Completion Report

Project Number: 31402 Loan Number: 1755 September 2010

Nepal: Small Towns Water Supply and Sanitation Sector Project

CURRENCY EQUIVALENTS Currency Unit – Nepalese Rupee/s (NRe/NRs) At Project Completion (30 November 2008) $0.0135 NRs74.00

NRe1.00 $1.00

= =

At Appraisal (16 August 2000) $0.0138 NRs72.33

ABBREVIATIONS ADB AIEC AIFC DWSS EA EIRR FIRR HHE lpcd MLD MOF MPPW NGO NPV O&M PCC PMO RRP SARD TA TDF TPO UN-Habitat WSSDO WUA WUSC – – – – – – – – – – – – – – – – – – –

– – – – – –

Asian Development Bank average incremental economic cost average incremental financial cost Department of Water Supply and Sewerage executing agency economic internal rate of return financial internal rate of return health and hygiene education liters per capita per day Ministry of Local Development Ministry of Finance Ministry of Physical Planning and Works nongovernment organization net present value operation and maintenance project coordination committee project management office report and recommendation of the President South Asia Regional Department technical assistance Town Development Fund town project office United Nations Settlements Programme Water Supply and Sanitation Divisional Office water user association water user and sanitation committee

NOTES

(i)

The fiscal year (FY) of the government ends on 15 July. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2008 ends on 15 July 2008. In this report, "$" refers to US dollars.

(ii)

Vice-President Director General Director Team leader Team member

X. Zhao, Operations 1 S. H. Rahman, South Asia Regional Department (SARD) B. Hitchcock, Nepal Resident Mission, SARD L. Sharma, Project Officer, Nepal Resident Mission R. Tuladhar, Assistant Project Analyst, Nepal Resident Mission

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page BASIC DATA I. II. PROJECT DESCRIPTION EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation B. Project Outputs C. Project Costs D. Disbursements E. Project Schedule F. Implementation Arrangements G. Conditions and Covenants H. Consultant Recruitment and Procurement I. Performance of Consultants, Contractors, and Suppliers J. Performance of the Borrower and the Executing Agency K. Performance of the Asian Development Bank EVALUATION OF PERFORMANCE A. Relevance B. Effectiveness in Achieving Outcome C. Efficiency in Achieving Outcome and Outputs D. Preliminary Assessment of Sustainability E. Impact OVERALL ASSESSMENT AND RECOMMENDATIONS A. Overall Assessment B. Lessons C. Recommendations i 1 2 2 3 6 6 6 6 8 8 8 9 9 9 9 10 10 11 11 12 12 13 14 16 19 24 26 29 31 39

III.

IV.

APPENDIXES 1. Project Framework 2. Project Outputs 3. Project Cost 4. Loan Disbursement 5. Project Implementation Schedule 6. Status of Compliance with Loan Covenants 7. Economic and Financial Analyses SUPPLEMENTARY APPENDIXES A. Financial and Economic Analyses of Selected Small Towns Water Supply Projects B. Sailent Features of 29 Small Towns Water Supply Projects

BASIC DATA
A. Loan Identification 1. 2. 3. 4. 5. 6. 7. B. Country Loan Number Project Title Borrower Executing Agency Amount of Loan Project Completion Report Number Nepal 1755-NEP(SF) Small Towns Water Supply and Sanitation Sector Project Government of Nepal Ministry of Physical Planning and Works SDR26,649,000 1178

Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed Date of Board Approval Date of Loan Agreement Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions Closing Date – In Loan Agreement – Actual – Number of Extensions Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years) 8. Terms of Relending (if any) – Interest Rate – Maturity (number of years) – Grace Period (number of years) – Second-Step Borrower

8 May 2000 19 May 2000

10 August 2000 12 August 2000 12 September 2000 18 December 2000

3. 4. 5.

18 March 2001 16 March 2001 None

6.

31 December 2006 3 December 2009 2

7.

1% per annum during the grace period and 1.5% per annum thereafter 32 8

5% per annum, which was reduced to 3.5% per annum 20 3 Town Development Fund

391 ( ) = negative. Project Data 1.855 650 70 15.665 437 1.0 Cost Foreign Exchange Cost Local Currency Cost Total .Percent of Total Cost 0.898 517 1.423 233 80 (167) 518 26.483 6.Amount ($ million) .5 months b.7 24.0 1.455 1.ii 9. NGO = nongovernment organization.159 2.5 months Time Interval 5 years and 9.9 Actual 31.Percent of Local Costs .3 19.6 C.500 0 4. Local Costs (Financed) .256 711 294 (97) 2.303 541 571 297 210 55 3. Water Supply Civil Works. Project Cost ($ million) Appraisal Estimate 29.609 811 1. Dates Initial Disbursement 10 July 2001 Effective Date 16 March 2001 Final Disbursement 25 November 2009 Original Closing Date 31 December 2006 Time Interval 8 years and 4.2 53.8 4. Public Sanitation and Drainage Equipment and Vehicles Consulting Services and Training NGO services Incremental Administration Expenses Interest During Construction Total (SDR ’000) Total ($ ’000) 18.303 32.131 155 863 1.401 696 15. Amount (SDR '000) Original Allocation Last Revised Allocation Amount Canceled Amount Disbursed Undisbursed Balance Category Civil Works.000 518 22.166 28.649 35.7 51. 10.600 751 626 2.500 363 21. Disbursements a.

7 53.6 0.3 7.3 39.9 34.4 0.0 0.0 Implementation Costs Borrower Financed ADB Financed Local Government and Water Users Total IDC Costs Borrower Financed ADB Financed Other External Financing Total ADB = Asian Development Bank.9 0.2 0.iii 2.0 53. Cost Financing Plan ($ million) Appraisal Estimate 10.0 31.6 51. Item Date of Contract with Consultants Project Implementation Consultants Engineering Design and Supervision Nongovernment organizations Completion of Engineering Designs Civil Works Contract Date of Award Completion of Work Equipment and Supplies Dates First Procurement Last Procurement Start of Operations Completion of Tests and Commissioning Other Milestones Loan Reallocation June 2005 January 2002 December 2006 3 July 2003 30 November 2008 December 2001 December 2006 2 January 2002 30 November 2008 April 2003-December 2006 March 2006– December 2010 11 January 2008 .3 8.3 42. Interest During Construction Total 4.9 0.0 51.0 0. Technical Support 4.0 Component 1. Project Implementation Assistance 5. Public Awareness Campaign and Health and Hygiene Education 2.5 0. IDC = interest during construction. Cost Breakdown by Project Component ($ million) Appraisal Estimate 2. 3.0 53.9 50.5 6.9 Actual 12. Water Supply and Sanitation Facilities 3.9 0.5 7.7 0.9 Project Schedule Appraisal Estimate December 2000 January 2001–June 2004 January 2001–June 2004 Actual 14 August 2001 September 2001– August 2005 February 2002– January 2007 15 September 2008 Actual 2.

j = assistant disbursement analyst. h = project administration unit head. project officer and team leader. h I. f = consultant (gender and development specialist). Data on Asian Development Bank Missions Date 21 February–7 March 2000 8–19 May 2000 11–14 March 2001 22 May–4 June 2002 25 December –23 January 2003 11–28 August 2003 30 January–10 February 2004 16–28 July 2004 24 November–17 December 2004 3–15 June 2005 3–21 December 2005 30 June–12 July 2006 2–14 November 2006 12–22 March 2007 12–26 September 2007 3–11 July 2008 13–24 October 2008 22 December 2009–15 January 2010 No.iv 5. g. of Persons 12 2 2 3 2 2 3 3 3 3 2 2 4 2 2 3 2 No. c = counsel. Project Performance Report Ratings Ratings Implementation Period From 29 September 2000 to 31 December 2000 From 1 January 2001 to 31 December 2001 From 1 January 2002 to 31 December 2002 From 1 January 2003 to 31 December 2003 From 1 January 2004 to 31 December 2004 From 1 January 2005 to 31 December 2005 From 1 January 2006 to 31 December 2006 From 1 January 2007 to 31 December 2007 From 1 January 2008 to 30 November 2008 Development Objectives Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Implementation Progress Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory D. g i. g i. and Rajani Tuladhar. g l. h. j l. g E. j i. f. b. h. The project completion report was prepared by Laxmi Sharma. h i. assistant project analyst. k = country director. b = urban development specialist. . i = senior project implementation officer. of Person-Days 36 8 26 45 34 20 48 60 28 40 24 24 40 28 18 24 24 Specialization of Membersa a. I. d = associate operations analyst. f e. k i. l = project officer. g. f e. h. c a. f I. b. g = assistant project analyst. f.g Name of Mission Fact Finding Appraisal Project inception Project review 1 Project review 2 Project review 3 Project review 4 Project review 5 Midterm review Project review 6 Project review 7 Project review 8 Project review 9 Project review 10 Project review 11 Project review 12 Project review 13 Project completion reviewb a b a = senior financial analyst. h l. j L. e = project implementation officer. g L.

The project followed a sector lending modality. Technical Assistance to Nepal for Preparing Small Towns Water Supply and Sanitation Sector Project. and (c) the construction of on-premise sanitation facilities. the Government of Nepal initiated the 15-year Plan for Small Towns Water Supply and Sanitation Development and requested Asian Development Bank (ADB) assistance in preparing a sector investment project to support the plan. In recognition of the adverse impact of inadequate drinking water supply and poor sanitation conditions on human development.2 2. (b) community participation and town project ownership. and sanitation facilities in selected small towns following a demand-driven. and maintenance. limited drainage.I.0% to 3. approved by the government on 29 February 2000. and sewerage systems with communal septic tanks and public latrines. The project was to provide water supply. basic storm water drainage. (ii) support community participation by developing the institutional capacity of community water users and sanitation committees (WUSCs)4 and requiring water users to make cash or in-kind contributions to cover some project costs. and sanitation facilities and providing health and hygiene education. Manila. 1 2 3 4 The 15-year plan. (ii) Water supply and sanitation facilities (part B): This constructed water supply schemes.7 million ($35 million equivalent) for the Small Towns Water Supply and Sanitation Sector Project on 12 September 2000. ADB approved a loan of SDR26. Drinking water supplies in these urban centers were generally inadequate in terms of coverage. The interest rate for the TDF was revised from 5. 4. The objectives of the project were to (i) improve the health and quality of life of the people living in project towns by constructing water supply. The project had the following four components: (i) Public awareness campaign and health and hygiene education (part A): This included (a) the delivery of a community health and hygiene awareness program. (iii) Technical support to WUSCs (part C): This included (a) technical and financial training for WUSC and water user association staff and (b) establishing technical support centers in each of the five regional offices under the Department of Water Supply and Sewerage (DWSS) to provide post-construction fee-based services to WUSCs. PROJECT DESCRIPTION 1. interactive procedure to ensure the full participation of local water users and nongovernment organizations (NGOs) in town project design. The population of urban centers in Nepal along major national highways was growing rapidly in the late 1990s as a result of rural migration. ADB approved technical assistance (TA) to prepare the Small Towns Water Supply and Sanitation Sector Project. has three phases: 2000–2004. drainage. 1998. quantity. ADB. A subsidiary loan agreement was signed between the Ministry of Finance (MOF) and the Town Development Fund (TDF) on 5 March 2001 for $12 million at a 5% interest rate. and 2010–2014.3 3. and (iii) promote community water quality monitoring. . A WUSC is the executive body of a water user association.5% in 2005.1 In response to the government’s request. 2005–2009. The project was designed to help the government cover the investment requirements of the initial years of the 15-year Plan for Small Town Water Supply and Sanitation Development. and quality. operation. preparation. implementation.

