Water Resour Manage (2007) 21:573589

DOI 10.1007/s11269-006-9030-6
ORIGINAL ARTICLE

A multivariate econometric approach for domestic water

demand modeling: An application to Kathmandu, Nepal
M. S. Babel A. Das Gupta P. Pradhan

Received: 11 July 2005 / Accepted: 8 May 2006


C Springer Science + Business Media B.V. 2006

Abstract Domestic water use/demand is a complex function of socio-economic characteristics, climatic factors and public water policies and strategies. This study therefore develops a
model based on the multivariate econometric approach which considers these parameters to
forecast and manage the domestic water use/demand. The model applies statistical tools to
select suitable demand function and most relevant explanatory variables that have strong relationship with water use/demand. The model applicability is demonstrated with an example
of domestic water use in Kathmandu Valley, Nepal. The results indicate that the number of
connections, water pricing, public education level, and average annual rainfall are significant
variables of domestic water use/demand. The paper further analyzes the effect of length of
data series on accuracy of model results. The developed model is used to forecast the water
use/demand in the future in the study area.
Keywords Multivariate econometric model . Kathmandu Valley . Water demand forecast .
Demand management
1. Introduction
Water demand forecasts are required for proper planning, development and management of
water resources. Mathematical models can be used to analyze the factors influencing water
demand, understand their effects, predict the future demand and develop management plans
accordingly. Demand management aims to reduce the wastage of water due to overuse and
leakage. Demand management measures in the domestic sector include water conservation
measures (leakage detection in distribution system, reduction of illegal household connections, in-house retrofitting, outdoor water saving measures etc.); water pricing (metering and
tariff structures); information and education (awareness raising, public involvement and inschool education); and legal measures (rules and regulations that form the basis of policy,
M. S. Babel () A. D. Gupta P. Pradhan
Water Engineering and Management, Asian Institute of Technology, P.O. Box 4, Klong Luang,
Pathumthani 12120, Thailand
e-mail: msbabel@ait.ac.th
Springer

574

Water Resour Manage (2007) 21:573589

regulations on the sale of water and municipal bylaws that promote water conservation). The
water demand management models can be helpful in assessing the effect of various conservation measures and take suitable decisions on the development of policies and strategies for
demand management and implementation of demand management options.
Various widely used techniques to forecast domestic water demand are (Pradhan, 2003):
(a) Time extrapolation: It is assumed that future water use follows trends in the past and the
water use over time is extrapolated into the future by graphical or mathematical means and
the change in demand over time may be assumed to follow a linear, logistic, exponential or
some other function; (b) Single coefficient requirement methods: The per capita requirements
approach estimates future water use as the product of projected service area population and
a projected value of per capita water use; (c) Multiple coefficient requirement models: In
these models various parameters excluding the price of water, or any other economic factors,
as explanatory variables are considered; (d) Multiple coefficient demand models: They are
similar to the requirement models above but include the price of water charged to the users,
and/or other related economic variables, such as, income level of the consumers; and (e)
Disaggregated water use forecast models: They specify water use for each sector, season
or region separately, utilizing the best available explanatory variables which are unique to a
given type of water use sector and generally yields a more accurate composite forecast.
The extrapolation of past water use may not represent changing socio-economic status,
technological changes, improvements in water use efficiency and government policy decisions related to water use and conservation that can affect the use of water by people.
Similarly, the inherent simplified assumption in the single coefficient requirement model is
that the demand is constant for each person regardless of the lifestyle, income and level of
education is not true. The multiple coefficient requirement models imply that water use is
an absolute requirement unaffected by economic choice. Disaggregated water use forecast
models require a large number of data for different sectors which are normally not available in developing countries. The domestic water use/demand depends on socio-economic
characteristics (population, household size, income, education level, etc.), climatic factors
(temperature, rainfall, etc.) and public water policies and strategies. Hence, the application
of multivariate coefficient demand model, that can integrate the effects of all or several of
these factors, is gaining popularity. The water use/demand models proposed by Katzman
(1977), Dandy et al. (1997), Malla and Gopalakrishnan (1997), Billings and Agthe (1998),
Lahlou and Colyer (2000) and Babel et al. (2003) are some of the examples of multivariate
and econometric water demand models.
Katzman (1977) emphasized the importance of income and price elasticities for the projection of demand. Dandy et al. (1997) found in Adelaide, Australia that water consumption
above the free allowance; being sensitive to price, responds less to social and climatic factors
than consumption below the free allowance. Malla and Gopalakrishnan (1997) used the generalized least squares (GLS) procedure to model the residential demand for water as a function
of price, income of household and rainfall in Hawaii and the results indicate that raising price
appeared feasible in private multi-units housing. Billings and Agthe (1998) developed and
compared state-space and regression forecast models using factors such as monthly temperature and precipitation, marginal price of water, block rate subsidy and real income per
capita. Lahlou and Colyer (2000) analyzed approaches for sustainable water management
using multiple regression demand models. The results indicated that residential/commercial
water demand is weakly responsive to price changes compared to institutional water demand
and that considerable savings can be attained through a comprehensive water demand management program. Recently, Babel et al. (2003) commended the suitability of multivariate
econometric approach for forecasting and managing water demand in urban areas.
Springer

