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Completion Report

Project Number: 31402Loan Number: 1755September 2010

Nepal: Small Towns Water Supply and Sanitation

Sector Project


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CURRENCY EQUIVALENTS

Currency Unit Nepalese Rupee/s (NRe/NRs)

At Appraisal At ProjectCompletion(16 August 2000) (30 November 2008)

NRe1.00 = $0.0138 $0.0135$1.00 = NRs72.33 NRs74.00

ABBREVIATIONS

ADB Asian Development BankAIEC average incremental economic costAIFC average incremental financial costDWSS Department of Water Supply and SewerageEA executing agencyEIRR economic internal rate of returnFIRR financial internal rate of return

HHE health and hygiene educationlpcd liters per capita per dayMLD Ministry of Local DevelopmentMOF Ministry of FinanceMPPW Ministry of Physical Planning and WorksNGO nongovernment organizationNPV net present valueO&M operation and maintenancePCC project coordination committeePMO project management officeRRP report and recommendation of the PresidentSARD South Asia Regional Department

TA technical assistanceTDF Town Development FundTPO town project officeUN-Habitat United Nations Settlements ProgrammeWSSDO Water Supply and Sanitation Divisional OfficeWUA water user associationWUSC water user and sanitation committee

NOTES

(i) The fiscal year (FY) of the governmentends on15 July. FY before a calendaryear denotes the year in which the fiscal year ends, e.g., FY2008 ends on 15July 2008.

(ii) In this report, "$" refers to US dollars.


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Vice-President X. Zhao, Operations 1Director General S. H. Rahman, South Asia Regional Department (SARD)Director B. Hitchcock, Nepal Resident Mission, SARD

Team leader L. Sharma, Project Officer, Nepal Resident MissionTeam member R. Tuladhar, Assistant Project Analyst, Nepal Resident Mission

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


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CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1II. EVALUATION OF DESIGN AND IMPLEMENTATION 2

A. Relevance of Design and Formulation 2B. Project Outputs 3C. Project Costs 6D. Disbursements 6E. Project Schedule 6F. Implementation Arrangements 6G. Conditions and Covenants 8H. Consultant Recruitment and Procurement 8I. Performance of Consultants, Contractors, and Suppliers 8J.

Performance of the Borrower and the Executing Agency 9

K. Performance of the Asian Development Bank 9

III. EVALUATION OF PERFORMANCE 9A. Relevance 9B. Effectiveness in Achieving Outcome 10C. Efficiency in Achieving Outcome and Outputs 10D. Preliminary Assessment of Sustainability 11E. Impact 11

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 12A. Overall Assessment 12B. Lessons 13C. Recommendations 14

APPENDIXES

1. Project Framework 162. Project Outputs 193. Project Cost 244. Loan Disbursement 265. Project Implementation Schedule 296. Status of Compliance with Loan Covenants 317. Economic and Financial Analyses 39

SUPPLEMENTARY APPENDIXES

A. Financial and Economic Analyses of Selected Small Towns Water Supply ProjectsB. Sailent Features of 29 Small Towns Water Supply Projects


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BASIC DATA

A. Loan Identification

1. Country2. Loan Number

3. Project Title

4. Borrower5. Executing Agency6. Amount of Loan7. Project Completion Report

Number

Nepal1755-NEP(SF)

Small Towns Water Supply and Sanitation SectorProjectGovernment of NepalMinistry of Physical Planning and WorksSDR26,649,0001178

B. Loan Data1. Appraisal

Date Started Date Completed

2. Loan Negotiations

Date Started Date Completed

3. Date of Board Approval

4. Date of Loan Agreement

5. Date of Loan Effectiveness In Loan Agreement Actual Number of Extensions

6. Closing Date

In Loan Agreement Actual Number of Extensions

7. Terms of Loan Interest Rate

Maturity (number of years) Grace Period (number of years)

8. Terms of Relending (if any) Interest Rate

Maturity (number of years) Grace Period (number of years) Second-Step Borrower

8 May 200019 May 2000

10 August 200012 August 2000

12 September 2000

18 December 2000

18 March 200116 March 2001None

31 December 20063 December 20092

1% per annum during the grace period and 1.5%per annum thereafter328

5% per annum, which was reduced to 3.5% perannum

203Town Development Fund


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9. Disbursementsa. Dates

Initial Disbursement

10 July 2001

Final Disbursement

25 November 2009

Time Interval

8 years and 4.5 months

Effective Date

16 March 2001

Original Closing Date

31 December 2006

Time Interval

5 years and 9.5 months

b. Amount (SDR'000)

CategoryOriginal

Allocation

LastRevised

AllocationAmount

CanceledAmount

DisbursedUndisbursed

Balance

Civil Works, WaterSupply 18,455 15,600 2,855 15,303 297Civil Works, PublicSanitation and Drainage 1,401 751 650 541 210

Equipment and Vehicles 696 626 70 571 55

Consulting Services andTraining 3,609 2,898 711 2,665 233

NGO services 811 517 294 437 80IncrementalAdministration Expenses 1,159 1,256 (97) 1,423 (167)

Interest DuringConstruction 518 518 0 363 155

Total (SDR 000) 26,649 22,166 4,483 21,303 863Total ($ 000) 35,000 28,500 6,500 32,131 1,391( ) = negative, NGO = nongovernment organization.

10. Local Costs (Financed)- Amount ($ million) 0.8- Percent of Local Costs 4.0- Percent of Total Cost 1.6

C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 29.7 31.3Local Currency Cost 24.2 19.7

Total 53.9 51.0


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2. Financing Plan ($million)

Cost Appraisal Estimate Actual

Implementation CostsBorrower Financed 10.9 12.0ADB Financed 34.3 31.5

Local Government and Water Users 8.0 6.9Total 53.2 50.4

IDC CostsBorrower Financed 0.0 0.0ADB Financed 0.7 0.6Other External Financing 0.0 0.0

Total 53.9 51.0

ADB = Asian Development Bank, IDC = interest during construction.

3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual

1. Public Awareness Campaign and Health andHygiene Education 2.3 2.32. Water Supply and Sanitation Facilities 42.9 39.93. Technical Support 0.5 0.34. Project Implementation Assistance 7.5 7.95. Interest During Construction 0.7 0.6

Total 53.9 51.0

4. Project Schedule

Item Appraisal Estimate Actual

Date of Contract with Consultants

Project Implementation Consultants December 2000 14 August 2001Engineering Design and Supervision January 2001June 2004 September 2001

August 2005Nongovernment organizations January 2001June 2004 February 2002

January 2007

Completion of Engineering Designs June 2005 15 September 2008

Civil Works ContractDate of Award January 2002 3 July 2003Completion of Work December 2006 30 November 2008

Equipment and Supplies

DatesFirst Procurement December 2001 2 January 2002Last Procurement December 2006 30 November 2008

Start of OperationsCompletion of Tests and Commissioning April 2003-December 2006 March 2006

December 2010

Other Milestones

Loan Reallocation 11 January 2008


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5. Project Performance Report Ratings

Ratings

Implementation Period

DevelopmentObjectives

ImplementationProgress

From 29 September 2000 to 31 December 2000 Satisfactory SatisfactoryFrom 1 January 2001 to 31 December 2001 Satisfactory SatisfactoryFrom 1 January 2002 to 31 December 2002 Satisfactory SatisfactoryFrom 1 January 2003 to 31 December 2003 Satisfactory SatisfactoryFrom 1 January 2004 to 31 December 2004 Satisfactory SatisfactoryFrom 1 January 2005 to 31 December 2005 Satisfactory SatisfactoryFrom 1 January 2006 to 31 December 2006 Satisfactory SatisfactoryFrom 1 January 2007 to 31 December 2007 Satisfactory SatisfactoryFrom 1 January 2008 to 30 November 2008 Satisfactory Satisfactory

D. Data on Asian Development Bank Missions

Name of Mission Date

No. of

Persons

No. of

Person-Days

Specialization

of MembersaFact Finding 21 February7 March 2000Appraisal 819 May 2000 12 36 a, b, cProject inception 1114 March 2001 2 8 a, b, fProject review 1 22 May4 June 2002 2 26 e, fProject review 2 25 December 23 January

2003 3 45 e, f, gProject review 3 1128 August 2003 2 34 E, hProject review 4 30 January10 February

2004 2 20 I, hProject review 5 1628 July 2004 3 48 i, h, gMidterm review 24 November17

December 2004 3 60 i, h, j

Project review 6 315 June 2005 3 28 i, h, kProject review 7 321 December 2005 3 40 i, f, gProject review 8 30 June12 July 2006 2 24 i, fProject review 9 214 November 2006 2 24 I, gProject review 10 1222 March 2007 4 40 l, I, g, jProject review 11 1226 September 2007 2 28 L, gProject review 12 311 July 2008 2 18 L, hProject review 13 1324 October 2008 3 24 l, g, jProject completion review

b 22 December 200915

January 2010 2 24 l,g

aa = senior financial analyst, b = urban development specialist, c = counsel, d = associate operations analyst, e =project implementation officer, f = consultant (gender and development specialist), g = assistant project analyst, h =

project administration unit head, i = senior project implementation officer, j = assistant disbursement analyst, k =country director, l = project officer.b

The project completion report was prepared by Laxmi Sharma, project officer and team leader, and RajaniTuladhar, assistant project analyst.


