1.  I am Pashupathy, the ED(Finance) and CFO of Krishna Bhagya Jala Nigam Ltd, an irrigation Corporation of the Government of Karnataka.  KBJNL was incorporated during 1994-95 as a wholly owned Company of the Government of Karnataka to complete the Upper Krishna Multipurpose Irrigation Project to irrigate about 15.36 Lakh acres of perennial drought prone districts of Northern Karnataka.  The Company successfully completed the Stage I and Stage II of the Upper Krishna Project and presently doing preparatory works for Upper Krishna Project Stage III to provide irrigation to an extent of 13.10 lakh acres.  Funding for the Irrigation projects.  Karnataka is one of the states who have corporatized Irrigation projects by setting up 3 separate Irrigation Corporations.  These Corporations are responsible not only to implement the schemes but also to levy and collect water rates from farmers and others.  Due to resources crunch, investment of available resources was spread thinly over large number of project leading to loss of focus and delays leading to time and cost over runs.  There was therefore need to supplement the budgetary resources of the state by corporatising irrigation to access market borrowings.

2.  Funding for the Irrigation projects.  Past Experience: large number of projects to utilise the available water allocation could not be taken up simultaneously due to the vast investment required to harness the available water. For the UKP Stage II and partly UKP stage I, the Company executed the projects mainly through Budgetary sources of the Government of Karnataka, partly and partly through central assistance under central Assistance under AIBP. Market borrowings through Issue of Bonds (Both by way of Public issue of bonds and private placement) 3)Institutional Finance through HUDCO for the rehabilitation of project affected families. Term loans from Banks on back of asset mortgage, Central Assistance  Earlier mode of financing: This mode of funding worked well initially, as the Company was successful in raising large amount of funds through public issue and private placement of bonds These bonds were issued on the Asset backed mortgage and Government Guarantees. This mode only postponed the governments liability to a future date only albeit with interest cost.

3.  Constraints: The bubble had to burst sooner or later. The Captive investors in these bonds were the Provident Fund Trusts. The Ministry of Labour changed the investment patterns of the Provident fund trusts with effect from1-4-205 The Term loan route is also replete with problems in terms of the RBI circular coming in the way of lending by banks to entities whose borrowing is serviced through budgetary resources. In the light of the above these routes of funding have dried up leading to constraints to finance irrigation projects.  Central Assistance under acclerated Irrigation benefit program. Upper Krishna Project Stage I Phase III and UKP Stage II of KBJNL was one of the Major beneficiaries of Central Assistance. As much as Rs.3036.40 crore were the Assistance received.  Present constraints  The revised guidelines for funding insists on states to have incurred 50% of the cost of the works to be eligible for consideration for assistance under AIBP. The balance 50% would be funded partially by the state and partially by centre,(Centre75-State25%.)  The central assistance has further come down with the new gudielines effective from jan 2016 to 60%. thus increasing the state share or burden  Further prioritisation by the centre throws out some of the Projects from eligibility for funding under AIBP.

4.  A survey of the above scenario throws up a situation where the availability of funds for irrigation projects is far too less to have a sustainable growth of irrigation. As per a recent tentative estimate Karnataka alone needs about 1.25 Lakh crore to complete the irrigation projects, Other states may also be facing similar situation.  In the above situation it is necessary to look at a sustainable funding pattern for the irrigation projects.  Unlike Power sector projects there is no system of Financial closure in irrigation projects. When an irrigation project is conceived the main thrust would be the speedy utilization of the available or allocated water in order to establish right over the available water.  No revenue models projecting the revenues to sustain the capital cost recovery are made while taking up the project mainly because it was expected that the State would fund the project cost.  The benefit cost ratio traditionally being used to measure the viability of projects is no more relevent in the context of huge Land Acquisition and Related Rehabilitation costs.

5.  All the above would call for out of the Box solution for funding the Irrigation projects.  The initiatives that could be thought of are  1)Public Private Participation This mode of project finance has not been very popular because of non availability of risk free return on investment by the private sector. This initiative will not become effective unless the revenue models are improved. At present the water rates fixed are not remunerative. Collection mechanism is poor or non existent. Fixing of remunerative prices depends on the ability of the farmers to pay and also political will to increase the water rates. The farmers cooperatives would be ready to take over maintenance only when the system is ready. They may not be willing part finance the capital expenditure. Stake holders involvement in development cost of the project could be introduced. Large hydraulic systems could be conceptualised and designed as Multipurpose projects providing water for generation of Electricity, water for domestic use and Industrial use.

6.  The key to make irrigation projects attractive for investment by private parties would be to maximise the return on investment to make it sustainable for the private investors by increasing revenue.  Cross subsidisation amongst end users could be considered by differentially pricing the alternative uses of water keeping the price for water used for irrigation low. The Industrial use and water used for domestic consumption could be priced higher so that they will cross subsidise the Irrigation use.  Irrigation projects use large tracts of land some times the land acquired may not be fully utilised. Putting such lands to generate revenue is one way to improve project revenues.  Establishing canal top solar power generation plants could not only improve revenues to the project but also reduce water evaporation.  Improving business process time could lead to speedy completion of projects arresting time over run of the project leading to cost over runs.  One of the main reasons for time over run is the land disputes which needs to be resolved as quickly as possible.

7.  The way forward: Projects at the conceptual and design stage will have to generate a revenue model aiming at capital cost recovery. Private investment in irrigation could be anticipated only when the investor is assured of a risk free return on investment. Cross subsidisation of irrigation through differential pricing of alternative uses of water is to be ensured for sustainable growth of irrigation. Stake holders participation in the capital cost of the project needs to be explored. Land resources of the project must be put to optimum use to generate revenues for the project.