Nepal - Rural Water Supply and Sanitation Project

Document of The World Bank Report No. 15232-NEP STAFF APPRAISAL REPORT NEPAL RURAL WATER SUPPLY AND SANITATION PROJECT July 8, 1996 Agriculture and Water Operations Division Country Department II - Bhutan, India, Nepal South Asia Regional Office  CURRENCY AND EQUIVALENT UNITS (as of' )ecermber 1, 1995) Nepalese Rupee (NR) = 100 paisa US$1.00 = NRs 55.66 SDR = UJS$143477 MEASURES AND EQUIVALENTS mm millimeter (I millimeter = (0.039 inches) m meter (I meter = 3.28 feet) km kilometer (I kilometer = 0.62 miles) km2 squarc kilometer (I km2 = 0.368 squarc miles) ha hectare (I hectare = 10,000 square meters = 2-47 acres) I liter (I liter = 0.22 impcrial gallons = 0.264 US gallons) lcd liters per capita per day m 3 cubic meters (I m3= 220 imperial gallons = 264.2 US gallons) Ml million liters Mld million liters per day (I Mid = 0.220 million imperial gallons per day = 0.264 million US gallons per day) ABBREVIATIONS AND ACRONYMS ADB Asian Devclopment Bank CBO Community-based organization CDO Chicf District Officer DDC District Development Committee DWSS Department of Water Supply and Sewerage FINNIDA Finnish Initernational Development Agency HSE Hygiene and sanitation education IDA International Development Association KAP Knowledge. Attitudes, and Practiccs MHPP Ministrn of Housing and Physical Planning MLD Ministry of Local Development MOE Ministr' of Education MOF Ministry of Finance MOH Ministry of Health NGO Non-govcrnmental organization NPC National Planning Commission O&M Operation and maintcnance NWSC Nepal Water Supply Corporation PRA Participatory rural appraisal SA Service agency SARAR Self-esteem. Associative in strength. Resourcefuilness, Action plan, Responsibilitn SO Support organization SRDP Sector Review and Development Plan (1991-2000) SWC Social Welfare Council (successor to the Social Services National Coordination Council) TAC Technical appraisal committee UNDP United Nations Development Program UNICEF Unitcd Nations Children's Emergency Fund VDC Village Development Committee WHO World Health Organization WUC Water User Committee WUG Water User Group FISCAL YEAR Jul 16 - July 15  NEPAL RURAL WATER SUPPLY AND SANITATION PROJECT STAFF APPRAISAL REPORT Table of Contents CREDIT AND PROJECT SUM M ARY .......................................................................... i 1. THE RURAL WATER SUPPLY AND SANITATION SECTOR .1 Country Background I Water Supply and Sanitation Service Levels .2 Sector Institutions .2 Government Policies and Sector Constraints .4 External Financing of Rural Water Supply and Sanitation. 6 Prcvious Bank Experience .7 Rationale for Bank Involvement .9 11 THE PROJECT ..................................................................... 10 Project Origin ..................................................................... 10 Project Area ..................................................................... 1 1 Project Objectives ..................................................................... 11 Project Description ..................................................................... 11 Project Costs ..................................................................... 1 3 Financing Plan ............... ................................ . .................... 14 III PROJECT IM PLEM ENTATION ......... ............................................................ 15 Status of Project Preparation ............................................ ......................... 15 Organization and Management ............................................................... ...... 15 Implementation Strategy ............................ ......................................... 18 Procurement ...................................................................... 26 Disbursements ...................................................................... 28 Accounts, Audit, and Reporting ..................................................................... 30 Monitoring, Evaluation, and Supervision . .............................................................. 32 IV. BENEFITS AND RISKS ....................................................................... 34 W illingness to Pay, Affordability, and Poverty Alleviation ............. ....................... 34 Environmental Assessment ...................................... ............................... 36 Promotion of the Private Sector ..................................................................... 37 Impacts on W omen ..................................................................... 37 Economic Analysis ..................................................................... 38 Risks ..................................................................... 41 V AGREEMENTS TO BE REACHED AND RECOMMENDATIONS ....................... 42  ANNEXES 1. Detailed Project Descnrption ..................................................... 45 2. Terms of Reference for Selected Project Financed Studies ................................................... 55 3. DetailedCostEstimate ..................................................... 61 4. Development Board Act ...................................................... 