Water Resour Manage (2007) 21:573589

575

The present study therefore aims to develop a multiple coefficient water demand forecast
and management model for the domestic sector considering various socio-economic, climatic
and policies related factors. The applicability of the model is illustrated using an example of
domestic water use in Kathmandu Valley, Nepal.

2. Modeling methodology
A simple user-friendly model is developed to forecast the water demand and to analyze
the effect of management measures in domestic sector. The model can accommodate either
monthly or annual data series in the analysis. The user interface is developed using the Visual
Basic 6.0 programming with Microsoft Excel as the backhand for major calculations and the
Statistical Package for the Social Sciences (SPSS) is used to carry out multiple regression
analysis. The interface can be installed and run in computers with Microsoft Office setup, preferably Office 98 or Office 2000. The model is menu-driven and the help menu is
provided to guide the user through the process of model development and application. The
step-by-step modeling procedure is presented and explained below.
2.1. Model variables and correlation analysis
The multivariate water demand model can use as many variables as required that can directly
or indirectly affect the water demand in a site-specific condition. They can be socio-economic,
climatic and public policies and strategies related factors. The most commonly used variables
based on the literature are: number of connections or population, household size, number of
households, income or factors representing the standards of living, price of water, educational
level and climatic factors such as temperature and rainfall.
The model carries out correlation analysis and determines the partial correlation coefficients of the independent and dependent variables and displays the results in the form of a
matrix. This analysis indicates degree of correlation between dependent variable and independent variables and among the independent variables. Higher the correlation more is the
relative importance of the independent variable in predicting the dependent variable. In case
the independent variables have high correlation coefficients (0.95 or more) with each other,
one of them is to be selected to avoid the effect of multi-collinearity. The multi-collinearity
can distort the standard error of estimate and may therefore lead to incorrect conclusions
as to which independent variables are statistically significant. This can be done either on
judgmental ground or on the basis of comparison of model fit with one eliminated versus
the other(s) eliminated. A common rule of thumb is that the correlations among the independent variables between 0.70 to 0.70 do not cause difficulties (Mason et al., 1999). After
dropping one or more independent variables that are strongly correlated the regression is
recomputed.
2.2. Functional relationships and multiple regression analysis
The general form of the multivariate model is:
Y = f (X 1 , X 2 , X 3 , . . . , X n )

(1)

where, Y is the total water use/demand (dependent variable); and X1 to Xn are different
relevant factors affecting the water use/demand (independent variables).
Springer

576

Water Resour Manage (2007) 21:573589

As there is no prior basis for choosing a functional relationship, the model is provided with
the options to analyze water use/demand using three popular functional forms as follows:
Linear model:
Y = b0 + b1 (X 1 ) + b2 (X 2 ) + b3 (X 3 ) + + bn (X n )

(2)

lnY = b0 + b1 (X 1 ) + b2 (X 2 ) + b3 (X 3 ) + + bn (X n )

(3)

Semi-log model:

Log-log model:
lnY = b0 + b1 ln (X 1 ) + b2 ln (X 2 ) + b3 ln (X 3 ) + + bn ln (X n )

(4)

where, b0 is the model intercept and b1 , b2 , b3 , . . . , bn are the coefficients of corresponding

independent variables.
Linear demand functions are often chosen because of their ease of estimation. However,
they do not yield constant elasticities at all points of the demand function. The log-log
functional form provides direct estimates of the respective elasticities of the independent
variables with respect to the dependent variable. The semi-log function is often used to
compare the results with the linear and log-log functions (Garcia et al., 2001). The values
of the intercept and coefficients of all three functional forms are obtained through multiple
regression analysis employing SPSS software package with time series data of the dependent
and independent variables as inputs.
2.3. Evaluation of demand function
The model performs two kinds of tests to evaluate the fitness of the water demand equation,
global test and individual test.
2.3.1. Global test
The ability of the independent variables X 1 , X 2 , X 3 , . . . , X n to explain the behavior of
the dependent variable Y is checked by the global test. Basically, it investigates if it is
possible for all independent variable to have zero net regression coefficients. In other
words, could the amount of explained variation R2 occurred by chance? If r1 , r2 , r3, ..., rn
are sample net regression coefficients, the corresponding coefficients in the population are
1 , 2 , 3, . . . , n . It is tested whether the net regression coefficients in the population are
zero.
The null hypothesis is: H0: 1 = 2 = 3 . . . = n = 0 and the alternate hypothesis is:
H1: 1 = 2 = 3 . . . = n = 0. If the null hypothesis is accepted, it implies the regression
coefficients are all zero and logically, the independent variables are of no use in estimating
the dependent variable. In such a case one has to search for some other independent variables
or take a different approach to predict the dependent variable.
In general to check for the null hypothesis that the multiple regression coefficients are all
zero, F distribution at a specified level of significance (generally 0.05) is used. The F value
Springer

