Completion Report

Project Number: 32239

Loan Number: 1966
November 2012

Nepal: Urban and Environmental Improvement Project

 CURRENCY EQUIVALENTS

Currency Unit – Nepalese rupee/s (NRe/NRs)

At Appraisal At Project Completion

15 October 2002 31 March 2011
NRs1.00 = $ 0.013 $0.014
$1.00 = NRs76.73 NRs71.30

ABBREVIATIONS

ADB – Asian Development Bank

DUDBC – Department of Urban Development and Building Construction
EIRR – economic internal rate of return
FIRR – financial internal rate of return
GIS – geographic information system
KMC – Kathmandu Metropolitan City
MOF – Ministry of Finance
MPPW – Ministry of Physical Planning and Works
NGO – nongovernment organization
NWSC – Nepal Water Supply Corporation
O&M – operation and maintenance
PCO – project coordination office
PCR – project completion review
PIU – project implementation unit
PPMS – project performance monitoring system
SDR – special drawing rights
TDF – Town Development Fund
WACC – weighted average of capital cost
WSMB – Water Supply Management Board
WWTP – wastewater treatment plants

WEIGHTS AND MEASURES

km – kilometer
lpcd – liters per capita per day
m3 – cubic meter

NOTE

(i) The fiscal year (FY) of the government ends on 15 July. FY before a calendar
year denotes the year in which the fiscal year ends, e.g., FY2009 ends on 15
July 2009.

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

Vice-President X. Zhao, Operation 1
Director General Juan Miranda, Director General, South Asia Department (SARD)
Director Kenichi Yokoyama, Nepal Resident Mission (NRM), SARD

Team leader L. Sharma, Senior Project Officer, NRM, SARD

Team members M. B. Shrestha, Associate Financial Control Officer, NRM, SARD
R. Tuladhar, Project Analyst, NRM, SARD

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

Page

BASIC DATA i
I. PROJECT DESCRIPTION 1
II. EVALUATION OF DESIGN AND IMPLEMENTATION 2
A. Relevance of Design and Formulation 2
B. Project Outputs 3
C. Project Costs 7
D. Disbursements 8
E. Project Schedule 8
F. Implementation Arrangements 9
G. Conditions and Covenants 9
H. Consultant Recruitment and Procurement 10
I. Performance of Consultants, Contractors, and Suppliers 10
J. Performance of the Borrower and the Executing Agency 10
K. Performance of the Asian Development Bank 11
III. EVALUATION OF PERFORMANCE 11
A. Relevance 11
B. Effectiveness in Achieving Outcome 11
C. Efficiency in Achieving Outcome and Outputs 12
D. Preliminary Assessment of Sustainability 12
E. Impact 13
IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14
A. Overall Assessment 14
B. Lessons 14
C. Recommendations 15
APPENDIXES
1. Project Framework 16
2. Project Output 20
3. Loan Disbursement 27
4. Project Implementation Schedule 29
5. Status of Compliance with Loan Covenants 30
6. Economic and Financial Analyses 33

SUPPLEMENTARY APPENDIXES
A. Economic and Financial Analysis of Water Supply Subprojects.
 BASIC DATA

A. Loan Identification

1. Country Nepal
2. Loan Number 1966
3. Project Title Urban and Environmental Improvement
Project
4. Borrower Government of Nepal
5. Executing Agency Ministry of Physical Planning and Works
6. Amount of Loan SDR 22.699 million
7. Project Completion Report Number 1367

B. Loan Data
1. Appraisal
– Date Started 21 August 2002
– Date Completed 6 September 2002

2. Loan Negotiations
– Date Started 4 November 2002
– Date Completed 5 November 2002

3. Date of Board Approval 10 December 2002

4. Date of Loan Agreement 20 June 2003

5. Date of Loan Effectiveness

– In Loan Agreement 19 September 2003
– Actual 2 October 2003
– Number of Extensions 1

6. Closing Date
– In Loan Agreement 31 March 2010
– Actual 31 March 2011
– Number of Extensions 1

7. Terms of Loan
– Interest Rate 1% per annum during the grace period and
1.5% per annum thereafter
– Maturity (number of years) 32
– Grace Period (number of years) 8

8. Terms of Relending
– Interest Rate 8%
– Maturity (number of years) 20
– Grace Period (number of years) 5
– Second-Step Borrower Municipality

9. Terms of Relending
– Interest Rate 5%
– Maturity (number of years) 20
– Grace Period (number of years) 5
– Second-Step Borrower Town Development Fund
ii

10. Disbursements
a. Dates
Initial Disbursement Final Disbursement Time Interval

16 December 2003 6 December 2011 97 months

Effective Date Original Closing Date Time Interval

2 October 2003 31 March 2010 79 months

b. Amount (SDR thousand)

Last Net
Original Revised Amount Amount Amount Undisbursed
Category Allocation Allocation Canceled Available Disbursed Balance

Civil Works
Sanitation and Wastewater 4,029 5,093 1,064 5,093 5,028 (64)
Management and Water
Supply
River Embankment 315 558 243 558 543 (15)
Protection Works and
Road Upgrading
Urban Community 143 174 31 174 123 (51)
Facilities

Equipment and Materials 1,087 278 809 278 363 85

Credit Line to Municipalities

Sanitation and Wastewater 2,395 3,178 783 3,178 2,995 (183)
Management and Water
Supply
River Embankment 525 930 405 930 905 (26)
Protection Works and
Road Upgrading
Neighborhood Road, 1,956 530 (1,426) 530 425 (105)
Drainage, Water Supply
Development Works
Equipment and Materials 652 263 (389) 263 186 77
for Sanitation and
Wastewater Management
and Water Supply
Training 206 324 118 324 306 (18)
Consulting Services for 1,124 1,150 26 1,150 1,302 (119)
PIU
Consulting Services for 350 548 198 548 490 (58)
Community Development
Incremental Administration 77 105 28 105 112 7
(Municipal Level)
 iii

Credit Line to TDF

Sanitation and Wastewater 11 — (11) — — —
Management and Water
Supply
Urban Community 191 232 41 232 164 (67)
Facilities
Neighborhood Road, 135 — (135) — — —
Drainage, Water Supply
Development Works
Urban Enterprises 2,037 1,479 (558) 1,479 1429 (49)
Equipment and Materials 12 — (12) — — —

Training Part A 127 104 (23) 104 75 (29)

Consulting Services for PCO 918 966 48 966 829 (138)

(Part E)

Consulting Services for 237 402 165 402 253 (149)

Community Development

Incremental Administration 586 322 (264) 322 150 (172)

(Central Level)

Incremental Administration 636 839 203 839 897 58

(Municipalities)

Interest Charge 593 593 — 593 284 (308)

Unallocated 4,181 237 (3,943) 237 — 237

Total (SDR) 22,699 18,305 (4,393) 18,305 16,588 1,717

Total ($) 30,000 9,494 25,631
ADB = Asian Development Bank, Part A = Municipal Infrastructure Strengthening and Revenue Mobilization, Part
E = project implementation assistance, PCO = project coordination office, PIU = project implementation unit, SDR
= special drawing rights, TDF = Town Development Fund.
Source: ADB, Loan Financial Information System.

10. Local Costs (Financed)

- Amount ($ million) 20.3
- Percent of Local Costs 78%
- Percent of Total Cost 65%

C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 12.6 5.3

Local Currency Cost 24.9 26.0
Total 37.5 31.3
 iv

2. Financing Plan ($ million)

Cost Appraisal Estimate Actual
Implementation Costs
Borrower Financed 4.4 3.5
ADB Financed 29.2 25.2
Project municipality/community Financing 3.1 2.2
Total
IDC Costs
Borrower Financed
ADB Financed 0.8 0.4
Other External Financing
Total 37.5 31.3
ADB = Asian Development Bank, IDC = interest during construction.

3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual

A. Municipal Institutional Strengthening and Revenue 0.7 0.7

Mobilization
B. Urban and Environmental Infrastructure 24.3 19.3
C. Supplementary Urban Facilities 5.7 4.1
D. Community Development 1.5 1.4
E. Project Implementation Assistance 4.5 5.2
F. Interest Change 0.9 0.4
Total 37.5 31.3

4. Project Schedule
Item Appraisal Estimate Actual
Date of Contract with Consultants
Project Implementation Support Consultant December 2004– 18 April 2005–3 March
March 2010 2011
Design and Supervision Consultant December 2004–
September 2009
Completion of Engineering Designs
Batch 1 Towns: Bharatpur, Ratnagar, and Hetauda June 2005
Batch 2 Towns: Banepa, Panauti, and Dhulikhel June 2006
Batch 3 Towns: Bidur, Kamalamai, and June 2007
Dhadingbesi
Civil Works Contract
Date of Award June 2004 21 July 2006
Completion of Work September 2009 31 March 2011

Other Milestonesb
Loan Reallocation 20 October 2010
First Partial Loan Cancellation of $2.3 Million 13 February 2009
Second Partial Loan Cancellation of $4.5 Million 20 October 2010
Third Partial Loan Cancellation of $2.7 Million 14 December 2011
 v

5. Project Performance Report Ratings

Ratings
Development Implementation
Implementation Period Objectives Progress
From 1 to 31 December 2002 Satisfactory Satisfactory
From 1 January 2003 to 31 December 2003 Satisfactory Satisfactory
From 1 January 2004 to 31 December 2004 Satisfactory Satisfactory
From 1 January 2005 to 31 December 2005 Satisfactory Satisfactory
From 1 January 2006 to 31 December 2006 Satisfactory Satisfactory

From 1 January 2007 to 31 December 2007 Satisfactory Satisfactory

From 1 January 2008 to 31 December 2008 Satisfactory Satisfactory
From 1 January 2009 to 31 December 2009 Satisfactory Satisfactory
From 1 January 2010 to 31 December 2010 Satisfactory Satisfactory
From 1 March 2011 to 31 March 2011 Satisfactory Satisfactory

D. Data on Asian Development Bank Missions

No. of No. of Specialization
Name of Mission Date Persons Person-Days of Members
Inception 6–12 Nov 2003 2 12 a, b
Review 1 25 Sep–6 Oct 2005 3 21 a, c, d
Review 2 26 Mar–5 Apr 2006 3 21 a, c, e
Review 3 20–28 Sep 2006 1 7 a
Review 4 27 Mar–6 Apr 2007 3 18 a, d, f
Midterm review 23 Sep–4 Oct 2007 3 30 a, d, g
Review 5 16–27 Mar 2008 2 14 a, h
Review 6 31 Oct–11 Nov 2008 2 14 a, d
Review 7 6–18 Apr 2009 4 28 a, d, e, g
Review 8 31 Aug–11 Sep 2009 2 14 a, d
Review 9 8–18 Feb 2010 3 21 a, d, i
Review 10 4–13 Apr 2011 3 15 a, d, e
Project completion review 5–30 Apr 2012 3 25 a, d, e

a = mission leader, b = associate project specialist, c = PAU Head, d = associate project analyst, e = associate
disbursement analyst, f = social environment officer, g = social development officer (gender), h = project officer, i =
environment officer.
 I. PROJECT DESCRIPTION

1. Urban population growth in Nepal between 1991 and 2001 was up to 7% per annum,
roughly three times the average national population growth rate of 2.3% per annum.1 The rapid
growth of the urban sector, coupled with the government’s inability to keep pace with the
demand for infrastructure and services for people in urban areas, has created a number of
environmental issues. Uncontrolled physical development, inadequate drinking water and
sanitation services, deterioration of the environment, and poor services became apparent in
urban areas, particularly those in the central development region of Nepal. The Government of
Nepal and the Asian Development Bank (ADB) signed a Memorandum of Understanding on 5
November 1999 for a project to improve the urban environment in 6–10 towns in the central
region of Nepal.

