Nepal - Urban Water Supply and Sanitation Rehabilitation Project

Document of The World Bankc FOR OFFICIAL USE ONLY ReportlNo. 8340-NEP STAFF APPRAISAL REPORT NEPAL URBAN WATER SUPPLY AND SANITATION REHABILITATION PROJECT APRIL 17, 1991 Infrastructure Operations Division Country Department I Asia Regional Office This document has a restricted distribution and mzay be used by recipients oily in the perfonnance of their official duties. Its contents may not otherwise be disclosed wilhout W,orld Bank authoraton.  CUVRENCY AND EQUIVALENT UNITS Nepalese Rupee (NR) = 100 paisa US$1 = NRs 30.2 WEIGHTS AND MEASURES 1 = Liter (1 liter = 0.26 US gallons) lcd = Liter per capita per day -3 = Cubic meter (1 ' = 1000 1) ml = Million liters (1 Ml = 1000 ") mld Million liters per day l/sec = Liter per second mm = Millimeter (1 mm = 0.03937 inch) m = Meter (1 m = 3.28 feet) km Kilometer (1 km = 0.62 mile) sq.km = Square kilometer (1 sq.km = 0.386 square mile) ha = Hectare (1 ha = 0.01 km2 = 2.47 acres) g - Gram (1 g = 0.035 ounce) mg/l = Milligram per liter (1 mg - 0.001 g) ABBREVIATIONS ADB Asian Development Bank FYDP = Fifteen-Year Development Program DWSS = Department of Water Supply and Sewerage GTZ - Deutsche Gesellschaft fur Technische Zusammenarbeit GmbH (Federal Republic of Germany's Agency for Technical Cooperation) HMG - His Majesty's Government of Nepal NWSC - Nepal Water Supply Corporation (formerly the Water Supply and Sewerage Corporation) OAP a Operational Action Plan SIMS - Service Improvements and Management Support UNDP - United Nations Development Progranme FISCAL YEAR July 16 - July 15  FOR OFFICIAL USE ONLI NEPAL URBAN WATSR SUPPLY AND SANITATION RE4AILITATIOP PtOJECT STAFF APPRAISAL REPORT Table 'f Contents page CREDIT AND PROJECT SUNMWRY ...........................i-i '. TUE URBAN WATER SUPPLY AND SANITATION SECTOR ...................1 A. Sector Background .......................................... B. Sector Institutions ......... ............................ 3 C. Government's Sector Objectives, Investment Planning and Strategy .... 4 D. Fifteen-Year Development Program. . . 4 E. IDA's Sector Role and Assistance Strategy . . . 5 F. Donor Support.. 7 II. TM hPROJECT. 7 A. Project Concept . ........................................... 7 B. Project Objectives. . . 8 C. Project Dcacription . . . D. Project Costs and Financing. . . 9 E. Project Implementation ..................................... 11 Implementation Agency and Period ..... .................. 11 Status of Preparation and Design Review .................. 11 Operational Action Plan ................................ 12 Land Acquisition ................... 12 Environmental Actions ................... 13 Procurement ............................................ 13 Disbursements . .......................................... 5 Special Account ............... ......................... 15 Reporting, Monitoring and Supervision ..... ............. 15 III. ORGANIZATION AND MAEAGUNMhT ......................... ......... 16 A. Nepal Water Supply Corporation ...... ...................... 16 B. Operations and Maintenance ....... ......................... 16 C. Financial Performance ..................................... 17 D. Tariffs and Financial Covenants ...... ..................... 20 E. Accounts and Audits ......... .............................. 21 This report is based on the findings of an appraisal mission to Nepal in November 1989, and updated in January 1991. Mission members included Messrs. C. Godavitarne (MHi ion Leader, Sr. Municipal Engineer), P. McCarthy (Sr. Financial Analyst), and d. Abushakra (Lawyer) of IDA; and consultants including Messrs. T. Tenzing (Engineer - UNDP Project RAS/86/160), A. Mudaskar (Accountant), R. Laukkanen (Engineer), J. Sanvido (Engineer), and M. Whitbread (Economist). The report has been endorsed by Messrs. S. Asanuma (Director, Asia Region, Country Dcpartment I), and H. J. Staab (Chief, Infrastructure Operations Division). The review team consisted of Messrs. A. Zavala (institutional aspects), G. Sengupta (finance), and C. Couzens (technical aspects). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Page IV. PROJECT JUSTIFICATION ...................... .............. 22 A. Environmental Impact ..................................... 22 B. Benefits for the Urban Poor ...... ......................... 23 C. Economic Analysis ......................................... 23 D. Risks and Safeguards ....... ............................... 26 V. AGRBEMENTS AND RECONMENDATION .. .............. ....... 26 TEXT TABLES Table 2.1: Summary Project Cost Estimates ..... ..................... 10 Table 3.1: Financial Highlights ....... ............................. 19 Table 3.2: Tariffs for Metered Connections . ................ 20 Table 3.3: Tariffs for Unmetered Connections ....................... 20 Table 4.1: Economic Rates of Return ............................... 25 ANNEXES Annex 1: Population Projections and Water Supply Coverage, Finances, and Staffing and Operations ................... 29 Annex 2: Fifteen-Year Development Program ..... ................... 33 Annex 3: Project Components ...................................... 35 Annex 4: Project Funds Requirements .................. ...5......... s Annex 5: Implementation Schedule ...... ........................... 52 Annex 6: Operational Action Plan ...... ........................... 53 Annex 7: Procurement Method, List of Contracts and Contract Groupings for ICB ............... ..... S? Annex 8: Disbursement Schedule . . .......................... ...... 61 Annex 9: Nepal Water Supply Corporation ..... ..................... 62 Annex 10: Operational Improvements ...... .......................... 65 Annex 11i Financial Analysis ....... ............................... 74 Annex 12: Potential Adverse Environmental Impacts and Mitigating Measures ...................................... 79 Annex 13: Economic Analysis Data .................................. 81 Annex 14: Selected Documents and Data Available in the Project File 84 MAP IBRD 22087  NEPAL URBAN WATER SUPPLY AND SANITATION REHABILITATION PROJECT Credit and Project Summary Borrower: The Kingdom of Nepal Beneficiary: Nepal Water Supply Corporation (NWSC) Amount: SDR 45.5 million (US$60.0 million equivalent) Terrms: Standard, with 40 years maturity Cofinancier: The United Nations Development Programme (UNDP): a grant of US$3.4 million to fund the management support requirements for NWSC. On-lending Termss Consistent with project and sector objectives, terms and conditions of on-lending from Government to NWSC would be as follows: - Water supply components 502 loan and 50? grant. - Sewerage and sanitation components and technical assistance 1002 grant. - Interest on loans of about US$23.0 million at 9Z per annum, repayment over 19 years, including four years grace period on principal; foreign exchange risk to be borne by Borrower. Project Descriptions The project seeks to improve urban water supply and sanitation services and public health in the 12 towns under the jurisdiction of NWSC (the three towns of Kathmandu Valley and nine towns outside the Valley) by: (a) strengthening the technical, managerial, financial and operations/maintenance capability of NWSC; (b) increasing the utilization of existing systems through rehabilitation and extensions; (c) providing more effective and efficient delivery of improved quality and increased quantity of water to consumers; and (d) improving public health through consum'r education programs. These objectives would be achieved through (a) management support and design/supervision assistance; (b) rehabilitation and extension of water supply works, distribution and loss control; (c) improvements in sewerage and sanitation in the same areas; (d) training; and (e) consumer education. Benefits and Risks: With the endorsement by His Majesty's Government (HMG) of NWSC's Fifteen-Year Development Program, sector planning and donor coordination are expected to improve. Losses from  - Li- unaccounted for water would be reduced thus increasing water availability, and water quality would improve through treatment of groundwater. Significant environmental benefits will accrue througlh the provision of safe piped water, improved wastewater disposal, reduction of pollution in rivers, increased sewer connections and on-site sanitation. NWSC may fail to meet operational and financial targets, specifically tariff increases to meet its financial objectives. Regular tariff increases and operational improvements have been incorporated into the project design to minimize these risks. Project Cost: Local Foreign Total ----------US$ million-------- Civil Works 9.8 24.0 33.8 Materials and Equipment 2.0 5.4 7.4 Engineering Design, Training and Technical Assistance 2.7 8.1 10.8 Base Costs 14.5 37.5 52.0 Physical Contingencies 1.5 3.7 5.2 Price Contingencies 3.9 9.9 13.8 Subtotal Contingencies 5.4 13.6 19.0 TOTAL PROJECT COSTS ' 19.9 51.1 71.0 Financing Plan: Local Foreign Total ------- USS Million-------- IDA 12.3 47.7 60.0 UNDP 0.0 3.4 3.4 HMG 7.6 0.0 7.6 TOTAL 19.9 51.1 71.0 Estimated Disbursements; IDA Fiscal Year FY92 FY93 IPY94 FY95 FY96 F97 FY98 FY99 ----------------------USS million------------- Annual 1.8 4.8 7.2 10.8 9.6 13.2 7.2 5.4 Cumulative 1.8 6.6 13.8 24.6 34.2 47.4 54.6 60.0 Economic Rate of Return: About 9.5X on components for which benefits were quantifiable, accounting for 31Z of project cost. 1/ The total cost, net of taxes and duties (US$0.8 million), is '0.2  NEPAL URBAN WATER SUPPLY AND SANITATION REHABILITATION PROJECT STAFF APPRAISAL REPORT I. THE URBAN WATER SUPPLY AND SANITATION SECTOR A. SECTOR BACKGROUND General 1.01 Compared to conditions prevailing a decade ago, considerable advances _ have been made in urban water supply coverage in Nepal. Latest estimates are that over 70% of the urban population has access to reasonably safe drinking water. This is despite a population growth rate of 4.7Z p.a. in Greater Kathmandu (i.e., Kathmandu and Lalitpur) and up to 12% p.a. in other towns (Annex 1), compared to a national average of 2.7Z. Despite this achievement, there are U still major deficiencies in water quality and service levels, particularly in urban centers which account for 10% of Nepal's population of about 16 million. Sanitation has received little attention to date with only 17% of urban areas having adequate sanitary facilities. Recent studies (para 1.14) have confirmed major deficiencies in water supply and sanitation. Emphasis on coverage alone has resulted in inadequate attention to water quality, service levels. sanitation, cost recovery and operations and maintenance. Outbreaks of water- related diseases such as cholera and gastroenteritis have occurred about once every two to three years. Apart from the adverse health impacts and inconvenience to consumers, reports of water quality problems affect Nepal's main revenue earner--tourism. Environmental conditions continue to deteriorate in urban areas due to rapid urban growth, lack of a clear strategy to address environmental issues and resource constraints. Current conditions and trends are described in the following paragraphs. Kathmandu Valley Towns 1.02 Water Supply: Kathmandu Valley towns include Kathmandu, Lalitpur and Bhaktapur. Excluding Bhaktapur (1989 population 52,000), which has a separate water source and distribution system, Kathmandu and Lalitpur had an estimated 1989 population of 440,000 which is projected to increase to about 870,000 by the year 2005. The Kathmandu-Lalitpur system has an installed capacity of about 90 mld comprising equal amounts of surface and groundwater. Groundwater extraction has been increased from about 4 mld to about 42 mld over the past decade, due to the n-,navailability of surface sources from within the Valley. Surface water (ext,racted from within the Valley) and some groundwater is treated at four treatment plants, while most of the groundwater (containing iron levels up to 6 mg/l, and ammonia) receives only chlorination. When borehole water is mixed with treated surface water, iron flocculation occurs causing serious operational problems (e.g., choked meters and pipes, odor and staining), as well as numerous consumer complaints, resistance to pay charges and meter tampering. There are seven reservoirs with a total storage capacity of 22.9 cubic meters. A distribution system, parts of which are over 50 years old and of poor material, covers about 90% of the urban area. There are about 61,550 private connections serving about 802 of the population, and 1,176 public standposts. The supply is  -2- intermittent, and limited to two, three-hour periods per day. Deficiencies in the distribution system result in some areas receiving less than the minimum twice daily three-hour supply, while a few locations enjoy . 