2008–2010 emphasizes improving water supply services. 7 ADB. ADB. 8. implementation. 1999–2002. The relevance of the project is adequately established by rapid population increase in urban centers along major national highways. 2005–20097 on improved health and hygiene practices. and training. and Nijgadha. One of the strategic priorities of the ADB country strategy at the time of approval was to improve basic social services and infrastructure. II. and good governance. There 5 6 They were Nilkantha. and (c) project incremental administrative expenses. Country Operational Strategy: Nepal. The project scope and components were relevant to achieving the intended project outcome of improving water supply services and less relevant to improving sanitation. and ensuring equitable access to water supply and sanitation (WSS) services. operation. project preparation and formulation were adequate. . Wastewater management has only been partly included through the provision of basic storm water drainage in the core areas of project towns. with the loan closing date of 31 December 2006. Four town projects were dropped after the completion of the feasibility study and detailed design. estimated the cost of providing improved services. and sanitation has been limited to the provision of subsidized toilets for the poorest and the construction of some public toilets. 1999–2002 for Nepal at the time of approval. Thirty-three town projects were identified to serve a target population of 600. Dhankuta. public–private partnership. the project could be considered highly relevant to the ADB strategy at completion. construction supervision. 5 The project was originally envisaged to be implemented over 6 years. 2000. 1997–2001. scaling up community-based and demand-driven approaches. labor-absorbing economic growth. engineering designs. Manila. Country Strategy and Program: Nepal. It quantified the WSS needs of small towns. and proposed an institutional framework. and maintenance. ADB extended the loan closing date by 23 months to 30 November 2008.000. making user groups and local authorities fully responsible for project formulation. 6 The overall objective of the strategy was poverty reduction through broad-based. 5. 7. EVALUATION OF DESIGN AND IMPLEMENTATION Relevance of Design and Formulation 6. The project's design was consistent with the government's strategy in the Ninth FiveYear Plan. Manila. which emphasized mobilizing local resources for the supply of safe drinking water. The Ministry of Physical Planning and Works (MPPW) was the project executing agency (EA) and the DWSS was the implementing agency. The government’s Three-Year Interim Plan. The project was consistent with ADB’s country operational strategy. The project was formulated based on the institutional framework and strategy outlined in the 15-year plan. 2004. eliciting the participation of the poor was challenging because of the strong emphasis in project design on the recovery of capital cost. 2005–-2009. However. as reflected in the requirement that beneficiaries contribute 50% of capital cost. A. which was revised in 2009. Overall. gender mainstreaming. (b) vehicles and office equipment.2 (iv) Project implementation assistance (part D): This included the provision of (a) consulting services for project implementation support and such activities as town project feasibility studies. At the request of the government. Lamhai. Considering the emphasis of the ADB country strategy and program.

community education. project management office. (iii) water supply and public sanitation facilities constructed. and the envisaged outputs proved to be ambitious considering the duration of the project. and of covering scattered towns. and the DWSS. Public Awareness Campaigns and Health and Hygiene Education 12.10 (iv) enhanced capacity in WUSCs to manage the constructed WSS facilities. 10. and appropriate use and maintenance of on-premise latrines. as areas are low-lying with little gradient. the closing date was extended by 23 months from 31 December 2006 to 30 November 2008. 9. town project offices. The small towns were selected following a set of agreed criteria. Project Outputs 11. Drainage is a major problem in towns on the Terai. NGOs provided health and sanitation training 12 to 3. school-led total sanitation. The awareness campaigns were instrumental to the timely signing of community action plans by WUSCs in 30 project towns. The health and hygiene education awareness program was expected to generate increased demand for 8 These were the willingness of communities to share 50% of the capital cost for water supply facilities. and (v) the establishment of regional technical support centers. 11 need for women's representation in decision making. the condition and service level of existing water supply and sanitation facilities and services. The implementation of project preparatory TA. 13. consultants. (ii) increased community participation and ownership of town projects. and animal waste management. financing arrangements. While formulating the project. the complexity of community participation and mobilization. Public awareness campaigns were conducted for 70. roles of stakeholders. significance of safe drinking water. and focused training on latrine construction. but very limited scope for drainage was provisioned or undertaken. and the appraisal mission were carried out in close collaboration with the staff of the DWSS and the MPPW. and contractors. NGOs. 9 Beneficiary contribution of 50% of the total capital cost of constructing water supply systems. TDF. and the willingness of local bodies to participate. project preparatory TA incorporated sector experiences and lessons.847 (58%) were women.3 is no provision for dealing with liquid effluent. The health and hygiene education program was comprised of school hygiene education. The targeted outputs anticipated during appraisal were (i) the delivery of community health and hygiene awareness and education programs. . Accordingly.9 However. The project covered 12 districts and 29 small towns in Nepal. B. Actual project outputs are in appendixes 1 and 2. The project was prepared under ADB project preparatory TA (footnote 2). This signified their understanding of and agreement with the terms and conditions of the project. the ADB fact-finding mission. and training in formulating community action plans. 12 This included waste management training. local bodies.8 The principle of cost sharing proposed by the project was accepted. solid waste management. 10 The DWSS reduced the number of town subprojects from 40–50 to 33 because of the excessive time required to mobilize communities’ contribution and increase in the number of beneficiaries. 11 WUSCs. Project design did not consider investment to address solid and liquid waste management as part of improving sanitation.125 male—to create awareness among local people on the project modality.306 beneficiaries—51. 1. of which 1. constituted a challenge. The complexities and time required for community involvement were neither adequately foreseen nor incorporated in project design.181 female and 19.133 community stakeholders and leaders.

4 improved household sanitation. 13 Of 12. and plumbers. the program seems to have been less effective in some towns. pipe connections. Water Supply and Sanitation Facilities 14. particularly affecting larger-diameter pipes. against the target of 80%. This may indicate that the initial loan recovery trend is not satisfactory. pump houses. are main reasons for a small number of tap water connections in some of project towns. 10. surface reservoirs for gravity systems. Project towns’ performance in repaying loans from the TDF has shown mixed results. and guards’ quarters.161 participating poor households. because their staffs have insufficient technical knowledge. Contractors used traditional methods of joining pipes rather than following the specifications in contracts. often wells that are contaminated and unsafe. . these problems were addressed by the contractor and WUSCs during the period of defect liability. some of the completed town projects do not function as designed for various reasons such as damage from natural calamities. However. house connections. treatment facilities for sedimentation. particularly water treatment plants. accountants. the main transmission line.493 community taps or from their own sources. The tap connection fee was in the range of $160–$250 per house in most of the project towns. The EA has expressed its commitment to carrying out remedial measures under the DWSS budget to make all 29 town projects function optimally. 76% of houses connected with the system. However. 2. the very fact that community institutions considered loans for local infrastructure 13 A WUA is an institution registered at District Water Resource Committee as per the Water Resource Act 2049. 16. tube wells for pumped systems. As WUSCs and beneficiaries considered community tap connections to be inconvenient. junior engineers. The construction of piped water supply was completed in 29 small towns. installing 834 kilometers of water pipes. many switched into private taps in many town projects. which includes the loan principal and interest from 21 towns. The remaining households get water either from 3. meter readers. the remaining 8 towns have yet to start repayment. they face challenges in operating the constructed facilities effectively. most of the town projects faced technical problems with water meters. Although WUSCs undertake the operation and maintenance of the water supply systems by hiring staff such as office managers. electrical facilities. About 15% of the meters distributed were damaged. Although the overall technical design for the 29 towns was generally satisfactory. the malfunctioning of water treatment plants. as it was unable to strengthen water user association (WUA) commitment to and ownership of safe sanitation. filtration. and disinfection. The water supply systems in project towns are piped water supply with private yard and community tap connection. The project service areas.000 liters.14 15. 14 Cost sharing is between the government (50%) and WUAs (50%). and high electricity costs. The high tap connection fee and easy availability of groundwater.022 constructed latrines through the provision of mechanism of partial subsidy and cost sharing. the failure of groundwater wells. The TDF has collected NRs75. Some WUAs have started to repay the sub-loans in accordance with the repayment schedule or even before the completion of the grace period of 3 years. 17. 1992 and the Water Supply Regulation 2055. Town projects included intakes. against the target of 40–50. and water treatment plants. During test operation. submersible pumps. while others have yet to make any principal and interest payments. overhead tanks for tube well systems. However. On the other hand.8 million in repayment. All WUAs have adopted monthly water tariffs in the range of NRs30–NRs320 per 10. following the cost-sharing approach advocated by the project.

the project had no monitoring mechanism to measure the effectiveness of training programs. a technical support center was established in each of the five regional offices of the DWSS to promote communitybased monitoring of water quality and meter calibration. The project provided technical training to WUSC members and staff to develop their capacity for the O&M of town projects regarding meter reading. the project framework was reviewed. Project implementation was supported through the provision of consulting services for project management and engineering design and supervision. workshop. meter maintenance. and project incremental administrative expenses. Similarly. In Nepal. they were vacant in most labs because of the ambiguous procedure related to deputation of staff according to work stations. As provisioned in report and recommendation of the president. The project implementation support consultant assisted the PMO in identifying project performance indicators as per the project framework. and collection. WUSCs were not sure that the labs would support them in monitoring water quality and meter calibration. vehicles and project administration equipment. 3. town project offices (TPOs). some shortcomings were observed: (i) The training programs were not held in a timely manner. The absence of qualified technical staff in WUSCs was sorely felt by all. Project Implementation Assistance 22. 18. While training under the project was generally found to be effective and appreciated by WUSCs. and additional . However. Despite the government’s approval of staff positions. The project supported the construction of 56 public latrines and 16. WUSCs. as well as basic accounting. small towns have accepted taking loans from the government for the development of water supply facilities. which included water tariff planning. and interaction programs for DWSS central and field staff. Technical Support for Water User and Sanitation Committees 20. 19. (iii) The trainings were not frequent enough to have effective results. the slow rate of tap connections. which inhibit their provision of effective support in the post-construction phase. low water tariffs. The WUSCs shared with the project completion review mission the constraints they face and their inadequacy in performing some of their roles effectively. The TDF needs to develop strategies for each town project to repay loans. all WUSCs are committed to repaying the loans. and operating pumps. The operation and maintenance (O&M) of most of the public latrines have been outsourced. The project management office (PMO) organized training. (ii) There were a limited number of trainings. 4. plumbing. During implementation. Delays in constructing town projects. (iv) And the participants who received training did not remain in their posts. 21. and MPPW staff to improve their understanding of the project. The low and delayed repayment of principal and interest installments for loans to WUAs is due mainly to low revenue resulting from the small number of tap connections and low water tariffs. and damage to water transmission lines from landslides have placed a number of WUAs in difficult positions for increasing revenues and repaying principal and interest installments to the TDF on time. but this occurred late with the delayed procurement of water-testing and meter-calibrating equipment. NGOs. billing. testing water quality.5 is very encouraging.779 meters of surface drainage in the core areas of the project towns. the low volume of water drawn from the developed wells. Division and subdivision offices of the DWSS were not involved in construction. WUSC members also received training from the TDF on financial management. consultants.

Appendix 5 shows the schedule at appraisal and the actual time frame. The appreciation of special drawing rights against the US dollar between the date of the loan agreement and loan closing and low bids for civil works contracts contributed to the cancellation. The project started slowly because of (i) the delayed recruitment of consultants and procurement of civil works.5%). The project cost estimate at appraisal was $53. The first civil works contract was awarded 54 months after loan approval. 25. Overall.3 million and part of the local currency cost of $0. The initial imprest account ceiling of $0. E. (ii) weak project management.9 million (24.5 million. Disbursements 24. C. Implementation Arrangements 27. There were no major changes in implementation arrangements. The imprest account was fully liquidated before the loan closing date. As per the loan agreement. the loan account remained open until December 2009 to process payment for construction works done in few towns late in the implementation period.0 million.4 million.7 million and a local cost component of $24. Benefit monitoring and evaluation was undertaken twice during the project and yielded recommendations to improve project outputs. D. Project Costs 23. or 51% of ADB disbursement.9 million. including $0.6 million for interest during construction. project implementation was not affected by the conflict during 2001–2006 because of the communities' strong interest and participation in town project planning and development. The MPPW was the executing agency . the PMO established an imprest account in Nepal Rastra Bank. The statement of expenditure procedure was used to disburse $16.9 million. the implementation arrangements at the center and in the project towns were reported to be satisfactory in delivering project outputs and achieving the project outcome. Project Schedule 26. including a foreign exchange component of $29. ADB financed the entire foreign exchange cost of $31.5 million was later increased to $1. As individual disbursements were small. At the request of the government. The project was originally envisaged implemented over 6 years to the loan closing date of 31 December 2006. However. which the PMO implemented. ADB financed 63% of the total project cost. the imprest account and statement of expenditure procedure were found to be very useful for smooth project implementation. F. Disbursement started to pick up in the fourth year of implementation. ADB extended the loan closing date by 23 months to 30 November 2008. The total amount of replenishment was $19.6 million for interest during construction. The total loan cancelled was $7.1 million. and (iii) optimistic project design given the involvement of the WUSCs and the required up-front cash contribution.2 million. Feasibility studies of the second batch of town projects were delayed by 10 months. The total loan disbursement was $32. Although the loan closing date was 30 November 2008. including $0. The project costs and financing arrangements at appraisal and project completion are in Appendix 3. The project envisaged the involvement of multiple stakeholders in implementation.8 million. less than the appraisal estimate of 65%. Disbursement was slow during the first 3 years of project implementation (Appendix 4). The actual total project cost amounted to $51.6 monitoring indicators and targets were included in the project framework.