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I. PROJECT DESCRIPTION

1. The population of urban centers in Nepal along major national highways was growingrapidly in the late 1990s as a result of rural migration. Drinking water supplies in these urbancenters were generally inadequate in terms of coverage, quantity, and quality. In recognition ofthe adverse impact of inadequate drinking water supply and poor sanitation conditions on

human development, the Government of Nepal initiated the 15-year Plan for Small Towns WaterSupply and Sanitation Development and requested Asian Development Bank (ADB) assistancein preparing a sector investment project to support the plan.1 In response to the governmentsrequest, ADB approved technical assistance (TA) to prepare the Small Towns Water Supplyand Sanitation Sector Project.2

2. ADB approved a loan of SDR26.7 million ($35 million equivalent) for the Small TownsWater Supply and Sanitation Sector Project on 12 September 2000. The project was designedto help the government cover the investment requirements of the initial years of the 15-yearPlan for Small Town Water Supply and Sanitation Development. The project followed a sectorlending modality. A subsidiary loan agreement was signed between the Ministry of Finance(MOF) and the Town Development Fund (TDF) on 5 March 2001 for $12 million at a 5% interest

rate.3

3. The project was to provide water supply, limited drainage, and sanitation facilities inselected small towns following a demand-driven, interactive procedure to ensure the fullparticipation of local water users and nongovernment organizations (NGOs) in town projectdesign, preparation, implementation, operation, and maintenance. The objectives of the projectwere to (i) improve the health and quality of life of the people living in project towns byconstructing water supply, drainage, and sanitation facilities and providing health and hygieneeducation; (ii) support community participation by developing the institutional capacity ofcommunity water users and sanitation committees (WUSCs)4 and requiring water users to makecash or in-kind contributions to cover some project costs; and (iii) promote community waterquality monitoring.

4. The project had the following four components:(i) Public awareness campaign and health and hygiene education (part A):

This included (a) the delivery of a community health and hygiene awarenessprogram, (b) community participation and town project ownership, and (c) theconstruction of on-premise sanitation facilities.

(ii) Water supply and sanitation facilities (part B): This constructed water supplyschemes, basic storm water drainage, and sewerage systems with communalseptic tanks and public latrines.

(iii) Technical support to WUSCs (part C): This included (a) technical and financialtraining for WUSC and water user association staff and (b) establishing technicalsupport centers in each of the five regional offices under the Department of

Water Supply and Sewerage (DWSS) to provide post-construction fee-basedservices to WUSCs.

1The 15-year plan, approved by the government on 29 February 2000, has three phases: 20002004, 20052009,and 20102014.

2ADB. 1998. Technical Assistance to Nepal for Preparing Small Towns Water Supply and Sanitation Sector Project.Manila.

3The interest rate for the TDF was revised from 5.0% to 3.5% in 2005.

4A WUSC is the executive body of a water user association.


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(iv) Project implementation assistance (part D): This included the provision of (a)consulting services for project implementation support and such activities astown project feasibility studies, engineering designs, construction supervision,and training; (b) vehicles and office equipment; and (c) project incrementaladministrative expenses.

5. The Ministry of Physical Planning and Works (MPPW) was the project executing agency(EA) and the DWSS was the implementing agency. Thirty-three town projects were identified toserve a target population of 600,000. Four town projects were dropped after the completion ofthe feasibility study and detailed design. 5 The project was originally envisaged to beimplemented over 6 years, with the loan closing date of 31 December 2006. At the request ofthe government, ADB extended the loan closing date by 23 months to 30 November 2008.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

6. The project's design was consistent with the government's strategy in the Ninth Five-Year Plan, 19972001, which emphasized mobilizing local resources for the supply of safedrinking water; making user groups and local authorities fully responsible for project formulation,implementation, operation, and maintenance; and ensuring equitable access to water supplyand sanitation (WSS) services. The governments Three-Year Interim Plan, 20082010emphasizes improving water supply services. The project was formulated based on theinstitutional framework and strategy outlined in the 15-year plan, which was revised in 2009. Itquantified the WSS needs of small towns, estimated the cost of providing improved services,and proposed an institutional framework.

7. The project was consistent with ADBs country operational strategy, 19992002 forNepal at the time of approval.6 The overall objective of the strategy was poverty reduction

through broad-based, labor-absorbing economic growth. One of the strategic priorities of theADB country strategy at the time of approval was to improve basic social services andinfrastructure. Considering the emphasis of the ADB country strategy and program, 200520097on improved health and hygiene practices, scaling up community-based and demand-drivenapproaches, publicprivate partnership, gender mainstreaming, and good governance, theproject could be considered highly relevant to the ADB strategy at completion. However, elicitingthe participation of the poor was challenging because of the strong emphasis in project designon the recovery of capital cost, as reflected in the requirement that beneficiaries contribute 50%of capital cost.

8. Overall, project preparation and formulation were adequate. The relevance of the projectis adequately established by rapid population increase in urban centers along major national

highways. The project scope and components were relevant to achieving the intended projectoutcome of improving water supply services and less relevant to improving sanitation.Wastewater management has only been partly included through the provision of basic stormwater drainage in the core areas of project towns, and sanitation has been limited to theprovision of subsidized toilets for the poorest and the construction of some public toilets. There

5They were Nilkantha, Dhankuta, Lamhai, and Nijgadha.

6ADB. 2000. Country Operational Strategy: Nepal,19992002. Manila.

7ADB. 2004. Country Strategy and Program: Nepal, 2005-2009. Manila.


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is no provision for dealing with liquid effluent. Drainage is a major problem in towns on the Terai,as areas are low-lying with little gradient, but very limited scope for drainage was provisioned orundertaken. Project design did not consider investment to address solid and liquid wastemanagement as part of improving sanitation.

9. The project covered 12 districts and 29 small towns in Nepal. The small towns were

selected following a set of agreed criteria.8 The principle of cost sharing proposed by the projectwas accepted.9 However, the complexity of community participation and mobilization, and ofcovering scattered towns, constituted a challenge, and the envisaged outputs proved to beambitious considering the duration of the project. Accordingly, the closing date was extended by23 months from 31 December 2006 to 30 November 2008. The complexities and time requiredfor community involvement were neither adequately foreseen nor incorporated in project design.

10. The project was prepared under ADB project preparatory TA (footnote 2). Theimplementation of project preparatory TA, the ADB fact-finding mission, and the appraisalmission were carried out in close collaboration with the staff of the DWSS and the MPPW. Whileformulating the project, project preparatory TA incorporated sector experiences and lessons.

B. Project Outputs

11. The targeted outputs anticipated during appraisal were (i) the delivery of communityhealth and hygiene awareness and education programs, (ii) increased community participationand ownership of town projects, (iii) water supply and public sanitation facilities constructed, 10(iv) enhanced capacity in WUSCs to manage the constructed WSS facilities; and (v) theestablishment of regional technical support centers. Actual project outputs are in appendixes 1and 2.

1. Public Awareness Campaigns and Health and Hygiene Education

12. Public awareness campaigns were conducted for 70,306 beneficiaries51,181 female

and 19,125 maleto create awareness among local people on the project modality, financingarrangements, roles of stakeholders,11 need for women's representation in decision making,significance of safe drinking water, and appropriate use and maintenance of on-premise latrines.The awareness campaigns were instrumental to the timely signing of community action plans byWUSCs in 30 project towns. This signified their understanding of and agreement with the termsand conditions of the project.

13. The health and hygiene education program was comprised of school hygiene education;community education; and focused training on latrine construction, solid waste management,and animal waste management. NGOs provided health and sanitation training 12 to 3,133community stakeholders and leaders, of which 1,847 (58%) were women. The health andhygiene education awareness program was expected to generate increased demand for

8These were the willingness of communities to share 50% of the capital cost for water supply facilities, the conditionand service level of existing water supply and sanitation facilities and services, and the willingness of local bodiesto participate.

9Beneficiary contribution of 50% of the total capital cost of constructing water supply systems.

10The DWSS reduced the number of town subprojects from 4050 to 33 because of the excessive time required tomobilize communities contribution and increase in the number of beneficiaries.