2. ADB approved a loan of SDR 22.7 million ($30.0 million equivalent) for the project on 10
December 2002. The project was intended to facilitate sustainable urban development in the
project area through improvements to essential urban and environmental infrastructure and
related services, and strengthening of the relevant institutions. As a result, personal hygiene,
environmental sanitation, and overall quality of life are expected to improve in the project area.
In accordance with the project framework (Appendix 1) the project was expected to directly
benefit the urban population of about 320,000 in the selected nine urban areas. The Ministry of
Physical Planning and Works (MPPW) was the executing agency and discharges its duties
through the Department of Urban Development and Building Construction (DUDBC). Nine
project municipalities were the implementing agencies.2 The Town Development Fund (TDF) is
one of the main stakeholders, who onlend the funds to the municipalities (para. 25). A project
coordination office (PCO) was established under DUDBC at the central level for overall project
coordination, monitoring, and supervision of all project activities. ADB approved a major change
in scope on 31 January 2007 to cancel all components in Dhadingbesi town and include
upgrading the Bishnumati link road in Kathmandu Metropolitan City (KMC).3 The project was
considered substantially completed by 31 March 2011.

3. The project had five components.

i. Institutional Strengthening of the Municipalities in Urban Management and

Revenue Mobilization. This comprised (i) improving the urban management and
revenue mobilization procedures and practices of the municipalities, and (ii)
providing specific training and support to the relevant staff of the municipalities.

ii. Provision of Urban and Environmental Infrastructure. This comprised (i)

expanding sewerage pipe networks and establishing simple wastewater
treatment plants (WWTP) in the project areas; (ii) developing new water
resources and building water treatment plants, reservoirs, and water distribution
networks in Bharatpur, Hetauda, Banepa, Panauti, and Dhulikhel municipalities;
(iii) developing neighborhood roads, drainage, and water supply systems in those
parts of the project area identified as suitable for urban growth; (iv) carrying out
river embankment protection works in parts of the project area that comprise
Bharatpur, Hetauda, and Kamalamai municipalities; and (v) improving the
surface of the existing roads.
1
ADB. 2001. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Urban
and Environmental Improvement Project. Manila.
2
Dhulikhel, Bharatpur, Hetauda, Banepa, Panauti, Ratnanagar, Bidur, Kamalamai, and Kathmandu.
3
Dhadingbesi did not qualify for project funding as it was not declared a municipality.
2

iii. Provision of Supplementary Urban Facilities. This comprised (i) building or

improving small urban community facilities, such as public toilets, public waste
collection points, public places of worship, neighborhood lanes, public recreation
parks, and sports grounds; (ii) building revenue-generating urban facilities, bus
and truck parks, recreational facilities, and vocational training centers; and (iii)
building a sewerage network and treatment system, and developing
neighborhood roads, drainage, and a water supply network for Dhadingbesi.4

iv. Community Development Program. This comprised (i) preparing and

conducting public health awareness campaigns, public health education
programs, and school public health education programs; and (ii) training the
relevant staff of the municipalities, ward committee members, representatives of
community-based organizations, and members of identified women’s groups.

v. Project Implementation Assistance. This comprised (i) providing support to the

PCO, project advisors, and project implementation unit (PIUs), including
provision of office equipment and supplies, and appropriate costs; and (ii)
providing support in developing comprehensive project performance
management system procedures and undertaking project monitoring.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. The project design was consistent with the government’s urban policies at appraisal in
August 2002.5 The government’s urban policies emphasized (i) strengthening the capacity of
local and national institutions, (ii) decentralizing and making municipalities fully responsible for
urban development and management, (iii) adopting participatory development processes, (iv)
improving the urban and environmental infrastructure, and (iv) implementing a poverty reduction
program with a substantial water, sanitation, and hygiene awareness component. The project
was the first decentralized urban development project for urban areas outside Kathmandu
Valley consistent with the Local Self-Governance Act (1999). At appraisal, ADB’s focus was
defined by its country strategy for Nepal, which was approved in 2002. This emphasized water
supply, sanitation, and urban development, and the need to target excluded groups, to reduce
both poverty and inequality. The project’s relevance for the government plan and ADB’s strategy
was adequately established at project approval, considering the weak institutional capacity of
local government, inadequate water supply, level of sanitation, and urban infrastructure and
inequality. The project remains relevant to ADB’s country strategy for Nepal at completion,
highlighting the importance of addressing environmental infrastructure and capacity building at
the local level, and highly relevant to ADB’s Strategy 2020 because of its emphasis on
infrastructure-led growth and poverty reduction.6 The project outputs remain highly relevant to
the government’s three-year interim plan (2010/11–2012/13), which prioritized improving access
to water and sanitation services through improved water quality and service; the gradual
introduction of a treatment-inclusive sewerage system in urban areas and emerging towns;
support of decentralization; and employment-centric, equitable, and inclusive economic growth.

4
The plans to build a sewerage network and treatment system and develop neighborhood roads, drainage, and a
water supply network for Dhadingbesi were canceled (para. 7).
5
Ninth Five-Year Development Plan (1997–2002) and draft Tenth Five-Year Development Plan (2002–2007).
6
ADB. 2008. Strategy 2020. The Long-Term Strategic Framework of the Asian Development Bank 2008–2020.
Manila.
 3

5. The project anticipated achieving multiple impacts (termed “goals” at appraisal).7 It was
expected at appraisal to improve the personal hygiene, environmental sanitation, and overall
quality of life of an urban population of about 320,000 in the selected nine urban areas. The
project was also expected to contribute to the government’s decentralization policy. The
project’s provision of urban and environmental infrastructure and strengthening of relevant
institutions was a relevant means of improving the quality of life in the nine project towns where
inadequate piped water, sanitation deficits, and weak institutional capacity constrained
municipal services and development potential. Appendix 1 shows the project framework and the
actual project achievements.

6. Project preparation was carried out in nine selected towns in the central development
region of Nepal through intensive participatory processes involving municipal officials and other
stakeholders.8 Although, the Project has five components, there were multiple subprojects that
were planned for implementation in each project town and 25 categories were enlisted for the
withdrawal of loan proceeds. Scattered investments in all subsectors (water supply, land
development, waste water and sewerage, bus park, vegetable market, meat market, small
infrastructure, community infrastructure) which seems often to be unrelated to each other
without physical or functional linkage. 9 This revealed the project design was complex and
project administration was strenuous. Inadequate preparation of subprojects particularly
regional integrated water supply subproject for 3 municipalities10 of the Kavre valley, delayed
land acquisitions, and insufficient provisions of consulting and NGO inputs to meet ADB’s
safeguard requirements lead start up delays. Civil works under the Project started only in the
fifth year of the implementation despite the project was not a sector project. In future, feasibility
studies should go beyond simple technical definition of the subproject. The consultants should
prepare final designs of subprojects and bid documents at least for the first year of the project.

7. All project towns, with the exception of Dhadingbesi, were municipalities during project
preparation. Because Dhadingbesi was not declared a municipality in time, it was unable to
participate in the project. A major change in scope was approved on 31 January 2007 to cancel
project components in Dhadingbesi and include the Bishnumati link road construction in KMC.
Construction of the Bishnumati link road was included under the scope of the project at the
request of the government. Although the subproject has reduced vehicle congestion in the
center of the KMC, it is not well-linked with anticipated project outcomes.

B. Project Outputs

8. Looking at the planned versus actual outputs and distribution across nine municipalities,
the project was implemented much as intended. Among sectors, nearly half of the actual project
investments were in sanitation and wastewater management. The next largest sector was water

7
These impacts included (i) reducing poverty, (ii) improving public health through an improved urban environment,
(iii) stopping environmental degradation, (vi) reducing migration to Kathmandu Valley, and (v) decentralizing urban
management.
8
ADB.1999. Technical Assistance to Nepal for Urban Environmental Improvement. Manila.
9
For example, there is no relationship between investments in road improvements and those in bus terminals and
markets or drainage.
10
Three municipalities were Banepa, Dhulikhel, and Panauti. Detail engineering design of the regional Kavre valley
integrated water supply subproject was done under the Project. However, the subproject was dropped because of
local residents’ opposition for drawing water from Roshi River and its tributaries. The subproject construction was
carried over to ADB supported Loan 2650-NEP: Secondary Town Integrated Urban Environmental Improvement
Project.
4

supply, even though the regional integrated water supply subproject was dropped. Project
outputs are discussed by component in the following paragraphs and summarized in Appendix 2.

(a) Institutional Strengthening of the Municipalities in Urban Management and

Revenue Mobilization

9. A uniform set of interventions was provided to all municipalities under this component.
The project supported organizational restructuring in eight municipalities by considering their
changing functions, including institutional arrangements for the operation and maintenance
(O&M) needs of the various subprojects. Support for the preparation of a municipal action plan
was also provided in each municipality. The project organized training in nine areas under this
component and 1,347 participants benefited from the training.11 Specific training was organized
to improve the municipalities’ revenue mobilization capacity. House tax and customer databases
of various urban services were strengthened, and improved computerized tax and service fee
collection systems were introduced. Urban mappings (base map in geographic information
system [GIS]) in all eight municipalities were completed and a house numbering system based
on the metric system was instituted in six municipalities.12 These municipalities have started to
allocate their own resources to continue with house numbering.13 Municipalities have expressed
their interest in using urban maps prepared under the project to improve their urban services.
However, the municipalities (except Hetauda) have been unable to acquire GIS-trained staff,
which has constrained the optimal use and updating of the urban maps.

(b) Provision of Urban and Environmental Infrastructure

10. Sewerage and wastewater treatment plants. This subcomponent was intended to
install major sewerage networks within core areas of the nine municipalities and construction of
18 WWTPs. A detailed engineering design of the sewerage system, including WWTPs, was
made for seven of the nine project municipalities. 14 At completion, 49.36 kilometers (km) of
sewer lines had been installed and 15 WWTPs had been constructed. The total capacity of 15
WWTPs for treating projected sewerage flows is 7,665 cubic meters (m3) per day against the
target of 9,000 m3 per day.15 The lower capacity of the WWTPs is due to reduced installation of
sewer lines and construction of WWTPs in Bidur and Dhandingbesi.

11. The performance of this subcomponent was partly satisfactory as WWTPs were not yet
in full operation due to limited service connections. The number of households connected to
sewer connections is 4,719, which is 33% of the household connection target of 14,111. Prior to
the project, there were no sewer systems or WWTPs in project municipalities. Households in
core areas were disposing of their wastewater in roadside storm drains and open spaces, which
was polluting the surface water and groundwater. House connections for sewerage are
increasing slowly and it will take at least a year more for the system to be functional in all
municipalities, except Kamalamai, where the system has been dismantled during the expansion
of the road. Delayed achievement was due to delayed construction of the WWTPs. The delay in

11
The nine areas of training included (i) organizational system, (ii) revenue mobilization, (iii) human resource
development, (iv) revenue and financial management, (v) urban development, (vi) construction management, (vii)
land development, (viii) reed bed treatment, and (ix) installation of integrated property tax software.
12
Dhadingbesi was dropped; the institutional strengthening component was not implemented for Kathmandu.
13
Bharatpur is levying a service fee for house numbers.
14
Dhadingbesi was dropped. The sewer line and WWTP subcomponent was not implemented in Bidur due to the
unavailability of land. This subcomponent was also not implemented in KMC.
15
The capacity of WWTPs in m3 per day is 611 in Dhulikhel; 1,374 in Bharatpur; 1,534 in Hetauda; 1,687 in Banepa;
860.7 in Panauti; 1,424.8 in Ratnanagar; and 174 in Kamalamai.
 5

land acquisition for WWTPs has led to their delayed design. Contracts were not awarded until
the sixth year of project implementation.
12. The WWTPs that have been installed have provided the necessary infrastructure for
hygienic disposal of wastewater in the seven project municipalities, and will prevent illegal
connections and reduce the pollution level of the recipient water bodies. A sanitation unit has
been established by each project municipality as part of either the environment section or
planning section for O&M of sanitation facilities. A sewer connection policy has been prepared
and the municipalities have started collecting sewer connection fees and service charges.
Municipalities are using equipment procured under the project to clean storm water drains and
sludge from household septic tanks and sewer lines. In Bharatpur the sanitation committee has
taken responsibility for O&M of the sewerage system and WWTPs. All municipalities, except
Kamalamai, have expressed their commitment and requested post-construction support for at
least one year to bring the system into full operation. Accordingly, DUDBC are providing the
necessary budget and technical support to all municipalities.

