,720,000$

Sources of funds

Government contribution 55,000,000$ 9.4%

Options sales 200,000,000$ 34.0%

BID taxes 8,100,000$ 1.4%

Industrial fines from pollution 75,000,000$ 12.8%

Equity 79,000,000$ 13.4%

Debt 170,620,000$ 29.0%

Total sources of funds 587,720,000$

Interest rate 7.25%

Project(INR unless specified)

>>start operations

Unit Constant Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Year 0 1 2 3 4 5

REVENUE

Business improvement district taxes

Tax rate % 1%

Local business revenue INR 900,000,000 918,000,000 1,009,800,000 1,161,270,000 1,335,460,500 1,535,779,575

YOY growth % 2% 10% 15% 15% 15%

Tax revenue INR 8,100,000 8,262,000 9,088,200 10,451,430 12,019,145 13,822,016

Options sales

Sales INR 200,000,000

Waterfront revenue

Revenue from business leases INR 100,000,000 102,000,000 112,200,000 123,420,000 141,933,000

YOY Growth % 2% 10% 10% 15%

Government funds for lake rejuvenation

Initial contribution in year 0 INR 55,000,000

Yearly contributions year 1-5 INR 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000

Total government contribution INR 55,000,000 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000

Company fines for industrial pollution

Lump sum contribution INR 75,000,000

Financing sources

Equity INR 79,000,000

Debt INR 170,620,000

Revenue 587,720,000 128,262,000 131,088,200 142,651,430 155,439,145 175,755,016

COSTS

Initial cleanup

Simple bioremediation cleanup of

water INR 55,000,000

Capping the lake bed with a sand

layer INR 10,000,000

Industrial cleanup INR 150,000,000

Initial cleanup overall cost INR 215,000,000

Mitigation of further pollution

Large-scale centralized sewage

treatment plant capex INR/gpd 17

Plant size gpd 1300000

Centralized sewage plant capex INR 22,100,000

Percentage of plant used % 40% 65% 80% 85% 85%

Average flow gpd 520,000 845,000 1,040,000 1,105,000 1,105,000

Average cost (opex) per gpd INR/gpd 2

Average cost (opex) INR 1,040,000 1,690,000 2,080,000 2,210,000 2,210,000

Maintenance cost INR 2000000 2,000,000 2,000,000

Total cost INR 22,100,000 1,040,000 3,690,000 2,080,000 4,210,000 2,210,000

Other eco-mitigation

Ditch construction INR 2300000

Filter construction INR 2000000

Tree trenches construction INR 1200000

Bioswale construction INR 1000000

Total eco-mitigation construction

cost INR 6500000

Eco-mitigation components O&M

(percentage of initial cost) %/ year 20%

Eco-mitigation components O&M INR 1300000 1300000 1300000 1300000 1300000

Total eco-mitigation cost INR 6500000 1300000 1300000 1300000 1300000 1300000

Monitoring

Permanent testing sites

construction INR 120000

Annual wages per staff for

monitoring, public education,

outreach INR/# 1044000

Number of staff # 3 3 5 7 9 11

Increases in staff per year # 2 2 2 2

Staff cost INR 3132000 5220000 7308000 9396000 11484000

Annual report annual production

cost INR/year 70000

Annual report production cost INR 70000 70000 70000 70000 70000

Total monitoring cost INR 120000 3202000 5290000 7378000 9466000 11554000

Repair and upgrading of existing plants

Capex INR 4000000

Annual O&M INR/year 400000

Overall O&M INR 400000 400000 400000 400000 400000

Overall cost INR 4000000 400000 400000 400000 400000 400000

Waterfront costs

Construction of waterfront INR 300000000

Annual maintenance of

waterfront and public amenities INR/year 2200000

Maintenance of waterfront and

public amenities INR 2200000 2200000 2200000 2200000 2200000

Total waterfront cost INR 300000000 2200000 2200000 2200000 2200000 2200000

Net working capital

Net Working Capital INR 40000000

Costs INR 587,720,000 8,142,000 12,880,000 13,358,000 17,576,000 17,664,000

P&L

Revenue INR 587,720,000 128,262,000 131,088,200 142,651,430 155,439,145 175,755,016

Cost INR 587,720,000 8,142,000 12,880,000 13,358,000 17,576,000 17,664,000

Gross profit INR - 120,120,000 118,208,200 129,293,430 137,863,145 158,091,016

Capex (construction costs) INR 332,720,000

Depreciation % 10% 33,272,000 33,272,000 33,272,000 33,272,000 33,272,000

Book value INR 299,448,000 266,176,000 232,904,000 199,632,000 166,360,000

NWC INR 40,000,000 40,000,000 40,000,000 40,000,000 40,000,000

Change in NWC (40,000,000) - - - -

Operating profit INR 86,848,000 84,936,200 96,021,430 104,591,145 124,819,016

Tax rate % 15%

Net profit INR 73,820,800 72,195,770 81,618,216 88,902,473 106,096,164

CASH FLOW TO EQUITY HOLDERS

Operating profit 73,820,800 72,195,770 81,618,216 88,902,473 106,096,164

Depreciation 33,272,000 33,272,000 33,272,000 33,272,000 33,272,000

Increase in NWC (40,000,000)

Capex (332,720,000)

FCF (332,720,000) 67,092,800 105,467,770 114,890,216 122,174,473 139,368,164

Interest rate % 7.25%

DCF (332,720,000) 62,557,389 91,690,673 93,130,330 92,340,298 98,214,831

NPV 105,213,521

IRR 17.25%

22

Appendix 1

Figure 1 Bellandur Lake, 2009

Figure 3 Buildup of algae in Bellandur Lake, Dec 2015

Figure 2 Embassy Pristine, a new residential concept located next to Bellandur Lake

23

Appendix 2

Figure 4 Municipal actors in charge of lakes in Bangalore

BBMP 60 (including Sankey)

BDA 123 (including Bellandur)

Lake Development Authority (LDA) 4 (including Hebbal and Nagavara under PPPs)

Karnataka Forest Department 5

Minor Irrigation Department 18

24

Appendix 3

To get a sense of the sustained effort that will have to go into lake maintenance, the following is a list of

recommendations by the Energy & Wetlands Research Group Study on Sankey Lake:

1) Regular monitoring of the lake for assessing its water quality and for taking precautionary measures.

2) Aeration will help in maintaining high dissolved oxygen levels and likely reduction in toxic effect.

3) Avoid entry of sewage into the lake, which brings in excess nutrients that induces profuse algal

growth.

4) Leave only treated sewage through construction of wetlands and algal ponds (to remove nutrients)

5) Removal of sediments accumulated over a period, which is rich in the phosphorus (P), nitrogen (N)

and carbon (C).

6) The harvesting and removal of cyanobacterial biomass during the early morning (when the algal scum

is concentrated and at the top layer of water) through fine pore nets and pumping of the concentrated

scums.

7) Introduction of Herbivorous fishes like silver carp and bighead carp

8) Avoid sewage entry, throwing of solid wastes to the lake and frequent fish feeding by the local

people.

9) Ensure proper evaluation of inflow to the lake and proper maintenance of outflow.

10) Public awareness and public participation is necessary.

25

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