Desalination and water treatment solutions company VA Tech Wabag (Wabag) is making a big move into the public-private partnership (PPP) space, aiming to grab a slice of a $1 billion market in the next 3-5 years.

Skandaprasad Seetharaman, Chief Financial Officer at VA Tech Wabag said, “In terms of the potential of this sector, our capital projects team has been working on this over the last few years. We see this PPP sector is about $1 billion in terms of overall opportunity, as we see it right now, which is available for this platform to invest over the next three to five years.”

The company entered into a non-binding partnership agreement to establish a dedicated platform for municipal sector capital projects.

This municipal platform aims to invest up to $100 million in advanced water treatment infrastructure over the next three to five years.

The partnership brings together an Investor Consortium that includes Norfund, the Norwegian Government’s investment fund focused on sustainable development, along with two other international investors.

This is the edited excerpt of the interview.



Q: First up, give us a sense of this particular development. Is this mainly for Indian domestic Municipal Corporation orders that are expected, and what will be the role of you, as well as your partners? We understand there are three other partners who are stepping into this particular platform.

A: This is a strategic development for Wabag. This is an equity partnership that we have agreed with marquee international investors to invest up to $100 million jointly in municipal sector water treatment projects. All of those will be on a PPP basis. This is in-line with our long-term strategy to remain asset-light and develop long-term partnerships. Through this partnership, we will be able to focus on what we are best at, which is our technical expertise in engineering, procurement, and construction (EPC), while the financial partners will bring in the required capital.

This is going to be an equity platform where Wabag will take a minority capital investment, which is in line with our asset-light strategy. Majority capital will come for equity from the international investors jointly. This capital will be invested into PPP projects, and this will focus on the municipal sector, primarily in India and in select countries in the emerging markets.

Q: What would be your financial commitment, you have said it is going to be minority, but could you put a number to it?

A: We have not taken more than 26% that is going to be the maximum stake that we would like to take. We would remain minority when it comes to these equity partnerships.

Q: As of now, 26% is the maximum. What is the upfront amount that you have put in as of date?

A: This is a non-binding term sheet that we have signed. We are now progressing on the diligence and definitive agreements. Once that is done, the capital investment will be committed, and this will be drawn in the ratio that is agreed between partners on a project-by-project basis.

Q: What is prospect pipeline in both India as well as other emerging markets, typical win ratio there? In these projects, there is always an issue of receivables, which even you have faced in the past. How do you intend to go ahead and face these issues and whenever we talk about Wabag, a strong order book is already in place. Will you transfer a few of the existing pending orders to this particular platform?

A: In terms of the potential of this sector, our capital projects team has been working on this over the last few years. We see this PPP sector is about $1 billion in terms of overall opportunity, as we see it right now, which is available for this platform to invest over the next three to five years.

In terms of your question relating to receivables, you have seen our change in our strategy, where we have said we will focus only on projects, which are multilaterally backed, sovereign funded, federal government backed, or backed by a letter of credit. Even in our EPC projects that we are running today, 99% plus of our projects fall in one of these categories. We have addressed the question of receivables being stuck because of government issues, funding, etc., through this strategy.

With the PPP projects, we will not be any different. For example, the projects that we have taken on, Namami Gange, there is an escrow mechanism. The funding comes from the World Bank. There is an assurance from National Mission for Clean Ganga (NMCG). All these will continue to be the contours within which we will continue to work in this setup.

We already have three running projects. One of the projects has already achieved COD. Couple of projects are in advanced stages. Of course, these are also projects which can potentially move into this platform. There are other preferred, preferentially placed orders where we will try to convert and bring it under this platform, and many more orders in the future. As I said, the opportunity landscape is big, and there will be enough and more opportunities to consider through this platform.

Q: Give us a sense of the upcoming municipal project or the prospect pipeline for India, and explain to us, when such projects do come up in the PPP route, what is the equity that you need to put in? What is the kind of debt that you get in and with your partners onboard; do you now get access to cheaper funding?

A: We have seen in the last few years, the water sector has moved from a contractor model to a performance model, and PPPs are an important factor. What happens is you get EPC followed by a long-term O&M, which is where you take long-term commitments, and here is where it will differentiate contractors from real water technology companies.

Wabag, having more than 100 years of experience, we already have many long-term contracts, we are well experienced to get into this. The way this will work is that the equity capital, the debt-equity ratio is usually about 70:30 or 75:25, so this 25 or 30%, as required by the project, will be put in by the platform, and the remaining will be raised through debt.

Of course, we have already raised debt in our existing PPP projects from marquee debt lenders like IFC Washington, Aseem Infra, and Tata Cleantech Capital. With a partnership of this kind with very well-known international investors, I am sure we will have better access to capital, and there will be much higher credibility for the platform. The debt lenders should surely be more confident about this sector.

Q: When do you think you will be able to complete all the regulatory approvals, and get this platform up and running, and you can start bidding? What is the timeline that you have in mind?

A: We are in a very good stage in terms of our diligence and working on the definitive agreements. Over the next couple of quarters, we should have this up and running.

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