18 15 WSSDOs are the 42 division offices. which was a sub-loan charged to the WUA. A subsidiary loan agreement between the MOF and the TDF was signed on 5 March 2001 for onlending a portion of loan. Local governments were required to contribute at least 20% of the construction cost of public sanitation components. 30. including surface drainage construction in project towns. 31. The TDF agreed to onlend funds to WUAs against the local governments’ guarantee of repayment on behalf of their WUAs. estimated to be $12 million at an interest rate of 5% per annum with no less than 15 years maturity. For the first 3 years of the project. The project manager acted as the committee's secretary. and village development committees. and 5 regional monitoring and supervision offices in 75 districts. local governments. 28 subdivision offices. It further affected the coordination of field activities by design and supervision consultants. . The PMO was established in the DWSS to manage project implementation and coordination. 32. 15 months after loan approval. The limited availability of DWSS officials caused initial difficulties in establishing TPOs in eight project towns in the first batch. no role or responsibility was given to its WSS division or subdivision offices (WSSDO) regionally or in districts. Justice. were responsible for ensuring the establishment of a WUA in each town project. it was reluctant to provide post-construction support to WUSCs. were 20% financed by local governments and 80% by the government. 1992 and Water Supply Regulation 2055. the executive director of the TDF. The project envisaged establishing a TPO with qualified staff in each project town as a parallel office to the existing WSSDO.17 The TDF onlent 30% of the capital cost of a water supply system to its WUA at an annual interest rate of 8% for 12–15 years. consisting of public toilets and drainage. Each association formed a WUSC to implement all tasks on behalf of the WUA on matters related to WSS development within the town service area. Centrally. and a senior official of the MOF. the project coordination committee ensured adequate interagency coordination and provided guidance in resolving project-related issues. including a grace period of 3 years. the director general of the DWSS. A project coordination committee chaired by the secretary of the MPPW was established prior to the loan signing. In each project town. 17 The interest on the sub-loan to the TDF was revised from 5% per annum to 3. Many towns collected high connection fees to assemble their contributions. However. and 50% from the government.5 million to the 29 project towns. Ministry of Local Development. 16 Members included the joint secretary of the MPPW.5 million was NRs59. Public sanitation components. Applications for project funding endorsed by local governments were submitted jointly by the local government and WUSC to the PMO for evaluation and selection. and Ministry of Law. Local governments. In each project town.5% per annum in 2005. The TDF disbursed NRs876.15 28. the water supply system was financed as follows: 20% in cash or kind from the WUA but including a 5% cash contribution up front.16 There was also a provision to invite representatives of the WUSCs and local governments of project towns to discuss issues. They were established only in January 2002. the sub-loan to project towns was essentially unused because construction had not started. 30% from the TDF.6 million. As the WSSDO was not involved in town project implementation. and WUSCs. the WUA was registered at the District Water Resource Committee as per the Water Resource Act 2049. but there was no similar mechanism in project towns.7 and responsible for coordinating the project. district. 18 The capitalized interest on the loan principal of NRs876. 29. in the form of municipality. and Parliamentary Affairs.

which made the consultant more responsive. I. and Suppliers 37. most WUSCs did not realize the importance of NGO inputs. Consultants were recruited in accordance with ADB Guidelines on the Use of Consultants (2010. and performance improved over time. The EA established the performance monitoring system for consultants. and the loan was declared effective 2. Although advance contracting was allowed. the procurement of a project implementation support consultant was delayed by 8 months.) for each town project was packaged in one bid contract. Consulting services were provided by qualified domestic engineering firms with sufficient experience in and knowledge of the WSS sector. fittings. and project implementation support. suspended. construction supervision. Despite some delays in recruiting NGOs. pumps. eight pick-ups. as amended from time to time). The major loan covenants were complied with. and established technical support centers in five regions. etc. Contractors. Conditions and Covenants 33. All civil works and supply of materials (pipes. The vehicles and equipment were used in the PMO and TPOs to facilitate the smooth implementation of the project. and procurement followed ADB Procurement Guidelines (2010. and office equipment and machinery following international shopping and national competitive bidding procedures acceptable to ADB. their services had not started even by loan closing. as well as numerous variation orders. or waived. and design shortcomings due to the lack of proper predesign investigations. 36. The EA submitted the project completion report 8 months after loan closing. in accordance with ADB's Guidelines on Procurement. ADB review missions conducted regular follow-up on compliance with covenants. completed the physical improvement of regional laboratories. Although the PMO procured all equipment. led to problems such as misunderstanding in defining the service area during construction. With these exceptions. as amended from time to time). Conditions for loan effectiveness were complied with on time. However. as most of the consultants delivered their services to the expected standard as per the requirements of the project. The consultant's performance was rated satisfactory. The allocated input for the team leader in the contract for design and construction supervision was not enough to enable performance as per the terms of reference. The limited provision of team leader inputs constrained the timely delivery of technical advice to its team at town projects. Performance of Consultants.8 G.9 months after loan signing. However. Twenty-nine major civil work contracts were procured under the project. as most covenants were relevant to project needs and realistic. H. None of the major covenants was modified. Supervision lapses were seen in sporadic cases. the delay in finalizing and issuing technical engineering design and drawings. though with delays in establishing technical support units and the EA’s submission of the project completion report (Appendix 6). which slightly affected the timely completion of social mobilization and the public awareness campaign. Consultant Recruitment and Procurement 35. PMO procured one car. 35 motorbikes. the quality of supervision can be considered satisfactory. 34. The PMO procured consulting services for feasibility studies. engineering designs. the performance of all NGOs was satisfactory in meeting the expected standard. .

Contractors' performance in completing civil works is varied by town. Each mission provided a time-bound action plan that could be readily monitored. including contract awards and disbursements. The performance of suppliers of vehicles. Performance of the Asian Development Bank 41. equipment. counterpart funding. the government categorized the project as core to its program. rationale. and one project completion review mission. This ensured adequate budgetary provisions for the project. The project built the capacity of EA staff in contract management and bolstered their confidence to implement town projects with the involvement of a wide range of stakeholders. At both appraisal and completion. which improved project performance. or the water supply contract. the performance of the borrower and the MPPW as the EA was satisfactory. which required coordination with WUSCs. ADB fielded 15 missions. The project’s design. However. Despite some shortcomings. The contractors generally lacked resource planning capacity. the physical progress of the project. Further improvements could have been made. which averaged 56%. the project was highly relevant to government and ADB policies and priorities to improve the quality of life of small towns by improving WSS services. The project’s development planning approach and implementation strategies involved multiple stakeholders and were oriented to promote organized community participation. The DWSS was responsible. demand-driven. the contractors had to bear the dual burden of instructions arising simultaneously from the engineers and the WUSCs. III. The project received the "best project management team" award from ADB in 4 consecutive years. disbursement. K. and other project implementation issues. one midterm review mission. The participatory. The assessment of the EA's capabilities at appraisal was reasonably accurate. and supplies was satisfactory because delivery was on time and the quality of the supplied items was as specified in the supply contracts. was satisfactory. Contractors generally did not understand work requirements. cash flow. The initial progress of project implementation. the borrower submitted its project completion report 8 months late due to the late closing of the loan account. Relevance EVALUATION OF PERFORMANCE 42. Overall. including one project inception mission. 39. end-users of water. Throughout project implementation. J. . as the project contributed to improving the quality of life of people residing in small towns supported under the project. such as an overoptimistic estimate of the number of town projects. This adversely affected the progress of civil works. and other stakeholders. ADB missions focused mostly on project inputs. From project preparation to implementation. on behalf of the MPPW. including establishing and staffing the PMO and TPOs. ADB organized monthly meetings with the project management team to monitor contract awarding. Since there were no clear roles defined for WUSCs in the civil works contracts. the appraisal was complete. Performance of the Borrower and the Executing Agency 40. ADB processed withdrawal claims on time. community-based approach helped to ensure that the project was relevant to the aspirations of community members.9 38. and most of the contracts experienced time overruns. The performance of ADB was satisfactory. A. for project coordination and monitoring. and strategies were relevant. and implementation delays. ADB provided significant staff and financial resources.

C. 1992.19 as well as lessons reported in ADB’s Nepal: 1999 Country Synthesis of Evaluation Findings. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Government of Nepal for the Second Water Supply Project. If the measured benefits included community institutional development and empowerment. the project would have a substantially higher EIRR than at appraisal. The economic analysis concluded that the economic benefits of the small town projects outweighed the associated economic costs. However. ADB. 19 20 21 ADB.7%.2%. Manila. and delayed approvals of contract awards. and rapid population growth with migration into town project areas. emphasis was placed on ensuring cost recovery. in the initial stages of project implementation. The combined economic internal rate of return (EIRR) of the eight sample town projects is estimated at 11. Manila. in some towns this allowance was inadequate in view of the potential expansion of services beyond town project areas.000. the loan extensions totaling 23 months were justified. (iii) treating water to meet the drinking water standards of Nepal. ADB. based on financial and economic analyses using the same methodology as at appraisal (Appendix 7). and their financial internal rate of return (FIRR) is estimated at 5. a later recommendation was to introduce revolving funds to help the poor through a partnership with the United Nations Human Settlements Programme (UN-Habitat) and the TDF. The EIRR is lower than appraisal estimate of 17.10 especially in the participation of the poor in accessing water supply services from the improved systems. The project was effective in improving WSS services for 95% of the target population of 600.20 B. the inclusion of the poor was not seriously addressed. Nepal: 1999 Country Synthesis of Evaluation Findings. Moreover. The weighted average EIRR for the sample subprojects is almost equal to the assumed economic cost of capital of 12%. piped water supply systems were reasonably effective in (i) increasing water supply per capita. In the project towns. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Government of Nepal for Fourth Water Supply and Sanitation Sector Project. Some physical activities were delayed by hindrances to the preparation of detailed designs. taking into account the challenging task of coordinating with a multitude of stakeholders and problems associated with the continued political unrest in Nepal. the necessary land-use planning. . 1984. tendering and bid evaluation. These hindrances included inadequate feasibility assessments. limited community interest in understanding design details. This stressed town projects’ distribution capacity and necessitated their further upgrading. and WUSCs have maintained town project operations. Manila. ADB. but the FIRR is higher than the appraisal estimate of 2. ADB. Manila. Manila.2%. Despite the appropriateness of project activities toward ensuring output and outcome linkage. While town project design took into account population growth in project town areas. (ii) achieving full coverage of the service areas. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Government of Nepal for the Third Water Supply and Sanitation Project. Effectiveness in Achieving Outcome 43. and. 45. The project is rated efficient in achieving its outcomes and outputs. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Government of Nepal for the Rural Water Supply Project. The project design reflected lessons from the four ADB-funded rural WSS projects. Efficiency in Achieving Outcome and Outputs 44. The financial analysis concluded that the proposed water tariffs at appraisal had yet to be fully applied in most the town projects. and (iv) attracting most private water tap connections. 1989.8%. and awarding of contracts. 1999.21 This indicates that the project is justified from financial and economic perspectives. Project towns have received further support from WSSDOs since project completion. 1996.

Kathmandu.0 hours per day in Khaireni and Lekhnath. and the development of sanitation facilities under the project have. and they are likely to sustain themselves. Most of the town projects need to increase their water tariffs and complete water connections as designed to improve their debt-serving capacity. significantly reduced health risks in participating towns. Preliminary Assessment of Sustainability 47. saving health-care costs. Water users assumed ownership and expressed their commitment and willingness to pay higher tariffs for a reliable water supply system. 23 Four project towns have been declared free of open defecation. The average consumption of water per household was found to have increased after the project. together. (ii) 10% decrease in incremental income. All WUAs are registered as per the Water Resources Act. the use of toilets. provided that follow-up support strengthened the financial management of WUAs and post-construction support to WUSCs addressed technical problems. There was evidence that the WUSCs took full responsibility for the O&M of installed town projects. Household time saved by no longer needing to collect water ranges from 0. apparently in response to demand from endusers but to the detriment of the systems. Water supply was found to be instrumental in promoting kitchen gardening. The improvement in the WSS situation and positive health and hygiene impacts have paved the way for increased economic activity in 29 project towns. Benefit Monitoring and Evaluation. especially women and children. The average efficiency of water tariff collection is 95%. Improved access to WSS facilities thanks to the project has significantly reduced hardship and saved time for small town residents. and (iii) both combined. Although WUSCs are aware that adequate tariffs need to be collected to cover O&M costs and debt servicing. livestock keeping. Hand-washing practices. Improved water supply. There have been cases where water supply systems were expanded beyond their technical capacity. and the operation of hotels and trade.86 hours per day in Parsa to 4. a significant reduction in the incidence of water-borne diseases was reported. Results showed the EIRR to be between 4. The average amount of water used for drinking and cooking is increased by 21%. The empowerment of local communities and capacity building of WUSCs were integral to project design. Women and children have more time to devote to more meaningful endeavors such as schooling. Energy savings accrued from easier access to water.2%. 22 23 Department of Water Supply and Sewerage. The project was assessed likely sustainable.22 49.2% and 12. D. with an increased number of households using private latrines and new public toilets. improving the nutrition and health of children and mothers. from 299 liters per day per family before the project to 363 liters per day per family after the project. tariffs currently adopted in most towns are still below what the TDF recommends. and earning income. In the eight towns in which the DWSS conducted benefit monitoring and evaluation in late 2008. The sensitivity analysis considered a (i) 10% increase in operating cost. childrearing. . 1992. and bathing habits in town project areas were found to be improved after the project. the health and hygiene public awareness program. household and personal hygiene. This indicates that the town projects are sensitive to various types of unanticipated shocks that affect its revenue and cost. 2008. Impact 48. E. who earlier had to walk long distances to fetch water for household use.11 46.

and cost sharing. Environmental compliance monitoring was satisfactory and done according to the environmental management plan. The project built social capital in all participating towns by facilitating active community participation in the project. design. Overall. The project actively promoted women’s empowerment. It supported local beneficiaries' participation in town project formulation. The project achieved a beneficiary contribution of 50% of the total capital cost of constructing water supply systems. The performance of WUAs was satisfactory. It was implemented as conceived. It was able to improve WSS services in 29 project towns.000 people. and responsible. Women’s wider and more active participation in WUSCs has enhanced their awareness and knowledge of sustainability in town projects. on behalf of WUAs. O&M. The urban water supply and sanitation policy adopted by the government in 2009 was based on the approach adopted by the project. Manila. 52. and the accountability of all the stakeholders. in project implementation. Intense networking and support among members of WUSCs increased the self-confidence and involvement of community members. The project successfully introduced a cost-sharing mechanism and the practice of community involvement in small town development for the first time in Nepal. the project was rated successful. IV. . they were handled by WUSCs and local governments following ADB guidelines. Land acquisition and subsequent resettlement issues were not very significant. OVERALL ASSESSMENT AND RECOMMENDATIONS Overall Assessment 53. water quality issues. and the relevance to family health and hygiene. particularly for improved water supply facilities.24 The project was efficient and likely sustainable. Community ownership is quite strong. committed. meeting 95% of the outcome target of providing improved access to WSS services to 600. There is large demand in other towns for the EA to help improve their own WSS conditions. transparency. In town projects where such issues were relevant. 2008. Beneficiaries received social and personal benefits by belonging to WUSCs and WUAs. The project has successfully promoted good governance in terms of beneficiaries’ wider participation. 24 ADB. All WUSCs formed under the project have developed strong ownership of their town projects and demonstrated strong commitment to sustaining project benefits. A. Country Assistance Program Evaluation. It was designed in line with the strategic priorities of the government and ADB. There was a strong demand for project outputs.12 50. The project paved the way for subsequent small town water supply projects. and members of WUSCs were very active. implementation. This was evident in WUSCs’ collection of water tariffs to sustain the O&M of town project facilities. at 33% in line with government policy. WUSCs played important roles. facilitating women’s strong representation in WUSCs. 51. The project improved environmental sanitation conditions in all project towns by improving water supply and public and private sanitation facilities. The project was both pioneering and innovative in demonstrating new and generally effective sector practices involving multiple stakeholders.