67 5. Draft Rural Water Supply and Sanitation Fund Development Board Formation Order ...................................................... 71 6. Draft Rural Water Supply and Sanitation Fund Development Board Rules ............. 81 7. Project Implementation Schedule ..................................................... 109 8. Disbursement Schedule ..................................................... 111 9. Project Monitoring Indicators ...................................................... 113 10. Supervision Plan ........................................ . 115 11. Economic Analysis Data ....................................... 117 12. Environmental Criteria ........................................ 127 13. Janta Ko Khane Pani Ra Safai Karyakram (Jakpas): Summary of Performance and Lessons of Experience ....................................... 131 14. Support Organizations and Service Agencies ....................................... 143 15. Design Criteria ....................................... 149 16. Social Assessment ....................................... 159 17. Terms of Reference for Technical Adviser ................. ...................... 161 18. Rural Water Supply and Sanitations Fund Development Board Organizational Structure ........................................ 164 19. Detailed Scheme Cycle .... ..................................... 165 20. Selected Documents and Data Available in Project File ....................................... 173 This report is based on the findings of an appraisal mission that visited Nepal from November 12 to December 2, 1995. The mission was comprised of Messrs/Mmes Xavier Legrain (Task Manager), Julie Viloria (ASTTP), Dianne Hughes (ASTEN), Sayed Ahmed (LEGSA), Tashi Tenzing, Ava Shrestha, and Frank Mitchell (Consultants). Deepa Narayan (ENVSP), Vijay Jagannathan (TWUWS) and Andrew Macoun (MN2NE) are peer reviewers. The Sectoral Division Chief is Shawki Barghouti, the Project Adviser is Kazuko Uchimura and the Department Director is Heinz Vergin.  NEPAL RURAL WATER SUPPLY AND SANITATION PROJECT Credit and Project Summary Borrower: The Kingdom of Nepal Beneficiary: Nepal Rural Water Supply and Sanitation Fund Development Board Amount: SDR12.8 million (US$18.28 million equivalent) Terms. Standard IDA Terms, with 40 years maturity Commitment fee: Standard (a variable rate between 0 and 0.5% of the undisbursed credit balance, set annually by the Executive Directors of IDA) Project description: The proposed project would have three main components. The first is the establishment and operation of the Nepal Rural Water Supply and Sanitation Fund Development Board (the Board). The Board would be responsible for selecting, using transparent eligibility criteria, support organizations to assist communities to prepare and implement schemes, appraising, selecting, and financing schemes which fulfill eligibility criteria, and monitoring key scheme-related activities. The second component is the selection and construction of water supply and sanitation schemes. This component would include a community development sub-component consisting of three main programs of activities to promote active participation of the communities in all stages of the decision-making process for the planning, construction, and management of their rural water supply and sanitation scheme. These programns comprise capacity building activities (community mobilization/organization and non-formal education), hygiene and sanitation education to influence behavior and maximize benefits, and technical support services to women to allow them to make productive use of the time saved. The second component also includes investments in water supply improvements (gravity flow systems, shallow and deep tubewells, dugwells, and catchment protection) and a small community-based latrine component lending money to households for latrine construction and building latrines for selected schools and health centers to maximize demonstration effects. The third component is institutional development and studies. Institutional development will take the form of technical assistance to the National Planning Commission and to the Ministry of Housing and Physical Planning for monitoring and evaluation of overall sector performance. Studies will be on sectoral issues such as methodologies for demand estimates, identification of criteria for scheme selection and corresponding scheme cycle in the Terai, special studies (low cost technology options, water quality control at source as well as in home, health impact assessment), and preparation of a follow-on project.  - ii - Poverty category: Not applicable. Over half of project beneficiaries would be in the poverty group. However the project is not specifically targeting poverty as it operates with entire communities, based upon their demand for rural water supply and sanitation services rather than incidence of poverty. Environment The project is rated Category B. The project is expected to have a net positive category: effect on the environment. Scheme pre-feasibility and feasibility studies will be carried out prior to construction and will include an environmental assessment. One of the scheme funding eligibility criteria requires that scheme proposals include adequate provisions to mitigate any identified adverse environmental impact. Benefits: The main project beneficiaries would be approximately half a million rural inhabitants who would benefit from improved water supply and sanitation services through both time saved collecting water and better health from more and cleaner water, improved health knowledge, and better hygiene practices. Women would also be major beneficiaries, through spending less time carrying water, through being full members of the Water User Committees responsible for the project at community level, and through specific components designed to empower them. Risks: The principal risks of the project are that more time and effort than now foreseen may be required to build capacity in NGOs, communities, and the Board itself, implying a shortfall in implementation from the current forecasts; and that outside pressures may prevent the Board from allocating resources in a transparent fashion according to the objectives criteria agreed with the Bank. As regards the first risk, the pilot project indicates that there should be no capacity constraints. Even if constraints were to materialize, the main consequence would be that fewer schemes would be financed during the project period. Intensive monitoring and evaluation are intended to highlight any problems as they arise, and to enable the Kingdom of Nepal and the Board to fashion appropriate solutions. As regards the second, political risk, the pilot project provides little precedent as it was executed by the Bank, and so could uphold transparent and objective criteria in response to outside pressures. Only Board experience will indicate whether transparency can be upheld. To mitigate this risk, the Bank would devote substantial efforts to close supervision of this project, and especially to ensuring strict adherence to agreements regarding application of eligibility criteria and Board autonomy in engaging staff and setting its rules.  - iii - Project cost (US$ million): Local Foreign Total Establishment and operation of the Board 3.20 0.95 4.15 Selection and construction of schemes 10.12 2.15 12.27 Institutional development and Studies 0.74 0.11 0.85 Base cost 14.06 3 21 17.27 Physical contingency 1.31 0.33 1.64 Price contingency 1 86 0.48 2.34 Total project cost 17.23 4.02 21.25 Note: The above costs include an estimated US$0.02 million in taxes. Financing plan (US$ million): Kingdom of Nepal 0.67 - 0.67 Communities 2.30 - 2.30 IDA 14.26 4.02 18.28 Total project cost 17.23 4.02 21.25 Estimated disbursements (US$ million): Bank fiscal year 1997 1998 1999 2000 2001 2002 Annual cumulative disbursement 0.90 3.50 7.50 13.00 17.00 18.28 Economic rate of return: 22% (for water schemes) Project identification number: NP-10516 Map: IBRD 25055 - Rural Water Supply and Sanitation Project Vice President: D. Joseph Wood Director: Heinz Vergin Division Chief: Shawki Barghouti Task Manager: Xavier Legrain/Dianne Hughes   RURAL WATER SUPPLY AND SANITATION PROJECT STAFF APPRAISAL REPORT I. THE RURAL WATER SUPPLY AND SANITATION SECTOR Country BackEround 1.01 Nepal is a landlocked mountainous country with a population of about 21 million. It is a country of significant human diversity, largely because of the difficulty of traveling between the different regions. It is one of the poorest countries in the world, with a 1994 per capita income of about US$200. According to Nepal Povertv and Incomes (World Bank, 1991), 40- 60% of households are below the poverty level, depending on definition. Rapid population growth has limited the benefits from increased GDP, and incomes have risen by only 2% per year. Poorly endowed human resources are a major constraint to rapid increases in more productive employment and hence economic growth. Education coverage and quality are poor and the participation rate is low. About 26% of the adult population is literate (less in rural areas), and literacy among women is 13%. 1.02 Population growth has declined and is currently 2.4% a year. Although the urban population is increasing at over 7% a year, rural people, drawing their livelihood from agriculture, still comprise about 90% of the total, and their numbers are rising at 2.0% a year. The above factors imply that sector strategies need to address the problems of a predominantly poor, overwhelmingly rural population for the next several decades. 1.03 A high incidence of water-related diseases contributes significantly to low productivity in Nepal. Inadequate access to safe water supplies, combined with poor environmental sanitation and personal hygiene practices, is among the leading causes of diseases such as diarrhea, dysentery, worm infestation, and skin diseases. Water borne diseases head the list of causes of morbidity and mortality in Nepal hospital statistics. Diarrhea is said to account for almost half of all children's deaths (16% mortality rate, out of a total child mortality rate of 35%). Life expectancy is low (54 years), and the infant mortality rate is estimated to be 107 per thousand live births. Unreliable as the statistics may be, the situation they portray is worse than in most other countries of South and East Asia. While life expectancy and infant mortality have improved over recent decades, the extent to which this is due to improvements in water supply and sanitation is unknown. Although advances in technology mean more diseases can be controlled by low-cost immunization, no immediate breakthroughs are foreseen for water borne diseases, implying that improved health requires improvements in water and sanitation facilities and more effective use in the near and medium terms. 