Water Resour Manage (2007) 21:573589

577

can be computed by:

F = (SSR/k)/(SSE/(n (k + 1)))

(5)

where, n = number of samples used; k = number of independent variables used; SSR = sum
of square for regression; and SSE = residual sum of square or sum of square for error. The
critical value of F is given in tabular form in the standard statistical books. If the computed
F value is greater than the critical F value, the null hypothesis is rejected and the alternative
hypothesis is accepted.
2.3.2. Individual test
It is required to check if any of the independent variables coefficients is zero or not. If a bi
is zero, it implies that the particular independent variable is of no value in explaining any
variation in the dependent variable. If there are variables for which null hypothesis cannot be
rejected then, it can be eliminated from the regression equation. Generally the hypotheses are
tested at the 0.05 level of significance. The null hypothesis is: H0: 1 = 0 and the alternative
hypothesis is: H1: 1 = 0.
The test statistics is the student t distribution with n (k + 1) degrees of freedom. The
critical t value can be taken from the standard statistics books and H0 is rejected if the t
computed is out of range of the two tails critical values. If any one of the independent
variables is found to accept the null hypothesis by t-test, it is removed from the regression
equation assuming that it is not a significant predictor of the dependent variable. The analysis
is then again carried on with the remaining variables. If two or more independent variables
are found to accept the null hypothesis, the one with the smallest t value is removed first and
the regression analysis if re-run and preceded as before checking the remaining variables
(Mason et al., 1999).
In addition, the p value (i.e., probability value), also known as the observed or exact level
of significance is calculated and if it is less than a specified significance level (generally 0.05),
the null hypothesis is rejected and the alternative hypothesis is accepted. Technically, the p
value is defined as the lowest significance level at which a null hypothesis can be rejected.
The users judgment is required in deciding the acceptance of a particular variable at a
certain level of significance. The final selection of the functional form is done based on the
coefficient of determination (R2 ), adjusted R2 and the standard error and the significance of
the t-test of each variable.
2.4. Partial residual plots
Large R2 and significant F-test and t-test are highly desirable, but they dont guarantee that
the data has been fitted well. Even if the regression analysis results are same, the nature of
data may be entirely different. This may be due to outliers and/or curvature in the plot of the
residual versus an explanatory variable included in the analysis. The outliers are identified
by the model using the limits defined by the first and third quartiles (Q1 and Q3 ) and the
median of the data set. Any value above and below [Q 3 1.5(Q 3 Q 1 )] is considered as
an outlier (Mason et al., 1999). However, once outliers are identified they must be checked
with the data monitoring authority for their accuracy.
The model performs partial plot analysis to determine the need of transformation of the
variables and thus to confirm the chosen functional form using the evaluation criteria explained earlier. The curvature in a plot of residuals versus an explanatory variable included
Springer

578

Water Resour Manage (2007) 21:573589

in the model indicates that further transformation of the variables should be tried. The relationship should be linear for the best results. However, if the residuals are plotted directly
against the explanatory variables, other variables will influence the plots. To avoid this,
partial residual plots (also called adjusted variable plots) are constructed. The widely used
general form of useful transformation is natural logarithm (Helsen and Hirsch, 1991).
The partial plot (ej versus Xj ) describes the relationship between the dependent variable
Y and the jth explanatory variable after the effects of all other explanatory variables have
been removed.
The partial residual is given by
ej = Y Y(j)

(6)

The adjusted explanatory variable is given by

X j = X X (j)

(7)