Experience shows that design shortcomings have caused significant implementation delays and numerous contract variations. 61. implementation modalities. Five regional technical support centers were established very late in the project. 63. 60. ADB should be more involved in ensuring that appropriate mechanisms for providing technical support are in place and that the unit’s capacity is strengthened. Better linkage between health outcomes and WSS outputs should be promoted in WSS projects by including sanitation. hygiene. and health promotion activities in project design. who do not know how to operate some of the equipment. Lessons 54. A unit to provide technical support to WUSCs should be established in an early stage of the project. The participation of local communities during both design and implementation is crucial for project sustainability and effective project implementation. water demand management through public awareness campaigns. and the roles of stakeholders contribute to successful project implementation. The first year of operation can be assigned to the contractor to provide incentives to improve the quality of construction and achieve the early completion of works. WUSCs can act as reliable facilitators between the project and beneficiaries. 55. A . 62. 56. 57. Extensive and thorough investigations of potential project sites need to be carried out to the extent possible during feasibility studies and detailed design to ensure that designs are appropriate. Project design should accommodate the complexity of community participation and the time it requires. Capacity development needs to cover not only the technical aspects of O&M but also financial management. and the staff of WUSCs should be trained throughout the project implementation period. and only one center was staffed by two people. Adequate attention should be paid to capacity development in communities to ensure the sustainability of WSS facilities. The difficulty of establishing technical support centers in five development regions of Nepal under the technical support components was mainly because the EA accorded them low priority and ADB did not follow up sufficiently. Team leader inputs should be adequately provisioned in engineering and design consultant contracts to ensure timely technical support and advice for town projects to facilitate timely decisions. 58. In community-based projects. All components of projects should be treated as important and monitored from the early stages of project implementation. Effective orientation programs on project approaches. Preparing the project management and operation manual before the inception of the project will address initial operation and sustainable issues. Implementation partners should be well informed on the approaches and strategies of the project prior to implementation.13 B. and the protection of water sources including water conservation. Community organizations require continued support during and after the transition to the post-construction period to ensure the sustainability of water supply facilities. A capacity-development program for beneficiaries needs to be well planned and implemented in accordance with the project implementation schedule and progress. rather than just at the end. 59.

The DWSS should. As the government has not fully complied with the covenants related to the establishment and operation of regional technical support centers. Water tariffs should be sufficient to cover investment repayment and O&M costs. it must regularly report to ADB on progress toward this end. A dedicated project coordination office must be established to facilitate implementation and coordination with various agencies. as well as relevant. 66. The TDF needs to support all WUAs’ tariff adjustments to improve the financial sustainability of town projects. specific. the timely payment of interest and principal by WUAs. Recommendations 1. . demand-driven approach to selecting subprojects should be followed in all community-based projects to ensure that there is both need and demand for project outputs and subsequent ownership. cost effectiveness. A bottom-up. provide technical support and budget allocations to address problems identified in town projects for at least 3 years after the construction of a water supply system is completed. especially when the project involves multiple stakeholders and institutions over a vast geographic area and a new project approach. The DWSS shall focus its future monitoring of the performance of town projects on sustaining benefits. through its division or subdivision offices. 71. This will help ensure timely implementation and avoid start-up delays. The TDF needs to follow up with town projects to ensure appropriate revenue generation. and quantifiable performance indicators with which the outcome and outputs can be measured. appropriate connection fees or other mechanisms should be considered based on the socioeconomic status of the towns and households.14 monitoring mechanism to measure the effectiveness of the capacity development programs needs to be established. 2. While following up with the WUSCs. Implementation procedures and guidelines should be prepared before project effectiveness. Technical audits should be carried out at least twice during project implementation to ensure the quality of construction. Regarding the participation of poor households. Covenants. The design and monitoring framework needs to be developed with clear outcome and output statements. 67. 72. 65. the TDF should consider an extension of its support to strengthen the capacity of WUSCs and WUAs through training on financial management and tariff setting. C. This is essential for the sustainability of town projects. Project Related 64. 70. General 68. particularly for projects that take new approaches and are implemented with multiple stakeholders. and town projects’ sustainability. 69. This will require a detailed survey of project outputs and the identification of all problems on a regular basis. Future monitoring. Further action or follow up. and timely completion.

Consultants and contractors involved in project implementation should be made fully accountable for the quality of their work and their effects on project outputs. .15 73. The government should develop and implement a performance monitoring mechanism.

Improved town project management in terms of progress and quality . Each town project has an office to manage and operate water supply. Water user associations (WUAs) became registered institutions. including time for rest and socialization.0 hours per day in Khaireni and Lekhnath. were recruited. and bathing habits improved. gained access to drinking water. allowing more time for quality care of children. and self. Water billing forms were prepared and used. 4 were dropped. Impact Enhance human development and reduce poverty through the sustainable improvement of water supply and sanitation conditions in small towns. against the target of 600.16 Appendix 1 PROJECT FRAMEWORK Design Summary I. Women are 33% of participants in WUSCs. with average savings of 2.000 beneficiaries. toilet.a No data to assess the achievement. Performance Indicators/Targets Improved health conditions Assessment/Recommendation 593. Outcome Improve water supply and sanitation in selected small towns. One of the town projects has outsourced tariff collection to a commercial bank. ensuring local ownership. with WUSCs overseeing water supply systems as the executive committees of WUAs. including meter readers and accountants.86 hours per day in Parsa to 4. Tariffs are collected to cover the cost of operating and maintaining systems and to partly cover capital costs. Staff. An annual general assembly is organized by each town project. Consumption of water increased as 86% of families gain access to drinking water that meets the water quality standard of Nepal. home. Improved water supply and sanitation in service areas in 40–50 small towns Support the participation of local beneficiaries in all stages of the project. Higher rate of school attendance by children Increased productive time Time saved from fetching water as determined for each town in the quick community survey. Operation and maintenance is carried by the staff hired by WUAs and WUSCs. Local ownership of the completed town projects Communities contribute 50% of capital costs for water supply infrastructure. Hand-washing. II.000. Water user and sanitation committees (WUSCs) were highly commited. leaving 29 small towns to acquire improved water supply and sanitation facilities.b From 33 small towns selected in batches. ranged from 0.1 hours.

Sustainability Build the capacity of WUSCs and promote community-based water quality monitoring.000 liters. Meeting World Health Organization drinking water standard Surface drainage and public sanitation facilities in core areas with high population density . The staff of town projects are capable of monitoring turbidity and chlorination. Training on accounting procedures was provided to 29 accountants and 44 members of WUSCs. pump operating. and management capacity in WUSCs for sustainability WUSCs able to monitor water quality Training and equipment for water quality monitoring was provided. Although the new water tariff rate is higher than the tariff before the project. Minor works are being done by the staff of WUSCs. The water supply system was designed to meet the World Health Organization drinking water standard. and major works are outsourced to local contractors. financial. Coverage of 80% was achieved with 76% house connections and 4% community taps. Improved technical. Outputs Water Supply and Sanitation Establishment of small businesses in meter repair and resale Cover the service areas in the project towns 80% with house connections and 20% with community taps.450 meters of surface drainage and 54 public latrines. Monthly tariffs are in the range of NRs30–NRs300 per 10. low well discharge. Demand for drinking water has increased. Training was provided to staff of WUSCs on meter reading. it is less than the design estimate. and masonry. Constructed infrastructure included 16. Technical and financial support to WUAs is needed to rectify problems related to water treatment plants. The TDF is to monitor the tariff and performance of the town projects. and leakage. Not established Capacity for operation and maintenance enhanced III.Appendix 1 17 Design Summary Performance Indicators/Targets Higher tariff collection Assessment/Recommendation WUSCs introduced regular tariff collection systems in all 29 town projects. WUSCs are accountable for providing water supply services. Mass campaigning needs to be done at the town project level to accelerate house connections. poor water quality.

bathing. ADB. 2007.683 women. Financial support of 50% of the cost of latrine construction was provided to the poor. However.18 Appendix 1 Design Summary Public awareness campaigns and health and hygiene education Performance Indicators/Targets Transparency in town project design Participation of local communities Assessment/Recommendation Public awareness campaigns were conducted in each town. Division and subdivision offices of the Department of Water Supply and Sewerage provide post-construction support. Benefit and Monitoring Report. Nepal. A financial manual was prepared. Training on accounting procedures was provided to accountants and a member from each WUSC. Discussions with the department are in progress. 2008. Nepal. Financial training was provided to 25 members of WUSCs. The Asian Development Bank will monitor this under the Second Small Towns Water Supply and Sanitation Sector Project. Benefit and Monitoring Report. b a . Members of WUSCs in town projects are fully involved in town project design and the implementation of contracts. including 1. Project completion review mission.2000. water quality testing. Sources: ADB.152 users. Department of Water Supply and Sewerage. Manila. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Nepal for the Small Towns Water Supply and Sanitation Sector Project. and latrine-use habits improved. December 2009–January 2010. meter calibration. and training Five regional technical support centers were established. fee-based services have yet to be provided. Hand-washing. Department of Water Supply and Sewerage. Orientation training provided to 489 members of WUSCs. updated in June 2010. Health and hygiene awareness Assistance in providing private latrines to lowincome groups on a costsharing basis Technical support for WUSCs 5 regional technical support centers established to provide fee-based services to WUSCs for engineering. The government has engaged a consultant under the Second Small Towns Water Supply and Sanitation Sector Project to assess the established units and recommend a modality for their operation. Health and hygiene education was provided to 3.

30 Beneficiaries became aware of the undertaken importance of safe defecation. 4 (Dhankuta. 29 A member from each WUSC received training training on finance on finance. Users received health and hygiene No.115 On-premise latrines for ultra-poor No. Table A2. Institutional taps were provided for hospitals. 2. meter 54 16. Members of WUSCs orientated No. House connections % 76 Community taps No. Nilkantha. as education significant change in their hygiene behavior was noted by the project completion review mission.450 Public Awareness Campaigns and Health and Hygiene Education Public awareness campaigns No.152 One project town dropped out during the first education year of the civil works contract. Source(s): ADB. Actual 29 Remarks/Assessment Of 33 small towns. Government provided a 50% cost subsidy to construct on-premise latrines for the ultra poor. WUSC = water user and sanitation committee. Limited surface drainage.022 Public latrines Surface drainage No. Community action plans adopted for No. 10. 3. schools. 2010. and the timing of the on accounting training was inappropriate. impact is insignificant.Appendix 2 19 PROJECT OUTPUTS Table A2. Fee-based service is being provided to the public.2 presents the functional and operational status of projects in 29 towns. 5 The centers have not yet adopted procedures established to provide its services to town projects for water quality testing and meter calibration. Women receive health and hygiene No. . Technical Support for WUSCs Regional technical support centers No.1: Summary of Project Outputs Item Water Supply and Sanitation Town water supply Unit No. and government offices. 29 Training was limited. Number of staffers received training No.683 Women’s education was effective.493 Institutional taps No. 30 WUSCs commitment for proceeding with the each town implementation of town projects was demonstrated. 489 Members of WUSCs have less confidence in about water supply systems dealing with technical issues. House connection includes private taps as well as yard connections. = number. 3. Users preferred to have private water tap connections rather than community taps. Members of WUSCs received No. Lamahi. 1. No. and Nijgadh) were dropped.