13. Water Supply. The water supply subcomponent included five municipalities: Bharatpur,
Hetauda, Banepa, Panauti, and Dhulikhel. The latter three were beneficiaries of a regional
integrated water supply system. The scope of this subcomponent included development of new
water sources, and construction of transmission lines, water treatment plants, reservoirs, and
distribution networks. The expected benefits were improvement in public hygiene and public
health in each municipality it serves.

14. Detailed engineering designs for three water supply subprojects were prepared.16 Two
water supply subprojects (one each in Hetauda and Bharatpur) were constructed under the
project. A total of 359 km of pipeline was laid and 20,842 households benefited from the
increased water supply services.17 The water supply has been augmented by 3.45 million m3
per year. Local residents told the project completion review (PCR) mission that the quality of
water is good. They based their assessment on its smell and taste, and whether family
members had been made sick by contaminated water.

15. The government decided to transfer the ownership of assets and liabilities from the
Nepal Water Supply Corporation (NWSC) to a Water Supply Management Board (WSMB)
established for both Bharatpur and Hetauda. According to the Water Supply Management Board
Act of 2007, the WSMB is solely responsible for the O&M of the water supply system in these
two municipalities. This maintenance includes providing supply connections to households,
collecting tariffs from users, and repaying loans and interest to the government. The respective
WSMB and MPPW endorsed business plans, staff administration, and financial regulations for
both WSMBs. Due to the government’s strong commitment, the NWSC’s responsibility for O&M
was transferred to the WSMB despite strong resistance from staff of the NWSC. The Bharatpur
WSMB started to provide water supply services in August 2012. The NWSC is helping the
Hetauda WSMB operate the water supply systems.

16. The average water tariff being collected is NRs10.9 per m3 in nominal terms. The
existing tariff is much less than the tariff structure in real value proposed in the project feasibility

16
The Bharatpur water supply project, Hetauda water supply subproject, and Kavre Valley integrated water supply
subroject.
17
Per capita water service increased from 75 liters per capita per day (lpcd) to 81 lpcd. A total of 14,810 household
taps were connected in 2008 in Bharatpur and Hetauda; an additional 6,032 household water connections were
made in the first quarter of 2012, a 40.7% increase.
6

study.18 The existing tariff collection is sufficient to maintain a positive cash flow while meeting
all costs for O&M and debt services within the current design capacity for 20 years. Cumulative
cash flow by year 20 was also found to be positive after repayment of government loans, but it
recovers only 12–17% of capital investment, which is insufficient to expand distribution systems
for additional connections. Therefore, the tariff rate will need to be increased, along with a cost-
effective operating system, for long-term financial sustainability. Since the major stakeholders
are committed to operating these subprojects as per the business plans, household water
connections in both municipalities should increase significantly with the improved
responsiveness of WSMBs.

17. Other Subprojects. The objective of the neighborhood road, drainage, and water supply
development subcomponent is to promote urban expansion with plot readjustment in a proactive
and orderly manner, using a land-pooling scheme to avoid scattered and haphazard urban
sprawl. A land-pooling scheme was implemented in three of the eight municipalities originally
anticipated. 19 Though it was implemented satisfactorily, the participants’ (beneficiaries’)
response was indifferent because implementation was delayed and land ownership certificates
were not distributed in time. The municipalities have also not been able to sell the service plots
for timely recovery of the invested amount. On the other hand, land prices have increased
multifold due to the land-pooling scheme compared to the base price, and well-liked in
Kamalamai. The river training subcomponent was implemented in three municipalities,
protecting hospitals, market places, WWTPs, temples and cultural areas, and settlements from
flooding. A total of 1.5 km of river training works have been completed. The road upgrading
subcomponent was carried out in four municipalities and 13.7 km of road have been improved.
These roads have been well used and their surface condition is maintained well.

(c) Provision of Supplementary Urban Facilities (Component C)

18. Revenue Generating Urban Facilities. Bus parks were improved in five municipalities.
All the bus parks have commenced O&M either through a private operator or the municipality.
The vegetable market constructed in Bharatpur (Laion’s Chock) has 25 shops and is running
satisfactorily. Financial analysis of the vegetable market shows that the financial internal rate of
return (FIRR) is 24%.20 The meat market in Hetauda and vegetable market in Ratnanagar are
operating only partially. 21 The PCR mission noted that the meat market in Hetauda has a
drainage problem, and inadequate stall space and design. However, the mission noted
improvements in sanitation of the meat and vegetable markets in Hetauda, and its willingness to
correct the design deficiencies. Most of the revenue-generating subprojects lagged behind the
schedule because none of the subprojects had been subject to a feasibility study and because
the absence of the Executive Director of TDF delayed the approval of the subprojects’ appraisal
by the TDF Board.

19. Small Urban Community Facility. Under this subcomponent, four public toilets,
recreation parks in Kamalamai and Bidur, a recreational pool in Hetauda, and a bus bay in
Ratnanagar were constructed, and ghat improvement in Panauti, Layaku Chaur area

18
The average tariff rate proposed in the project feasibility study in 2002 was NRs11/cum for Bharatpur and
NRs13/cum for Hetauda.
19
Five schemes were dropped due to non-fulfillment of the ADB guidelines (to get 100% agreement of the
landowners). These schemes were financed by DUDBC’s revolving fund under government procedures, which
require a majority (51%) of households to agree to land pooling.
20
FIRR is computed for a period of 20 years. Ten percent of the capital cost should be invested in the 10th year and
50% of the capital investment will constitute salvage values of the structure in the 20th year.
21
The meat market in Hetauda has 60% occupancy and the vegetable market in Ratnanagar has 15% occupancy.
 7

improvement in Banepa, and road intersection improvement work in Bharatpur were

implemented.

(d) Community Development (Component D)

20. This component originally consisted of (i) mass communication and demonstration of
public health awareness campaigns, (ii) public health education programs, and (iii) public health
education programs in schools. In the project design, parallel to the project a cluster of activities
were envisaged to be implemented from other resources for the poorer groups within each
municipality’s area.22 As parallel financing from other sources was unable to be confirmed in
time, the project has supported implementation of these activities. Health and sanitation
awareness programs, mass communication campaigns, and awareness training were the major
activities conducted to improve health education and public health awareness. A total of 18,126
persons participated in health and sanitation awareness events; 4,428 persons received training
and orientation in health education and sanitation, hygiene, and environmental improvement;
34,000 information, education, and communication materials were distributed; and 143 mass
communication events were organized under this project component. The project enhanced
health and education awareness, especially among poorer groups and school children.

21. A community development program was implemented in eight municipalities, excluding

KMC, and the project has addressed the needs of poorer groups by (i) developing new water
sources and rehabilitating existing water supply facilities to provide access to safe water, (ii)
constructing school and community toilet facilities, (iii) constructing small community buildings,
(iv) maintaining irrigation schemes, (v) constructing foot trails and other small community
infrastructures, (vi) establishing waste collection containers, and (vii) constructing household
sanitation facilities. The project has provided support to establish 1,288 such small community
infrastructure subprojects. A total of 3,330 participants received training in income generation.
Due to the positive response and high demand of this component, ADB reallocated funds for an
additional community development program at the request of the Ministry of Finance (MOF),
and gave the responsibility to NGOs for implementing the additional program.

(e) Project Implementation Assistance (Component E)

22. This component was comprised of the various consulting service assignments and
incremental administration costs. The consulting services provided included project
implementation management support at the PCO; detailed engineering design and construction
supervision consultants; consultants for urban maps, using GIS; NGOs for the community
development program; and individual consultants.

C. Project Costs

23. The project cost was estimated at $37.5 million equivalent, including a foreign-exchange
component of $12.6 million (33.7%) and a local-cost component of $24.9 million (66.3%). The
actual total project cost amounted to $31.3 million, including a foreign-exchange component of
$5.3 million and a local-cost component of $26.0 million. ADB financed the entire foreign-
exchange cost of $5.3 million and $20.3 million of the local-currency costs. A total loan amount
of $9.6 million equivalent was canceled during the project period.23
22
A community infrastructure and training program on income generation and skills development. Activities were
identified based on the need and demand assessment done by the NGO in each municipality.
23
A loan amount of $2.3 million equivalent was canceled on 13 February 2009, $4.5 million was canceled on 19
October 2010, and $2.4 million was canceled at account closing on 6 December 2011.
8

D. Disbursements

24. The total loan disbursement was $25.6 million, including $0.4 million for interest during
construction (Appendix 3). The PCO was responsible for preparing projections and requesting
budget allocations. As per the loan agreement, the PCO established an imprest account, which
was managed and liquidated in accordance with ADB’s Loan Disbursement Handbook (2007,
as amended from time to time). The total amount of replenishment was $17.8 million. The
statement of expenditure procedure was used to disburse $9.8 million, or 38% of ADB’s
disbursement. As individual disbursements were small, the statement of expenditure procedure
was found to be very useful for smooth project implementation. The local cost financing ceiling
under the project was $20.3 million, of which 89.5% ($16.8 million) was utilized. The
disbursement pattern (Appendix 3) indicates that the project’s design was too optimistic. By the
end of the fifth year disbursement was only 18% of the loan amount. 24 The project had a
complex financing plan consisting of seven categories and 25 subcategories. The larger number
of categories created difficulties for the PCO in consolidating expenditures and resulted in the
slow submission of withdrawal applications to ADB. There were three types of funding
arrangement to participating municipalities: (i) government relending loans to project
municipalities through TDF, (ii) government relending to project municipalities without routing to
TDF, and (iii) government grants to project municipalities.

25. The provision of supplementary urban facilities under Component C was funded by a
subsidiary loan agreement between the government and TDF. The government relent a portion
of the loan to TDF, and the terms for relending included interest at a rate of 3.5% per annum
and a repayment period of 20 years, including a grace period of 5 years.25 TDF relent the funds
to the municipalities at an interest rate of 7% per annum with a maximum repayment period of
15 years, including a grace period of 3 years. TDF is responsible for loan recovery from the
municipalities and repayment to the government. The government relent a portion of the loan
funds to the eight municipalities through rupee-denominated subsidiary loan agreements in
accordance with government regulations on relending, including standard terms and
conditions for implementing subprojects under components A, B, D, and E of the project.
The subsidiary loans were at an interest rate of 8% per annum with a repayment period of
20 years, including a grace period of 5 years. Loan repayment by project municipalities to
TDF is at 92%, however, municipalities’ repayment of loans to the government has not been
monitored.