11WUSCs; local bodies; NGOs; and the DWSS, project management office, town project offices, TDF, consultants,and contractors.

12This included waste management training, school-led total sanitation, and training in formulating community actionplans.


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improved household sanitation. However, the program seems to have been less effective insome towns, as it was unable to strengthen water user association (WUA) commitment to andownership of safe sanitation.13 Of 12,161 participating poor households, 10,022 constructedlatrines through the provision of mechanism of partial subsidy and cost sharing.

2. Water Supply and Sanitation Facilities

14. The water supply systems in project towns are piped water supply with private yard andcommunity tap connection. The construction of piped water supply was completed in 29 smalltowns, against the target of 4050, installing 834 kilometers of water pipes. Town projectsincluded intakes; the main transmission line; treatment facilities for sedimentation, filtration, anddisinfection; surface reservoirs for gravity systems; tube wells for pumped systems; submersiblepumps; electrical facilities; overhead tanks for tube well systems; house connections; pumphouses; and guards quarters. Although the overall technical design for the 29 towns wasgenerally satisfactory, some of the completed town projects do not function as designed forvarious reasons such as damage from natural calamities, the failure of groundwater wells, themalfunctioning of water treatment plants, and high electricity costs. The EA has expressed itscommitment to carrying out remedial measures under the DWSS budget to make all 29 town

projects function optimally, following the cost-sharing approach advocated by the project.14

15. The project service areas, 76% of houses connected with the system, against the targetof 80%. The tap connection fee was in the range of $160$250 per house in most of the projecttowns. The high tap connection fee and easy availability of groundwater, are main reasons for asmall number of tap water connections in some of project towns. The remaining households getwater either from 3,493 community taps or from their own sources, often wells that arecontaminated and unsafe. As WUSCs and beneficiaries considered community tap connectionsto be inconvenient, many switched into private taps in many town projects.

16. During test operation, most of the town projects faced technical problems with watermeters; pipe connections, particularly affecting larger-diameter pipes; and water treatment

plants. About 15% of the meters distributed were damaged. Contractors used traditionalmethods of joining pipes rather than following the specifications in contracts. However, theseproblems were addressed by the contractor and WUSCs during the period of defect liability.Although WUSCs undertake the operation and maintenance of the water supply systems byhiring staff such as office managers, junior engineers, accountants, meter readers, andplumbers, they face challenges in operating the constructed facilities effectively, particularlywater treatment plants, because their staffs have insufficient technical knowledge.

17. All WUAs have adopted monthly water tariffs in the range of NRs30NRs320 per 10,000liters. Project towns performance in repaying loans from the TDF has shown mixed results. TheTDF has collected NRs75.8 million in repayment, which includes the loan principal and interestfrom 21 towns. However, the remaining 8 towns have yet to start repayment. Some WUAs have

started to repay the sub-loans in accordance with the repayment schedule or even before thecompletion of the grace period of 3 years, while others have yet to make any principal andinterest payments. This may indicate that the initial loan recovery trend is not satisfactory. Onthe other hand, the very fact that community institutions considered loans for local infrastructure

13A WUA is an institution registered at District Water Resource Committee as per the Water Resource Act 2049,1992 and the Water Supply Regulation 2055.

14Cost sharing is between the government (50%) and WUAs (50%).


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is very encouraging. In Nepal, small towns have accepted taking loans from the government forthe development of water supply facilities.

18. The low and delayed repayment of principal and interest installments for loans to WUAsis due mainly to low revenue resulting from the small number of tap connections and low watertariffs. Delays in constructing town projects, the slow rate of tap connections, low water tariffs,

the low volume of water drawn from the developed wells, and damage to water transmissionlines from landslides have placed a number of WUAs in difficult positions for increasingrevenues and repaying principal and interest installments to the TDF on time. However, allWUSCs are committed to repaying the loans. The TDF needs to develop strategies for eachtown project to repay loans.

19. The project supported the construction of 56 public latrines and 16,779 meters of surfacedrainage in the core areas of the project towns. The operation and maintenance (O&M) of mostof the public latrines have been outsourced.

3. Technical Support for Water User and Sanitation Committees

20. The project provided technical training to WUSC members and staff to develop theircapacity for the O&M of town projects regarding meter reading, meter maintenance, plumbing,testing water quality, and operating pumps. WUSC members also received training from theTDF on financial management, which included water tariff planning, billing, and collection, aswell as basic accounting. While training under the project was generally found to be effectiveand appreciated by WUSCs, some shortcomings were observed: (i) The training programs werenot held in a timely manner. (ii) There were a limited number of trainings. (iii) The trainings werenot frequent enough to have effective results. (iv) And the participants who received training didnot remain in their posts. Similarly, the project had no monitoring mechanism to measure theeffectiveness of training programs. The WUSCs shared with the project completion reviewmission the constraints they face and their inadequacy in performing some of their roleseffectively. The absence of qualified technical staff in WUSCs was sorely felt by all. Division and

subdivision offices of the DWSS were not involved in construction, which inhibit their provisionof effective support in the post-construction phase.

21. As provisioned in report and recommendation of the president, a technical supportcenter was established in each of the five regional offices of the DWSS to promote community-based monitoring of water quality and meter calibration, but this occurred late with the delayedprocurement of water-testing and meter-calibrating equipment. Despite the governmentsapproval of staff positions, they were vacant in most labs because of the ambiguous procedurerelated to deputation of staff according to work stations. WUSCs were not sure that the labswould support them in monitoring water quality and meter calibration.

4. Project Implementation Assistance

22. Project implementation was supported through the provision of consulting services forproject management and engineering design and supervision, vehicles and projectadministration equipment, and project incremental administrative expenses. The projectmanagement office (PMO) organized training, workshop, and interaction programs for DWSScentral and field staff, WUSCs, town project offices (TPOs), NGOs, consultants, and MPPWstaff to improve their understanding of the project. The project implementation supportconsultant assisted the PMO in identifying project performance indicators as per the projectframework. During implementation, the project framework was reviewed, and additional


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monitoring indicators and targets were included in the project framework. Benefit monitoring andevaluation was undertaken twice during the project and yielded recommendations to improveproject outputs, which the PMO implemented.

C. Project Costs

23. The project cost estimate at appraisal was $53.9 million, including a foreign exchangecomponent of $29.7 million and a local cost component of $24.2 million. The actual total projectcost amounted to $51.0 million, including $0.6 million for interest during construction. ADBfinanced the entire foreign exchange cost of $31.3 million and part of the local currency cost of$0.8 million. ADB financed 63% of the total project cost, less than the appraisal estimate of 65%.The total loan cancelled was $7.9 million (24.5%). The appreciation of special drawing rightsagainst the US dollar between the date of the loan agreement and loan closing and low bids forcivil works contracts contributed to the cancellation. The project costs and financingarrangements at appraisal and project completion are in Appendix 3.

D. Disbursements

24. Disbursement was slow during the first 3 years of project implementation (Appendix 4).Disbursement started to pick up in the fourth year of implementation. Although the loan closingdate was 30 November 2008, the loan account remained open until December 2009 to processpayment for construction works done in few towns late in the implementation period. The totalloan disbursement was $32.1 million, including $0.6 million for interest during construction.

25. As per the loan agreement, the PMO established an imprest account in Nepal RastraBank. The initial imprest account ceiling of $0.5 million was later increased to $1.5 million. Thetotal amount of replenishment was $19.9 million. The imprest account was fully liquidated beforethe loan closing date. The statement of expenditure procedure was used to disburse $16.4million, or 51% of ADB disbursement. As individual disbursements were small, the imprestaccount and statement of expenditure procedure were found to be very useful for smooth

project implementation.

E. Project Schedule

26. The project was originally envisaged implemented over 6 years to the loan closing dateof 31 December 2006. Appendix 5 shows the schedule at appraisal and the actual time frame.The project started slowly because of (i) the delayed recruitment of consultants andprocurement of civil works, (ii) weak project management, and (iii) optimistic project designgiven the involvement of the WUSCs and the required up-front cash contribution. Feasibilitystudies of the second batch of town projects were delayed by 10 months. The first civil workscontract was awarded 54 months after loan approval. However, project implementation was notaffected by the conflict during 20012006 because of the communities' strong interest and

participation in town project planning and development. At the request of the government, ADBextended the loan closing date by 23 months to 30 November 2008.