24-hour supply. Compared to an average supply of about 65 mld, unaccounted for water amounts to about 26 mld or about 402 of supply. This is attributable to losses in the sybtem, wastage and theft. Current estimated demand is about 54 mld. The existing restricted supply situation provides about 80 lcd, leaving an unsatisfied demand of over 30%. Future water demand for Kathmandu Valley towns is indicated in Annex 1. Lower income neighborhoods are served by standposts-- charges for which are paid by the Government. This service has recently been augmented by tankers supplying water to small tanks located in areas where water pressure is low. Higher income residents install ground-level and overhead tanks to assure themselves of a de facto 24-hour supply. Treated water and groundwater are subject to contamination under prevailing periodic negative pressure conditions which occur due to intermittent supply. Current procedures and practices for pipelaying, ferule specification, testing and service connections are thought to contribute significantly to water losses. 1.03 A major constraint on sector development inside Kathmandu Valley is the steady depletion of groundwater and nonavailability of other surface sources with!n the Valley that are economical to develop. Existing sources are now wholly inadequate to meet the demands of the fast-growing urban center of Greater Kathmandu beyond the end of this decade. A prefeasibility study carried out with United Nations Development Programme (UNDP) assistance identified the Melamchi River as a promising outside-the-Valley source. An ongoing detailed feasibility study is due for completion by late 199i, following which detailed designs will be commenced if a decision is made to construct the scheme. Apart from technical considerations, the decision will be influenced by economic and financial considerations, investment priorities, and review of other solutions including efforts to further control losses and wastage. 1.04 Sanitation: Over the past decade, about 50 km of trunk and collector sewers were constructed in Greater Kathmandu, covering about 20? of the city area. A 50 to 70 year old system of combined stormwater and sanitary sewers exists in the old core area of Kathmandu comprising covered drains. As the sewerage discharge from the old combined system was to rivers, efforts have been made to intercept the flows and divert them to the sewage treatment facilities which were completed in 1984. These efforts have been only partially successful. An unsatisfactory situation now exists because: (a) not all of the old sewers have been intercepted; (b) sewer connections have been few due to consumer unwillingness to incur the expense of connections; (c) sewage enroute to the treatment plants is being diverted illegally by farmers by blocking manholes or rupturing z.runk sewers; (d) low flows and dumping of solid wastes in tne system cause frequent blockages; and (e) a general low priority is given to sanitation by the Government. Over the past two years, the Nepal Water Supply Corporation has commenced construction of another sewer system responding to public demand, with the community contributing 50% of the cost. This system does not conform to the drainage plan, nor does it always convey sewage to the treatment plants. At present, it serves primarily to alleviate flooding, and has as yet few service connections. 1.05 Bhaktapur has relatively better services due to investments by the Federal Republic of Germany's Agency for Technical Cooperation (GTZ) which has supported the Bhaktapur Development Project s' -e 1974 under a bilateral  - 3 - agreement with the Government. It has longer supply hours than Greater 'eathmandu and a larger proportion of consumers are connected to the sewer system, as the connections were grant-financed. Amongst other activities, most of the water distribution system was replaced, combined sewers were laid extensively, and two sewage treatment plants were constructed. A 1988 GTZ-assisted study reported faults in the distribution network, treatment works, transmission maintenance, management and operations and suggests that, once the repairs are completed, a 24-hour supply to Bhaktapur can be made available. Towns Outside Kathmandu Valley 1.06 Water Supply: Piped water systems in the towns (municipalities) outside Kathmandu Valley suffer from many of the same problems as Greater Kathmandu. Four of these towns are situated on the lower Himalayas and the remainder on the flat northern Indo-Gangetic plain known as the Terai. (See IBRD Map 22087). Pokhara and Nepalgunj have a 24-hour supply. Facilities in Birgunj are underutilized, although a 24-hour service could easily be maintained. Water supply in other towns is intermittent and limited to a few hours twice each day. In the Terai, the groundwater table is shallow and many homeowners have installed their own shallow wells and handpumps which provide ample supplies for daily household needs. Improperly located on-site sanitation facilities pose a high risk of contamination to drinking water. The relatively easy access to an alternative source of water in the Terai acts as a constr int on tariff levels that can be charged by NWSC. It implies special efrorts to encourage better hygiene and public health. However, none of the towns outside Kathmandu Valley has waterborne sewerage systems. 3.07 Population projections, water production, coverage and other details of the nine towns outside the Kathmandu Valley under NWSC jurisdiction (Pokhara, Biratnagar, Birgunj, Bhairahawa, Butwal, Dharan, Hetauda, Janakpur and Nepalgunj) are given in Annex 1. The nine town.s have a total source capacity of 78 mld, generally adequate to meet demand, excepr in Dharan. Due to operational problems, however, the available supply after unaccounted for water is deducted, provides supplies varying from 37 lcd in Dharan to 98 lcd in Nepalgunj. 1.08 The 1989 collective population of outside the Valley towns is estimated at 725,500 and is expected to reach about 2.8 million by the year 2005 (Annex 1, Table 1). The corresponding population and housing density will bring increasing numbers of on-site sanitation facilities close to shallow wells, greatly increasing the risk of drinking water contamination. What is needed to avoid this situation is the expansion of piped water systems kept under constant pressure, combined with a coordinated system of improved and carefully sited low- cost on-site sanitation supplemented with waterborne sewerage, where appropriate. B. SECTOR INSTITUTIONS 1.09 Responsibility for water supply and sanitation rests with the Water Supply and Sanitation wing of the Ministry of Housing and Physical Planning, which was created in February 1988. Under this wing, there are two agencies: the autonomous Nepal Water Supply Corporation (NWSC) and the Department of Water Supply and Sewerage (DWSS). Prior to February 1988, water supply and sanitation were the responsibility of the Ministry of Water Resources.  1.10 NWSC (see Chapter III) is responsible for water supply and sanitation in 12 out of the 33 towns of Nepal. NWSC is ehe successor to the Water Supply and Sewerage Corporation (which was liquidated in November 1989 by virtue of the NWSC Act), formed in 1984 and which itself evolved from the Water Supply and Sewerage Board, created in 1974, which had been set up to implement earlier IDA- financed water supply -nd sanitation projects. The evolution of the ageIcy has been dictated, in part, by the Government's sector policy adjustments which emphasize consumers paying a greater share of the economic cost of the service consistent with affordability. Successive agencies have thus enjoyed greater measures of autonomy. DWSS is responsible for all urban areas other than the 12 towns which are under NWSC's jurisdiction, and the rural sector. Under the provisions of the NWSC Act, HMG has powers to expand NWSC's jurisdiction to other areas, if and when appropriate. C. GOVERMENT' S SECTOR OBJECTIVES, INVESTMENT PLANNING AND STRATEMY 1.11 The obiectives of His Majesty's Government (HMG) for the urban water supply and sanitation sector are: (a) a 24-hour supply of affordable and safe drinking water to all of the country's urban population by the year 2005; (b) affordable sewerage/sanitation facilities to the urban population, also by the year 2005; and (c) strengthening of NWSC's operational capabilities and financial viability. 1.12 HMG's strategy on environmental issues is to minimize and mitigate adverse environmental impacts on its cultural patrimony and natural resources. The motivation in part was due to the country's dependence on tourism as the major source of revenue. Beyond this, HMG addresses environmental issues in response to requirements in specific subsectors. HMG has se:, .p an environmental committee in the National Planning Commission to review macro issues relating to the environment, but has no plans to create a central environmental agency. A HMG strategy and guidelines to address environmental concerns in the water supply and sanitation sector, specifically in the Kathmandu Valley, is currently under preparation, financed by the Asian Development Bank (ADB). D. FIFTEEN-YEAR DEVELOPMENT PROGRAM 1.13 To attain 1MG's objectives, a Fifteen-Year Development Program (FYDP) (Annex 2) for NWSC has been prepared. It was motivated, in part, by the declaration of His Majesty the King in December 1985 pledging to fulfill the basic needs of the people of Nepal. These needs include food, water, clothing, shelter, health, education and security adequate to achieve a standard to enable people to lead a life with dignity. Feasibility of the program has been subject to much discussion, given the low levels of per capita income growth in Nepal. Fulfillment of the objectives within stringent resource constraints will require strengthening of the institutionil framework, appropriate design standards, cost recovery and self-help in infrastructure development such as shelter and public utility services.  -5- 1.14 The FYDP also grew out of a number of studies includingt (a) the Service Improvements and Management Support (SIMS) project, initiated with UNDP assistance in 1988, and executed by The World Bank, to prepare strategies, progrmais and costs for management, operations and training support to NWSC, focusing primarily on requirements in the Kathmandu Valley area (a similar UNDP- financed study for improving service delivery in the outside-the-Valley towns was also initiated by NWSC in 1989); (b) using IDA Technical Assistance funds, HMG commissioned a study of drainage and sanitary sewerage in the Greater Kathmandu area; and (c) UNDP-furded feasibility and environmental impact studies to identify a suitable outside-the-Valley source have been ongoing since 1987 in view of the rapid depletion of water sottrces within the Kathmandu Valley. 1.15 For the past 20 year^, approximately 3% of the development budget has been allocated t-n water and sanitation with a split of approximately 50/50 between the rural and urban sectors. To help fulfill HMG's objectives in the sector, the National Planning Commission is using an indicative allocat:.on of about 6% of the annual development budget over the next 15 years. The FYDF is based on this allocation and assumes that 70% of the total sector allocation would be assigned to the towns administered by NWSC; the balance would be assigned to the remaining towns and the rural sector administered by DWSS. The apparent imbalance in the urban versus rural investments is dictated by the prospect of a severe water shortage in Greater Kathmandu in less than 10 years and the heavy investment required to develop a water source from outside-the- Valley for Kathmandu. The FYDP, as formulated and endorsed by HMG in July 1989, was revised and agreed during appraisal of the project. The total program cost is US$648 million (in 1990 prices), in three five-year phases of US$126, US$229 and US$293 million, respectively. The proposed project is based on Phase I of the program. On the physical side, it emphasizes rehabilitation and extension of existing water supply networks together with some sewerage and sanitation; on the software side, it emphasizes management and operational improvements and cost recovery. Future phases will focus on completing the water supply investments, extending sewerage and sanitation systems and achieving cost recovery. Feasibility of these phases has still to be established in detail and the project would assist with this. 1.16 In Greater Kathmandu, the FYDP proposes to extend water supply from the present six hours a day for an estimated 440,000 people to a 24-hour supply for a projected 870,000 people by the year 2005. Sewerage/sanitation facilities would be provided as well. The strategy for achieving the above, which is very ambitious, would be through rehabilitation of, and extensions to, the existing water and sewerage/sanitation facilities, and the development of a new source of water for Greater Kathmandu from outside the Kathmandu Valley. 1.17 In the nine outside the Kathmandu Valley towns, water supplies (mainly groundwater) would be developed to increase service coverage from the estimated 1989 population of 725,500 to a projected population of 2.8 million by the year 2005. On-site sanitation programs would be promoted and, where practicable and affordable, waterborne sewerage systems would be introduced into the core areas. E. IDA'S SECTOR ROLE AND ASSISTANCE STRATEGY 1.18 IDA has aporoved three credits for Nepal's urban water supply and sewerage sector: a credit of US$7.8 million (No. 470-NEP) in 1974; a second credit of US$8.0 million (No. 704-NEP) in 1977, and a third credit of US$27.0  - 6- million (No. 1059-NEP) in 1980. A US$10.5 million credit (No. 1988-NEP) for urban development was also approved and became effective on September 14, 1989. The first two water supply projects required e8U Lemental financings a US$4.0 million IDA credit in 1977, and a US$3.0 miiiion IDA-adchiinistered European Economic Community Special Action Credit in 1979. The most recent water supply project (Credit No. 1059-NEP) was completed in 1988. 1.19 The objectives of the first three projects were similar in nature: to improve water supply and sanitation in the principal cities and to help the institutional framework evolve. By and large, the projects have produced significant improvements in ster supply coverage and quality over the past decade, but because of higher than forecasted population growth in the service areas, a 24-hour supply has not been achieved except in Pokhara and Nepalgunj. Addit.ionally, in the Kathmandu Valley water sources have been declining due to mining of groundwater and upstream irrigation and lack of a water allocation policy. Water quality also remains a problem. The sewerage components of the projects were less successful, due in part to the technical difficulties of integrating new sewers into the old dilapidated system; and, more importantly, the difficulty of obtaining permission to cut .'-sphalted road surfaces for both sewers and water supply. The unwill.ngness of residents to pay for sewer connections resulted in very few connect:ons, which further hampered the success of the component. 1.20 Notwithstanding IDA's emphasis on institutional strengthening, the greatest shortcoming has been the poor institutional performance of NWSC's predecessor agencies. In retrospect, and as discussed in the Project Performance Aidit Reportsv for the three projects, IDA was overly optimistic as to what it would take to turn the agency into a well-managed, financially viable utility, taking account of political and institutional realities. Weaknesses in planning and design of project components led to numerous adjustments during project implementation. Work supervision and contract administration suffered due to lack of adequate experience in these areas. There appears also to have been insufficient consultation at the planning stage with local town authorities and the consuming public, as noted by HMG's Water Supply and Sewerage Service Situation Study Committee (better known as the Pokhrel Commission) set up in 1987 to review performance under the three projects. The proposed project builds on the lessons learned in these prior operations. 1.21 IDA has been Involved in the raral water supply and sanitation sector only in institutional development activities, working with DWSS. As executing agenc:r for UNDP, IDA has prepared: (a) 68 rural water supply projects in packL,;es for three development regions (NEP/79/032 subproject) for which invesfiments were generated from bilateral and multilateral sources; and (b) management information systems and technical support in project preparation for DWSS (NEP/88/005), the outputs from which would provide an up-to-date data base cn all 2,300 rural systems constructed over the past decade. In addition, the data base would include information on reporting systems and personnel and stores management capability. IDA also assisted DWSS in the preparation of a rural water supply project funded under the IDA Technical Assistance Credit 1379-NEP (subproject 13). Appraisal of an IDA-financed rural water supply and sanitation 1/ Reference to PPAR No. 6506 dated November 1986 (Credits 470-NEP and 704-NEP), and PPAR No. 9158 dated November 1990 (Credit 1059-NEP).  project is tentatively scheduled during FY92. In addition, the UNDP-financed Sector Development Team (RAS/86/160) continues to provide considerable inputs to sector development activities, and it has also provided significant inputs to preparation and appraisal of the project described in this document. 1.22 Environmental issues in each subsector would be addressed through IDA credits. Environmental assessments, and minimization and mitigation measures are being included as conditions of project lending, as appropriate. Specifically in the water and sanitation sector, IDA is pursuing several environmental initiatives. Discussions are underway regarding clean-up of the highly polluted Bagmati river which drains the Kathmar.du Valley and also flows past the revered Hindu Temple at Pashupatinath. In connection with the detailed feasibility study for a new water source development from outside the Valley, HMG, assisted by IDA and UNDP, conducted detailed environmental studies and impact assssments of the selected option. Two recently completed studies on groundwater management and Kathmandu drainage also addressed environmental issues. Through the above initiatives, IDA is ass..sting the water sector agencies to develop an awareness of environmental issue and develop a sound basis for formulating procedures for environmental assessments in future projects. F. DONOR SUPPORT 1.23 In addition to the support provided by IDA as lead agency, UNDP and the European Economic Community to the urban subsector, the O-erseas Development Administration (ODA) of the United Kingdom has also pr ided institutional support in the fields of engineering, operation and maintendnce, and on-the-job training during the implementation periods coinciding with the first and second IDA-financed projects. GTZ has continued its support to Bhaktapur through leak control and sewerage extensions. It has also expanded its activities to Dhulikel and Barnepa. United Nations Children's Fund, ODA, Switzerland, Finland and the ADB are also active in rural water supply and sanitation. World Health Organization assistance for the sector has emphasized planning, management and training activities. II. THE PROJECT A. PROJECT CONCEPT 2.01 The project grew out of the FYDP (para 1.13). IDA appraised the first five-year phase relating to urban water supply and sanitation rehabilitation and selected about 53Z of the value of its components for the project. HMG, assisted by IDA, has been seeking additional funding for the balance from other external aid agencies, and so far, it has received pledges from Japan and Norway for about US$15 million and US$2.5 million equivalent, respectively. Components selected for IDA financing are not dependent on other donor participation. The Phase I program will be reviewed annually in consultation with IDA, as part of the annual review of the Operational Action Plan (para. 2.15). Agreement was reached at negotiations that HMG and NWSC will consult IDA prior to revision, alteration or modification of the strategies embodied in the IYDP.  - 8 - B. PROJECT OBJECTIVES 2.02 The primary project objectives would be to: (a) strengthen NWSC's technical, managerial, financial and operations/maintenance capability; (b) increase utilization of existing systems through rehabilitation and extensions; and (c) improve public health through: (i) consumer education programs; and (ii) improved quality and increased quantity of water to consumers. C. PROJECT DESCRIPTION 2.03 The proposed project focuses on rehabilitation, primarily deferred maintenance; minor extensions and improvements to water and sewer systems ta achieve greater efficiency; and activities to achieve managerial, financial and operational improvements. Project components are described in detail in Annex 3 and summarized below. 