E. Project Schedule

26. The project was implemented over 7 years, beginning in 2003. Project municipalities
were grouped into three batches (Appendix 4). The project implementation schedule was
optimistic. The total time allocated for survey and detailed design, including a social assessment
for large subprojects (water supply and sewerage system), was 6 months, which was
inadequate and activities for procurement of major contracts were not provisioned. The project
took a year to declare loan effectiveness due to delayed finalization of subsidiary loan
agreements among the MOF, TDF, and the three municipalities in the first batch.26 The project
was extended by one year at the government’s request. The project experienced delays in

24
The project implementation period was 7 years.
25
The government’s relending interest rate to TDF was revised from 5% per annum to 3.5% per annum. Accordingly,
TDF’s onlending interest rate to municipalities was reduced from 8% per annum to 7% per annum.
26
The three municipalities under the first batch were Bharatpur, Dhulikhel, and Hetauda.
 9

decision making at the municipal level because of the absence of elected representatives in the
local bodies and frequent turnover of municipal executive officers. This has caused a delay in
agreeing about the subprojects, their service areas, acquisition of required land, publishing bid
notices, and approving contract variations. Most civil works contracts could not be completed
within their initial scheduled time for completion. The causes for delay related both to issues
beyond the contractor’s control and to the contractor’s non-compliance with the agreed work
program.27

F. Implementation Arrangements

27. The MPPW was the executing agency for the project. It has delegated its responsibility
for overall supervision and execution of the project to DUDBC. A PCO was established in
DUDBC to coordinate and manage the project. Each participating municipality was the
implementing agency for all subprojects and set up a PIU, which was responsible for day-to-day
project implementation. This approach was in line with the decentralization objectives of the
Local Self Governance Act of 1999 and the related bylaws. Water supply subprojects were to be
carried out in accordance with arrangements mutually acceptable to the government and ADB.
Accordingly, the government established the WSMB in Bharatpur and Hetauda to operate the
water supply system built with project support. All municipalities are committed and have taken
the lead in sustainable O&M of subprojects.

28. A project steering committee was established and maintained throughout project
implementation.28 Each municipality established a municipal steering committee to guide and
coordinate activities involving other agencies and the public. In the absence of elected
representatives, local political leaders participated in the municipal steering committee. One of
two models (project advisor or project manager) was used to implement the project at the
municipal level.29 The project advisor model from DUDBC was used in Hetauda, whereas the
project manager model from DUDBC was used in the remaining municipalities. The PCR
mission observed relatively high ownership on the project outputs in Hetauda compared with
other municipalities.

G. Conditions and Covenants

29. The loan was declared effective following fulfillment of the conditions of loan
effectiveness. Most covenants were broadly adequate and were complied with to ensure
sufficient control and quality of project implementation (Appendix 5) except those covenants
related to gender issues and regional water supply schemes.30 Covenants to address gender

27
Causes for delay included fuel shortages, political instability (frequent bandhs), load shedding, transportation
strikes, unavailability of construction materials, and interference of the locals during construction.
28
The steering committee consisted of a secretary (chairperson); representatives from MPPW, MOF, MLD, DUDBC
(secretariat for the PSC), the Department of Water Supply and Sewerage, National Planning Commission, and
TDF; the chairperson of the Municipal Association of Nepal; two mayors nominated on a rotating basis from among
the mayors of the municipalities; and ADB, as an observer.
29
Under the project advisor model, the municipality, headed by the project manager and assisted by the project
advisor, without executive function, was in charge of implementation. Under the project manager model, the project
manager was seconded to the municipality by the DUDBC and has the executive function to implement the project
under the overall guidance of the municipality.
30
Of seven gender-related covenants, three were not complied with. Those three stipulated that (i) adequate space
be reserved exclusively for women vendors in the public markets, (ii) appropriate day-care facilities be provided for
women vendors, and (iii) a mechanism for providing information on market prices to women producer groups be
established (schedule 6, paras. 17[e], 17 [g], 18). Covenants related to water supply schemes are to ensure that
financing provided for the water-supply subprojects of the municipalities of Banepa, Panauti, and Dhulikhel does
not exceed 80% of the capital investment cost that would be required under a regional and least-cost approach and
10

issues could not be complied with due to a lack of demonstrated up-front commitment from the
executing agency and ADB. Expert support for implementing gender strategy was also not
provisioned for. Loan covenants must be thoroughly negotiated and fully understood, and
followed-up for compliance during project implementation. Audited project accounts and the
auditor’s report were submitted to ADB on time and in accordance with sound auditing
standards.

H. Consultant Recruitment and Procurement

30. Consultants were recruited in accordance with ADB’s Guidelines on the Use of
Consultants (2010, as amended from time to time), using a quality- and cost-based selection
method. A total of 29 person-months of international and 747 person-months of domestic
consulting services was planned. All envisaged inputs of consulting services and NGOs were
fully utilized. The PCO procured a project implementation support consultant and a consultant to
support institutional reforms in the water supply sector. Each PIU has procured a detailed
engineering design and construction supervision consultant to support design and
implementation subprojects and an NGO to support implementation of community development
programs. Twenty-two consultancy packages and eight NGOs were procured as consultants
following ADB’s Guidelines on the Use of Consultants, using a quality- and cost-based selection
method.

31. The project had multiple civil works contracts, because of the nine towns involved. The
nine components or discrete subcomponents led to a large number of contracts for design and
construction. A total of 48 civil works contracts 31 and five supply contracts were procured,
following ADB’s Procurement Guidelines (2010, as amended from time to time). Because of
multiple contracts, the project encompassed more issues and contract administration was
cumbersome.

I. Performance of Consultants, Contractors, and Suppliers

32. Overall, the performance of consultants, contractors, and suppliers was satisfactory.
Limited input from the team leader of detailed engineering design and construction supervision
consultant constrained the timely technical advice to the project municipality during the
construction phase. Supervision lapses were observed in sporadic cases but the overall quality
of supervision of the detailed engineering design and construction was satisfactory. The
contract’s performance in completing the works was slow and in most cases extensions were
requested, though some delays may have been caused by fuel shortages, frequent strikes, an
extended rainy season, electricity disruptions due to load shedding, and the occasional
unavailability of some construction materials. The quality of outputs and works was good and
met the technical specifications as prescribed in the contract documents.

J. Performance of the Borrower and the Executing Agency

33. The performance of the borrower and the executing agency in meeting their
responsibilities was satisfactory. The government categorized the project as a core project
throughout its implementation. This ensured adequate budgetary provisions for the project. The
assessment of the executing agencies’ capabilities during project formulation was reasonably

to encourage these municipalities to adopt such an approach with respect to their water-supply requirements
(schedule 6, para. 13).
31
Four civil works contracts were procured following the international competitive bidding procurement method and
44 civil works contracts were procured following the national competitive procurement method.
 11

accurate. The capabilities of DUDBC and municipal staff increased during the project period.
The establishment of the PCO was highly satisfactory and the DUDBC provided suitably
qualified and experienced staff, resources, and support facilities for PIUs at the municipal level.
The average term for the project director was 3 years, which was in compliance with the
government’s civil service regulation. However, executive officers deputed to project
municipalities were frequently replaced, which constrained timely decisions and contributed to
implementation delays. PCO staff participated in all ADB missions and provided adequate
inputs to ADB.

K. Performance of the Asian Development Bank

34. ADB’s performance was satisfactory. ADB provided the necessary staff and financial
resources needed, from project preparation to implementation. ADB fielded 12 missions,
including one project inception mission, one midterm review mission, and one project
completion review mission. Eleven missions out of 12 visited participating municipalities and
consulted with municipalities, beneficiaries, NGOs, consultants, and PIU staff. Based on the
missions’ findings, each ADB mission prepared a time-bound action plan that was readily
verifiable and monitored. The valuation of the NWSC’s assets and liabilities, government
approval for the transfer of those assets and liabilities to Hetauda and Bharatpur WSMBs, and
the handover of water supply system operation from the NWSC to the WSMBs took longer than
anticipated during the project design due to the uncertain political environment in the country
and the absence of elected bodies in the project municipalities. ADB organized monthly
meetings with the project management team to monitor contract awards, disbursement,
counterpart funding, and other project implementation issues, which improved overall project
performance.

III. EVALUATION OF PERFORMANCE

A. Relevance

35. At both appraisal and completion, the project was relevant and consistent with
government and ADB policies and priorities to improve the quality of life of project municipalities
by improving urban and environmental infrastructures and services. The project design was
aligned with the government’s decentralization framework, urban policies, and poverty reduction
strategy paper (2002) as an integrated approach to urban environment and decentralized
governance. The government categorized the project as a core project throughout the project
implementation period. The project has also supported implementation of the government’s
policy of municipal responsibility for providing access to water supply and sanitation services in
line with its Local Self-Governance Act (1999). Most of the project’s envisaged outcomes were
relevant to the development priorities of Nepal and the project municipalities. However, the
project design was ambitious considering the weak institutional capacity of participating
municipalities and the investment was spread too thinly over too many subsectors
(subprojects) and municipalities.

B. Effectiveness in Achieving Outcome

36. The project was effective in achieving its outcome. It was implemented in a very difficult
country context, one of insurgency, political uncertainty, and an absence of elected
representatives. Despite these difficulties the project contributed to achieving project outcomes
(Appendix 1). With the completion and operation of the two water supply subprojects, the project
provided 141,200 people with easy access to water supply services. Access to safe drinking
12

water is a basic social service fundamental for poverty reduction. Water consumption improved
at the household level from an average of 68 lpcd to 81 lpcd. There was a serious scarcity of
water as ground wells needed to be around 60 feet deep, but that situation has been resolved.
The beneficiaries confirmed positive benefits in terms of substantial time savings and an
improvement in the quality of life for women household members.

37. The primary sewer line and wastewater treatment plants installed under the project gave
90,000 urban residents adequate access to improved infrastructures for collecting and treating
sewerage. This will contribute to public health improvements in the subproject areas and reduce
pollution of groundwater and surface water in the vicinity. The improvement of the Bishnumati
link road in KMC has provided easy access to markets, social services, and transport
opportunities to 151,193 people in the subproject areas. This led to an increase in land values in
the Bishnumati link road subproject areas and in KMC revenue collection. Due to its north-south
alignment, the Bishnumati link road improvement has relieved the congested road network by
diverting vehicles passing through the city core areas of KMC.

C. Efficiency in Achieving Outcome and Outputs

38. The project is rated partly efficient in achieving its outcomes and outputs. The estimated
economic internal rate of return (EIRR) of the Bharatpur and Hetauda water supply subprojects
is 16.89% and 6.97%, respectively (Appendix 7). The figure is conservative; it does not include
benefits derived from sanitation improvements and health benefits. The main reason for the low
EIRR in the Hetauda water supply subproject is the limited increments in water connection and
water supply capacity after the project.32 Since the major stakeholders (the municipality, WSMB,
and MPPW) are committed to operating these subprojects as per the business plan, wth the
improved responsiveness of WSMBs in both municipalities household water connections should
increase significantly.

39. The implementation progress was largely satisfactory despite delays in implementation
of subprojects, particularly construction of sewerage systems and WWTPs, water supply
subprojects, and revenue-generating subprojects. Most of the subprojects were completed
about 10 months after the original due date. Late attention was given to the institutional
arrangements for O&M of project outputs. Early attention to the institutional arrangement for
O&M could have achieved early impact.