Attariya Small Town Water Supply and Sanitation Project Within a year after commencement. Birendranagar Small Towns Water Supply and Sanitation Sector Project Water supply is intermittent and interrupted by landslides. Ratnanagar Small Towns Water Supply and Sanitation Project Water supply is intermittent to save electricity. Water quality is good and disinfection is done. The problem was temporary fixed to supply water. The water treatment plant functions but suboptimally. Principal and interest are regularly repaid. The Department of Water Supply and Sewerage (DWSS) considered developing tube wells under the government’s deep tube well construction program. Water quality needs to be monitored. Fikkal Small Town Water Supply and Sanitation Project Water supply is regular but interrupted due to landslides during rainy season. Water quality is good with a disinfection unit. The water user and sanitation committees (WUSCs) stopped operating the water supply system.20 Appendix 2 Table A2. Principal and interest are regularly repaid. which washed away a portion of the transmission line. No loan payment has been made to the TDF. Water quality is good and disinfection is done. and the system is managed well. Part of the interest has been paid. Bandipur Small Towns Water Supply and Sanitation Sector Project The water supply is intermittent. Water is acidic and probably contains iron. Disinfection is provided. An initial interest payment was made to the Town Development Fund (TDF) Trijuga Small Town Water Supply and Sanitation Project Adequate but intermittent water supply is achieved. which have washed away a portion of water transmission line. The internal diameter of galvanized iron pipes is decreasing with rust encrustation. The problem was temporarily fixed to supply water. There is demand for expanding the system. both tube wells were heavily silted.2: Functional and Operational Status of 29 Town Projects (as of 30 June 2010) Name of Town Project Parsa Small Town Water Supply and Sanitation Project Assessment Water supply is available for 24 hours daily. as yield from the source diminishes and population growth accelerates. An initial principal and interest repayment has been made to the TDF. Water quality is good. . The water treatment plant functions.

Water quality is good. Lekhnath Small Towns Water Supply Project Assessment Water supply is regular as demand grows.Appendix 2 21 Name of Town Project Interest is regularly repaid. Principal and interest are regularly repaid. Kawasoti Small Towns Water Supply Project Water supply is intermittent due to minor defects and damage from floods. Bardibas Small Towns Water Supply Project The functioning of the water supply system is being tested. Interest and principal are partly repaid. Water quality is good. Kohalpur Small Towns Water Supply Project Water supply is irregular. Prithvinarayan Small Towns Water Supply Project Water supply is intermittent to save electricity. . The water treatment plant is not in full operation. Water quality is good. Water quality is good. Water quality is good with a disinfection unit. Interest is being repaid. Kairenitar Small Towns Water Supply Project Water supply is regular. The treatment plant is functioning. The treatment plant is functioning. Interest is partly repaid. Principal and interest are regularly repaid. Interest and principal are partly repaid. Principal and interest are regularly repaid. and remedial measures are needed. Surunga Small Towns Water Supply Project Water supply is regular. and the treatment plant functions. Interest is partly repaid. Beni Small Towns Water Supply Project Water supply is irregular because a landslide washed away a portion of the transmission line. with low yield from tube wells. but the water treatment plant is not in full operation. but the pressure filter does not function during rainy season because of high turbidity. but the treatment plant needs improvement. Principal and interest are regularly repaid. Kusma Small Towns Water Supply Project Water supply is regular. There is no treatment plant.

Water supply is regular. Interest is partly repaid. No interest or principal is repaid. but the transmission line needs protection where it crosses a river. Water supply is irregular because one of the wells failed. but the source river is changing course. The cost of operating the treatment plant is high. Water quality is good. Tulsipur Small Towns Water Supply Project Water supply is regular. Tribhuwannagar Small Towns Water Supply Project Bardaghat Small Towns Water Supply Project Water supply is regular. The treatment plant is functional. Birtamod Small Towns Water Supply Project Water supply is intermittent to save electricity. There is no treatment plant. but another scheme has a dispute over the source. Mahendranagar Small Towns Water Supply Project Water supply is irregular because of a problem of lime encrusting the distribution system. The treatment plant is functional. meters. and the water users association would like to use part of its revenue to develop the tube well. Calcination is a major. There is no treatment plant. Belbari Small Towns Water Supply Project Lamki Small Towns Water Supply Project Water supply is regular. The treatment plant is functional. and the sump-well does not function optimally. The treatment plant functional. Principal and interest are being repaid. Waling Small Towns Water Supply Project Water supply from two subsystems is functioning. but calcium is being deposited in pipelines. Once the water supply is regular. Interest is being repaid. Sunawal Small Towns Water Supply Project Water supply is irregular due to low discharge from wells. Water quality is good. worsening problem that requires mitigation. No interest or principal is paid. the association is willing to repay interest and principal. Interest is being repaid.22 Appendix 2 Name of Town Project Bijuwar Small Towns Water Supply Project Assessment Water supply is regular. Interest is partly repaid. No repayment has been made. and the filtration unit. The treatment plant needs minor improvement. .

Water supply is intermittent to save electricity. The treatment plant is functional. Source: Department of Water Supply and Sewerage survey in June 2010 toward prioritizing the allocation of government funds to rectify problems. Repayment has not started. No interest or principal has been repaid. The treatment plant is functional. . Budhabare Small Towns Water Supply Project Itahari Small Towns Water Supply Project Water supply is regular.Appendix 2 23 Name of Town Project Assessment Interest and principal are being repaid.

296 19. Incremental Administrative Expenses C.024 1.983 555 Item A.987 .088 555 Local Currency 15. Water supply 2.660 41.354 820 24.24 Appendix 3 PROJECT COST Table A3.607 918 4. Interest During Construction Total Source: Asian Development Bank estimates. Civil Works 1.174 391 3.568 205 1.1: Actual Project Cost ($'000) Foreign Exchange 23.872 216 2. Equipment and Vehicles C. Private latrines Subtotal (A) B. Nongovernment Organization Services E. Consulting Services and Training D.691 50.4301 623 2.921 1. 31.660 17. Public sanitation and drainage 3.433 527 430 407 895 Total Cost 38.

200 2.668 24.987 Asian Development Bank Appraisal Actual Government Appraisal Actual Local Governments Appraisal Actual Beneficiaries Appraisal Actual Total Appraisal Actual Total Cost 34.505 1.301 623 2.088 555 32.983 555 50.830 23.040 9. .006 1.131 10.061 1.120 1.660 918 4.025 1.366 680 53.730 458 205 550 830 8.288 1.100 1.590 6.656 680 819 3.872 623 2.179 2.2: Financing Plan ($ '000) Description Civil Works Water supply Public sanitation and drainage Private latrines Equipment and Vehicles Consulting Services and Training Nongovernment Organizations Incremental Administrative Expenses Interest During Construction 945 4.838 40.023 11.983 458 205 8.922 1.040 5.353 820 550 105 501 118 710 895 830 98 430 8.798 Source: Asian Development Bank estimates.050 5.869 38.Appendix 4 25 Table A3.

084 32.239 2.185 189.871.209.017 162. Water Supply Civil Works.947 26.130.169 FY2005 1.074 41.666 FY2010 866.787 903.432 2.741.154 401.160 FY2006 3.590 60.677 82.387 21.666 8.160 629.949 112.000 36.886 677.430 60.339.678 819.088.390 7.934 FY2008 7.703 FY2004 378. Public Sanitation and Drainage Equipment and Vehicles Consulting Services and Training Nongovernment Organization Services Incremental Administration Expenses Interest Charges Total 188.349 204.819 99.856 445.144 554.055 24.302 17.692.858 70.078 6.079 12.491.294 317.094 89. Asian Development Bank.043 194.793 141.643 3.640 61.318.396 785.679 424.401 372.699 753.024 130.770.237 280.235 124.353. .367 195.543 73.367 FY2007 5.869 FY2009 4.924 FY = fiscal year.763 121.753 209.440 33.858.331 4.634 29.519 FY2002 FY2003 17.169 3.886 198.623 772.700 623.989 819.482.277 423.444 192. Source: Loan Financial Information System.068.625 23.859 382.1: Yearly Loan Disbursement ($) Description Civil Works.362 Total 23.142 33.26 Appendix 4 LOAN DISBURSEMENT Table A4.515 807.843 375.670 6.

000 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY = fiscal year.000 3.000 1.000 2.000 4.000.Appendix 4 27 Yearly Loan Disbursements 9.000.000 8.000.000.000 Disbursements ($) 6.000.000 5.000.000.000.000.000 7. Source(s): Asian Development Bank .

28 Appendix 4 Table A4.755 30.000 0.771 24.616 7.000 0.000 0.884 4.132 Cumulative Percentage of Actual Disbursements 0.490 25.220 1.389 7.000 0.354 14.299 4.487 6.000 0.128 0.740 0.156 1.112 0.483 2. Asian Development Bank.875 20.403 32.004 0.880 78.272 2.000 0. .301 12.932 16.363 0.000 0.160 27.625 0.789 0.742 65.763 1.346 3.000 1.976 11.805 40.072 1.224 0.731 100.802 2.538 0.556 1.734 0.479 0.286 3.229 31.243 66.495 31.089 0.904 9.130 13.000 0.000 0.526 3.863 43.000 0.088 13.000 0.325 27.407 0.729 Actual Cumulative 0.877 58.359 51.030 92.954 2.602 94.161 0.905 97.455 3.616 0.670 2.117 5.529 1.790 5.954 1.500 0.628 0.000 0.056 1.267 0.500 0.763 2.000 0.711 31.000 0.643 29.047 35.000 0.174 0.964 21.501 5.210 0.925 16.816 8.737 2.669 18.487 5.126 2.088 1.302 86.628 0.060 1.206 2.190 97.008 15.505 13.2: Quarterly Disbursements ($ million) Actual Disbursements 0.427 1.000 0.291 4.000 Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Quarter III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV ADB Source: Loan Financial Information Systems.

Project Planning Phase (i) Establishment of Implemetnation Procedures (ii) Establishment of Implementation Procedures (iii) Recuritement of Project 2000 2001 2002 2003 2004 2005 2006 2007 2008 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Implementation Consultants (iv) Shortlisting of Engineering Consultants and NGOs B. Public Awareness Campaigns and Health and Hygiene Education (i) Selection of NGOs (ii) Public Awareness Campaigns (Preparation Phase) (iii) Health and Hygiene Education and Focused Training (Implementation Phase) (iv) Promotion and Construction of Household Latrines (Implementation Phase) C.Appendix 5 29 PROJECT IMPLEMENTATION SCHEDULE Task Description A. Construction of Water Supply and Public Sanitation Facilities (i) Selection of Subproject Consultants (ii) Feasibility Study (iii) Detailed Engineering Design and Bidding (iv) Civil Works Construction and Procurement of Equipment (v) Commissioning and Follow-up .

30 Appendix 5 Task Description D. Technical Support to WUSCs (i) Setting up Water Quality Monitoring Mechanism and Schedule (ii) Setting up Water Quality Monitoring and Technical Support Center (iii) Training in Water Quality Monitoring and Meter Caliberation E. WUSCs=Water User and Santiation Committees Legend : : Planned . NGOs=nongovernmental organization. Capacity Buidling and Training (i) Training Needs Assessment and Development of Training Programs (ii) Training and Orientation for DWSS and other Project Statkeholders (iii) Training and Orientation for Community and WUSC (Implementation Phase) 2000 2001 2002 2003 2004 2005 2006 2007 2008 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 : Planned : Actual DWSS=Department of Water Supply and Sewerage.

or cause to be insured. by ADB loan review mission. including a grace period of 5 years and an interest rate of 5% per annum.06 (b) Complied with Section 4. and (iv) furnish to the Bank such other information concerning such accounts and financial statements and the audit thereof as the Bank shall from time to time reasonably request. and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such goods. The Borrower shall furnish.05 (a) Complied with Section 5. all in the English language).5% per annum. separate accounts for the Project. In 2005. 4. Section 4. The Borrower shall re-lend to TDF ADB funds under a Subsidiary Loan Agreement upon terms and conditions satisfactory to ADB and shall cause TDF to apply such proceeds to the financing of expenditures under Part B of the Project. The Borrower shall (i) maintain. and terms of reference are acceptable to the Bank. MPPW and TDF. The Borrower shall make arrangements satisfactory to the Bank for insurance of the Project facilities to such extent and against such risks and in such amounts as shall be consistent with sound practice. and each Town Project. Such reports shall be submitted in such form and in Status of Compliance Complied with.07 (b) Complied with . the interest on the sub-loan to the Town Development Fund (TDF) was revised from 5% per annum to 3. 5. the goods to be imported for the Project and to be financed out of the proceeds of the Loan against hazards incident to the acquisition. in accordance with appropriate auditing standards consistently applied. (ii) have such accounts and related financial statements audited annually. or cause to be maintained. transportation. and Project component. if necessary. 3.Appendix 6 31 STATUS OF COMPLIANCE WITH LOAN COVENANTS Reference in Loan Agreement Section 4. MOF. The Borrower shall assume the foreign exchange risk. and delivery thereof to the place of use or installation. four-monthly reports on the carrying out of the Project and on the operation and management of the Project facilities. certified copies of such audited relating thereto (including the auditors’ opinion on the use of the procedures for imprest account and statement of expenditures. These terms and conditions will be reviewed jointly and adjusted. the Borrower undertakes to insure. TDF shall on-lend the funds to WUSCs participating in the Project at an interest rate of 8% per annum with a maximum repayment period of 12 years to 15 years including a grace period of 3 years. experience. with one month after the four-month period under review. 2.05 (b) Complied with Section 4. The terms of re-lending shall include a repayment period of 20 years. by independent auditors whose qualifications. (iii) furnish to the Bank as soon as available but in any event not later than twelve (12) months after the end of each related fiscal year. every 2 years from the date of Loan effectiveness. or cause to be furnished.05 (a) Covenants 1. to the Bank. Without limiting the generality of the foregoing.