2.04 Project components include: For NWSC as a whole: (a) Management Support, Training, and Project Design and Supervision (NR9 304.4 million, US$10.1 million). A specialist management support team to assist NWSC in improving management, operations and maintenance (NRs 93.6 million); a consumer education program to establish better customer relations (NRs 15.6 million); t-.ining for all levels of NWSC staff (NRs 39.1 million); consultant assistance for detailed design and supervision of project components, and future project preparation (NRs 156.1 million). For Kathmandu Valley Towns (three towns): (b) New Source Detailed Design (NRs 119.5 million; US$3.9 million). Investigations, detailed design and bid document preparation for the proposed future water source for Kathmandu Valley, subject to demonstration of technical, financial and economic feasibility, and a decision to proceed with implementation of the scheme. (c) Water Supply Rehabilitation (NRs 735.6 million; US$24.3 millior.). Rehabilitation of 28 tubewell installations including pumping and electrical equipment; provision of eight new sells to counteract declining yields (NRs 118.2 million); rehabiiltation of the distribution system including replacement of old and leaking distribution and "spaghetti" type service mains, and repairs to ce-rice reservoirs (NRs 316.9 million); meters, spares and a metering program (NRs 43.5 million); protection of surface and spring sources, repairs to intake structures, and mechanical and pumping equipment (NRs 80.8 million); water treatment plant rehabilitation including refurbishment of filters, sedimentation tanks, lime and alum dosing plant, chlori..ation plant and mechanical and electrical equipment (NRs 61.9 million); leak detection and control p-,gram includ-',. supply of equipment (NRs 99.2 million); and limited new distribution mains (NRs 15.1 million).  - 9 - (d) Groundwater Treatment (NRs 333.3 million; US$11.0 million). Two new treatment plants to treat about 50 mld for iron (2.3-6.0 mg/i), ammonia and manganese (World Health Organization standards recommend not more than 0.3 mg/l of iron). (e) Rehabilitation of Sewer System, Sewer Connections and Sanitation (NR8 278.7 million; US$9.2 million). Rehabilitation of two sewage treatment plants including pumping stations, repairs to ruptured pumping main, interception of old combined sewers, sewer survey and network records (NRs 141.3 million); sewer connection program to add about 10,000 new connections (NRs 20.0 million) financing about 50% of the cost (NRs 2,000) of a sewer line to the p'lot boundary, as a grant; minor sewer extensions to increase sewer utilization (NRs 87.4 million); and an on- site sanitation program for over 15,000 toilets in unsewered areas (NRs 30.0 million), financing up to 50% of the cost (up to a maximum of NRs 2,000) of a twin-pit pour-flush toilet, as a grant. (f) Central Facilities and Plant (NRs 105.6 million; US$3.5 million). Vehicles, plant, minor equipment and office equipment (NRs 50.3 million); facilities including refurbishment of vehicle and plant workshops, stores and laboratory facilities (NRs 31.6 million); and pipeline repair material (NRs 23.7 million). For Towns Outside Kathmandu Valley (nine towns): (g) Water Supply Rehabilitation (NRs 175.1 million; US$5.8 million). Rehabilitation and refurbishment of surface, tubewell and spring source structures including mechanical and electrical equipment; construction of a new intake at Pokhara to replace the temporary intake; protection of transmission mains against landslide damage; quarters for operators and guards; rehabilitation and/or replacement of transmission mains; repairs to service reservoirs; repair/replacement of chlorination plants; and distribution system rehabilitation to replace old and leaking mains. (h) Sanitation (NRs 48.1 million; US$1.6 million). An on-site sanitation program to provide over 15,000 toilets, financing up to 50% of the cost of a twin-pit pour-flush toilet, as a grant. (i) Facilities and Plant (NRs 43.8 million US$1.4 million). Vehicles, plant, minor equipment and office equipment, including refurbishment of workshops and stores and pipeline repair material. D. PROJECT COSTS AND FINANCING Cost Estimates 2.05 Total project costs, including contingencies, are estimated at NRs 2,144.3 million (US$71.0 million). The foreign exchange component is NRs 1,542.2 million (US$51.1 million), or 72% of project costs. Taxes and duties are estimated at NRs 25.8 million (US$0.8 million), or 1% of project costs. A summary of cost estimates is given in Table 2.1 below.  - 10 - Table 2.1: SUMMIARY PROJECT COST ESTIMATES ITEM 1--Rupees (million)--I I----USS(MlIlion)--- IForeign Total Local Foreign Total Local Foreign Total Exchange Base Cost Technleal Assistance, Training 63.00 171.61 224.61 1.76 6.68 7.44 76 14.80 Consumer Education end Community Participation 6.39 6.89 10.77 0.18 0.19 0.86 SO 0.69 KaGhmandu Valley Towns New Source: Detailed Design 22.60 67.80 90.89 0.76 2.24 2.99 76 6.76 Rehabilitation Water Supply 180.36 391.07 621.42 4.82 12.96 17.27 75 88.20 Sanitation 26.6e 78.87 102.22 0.85 2.64 8.86 76 6.61 Extension Water Supply 68.08 189.09 262.12 2.09 6.26 9.36 76 16.05 Sanitation 24.87 74.61 99.48 0.82 2.47 8.29 76 6.83 Central Facilities and Plant 19.11 57.84 76.46 0.68 1.90 2.58 76 4.67 Towns Outside the Kethmandu Valley Facilities and Plant 15.84 15.84 81.88 0.62 0.52 1.06 60 2.02 Water Supply Rehabilitation 68.86 68.86 128.72 2.10 2.10 4.20 60 8.07 Sanitation Improvements 17.42 17.42 84.85 0.58 0.68 1.15 50 2.22 TOTAL eASE COST 440.65 1180.18 1670.72 14.69 37.42 62.01 72 100.00 PHYSICAL CONTINGENCIES 44.26 112.s8 167.07 1.47 8.74 6.20 72 10.00 PRICE CONTINGENCIES 117.84 299.20 416.64 3.89 9.91 18.79 72 28.62 TOTAL PROJECT COST a/ 602.12 1542.21 2144.88 19.94 51.07 71.00 72 a/ Including taxes and duties of NRE 25.8 million (US8O.8 million equivalent). 2.06 Base cost estimates are in January 1991 prices and are based on NWSC's and its consultants' estimates to preliminary design of major components. Estimates for plant, equipment and materials are based on recent quotations from suppliers. Physical contingencies of 10? have been included for all components except sewer connections, on-site sanitation and land. To provide for inflation during project implementation, the following price escalation rates have been used: for local expenditures, 10.5? for fiscal year 1991, 7.5? for 1992, 7? for 1993, 6.5Z for 1994 and 1995, and 6Z for 1996 to 1998; for foreign expenditures, 3.4? for 1991 to 1998. Financing Plan 2.07 The proposed IDA credit of US$60.0 million would finance about 85? of project costs, net of taxes and duties. At the request of HMG, UNDP has agreed in principle to provide a grant of US$3.4 million to fund the management support activities. HHG will pass it on as a grant to NWSC. The relevant project documents for this grant are being processed. The credit would cover 100? of the  - 11 - foreign exchange costs and about 452 of local costs. HMG would pass US$23.0 million of the credit, mainly for water supply to NWSC under a subsidiary loan agreement and the balance as a grant. HMG wills (a) enter into a subsidiary loan agreement with NWSC; and (b) pass on such funds to NWSC on the following terms irrespective of the underlying funding sources. Loans: 92 per annum, to be amortized over 19 years, including a four-year moratorium on principal repayments. The execution of a subsidiary loan agreement incorporating the above lending terms would be a condition of effectiveness. 2.08 A loan/grant ratio of 50/50 for water supply components has been determined after extensive analysis of affordable solutions to consumers' needs and NWSC's ability to assume debt. Moreover, this ensures that NWSC has every chance to begin business on a solid financial footing. Were all such funds to be passed on as loans, NWSC would not be able to achieve the financial objectives set for it by HMG [para 3.14(b)(i)-(iii)]. There are two possible ways to finance the shortfalls. First if the capital costs are passed on as 1002 loan, then HMG will have to provide annual revenue grants to cover the cash shortfall. The second choice is for HMG to pass on the capital costs in a mix of grants and loans based on NWSC's specific capacity to pay debt service from its revenue base. HMG preferred the second choice administratively, which has been accepted practice in similar water supply projects elsewhere in the region. A 100% grant for sewerage/sanitation is justified because of (a) the limited investments to be made; and (b) the need to promote sanitation for improved health and environmental preservation. Funds for technical assistance and training have traditionally been passed on as grants. HMG's equity contribution would also assist the newly-created NWSC establish a firm financial footing. Retroactive Financing 2.09 Retroactive financing not exceeding US$3.0 million, or 52 of the credit, would be provided from June 1, 1990 for (a) final design (consultants, equipment and surveys); (b) immediate work carried out by force account such as leak detection and minor network extensions; and (c) procurement of equipment and materials. E. PROJECT IMPLE1ENTATION Implementation Agency and Period 2.10 The project will be implemented by NWSC (see Chapter III). NWSC will employ consultants to design and supervise construction. The implementation period for the project is based on a seven-year construction period (Annex 4). All economic and financial analyses are based on this profile. However, as the project is programmed in HMG's Eighth Five-year Plan (1991-96), the fund requirements to implement the project over a five-year period are also illustrated in Annex 4. The implementation schedule is given in Annex 5. Status of Preparation and Design Review 2.11 A Project Preparation Facility (PPF No. 593) of US$1.5 million was granted to enable NWSC to retain consultants to undertake final engineering design of: eistribution system rehabilitation; surface and groundwater source rehabilitation; and new groundwater treatment works. Final designs and bid document preparation by NWSC's consultants for the first subprojects are expected  - 12 - by about December 199'. Prequalification and selection of consultants have been completed and signing of contracts is expected shortly. NWSC will be responsible for managing the consultants and design of some of the works. However, part of the first year's projects relating to meter rehabilitation, reduction of unaccounted for wate., replacement of service connections and the sewer connection and sanitation programs, would be ready for implementation by credit effectiveness. These would be within the capability of NWSC to prepare and implement. The remainder of the first year's work will be ready for implementation by the end of 1991. 