The French development agency Agence Française de Développement (AFD) has formally written to the Department of Economic Affairs (DEA) under the Union Ministry of Finance, seeking an early meeting to discuss the cancellation of the proposed pan-city 24x7 water supply project in Chandigarh. The move comes after nearly four years of stalled progress on the initiative.
AFD's Communication and Cancellation Fee
In its communication, AFD stated that the cancellation would trigger the termination of the loan agreement and entail a cancellation fee of approximately Rs 4.58 crore, calculated as 2.5% of the cancelled amount. Lise Breuil, AFD India Country Director, wrote to Sakshi Mittal, Joint Secretary of DEA, noting that the formal cancellation process would commence following the Municipal Corporation (MC) of Chandigarh's decision to close the project.
Background of the Decision
The agency's letter follows the MC general house's decision to abandon the 24x7 water supply project. AFD indicated that it received information via email that the matter was deliberated during the 355th and 356th general house meetings of the MC, which approved project closure under the AFD loan framework.
Explaining the procedure, AFD informed DEA that cancellation would be triggered under relevant clauses of the Credit Facility Agreement (CFA), leading to termination of the loan agreement. This would also nullify the associated grant agreement linked to the loan's implementation. AFD added that its partner, the European Union (EU), was aware of the situation.
"As per clause 8.2 of the CFA on cancellation indemnity, cancellation fees would be 2.5% of the cancelled amount. This works out to be 2.5% of Euro 47,899,527, amounting to Euro 1,197,488," the agency stated in its communication.
MC's Rationale for Scrapping the Project
The MC's decision to scrap the project was taken during a recent monthly general house meeting, where councillors from both the ruling BJP and the opposition opposed the 24x7 water supply agenda. The house also resolved that rusted and worn-out pipelines should be replaced or repaired using the civic body's own resources, without burdening the city with long-term debt.
The MC rejected the pan-city 24x7 water supply project, citing the unsuccessful 24x7 pilot project in Manimajra. Councillors stated that the pilot project, planned at a cost of over Rs 70 crore, did not serve its intended purpose.
Implications and Next Steps
The cancellation of the project marks a significant setback for the city's water infrastructure plans. The AFD's demand for a cancellation fee underscores the financial implications of the decision. The DEA is expected to respond to the agency's request for a meeting to discuss the formal cancellation process.