among other things. and Bank staff. such a period as the Bank shall reasonably request. and WUSCs. Justice and Parliamentary Affairs respectively. 4 Complied with . 4 Complied with Schedule 5. comprising the Secretary (Chair) and Joint Secretary of MPPW. 4 Complied with Schedule 5. and (ii) the PCC to meet at least four times per year or upon request by any of its members.32 Appendix 6 Covenants such detail and within. The PCC shall be responsible for the overall coordination and liaison of Project activities with Project related departments and agencies. and shall indicate. The TPO shall also include two representatives from the local WUSC. For each Town Project undertaken in a Project town. and the Project Manager (Member Secretary). Provision shall be made for (i) the PCC chair to invite representatives of the relevant WUSCs and local bodies from the Project towns where issues relevant to the parties arise. 8. MLD. the performance by the Borrower of its obligations under this Loan Agreement and the accomplishment of the purposes of the Loan. para. PMO shall seek endorsement from WUSCs before taking further action. progress made and problems encountered during the period under review. but in any event not later than three months thereafter or such later date as may be agreed for this purpose between the Borrower and the Bank. Reference in Loan Agreement Status of Compliance Section 4. The Borrower shall prepare and furnish to the Bank a report. steps taken or proposed to be taken to remedy these problems. Director General of DWSS. and proposed programs of activities and expected progress during the following review period. the PMO shall establish a Town Project Office (TPO) with appropriate qualified staff. NGOs. including its cost. and NGO representatives as observers. an apex WUSC shall be establish by the relevant WUAs following procedures acceptable to the Bank. at least one of whom is female. By 31 December 2000. on the execution and initial operation of the Project. subject matter specialists. para. as ad hoc members. to coordinate the field activities of consultants. Where more than one WUSC is involved in the service area covered by a Town Project. and Ministry of Law. Executive Director of TDF. local bodies. in such form and in such detail as the Bank shall reasonably request. 9. 6. (Alternate Chair). the Borrower shall establish a Project Coordination Committee (PCC). Promptly after physical completion of the Project. 7. including a minimum of the one female social worker. At each key milestone of the Town Project cycle as agreed with the Bank. the civil works and the related equipment and supplies shall be combined into one contract package and shall be referred to as a civil works contract. In each Project town. para. consultants.07 (c) Complied with but delayed Section 3. a senior official from each of the MOF.

(iii) meet at least two of the following indicators of hardship regarding water supply and sanitation facilities: (a) marginal or unacceptable low water quality (i. basic telecommunication. (ii) a population density of at least 40 person per hectare. 7 Complied with . The local bodies of each proposed Project town shall be responsible for providing to the relevant WUA the initial information required in order to submit a Project Town application and ensuring that the WUSC is established in the relevant Town Project service area. 12. (b) the proposed Project town should: (i) be located close to an all weather road along the east-west highway or the main north-south feeder roads. para.000 if it is in the hills or 5. (d) 50% of the water users have to spend more than 30 minutes per day to collect water.000 persons. local materials and a minimum cash component of 5% of the construction cost.e. and the Borrower through the PMO shall provide the balance as a grant. with endorsement of the concerned DDC. When lodging the application.Appendix 6 33 Covenants 10. in two or more important categories as determined by PMO). which shall be composed of labor. (ii) have access to grid electricity. (b) water quantity available from the current system is less than 30 lpcd. and a maximum of 40.000 if located in the Terai. and (e) 50% of the service area population have no private latrines. Applications shall only be submitted in respect of a proposed Project town that meets the following criteria: (a) the affected service area under the proposed Town Project has: (i) a population of a minimum of 3. an lower secondary school. para. or national standards when in effect. that in the event that the application to participants is successful: (a) the local bodies shall be responsible for contributing 20% of the construction cost of the public sanitation components in the Project town. and basic health services. to PMO for evaluation. para. be below the basic WHO water quality standards. available of water from taps is less than 2 hours per day. the local body and the WUSC shall acknowledge to the PMO and agree in writing. 5 Status of Compliance Complied with Schedule 5. 6 Complied with Schedule 5. banking service. (b) the WUSC shall be (i) responsible for contributing a minimum of 50% of the construction cost of the water supply scheme including a direct contribution of 20% by the Project town community . 11. the required funds to meet Reference in Loan Agreement Schedule 5. and (ii) (a) borrow from TDF. An application in the prescribed form for participation in the Project of a proposed Project town shall be jointly submitted by the local bodies and WUSC.

(d) the availability of TDF loans and the obligation to pay back the borrowed funds.34 Appendix 6 Covenants the additional 30% of the water supply scheme construction cost. 15. The PMO shall then engage an NGO to conduct a public awareness campaign in the proposed Project town focusing on: (a) the roles and responsibilities of the WUSC. PMO shall. 8 Complied with Schedule 5. The borrower’s contribution shall not include local materials as defined by the PMO. Reference in Loan Agreement Status of Compliance Schedule 5. and water tariffs. (b) the need to share capital costs of the water supply systems. TDF. and (c) the cost of construction of private latrines shall be met up to a maximum of 50% by the borrower through the PMO as a grant. and shall only apply to low income households as identified by the relevant WUSC and NGO. PMO. with the balance to be met by the household. to a Community Action Plan which outlines the board terms and conditions of the proposed Town Project. a Town project Agreement between the relevant WUSC. and (f) land acquisition and resettlement issues. and responsibilities to be undertaken by all related parties. By 31 December 2000. in consultation with TDF. the implementation arrangements. setting. finalize selection criteria for Project towns to participate in the Project by indicating the appropriate weights to be assigned to each of the criteria during the selection process and submit them to the Bank for approval. (e) representation of women in the decision making process. Upon such confirmation by the relevant WUSC. and financing arrangement. 11 Complied with . and PMO on behalf of the Borrower. and collecting water tariffs from the users to repay the TDF loan. detailed engineering design shall occur. 13. and TDF to the relevant WUSC for confirmation of the critical design parameters and projected cost contribution for the proposed Town Project. each WUSC and the relevant local bodies shall confirm their willingness to participate in the Project by agreeing in writing. (b) be responsible for reviewing. 10 Complied with Schedule 5. 9 Complied with Schedule 5. Once a Project town has been selected for participation in the Project. and (d) be responsible for the operation and maintenance (O&M) of the systems. para. shall be signed before tendering for the civil works commences based on the completed detailed design. para. (c) the linkages between the desired level of services. The recommendations of the feasibility study shall be presented jointly by the consultants. local bodies. para. A feasibility study shall be conducted of various options for delivery of water supply which associates the service level required with the cost involved. and DWSS. 14. (c) own the water supply schemes when constructed. Once the design is finalized. the cost contribution and O&M expenditure. para. TDF.

for providing partial financing of the construction costs. TDF shall develop a suitable tariff accounting framework for WUSCs and shall monitor water tariffs in the Project towns Schedule 5. and shall finalize the proforma Sub-loan Agreement based on feedback from ADB and MOF.para. Reference in Loan Agreement Schedule 5. and in the event that a Town Project is selected. 19. the WUA and relevant stakeholders. (c) focused training including latrine construction. (b) community education. 17. An evaluation committee. and training of community health workers. and (c) exercising such other due diligence as required for a prudent financial institution. and the relevant WUSC shall review the bid evaluations prepared by PMO and determine the bid winner. A Health and Hygiene Education Program (HHE) shall then be conducted. TDF shall execute the Subsidiary Loan Agreement. para 16 Complied with . the relevant WUSC and the TDF shall enter into a Sub-loan Agreement for partial construction funding. will coordinate other institutions and civil groups active in sanitation improvement. of Town Project-related information through public briefings or by posting material on local bulletin boards. solid waste management. and (d) details for obtaining assistance under the Project of up to fifty percent of costs for participating households in constructing in-premise sanitation facilities. para. para.Appendix 6 35 Covenants 16. 20. TDF shall be responsible for assessing the financial sustainability of the proposed Town Project. 12 Status of Compliance Complied with Schedule 5. 13 Complied with Schedule 5. 14 Complied with Schedule 5. to develop an appropriate training program. TDF shall maintain its own financial sustainability by: (a) making adequate provisions for non-performing assets from fiscal year 2000/01. The PMO shall ensure that the Project town committees are involved in the supervision and monitoring of the performance of contracts. including examining the proposed Town Project costs in connection with the debt servicing capabilities of the local bodies and the WUSC. para. The HHE will include (a) school hygiene education. Negotiations shall be undertaken and completed between PMO and the bid winner and copies of negotiated contracts shall be forwarded to the ADB for approval. 18. The NGO that is selected by PMO in consultation with the relevant WUSC. animal waste management. WUSCs shall inform in a timely manner. Following selection of a Project town. para. 16 Complied with 21. TDF. comprising representatives from the PMO. Before 31 December 2000. (b) maintaining a debt service coverage ratio of at least 1:1 times.15 Complied with Schedule 5. TDF shall recommend appropriate levels of water tariffs to the relevant WUSCs and shall ensure that the WUSCs take appropriate measures to effect proper collection of outstanding water bills and protect the water resources and facilities.

18 Complied with Schedule 5. and (d) the WUSC concerned has taken all necessary steps to (i) acquire the required land. (iii) financial integrity. hiring qualified individuals. 23. The PMO shall select NGOs to assist in carrying out Project implementation activities using selection criteria including (i) experience relevant to the Project objectives. Complied with . O&M of the water supply systems installed under the Project shall be the responsibility of the relevant WUSCs. TDF shall disburse to. and (ii) obtain all required permits in connection therewith. contracting out O&M to private operators. The PMO shall continually evaluate performance and techniques employed by the NGOs and provide feedbacks to the NGOs. 15. para. rights in land and water. 22. para. Training for the O&M of installed systems shall be provided by the design consultants to the WUSCs representatives and shall include techniques for the WUSCs to monitor and supervise the performance of private operators. para. O&M of the public latrines. (Loan Agreement. para 18 17. and collect loans from WUSCs to meet Town Project construction costs and ensure that the loan funds are used for the intended Town Projects. WUSCs may choose to undertake the O&M using their own members. (iv) record of proven competence in group formation. (b) a legally binding and operative Town Project Agreement has been executed on behalf of the Borrower and the WUSC concerned on terms and conditions acceptable to the Bank. Depending on the complexities of the systems. drainage and sewers with communal septic tanks shall be the responsibility of the relevant local bodies. (ii) ties with the Town Project area. TDF shall participate in procurement activities related to each Town Project implementation. and are properly collected and recorded. and rights-of-way to carry out expeditious implementation of the Town Project. or obtaining fee-based services from DWSS district offices. 18 Partly complied with Schedule 5. no withdrawals shall be made from the TDF Loan account for a Town Project until (a) relevant water users association (WUA) is established and authorized to act on behalf of the WUA. Notwithstanding any provision of the Loan Agreement or Project Agreement. Reference in Loan Agreement Status of Compliance Schedule 5. bookkeeping and account. 19 Complied with. Sewers with communal septic tanks were not constructed.36 Appendix 6 Covenants to ensure that they cover at least the O&M and debt service payments. Schedule 5. 17 Complied with Schedule 5. 16.). (c) the Town Project is determined to be financially viable by TDF. para. DWSS shall establish regional technical support centers to provide post-construction technical support to WUSCs for O&M. TDF shall provide training to WUSCs for basic tariff planning and collection methods.

WHO drinking water quality standards or national standards when in effect shall be applied in designing water systems in Project towns. evaluation and selection procedures and criteria. a time bound ten-year action plan with implementation arrangements to transfer responsibility for all water supply schemes currently under the immediate supervision. Local bodies shall be responsible for providing public land needed for constructing public latrines and communal septic tanks. and institutionalized in WUSCs and DWSS. 20. a resettlement plan shall be submitted by the PMO to the Bank for approval. shall be arranged by WUSC in accordance with the ADB’s Guidelines on Involuntary Resettlement where construction for Project town requires significant resettlement. 23. to the relevant local authorities. PMO shall finalize Project performance indicators and establish baseline conditions in consultation with the WUSC and local bodies in each Project town for purposes of Project monitoring and evaluation (M&E). 22 Complied with Schedule 5. 22. project town application. 19. and shall organize at least five regional workshops and with participants from local bodies and WUSCs to explain the design of the Project and to address concerns of the local representatives. M&E indicators and procedures shall be tested for data availability and their constraints. DWSS shall prepare and provide to ADB its concurrence. Prior to the effective date. DWSS shall provide water quality testing services to the WUSCs free of charge. implementation. and considered part of WUSC’s contribution to the Town Project cost in addition to their cash contribution. including relevant government policies and procurement guidelines. para. para. para. para. Resettlement. para. A short resettlement plan shall be included in each Community Action Plan for the guidance of WUSCs and local bodies. and performance evaluation. 23. para. O&M. and rights and responsibilities of each stakeholders. 20 Complied with Schedule 5. revised if necessary. including capital cost sharing. 21 Complied with Schedule 5. Indicative performance indicators have been agreed between the Borrower and ADB.Appendix 6 37 Covenants 18. Land to be made available for the purpose of the Project shall be valued according to the rates specified by the District Land Revenue Office. 23 Partly complied with Schedule 5. Project progress such as procurement. The benefit monitoring and evaluation shall take due account of the approaches and guidance provided under the ADB’s Reference in Loan Agreement Schedule 5. contract awarding. 24 Complied with . if any. 20 Status of Compliance Complied with Schedule 5. DWSS shall establish and maintain a web site to disclose all Project-related information. DWSS shall print out and distribute to the local bodies and WUSCs the procedures of Town Project formulation. DWSS shall be ultimately responsible for maintaining the M&E systems.