2.12 Detailed engineering designs would be prepared by consultants on a continuous basis. Reviews will be done by NWSC and IDA based on value thresholds. IDA will review designs of subcomponents valued over US$2.0 million prior to NWSC initiating bids. 2.13 The review would be done in two stages. The first review would be of the preliminary design, specifications, quantities and costs. Apart from maintaining quality control and achieving least cost solutions, it would ensure that NWSC was fully involved in the evaluation process ar,d ensure designs and specifications were appropriate for local conditions. The exercise would include technical and financial reviews. The second review would be done when detailed design and bid documents are completed. A brief report will be prepared by the NWSC committee based on a format agreed between IDA and NWSC, and will serve as a record of approval by NWSC of the designs, specifications and cost of the relevant component. 2.14 Agreement was reached at negotiations that not later than December 31, 1991, a committee composed of senior managers responsible for water supply, sewerage, planning, electrical and mechanical works, supplemented by local consultants until sufficient capacity is developed within NWSC, will be set up under the Senior Manager, Operation and Maintenance Wing of NWSC to conduct these reviews. Operational Action Plan 2.15 In addition to investments, a number of inter-related project activities would be undertaken by HMG and NWSC with the aim of improving its operating efficiency and financial viability within the context of the FYDP. These activities have been grouped into the Operational Action Plan (OAP) (Annex 6). The components of the OAP and the timing of their implementation were agreed. Agreement was also reached that progress of this plan will be reported in NWSC's quarterly progress reports and the plan will be reviewed annually and updated in consultation with IDA. Land Acquisition 2.16 The two parcels of land totalling two hectares required for the construction, on a priority basis, of two water treatment plants in the Kathmandu Valley have been identified and steps are being taken to acquire them as soon as possible. Since the plots are currently undeveloped and are owned by a hotel and the army, resettlement in the areas is not an issue. The rights to use the two parcels of land for construction purposes would be required no later than December 31, 1991 (see Annex 6).  - 13 - Enviroamental Actions 2.17 During project preparation, IDA identified the major environmental issues and suggested alternative minimization and n.itigating measures. The project preparation consultants also studied these issues and incorporated appropriate solutions. The process used for this project to address environmental issues has been satisfactory, and will be institutionalized within NWSC. 2.18 As indicated in the OAP (Annex 6), the following activities would be required as part of the project: (a) development of programs during detailed project preparation to monitor impacts during constructJon and postconstruction phases; (b) development of programs to monitor quality of ground and surface water, wastewater and sewage treatment plant effluent; (c) NWSC's design consultants to be engaged in the planning and designing of the project would be required in their terms of reference to undertake preparation of environmental assessments in respect of the proposed water treatment plants and the proposed solution to treat effluent discharge from the old combined sewers, which NWSC will use as models for preparation of environmental assessments for future projects; and (d) NWSC will take necessary action (i.e., legal land acquisition or wayleave agreements) to stop the illegal diversion of sewage to farms. Procurement 2.19 Procurement arrangements proposed for the project are based on the experience of the third IDA-financed project (Credit 1059-NEP). In the past, better performance by NWSC's consultants, NWSC supervisory staff and local contractors would have assured a higher quality product, more timely completion and greater efficiency in procurement. Typical among the deficiencies under the last project were: (a) award decisions dictated by price alone without regard for technical considerations; (b) delays in reaching award decisions; (c) weaknesses in specifications (e.g., nonstandard meters, unlined ductile iron pipes, poor quality ferules and galvanized iron pipes); (d) inappropriate equipment such as sophisticated chlorination equipment; (e) design and investigation weaknesses such as in Dharan wells and Pokhara intake; (f) non- procurement of essential equipment, spares and vehicles; and (g) weak supervision of work and contract management resulting in poor quality, non-adherence to specifications, non-rejection of obviously poor quality work, non-termination of poorly performing or defaulting contractors, and failure to apply remedies provided under the conditions of contract. NWSC's contractual problems were also exacerbated by "influential" contractors. The proposed project provides fort (a) a design review process which will ensure procurement of appropriate equipment; (b) adoption of standards and procedures for operations with resulting improvements to specifications; (c) a contracts management expert in the management team to oversee procurement and contract administration; and (d) the use of large contracts to achieve quality and efficiency in procurement. 2.20 All major civil works contracts over US$1.0 million would be awarded on the basis of international competitive bidding (ICB), in accordance with World Bank guidelines. Contracts for the two groundwater treatment plants needed urgently will be awarded on the basis of ICB turnkey contracts, and will include commissioning and operation for twelve months. To the extent possible, civil works and equipment contracts would be on the basis of "provide and lay" and "supply and erect' respectively. The rehabilitation components comprise a range  - 14 - of activities including repair and rehabilitation of tubewells and surface sources, distribution systems, service connections, pumping stations and reservoirs. New works include construction of tubewells and treatment plants. The packages vary in value from about US$3 to US$10 million. Similar works would be grouped in US$5-US$10 million packages. To attract the interest of reputable international contractors, several packages will be grouped and offered in contract packages ranging between US$10-20 million following prequalification. Due to the specialist nature of some work items, the contract documents would indicate that NWSC will accept qualified sub-contractors. A special attempt would be made to generate interest among contractors from the region through advertising in local newspapers. As a development objective, the potential international contractors would be encouraged to use qualified local contractors in joint ventures, or as sub-contractors in order to improve the latter's construction skills. A prerequisite for packaging of large contracts is the completion of designs, cost estimates and bid docum,ents for all such works at about the same time. 2.21 Other civil works and services contracts with an aggregate value of US$2.0 million which are small and scattered may be procured under local competitive bidding (LCB) procedures. The works would include meter cleaning and repair, activities connected with reduction of unaccounted for water, and water and sewer connections. NWSC may carry out works connected with reduction of unaccounted for water and other minor works by force account (departmental works). The aggregate value of force account works would not exceed US$0.7 million. The local procurement procedures have been reviewed and are satisfactory to IDA. Standard bid documents for use in ICB and LCB contracts have been being prepared. 2.22 Contracts for materials, electrical, mechanical and pumping plant valued over US$200,000 would be awarded on the basis of ICB. Contracts of value between US$50,000 and US$200,000 individually and aggregating not more than US$2.5 million, may be awarded under LCB procedures, which are satisfactory to IDA. However, contracts for procurement of materials and equipment each of value not exceeding US$50,000 and not exceeding US$0.5 million in aggregate, may be procured on the basis of prudent shopping. 2.23 In the evaluation of bids for equipment and materials, local manufacturers participating in ICB would be given a preferential margin of 15? of the c.i.f. costs of the competing imports, or the existing rates of customs duty, whichever is lower. A preferential margin of 7.5X will be allowed for local contractors participating in ICB for civil works contracts. 2.24 Agreement was reached that all bidding packages for civil works estimated to cost US$200,000 or more, and all bidding packages for plant, equipment and materials estimated to cost US$50,000 or more, will be subject to IDA's prior review. This review of procurement documentation would result in coverage of about 90? of the total value of works contracts and about 50? of goods contracts. It would involve tae review of about 20 contracts. The balance of contracts would be subject to random postreview by IDA. 2.25 A list of contracts, method of procurement and proposed contract packages is detailed in Annex 7.  - 15 - 2.26 Contracts for consultancy services would be awarded in accordance with World Bank guidelines for the use of consultants. Disbursements 2.27 The proceeds of the credit would be disbursed, against: (a) 100% foreign expenditures for directly imported equipment and materials, and 100% of local expenditures (ex factory) for locally manufactured equipment and materials procured through ICB; (b) 70% expenditures for equipment and materials procured through LCB or through prudent shopping (quotations); (c) 1002 of foreign expenditures and 70% of local expenditures on contracts for civil works, including turnkey contracts, awarded under ICB; (d) 70% of expenditures on civil works contracts awarded under LCE, and on force account works; and (e) 100% of expenditures for management 3upport, technical assistance and training. 2.28 Itemized statements of expenditures would be used for civil works contracts less than US$200,000 equivalent, works carried out by force account, equipment and materials contracts less than US$50,000 equivalent. Documentation supporting those expenditures would be retained by NWSC and be made available to IDA supervision missions. All contracts for consultant services, training/consumer education and civil works contracts above US$200,000, and equipment and materials contracts above US$50,000, would be fully documented. Special Account 2.29 To expedite disbursements, a Special Account with an authorized allocation of US$2.5 million (representing about four months of IDA-financed expenditures) would be established in the Nepal Rastra Bank, on terms and conditions satisfactory to IDA. The Special Account would be used to finance all eligible expenditures, and would be replenished from time to time on receipt and approval of withdrawal applications, supported by the required documentation. 