F. Implementation Arrangements

27. Overall, the implementation arrangements at the center and in the project towns werereported to be satisfactory in delivering project outputs and achieving the project outcome.There were no major changes in implementation arrangements. The project envisaged theinvolvement of multiple stakeholders in implementation. The MPPW was the executing agency


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and responsible for coordinating the project. The PMO was established in the DWSS to manageproject implementation and coordination. However, no role or responsibility was given to itsWSS division or subdivision offices (WSSDO) regionally or in districts.15

28. A project coordination committee chaired by the secretary of the MPPW was establishedprior to the loan signing.16 There was also a provision to invite representatives of the WUSCs

and local governments of project towns to discuss issues. Centrally, the project coordinationcommittee ensured adequate interagency coordination and provided guidance in resolvingproject-related issues, but there was no similar mechanism in project towns.

29. In each project town, the WUA was registered at the District Water Resource Committeeas per the Water Resource Act 2049, 1992 and Water Supply Regulation 2055. Eachassociation formed a WUSC to implement all tasks on behalf of the WUA on matters related toWSS development within the town service area. The project envisaged establishing a TPO withqualified staff in each project town as a parallel office to the existing WSSDO. The limitedavailability of DWSS officials caused initial difficulties in establishing TPOs in eight project townsin the first batch. They were established only in January 2002, 15 months after loan approval. Itfurther affected the coordination of field activities by design and supervision consultants, local

governments, and WUSCs. As the WSSDO was not involved in town project implementation, itwas reluctant to provide post-construction support to WUSCs.

30. Local governments, in the form of municipality, district, and village developmentcommittees, were responsible for ensuring the establishment of a WUA in each town project.Applications for project funding endorsed by local governments were submitted jointly by thelocal government and WUSC to the PMO for evaluation and selection. The TDF agreed to on-lend funds to WUAs against the local governments guarantee of repayment on behalf of theirWUAs. Local governments were required to contribute at least 20% of the construction cost ofpublic sanitation components, including surface drainage construction in project towns.

31. In each project town, the water supply system was financed as follows: 20% in cash or

kind from the WUA but including a 5% cash contribution up front; 30% from the TDF, which wasa sub-loan charged to the WUA; and 50% from the government. Public sanitation components,consisting of public toilets and drainage, were 20% financed by local governments and 80% bythe government. Many towns collected high connection fees to assemble their contributions.

32. A subsidiary loan agreement between the MOF and the TDF was signed on 5 March2001 for onlending a portion of loan, estimated to be $12 million at an interest rate of 5% perannum with no less than 15 years maturity, including a grace period of 3 years. 17 The TDFonlent 30% of the capital cost of a water supply system to its WUA at an annual interest rate of8% for 1215 years. For the first 3 years of the project, the sub-loan to project towns wasessentially unused because construction had not started. The TDF disbursed NRs876.5 millionto the 29 project towns.18

15WSSDOs are the 42 division offices, 28 subdivision offices, and 5 regional monitoring and supervision offices in 75districts.

16Members included the joint secretary of the MPPW; the director general of the DWSS; the executive director of theTDF; and a senior official of the MOF; Ministry of Local Development; and Ministry of Law, Justice, andParliamentary Affairs. The project manager acted as the committee's secretary.

17The interest on the sub-loan to the TDF was revised from 5% per annum to 3.5% per annum in 2005.

18The capitalized interest on the loan principal of NRs876.5 million was NRs59.6 million.


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G. Conditions and Covenants

33. Conditions for loan effectiveness were complied with on time, and the loan was declaredeffective 2.9 months after loan signing.

34. The major loan covenants were complied with, though with delays in establishing

technical support units and the EAs submission of the project completion report (Appendix 6).Although the PMO procured all equipment, completed the physical improvement of regionallaboratories, and established technical support centers in five regions, their services had notstarted even by loan closing. The EA submitted the project completion report 8 months afterloan closing. None of the major covenants was modified, suspended, or waived, as mostcovenants were relevant to project needs and realistic. ADB review missions conducted regularfollow-up on compliance with covenants.

H. Consultant Recruitment and Procurement

35. Consultants were recruited in accordance with ADB Guidelines on the Use ofConsultants (2010, as amended from time to time), and procurement followed ADB

Procurement Guidelines (2010, as amended from time to time). The PMO procured consultingservices for feasibility studies, engineering designs, construction supervision, and projectimplementation support. Although advance contracting was allowed, the procurement of aproject implementation support consultant was delayed by 8 months. Consulting services wereprovided by qualified domestic engineering firms with sufficient experience in and knowledge ofthe WSS sector.

36. All civil works and supply of materials (pipes, fittings, pumps, etc.) for each town projectwas packaged in one bid contract. Twenty-nine major civil work contracts were procured underthe project, in accordance with ADB's Guidelines on Procurement. PMO procured one car, eightpick-ups, 35 motorbikes, and office equipment and machinery following international shoppingand national competitive bidding procedures acceptable to ADB. The vehicles and equipment

were used in the PMO and TPOs to facilitate the smooth implementation of the project.

I. Performance of Consultants, Contractors, and Suppliers

37. The consultant's performance was rated satisfactory, as most of the consultantsdelivered their services to the expected standard as per the requirements of the project.However, the delay in finalizing and issuing technical engineering design and drawings, anddesign shortcomings due to the lack of proper predesign investigations, led to problemssuch as misunderstanding in defining the service area during construction, as well asnumerous variation orders. Supervision lapses were seen in sporadic cases. The allocatedinput for the team leader in the contract for design and construction supervision was notenough to enable performance as per the terms of reference. The limited provision of team

leader inputs constrained the timely delivery of technical advice to its team at town projects.With these exceptions, the quality of supervision can be considered satisfactory. The EAestablished the performance monitoring system for consultants, which made the consultantmore responsive, and performance improved over time. Despite some delays in recruitingNGOs, which slightly affected the timely completion of social mobilization and the publicawareness campaign, the performance of all NGOs was satisfactory in meeting the expectedstandard. However, most WUSCs did not realize the importance of NGO inputs.


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38. Contractors' performance in completing civil works is varied by town. Contractorsgenerally did not understand work requirements, cash flow, or the water supply contract,which required coordination with WUSCs, end-users of water, and other stakeholders.Since there were no clear roles defined for WUSCs in the civil works contracts, the contractorshad to bear the dual burden of instructions arising simultaneously from the engineers and theWUSCs. This adversely affected the progress of civil works. The contractors generally lacked

resource planning capacity, and most of the contracts experienced time overruns, whichaveraged 56%.

39. The performance of suppliers of vehicles, equipment, and supplies was satisfactorybecause delivery was on time and the quality of the supplied items was as specified in thesupply contracts.

J. Performance of the Borrower and the Executing Agency

40. Overall, the performance of the borrower and the MPPW as the EA was satisfactory.The DWSS was responsible, on behalf of the MPPW, for project coordination and monitoring.The project received the "best project management team" award from ADB in 4 consecutive

years. The assessment of the EA's capabilities at appraisal was reasonably accurate. The initialprogress of project implementation, including establishing and staffing the PMO and TPOs, wassatisfactory. Throughout project implementation, the government categorized the project as coreto its program. This ensured adequate budgetary provisions for the project. However, theborrower submitted its project completion report 8 months late due to the late closing of the loanaccount. The project built the capacity of EA staff in contract management and bolstered theirconfidence to implement town projects with the involvement of a wide range of stakeholders.

K. Performance of the Asian Development Bank

41. The performance of ADB was satisfactory. From project preparation to implementation,ADB provided significant staff and financial resources. Despite some shortcomings, such as an

overoptimistic estimate of the number of town projects, the appraisal was complete. ADB fielded15 missions, including one project inception mission, one midterm review mission, and oneproject completion review mission. ADB missions focused mostly on project inputs; the physicalprogress of the project, including contract awards and disbursements; and implementationdelays. Each mission provided a time-bound action plan that could be readily monitored. ADBorganized monthly meetings with the project management team to monitor contract awarding,disbursement, counterpart funding, and other project implementation issues, which improvedproject performance. ADB processed withdrawal claims on time.

III. EVALUATION OF PERFORMANCE

A. Relevance

42. At both appraisal and completion, the project was highly relevant to government andADB policies and priorities to improve the quality of life of small towns by improving WSSservices.The projects design, rationale, and strategies were relevant, as the project contributedto improving the quality of life of people residing in small towns supported under the project. Theprojects development planning approach and implementation strategies involved multiplestakeholders and were oriented to promote organized community participation.The participatory,demand-driven, community-based approach helped to ensure that the project was relevant tothe aspirations of community members. Further improvements could have been made,


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especially in the participation of the poor in accessing water supply services from the improvedsystems. The project design reflected lessons from the four ADB-funded rural WSS projects,19as well as lessons reported in ADBs Nepal: 1999 Country Synthesis of Evaluation Findings.20

B. Effectiveness in Achieving Outcome

43. The project was effective in improving WSS services for 95% of the target population of600,000. In the project towns, piped water supply systems were reasonably effective in (i)increasing water supply per capita, (ii) achieving full coverage of the service areas, (iii) treatingwater to meet the drinking water standards of Nepal, and (iv) attracting most private water tapconnections. Despite the appropriateness of project activities toward ensuring output andoutcome linkage, the inclusion of the poor was not seriously addressed, and, in the initial stagesof project implementation, emphasis was placed on ensuring cost recovery. However, a laterrecommendation was to introduce revolving funds to help the poor through a partnership withthe United Nations Human Settlements Programme (UN-Habitat) and the TDF. While townproject design took into account population growth in project town areas, in some towns thisallowance was inadequate in view of the potential expansion of services beyond town projectareas, the necessary land-use planning, and rapid population growth with migration into town

project areas. This stressed town projects distribution capacity and necessitated their furtherupgrading. Project towns have received further support from WSSDOs since project completion,and WUSCs have maintained town project operations.