1.04 Rural productivity is also constrained directly through the high time cost of collecting water, often more than five hours per household per day, in many hill and mountain areas. This cost is rising as settlement extends into less favored areas. Environmental degradation  - 2 - (deforestation and drying up of sources, increased seasonality of sources, pollution) and competition with other uses are causing water sources to deteriorate. Water SuppyI and Sanitation Service Levels 1.05 Official statistics indicate that about 49% of the rural population and 58% of the urban population had "safe" water supplies in 1995, and 3% and 34% of the rural and urban populations respectively had satisfactory sanitation arrangements. These statistics are seriously flawed. The water figures refer to future populations covered by official schemes that exclude many households with pnrvate supplies. Much of the urban water supply is intermittent, sometimes seasonally nonexistent, and contaminated by human and animal waste. An official study showed that 92% of the 306 piped rural water supply schemes as of mid-1990 needed rehabilitation.' At the same time, 25% of officially installed tubewells were said to be inoperative.2 Case studies recently carried out by the National Planning Commission (see Annex 20) show that many official schemes deliver no water at all, or deliver only to a minority of their target customers. Even where clean water is available at the source, quality often is much lower within households because of shortfalls in hygiene practices.3 1.06 Official sanitation coverage figures refer to households with latrines in rural and most urban areas, and sewered areas in Greater Kathmandu. Sewerage operations are subject to major shortcomings because of failures by households to connect to systems, leakage from sewers, and failures to dispose of effluent away from the population. Open-air defecation is the norm in rural areas and common in towns. Ignorance about the relationships between sanitation and health means that the full potential benefits are not gained from available facilities. In bfief, access to satisfactory water supplies and sanitation facilities is limited, many facilities do not or cannot (without substantial additional expenditures and improvements in management) provide the services for which they were designed, and even when facilities do operate, they are not used effectively by the public. Sector Institutions 1.07 The National Planning Commission (NPC) coordinates overall national and sectoral planning, including annual development plans and budget estimates; the Ministry of Finance (MOF) is responsible for allocation of annual budget resources. The Ministry of Housing and 1 . Research Triangle Institute, Project Preparation for Rehabilitation oJ Water Supply Projects, Management Information and Technical Support for Project Preparation in Water Supply Sector Agencies in Nepal, Kingdom of NepalIuNDP/IBRD/88/005, July 1990. 2. SETA, Evaluation of the Projeci "Nepal Water Supply aid Sanitation, " (EEC), 1716/1990-3/1g1990, 152 pages and annexes. 3. Environment and Public Health Organization, DISVI International Cooperation, "Water Quality -lesting in Siraha, Area No. 2," Kathmandu, 1991, 15 pages and annexes, and, by the same organization, A Case Study on Gastroenteritis Epidemic in the Midwestern Region of Nepal (Rukum and Dang), Report submitted to UNICEF/DWSS, Sept.-Oct., 1991, 21 pages and annexes.  Physical Planning (MiHPP) has responsibility for formulating sector policies and plans. It chairs the National Water Supply and Sanitation Coordination Committee, whose mandate is to coordinate policy with the other ministries with sector responsibilities. The Ministry of Local Development (MLD) oversees local authorities and is responsible for the integrated rural development projects, many of which have rural water supply and sanitation components. Public health, hygiene education, and promotion of on-site sanitation (latrine subsidies) are under the Ministry of Health (MOH) Health Education and Environmental Health Sections. The Ministry of Education (MOE) includes some health education in school curricula and non-formal education classes. The Ministry of Water Resources is responsible for monitoring overall water use. The Social Welfare Council (SWC) is responsible for registering, monitoring and coordinating the activities of international non-governmental organizations and local non-governmental organizations that operate in more than one district or are in receipt of funds from the Kingdom of Nepal. Non-governmental organizations operating in a single district register with the Chief District Officer (CDO). 