Waterhealth India Private Limited

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	27215
Company name	Waterhealth India Private Limited
Country	India
Sector	Utilities
Environmental category	B
Department	Infrastructure
Status	Pending Approval

Date SPI disclosed	July 30, 2008
Projected board date	September 2, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

WaterHealth India Private Limited (WIPL or the Company), a wholly owned subsidiary of WaterHealth International Inc. (WHI) currently provides distributed water services through its retail outlets or Water Centers (WCs) spread across approximately 175 villages in the State of Andhra Pradesh in India.

The company has the benefit of a partial debt financing guarantee (of up to 50%) by DCC, amounting to $30 million which would therefore enable it to mobilize debt financing up to $60 million. Within the current project, it plans to install an additional about 800 systems in (200 WHC-65 systems and around 600 WHC-21 systems) over a 12-month horizon in villages spread across three states.

Anticipated development impact of the project

IFC’s involvement in the project is expected to have a development impact in terms of:

- Access to affordable and potable drinking water:

The lack of 24/7 safe drinking water has significant adverse impacts on the quality of life and health conditions of people. This Project will allow WIPL to replicate its success in providing reliable and quality water to people in rural areas increasing their health and overall longevity of life. Access to clean water would also help in significantly reducing the high number of water borne disease cases in the country. The systems installed through the current project are expected to be able to serve the potable water need of about five million people.

- Strong Environmental benefits:

The adoption of WHI’s systems also yields important environmental benefits. Firstly, in addition to its high energy efficiency, avoidance of the use of chemicals with potential toxic by-products, and minimal wastage of input water, one WHC-65 unit would displace the equivalent of 500 metric tons of carbon emissions that would have been created by boiling water with firewood. Secondly, as a high level of commercial and physical losses in the water sector make it commercially infeasible; the current Project assists in minimizing water losses by supplying water at the retail level thereby avoiding supply leakage losses. These benefits are expected to make the company eligible for credits under the CDM route.

- Contribution to employment opportunities

Each WHC-65 employs two service operators, maintenance engineers and other requisite personnel. The company engages people from the village for these services and trains them to operate machines and perform the revenue collection function. As WIPL expands to more villages, it would provide employment, training and capacity building for locals in that area.

IFC's expected development contribution

IFC’s investment is expected to lead to the following additional outcomes:

- Decreasing the Financing Gap:

The WHI business model and technology solution is designed to bring high quality, affordable solutions to poor people around the world. However, in order to be able to make the WHI solution available to the truly poorest of these villages, creative financing sources are needed. Given the expected time required to change consumer behavior and drive increased water consumption and revenues, the company needs long tenor debt to match this extended payback period. IFC is well positioned to provide support to this business at this early stage of its operations. IFC’s presence would additionally provide comfort to the other investors in the business, during the next round of fund raising.

- Credit best practices:

IFC would use its technical and financial expertise to carry out a thorough due diligence identifying and allocating risks appropriately that will get the buy-in of international and domestic banks for funding structures that are more robust and hence improve the risk return profile of the project.

- Improving Access and Managing Demand:

Considering the willingness to pay for water available in the rural areas, the company has been able to tap and manage the demand which had been ignored for long only on the pretext of rural Indian population’s low willingness to pay for such basic services such as clean water supply. With the availability of IFC’s long tenor debt, the company would be able to manage demand and improve access to even far-flung villages.

- Private Sector Development:

The company is a pioneer in the distributed water services (micro utilities) both in India and globally. Hence, private investors are not very familiar with the success of the business model and thus remain cautious and often charge higher interest rates for providing debt. IFC’s participation will provide comfort to lenders/investors and demonstrate the business opportunity in this sector, thereby promoting further private sector participation (both debt and equity) in the large rural market in the country through the distributed services channel. IFC participation will therefore catalyze private sector participation in the distributed water services sector.

Environmental and social issues - Category B

This is a category B project according to IFC’s environmental and social review procedure because a limited number of specific social and environmental impacts may result, which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The following potential environment, health and safety and social aspects of the project were analyzed:

- environment and social assessment, and management systems;
- labor and working conditions including management of employee occupational health and safety;
- pollution prevention and abatement (including management of resources); and
- management of discharges, hazardous materials, hazardous and other wastes.

A summary discussion on the social and environmental aspects of relevance to the project including the company’s plans to address these impacts has been provided in the Environmental and Social Review Summary (ESRS) prepared by IFC and publicly disclosed on IFC’s website. Further, the company will locally disclose social and environmental assessment documents at the location mentioned below.

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