D. Preliminary Assessment of Sustainability

40. The sustainability of project outputs was assessed likely. The financial sustainability
analysis of the water supply subprojects shows that both subprojects were running an operating
surplus in 2011 before capital expenditure for distribution system expansion, depreciation, and
loan repayment. In order to sustain the project benefits, project municipalities should strengthen
their financial management and review and update service charges on a regular basis, allocate
sufficient budget for O&M of project outputs, outsource O&M of infrastructures through long-
term contracts, and DUDBC should provide post-construction support to municipalities to
address any technical problems that might arise during operation.

41. Even though the municipalities are run by government-appointed administrators and no
elections have been held since 2002, the municipalities are not being constrained by the

32
The NWSC extracted water for a limited period to save fuel (electricity and diesel) costs, which led to limited
increments of water supply capacity in Hetauda.
 13

revision of urban property taxes or service charges. As a result, these agencies were able to
introduce service charges to sustain their operations. Urban roads, notably those supported by
the project, were generally well maintained. Bus parks and vegetable markets that were
improved under the project were also generally well maintained.

42. The DUDBC appointed a GIS expert and strengthened its GIS unit to provide follow-up
support to the project municipalities for regular updates and integration of urban maps into the
municipality’s operation. As demanded by project municipalities, the DUDBC is providing
technical support and budgeting: Dhulikhel received budgeting and support for O&M, while
Bidur received budgeting to fence the bus park to improve security. The project completion
review mission noted the DUDBC’s willingness to support all project municipalities and to make
the sewerage and WWTPs functional, in particular. With regard to water supply subprojects, the
government deputed experienced staff from the Department of Water Supply and Sewerage to
Bharatpur and Hetauda to operate the WSMB. The establishment of autonomous WSMBs in
two municipalities for O&M, based on the decentralized approach, is vital for long-term
sustainability of the water supply subprojects constructed under the project.

E. Impact

43. The impact of the project is positive. The project directly benefited the urban population
of about 258,773 in eight municipalities outside Kathmandu Valley, not counting the benefits
due to road upgrading and community development, and 151,193 in KMC, against the total
target population of 320,000. The project has established an important precedent for a series of
similar projects. The ADB-supported Secondary Towns Urban Environmental Improvement
Project and Integrated Urban Development Project and the World Bank–supported Urban
Governance and Infrastructure Development Project are examples of urban projects inspired by
the project. The project helped mitigate serious urban environmental issues such as an
inadequate drinking water supply, haphazard disposal of sewerage, and poor physical
development in project municipalities. The project has complemented the water sector reform
led by the Melamchi Water Supply Project through the establishment of WSMBs for the O&M of
water supply operations. Project support has also enhanced institutional strengthening of project
municipalities, revenue mobilization, financial management, and urban development, in line with
the government’s and ADB’s sector strategy. As a result, municipalities have understood the
importance of institutional strengthening and criteria related with it prescribed by the Ministry of
Local Development for Minimum Condition and Performance Measure (MCPM). Three
municipalities ranked within the first five and another four municipalities ranked within 30 in the
MCPM ranking, out of 58 municipalities of Nepal.

44. The project design had gender provisions and the gender strategy was attached to
summary poverty reduction and social strategy. However, the project had only limited gender-
based achievements; women’s participation in training and construction activities was low. This
is due to the absence of a gender action plan, weak implementation of the project’s gender
provisions, and a lack of sex-disaggregated data and information in monitoring reports. The
project performed satisfactorily in terms of environmental safeguard compliance, due to the
requirement to prepare a social assessment report and resettlement plan (if required), together
with the detailed engineering design for each subproject. This ensured that activities required for
the compliance of safeguard requirements were realistic, adequately budgeted, and
implementable. Regular monitoring has been done during project implementation by ADB and
executing agency staff.
14

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

45. Overall, the project was rated successful in accordance with the review of its relevance,
effectiveness in achieving outcomes, efficiency in achieving outcomes and outputs,
sustainability, and impact. This indicates that the design and implementation were acceptable
and the project achieved its objective of improving the condition of project municipalities through
better urban and environmental infrastructures. The project has been valuable in paving the way
for larger urban infrastructure projects in Nepal’s secondary towns. Despite an extremely difficult
political environment due to the absence of elected representatives in the municipalities, the
executing agency has been successful in terms of managing to implement a complex project.
The sustainability of the outcome is rated likely given the technical simplicity of operating and
maintaining project infrastructures. However, each project municipality should allocate sufficient
resources, particularly an annual O&M budget for sanitation and a wastewater management
system.

B. Lessons

46. Along with consultations related to subproject design and scope, consultation with
project towns on cost recovery, tariffs, and user charges is crucial for sustainability.

47. The project should focus on a small number of physically integrated components to
simplify project administration and optimize intersector linkages.

48. Construction of sewerage and WWTP was substantially delayed due to delays in land
acquisition, preparation of a detailed design, and a change of site location. In order to avoid any
unnecessary delay in the implementation of the project, sufficient attention should be paid to
land acquisition in project preparation, and the land should be made available for the project
prior to mobilization of the design consultant.

49. The project could support the institutional reforms efficiently if there is a clear political will
and stable government.

50. Entities intended to manage O&M for infrastructure should be established early in the
project cycle, and staff trained throughout the implementation period, rather than at the very end.
For operational sustainability, a long-term O&M contract could be incorporated into the
construction contract for institutions having weak capacity and staff strength.

51. Assessment of community attitudes to infrastructure, such as WWTP, should be better

assessed at appraisal. For example, a participatory process to identify a feasible WWTP site
would have prevented significant delays in the finalization of design and construction.

52. A complex financing plan causes difficulties in consolidation of expenditures and slow
submission of withdrawal applications.

53. For effective gender mainstreaming and achievements, gender action plans should be
prepared and agreed on by all agencies involved in project implementation. Sufficient financial
and technical resources should be allocated for implementation of the gender action plan.
 15

C. Recommendations

1. Project Related

54. The DUDBC, in consultation with Ministry of Urban Development, will issue a directive
on sustaining benefits to project municipalities for future monitoring of the performance of
subprojects, particularly operation of WWTP, through the respective divisional office of the
DUDBC. Each project municipality will prepare and submit a functional status report of all
subprojects on a semiannual basis to the DUDBC’s urban planning section.

55. Water tariffs will be set by both WSMBs with affordability in mind, and on taking
accounts those WSMBs should generate sufficient funds to cover operating costs and debt
service as well as to meet the costs of replacement of mechanical parts and equipment,
including meters.

56. The most pressing need in project municipalities is to address the shortage of trained,
skilled, and experienced WWTPs and mechanical and electrical maintenance staff. Therefore,
for the operational sustainability of WWTPs, each project municipality needs to have minimum
staff strength in its sanitation or environment section, and could outsource O&M of WWTP.

57. Additional assistance. The participating municipalities and the government are to
ensure adequate and timely budgetary provisions for fulfillment of the recommendations.

58. Timing of the project performance evaluation report. The preferred timing of a
project performance audit report is in 2015, which would allow three years in which to assess
sustainability of the project’s outputs.

2. General

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

60. A gender action plan should be prepared and agreed upon with all stakeholders during
the project design.

61. Consulting services should be adequately provisioned to avoid numerous contract

variations during project implementation.

62. A procurement plan should be prepared at project design to define procurement

requirements, allocate time frames and resources, and help monitor the procurement process.

63. The government should ensure that project municipalities secure budget allocations to
recover at least repayment of the subloan to TDF and O&M expenditures, by increasing
revenue generation either through changes in tax arrangements and/or use of charges and/or
other measures.

64. The Ministry of Urban Development (former MPPW) and Ministry of Federal Affairs and
Local Development (former Ministry of Local Development) will support project municipalities to
implement the revenue enhancement measures.
 Appendix 1 16
PROJECT FRAMEWORK
Design Performance Indicators/Targets
Summary
Goal Target: by 2015
Urban poverty reduced Percentage of urban population in
absolute poverty reduced by 5%
Public health improved Incidence of waterborne diseases
reduced by 20%
Infant mortality rate reduced by 20%
Environmental BOD 5 and E-coli count in surface
degradation arrested waters surrounding each project town
reduced by 20%
Migration to Kathmandu Population growth from 2005 to 2015
Valley reduced in each project town is 1.3 times higher
than in the respective district as a
whole
Purpose Target: by 2010
Sustainable urban
development, Increased number of bank branch
compatible with offices
environmental
improvement, in all
project towns Water supply systems, sewerage
systems, and revenue-generating
urban facilities operate without
subsidies
Municipal administrations show a
marked increase in quantity and
competence of staff
Ratio of total annual revenue to total
annual expenditure (including debt
service) is 1.25. Annual revenue
increased 50% between 2002 and
2005, 20% between 2005 and 2008,
and 10% from 2008 onward. Property
tax collection efficiency improved 30%
by 2005, and 90% by 2009.
Assessment and Recommendations
Poverty impact ratio is 0.15, due to
water supply subprojects, which is
higher than the poor population.
Water quality improved. Fewer
incidences of stomach pain and acidity
reported.
No data available.
Wastewater treatment plant (WWTP)
constructed in all municipalities.
Baseline data have been established
and values of BOD 5 and E-coli count
will be monitored. Each municipality
will submit the status of operation of
the sewerage and wastewater
treatment plant to the environment
section of the Ministry of Local
Development, the Ministry of Physical
Planning and Works (MPPW), and the
Department of Urban Development
and Building Construction (DUDBC) on
a quarterly basis.
The number of bank branch offices has
increased by 15 on average from 2006
to 2010. The number of bank branch
offices increased by 29 in Bharatpur,
16 in Hetauda, and 14 in Banepa.
Municipalities confirmed and verified
that the operation and maintenance
(O&M) of the infrastructures are
without subsidies.
Administration system improved
through organization restructuring.
Staff competence improved.
The average ratio of the total annual
revenue to total annual recurrent
expenditure was 2.68 from 2003 to
2010.