2.30 A schedule of disbursements is attached as Annex 8. Based on the regional profile applicable to the sector, an eight year disbursement profile has been used. Reporting, Monitoring and Supervision 2.31 The progress of the project would be monitored by agreed performance and program indicators to aid NWSC in controlling and improving the efficiency of its operations. Progress reports would be prepared by NWSC quarterly. Agreement was reached that the reports will be sent to IDA no later than eight weeks after the end of each quarter. It is estimated that about 90 staff weeks of supervision would be required during implementation of the project.  - 16 - III. ORGANIZATION AND MANAGEMENT A. NEPAL WATER SUPPLY CORPORATION 3.01 The NWSC was created in November 1989 by virtue of the NWSC Act, and "notified" on February 26, 1990. tIWSC evolved out of earlier organisations, and is now run by a General Manager who reports to a Board comprising representatives of concerned ministries and two mayors. It is divided into eight operating departments organized on a breakdown of functional responsibilities. A description of NWSC and its powers is given in Annex 9. By virtue of the Act, NWSC will have greater autonomy and authority compared to those of its predecessor agencies. It will have the ability to revise and implement tariffs and charges without HMG approval, and also to prosecute defaulters and terminate services, if necessary. In the prevailing political context, however, complete autonomy should not be expected. Agreement was reached that HMG will not amend, suspend, abrogate or repeal the NWSC Act without prior consultation with IDA. While the NWSC Act provides for NWSC to take over responsibility for additional towns, and other areas which HMG may specify by a notification published in the Nepal Gazette, NWSC confirmed it is presently responsible for water supply and sanitation services in the three towns of the Kathmandu Valley and nine other towns. HMG and NWSC agreed that expansion of NWSC's responsibilities would only be made if it did not adversely affect NWSC's ability to implement the project, or its financial position. B. OPERATIONS AND MAINTENANCE 3.02 A main factor contributing to less than satisfactory performance by NWSC's predecessors in their operations and maintenance has been the lack of sufficient personnel with adequate experience in managing a water and sanitation utility. Therc has been no recent formal training of middle and junior-level staff, nor has enough on-the-job training been done to improve efficiency. As a result, NWSC has not yet developed standard practices for operations, e.g., preventive maintenance, pipeline laying and maintenance, procedures for water and sewer connections, water quality maintenance, treatment, and contract supervision. Although operations and maintenance activities have been constrained by weak revenue generation, the infusion of additional funds would not necessarily improve levels of service. Managerial improvements are essential to develop NWSC's capacity to provide an improved level of service. The management team proposed under the project (UNDP-funded and executed by the Office of Project Services) would help improve the above aspects, and signature of a contract to engage such a team will be a condition of effectiveness. 3.03 NWSC charges about NRs 1,400 for access to a water connection (NRs 1,000 for construction and NRs 400 for deposit); yet the plumbing work must be carried out by the consumer at his own cost. Similar high charges are made for sewer connections. In the absence of tariff increases, these charges incorrectly came to be viewed as a revenue source. This policy has proven counter-produZtive and does not serve the objectives for which NWSC has been established. At negotiations, agreement was reached that, by December 31, 1991, NWSC will implement revised water and sewer connection policies as well as procedures for cutting roads for laying services, satisfactory to IDA. Agreement was also reached that HMG will facilitate NWSC requests to cut roads (para 1.19). A high level committee has been established to coordinate road cutting requests by the various HMG ministries and agencies including the Department of Roads and NWSC.  - 17 - 3.04 Plans of the utility networks have not been maintained routinely in the past. Their incompleteness has often affected operations and maintenance. As part of the SIMS project (para 1.14), the consultants have developed maps of the water reticulation for Kathmandu and Lalitpur, which would be refined over the next few years and then maintained. A similar effort is required to develop up- to-date sewer plans complete with pipe sizes, slopes and invert levels of manholes. 3.05 Over the past two years, NWSC has made determined efforts to develop its customer relations through opening of a complaints office and numerous paying offices, exhibitions, publicity campaigns, and through a cost-sharing program to construct sewers primarily to remove stormwater. NWSC management is keen to build on these activities through the consumer education and community participation component in the project. This component would encourage involvement by local town authorities and consumers, particularly women, in the planning of water and sewerage facilities. This would help address some of the weaknesses identified _n previous IDA-financed projects (para 1.20). 3.06 Details of operational improvements covering procedures, leak detection and control, the management support and consumer education and community participation are detailed in Annex 10. C. FINANCIAL PERFORMANCE 3.07 Current Situation. About 90? of operating revenues derive from the sale of water. Cash collections covered only about 50? of working expenses in 1990 which were composed of wages and salaries (52?), power (201), chemicals (7?) and miscellaneous expenses (212). The operating ratio (ratio of operating expenses plus depreciation to revenue) was 2.4. In order to maintain cash balances and avoid shortfalls, NWSC accumulated NRs 25.0 million of accounts payable for power charges. NWSC has recently stepped up its efforts to collect current accounts, obtaining 98? of nonpublic sector receivables in FY89. Billings for standposts (NRs 4.0 million at end FY90) to be paid by NMG and water charges from government agencies (NRs 0.2 million) remained outstanding. As a condition of effectiveness, (a) H1MG will be required to pay NWSC all outstanding amounts for public standposts, and overdue bills of government agencies for water and sewerage services; and (b) NWSC will be required to pay its outstanding power charges. 3.08 NWSC's financial weakness has stemmed primarily from the low levels of tariffs, which, until they were increased by 100? in December 1990, had not been increased by HMG since 1981, and nonrecovery of public sector receivables. To assist it through its cash crisis, HMG gave NWSC an operating subsidy of NRs 10 million in December 1990, and will give it NRs 22 million during FY92. From FY93 onwards, however, NWSC will be expected to meet all its operating expenses from internally generated sources only, i.e., without further explicit cash subsidies from Government. As NWSC was only meeting about 50? of its working expenses, the resulting deficit forced it to make short-term savings, including accumulation of bills, and at the cost of maintenance and quality of service. The result had been a steady deterioration in service levels and growing consumer dissati,faction reflected in illegal connections, tampering with water meters to avoid metered charges which were higher than for unmetered connections, and other abuses of facilities by users.  - 18 - 3.09 Financial ProJections. Financial statements for NWSC, based on projected investments and operations, with detailed assumptions are given in Annex 11 and summarized in Table 3.1 below. For purposes of financial projections, NWSC's operations have been partitioned into those inside and outside the Kathmandu Valley on the grounds that there are considerable differences in the costs of water supply; tariff increases have likewise been varied between these two locations. 3.10 Revenues are projected to rise nearly six-fold over the project period as more realistic tariffs are adopted, while operating expenses will rise over two times. Sewerage charges represent only about 32 of NWSC's total revenues as: (a) there are only a limited number (about 8,500) of sewer connections, all in the Kathmandu area; and (b) emphasis in the project period will be placed on rehabilitation of the existing infrastructure. Salaries and wages account for just over 50X of NWSC's operating expenses, which is reasonable in the light of the labor intensive aspects of its operations. During the project period, assets will continue to be recorded at their historic costs, with no revaluation being contemplated. Emphasis is being placed on cash generation, and following the December 1990 tariff increase, NWSC is projected to maintain a healthy current ratio of about 3.0. The debt to equity ratio is projected to decline from about 1.0 before the start of the project, to about 0.5 during the project period. The projected ratio takes into account the limits of affordability which serviced consumers can afford to finance water and sanitation infrastructure.  Table 3.1: FINANCIAL HIGHLIGHTS (NRs Millions) Actual Actual Actual EstimatedProjected 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Revenue 33.90 35.22 38.89 65.95 124.24 137.63 176.41 224.70 249.49 293.77 388.58 Operating Costs 41.93 47.60 89.57 89.15 107.74 119.69 181.7& 144.30 158.88 175.08 190.83 Operating Surplus -8.0a -12.38 -30.88 -23.20 16.50 17.94 44.68 80.40 90.61 118.69 177.73 Depreciation 10.58 12.03 22.80 24.58 24.58 24.88 24.88 66.84 70.48 71.14 119.87 Interest 3.J4 3.62 4.18 4.18 4.18 3.00 5.09 4.93 46.47 45.23 45.20 Surplus/deficit -22.05 -27.93 -57.es -51.98 -12.28 -9.94 14.71 19.83 -25.34 2.32 12.68 CD.pital Expenditure 0.00 0.00 8.00 73.71 193.96 738.10 1053.48 818.28 955.81 789.09 902.65 Outstanding Long-term 498.07 472.45 448.82 425.20 411.69 575.26 885.48 1118.11 1583.59 1879.41 2884.67 c Debt Working Ratio 1.2 1.4 1.8 1.4 0.9 0.9 0.7 0.8 0.8 0.8 0.5 Operating Ratio 1.5 1.7 2.4 1.7 1.1 1.1 0.9 0.9 0.9 0.8 0.8 Collections X 8S 8S 85 85 86 8S 87 87 87 87 87 , . , , , " . .~~~~~~~~~~~~~~~~~~~r  - 20 - D. TARIFFS AND FINANCXAL COVENANTS 3.11 Tables 3.2. and 3.3 below show NWSC's tariffs prior to, and post December 1990. Table 3.2s TARIFFS FOR HETERUi CONNECTIONS Rates for Additional Size of Minimum Charge (NRs) Units('O0O liters)(NRs) Connection Minimum Quantity Pre-Dec. Post Dec. Pre-Dec. Post-Dec. (mm) ('000 liters/month) 1990 1990 1990 1990 1S 10 7 15 1.20 2.50 20 27 28 60 1.20 2.50 25 50 56 115 1.20 2.50 40 140 168 340 1.20 2.50 50 235 280 565 1.20 2.50 75 700 840 1,685 1.20 2.50 100 1,400 1,680 3,360 1.20 2.50 Table 3.3' TARIFFS FOR UNNETERED CONNECTIONS Tariff (NRs) Size of Connection (mm) Pre-Dec 1990 Post-Dec. 1990 15 13 30 20 45 90 25 90 180 40 270 540 50 450 900 75 1,350 2,700 100 2,800 5,600 The lower income households which do not ha-e a separate connection are served by standposts and tanker trucks. It is HHG's policy to meet the cost of this service on a monthly basis. Domestic water charges will still only average some 22 of consumers' disposable incomes which compares with levels of 3-52 or more which may be found in sur;.c.anding countries, and it is expected that higher commercial/industrial rates will encourage conservation. 