Where, Y(j) is the predicted value of Y from a regression equation with X j left out of the
analysis; Y is the actual value of the dependent variable; j is the number to denote a particular
explanatory variable ( j = 1 to number of explanatory variables); X (j) is the predicted value
of X j from a regression against all other explanatory variable (so X j is treated as response
variable to obtain the X (j) ); and X = actual value of the independent variable X j .
3. Model application: An illustrative example of Kathmandu Valley
3.1. Study area
The domestic water use/demand data of Kathmandu Valley, Nepal is used to illustrate the
model applicability. Kathmandu Valley, situated in the mid-western development region
of Nepal with a total geographical area of about 900 km2 , includes three administrative
districts of Kathmandu, Lalitpur, and Bhaktapur as indicated in Figure 1. Nepal Water Supply
Corporation (NWSC) is the government agency responsible for providing adequate drinking
water supply and sewage services that ensures health security in Kathmandu Valley and other
urban centers in the country. Both the surface water and groundwater sources are tapped to
supply water in Kathmandu Valley to a population of about 1.65 million in 2001.
3.2. Database for modeling
Factors affecting water use/demand are grouped into three categories, water utility management policy factors, socio-economic factors, and climatic factors. The dependent variable (Y)
is the total domestic water use (103 m3 per day). The nine independent variables representing
the utility management policies, socio-economic, and climatic factors are included and they
are denoted as: number of connections [X1 ]; water tariff rate after minimum allowance of
water supply in Nepalese Rupees (NRs)/m3 [X2 ]; population [X3 ]; per capita GDP at the
current price in NRs [X4 ]; ratio of the total population to the university students [X5 ]; number
of households [X6 ]; average household size [X7 ]; average annual temperature in 0 C [X8 ];
and annual rainfall in mm [X9 ]. These parameters are selected based on the availability and
reliability of data and to best represent the water use/demand characteristics.
Springer

Water Resour Manage (2007) 21:573589

579

Fig. 1 Location map of the study area and the three districts of Kathmandu Valley
Springer

580

Water Resour Manage (2007) 21:573589

Table 1 Database for domestic water modeling in Kathmandu Valley

Year

X1

X2

X3

X4

X5

X6

X7

X8

X9

1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001

43.20
47.00
48.31
49.81
49.91
48.53
48.13
53.50
56.04
61.80
62.21
62.21
64.94
66.03

58,350
62,853
66,803
71,511
75,306
78,528
82,347
87,212
91,989
96,655
100,442
106,589
108,955
113,800

2.0
2.0
2.0
2.5
2.5
5.0
5.0
5.5
5.5
5.8
6.1
6.4
6.7
9.7

1,003,669
1,037,572
1,071,475
1,105,379
1,159,350
1,213,321
1,267,293
1,321,264
1,375,235
1,429,206
1,483,177
1,537,149
1,591,120
1,645,091

28.63
26.43
27.55
23.38
21.47
24.46
24.62
27.79
28.74
28.22
30.60
25.62
24.60
24.01

28.63
26.43
27.55
23.38
21.47
24.46
24.62
27.79
28.74
28.22
30.60
25.62
24.60
24.01

182,044
188,375
194,707
201,038
215,490
229,943
244,395
258,848
273,300
287,752
302,205
316,657
331,110
345,562

5.7
5.7
5.7
5.6
5.6
5.5
5.4
5.4
5.3
5.2
5.2
5.1
5.1
5.0

18.30
18.60
18.50
18.32
18.34
18.52
18.73
18.65
18.85
18.50
19.20
19.71
21.40
20.80

1,441
1,132
1,614
1,067
1,093
1,306
1,579
1,673
1,620
1,528
1,770
1,735
1,681
1,407

Y = domestic water use (103 m3 per day); X1 = number of connections; X2 = water tariff rate after
minimum allowance of water supply in NRs/m3 ; X3 = population; X4 = per capita GDP at the current
price in NRs; X5 = ratio of the total population to the university students; X6 = number of households;
X7 = average household size; X8 = average annual temperature in 0 C; and X9 = annual rainfall in mm

The yearly time-series data on the above-mentioned variables, for the period 19882001,
as presented in Table 1, were obtained from NWSC, Central Bureau of Statistics (CBS),
Department of Hydrology and Meteorology (DHM), and Tribhuvan University (TU) head
office in Kathmandu. Water tariff is applicable for water use above 10 m3 /month and is
charged according to the block tariff structure. The pricing of water depends on the type of
user, the industrial sector is charged about 1.5 folds of the domestic sector.
4. Results and discussion
4.1. Correlation matrix
The correlation analysis between the assumed explanatory variables indicated that X1 , X3 ,
X4 , X6 and X7 are highly correlated. This is reflected by the correlation coefficients being
higher than 0.95 (Table 2). To avoid the effects of multi-collinearity, only one of the five
variables is used in further analysis. Hence, only X1 is chosen due to the reliability of its
historical record.
4.2. Water demand function
The domestic water use equation for Kathmandu Valley is developed using ten years of data
(19881997). The data of 1998 to 2001 is used for evaluating the performance of the developed
model. Multiple regression analysis is carried out to find out the relationship of water use
with the remaining explanatory variables. F-test and t-test are applied to check the suitability
of the functional relationship and the use of the explanatory variables in the model with the
available dataset. The procedure adopted here is similar to backward elimination method, a
standard stepwise procedure to eliminate the insignificant variables from the analysis. The
steps in the analysis, using three functional forms, are as follows:
Springer