Design Performance Indicators/Targets
Summary
Ward committees; community-based
organizations, including women’s
groups; and nongovernment
organizations (NGOs) participate
actively in the management of new
urban infrastructure facilities
The number of connections to water
supply system and resulting revenue
increase steadily
The number of connections to
sewerage collection systems and
resulting revenue increase steadily
Effluent from sewerage treatment
plants meets appropriate
environmental standards
Outputs Target: by 2009
Five professional staff in each project
town have attended training courses in
- Urban management and revenue
generation
- Urban and environmental
infrastructure project
implementation and O&M
- Identification, appraisal,
implementation, and operation of
supplementary urban facilities
Twenty elected representatives;
community and group leaders,
including women; and representatives
of disadvantaged groups have
attended orientation courses in
- Urban management and revenue
generation
- Urban and environmental
infrastructure project
implementation and O&M
- Identification, appraisal,
implementation, and operation of
supplementary urban facilities
Maps with house numbering for each
town completed
Appendix 1 17
Assessment and Recommendations
Under the Community Development
Program, the small community
infrastructures constructed, managed
and operated by community-based
organizations and women’s
participation were encouraging.
Water supply services improved in
quantity and quality, resulting in
revenue increases due to increases in
the additional number of connections
and increased consumption of water
from 68 liters per capita per day (lpcd)
to 80 lpcd. The figures will be reviewed
based on the consultant report.
Not all project municipalities have
sewerage collection systems. The
constructed sewerage collection
system is to collect sewerage from
14,097 households. The total
household connected to sewer
systems is 4,719 and connections are
in increasing trend.
A WWTP was designed and
constructed to meet appropriate
environment standards.
Training provided to staff of project
towns and executing agencies,
members of user committees, and
community group leaders. An absence
of elected bodies in project towns.
However, representatives of main
political parties participated in a project
review and orientation program.
- 138 participants attend training in
revenue mobilization, 147
participants in revenue and financial
management, 63 participants in
integrated property tax, 48 in
revenue mobilization, and integrated
property tax
- 220 participants received training in
urban development
- 24 participants received training in
construction management
- 419 participants received training in
land development, 20 participants
received training in reed bed
treatment plants.
Maps with house numbering in metric
system in all eight municipalities
except Bidur completed.
 Appendix 1 18
Design Performance Indicators/Targets
Summary
Urban and Expansion and improvements to
environmental sewerage collection and treatment
infrastructure systems, including 18 reed bed
subprojects completed treatment plants, are implemented as
in all project towns planned in all project towns
- Sanitation and
wastewater
management
- Water supply
- Neighborhood road, Expansions and improvements to
drainage, and water water supply systems in five
supply development municipalities, including one regionally
- River training and integrated system (serving three
road upgrading municipalities), are implemented as
planned and deliver 3.3 million m3
additional water per year by 2009;
unaccounted for water reduced by
35% by 2006; and 30% by 2009
Locations for neighborhood road,
drainage, and water supply
development subprojects are identified
and projects are implemented
according to agreed-upon procedures.
One year after completion, land value
is three times the 2003 value.
Embankment protection works for river
training are completed in three project
towns according to approved plans
Minor road upgrading works in
selected towns are completed
according to approved plans
General time overrun not more than
30%; cost overrun not more than 15%.
Supplementary urban
facility subproject
completed in all project
towns
- Small urban 18 small urban community facilities
community facilities completed
(i.e., public toilets,
public waste
collection points,
improvements to
public places,
places of workshop,
neighborhood 15 revenue-generating urban facilities
Assessment and Recommendations
Sewerage system subprojects,
including WWTPs, were completed in
seven municipalities. 49.4 kilometers
(km) of sewer line were installed, to
collect 7,665 cubic meters (m3) of
sewerage, and 15 reed bed treatment
plants were constructed. Construction
of reed bed treatment plants in Bidur
was dropped.
Expansions and improvements to
water supply systems in two
municipalities were completed. 3.5
million m3 per year additional water
were added to the water supply
system. Construction work for a
regionally integrated system was
dropped from the project and included
in the Secondary Town Integrated
Urban Environmental Improvement
Project. No indicator was established
to measure unaccounted water.
Three areas of 107 ropanis, 14.5
bighas and 52 bighas, respectively,
have been developed.
A total of 1.5 km of river training
completed. Three municipalities
benefited from the embankment
protection works.
Road upgrading works were carried
out in four municipalities and 13.7 km
of road have been improved. The
roads were well used and surface
conditions were well maintained.
No cost overrun. However, the project
was extended for 18 months.
13.7 km of road improvement works
were completed; 38 community toilets,
60 school toilets (separated for boys
and girls), and 287 community water
supply facilities were constructed; 672
waster collector bins were distributed;
and 11 public places were improved.
Bharatpur – long-term bus park
 Appendix 1 19

Design Performance Indicators/Targets Assessment and Recommendations

Summary
lanes, sports completed with private sector improvement, Lion’s Chowk vegetable
grounds, and small participation market, Balkumari vegetable market,
public recreational one meat market, and three vegetable
parks) markets
- Revenue- Hetauda – bus park improvement,
generating urban meat market, and vegetable market
facilities (i.e., bus Ratnanagar – vegetable market
terminals, bus/truck
parks,
marketplaces, small
slaughterhouses,
cold storage
facilities,
recreational
facilities, and
vocational training
centers)
Community Training completed for 20 key local Training in leadership, awareness,
development participants in each project town (i.e., health, urban planning, community
project town staff, local NGOs, and development, women’s empowerment,
women’s groups) and waste management for 3,330
people was provided. Of the 3,330
participants, 69% were from
disadvantaged communities.

Public health awareness campaigns Placement of 21 billboards in strategic

conducted in each project town
Public health education programs
conducted in each project town
Source: Project Completion Review Mission, April 2012
places distribution of 54,380
leaflets/bulletins and
brochures/posters; organization of 117
awareness campaigns (rallies, events,
orientations, cleaning, celebrations)
with the participation of more than
20,000 local people; 38 street dramas;
and message broadcasting via
television, radio, and newspapers
several times in all municipalities.
264 school teachers received training
in health and sanitation; 129
participants received training in health,
leadership, and gender; 35 participants
received training in urban
environmental planning and waste
management
Appendix 2 20
Municipality/Component
Dhulikhel Municipality
Component A: Institutional Strengthening of
Municipalities in Urban Management and
Revenue Enhancement
Component B: Provision of Urban and
Environmental Infrastructure
Component C: Provision of Supplementary
Urban Facilities
Bharatpur Municipality
Component A: Institutional Strengthening of
Municipalities in Urban Management and
Revenue Enhancement
Component B: Provision of Urban Environment
List of Completed Outputs
Outputs
Urban map (geographic information
system [GIS]) prepared
Database of house numbering in
metric system completed
Municipal action plan prepared
Road upgraded
1.88 kilometers (km) of sewerage line
installed
Reed bed treatment plant constructe.
High-pressure sewer jet machine,
suction machine, pumps, and other
accessories delivered
Public toilet constructed
Urban map (GIS) prepared
House numbering in metric system
completed
Municipal action plan prepared
800 meters of river training work
Operational Updated Status and Remarks
Status
Operational Completed in March 2008.
Operational
Partly operational
Operational Completed 30 April 2008.
Vehicles are using the road.
Operational Completed on 30 September
2010. The municipality dropped
the plan for laying sewer lines
in the Lankhana Mai Temple
area.
Operational Completed on 31 January
2011.
Operational Supplied by 10 October 2010.
Used to clear clogged drains,
manholes, etc.
Partly operational Completed on 5 December
2007. Because of the location
of the public toilet, it is used
only occasionally.
Operational Completed in October 2008.
This subproject has become
functional.
Partly operational Organizational structure based
on the municipal action plan
adopted.
Operational Completed on 30 April 2008.

Municipality/Component Outputs
Infrastructure completed
Land development
6.2 km of sewerage line installed
1.06 km of storm water drainage
installed
Water supply system constructed
Reed bed treatment plant constructed
High-pressure sewer jet machine,
suction machine, portable pump set,
and other accessories delivered
Component C: Provision of Supplementary Long-term bus park constructed
Urban Facilities
Laion’s Chowk wholesale market
improved. 25 shops constructed.
Road divider and 700-meter (m)
intersection improved
Appendix 2 21
Operational Updated Status and Remarks
Status
Operational Completed on 15 July 2009.
Operational Completed on 30 November
2010.
Operational Completed on 30 November
2010.
Operational Completed on 30 November
2010. 215.6 km of water supply
pipeline installed..Ground water
reservoir (900 and 1000 m3
capacity), Reinforced Cement
Concrete Overhead Tank (450
m3) constructed.
Partly operational Completed on 30 September
2010.
Operational Supply completed on 15
September 2010. Used to clean
drains and septic tanks.
Operational Completed on 30 January 2009
and outsourced to a private
Operational operator. Completed on 15
March 2010. The municipality
has signed an agreement with
the Krishi Upaj Bazar
Sanchalak Committee for
operation and maintenance
(O&M) of the market. The
municipality receives
NRs300,00 per month from the
committee.
Operational Completed on 30 November
2010. Facilitated for traffic
management.
Appendix 2 22
Municipality/Component Outputs
Public toilet constructed
Balkumari retail vegetable and meat
market rehabilitated. 26 shops
constructed.
Hetauda Municipality
Component A: Institutional Strengthening of Urban map (GIS) prepared
Municipalities in Urban Management and
Revenue Enhancement
House numbering in metric system
database prepared
Municipal action plan prepared
Component B: Provision of Urban Environment 280 m of river training work completed
Infrastructure
13.8 km of sewerage line installed and
sewer connection policy defined
Sewer jet machine, suction machine,
distilling machine, and tractor trailer
supplied
Water supply system constructed
Reed bed treatment plant constructed
Operational Updated Status and Remarks
Status
Operational Completed on 30 September
2010.
Operational Completed on 15 March 2010.
Sanitation around the market
improved.
Operational Completed on 31 July 2008.
Municipal maps are in use.
Approval of building drawing
and revenue-generating linked
to GIS software.
Operational Actual house number plats are
installed in wards 3 and 10.
Database being updated.
Building code introduced.
Operational Completed on 31 December
2007.
Completed on 31 October
2010. Sewer line is connected
to Reed Bed Treatment Plant
site. Household sewer
connection ongoing.
Operational Completed on 19 November
2009.
Operational Completed on 30 November
2010. 143.5 km of water supply
pipeline installed.
Partly operational Completed on 30 September
 Appendix 2 23

Municipality/Component Outputs Operational Updated Status and Remarks

Component C: Provision of Supplementary
Urban Facilities
Bus park improved
Recreational park and children’s pool
Status
2010.
Operational Completed in 31 August 2007.
Bus park cabins are rented as
ticket counter and the waiting
area has been rented to a café
for income for maintenance.
Operational Completed on 28 February
2010.

Public toilet constructed Operational Completed on 31 May 2008.

Operation through a public
private partnership.

Vegetable market improved. 53 Operational Completed on 31 May 2010.

Banepa Municipality
Component A: Institutional Strengthening of
Municipalities in Urban Management and
Revenue Enhancement
Component B: Provision of Urban Environment
Infrastructure
modular and 12 non-modular shops
Meat market constructed. 31 small, 27 Partly operational Completed on 31July 2010.
medium, and 22 large shops have About 70% of meat shops are
been constructed rented.
Urban map (GIS) prepared Operational Completed on 21 August 2008.
Database of house numbering in Operational
metric system completed
Municipal action plan prepared Partly operational
Road upgrading through provision of a Operational Completed on 30 November
footpath 2009. Easy for pedestrians
because of footpath.
10.67 km of sewerage line installed Operational Completed on 31 December
2010.
Reed bed treatment plant constructed Operational Completed on 31 December
2010.
Appendix 2 24

Municipality/Component Outputs Operational Updated Status and Remarks

Component C: Provision of Supplementary
Urban Facilities
High-pressure sewer jet machine,
suction machine, pumps, and other
accessories delivered
Land pooling
Layaku Chaur improvement
Status
Operational Supplied on 23 February 2011.
Used to clear clogged drains,
manholes, etc.
Not operational Infrastructure improvement
completed on 26 October 2010.
Operational Completed on 30 September
2009. It has been given to a
private club, but the club has
asked the municipality for
maintenance funds.

Bus park constructed Partly operational Completed on 30 September

Panauti Municipality
Component A: Institutional Strengthening of
Municipalities in Urban Management and
Revenue Enhancement
Component B: Provision of Urban Environment
Infrastructure
Urban map (GIS) prepared
Database of house numbering in
metric system completed
Municipal action plan prepared
3.7 km of sewerage line installed
Reed bed treatment plant constructed
2010. Bus drivers are reluctant
to use the bus park due to fees
and lack of proper traffic
management. There is a lack of
stakeholder awareness about
the bus park and weak
municipal enforcement of not
allowing vehicle parking along
highways.
Operational Completed in 31 October 2008.
Operational
Partly operational
Operational Completed on 31 August 2010.
Household connections started.
Operational Completed on 30 September
2010.

Trailer for tractor and accessories Operational Supplied by 31 December

 Appendix 2 25

Municipality/Component Outputs Operational Updated Status and Remarks

Status
procured 2010.
Component C: Provision of Supplementary Triveni Ghat area improved Operational Completed on 15 October
Urban Facilities 2010.
Bus park area improved Operational Completed on 31 December
2010.

