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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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