1.08 Local authorities have been given responsibility for water supplies and sanitation. Shortfalls in their performance, however, led to internal and external pressure to improve the situation, and central agencies have taken over local responsibilities. The principal central water supply and sanitation agencies are the Nepal Water Supply Corporation (NWSC) and the Department of Water Supply and Sewerage (DWSS), both of which report to the MIHPP. The NWSC handles water supply in the 13 larger municipalities and sewerage in the three municipalities of Kathmandu Valley. The DWSS is responsible for water services in 22 of the smaller towns in Nepal (of which 16 have populations over 25,000) and physical implementation of most government rural water supply and sanitation schemes. The Water User Committee within the Municipality of Dhulikhel is responsible for water supply in the municipality. In 1988, the DWSS took over the UNICEF-supported community water supply program from local authorities and District Technical Offices under the Ministry of Panchayat and Local Development (the predecessor to the MLD). Simultaneously, the DWSS was decentralized to five regional offices and one office in each of Nepal's 75 districts. 1.09 Non-governmental organizations (NGOs) play an important role in rural development and rural water supply and sanitation. At least 19 international NGOs are active in the water supply and sanitation sector. Among the most important are the International Red Cross, Water Aid, CARE, Save the Children, the Gurkha Welfare Trust, Helvetas, and many religious organizations. International NGOs are increasingly (for example, Water Aid, the Red Cross, and World Neighbors) shifting from delivering services directly to assisting local NGOs to provide services. There are presently about 3,400 local NGOs registered with the SWC, and perhaps twice as many registered at district level. Local NGOs are mainly managed by volunteers, often starting with a social welfare motivation. Some larger local NGOs now employ professional staff to handle larger and technically more complex projects. Most NGOs are concerned primarily with providing services to local communities (such as literacy, income generating activities, social facilities, and local infrastructures) but several are delivering an increasing range of training, research, and development activities to other organizations. Water schemes are a major focus due to popular demand, although the number of NGOs with water or sanitation programs is not known. Recently NGOs have exhibited an impressive ability to expand the scope and number of  -4- their activities in response to increased support from bilateral donors, and the Kingdom of Nepal's policy to facilitate their activities (para. 1.16). Umbrella associations of NGOs are forming in some districts to improve coordination among member NGOs and to help attract resources to the district. Two national NGO federations have been established in the past four years to furnish their members with services and to represent NGO concerns to government. Government Policies and Sector Constraints 1.10 The Kingdom of Nepal's overall sectoral objectives are to improve health and productivity by making water and sanitation facilities available to the population as a whole. These goals have remained constant during the last several development plans. The Kingdom of Nepal has tended to define sectoral goals by estimating the investments required to close the gap between the total population and the population with access to satisfactory facilities. Although sectoral investments have risen both in absolute terms and as a percentage of the development budget, coverage targets have not been achieved and have had to be scaled back. Thus in 1980, at the beginning of the "water decade", the Kingdom of Nepal set safe water supply targets for 1990 of 94% for urban areas and 67% for rural areas, and sanitation targets of 21% and 13% respectively. By rmid-decade, these targets were scaled back to 69%, 52%, 20%, and 10% respectively, even though the share of development expenditures for water supply and sanitation in the Seventh Plan (1985-90) was raised to 4.3% from 3.5% in the Sixth Plan (1980-85). Actual performance in 1990 (66%, 34%, 34%, and 3%) fell short of the reduced targets except for urban sanitation. The Eighth Plan (1992-97) sets targets for 1997 of 77%, 72%, 48%, and 9%, and raises development expenditures to 5.5% of the total, of which approximately 62% is for rural water supply and sanitation. It also foresees total coverage of the population with safe water supplies within a decade, at which time there would be 25% rural sanitation coverage. 1.11 More important than the failures to reach coverage targets, however, has been the failure of investments to generate satisfactory services, as noted above (para. 1.05). The Eighth Plan highlights four causes of past shortfalls: overambitious targets; lack of institutions for service delivery, especially in the rural areas; overly costly project designs; and excessive costs due to delays in funding, inflation, and central procurement. 