. steps taken or proposed to be taken to remedy these problems. among other things. Project completion review mission. para.07 (c) Complied with Source(s): ADB. TDF shall furnish to ADB quarterly reports on the water supply schemes under the Project and on the O&M of those facilities. 25. Reference in Loan Agreement Status of Compliance Schedule 5.2000. progress made and problems encountered during the quarter under review. Manila. Based on the evaluation conducted. 25 Complied with Project Agreement. Project activities and performance will be monitored by ADB through regular periodic reviews. Section 2. and proposed program of activities and expected progress during the following quarter.38 Appendix 6 Covenants Benefit Monitoring and Evaluation: A Handbook for Bank Staff. December 2009–January 2010. and shall indicate. agree upon any necessary modifications and improvements. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to Nepal for Small Towns Water Supply and Sanitation Sector Project. shall after the comprehensive review. Staff of the executing Agencies and Consultants. if any. if necessary. 24.2009. Such reports shall be submitted in such form and in such detail and within such a period as the Bank shall reasonably request. ADB. The Borrower shall ensure that remedial actions shall be undertaken as soon as possible to address the identified problems. the Borrower and ADB. updated in June 2010. including adjustments in Project scope and implementation arrangements. Department of Water Supply and Sewerage.

328. power.331.696. where applicable. (iii) The major O&M costs for each town project are based on water system characteristics and include operation.028. The calculation of revenue is based on the water tariff charged by the WUSC in each sample town and its plan to adjust the price in the future. the calculation of the average incremental financial cost (AIFC) and the average incremental economic cost (AIEC) per cubic meter of water sold. calculations of the economic internal rate of return (EIRR) and the financial internal rate of return (FIRR) for these town projects. District Beneficiaries Population Households 12.828.899 32.282.716. and financial projections to determine the financial sustainability of water user and sanitation committees (WUSCs).46 NRs = rupees. Table A7. To ensure comparability and forecast consistency with the RRP.039.742. November 2009–January 2010.781. 3.722.067.156. the analyses included least-cost analyses of alternative water supply development options.635 10.46 238.286.46 106.064. and maintenance. (iv) The capital and operating cost streams in the financial analysis are those used in the economic analysis plus taxes and duties paid by the WUSC on capital inputs and operating costs.434 9. 1 ADB. (v) Financial benefit streams are revenues from water sales to domestic.00 20. (ii) A capital allowance equivalent to 10% of total capital cost is made every 10 years to cover the cost of replacing pumps and other equipment in addition to ordinary O&M expenditures.433.316. Guidelines for the Economic Analysis of Projects. the economic and financial analyses of the eight sample town projects (Table A7.00 47. 1997.39 ECONOMIC AND FINANCIAL ANALYSES A. (i) Capital and operation and maintenance (O&M) costs are based on the actual cost that has been incurred by WUSCs for town project implementation and a forecast for the planned project for 15 years. Manila. B.665.751. Assumptions The assumptions in the financial and economic analysis are as follows.76 Ratnanagar Chitwan Ratnagar 76.00 40. personnel. a comparison of the AIFC and the AIEC with the proposed average tariff to assess subsidies. .968 2.476.246.00 Khairenitar Tanahu Khairenitar 18. a determination of a possible tariff structure based on affordability and willingness to pay.353 34.884 891 1.1) were carried out in accordance with Asian Development Bank (ADB) Guidelines for the Economic Analysis of Projects1 and Handbook of the Economic Analysis of Water Supply Projects. VDC = village development committee Source: ADB.44 Malakheti Lekhnath Kaski Lekhnath 170. Introduction Appendix 7 1.799 6.94 Bandipur Tanahu Bandipur 16.087 14. Project completion review mission. Consistent with the report and recommendation of the President (RRP) for the project.720.324.659 2.024.604 750 6.53 54.588.582.995 4.20 Parsa Chitwan Parsa 25.00 19.055.212.74 Kailali Geta and 37.26 57.935.628.029.821. and institutional customers.171 2. commercial.236 1. as well as a combined EIRR and FIRR for them.339 3.00 Surunga Jhapa Surunga 45.1: List of the Town Projects Selected for Economic and Financial Analysis Name of Town Project Mahendranagar Attariya Municipality Contract Cost Actual Cost VDC (NRs) (NRs) Kanchanpur Mahendranagar 46.

The financial and economic analyses were done based on the following projections. and 750 liters per day for institutions.7 is applied for unskilled labor to adjust for prevailing underemployment.5 liters per capita per day (lpcd). Demand Analysis 4. (ii) additional consumption by new domestic customers. financial prices are adjusted to economic prices. 500 liters per bed per day for hospitals and clinics. demand for water from users. focus group discussions with key informants. and the existing capacity of the water storage tanks. duties and taxes are removed.00. or roughly 12. consumption was very low at less than 70 liters per household per day. . projected water sales are based on actual amount of water sold by the WUSCs and projected growth in the number of tap connections. Only 15% of households with piped water connections had regular supply. plus the non technical loss unaccounted for water available to users from the town projects Incremental benefits from additional water consumption under the project will include the following: (i) additional consumption to meet previously suppressed and now increasing demand from existing customers.90 is applied to non-tradable inputs. 45 lpcd for community taps. Water consumption by individual and community taps has been based on the actual amount of water consumed by these households. with an average of 5. The number of water users in each tariff bracket has been estimated. and likely changes in composition have been forecasted.6%. for collection efficiency of 95%. An allowance of 5% for bad debts is assumed. The demand analysis is based on a quick community assessment and the findings of the benefit monitoring and evaluation survey conducted during project implementation. and data for DWSS systems are based on existing tariff structures. a standard conversion factor of 0. as there are very few WUSCs with experience in charging for water. Foreign exchange costs are converted at NRs74. and there are cases in which hardship and health concerns have been significantly reduced with the improvement in water supply. 65 lpcd for private yard connections and boarding schools. In quantifying project costs for economic analysis. Consequently. the unavailability of water in existing systems was the main reason for not having a house connection in the past. to be consistent with Department of Water Supply and Sewerage (DWSS) guidelines and the RRP: 100 lpcd for private indoor connections. and the situation changed significantly after the implementation of the town project. C.and out-migration— ranges from 1. (iii) suppressed demand and increased demand from commercial and institutional customers. Non-incremental benefits arise from the resource cost saving of customers switching from other sources to the new water supply system. and the observation of trends in in. 10 lpcd for day-student schools. The available information indicates that 48% of households did not have water connections and had to carry water from other sources. This is one contribution of the project.8% to 9. Suppressed demand has been minimized. For most households. The quantifiable benefits of the town projects include both incremental and non-incremental benefits.0%. 5. It is difficult to determine the impact of the increased tariffs on future demand and consumption patterns. most getting water for only a few hours per day.00 = $1. and (iv) incremental non technical loss resulting from the project.40 Appendix 7 (vi) (vii) (viii) (ix) (x) (xi) (xii) As all sample town projects have been in operation for 2 years. The annual population growth rate in town project areas—derived from district profiles. and a shadow wage rate factor of 0.

0 hours per day in Khaireni and Lekhnath.7 and actual use rate of 50%.5 lpcd in an average household of 5. Evidence exists that economic benefits arise from improved health and sanitation.41 D. Incremental benefits were calculated for increased consumption from suppressed demand.0 liters daily. which constitutes part of their willingness to pay for an improved water system in addition to willingness to pay higher tariffs for a utility with improved service. Economic Benefits Appendix 7 6. or 10. with an average of 2. and consumption of unaccounted-for water from additional water supplies. Although they cannot be measured. complemented by health and hygiene education. 7. the calculation of economic returns significantly understates the full value of the projects. particularly for girls. valued at a weighted average of incremental and non-incremental benefits. and mortality. The quantifiable benefits of two sample projects include incremental water consumption arising from additional sales to meet suppressed and increasing demand from existing water users. the improved likelihood of increased commerce and industry.6–70.7-12. morbidity. ranging from 0. 2 The socioeconomic survey results indicate that 84% of the burden of fetching water is on females and that a smaller proportion of girls than boys attend school. such as more opportunity to attend school. converted to economic prices at a shadow wage rate factor of 0.9 hours per day in Parsa to 4. and increased economic development opportunities resulting from infrastructure improvements in small towns. improvement in the quality of life from reduced need to fetch water. The increased availability of a convenient water supply has. The quick community assessment survey showed that households having to fetch water consumed on average 60. valued at levels of willingness to pay determined in the quick community assessment survey. They include increased real estate values. particularly in conjunction with the project's complementary programs of health and hygiene education. The economic benefits of nonrevenue water consumed. The finding indicated direct relationships between levels of water consumptions.6 members.2 No benefit was quantified for potential time saving in bathing. They also include non-incremental water consumption as reflected in resource cost saving for customers who switched from unsafe sources before the project to the reliable water supply systems provided by the project. 10.1 hours. This was quantified using an opportunity cost for unskilled labor assessed at an average of NRs100 per day. including the convenience of house connections. Unquantifiable benefits accrue from the economic development of towns fostered by improved infrastructure. While it is impossible to assume that all the time saved can be used for income generation. reduced health risks associated with such practices as washing dishes adjacent to unsanitary storm drains or in poorly drained outdoor areas. 8. which is a proxy indicator for the average demand price. estimated as the difference between current consumption and household demand with water supply connections. suppressed and new demand from commerce and industry in small towns. 9. hygiene. As economic development and health benefits are not readily quantifiable. new domestic demand. The financial and economic overview of the small town projects covered in this study is provided in Table A7.2. The value of contributions users are prepared to pay toward construction costs is another measure of quantified benefits. and the development of institutions such as schools and hospitals that require secure water supplies. which is consistent with other sector studies. significant health benefits arose. as low-income customers are likely to continue to use existing sources in the absence of water supply connections. The major resource cost saving was attributable to reduced time spent fetching water. alternative productive benefits can be assumed. but not paid for is estimated at 5% of total water requirements for each system. as determined for each town in a quick community survey. .

949 4.361 45.866 79.091 14.066 1.373 64.260.520 12.289 16.210 29.523 18.519 831.285 2.637 1.825 897.102 8.870 5.) Investment Cost (NRs '000) Labor Skilled labor Unskilled labor Materials Local Imported Equipment Others Social mobilization cost Technical support cost Total Investment Cost Total Financial Cost (NRs '000) Total Water Production (NRs '000) Water produced 3 in 2009 (m ) Total Economic Cost (NRs '000) Total Tariff Collection (NRs '000) 7.247 436.064.299 635.474 1.913.678 172.679.879 411 1.121 15.540 508 Attariya 1.42 Appendix 7 Table 7.020 70.179 43.199 1.228 231.648 3.292 246.026 2.374 3.968 1.288 80.951 55.271 54.168 7.315 2.483 18.153 42.769 3.528 5.370 32.408 3.031.666 8.682 1.381 2.2: Financial and Economic Assessment of the Small Town Water Supply and Sanitation Project Item Users (No.) Mahendranagar 1.007 20.653 73.699 81.218 6.197 10.941 19.249 79.266 14.763 6.850 1.450 94.384 1.492 984 1.805 833 1.212 1.037 3.133 90.996 15.363 2.839 6.378 4.267 6.951.931 423 1.952 5.471 32.301 15.750 154.896 3.700 46.614 37.480 308.153 2.035 259 Lekhnath 3.799 5.535 786 Parsa 1.334 501.225 75.360 52.650 4.251 1.803 1.993 40.388 24.764 13.181.700 112.565 121.029 2.176 178.010 72.350 37.522 3.591 20.388 25.128 1.698 5.153 1.420.137 22.728 1.179 204.525 3.188 61.998 840 Khairenitar 956 277 Bandipur 579 203 Ratnanagar 2.026 672.766 4.158 12.067 4.778 22.192 258.544 41.913 2.876 1.227 83.955 21.892 13.713 180.616 48.930 150.800 71.409 1.352.489 2.482 4.648 11.686 4.918 7.718 1.675 1.260 45.100 2.786 .090 65.730 5.553 96.912 7.749 319.774 Low-income users (No.565 626 Surunga 1.453 5.806 2.609 35.200 276 Average 13.054 39.572.635 6.