C. Efficiency in Achieving Outcome and Outputs

44. The project is rated efficient in achieving its outcomes and outputs, based on financialand economic analyses using the same methodology as at appraisal (Appendix 7). Thecombined economic internal rate of return (EIRR) of the eight sample town projects is estimatedat 11.7%, and their financial internal rate of return (FIRR) is estimated at 5.2%.21 This indicatesthat the project is justified from financial and economic perspectives. If the measured benefitsincluded community institutional development and empowerment, the project would have a

substantially higher EIRR than at appraisal. The financial analysis concluded that the proposedwater tariffs at appraisal had yet to be fully applied in most the town projects. The economicanalysis concluded that the economic benefits of the small town projects outweighed theassociated economic costs. The weighted average EIRR for the sample subprojects is almostequal to the assumed economic cost of capital of 12%.

45. Some physical activities were delayed by hindrances to the preparation of detaileddesigns, tendering and bid evaluation, and awarding of contracts. These hindrances includedinadequate feasibility assessments, limited community interest in understanding design details,and delayed approvals of contract awards. Moreover, taking into account the challenging task ofcoordinating with a multitude of stakeholders and problems associated with the continuedpolitical unrest in Nepal, the loan extensions totaling 23 months were justified.

19ADB. 1984. Reportand Recommendation of the President to the Board of Directors on a Proposed Loan to theGovernment of Nepal for theRural Water Supply Project. Manila; ADB. 1989. Reportand Recommendation ofthe President to the Board of Directors on a Proposed Loan to the Government of Nepal for theSecond WaterSupply Project. Manila; ADB. 1992. Reportand Recommendation of the President to the Board of Directors on aProposed Loan to the Government of Nepal for theThird Water Supply and Sanitation Project. Manila; ADB.1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to theGovernment of Nepal for Fourth Water Supply and Sanitation Sector Project. Manila.

20ADB, 1999. Nepal: 1999 Country Synthesis of Evaluation Findings. Manila.

21The EIRR is lower than appraisal estimate of 17.2%, but the FIRR is higher than the appraisal estimate of 2.8%.


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46. The sensitivity analysis considered a (i) 10% increase in operating cost, (ii) 10%decrease in incremental income, and (iii) both combined. Results showed the EIRR to bebetween 4.2% and 12.2%. This indicates that the town projects are sensitive to various types ofunanticipated shocks that affect its revenue and cost.

D. Preliminary Assessment of Sustainability

47. The project was assessed likely sustainable, provided that follow-up supportstrengthened the financial management of WUAs and post-construction support to WUSCsaddressed technical problems. The empowerment of local communities and capacity building ofWUSCs were integral to project design. There was evidence that the WUSCs took fullresponsibility for the O&M of installed town projects. Water users assumed ownership andexpressed their commitment and willingness to pay higher tariffs for a reliable water supplysystem. All WUAs are registered as per the Water Resources Act, 1992, and they are likely tosustain themselves. The average efficiency of water tariff collection is 95%. Although WUSCsare aware that adequate tariffs need to be collected to cover O&M costs and debt servicing,tariffs currently adopted in most towns are still below what the TDF recommends. Most of thetown projects need to increase their water tariffs and complete water connections as designed

to improve their debt-serving capacity. There have been cases where water supply systemswere expanded beyond their technical capacity, apparently in response to demand from end-users but to the detrimentof the systems.

E. Impact

48. Improved access to WSS facilities thanks to the project has significantly reducedhardship and saved time for small town residents, especially women and children, who earlierhad to walk long distances to fetch water for household use. Household time saved by no longerneeding to collect water ranges from 0.86 hours per day in Parsa to 4.0 hours per day inKhaireni and Lekhnath. Energy savings accrued from easier access to water, improving thenutrition and health of children and mothers. Women and children have more time to devote to

more meaningful endeavors such as schooling, childrearing, household and personal hygiene,and earning income. Water supply was found to be instrumental in promoting kitchen gardening,livestock keeping, and the operation of hotels and trade.22

49. Improved water supply, the health and hygiene public awareness program, and thedevelopment of sanitation facilities under the project have, together, significantly reduced healthrisks in participating towns. In the eight towns in which the DWSS conducted benefit monitoringand evaluation in late 2008, a significant reduction in the incidence of water-borne diseases wasreported, saving health-care costs. Hand-washing practices, the use of toilets, and bathinghabits in town project areas were found to be improved after the project. The averageconsumption of water per household was found to have increased after the project. 23 Fourproject towns have been declared free of open defecation, with an increased number of

households using private latrines and new public toilets. The improvement in the WSS situationand positive health and hygiene impacts have paved the way for increased economic activity in29 project towns.

22Department of Water Supply and Sewerage. 2008. Benefit Monitoring and Evaluation. Kathmandu.

23The average amount of water used for drinking and cooking is increased by 21%, from 299 liters per day per familybefore the project to 363 liters per day per family after the project.


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50. The project successfully introduced a cost-sharing mechanism and the practice ofcommunity involvement in small town development for the first time in Nepal. The projectachieved a beneficiary contribution of 50% of the total capital cost of constructing water supplysystems. There is large demand in other towns for the EA to help improve their own WSSconditions. The project was both pioneering and innovative in demonstrating new and generallyeffective sector practices involving multiple stakeholders. The urban water supply and sanitation

policy adopted by the government in 2009 was based on the approach adopted by the project.The project paved the way for subsequent small town water supply projects.

51. Beneficiaries received social and personal benefits by belonging to WUSCs and WUAs.Intense networking and support among members of WUSCs increased the self-confidence andinvolvement of community members. The project built social capital in all participating towns byfacilitating active community participation in the project. All WUSCs formed under the projecthave developed strong ownership of their town projects and demonstrated strong commitmentto sustaining project benefits. This was evident in WUSCs collection of water tariffs to sustainthe O&M of town project facilities. The project actively promoted womens empowerment,facilitating womens strong representation in WUSCs, at 33% in line with government policy.Womens wider and more active participation in WUSCs has enhanced their awareness and

knowledge of sustainability in town projects, water quality issues, and the relevance to familyhealth and hygiene. Land acquisition and subsequent resettlement issues were not verysignificant. In town projects where such issues were relevant, they were handled by WUSCsand local governments following ADB guidelines.

52. The project improved environmental sanitation conditions in all project towns byimproving water supply and public and private sanitation facilities. Environmental compliancemonitoring was satisfactory and done according to the environmental management plan.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

53. Overall, the project was rated successful. It was designed in line with the strategicpriorities of the government and ADB. It was implemented as conceived. It was able to improveWSS services in 29 project towns, meeting 95% of the outcome target of providing improvedaccess to WSS services to 600,000 people. It supported local beneficiaries' participation in townproject formulation, design, implementation, O&M, and cost sharing. Community ownership isquite strong. The project has successfully promoted good governance in terms of beneficiarieswider participation, transparency, and the accountability of all the stakeholders.24 The projectwas efficientand likely sustainable. There was a strong demand for project outputs, particularlyfor improved water supply facilities. The performance of WUAs was satisfactory. WUSCs playedimportant roles, on behalf of WUAs, in project implementation, and members of WUSCs werevery active, committed, and responsible.

24ADB. 2008. Country Assistance Program Evaluation. Manila.


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B. Lessons

54. Project design should accommodate the complexity of community participation and thetime it requires. Adequate attention should be paid to capacity development in communities toensure the sustainability of WSS facilities.

55. Effective orientation programs on project approaches, implementation modalities, andthe roles of stakeholders contribute to successful project implementation. Implementationpartners should be well informed on the approaches and strategies of the project prior toimplementation.

56. Community organizations require continued support during and after the transition to thepost-construction period to ensure the sustainability of water supply facilities. Capacitydevelopment needs to cover not only the technical aspects of O&M but also financialmanagement, water demand management through public awareness campaigns, and theprotection of water sources including water conservation. The first year of operation can beassigned to the contractor to provide incentives to improve the quality of construction andachieve the early completion of works. Preparing the project management and operation

manual before the inception of the project will address initial operation and sustainable issues.