1.12 These deficiencies are largely institutional in origin and result from the inherent inability of central institutions to deliver local services in a country with Nepal's diversity and poor communications. The system under which every project was included in the central budget was open to pressures at local and central levels to overprogram, and so implementation periods were excessive. Projects were designed to fit centrally defined guidelines but there was no careful review of local demands, facilities, or available resources. Large contractor-built schemes that promised to cover the maximum number of beneficiaries (sometimes duplicating existing facilities) were preferred, even when smaller schemes would have served better. Centralized procurement of materials did not avoid lapses in quality but did cause delivery delays. Inadequate government salaries and incentives led to poor staff motivation which resulted in inappropriate designs and poor supervision of construction work carried out by contractors. Staff were not accountable for the quality of work, and there were no systematic procedures to monitor performance. Frequent  - 5 - staff transfers damaged projects by removing staff knowledge, opportunities for using technical skills, and personal responsibility for project performance. 1.13 Investments have also failed to provide services because of a lack of focus on the technical, financial, and organizational requirements for operations and maintenance. Communities are expected to maintain systems, but they are unwilling to take responsibility for badly designed, poor-quality schemes. Efforts to enable communities to undertake operational responsibilities have been lacking or deficient. For example, pumping schemes require electricity and maintenance that cost more than the communities are prepared to pay. As a result, the DWSS has had to take "temporary" responsibility for operation and maintenance. Without adequate budget or personnel, however, the schemes deteriorated. There has also been little effort to modify household behavior to reap the health benefits of improved supplies. Coordination of extension activities by MOH village health workers with DWSS schemes has been largely lacking. 1.14 To fill the gap created by the DWSS's poor performance in delivering services, many NGOs have initiated programs to provide rural water supply and sanitation services. The success of some of these programs contrasts with the poor performance of many DWSS schemes. The experience of many NGOs and some bilateral donors, such as the Finnish International Development Agency (FINNIDA), shows that better results come from alternative approaches which avoid central interference in implementation and maximize community ownership of schemes. Successful programs share certain features: first, more substantive interaction with target communities at all project stages. Typically, private and NGO schemes have involved initial community consultation on needs, health education (with a heavy emphasis, mostly by international NGOs, on empowering women), significant community contributions of labor and funds for construction, and total community responsibility for operation and maintenance. Successful NGO schemes have involved a much higher degree of community trust and sense of ownership than government schemes. Other important features are higher staff remuneration and travel and subsistence allowances, high staff commitment to the objectives of projects independent of remuneration, and links between tenure and adequate performance. The NGO sector has also had some failures, of course, often related to lack of technical capacity or absence of the above factors. The relative success of the NGO community-based approach has been successfully confirmed by the Jakpas4 project (para 1.21, 1.22 and Annex 13), a pilot for the project proposed here. 1.15 The MHPP and the DWSS have been aware of the shortcomings of their approach and the successes of NGO alternatives, and are making efforts to incorporate these lessons in their operations. The MHPP/DWSS Directives for Construction and Management of Water Supply Projects, drafted in 1990 and revised in 1991 and 1992, requires that: (a) user conmmittees, including at least two women and representing the community, formally accept responsibility for operation and maintenance; (b) village maintenance workers be selected by the user committees; (c) routine operation and maintenance be paid for by the users; and (d) capital contributions in the 4. Janta Ko Khane Pani Ra Safai Kan akray meaning People's Water and Sanitation Program. Also known as the Rural Water Supply and Sanitation Field Testing Project.  - 6 - form of labor, cash, or kind, be provided by the users. However, these efforts do not address the adoption of an institutional culture that promotes accountability to the beneficiaries. Not surprisingly, preparation studies for the proposed project (Annex 20) indicate that implementation of the guidelines has been patchy, with continuing emphasis on contractor-based schemes and user groups being appointed on a pro forma basis. In early 1993, the Kingdom of Nepal responded to the problem of staff discontinuity by setting minimum staff assignment periods of three years. The DWSS has added new sections to its existing structure to deal with sanitation and community participation. These measures do not, however, address the inherent contradiction between governmental structures (civil service rules, central finances, and a hierarchical structure reporting to the capital) and the need to make officers responsible for service delivery accountable to users. 1.16 The Eighth Plan emphasizes the importance of institutional change through radical decentralization of service delivery to local authorities and the private sector. The necessary redefinition of government versus private, and government versus local authorities, as well as associated resource reallocations, are difficult and uncertain. The Eighth Plan indicates that rural water supplies are a local function, but also states that the DWSS will remain responsible for gravity schemes serving more than 500 persons. Well schemes and smaller gravity schemes will be handed to District Development Committees and the 3,995 Village Development Committees, the private sector, NGOs, and communities. District Development Committees will be responsible for preparing district plans which give priority to low-cost schemes, and providing coordination to avoid duplication of effort. In addition, all schemes, including government ones, are to involve community participation at all stages from planning to operation and maintenance. External FinancinE of Rural Water Supply and Sanitation 1.17 About 30% of rural water and sanitation expenditures were financed by donors during the 1980s (about 40% of total sectoral expenditures). The main donors in the rural sector from 1980-93 have been, in order of expenditures, the Asian Development Bank (ADB), UNICEF, Finland, and the U.K., with smaller contributions from Austria, Japan, Canada, the Netherlands, and the U.S.A. The World Health Organization has focused on planning, management, and training, although its funding statistics are not available. UNICEF has been a catalyst in starting community-oriented development programs, and has also recognized the need for an integrated approach and introduced health and sanitation education through the involvement of women. FINNIDA is currently supporting a project with the DWSS that should generate experience on the costs and benefits of district-level water and sanitation planning. The ADB has financed two, more conventional DWSS projects, although a third ADB project, approved in 1992, is helping the DWSS to avoid past failures. Another ADB water supply and sanitation project (the fourth) is under preparation. International NGO activity has been significant, both quantitatively and qualitatively. The Nepal Drinking Water Supply and Sanitation Sector Review and Development Plan (1991-2000) SRDP indicated that NGOs registered with the Social Welfare Council and its predecessor accounted for 11% of the increase in rural water supply coverage during the 1 980s. The NGO emphasis on community participation, defining robust mechanisms for operation and maintenance, and complementary health and sanitation education, have ensured higher quality than in public programs.  -7- Previous Bank Experience 1.18 Most investment by the Bank in the water and sanitation sector has been in the urban sector, with four credits totaling US$108 million to the NWSC and predecessor organizations. Three are completed and the fourth, the Urban Water Supply and Sanitation Rehabilitation Project (US$60 million, Credit 2239-NEP, 1991) is continuing. Project performance audits noted that the first three projects did not achieve most of their stated objectives, because of excessive government control and lack of institutional autonomy; lack of adequate finances (cost recovery); and insufficient institutional support to enable the utility to fulfill its investment and operational responsibilities. Similar problems with the fourth project led to suspension of disbursements during most of 1995, although it is concentrating more on strengthening the management capacity of the NWSC. Two studies funded by the UNDP and executed by the World Bank (NEP/86/010 and NEP/90/009, the second completed in 1992) assessed the feasibility of bringing water from the Melamchi River through a 27-kilometer tunnel to a balancing reservoir on the edge of the Kathmandu Valley for treatment before entering the distribution system. It concluded that this investment would not be feasible without substantial financial and managerial improvements, which in turn would depend upon increased de facto autonomy for the NWSC. Securing these changes remains a major challenge for possible future urban water supply and sanitation lending. 