Water Resour Manage (2007) 21:573589

581

Table 2 Correlation matrix

X1
X2
X3
X4
X5
X6
X7
X8
X9

X1

X2

X3

X4

X5

X6

X7

1.000
0.940
0.998
0.997
0.007
0.995
0.990
0.788
0.558

1.000
0.948
0.940
0.018
0.948
0.950
0.748
0.506

1.000
0.998
0.037
0.999
0.993
0.804
0.579

1.000
0.007
0.997
0.993
0.810
0.554

1.000
0.052
0.061
0.171
0.613

1.000
0.993
0.813
0.586

1.000
0.771
0.574

X8

1.000
0.388

X9

1.000

Table 3 Regression results (Linear model)

No. of observations

R2

Adj. R2

Std. error

F-value

Sig. F

10

0.972

0.950

1.173

43.797

0.000

Coefficient

Std. error

t-stat

p-value

8.784267
0.000708
2.418163
0.929584
0.007368

6.559
0.000
0.655
0.236
0.003

1.339
8.592
3.691
3.944
2.523

0.238
0.000
0.014
0.011
0.053

Intercept
X1
X2
X5
X9

Linear model:
(1) The multiple regression analysis is carried out with the remaining independent variables X 1 , X 2 , X 5 , X 8 andX 9 . The variable X8 , with the smallest absolute t-value, is then
removed as it accepts the null hypothesis of the individual test (t-stat = 1.325 and
p-value = 0.256).
(2) The regression analysis is repeated with X 1 , X 2 , X 5 andX 9 as the explanatory variables.
All these variables are found to be significant at a significance level of 0.05 except X9 ,
which is significant at only 0.053. As it is close to the assumed significance level of 0.05,
it is also accepted as a factor affecting the water use. The linear model, with these four
variables, explains 95% variation in the water use, as shown by adjusted-R2 (Table 3).
Semi-log model:
(1) The multiple regression analysis is carried out with X1 , X2 , X5 , X8 and X9 . As in the linear
model, it is required to remove X8 from the analysis, as it accepts the individual null
hypothesis (t-stat = 0.833 and p-value = 0.452).
(2) The analysis is repeated using the explanatory variables X1 , X2 , X5 and X9 and it is found
that X9 is significant only at 0.065, the adjusted-R2 being 0.952 as shown in Table 4.
(3) Further analysis is carried out to see if the removal of X9 yields better results. In
that case it is observed that X5 is significant only at 0.088, with t-stat of 2.034. If X5
is also not considered in the analysis then only two variables X1 and X2 are found
to be significant at the level 0.05. The adjusted-R2 in this case is 0.878. The comparison of the adjusted-R2 and the standard error indicates that the model with the
Springer

582

Water Resour Manage (2007) 21:573589

Table 4 Regression results (Semi-log model)
No. of observations

R2

Adj. R2

Std. error

F-value

Sig. F

10

0.973

0.952

0.022

45.632

0.000

Coefficient

Std. error

t-stat

p-value

2.813942
0.000014
0.046841
0.015788
0.000129

0.123
0.000
0.012
0.004
0.000

Intercept
X1
X2
X5
X9

22.891
8.829
3.815
3.574
2.360

0.000
0.000
0.012
0.016
0.065

Table 5 Regression results (Log-log model)

No. of observations

R2

Adj. R2

Std. error

F-value

Sig. F

10

0.980

0.965

0.019

62.422

0.000

Coefficient

Std. error

t-stat

p-value

7.831722
1.055449
0.167421
0.494659
0.209994

1.174
0.100
0.036
0.100
0.064

Intercept
X1
X2
X5
X9

6.673
10.511
4.592
4.967
3.264

0.001
0.000
0.006
0.004
0.022

four explanatory variables (X 1 , X 2 , X 5 and X 9 ) performs better than that with the two
independent variables (X 1 andX 2 ). The model coefficients and analysis results using
X 1 , X 2 , X 5 and X 9 are presented in Table 4.
Log-log model:
(1) Using the five explanatory variables (X 1 , X 2 , X 5 , X 8 andX 9 ), the results suggest that as
for the linear and semi-log models X8 is not a significant predictor of Y, as it accepts the
null hypothesis with the t-stat of 2.012 and p-value of 0.115.
(2) Further analysis with X 1 , X 2 , X 5 and X 9 reveals that these variables are significant at
0.05 significance level and these four variables together in the model can explain 96.5%
variation in water use (Table 5).
Hence, the final domestic water demand model equations are as follows:
Linear model:
Y = 8.784267 + 0.000708 (X 1 ) 2.418163 (X 2 )
+0.929584 (X 5 ) 0.007368 (X 9 )