Source: Project completion review mission.690 37.193 25.266 5.599 41.526 2.763 787.490 19.014 271.016 3.160 26.415 158 145 111 129 100 100 70 86 .510 (NRs) Average Monthly Bill of Average Household (NRs) 76 102 139 109 154 Average monthly bill of lowincome Households 60 60 100 65 75 (NRs) 3 m = cubic meter.476 36560 38.022 35.049 3.008 11.500 35.816 41.764 12.465 82.310 (NRs '000) Average Household income (NRs) 29. 151.011 2.384 21. November 2009–January 2010.956 572 3.123 23.580 20.712 456 9.316 15.457 2.952 25. NRs = rupees.590 39.065 1.881 8.003 6.887 80.140 21.168 2.490 38. updated in June 2010.093 47.949 8.213 28.671 63.907 69.43 Appendix 7 Item Local Contribution (NRs '000) Cash In kind Mahendranagar Attariya Lekhnath Khairenitar Bandipur Ratnanagar Parsa Surunga Average 3.742 4.088 37.364 7.326 Total financial cost net of user contribution 70.900 42.140 21.644 109.650 Average income of low-income households 16.

0% in Bandipur to 16. is shown in table A7.2 14.7 14.1 32.261.2 –10% of Benefit (3. The other town projects—Mahendranagar. Saving on household water storage cost is expenditure on supplementary water storage systems and pumping that has been reduced or eliminated by reliable piped supplies.7 +10% of –10% of Combined Cost Benefit Case (%) (%) (%) 8.2 10.284.325. and drains.875.2) (44.380.9) 4.0 19.0 9.2) 31.9 24.523. Unquantified health benefits also arise from improved sanitation through the construction of public sanitation facilities.5 18.171. A sensitivity analysis was conducted for a 10% increase in capital and operating costs.926.4 Base Case (%) 10.3.2 (749. The EIRRs would have been much higher if the unquantified health benefits of the town projects are considered.0 14.460.44 Appendix 7 11.0 5.0 40.537.500.7) (5.072.0) (9. It has been found that improved distribution networks.0 16.9 20.6 (7.786. which combines a 10% decrease in benefits and 10% increase in costs.490.2 Combined Case (10. Water resource conservation benefits were achieved by charging cost-based tariffs.0) (8.476. by town project.3 8.3) 5.4 8.9 9. The EIRRs for the sample town projects range from 8.1 9. with EIRRs above 9%.2) . E. including related software costs for training and education.399. two out of eight town projects are still viable.1) (25.2 6. 14. A summary of the results.3 4.800.209.7 2.855.2 10. and both combined.0 8. Khairenitar.4 7.5 NPV (NRs '000) +10% of Cost (3.3 9.5) 11.3: Economic Evaluation and Sensitivity Analysis EIRR (%) Town Project Mahendranagar Attariya Lekhnath Khairenitar Bandipur Ratnanagar Parsa Surunga Average AIEC (NRs/m3) 28.3 13. and high numbers of house connections reduce the likelihood of recontamination from unclean containers that used for fetching and storing water and are necessitated by intermittent and unreliable water service.5 7.533. A summary is presented in Table A7. instead of at the water source or point of treatment.551.700. Lekhnath. All these improve sanitation.721. Ateriya.2 5. Table A7. Consistent with recent study findings.2) 52.1 (2. 13.3 8.417.2 12.0 12.947.5 (14.1 Base Case 3.0 14. and Surunga—are sensitive to this extreme situation.7) 26. but two are robust and are economically viable even in the combined worst case scenario.9 8.646. The weighted average EIRR for the eight town projects is estimated at 11.8 11.8 6.458. assumed at 7%. Demand management reduces water wastage that is common when water is provided for free.649.0 11. private latrines.0 (7.7%.3 12.0 7. This well exceeds the opportunity cost of capital.9 21.225. most water quality problems result from recontamination during and after distribution.3 13. continuity of supply.2) 135.779. Economic Evaluation and Sensitivity Analysis 12.8 26.4) (5.0 19.312.8 6. particularly in the rainy season.1 10.067.3 24. Bandipur.884. Economic Evaluation of Sample Subprojects 1.4) 46. Even in the worst case scenario.0 9.9 10.1 12.2) 38.2 7.0 6.3.148. a 10% reduction in subproject benefits.4% in Parsa.3 12.6 (2.678.6) (2.4 8.8 (1.

9 AIFC net of user contributions 29. a 10% reduction in project benefits. Financial Evaluation of Town Projects 17. the true economic subsidy is significantly lower than indicated. Source: Project completion review mission.5 22.4).3/m3.2 8. based on the prevailing tariff for each town project.1 5.8 9.9 19.45 ( ) = negative.9 13.2 21.4 Average tariff 11. as summarized in Table A7. indicate that the town projects are sensitive to any adverse shocks from the financial point of view and even more sensitive to a .3 Financial subsidy 18. November 2009–January 2010.8 Khairenitar 26.3 17. November 2009–January 2010. 3. expressed in financial and economic prices. The average economic subsidy is NRs8.7 2.0 Lekhnath 19.2 19. When the AIEC is adjusted for this.3 Ratnanagar 13.2 16. applied to a 20-year projection of the costs and benefits. even without quantification of all economic benefits.1 13. NRs = rupees.6 9. However.9 3. The resultant FIRRs and sensitivity analysis.5 22. NPV = net present value. AIFCs and AIECs were both based on a 9% rate of discount.3 6. updated in June 2010. 2. Table A7.6 5. NRs = rupees. and the financial subsidy is NRs9. m3 = cubic meter.8/m3.7 7.1 7.5 13. which is justifiable. The relatively high EIRRs for the projects demonstrate that total economic benefits far exceed economic costs.5 10. averaging NRs7. or 83% of prevailing tariff. and a combination of the two.4 9.7 14. The AIFCs and AIECs for the eight town projects were calculated to determine the subsidies needed to achieve full cost recovery.9 9. respectively.6 6.9 6. AIFC = average incremental financial cost. 16.3 7.3 Surunga 24.6 13.9 17.4. updated in June 2010.0 Bandipur 19.4: Average Incremental Costs and Subsidies (NRs/m3) Item AIEC AIFC Mahendranagar 28. AIEC = average incremental economic cost.4 30.9 19.3 5. EIRR = economic internal rate of return.5 17.7 3.0 10.5 Combined Project 18.2 19.2 9.3 10.0 27.6 15.1 Economic subsidy 17. the actual financial subsidy is lower.6 23. Similarly. or 97% of prevailing tariff. The difference between the average incremental economic cost (AIEC) per cubic meter and the tariff provides a measure of subsidy to beneficiaries per cubic meter of water consumed. The sensitivity analysis was conducted for a 10% increase in construction and operating costs.3 Parsa 13.9 Attariya 20.6 10.2 20.4/m3 (bottom row in Table A7. Average Incremental Financial and Economic Costs 15.4 20.5.4 AIEC = average incremental economic cost.8 4. m3 = cubic meter.1 15.7 5.8 Financial subsidy net of user contributions 17. summarized in Table A7. Source: Project completion review mission.3 14. The FIRRs of the sample town projects and their sensitivity to adverse changes were calculated.1 13. this does not account for users themselves contributing 34% of capital costs at the outset of the project.

5: Financial Evaluation and Sensitivity Analysis AIFC (NRs/m3) 30.2 4.3 5.7) Town Project Mahendranagar Attariya Lekhnath Khairenitar Bandipur Ratnanagar Parsa Surunga Base Case 1.9 6.6: Financial Position of Water User and Sanitation Committees (NRs ‘000) Items Operating surplus in year 20 Cash in year 20 Machinery & equipment replacement Meter replacement Total replaceMahendranagar Attariya Lekhnath Khairenitar Bandipur Ratnanagar Parsa Surunga Combined Project 12.5 22.2 20.4) 2.749 24. 19.4 (0.290 4. The relatively high sensitivity of revenues highlights the need to ensure tariff collection.3 2.5 3.950 .6 (0.570 132.2 21.2 16.718 236.601 9.272 4.585 1.4) Average 19. Table A7.180 6.922 2.7 4.46 Appendix 7 decline in water sale.299 13. 4.689 15.077 22. November 2009–January 2010.028 114.026 12.0 4.475 3.6 6.1 5.948 2. Financial projections for each system demonstrated that the WUSCs are financially sustainable based on outlined criteria and cost and tariff assumptions.0 27. m3 = cubic meter. there is an operating surplus in year 20 (Table A7.9 36.247 8.9 9.6 3.4 4.3 4.9 5.5 (2. updated in June 2010.870 9.765 889 4.770 1.475 1.382 18.6 4.379 20.5) FIRR (%) –10% of Benefits 0.315 117.9 6.768 22. and major scheduled capital replacements within a projection period.245 7.140 279.6).9 3. Source: Project completion review mission.298 3.5 22.7 5. FIRR = financial internal rate of return.2 4.442 10.8 2.3 7. Table A7.306 92.414 29.760 12.848.186.230 10.5 ( ) = negative.4 6.6 1.7 Combined Cases 1+ 2 (1. Financial Sustainability of WUSCs 18.631 39.450 10. It has been assumed that WUSCs are not required to pay taxes on their activities. capital expenditure for distribution system expansion within current design capacity and 15 years.218 30. AIFC = average incremental financial cost.771 11.3 0.2 4.920 9.1 15.287 42.3 6.9 +10% of Costs 0.057 6. The financial sustainability of WUSCs is premised on tariffs sufficient to maintain a positive cash flow while meeting all costs for O&M. NRs = rupees.1 2.125 24. After paying operating and debt-service costs.2 4.1 6. debt servicing.

58. WUSCs are developing appropriate water tariff structures to recover the cost of production including for O&M.7.389 6.881 4. as measured by percentage of household income for average and low-income households.003 4. Project construction costs were financed 50% by a government grant and 20% by upfront contributions from users.401 12.8 0.093 2.1 38.1 9138 6.7 33.280 13.0 4.007 12.057 296 1.3 Ratnanagar 21.266 15. .4 NRs = rupees.2 32.7 0.2 0.4 Lekhnath 47.3In accordance with the guidelines.8 6.457 7.292 2. Source: Project completion review mission.5 Combined Project 109.2 8.526 8.4 1. and a contribution to future capital development and the attainment of financial sustainability.5 11.9 Khairenitar 4.203 2. and Affordability 21. Tariff Structure.489 1. 22.364 4.1 0.991 2.5 0.145 5. with repayments amortized over 15 years and a 3-year grace period.8% income for low-income consumers in Ateriya to 4.022 4.284 14.4 0.644 2.0%.4 9.213 80.940 3.7 2.097 13.761 13.5 20.8 41. with the balance financed by funds onlent through the TDF at an annual interest rate of 8.1 37.0 Bandipur 3." Town Project Agreement Document.0 5. Table A7.605 7.4 0.947 8. November–December 2009.252 3.016 4.956 3.3 35.316 4.887 4.384 572 2.168 456 2. F.712 4. debt service. November–December 2009. The town projects agree to meet government guidelines2 on charging water tariffs.5 0.008 2.189 1.119 3.155 NRs = rupees.0 hand Times annual surplus 0.47 Items ment fund Mahendranagar Attariya Lekhnath Khairenitar Bandipur Ratnanagar Parsa Surunga Combined Project % cash on 68.2 80.7: Breakdown of User Contribution (NRs million) Items Users' contribution In-kind contribution Cash contribution Cash % of total contribution In-kind % of total contribution Users' contribution/household In kind Cash Mahendranagar 3. Source: Project completion review mission. Table A7.063 13.8 summarizes the tariff structure and impacts of each project in terms of estimated monthly household cost and affordability.853 2. Revenue forecasts reveal that WUSCs can repay the loan through tariffs. The rates range from a low of 3.742 12.4 Attariya 9.845 988 14.6 8.839 1.764 35.833 5.949 5.7 Parsa 8.011 6.8% for average users in Bandipur and low-income users 2 3 Government policy states that future programs for urban water supply systems "should incorporate adequate cost recovery based in differential consumption which also provides a lifeline rate for low income households with low consumption and a penalty rate for excessive consumption. The estimated cash contribution is presented in Table A7.3 Surunga 11. Cost Recovery.066 30.326 28.

6 4.9 3.0 65.1 13.4 3. November–December 2009.0 21.0 75.8 110.9 4.0 60.1 Average 3 tariff per m 11.1 19.5 4.4 3.5 22.9 10.9 Khairenitar Bandipur Ratnanagar Parsa Surunga Combined Project 3 6. the required tariffs are within both poor and average households' ability to pay.6 4.0 85.2 10.2 Affordability (% of household income) 3.1 Low-income Households 102.0 139.5 10.5 9.5 20.0 14. Table A7. m3 = cubic meter.6 30.5 13.2 6.0 Monthly bill (NRs/month) 60.6 158.8 4.2 13.5 7.9 10. Based on the affordability criterion of charges not exceeding 5% of income. 100.0 100.48 Appendix 7 in Ratnanagar.8 17.0 16.5 129.4 10. Source: Project completion review mission.0 10.8 4.0 10.0 100.8 13.0 16.6 10.4 3.0 11.0 14.2 AIFC = average incremental financial cost.1 153.6 Average Households Monthly bill (NRs/month) 76.8 4.2 9.8: Breakdown of User Contributions (NRs million) Rates (NRs/m ) MahendraLekhnagar Attariya nath Tariff Structures Bands (m3 per month) Item 0–10 m3 >10 m3 AIFC per m3 9.5 27.1 109.6 4.8 15.3 22.7 3.0 144.0 4.0 Affordability (% of household income) 4.2 3.9 9.0 70.4 . NRs = rupees.8 4.5 10.3 9.

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