57. In community-based projects, WUSCs can act as reliable facilitators between the projectand beneficiaries. The participation of local communities during both design and implementationis crucial for project sustainability and effective project implementation.

58. Better linkage between health outcomes and WSS outputs should be promoted in WSSprojects by including sanitation, hygiene, and health promotion activities in project design.

59. Extensive and thorough investigations of potential project sites need to be carried out tothe extent possible during feasibility studies and detailed design to ensure that designs areappropriate. Experience shows that design shortcomings have caused significant

implementation delays and numerous contract variations.

60. All components of projects should be treated as important and monitored from the earlystages of project implementation. The difficulty of establishing technical support centers in fivedevelopment regions of Nepal under the technical support components was mainly because theEA accorded them low priority and ADB did not follow up sufficiently.

61. A unit to provide technical support to WUSCs should be established in an early stage ofthe project, and the staff of WUSCs should be trained throughout the project implementationperiod, rather than just at the end. ADB should be more involved in ensuring that appropriatemechanisms for providing technical support are in place and that the units capacity isstrengthened. Five regional technical support centers were established very late in the project,

and only one center was staffed by two people, who do not know how to operate some of theequipment.

62. Team leader inputs should be adequately provisioned in engineering and designconsultant contracts to ensure timely technical support and advice for town projects to facilitatetimely decisions.

63. A capacity-development program for beneficiaries needs to be well planned andimplemented in accordance with the project implementation schedule and progress. A


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monitoring mechanism to measure the effectiveness of the capacity development programsneeds to be established.

C. Recommendations

1. Project Related

64. Future monitoring.TheDWSS shall focus its future monitoring of the performance oftown projects on sustaining benefits. This will require a detailed survey of project outputs andthe identification of all problems on a regular basis. The DWSS should, through its division orsubdivision offices, provide technical support and budget allocations to address problemsidentified in town projects for at least 3 years after the construction of a water supply system iscompleted.

65. Covenants. As the government has not fully complied with the covenants related to theestablishment and operation of regional technical support centers, it must regularly report toADB on progress toward this end.

66. Further action or follow up. Water tariffs should be sufficient to cover investmentrepayment and O&M costs. This is essential for the sustainability of town projects. The TDFneeds to support all WUAs tariff adjustments to improve the financial sustainability of townprojects. Regarding the participation of poor households, appropriate connection fees or othermechanisms should be considered based on the socioeconomic status of the towns andhouseholds.

67. The TDF needs to follow up with town projects to ensure appropriate revenue generation,the timely payment of interest and principal by WUAs, and town projects sustainability. Whilefollowing up with the WUSCs, the TDF should consider an extension of its support to strengthenthe capacity of WUSCs and WUAs through training on financial management and tariff setting.

2. General

68. The design and monitoring framework needs to be developed with clear outcome andoutput statements, as well as relevant, specific, and quantifiable performance indicators withwhich the outcome and outputs can be measured.

69. Implementation procedures and guidelines should be prepared before projecteffectiveness, particularly for projects that take new approaches and are implemented withmultiple stakeholders. This will help ensure timely implementation and avoid start-up delays.

70. Technical audits should be carried out at least twice during project implementation toensure the quality of construction, cost effectiveness, and timely completion.

71. A dedicated project coordination office must be established to facilitate implementationand coordination with various agencies, especially when the project involves multiplestakeholders and institutions over a vast geographic area and a new project approach.

72. A bottom-up, demand-driven approach to selecting subprojects should be followed in allcommunity-based projects to ensure that there is both need and demand for project outputs andsubsequent ownership.


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


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16 Appendix 1

PROJECT FRAMEWORK

Design SummaryPerformanceIndicators/Targets

Assessment/Recommendation

Improved health conditions 593,000 beneficiaries, against the target of600,000, gained access to drinking water.

Hand-washing, toilet, and bathing habitsimproved.a

Higher rate of schoolattendance by children

No data to assess the achievement.

I. Impact

Enhance humandevelopment and reducepoverty through thesustainable improvementof water supply andsanitation conditions insmall towns. Increased productive time Time saved from fetching water as

determined for each town in the quickcommunity survey, ranged from 0.86 hoursper day in Parsa to 4.0 hours per day inKhaireni and Lekhnath, with averagesavings of 2.1 hours, allowing more time forquality care of children, home, and self,

including time for rest and socialization.

b

II. Outcome

Improve water supply andsanitation in selected smalltowns.

Improved water supply andsanitation in service areasin 4050 small towns

From 33 small towns selected in batches, 4were dropped, leaving 29 small towns toacquire improved water supply andsanitation facilities. Consumption of waterincreased as 86% of families gain access todrinking water that meets the water qualitystandard of Nepal.

Local ownership of thecompleted town projects

Communities contribute 50% of capitalcosts for water supply infrastructure,ensuring local ownership. Water user andsanitation committees (WUSCs) were highlycommited. Water user associations (WUAs)became registered institutions. An annualgeneral assembly is organized by eachtown project. Operation and maintenance iscarried by the staff hired by WUAs andWUSCs, with WUSCs overseeing watersupply systems as the executivecommittees of WUAs.

Improved town projectmanagement in terms ofprogress and quality

Each town project has an office to manageand operate water supply. Staff, includingmeter readers and accountants, were

recruited. Water billing forms were preparedand used. Tariffs are collected to cover thecost of operating and maintaining systemsand to partly cover capital costs. One of thetown projects has outsourced tariffcollection to a commercial bank. Womenare 33% of participants in WUSCs.

Support the participation oflocal beneficiaries in allstages of the project.


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Appendix 1 17



Higher tariff collection WUSCs introduced regular tariff collectionsystems in all 29 town projects. Althoughthe new water tariff rate is higher than thetariff before the project, it is less than the

design estimate. Monthly tariffs are in therange of NRs30NRs300 per 10,000 liters.The TDF is to monitor the tariff andperformance of the town projects.

Sustainability Demand for drinking water has increased.WUSCs are accountable for providing watersupply services.

Improved technical,financial, and managementcapacity in WUSCs forsustainability

Training on accounting procedures wasprovided to 29 accountants and 44members of WUSCs.

WUSCs able to monitorwater quality

Training and equipment for water qualitymonitoring was provided. The staff of townprojects are capable of monitoring turbidityand chlorination.

Capacity for operation andmaintenance enhanced

Training was provided to staff of WUSCs onmeter reading, pump operating, andmasonry. Minor works are being done bythe staff of WUSCs, and major works areoutsourced to local contractors.

Build the capacity ofWUSCs and promotecommunity-based waterquality monitoring.

Establishment of small

businesses in meter repairand resale

Not established

III. Outputs

Water Supply andSanitation

Cover the service areas inthe project towns 80% withhouse connections and20% with community taps.

Coverage of 80% was achieved with 76%house connections and 4% community taps.Mass campaigning needs to be done at thetown project level to accelerate houseconnections. Technical and financialsupport to WUAs is needed to rectifyproblems related to water treatment plants,low well discharge, poor water quality, andleakage.

Meeting World Health

Organization drinking waterstandard

The water supply system was designed to

meet the World Health Organizationdrinking water standard.

Surface drainage andpublic sanitation facilities incore areas with highpopulation density

Constructed infrastructure included 16,450meters of surface drainage and 54 publiclatrines.


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Public awarenesscampaigns and health andhygiene education

Transparency in townproject design

Public awareness campaigns wereconducted in each town.

Participation of localcommunities

Members of WUSCs in town projects arefully involved in town project design and theimplementation of contracts.

Health and hygieneawareness

Health and hygiene education was providedto 3,152 users, including 1,683 women.Hand-washing, bathing, and latrine-usehabits improved.

Assistance in providingprivate latrines to low-income groups on a cost-sharing basis

Financial support of 50% of the cost oflatrine construction was provided to thepoor.

Five regional technical support centers wereestablished. Division and subdivision officesof the Department of Water Supply andSewerage provide post-constructionsupport. However, fee-based services haveyet to be provided. The government hasengaged a consultant under the SecondSmall Towns Water Supply and SanitationSector Project to assess the establishedunits and recommend a modality for theiroperation. Discussions with the departmentare in progress. The Asian DevelopmentBank will monitor this under the Second

Small Towns Water Supply and SanitationSector Project.

Orientation training provided to 489members of WUSCs.

Training on accounting procedures wasprovided to accountants and a memberfrom each WUSC.

A financial manual was prepared. Financialtraining was provided to 25 members ofWUSCs.