(8)

Semi-log model:
lnY = 2.813942 + 0.000014 (X 1 ) 0.046841 (X 2 )
+0.015788 (X 5 ) 0.000129 (X 9 )
Springer

(9)

Water Resour Manage (2007) 21:573589

583

Log-log model:
lnY = 7.831722 + 1.055449 ln(X 1 ) 0.167421 ln(X 2 )
+ 0.494659 ln(X 5 ) 0.209994 ln(X 9 )

(10)

The above analysis with ten years of data, for the period 19881997, shows that the water
use is dependent on four factors namely; number of connections, water tariff, education level
(ratio of population to university students) and rainfall. The effect of the variables that are
not considered in the analysis, but are somehow affecting the water use, is accounted for by
the value of the model intercept.
The above three models are validated with the known values of explanatory variables for
the period 19982001. All the three models under-predicted the water use in 2001 and the
error of 8.74, 7.85 and 6.26% with respect to the observed water use is found by the linear,
semi-log and log-log model respectively. However, with the four independent variables the
log-log model could represent the water use better than the other two models. The log-log
equation is therefore considered the best among the three functional forms, based on the
highest R2 , lowest standard error (Tables 35) and the least percentage error in predicting the
water use for the period 1998 to 2001, to represent to water use in the Kathmandu Valley.
The partial residual plots of each of the explanatory variables with original data are obtained as shown, for example, for the number of connections in Figure 2a. The non-linearity
of the partial residual plots suggests the necessity of transformation of the explanatory variables and dependent variable. The plots, as shown in Figure 2b, make it clear that the log-log
transformations of both independent and dependent variables provide better results. This
supports the analysis which indicates suitability of log-log form of demand equation for the
study area.
4.3. Significant water demand variables
The number of connections (X1 ) is highly correlated with the population. The water use,
therefore, will increase with the number of connections unless the per capita use is drastically
reduced due to application of various water efficient technologies and conservation measures.
The possibility of such reduction is very rare as the per capita water consumption generally
increases with living standard, which is expected to improve in the future. The elasticity of
water use with respect to the number of connections is 1.055 indicating that a 1% increase
in the number of connections will result in 1.055% increase in the water use.
Another significant variable identified is the water tariff rate after the minimum allowed use of 10 m3 /month (X2 ). The price elasticity of water is found to be 0.167.
This implies that water use will decrease by 1.67% if the water charge is increased by
10%. This low price elasticity of water may be because of it being charged at a flat rate
for a multitude of uses. Moreover, as the increases in the water charges are very low,
their effect on water usage is very minor. The average water tariff in excess of 10 m3
in 19881992 was NRs 2/m3 (US$ 0.028/m3 ); in 19932000 it rose to NRs 6/m3 (US$
0.084/m3 ); it was increased to NRs 10/m3 (US$ 0.14/m3 ) and NRs 12/m3 (US$ 0.168/m3 )
in 2001 and 2002 respectively. It can be inferred that the government doubled the water charges within two years in an effort to control the water use in the valley. The results suggest that water pricing could be one of the demand management measures for the
valley.
Springer

584

Water Resour Manage (2007) 21:573589

Fig. 2 Partial residual plot of number of connections (a) before transformation and (b) after transformation
of the variables

The analysis also shows that the water use is increasing with the ratio of population to the
number of university students (X5 ). The elasticity of water use in the valley with respect to X5
is about 0.5. This can be interpreted as the decrease in water use with the overall increase in
the education level of the people. It is reasonable to assume that education brings increased
awareness among the people for conservation and judicious use of water. The relation of
rainfall to the water use is found to be negative, indicating the decrease in pipe supplied
water use with respect to increase in total rainfall. This result is obvious because rainfall
decreases the need for outdoor water use in households for gardening or lawns and people
in Kathmandu Valley are beginning to harvest rainwater for various purposes other than
drinking. The rainfall elasticity of water use is 0.21, that is, a 10% increase in rainfall will
decrease the water use by about 2.1%.
4.4. Effect of length of data series
An analysis is carried out to evaluate the effect of length of data series used in model
development on the accuracy of the forecast. Figure 3 displays the observed and predicted
Springer

Water Resour Manage (2007) 21:573589

585

Fig. 3 Observed and predicted water use using log-log model with different datasets

(by the log-log model) water use amounts obtained using different datasets. It can be clearly
seen that the accuracy of the forecast decreases as the gap between the forecast year and the
data year increases. The percentage error in the prediction of the water use by log-log models
with different length of datasets can be visualized from Figure 4. This indicates, as expected,
that incorporating recent data in the analysis provides better results. Therefore, for improved
forecast, updating the multivariate econometric models as developed in the present study,
by inclusion of recent data is crucial and should be carried out regularly by the water utility
authorities.