3.12 The recent tariff revisions will go a considerable way towards overcoming NWSC's most pressing cash and revenue difficutlties. It falls well short, however, of the increases which will be necessary to eliminate all deficits and remove the pressure for subsidies. Although it was covenanted under the second and third IDA-financed projects that sewerage charges were to be increased from 252 to 502 of billed water charges, the increase was neveL implemented, resulting in such revenues meeting only about 62 of the cost of the  - 21 - service. Furthermore, the sewerage charge is now applied only to houses that have a sewer connection. 3.13 As a condition of effectiveness NWSC will raise: (a) water revenues by at least a further 502 through a tariff revision; and (b) sewerage rates and charges to the equivalent of 50X of metered water charges for all consumers in a sewered area whether or not they are connected to the sewer system. 3.14 Objectives to be aciieved during the project period are for a gradual strengthening of NWSC to enable it to fund its operations. In order to meet these objectives, the following agreements were reached: (a) from HMG: (i) payment of bills presented by NWSC for standpost charges within 30 days; (ii) arrangements for the prompt payment of bills submitted by NWSC to Government agencies for services rendered if not paid within 30 days; (iii) an operating subsidy of NRs 22.0 million during FY92, to be paid in quarterly installments commencing October 15, 1991. (b) from NWSC: ii) commencing FY92, the generation of income (FY92 income to include the operating subsidy referred to ill (a)(iii) of this paragraph) to cover operating expenses (excluding depreciation) and working capital requirements; (ii) commencing FY94, the generation of income to cover operating expenses (including depreciation) and working capital requirements; (iii) commencing FY96, the generation of income to cover operating expenses, working capital requirements and the greater of depreciation or debt service; and (iv) the opening of an interest bearing account into which would be deposited any excess working capital to meet future debt service obligations. At negotiations, HMG also agreed that it will make every effort to provide timely allocations of development funds to permit NWSC to carry out the project: such allocations being agreed with IDA. E. ACCOUNTS AND AUDITS 3.15 Accounting and Management information Systems. The present general accounting system of NWSC is an accrual-based, manually operated one. While the system is fundamentally sound, it is not oriented to providing up-to-date management information. For example, information on stock levels is not generated often enough, or soon enough, leading to excess stock being held for  - 22 - some items. Likewise, information on outstanding debts is not made available until about six months after the end of the financial year--too late for management to take timely action. To address these issues, the UNDP-financed Management Information and Technical Support Project (NEP/88/005) has developed a management information system, an inventory control program and a personnel management program for both NWSC and DWSS. In addition, NWSC has begun to improve its accounting system by d&.vising and implementing an accounts code structure which will enable it to: (a) provide more timely information on its operations; and (b) computerize its accounts in due course. Computerization of its consumers' data base system commenced under the SIMS project on a pilot basis. During the project period this will be completed, enabling NWSC to keep a much closer control on its debtors in the future. Its effectiveness, however, depends on the rehabilitation of the high percentage of "out of order' meters. Thereafter, in a phased manner, NWSC will computerize its billings. In the meantime, the manual billing procedure will be improved through, inter alia, advising consumers regularly of their arrears, as well as, current dues. 3.16 An internal audit cell, reporting directly to the General Manager was established in 1989. This has enhanced financial and budgetary discipline and expedited the auditing of the accounts and financial statements of NWSC by its external auditors. Under the project, the internal audit would be expanded to cover meter reading and billing. 3.17 The records, accounts and financial statements of NWSC and the Special Account will be audited annually. Audits would be conducted by independent auditors acceptable to IDA. Agreement was reached that audit reports will be submitted to IDA within twelve months of the end of each fiscal year. However, NWSC will submit unaudited accounts to IDA within six months of the end of the fiscal year. In addition, a separate audit opinion within the annual audit would be given for IDA reimbursements made through the statement of expenditures, to certify that the underlying data fully support these requests. IV. PROJECT JUSTIFICATION A. ENVIRONMENTAL IMPACT 4.01 The project will deliver significant environmental benefits through the provision of safe piped water, improved wastewater disposal, reduction in pollution levels in rivers, an increased population hooked up to sewers (10,000 new connections) and introduction of a program to provide on-site sanitation (30,000 units). These measures would improve personal and household hygiene and convenience, improve sanitary conditions and aesthetics, reduce odor and disease vectors and decrease flooding. Surface and groundwater quality will be improved through improved treatment facilities. Health and quality of life will improve overall, though these cannot be quantified. Despite the favorable benefits, some components could have adverse environmental impacts if they are improperly designed or implemented. Potential adverse environmental impacts and mLnimizing and mitigating measures are described in Annex 12. Measures adopted under the project to improve environmental quality and minimize adverse impacts include improved water and sewage treatment facilities, prevention of river pollution (through repair of a ruptured sewer and diversion of effluent from combined sewers to treatmenc plants), improved sanitation through sewer connections and  - 23 - sanitation programs and water and effluent monitoring (see also para 2.18). In view of the above, the adverse environmental impacts would be minimal. B. BENEFITS FOR THE URBAN POOR 4.02 Nepal is currently one of the least urbanized countries in the world, but turban growth--at over 8% per annum--is the highest in South Asia; and some Terai towns are growing at 12X per annum, albeit from a low base. The future will clearly see a continuing and rapid shift towards urbanization, with consequent shifts for urban poverty and unemployment. While firm data on urban per capita income is not available, national statistics indicate that income is about US$170 per capita, with little if any improvement expected soon. National Planning Commission estimates indicate that about 40% of the population live in poverty. About 35% of project costs would directly benefit the poor. The urban poor will also benefit indirectly from general improvements in quality, pressure and distribution of water supply at standpost outlets and low cost sanitation investments. C. ECONOMIC ANALYSIS 4.03 The first phase of the FYDP is primarily intended to strengthen NWSC as an institution in preparation for the implementation of the subsequent phases which include emphasis on sanitation and development if a source of water for Greater Kathmandu from outside the Kathmandu Valley as a priority. In addition to enhanced management, planning and technical capabilities, the first phase would lead to significant improvements in NWSC's asset utilization and bring them into full and productive use. The immediate impacts would be: (a) increased quantity and reliability of water supply from rehabilitation of existing sources and reductions in leakage and other losses; (b) improved water quality as a result of treatment, rehabilitation and sanitation components, leading to better public health, greater consumer acceptance of the product and reduced mainte:nance of pipes, meters and equipment; (c) reduced costs of water supply arising from project activities, and efficiency improvements expected from technical assistance, training and enhanced central facilities; (d) more efficient use of water as a consequence of water systems rehabilitation, consumer education programs and reductions in illegal connections; (e) more equitable use of water, stemming from new distribution systems and improved supply; and (f) improved utilization of existing assets and facilities, particularly sewers and treatment works. 4.04 Most components of the first phase of the FYDP would contribute to each of the above impacts. Many of the benefits, such as improvements in health from cleaner water and better sanitation, or even the gains from improved distribution of water among consumers, are difficult to quantify. The weaknesses in data on receipts and costs also introduce substantial uncertainties into the estimates which have been carried out on those quantifiable benefits and costs associated with increases in supply of water to consumers. The analysis (Annex 13) has been confined to benefits of incremental water supply, and has been done on the basis of program rather thait project expenditures, because there are complementarities between the two.  - 24 - 4.05 Costs. The elements which contribute to increasing water available to consumers comprise groundwater rehabilitation, rehabilitation of distribution systems and leakage control, and additional groundwater supplies. These items come to 46% of the programmed expenditures in the first five years. (The project expenditures on these components come to about 31Z of the total project amount. The IDA-financed project as a whole would finance about 53? of the first five- year program expenditures.) All costs have been valued in 1991 border prices. Given the standard conversion factor for Nepal of 0.9, investment costs in border prices come to 0.97 of their financial cost, and unit operating costs inside the Kathmandu Valley and outside the Kathmandu Valley, respectively, come to 0.94 and 0.92 of financial cost. Incremental operating costs have been estimated at the average variable cost of supply per cubic meter for existing supply in 1990 (excluding the NWSC Board expenses, which would not vary with supply and excluding 252 of labor cost to eliminate the effect of overstaffing). This imparts some upward bias to operating costs, as the supply increases under the project could be achieved without proportional increases in NWSC staff. On the other hand, no specific allowance has been made for later replacements of equipment or rising maintenance charges. 