Ratnanagar Municipality
Component A: Institutional Strengthening of
Municipalities in Urban Management and
Revenue Enhancement
Component B: Provision of Urban Environment
Infrastructure
Urban map (GIS) prepared
Database of house numbering in
metric system completed
Municipal action plan prepared
10.91 km of sewerage line installed
Reed bed treatment plant constructed
Operational Completed on 7 March 2009.
Operational
Partly operational
Not operational Completed on 28 February
2011. Household connection
fees are being collected to start
the sewerage connection.
Operational Completed on 30 September
2010.

High-pressure sewer jet machine, Not in use Supplied by 31 December

suction machine, pumps, and other 2010.
accessories supplied
4.19 km of road upgraded Operational Completed on 27 November
2008. Rural urban linkages
established.
Component C: Provision of Supplementary Bus bay constructed Operational Completed on 20 July 2010.
Urban Facilities
Vegetable market constructed Operational Completed on 30 September
2010.

Bidur Municipality
Component A: Institutional Strengthening of Urban map (GIS) prepared Operational Completed on 31 July 2008.
Municipalities in Urban Management and
Revenue Enhancement
Appendix 2 26

Municipality/Component Outputs Operational Updated Status and Remarks

Status

Component C: Provision of Supplementary Public toilet constructed Operational Completed on 23 March 2010.
Urban Facilities
Recreational park constructed Operational Completed on 16 August 2010.

Bus park constructed Operational Completed on 15 November

2010. The Department of Urban
Development and Building
Construction (DUDBC)
provided additional budget for
fencing of bus park.
Kamalamai Municipality
Component A: Institutional Strengthening of Urban map (GIS) prepared Operational Completed on 31 July 2008.
Municipalities in Urban Management and
Revenue Enhancement
Component B: Provision of Urban Environment 250 river training works completed Operational Completed on 30 April 2009.
Infrastructure
1.1 km of sewerage line installed and 1 Not in operation Completed on 30 November
reed bed treatment plant constructed. 2010.
Land pooling Operational Completed on 30 November
2009. This subproject is
functional.
Component C: Provision of Supplementary Public park constructed Operational Completed on 30 March 2010.
Urban Facilities
Mini market constructed Partly operational Completed on 31 December
2010. Only partly functional,
due to the absence of a toilet.
Kathmandu Municipality
Component B: Provision of Urban Environment 2.8 km of Bishnumati link road Operational Completed on 15 March 2010.
Infrastructure upgraded Vehicle movements observed.
Source: Department of Urban Development and Building Construction, 2012.
 Appendix 3 27

Table A3.1: Quarterly Contract Awards and Disbursements

($ million)
Contract Awards Disbursements
Year Quarter
Projected Actual Projected Actual

2003 III 0.000 0.000 1.500 0.000

IV 0.200 0.000 0.000 0.900
Subtotal 0.200 0.000 1.500 0.900
2004 I 0.000 0.000 0.000 0.000
II 0.250 0.000 0.250 0.004
III 1.000 0.062 0.750 0.062
IV 0.250 0.073 0.000 0.077
Subtotal 1.500 0.135 1.000 0.143
2005 I 1.000 0.568 0.300 0.000
II 0.000 1.477 0.200 0.005
III 0.000 0.024 1.000 0.426
IV 2.000 0.066 0.500 0.277
Subtotal 3.000 2.135 2.000 0.708
2006 I 0.490 0.047 0.230 0.174
II 0.220 0.502 0.250 0.045
III 0.360 0.055 0.360 0.000
IV 2.510 2.298 0.700 1.257
Subtotal 3.580 2.902 1.540 1.476
2007 I 1.310 1.087 0.200 0.114
II 1.130 0.267 0.723 0.386
III 2.380 0.122 1.380 0.812
IV 2.360 3.244 0.700 0.805
Subtotal 7.180 4.720 3.003 2.117
2008 I 3.350 3.689 1.510 0.000
II 2.810 0.465 1.040 2.443
III 4.340 1.912 1.540 0.979
IV 0.100 2.377 1.580 1.370
Subtotal 10.600 8.443 5.670 4.792
2009 I 1.000 0.140 2.000 0.606
II 2.500 2.178 2.000 1.453
III 1.500 2.223 2.000 1.647
IV 0.000 0.518 1.000 2.402
Subtotal 5.000 5.059 7.000 6.108
2010 I 0.100 0.270 1.000 0.726
II 0.400 0.670 2.000 0.281
III 0.000 0.127 2.000 2.539
IV 0.000 0.201 1.000 3.459
Subtotal 0.500 1.268 6.000 7.005
2011 I 0.000 0.533 0.000 0.014
II 0.000 0.000 0.000 0.000
III 0.000 0.000 0.000 0.993
IV 0.000 0.000 0.000 1.376
Subtotal 0.000 0.533 0.000 2.383
Total 31.560 25.195 27.713 25.632
Source: ADB. 2012. Financial Information System.
Appendix 3 28

Table A3.2: Cumulative Loan Disbursements

Source: Loan Financing Information System. Asian Development Bank.

 Appendix 4 29

Project Implementation Schedule

YEAR
SN Description of Activity 2003 2004 2005 2006 2007 2008 2009 2010 2011
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

1 Fundamental Organizational Preparations

2 Procurement of Key Technical Assistance

Batch 1 Towns; Dhulikhel, Bharatpur, and

Hetauda

3 Organizational Preparations

4 Design of Subprojects

5 Implementation of Subprojects

Batch 2 Towns; Banepa, Panauti, and

Ratnanagar

6 Organizational Preparations

7 Design of Subprojects

8 Implementation of Subprojects

Batch 3 Towns; Bidur, Kamalamai, and

Kathmandu

9 Organizational Preparations

10 Design of Subprojects

11 Implementation of Subprojects

12 Coordination/Communiciation

13 Project Implementation Monitoring

14 Financial Administration

Source: Project Completion Review Mission, April 2012.

Planned, Actual
Appendix 5 30

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Reference in Status of
No Covenants Loan Agreement Compliance
1. All land, rights of ways and other land-related Schedule 6, para. Complied with.
rights required for any Subproject are acquired or 15(a)
otherwise made available to the Municipality
concerned, free of all encumbrances, before the
signing of the relevant civil works contract.

2. All land acquisition for the Project is undertaken in Schedule 6, para. Complied with.
accordance with the land acquisition plan 15(b)
prepared for the Project and agreed upon
between the Borrower and the Bank.

3. Selection of perimeters for proposed Subprojects Schedule 6, para. Complied with.

are done in a way that minimizes or does not 15(c)
cause any involuntary resettlement.

4. Involuntary resettlement, if any, under the Project Schedule 6, para Complied with.
is undertaken in accordance with (i) the 15(d)
Resettlement Framework already prepared and
approved by the Borrower, (ii) the individual
resettlement plans to be prepared for each
Municipality in accordance with the Resettlement
Framework, and (iii) the Bank's Handbook on
Resettlement, to the satisfaction of the Bank.

5. All water rights and related rights required for any Schedule 6, para. Complied with.
Subproject are acquired or made available to the 15(e)
Municipality concerned, free of all encumbrances,
before the signing of the relevant civil works
contract.

6. All project facilities are designed, constructed, Schedule 6, para. Complied with.
operated, maintained and monitored in conformity 16(a)
with the existing environmental laws and
regulations of the Borrower and the environmental
guidelines of the Bank, in particular the
"Environmental Assessment Requirements and
Procedures of ADB".

7. All monitoring and mitigation measures provided Schedule 6, para Complied with.
in the Initial Environmental Examination and 16(b)
Environmental Monitoring and Management Plan
(EMMP), prepared for the Project in consultation
with stakeholders are duly undertaken.

8. Local communities are duly consulted during the Schedule 6, para Complied with.
Project implementation period on such 16(c)
measures.

9. Training is provided, under Part A of the Project, Schedule 6, para. Complied with.
to all women staff and women members of 17(a)
various wards of the Municipalities.
 Appendix 5 31

Reference in Status of
No Covenants Loan Agreement Compliance
10. Women ward members participate in the planning Schedule 6, para. Complied with.
stages of the Subprojects in their respective 17(b)
Municipalities.

11. Women ward members and local women leaders Schedule 6, para. Complied with.
identified by the respective Municipalities are 17(c)
included in the awareness campaigns and
education programs under Part D of the Project.
12. Public toilet facilities built under the Project, in Schedule 6, para. Complied with
particular, in the bus terminals and public 17(d)
markets, are segregated on gender basis.

13. Adequate space is reserved exclusively for Schedule 6, para. Not complied with
women vendors in the public markets. 17(e)

14. Appropriate day-care facilities are provided for Schedule 6, para. Not complied with.
women vendors around the public markets. 17(f)

15. Mechanism is established by which access to Schedule 6, para. Not complied with.
information on prevailing market prices is 17(g)
provided for women producer groups.

65. Members of disadvantaged groups appropriately Schedule 6, para. Complied with.

benefit from the Project through provision of 18
sanitation facilities in poor neighborhoods and
employment opportunities and community leaders
of such disadvantaged groups, both women and
men, are included in the awareness campaigns
and education programs to be undertaken under
Part D of the Project.

16. The Borrower, Municipalities and TDF shall Schedule 6, para. Complied with.
review, jointly with the Bank, the relending and 8
onlending rates every two (2) years of the Project
implementation period to ensure that such rates
are reflective of the prevailing economic
conditions in the territory of the Borrower.

17. The Borrower shall ensure, and cause TDF to Schedule 6, para. Complied with.
ensure, that the Municipalities provide appropriate 11
and adequate collateral, satisfactory to the Bank.

18. Ensure that (i) a cost recovery plan, which Schedule 6, para. Complied with.
includes, among others, volumetric tariffs and 12
connection charges; and (ii) arrangements for the
management and operation of such subprojects,
satisfactory to the Bank, are prepared and
approved by the relevant authority of the
Borrower before signing of the relevant civil works
contract.

19. Ensure that financing provided for the water- Schedule 6, para. Not complied with.
supply subprojects of the Municipalities of 13 Construction of water
Banepa, Panauti and Dhulikhel does not exceed supply subproject was
Appendix 5 32

Reference in Status of
No Covenants Loan Agreement Compliance
80% of the capital investment cost that would be carried over to Loan
required under a regional and least-cost approach 2650: Secondary
and shall encourage these Municipalities to adopt Towns Integrated
such approach with respect to their water supply Urban Environmental
requirements. Improvement Project.

20. The Borrower shall ensure that adequate Schedule 6, para. Complied with.
budgetary allocations of required counterpart 14
funds are made and released in a timely manner.

21. Established PIUs in the Municiaplities of Banepa, Schedule 6, para. Complied with.
Dhulikhel, Panauti, Bidur, Ratnanagar and 4(a)
Kamalamai within three (3) months of the
Effective Date.

22. Fielding of Consultants. Complied with.

23. Appoint respective Project Managers in the Schedule 6, para. Complied with.
Municipalities of Hetauda and Bharatpur within 4(b)
three (3) months of the effective Date.

24. Establish Project Steering Committee (PSC) Schedule 6, para. Complied with.
within one month of the Effective Date. PSC shall 5
meet at least once every two months during the
first year of the Project implementation period,
and as often necessary afterwards.