Fig. 4 Error in predicted water use using log-log model with different datasets
Springer

586

Water Resour Manage (2007) 21:573589

4.5. Forecast of independent variables

Number of connections, water tariff after the minimum allowance, ratio of population to
the number of university students and rainfall are the four variables found to be capable of
explaining the water use variation in Kathmandu Valley. Therefore to predict the water use
in Kathmandu Valley, the forecast of these four variables is mandatory.
Since the number of connections and the ratio of population to the number of university
students depend on population, this variable is forecasted based on the historical data. Curve
fitting the time series data of population is tried with various trend-lines, and the 2-degree
polynomial equation is found to fit the data best. Hence, the future population in Kathmandu
Valley is estimated using the developed equation. It is, however, assumed that the city expansion is possible and the availability of land is not a constraint. Also, at present, most of the
buildings in Kathmandu Valley are less than three storeys, giving the possibility of vertical
expansion to accommodate the increased population in the future. The current development
scenario in Nepal that is focused and centralized in Kathmandu Valley also supports this
assumption.
The number of connections is a policy decision to be made by NWSC. It is reasonable
to assume that the NWSC will have to increase the number of connections according to the
increase in population. Hence, the number of connections is projected taking the constant
ratio of population to the number of connections as 15.33 as per the data of 19881997.
The water tariff is also a policy decision to be made by the concerned authority. As observed
from the past records, the average increase in water tariff after the minimum allowance for
domestic sector in Kathmandu Valley is around NRs 2.6/m3 (US$ 0.0364/m3 ) of water each
year. Hence, water use in the valley is predicted with an annual average increase in tariff of
NRs 2.6/m3 (US$ 0.0364/m3 ) of water.
The number of students in Kathmandu Valley is forecasted using trend line extrapolation,
which seems to be satisfactory as indicated by the R2 value of 0.75. Using the forecasted
values of population and number of university students, the ratio of the population to the
number of university students is estimated.
The average absolute variation in the total rainfall in each year from the mean annual
rainfall (using the data of the period 19882001) is about 13.5%. Hence, the average annual
rainfall of 1475 mm is assumed to be constant during the forecast period.
4.6. Water use/demand forecast
Figure 5 compares the observed water use (19882001) with the calculated (19881997) and
forecasted (19982001) water use based on the log-log model and the known values of the
explanatory variables. The model performed well in estimating the water use in 19982001.
However, it is suggested that such multivariate equations should be updated, by incorporating
newly emerging explanatory variables and recent available data, on a regular basis so as to
improve the predictions. The developed model is used to forecast the water use/demand in
the valley in 2005, 2010 and 2015 by predicting the four explanatory variables as explained
above and the results are presented in Table 6. The domestic water demand in Kathmandu in
2015 is estimated at 79.05 (103 m3 /d) compared to 66.03 (103 m3 /d) in 2001, an increase of
about 20%.
Data in Table 1 indicates that the actual per capita water consumption from 1988 to 2001
varies from 38 to 45 L/capita/day. In future it is expected that due to economic growth the
per capita use will increase. However, using a value of 45 L/capita/day and the projected
population (projected number of connections multiplied by 15.33) as given in Table 6 the
Springer

Water Resour Manage (2007) 21:573589

587

Table 6 Projected explanatory variables and water demand

Explanatory variable

Year

No. of
connections

Water tariff
(NRs)

Population/students

Rainfall
(mm)

Water demand
(103 m3 /day)

2005
2010
2015

124,899
149,800
177,899

19.7
32.7
45.7

25.69
25.34
24.75

1475
1475
1475

66.23
72.18
79.05

Fig. 5 Observed and calculated water use

water demand in 2005, 2010 and 2015 based on the classical engineering approach would
be 86.16, 103.34, and 122.72 (103 m3 per day) which is much higher than the corresponding
values of 66.23, 72.18 and 79.05 (103 m3 per day) estimated based on the modeling approach
of the present study. This clearly indicates that the traditional approach overestimates the
water demand and this multivariate approach can help make realistic forecast which can help
water utility authority to manage their resources properly and judiciously.