4.06 Benefits. The starting point for estimating the benefits of incremental water consumed was the average rewenue per cubic meter of water consumed, weighted by the standard conversion factor to express it in 1990 border prices. Revenues were based on actual receipts per cxbic meter in 1990, increased by 80S to reflect the tariff increase actually implemented in December 1990, the additional 502 increase expected in 1991 before effectiveness and discounted at 1990 levels at the inflation rate of 10.52. Water receipts understate benefits, because the incremental supply would substitute for more expensive alternative sources for many consumers. Moreover, for the majority of consumers of piped water who face a rising block rate, average expenditures understate marginal valuations. Data are unavailable to permit a detailed estimation of benefits for different consumers. An indication of possible magnitudes is, however, implied by the observation that consumers served by water tankers in Kathmandu in 1989 paid about NRs 57 per cubic meter. This compares with marginal rates for piped water, after the above tariff increases, of NRs 3.75 to NRs 9 per cubic meter, and average tariffs of NRs 2.76/M3. For these consumers, therefore, the value of incremental water consumed when connections are made would come to about NRs 30 to 33 per cubic meter (assuming a straight line demand curve), or six times to fifteen times the marginal price of water. In addition, the economy would save an economic cost of NRs 32 per cubic meter from the switch of tankers to piped supply. The base estimate assumes the economic benefit associated with incremental water consumption at three times the average revenue (average revenue in 1990 border prices of NRs 2.15 per cubic meter inside the Valley, and NRs 2.44 outside the Valley).  - 25 - 4.07 Economic Rates of Return (ERRs). Flows of benefits and costs were forecast to the year 2030. It will be noted from Table 4.1 below that the base case ERR is 9.52 compared to the estimated opportunity cost of capital of 102. The lower ERR on works outside the Kathmandu Valley is due to the fact that a larger proportion of the works there would increase production as contrasted with increasing effective supply to consumers through improving efficiency of existing plant. This is further reflected by the average incremental cost of water consumed being about twice as high outside as inside the Valley, whereas estimated benefits per unit are only marginally higher. Irrespective of the likely conservatism of the benefit estimates as described above, the modesty of these rates of return reinforces the impetus given by the financial situation to carefully exploring means for meeting needs for water and sanitation in a least- cost fashion. It should also be recalled that major project impacts--and benefits--are unquantifiable, and would lie in improving sanitation and health of rapidly rising urban populations. Table 4.1: ECONOMIC RATES OF RETURN (Z) Towns Inside the Towns Outside the Kathmandu Valley Kathmandu Valley Average Base case: Benefits = 3002 of Receipts 15.8 8.1 9.5 Sensitivity: Benefits - 2002 of Receipts 9.0 3.8 4.8 Benefits = 4002 of Receipts 23.3 11.8 14.0 Delay of one year in benefits 13.5 7.4 8.5 Investment Costs: +10X 14.0 7.2 8.5 +202 12.6 6.4 7.6 -102 18.0 9.2 10.8 -202 20.9 10.5 12.4 2/ In the case of the supply to the Kathmandu Valley, this procedure may be questioned as some of the works on new boreholes and renovations of existing boreholes (costing about NRs 118 million) may be replaced in the medium term by major new sources. These sources would cost on the order of NRs 4,755 million, and take over five years to construct. With a present value of about NRs 3,500 million, each year of deferral of these source works is worth about NRs 35 million in interest alone; this is approximately equal to total operating costs of NWSC in supplying water and sanitation services in the Valley. Benefits of such deferral have not been included in the economic analysis for the present project. A more comprehensive benefit estimate for the present project would be to forecast unit benefits of water to reflect the rising scarcity of water to the point at which the major new source is justified and comes on stream, after which the benefits of the present project would be reduced by the fall in the supply increments no longer needed. However, these figures are not known with sufficient reliability to justify their use here.  - 26 - D. RISKS AND SAFEGUARDS 4.08 The project involves appropriate technology concentrating on rehabilitation, upgrading and augmentation of existing facilities. New facilities (i.e., treatment plants) will be provided in accessible locations with well known and understood ground conditions. To ensure sound technical design and supervision, NWSC will engage consultants and will also be supported by a management support team. With these safeguards, the project would be well within its technical and administrative capability to implement. 4.09 A first risk is that HMG and NWSC will deviate from agreed operational and financial targets, especially tariff increases. However, HMG and NWSC are now aware that their ambitious plans for the sector are simply unattainable in the absence of greatly increased resource mobilization. This risk is therefore containable. Further is the risk that HMG and NWSC may go ahead with investment in the future water supply project for Kathmandu with assistance from other donors prior to all rehabilitation being carried out. However, as most of the rehabilitation works in the Kathmandu Valley towns are included in the first phase FYDP, and the unlikely prospect of one donor financing this major investment, the risk is small and no special safeguards are considered necessary. V. AGREEMENTS AND RECOMMENDATION 5.01 The following agreements were reached at negotiations: (a) FYDP: HMG and NWSC would consult IDA prior to revision, alteration or modification of the strategies embodied in the FYDP (para. 2.01); (b) Design Review: not later than December 31, 1991, NWSC would set up a committee to review designs (2.14); (c) Operational Action Plan: progress in implementing the OAP would be reported quarterly and updated annually (para. 2.15); (d) Procurement: bidding packages above specified limits would be subject to review by IDA (para. 2.24); (e) NWSC Act: HMG would not amend, suspend, abrogate or repeal the NWSC Act without prior consultation with IDA (para. 3.01); (f) NWSC Responsibilities: HMG and NWSC would only expand NWSC's responsibilities if they did not adversely affect NWSC's financial condition and ability to implement the project and abide by the legal undertakings therein (para. 3.01); (g) Revised Water and Sewer Connection Policies: by December 31, 1991 NWSC would implement revised water and sewer connection policies and procedures for cutting roads, satisfactory to IDA (para. 3.03);  - 27 _ (h) Road Cutting: HMG would facilitate NWSC requests to cut roads (para. 3.03); (i) Standpost Charges: HMG would pay within 30 days NWSC bills for standpost charges (para. 3.14 (a)(i)]; (j) Arrears of Government Agencies: HMG would arrange for the prompt payment of bills submitted by NWSC to Government agencies (para. 3.14 (a)(ii)]; (k) Operating Subsidy for FY92: HMG would provide NWSC with an operating subsidy of NRs 22.0 million during FY92 [para. 3.14(a)(iii)3; (1) Financial Objectives: (i) commencing FY92, NWSC would meet operating expenses (excluding depreciation) and working capital requirements [para. 3.14 (b)(i)]; (ii) commencing FY94, NWSC would cover operating expenses (including depreciation) and working capital requirements (para. 3.14 (b)(ii)]; (iii) commencing FY96, NWSC would cover operating expenses, working capital requirements and the greater of depreciation or debt service (para. 3.14 (b)(iii)l; (m) Interest Bearing Account: NWSC would open an interest bearing account (para. 3.14 (b)(iv)l; (n) Funding Requirements: Eh4G would provide timely allocations of development funds to NWSC (para. 3.14); and (o) Audits: NWSC's accounts and the Special Account would bf% audited annually by independent auditors acceptable to IDA, and audit reports submitted to IDA within 12 months of the end of each fiscal year (para. 3.17). 5.02 The following will be conditions of effectiveness: (a) Subsidiary Loan Agreement: HMG to execute a subsidiary loan agreement with NWSC to pass on US$23.0 million to NWSC on the following terms irrespective of the underlying funding sources: loans, 9? per annum, to be amortized over 19 years, including a four-year moratorium or. principal repayments (para 2.07); (b) Management Support: signature of a contract for engagement of the management support team (para 3.02); (c) Settlement of Arrears: HMMG will pay NWSC all outstanding amounts for public standposts, and overdue bills of government agencies for water and sewerage services; and NWSC will pay its outstanding power charges (para 3.07); and  - 28 _ (d) Tariffs and Charges: NWSC will raise water revenues by at least a further 50o through a tariff revision and sewerage rates and charges to the equivalent of 50X of metered water charges for all consumers in a se.wered area whether or not they are connected to the sewer system (para 3.13). Recommendation 5.03 On the basis of the above conditions and agreements, the project is suitable for an IDA credit of SDR 45.5 million (US$60 million equivalent) to the Kingdom of Nepal, on standard terms with 40 years maturity.  - 29 - Annex 1 Page 1 of 4 NEPAL URBAN WATER SUPPLY AND SANITATION REHABILITATION PROJECT Table l PROJECT TOWNS: POPULATION PROJECTIONS Growth Rate (%) 1989 1995 2000 2005 Kathmandu Valley Towns Kathmandu 4.7 338,800 426,300 536,300 670,000 Lalitpur 4.7 101,200 127,300 169,200 200,000 Bhaktapur 2.7 52,000 59,500 68,000 77,700 Subtotal 492,000 613,100 773,500 947,700 Towns Outside the Kathmandu Valley Pokhara 7.5 83,200 128,400 184,300 264,600 Biratnagar 8.0 173,100 274,800 403,700 593,200 Birgunj 12.0 108,100 213,300 375,900 662,400 Bhairahawa 6.5 51,500 75,100 103,000 141,100 Butwal 7.0 38,800 58,200 81,700 114,600 Dharan 8.0 78,000 123,800 181,900 267,300 Hetauda 8.0 64,000 102,200 150,200 220,600 Janakpur 10.0 74,600 132,100 212,800 342,700 Nepalgunj 6.0 54,200 76,900 102,900 137,200 Subtotal 725,500 1,184,800 1,796,400 2,743,700 GRAND TOTAL 1,217,500 1,797,900 2,569,900 3,691,400 Note: Based on the projections used by the consultants for the Service Improvements and Management Support (SIMS) Project of NWSC.  NEPAL URBAN WATER SUPPLY AND SANITATION REAILITATION PROJECT Table 2s TOWNS OUTSIDE THE KATMANDU VALLEY: WATER SUPPLY PRODUCTION AND COVERAGE Pokhara B8ratnagar 8;rgunj Ohairahawa Butwal Oharan Hetauda Janakpur Nepalgunj 1989 1989 1989 1989 1989 1989 1989 1989 1989 1. Total population 83,200 173,100 108,100 61,600 38,800 76,000 64,400 75,600 64,200 2. Population served 69,000 30,900 81,700 9,900 32,600 74,700 16,500 11,000 /a 17,100 8. Population served (X) 83 18 29 19 84 9 24 1S 32 4. Population served: (a) by house connection 44,800 28,500 27,200 7,700 13,900 27,100 16,000 7,000 10,300 (b) by standpost 24,200 2,400 4,500 2,200 18,700 47,600 600 4,000 6,800 S. Water demand (mid) 12.48 7 8 2.94 4.23 9.68 3.68 2.14 2.98 6. Unaccounted for (mId) S 17 a 4 1.88 1.48 3.87 1.61 1.06 135 7. Unaccounted for water (%) 42 43 S1 63 3S 40 45 49 45 8. Per capita consumption 10S 130 122 109 8S 78 127 99 95