1.19 International Development Association investments in rural water and sanitation have been confined to three integrated rural development projects under the Ministry of Local Development (MLD) with a total value of US$47.85 million, of which a little over 9% was for community water supplies.5 Project Completion and Audit Reports6 indicate that schemes suffered from poor construction and lack of maintenance. These problems, related to lack of supervision, are often associated with complex rural development projects in remote areas that take a supply - rather than demand - driven approach to planning and implementing facilities. 1.20 The Bank has been heavily involved in executing sector studies and management support, financed mainly by UNDP. Among the more important institution-building activities have been studies to plan human resource development for the DWSS (NEP/80/022), and the Management Support Project (NEP/88/004 and 005), which, among other things, developed a management information system for the DWSS. Feasibility studies (NEP/79/032) funded by the UNDP identified 68 rural water supply projects in packages for three development regions, which attracted investments from bilateral and multilateral sources. In addition to studies for Kathmandu Valley Water Supplies, the Bank has executed the Greater Kathmandu Drainage 5. Rural Development Project (Credit 617-NEP, US$8 million), approved April 1976, closed 31 December 1983, project cost US$10.9 million, 8% for community water supplies; Rasuwa-Nuwakot Rural Development Project - Phase 2 (Credit 1727-NEP, US$19.1 million), approved June 1986, closed 15 July 1993, project cost $23.5 million, 14%, for community water supplies; Second Rural Development Project - Mahakali Hills (Credit 939-NEP, USS11 million), approved June 1979, closed 15 July 1988, project cost 13.45 million, 2% for community water supplies. 6. A Performance Audit Report was carried out only for Credit 617-NEP; a Project Completion Report, forwarded without comment by Operations Evaluation Department, was prepared for Credit 939-NEP; and a Project Completion Report was prepared for Credit 1 727-NEP.  - 8 - Masterplan Studies (under IDA Credit 1379-NEP) and the Bagmati Basin Water Management Strategy and Investment Program (funded by the Japanese Grant Facility). The Bank has also executed a series of studies and two grants from the Japan Grant Facility to carry out a pilot project (Jakpas) whose objective was to field-test a variety of service delivery options, community development approaches, eligibility criteria, and operating procedures for the proposed project. The Jakpas experience is summarized in the following paragraphs and a detailed analysis of Jakpas findings is presented at Annex 13. 1.21 The Jakpas pilot project has tested the main project elements by entering into contractual agreements with 113 communities and 24 support organizations (NGOs, community- based organizations, and private sector firms) to identify, prepare, construct, maintain, and operate 113 Rural Water Supply and Sanitation schemes using a demand-driven approach. These schemes are distributed among 18 different districts and cover an existing population of about 44,000. The Jakpas pilot project received funding from two Japanese Grants, together worth about US$3.2 million. The 1 13 schemes were organized into two successive batches of 74 and 39 schemes. Construction of 110 schemes is completed and the remaining 3 are still under construction. 1.22 The main findings of the pilot project are as follows: * Demand and beneficiary willingness to contribute to costs: Strong demand for water supply and sanitation services is shown by the fact that communities have contributed, on average, 40% (in cash and kind) of scheme costs7 and 100% (in cash) of the scheme's first year's operation and maintenance (O&M) costs. These contributions are in contrast with government schemes, where both capital and O&M costs are subsidized. * Existence and quality of support organizations: There are enough support organizations to implement the project. During the processing of the first batch of schemes, however, support organizations were often technically weak and did not always follow a participatory process. This led to more thorough review of support organizations and their personnel during the processing of the second batch of schemes, and also to more intensive monitoring of performance of contractual agreements. * Timing of the scheme cycle: The originally estimated duration of the scheme cycle (12 - 18 months) was too short. More time is needed for the community development work required by the participatory approach, the technical activities, and the processing of proposals. Allowing for the effect of seasons, harvests, and holidays, on site accessibility, availability of local labor, and building conditions had doubled the duration of the scheme cycle to 36 months. 7. Scheme costs in this instance include all unskilled and skilled labor, all materials (local as well as non-local), and transportation of materials.  -9- * Eligibility criteria: The original criteria were found to be generally appropriate, although improvements were possible. Experience also showed that criteria should be clearly stated at the start of each batch of schemes and kept constant during processing of that batch.