Technical support forWUSCs

5 regional technical supportcenters established toprovide fee-based servicesto WUSCs for engineering,water quality testing, metercalibration, and training

aDepartment of Water Supply and Sewerage. 2007. Benefit and Monitoring Report. Nepal.

bDepartment of Water Supply and Sewerage. 2008. Benefit and Monitoring Report. Nepal.

Sources: ADB.2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan tothe Kingdom of Nepal for the Small Towns Water Supply and Sanitation Sector Project. Manila; ADB. Projectcompletion review mission. December 2009January 2010, updated in June 2010.


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Appendix 2 19

PROJECT OUTPUTS

Table A2.1: Summary of Project Outputs

Item Unit Actual Remarks/Assessment

Water Supply and SanitationTown water supply No. 29 Of 33 small towns, 4 (Dhankuta, Nilkantha,

Lamahi, and Nijgadh) were dropped. TableA2.2 presents the functional and operationalstatus of projects in 29 towns.

House connections % 76 House connection includes private taps aswell as yard connections.

Community taps No. 3,493 Users preferred to have private water tapconnections rather than community taps.

Institutional taps No. 2,115 Institutional taps were provided for hospitals,

schools, and government offices.

On-premise latrines for ultra-poor No. 10,022 Government provided a 50% cost subsidy toconstruct on-premise latrines for the ultrapoor.

Public latrines No. 54 Fee-based service is being provided to thepublic.

Surface drainage meter 16,450 Limited surface drainage, impact isinsignificant.

Public Awareness Campaigns and Health and Hygiene EducationPublic awareness campaignsundertaken

No. 30 Beneficiaries became aware of theimportance of safe defecation.

Users received health and hygieneeducation

No. 3,152 One project town dropped out during the firstyear of the civil works contract.

Women receive health and hygieneeducation

No. 1,683 Womens education was effective, assignificant change in their hygiene behaviorwas noted by the project completion reviewmission.

Community action plans adopted foreach town

No. 30 WUSCs commitment for proceeding with theimplementation of town projects wasdemonstrated.

Technical Support for WUSCsRegional technical support centersestablished

No. 5 The centers have not yet adopted proceduresto provide its services to town projects forwater quality testing and meter calibration.

Members of WUSCs orientated

about water supply systems

No. 489 Members of WUSCs have less confidence in

dealing with technical issues.Number of staffers received trainingon accounting

No. 29 Training was limited, and the timing of thetraining was inappropriate.

Members of WUSCs receivedtraining on finance

No. 29 A member from each WUSC received trainingon finance.

No. = number, WUSC = water user and sanitation committee.Source(s): ADB. 2010.


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20 Appendix 2

Table A2.2: Functional and Operational Status of 29 Town Projects(as of 30 June 2010)

Name of Town Project AssessmentParsa Small Town Water

Supply and SanitationProject

Water supply is available for 24 hours daily, and the system is managed

well. There is demand for expanding the system.

Water quality is good and disinfection is done.

Part of the interest has been paid.

Fikkal Small Town WaterSupply and SanitationProject

Water supply is regular but interrupted due to landslides during rainyseason, which washed away a portion of the transmission line. Theproblem was temporary fixed to supply water.

Water quality is good and disinfection is done.

An initial interest payment was made to the Town Development Fund(TDF)

Trijuga Small Town WaterSupply and SanitationProject

Adequate but intermittent water supply is achieved.

The water treatment plant functions but suboptimally. Water quality needsto be monitored.

No loan payment has been made to the TDF.

Attariya Small TownWater Supply andSanitation Project

Within a year after commencement, both tube wells were heavily silted.The water user and sanitation committees (WUSCs) stopped operatingthe water supply system. The Department of Water Supply andSewerage (DWSS) considered developing tube wells under thegovernments deep tube well construction program.

Disinfection is provided.An initial principal and interest repayment has been made to the TDF.

Bandipur Small TownsWater Supply andSanitation Sector Project

The water supply is intermittent, as yield from the source diminishes andpopulation growth accelerates. Water is acidic and probably containsiron. The internal diameter of galvanized iron pipes is decreasing withrust encrustation.

Water quality is good.

Principal and interest are regularly repaid.

Birendranagar SmallTowns Water Supply andSanitation Sector Project

Water supply is intermittent and interrupted by landslides, which havewashed away a portion of water transmission line. The problem wastemporarily fixed to supply water.

The water treatment plant functions.


Ratnanagar Small TownsWater Supply andSanitation Project

Water supply is intermittent to save electricity.

Water quality is good with a disinfection unit.


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Appendix 2 21

Name of Town Project Assessment

Lekhnath Small TownsWater Supply Project

Interest is regularly repaid.

Water supply is regular as demand grows.

Water quality is good, but the pressure filter does not function duringrainy season because of high turbidity.


Surunga Small TownsWater Supply Project

Water supply is regular.

Water quality is good with a disinfection unit.


Kairenitar Small TownsWater Supply Project


Water quality is good, but the treatment plant needs improvement.


Kohalpur Small TownsWater Supply Project

Water supply is irregular, with low yield from tube wells.

Water quality is good, but the water treatment plant is not in fulloperation.

Interest is partly repaid.

Prithvinarayan SmallTowns Water SupplyProject


The water treatment plant is not in full operation, and remedial measuresare needed.


Beni Small Towns WaterSupply Project

Water supply is irregular because a landslide washed away a portion ofthe transmission line.

Water quality is good, and the treatment plant functions.

Interest and principal are partly repaid.

Kusma Small TownsWater Supply Project


The treatment plant is functioning.


Kawasoti Small TownsWater Supply Project

Water supply is intermittent due to minor defects and damage fromfloods.

The treatment plant is functioning.

Interest and principal are partly repaid.

Bardibas Small TownsWater Supply Project

The functioning of the water supply system is being tested.

There is no treatment plant.

Interest is being repaid.


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22 Appendix 2

Name of Town Project AssessmentBijuwar Small TownsWater Supply Project

Water supply is regular, but the source river is changing course, and thesump-well does not function optimally.


No repayment has been made.

Waling Small TownsWater Supply Project

Water supply from two subsystems is functioning, but another schemehas a dispute over the source.

The treatment plant is functional.

Mahendranagar SmallTowns Water SupplyProject

Water supply is irregular because of a problem of lime encrusting thedistribution system.

The treatment plant is functional. Calcination is a major, worseningproblem that requires mitigation.


Sunawal Small TownsWater Supply Project

Water supply is irregular due to low discharge from wells.

Water quality is good. The treatment plant needs minor improvement.


Tulsipur Small TownsWater Supply Project




Tribhuwannagar SmallTowns Water Supply

Project


Principal and interest are being repaid.Bardaghat Small TownsWater Supply Project

Water supply is irregular because one of the wells failed.

No interest or principal is paid, and the water users association would liketo use part of its revenue to develop the tube well. Once the water supplyis regular, the association is willing to repay interest and principal.

Belbari Small TownsWater Supply Project

Water supply is regular, but the transmission line needs protection whereit crosses a river.

The treatment plant functional.

No interest or principal is repaid.

Lamki Small Towns WaterSupply Project


Water quality is good, but calcium is being deposited in pipelines, meters,and the filtration unit. The cost of operating the treatment plant is high.


Birtamod Small TownsWater Supply Project




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Appendix 2 23

Name of Town Project Assessment

Budhabare Small TownsWater Supply Project

Interest and principal are being repaid.



No interest or principal has been repaid.

Itahari Small Towns WaterSupply Project



Repayment has not started.

Source: Department of Water Supply and Sewerage survey in June 2010 toward prioritizing the allocation ofgovernment funds to rectify problems.


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24 Appendix 3

PROJECT COST

Table A3.1: Actual Project Cost($'000)

Foreign Local TotalItem Exchange Currency CostA. Civil Works

1. Water supply 23,354 15,568 38,9212. Public sanitation and drainage 820 205 1,0243. Private latrines 1,660 1,660

Subtotal (A) 24,174 17,433 41,607

B. Equipment and Vehicles 391 527 918

C. Consulting Services and Training 3,872 430 4,4301

D. Nongovernment Organization Services 216 407 623

E. Incremental Administrative Expenses 2,088 895 2,983

C. Interest During Construction 555 555

Total 31,296 19,691 50,987Source: Asian Development Bank estimates.


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Table A3.2: Financing Plan($ '000)

Asian DevelopmentBank Government Local Governments Beneficiar

Description Appraisal Actual Appraisal Actual Appraisal Actual Appraisal A

Civil Works

Water supply 24,120 23,353 8,040 9,730 8,040 Public sanitation and

drainage 1,830 820 458 205

Private latrines 550 830 550

Equipment and Vehicles 945 819 105 98

Consulting Services and Training 4,505 3,872 501 430

Nongovernment Organizations 1,061 623 118 Incremental Administrative

Expenses 1,656 2,088 710 895

Interest During Construction 680 555

Total Cost 34,798 32,131 10,023 11,983 458 205 8,590 Source: Asian Development Bank estimates.