5. Conclusions
The study presents a methodology for developing a multivariate demand model for domestic
sector considering various factors representing socio-economic characteristics, climatic parameters and public water policies and strategies. The model can accommodate any number
of variables given that they are correlated and have logical relationships with the water use
or demand. The model carries out a correlation analysis to identify highly correlated independent variables and to eliminate some of them to avoid the effects of multi-collinearity.
Springer

588

Water Resour Manage (2007) 21:573589

Three functional forms of multivariate equation are incorporated in the model. The multiple
regression analysis is carried out using SPSS software package to estimate the values of the
intercept and coefficients of the chosen functional forms of demand equation. The model
performs two statistical tests, F-test or p-value and t-test to evaluate the fitness of the water
demand equation. The final selection of the functional form is done based on the coefficient
of determination (R2 ), adjusted R2 and the standard error. Partial residual plot analysis is also
carried out to without and with logarithmic transformation of independent and/or dependent
variables to confirm the selected the functional form of the demand equation. The developed
model is user-friendly and the user interface can be installed and run in computers with
Microsoft Office set-up, preferably Office 98 or Office 2000. The model is menu-driven and
the help menu is provided to guide the user through the process of model development and
application.
The modeling process is illustrated using the water use data of Kathmandu Valley, Nepal.
The analysis indicates that the log-log model, using the four determinants of water use,
namely; number of connections, water tariff after the minimum allowance, education level
and total annual rainfall, is the best among the most widely used functional forms for the
domestic sector in Kathmandu Valley. The developed model equation is:
lnY = 7.831722 + 1.055449 ln(X 1 ) 0.167421 ln(X 2 ) + 0.494659 ln(X 5 )
0.209994 ln(X 9 )
The elasticity of water use with respect to the number of connections is 1.055 indicating
that the water use in the valley will increase by 1.055% with a 1% increase in the number
of connections. The price elasticity of water use is estimated to be 0.167, which implies
that with a 10% increase in the water price, the use will decrease by only 1.67%. Although
increasing water price can reduce the water use, it is not significant as the past water tariffs
have been low. Public education and awareness also has paramount effects on water use as
indicated by its elasticity of about 0.5. It implies that there can be a reduction in water use of
0.5% with an increase in the ratio of total population to the university students of 1%. The
analysis concludes that the price of water, public education and information and awareness
would be the most effective factors in managing water demand in Kathmandu Valley.
Since water demand in the domestic sector is a complex function of different factors
which may vary spatially and temporally, planning and management of water supply systems
should be a continuous process with due consideration to ever-changing socio-economic
conditions, technological changes, improvements in water use efficiency and government
policy decisions related to water use and conservation that can affect the use of water by
the people. It is, therefore, recommended that NWSC adopt and update multivariate water
demand models on a regular basis, as developed in the present study, so as to provide more
accurate and reliable demand estimates for the future planning and management of water
supply systems.
The model, if developed incorporating long and recent datasets, can give better results.
However, the main constraint in the application of the present model in developing countries
is the availability of a variety of required data. It is therefore suggested that the concerned
authorities realize the importance of and give emphasis to the collection of data and information essential to make management modeling a tool for the analysis and development of
demand management policies and strategies, which are necessary to address the challenge
of water scarcity being faced by many countries.
Springer

Water Resour Manage (2007) 21:573589

589

References
Babel MS, Das Gupta A, Dhungana JR (2003) Modeling urban water demand in Bangkok city. In: Proceedings
of the First International Conference on Hydrology and Water Resources in Asia and Pacific Region
(APHW2003), March 1315 Kyoto, Japan
Billings RB, Agthe DE (1998) State-space versus multiple regression for forecasting urban water demand. J
Water Resour Plan Managt 124(2):113117
Dandy G, Nguyen T, Davies C (1997) Estimating residential water demand in the presence of free allowances.
Land Economics 73(1):125139
Garcia AF, Valinas Garcia AM, Espineria-Martinez R (2001) The literature on the estimation of residential
water demand. Elsevier Science
Helsen DR, Hirsch RM (1991) Techniques of water-resources investigations of the United States Geological
Survey. In: Book 4, Hydrologic Analysis and Interpretation, Chapter A3, Statistical Methods in Water
Resources. United States Geological Survey, Reston, VA, USA.
Katzman MT (1977) Income and price elasticities of demand for water in developing countries. Water Resour
Bull 13(1):4755
Lahlou M, Colyer D (2000) Water conservation in Casablanca, Morocco. J Am Water Resour Assoc
36(5):10031012
Malla PB, Gopalakrishnan C (1997) Residential water demand in a fast-growing metropolis: the case of
Honolulu, Hawaii. Internat J Water Resour Develop 13(1):3551
Mason RD, Lind DA, Marchal WG (1999) Statistical Techniques in Business and Economics, 10th edn.
Irwin/McGraw Hill, Boston
Pradhan P (2003) Water Demand Forecast and Management Modeling: An Application to Kathmandu Valley.
Nepal, Unpublished masters thesis, Asian Institute of Technology, Bangkok, Thailand, p. 87

Springer