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26 Appendix 4

LOAN DISBURSEMENT

Table A4.1: Yearly Loan Disbursement($)

Description FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FCivil Works, Water Supply 17,703 378,169 1,741,677 3,482,763 5,209,349 7,339,185 4,Civil Works, Public Sanitation

and Drainage 82,160 121,543 204,625 189,440

Equipment and Vehicles 188,277 21,401 60,043 36,154 73,886 23,160 33,843 Consulting Services and

Training 423,858 372,793 194,947 401,634 677,017 629,094 375,074 Nongovernment Organization

Services 70,819 141,444 26,024 29,856 162,237 89,679 41,294 Incremental Administration

Expenses 99,169 192,390 130,302 445,142 280,590 424,949 317,367

Interest Charges 3,396 7,699 17,515 33,432 60,331 112,078 195,666

Total 785,519 753,430 807,000 2,770,055 4,858,367 6,692,934 8,491,869 6,

FY = fiscal year.Source: Loan Financial Information System, Asian Development Bank.


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-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008

Yearly Loan Disbursements

Disbursements($)

FY = fiscal year.Source(s): Asian Development Bank


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28 Appendix 4

Table A4.2: Quarterly Disbursements($ million)

Cumulative

Year QuarterActual

DisbursementsActual

CumulativePercentage of Actual

Disbursements

2000 III 0.000 0.000 0.000

IV 0.000 0.000 0.000

2001 I 0.000 0.000 0.000

II 0.000 0.000 0.000

III 0.000 0.000 0.000

IV 0.500 0.500 1.556

2002 I 0.128 0.628 1.954

II 0.000 0.628 1.954

III 0.161 0.789 2.455

IV 0.267 0.156 3.286

2003 I 0.004 1.056 3.299

II 0.479 1.060 4.790III 0.224 1.763 5.487

IV 0.000 1.763 5.487

2004 I 0.363 2.126 6.616

II 0.220 2.346 7.301

III 1.538 3.884 12.088

IV 0.407 4.291 13.354

2005 I 0.210 4.501 14.008

II 0.616 5.117 15.925

III 0.272 5.389 16.771

IV 2.427 7.816 24.325

2006 I 1.088 8.904 27.711II 1.072 9.976 31.047

III 1.529 11.505 35.805

IV 1.625 13.130 40.863

2007 I 0.802 13.932 43.359

II 2.737 16.669 51.877

III 2.206 18.875 58.742

IV 2.089 20.964 65.243

2008 I 0.526 21.490 66.880

II 3.670 25.160 78.302

III 2.483 27.643 86.030

IV 2.112 29.755 92.602

2009 I 0.740 30.495 94.905

II 0.734 31.229 97.190

III 0.174 31.403 97.731

IV 0.729 32.132 100.000ADB Source: Loan Financial Information Systems, Asian Development Bank.


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PROJECT IMPLEMENTATION SCHEDULE

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q

A.

v

B. Public Awareness Campaigns and Health and Hygiene Education

(i)

(ii)

(iii)

(iv)

C. Construction of Water Supply and Public Sanitation Facilities

(i)

(ii)

(iii)

(iv)

(v) Commissioning and Follow-up

(i)

(ii)

Selection of Subproject Consultants

Feasibility Study

Detailed Engineering Design andBidding

Civil Works Construction and

Procurement of Equipment

Selection of NGOs

Public Awareness Campaigns(Preparation Phase)

Health and Hygiene Education and

Focused Training (ImplementationPhase)Promotion and Construction ofHousehold Latrines (ImplementationPhase)

Establishment of Implemetnation

ProceduresEstablishment of ImplementationProcedures

Recuritement of ProjectImplementation Consultants

Shortlisting of Engineering Consultantsand NGOs

Project Planning Phase

2000 2001 2002

Task Description

2003 2004 2005


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30 Appendix 5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q

D. Technical Support to WUSCs

(i)

(ii)

(iii)

E. Capacity Buidling and Training

(i)

(ii)

(iii)

: Planned : Actual

Task Description

2002 2003 2004 2005

Training and Orientation for Communityand WUSC (Implementation Phase)

2000 2001

Setting up Water Quality Monitoringand Technical Support Center

Training in Water Quality Monitoringand Meter Caliberation

Training Needs Assessment andDevelopment of Training Programs

Training and Orientation for DWSS andother Project Statkeholders

Setting up Water Quality MonitoringMechanism and Schedule

DWSS=Department of Water Supply and Sewerage; NGOs=nongovernmental organization; WUSCs=Water User and Santiati

Legend : : Planned


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Appendix 6 31

STATUS OF COMPLIANCE WITH LOAN COVENANTS

CovenantsReference in Loan

AgreementStatus of

Compliance1. The Borrower shall re-lend to TDF ADB funds under aSubsidiary Loan Agreement upon terms and conditions

satisfactory to ADB and shall cause TDF to apply suchproceeds to the financing of expenditures under Part B of theProject. The terms of re-lending shall include a repaymentperiod of 20 years, including a grace period of 5 years and aninterest rate of 5% per annum. The Borrower shall assumethe foreign exchange risk. TDF shall on-lend the funds toWUSCs participating in the Project at an interest rate of 8%per annum with a maximum repayment period of 12 years to15 years including a grace period of 3 years. These termsand conditions will be reviewed jointly and adjusted, ifnecessary, every 2 years from the date of Loan effectiveness,by ADB loan review mission, MOF, MPPW and TDF.

Section 4.05 (a) Complied with.In2005, the interest

on the sub-loanto the TownDevelopmentFund (TDF) wasrevised from 5%per annum to3.5% per annum.

2. The Borrower shall make arrangements satisfactory tothe Bank for insurance of the Project facilities to such extentand against such risks and in such amounts as shall beconsistent with sound practice.

Section 4.05 (a) Complied with

3. Without limiting the generality of the foregoing, theBorrower undertakes to insure, or cause to be insured, thegoods to be imported for the Project and to be financed out ofthe proceeds of the Loan against hazards incident to theacquisition, transportation, and delivery thereof to the place ofuse or installation, and for such insurance any indemnity shallbe payable in a currency freely usable to replace or repairsuch goods.

Section 5.05 (b) Complied with

4. The Borrower shall (i) maintain, or cause to bemaintained, separate accounts for the Project, and eachTown Project, and Project component; (ii) have suchaccounts and related financial statements audited annually, inaccordance with appropriate auditing standards consistentlyapplied, by independent auditors whose qualifications,experience, and terms of reference are acceptable to theBank; (iii) furnish to the Bank as soon as available but in anyevent not later than twelve (12) months after the end of eachrelated fiscal year, certified copies of such audited relatingthereto (including the auditors opinion on the use of theprocedures for imprest account and statement ofexpenditures, all in the English language); and (iv) furnish to

the Bank such other information concerning such accountsand financial statements and the audit thereof as the Bankshall from time to time reasonably request.


5. The Borrower shall furnish, or cause to be furnished, tothe Bank, with one month after the four-month period underreview, four-monthly reports on the carrying out of the Projectand on the operation and management of the Projectfacilities. Such reports shall be submitted in such form and in



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32 Appendix 6

CovenantsReference in Loan

AgreementStatus of

Compliancesuch detail and within, such a period as the Bank shallreasonably request, and shall indicate, among other things,progress made and problems encountered during the periodunder review, steps taken or proposed to be taken to remedy

these problems, and proposed programs of activities andexpected progress during the following review period.

6. Promptly after physical completion of the Project, but inany event not later than three months thereafter or such laterdate as may be agreed for this purpose between theBorrower and the Bank, The Borrower shall prepare andfurnish to the Bank a report, in such form and in such detailas the Bank shall reasonably request, on the execution andinitial operation of the Project, including its cost, theperformance by the Borrower of its obligations under thisLoan Agreement and the accomplishment of the purposes ofthe Loan.

Section 4.07 (c) Complied withbut delayed

7. For each Town Project undertaken in a Project town, thecivil works and the related equipment and supplies shall becombined into one contract package and shall be referred toas a civil works contract.

Section 3, para. 4 Complied with

8. In each Project town, the PMO shall establish a TownProject Office (TPO) with appropriate qualified staff, includinga minimum of the one female social worker, to coordinate thefield activities of consultants, NGOs, local bodies, andWUSCs. The TPO shall also include two representatives fromthe local WUSC, at least one of whom is female. Where morethan one WUSC is involved in the service area covered by aTown Project, an apex WUSC shall be establish by the

relevant WUAs following procedures accept

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