25. Establish a Municipal Steering Committee (MSC) Schedule 6, para. Complied with.
within three (3) months of the Effective Date. 6

26. Semiannual and midterm reviews shall be Schedule 6, para. Complied with.
undertaken. 20

27. Submission of quarterly progress reports. Article II, Section Complied with.
2.08(b)

28. Develop a comprehensive Project Performance Schedule 6, para. Complied with.

Monitoring and Evaluation (PPMS) including the 19
respective procedures and plans, in accordance
with the PPMS Handbook of the Bank within nine
(9) months of the Effective Date.
 Appendix 6 33

ECONOMIC AND FINANCIAL ANALYSIS AND FINANCIAL SUSTAINABILITY

A. Introduction

1. The economic analysis is divided into water supply subprojects and other subprojects,
including those for wastewater management, neighborhood roads, drainage, river training,
road upgrading, and supplementary urban facilities.

2. The economic and financial analysis of two water supply subprojects was carried out
in accordance with the Asian Development Bank’s (ADB’s) Guidelines for the Economic
Analysis of Projects and Handbook of the Economic Analysis of Water Supply Projects.1 The
economic evaluation of completed subprojects is done based on the actual cost and benefit
compared with the anticipated economic returns of subprojects consistent with the report
and recommendation of the President for the project. The re-evaluation generally follows the
methodology adopted at project preparation, but the present analysis relies on data provided
by the relevant municipality, Water Supply Management Board (WSMB), branch offices of
the Nepal Water Supply Corporation (NWSC), the Department of Urban Development and
Building Constriction (DUDBC), and data collected from site visits. Key information on the
water supply subprojects is in Table A6.1.

Table A6.1: List of Selected Projects for Economic Analysis

Actual
Investment – Benefited Average HH
SN Municipality Subproject NRs HHs Size
Bharatpur Water Supply Subproject 246,473,518 11,799 6.8
1 Bharatpur (rehabilitation of old system and
establishment of new system)
Hetauda Water Supply Subproject 192,433,634 9,043 6.75
2 Hetauda (rehabilitation of old system and
establishment of new system)
HH = households, NRs = Nepalese rupees, SN=serial number.
Sources: Urban and Environmental Improvement Project, Project Completion Report, NJS Consultants Co. Ltd.,
Japan, March 2011; and field study by the project completion review mission members, April, 2012.
Source: Project Completion Review Mission. July 2012.

3. Economic analysis of other project components was consistent with the information
contained in the report and recommendation of the President for the project.

B. Economic Analysis of Water Supply Subprojects

4. For the economic analysis of water supply subprojects, costs were evaluated at their
economic prices. Border prices have been estimated by applying the standard conversion
factor of 0.9 to all domestic expenditures and benefits. A shadow wage rate factor of 0.70
was used to adjust the economic price of the unskilled wage rate.2 The economic internal
rate of return (EIRR) has been calculated on the basis of the capital cost incurred, actual
operation and maintenance (O&M) cost, and benefits achieved to date. Project benefit was
derived from the cost savings from incremental and non-incremental water usage. The
economic value of non-incremental water is based on the existing economic supply price of
water from existing sources. The incremental water supply price is based on the average

1
ADB.1997. Guidelines for the Economic Analysis of Projects. Manila; ADB. 1999. Handbook for the Economic
Analysis of Water Supply Projects. Manila. Of the five water supply subprojects identified under the project,
one integrated subproject for Banepa, Dhulikhel, and Panauti municipalities was not dropped. Two water
supply subprojects for Hetauda and Bharatpur were constructed and completed within the project period.
2
These adjustment factors are consistent with those used in other ADB-funded water supply projects such as the
Small Town Water Supply and Sanitation Sector Project
Appendix 6 34

demand price computed average of economic price of O&M cost and average water supply
cost per household.

a. Assumptions

5. The main assumptions adopted for the analysis were:

(i) The capital and O&M costs of the subproject are based on the actual subproject
investment in the project period and annual O&M cost incurred in 2011. An
annual growth rate of 3% in O&M cost is assumed to calculate EIRR for the next
17 years.
(ii) A capital allowance equivalent to 10% of the total capital cost is assumed to be
replaced in year 10 of the project.
(iii) A residual value of 50% of the capital cost is assumed in year 20 to take account
of the remaining economic life of civil works and pipelines, which have an
assumed economic life of 40 years.
(iv) The economic opportunity cost of capital is estimated at 12%.
(v) Value Added Tax of 13% is excluded from the cost and the resulting economic
values are expressed in constant July 2011 price levels.
(vi) The year 2011 is taken as the base year for economic analysis.
(vii) The only benefit incorporated into the EIRR is the value of time saved from
fetching water. The economic cost of time shaving is calculated at 51.5% of
saved time in NRs170 per day. 3
(viii) The opportunity cost of water is assumed to be zero.
(ix) Land costs are not included in the economic analysis as the opportunity cost of
land is assumed to be zero.

b. Demand Analysis

6. The demand analysis is based on the water demand information provided by the
system operating agencies in project municipalities and a quick community assessment and
findings conducted during the project completion review (PCR) mission.4 Water connections
after the project increased from 16,139 to 20,842 connections.5 Likewise, water consumption
increased from 75 liters per capita per day (lpcd) to 81 lpcd.6 Leakage and water waste are
estimated at about 30%–31% of domestic water consumption.

c. Economic Evaluation

7. The estimated EIRR for the water supply component is 12.88%, which is higher than
the Economic Opportunity Cost of Capital (EOCC). The estimated EIRRs for the Bharatpur
and Hetauda water supply subprojects are 16.89% and 6.97%, respectively. These figures
are conservative; they do not include benefits derived from sanitation improvements and
health benefits. The main reason behind the low EIRR for the Hetauda water supply
subproject is limited increment in water connection and water supply capacity after the
project. Table A6.2 presents the economic indicators of the subprojects.

3
A 1996 World Bank Staff Appraisal Report on the Rural Water Supply and Sanitation Project in Nepal took the
weighted average of 51.5% of time saved devoted to economic activities. The Living Standards Survey, Central
Bureau of Statistics 2010/2011 shows that the mean daily wage rate in agriculture sector is NRs170 per day.
4
Information on water demand, existing tariffs, revenue, and O&M cost for the water supply subprojects has
been collected from the Hetauda branch offices of NWSC and the Bharatpur WSMB.
5
Water connections in Bharatpur had increased from 8,139 to 11,799, and in Hetauda from 8,000 to 9,043 as of
April 2012.
6
Water consumption increased from 77 lpcd to 82 lpcd in Hetauda and 73 lpcd to 80 lpcd in Bharatpur.
 Appendix 6 35

Table A6.2: AIEC, ENPV, and EIRR of Subprojects

AIEC -
ENPV EIRR
SN Subproject NRs/m3
1 Bharatpur Water Supply Subproject 13.86 67.31 16.89%
2 Hetuada Water Supply Subproject 15.76 -46.83 6.97%
Aggregate of Both Subprojects 14.70 20.48 12.88%
AIEC = average incremental economic cost, EIRR = economic internal rate of return, ENPV = economic net
present value, SN=serial number.
Source: Project Completion Review Mission. April 2012.

8. However, the EIRR for the Bharatpur water supply subproject was higher than the
EOCC, and less than the estimated EIRR in the project feasibility study.7 But in the Hetauda
water supply subproject the EIRR was estimated at less than the EOCC. It was expected
that after the subprojects were fully operational through the WSMB, water connections would
be increased significantly and the water supply capacity would also be increased in the near
future to meet the estimated EIRR of water supply subprojects valuated in the project
feasibility study.

d. Sensitivity Analysis

9. A sensitivity analysis was conducted for a 10% increase in capital and operating
costs, a 10% reduction in subproject benefits, and a 20% decrease in assets lifetime.
Switching values and sensitivity indicators were calculated for both water supply subprojects
by using a discount rate of 12%. A switching value indicates the percentage change in a
certain parameter required to reduce the economic net present value to zero and the
sensitivity indicator shows that the project results are most sensitive to changes in both the
estimated benefits and costs. The sensitivity analysis of economic costs and benefits is
presented in Table A6.3.

Table A6.3: Sensitivity Analysis of Subprojects

Reduction in
Increase in Reduction assets
investment in benefits lifetime by
SN Subproject Parameters cost by 10% by 10% 20%
1 Bharatpur Water Supply EIRR (%) 14.61 14.37 14.24
Subproject SV (%) (23.00) 67.00 30.00
SI (4.30) 1.50 3.30
2 Hetauda Water Supply EIRR (%) 4.52 4.52 4.09
Subproject
SV (%) 18.00 -78.00 -107.00

SI 5.60 -1.30 -0.90

EIRR = economic internal rate of return, SI = sensitivity indicator, SN=serial number, SV = switching value.
Source: Project Completion Review Mission. April 2012.

10. Sensitivity analysis shows mixed results for the subprojects. The EIRR for the
Bharatpur water supply subproject is higher than the EOCC in all scenarios. It can absorb a
more than 23% increase in costs and a 67% decrease in benefits. The EIRR for the Hetauda
water supply subproject is positive but less than the EOCC in all scenarios.

7
In the project feasibility study, the EIRR for the water supply subprojects in Bharatpur and Hetauda has been
estimated at 22.6% and 23%, respectively.
Appendix 6 36

e. Poverty Impact Analysis

11. The economic benefit of the subprojects for different groups of the economy was
allocated and the proportion of benefit accruing to the poor was computed for the poverty
impact analysis. It is estimated that 14.75% all government expenditures reaches the poor.
(Refer to ADB’s draft poverty handbook calculation for Nepal.) It is estimated that 70% of
labor expenditures will reach the poor in the subproject area. The poverty impact ratio for
both water supply subprojects is greater than the proportion to the poor in the project area.
Table A6.4 shows the poverty impact analysis for the Hetauda and Bharatpur water supply
subprojects.

Table A6.4: Poverty Impact Analysis

Proportion Benefit to Benefit to Benefit to
Poverty
of Poor in Consumers Economy Labor (in
SN Subproject Impact
Project (in NRs (in NRs NRs
Ratio
Areas millions) millions) millions)
Bharatpur Water Supply
1 11.9% 260 40 12 14.44%
Subproject
Hetauda Water Supply
2 8.7% 60 26 7 12.35%
Subproject
Source: Project Completion Review Mission. April 2012.

C. Economic Analysis of Other Project Components

a. Sanitation and Wastewater Management Subprojects

12. The sanitation and wastewater management subprojects established sewerage

collection and reed bed treatment systems in the municipalities. The sewerage collection
and reed bed treatment systems were chosen in all seven project municipalities based on
the least-cost selection method.

13. Under the project, sewerage collection and reed bed treatment plants were
established in seven of the nine project municipalities. A total of 49.4 km of pipes were laid
and 15 reed bed treatment plants were constructed to provide sanitation and wastewater
management services to 14,111 households. In the first six months of operation, 4,719
houses in five municipalities got sewerage connections. About 33% of the targeted houses
are thus getting sewerage connections from the new system. Three municipalities introduced
sewerage connection fees at the time of connection.8 One municipality has started to collect
a sewerage tariff.9 The sewerage system that was installed in Kamalamai is not functional as
the sewer line was dismantled during road upgrading in the municipality’s core area.10

14. With the exception of Kamalamai, the project municipalities are planning to increase
the coverage of sewerage connection by establishing an appropriate institutional set-up for
O&M of the established system. Municipalities are seeking necessary technical support from
the central level agencies to improve institutional set-up for O&M of the established system.
After 1 year, there should be a significant increase in the number of houses receiving
sewerage services and the established system should be fully operational.

8
In Bharatpur the sewer line connection fee ranges from NRs9,000 to NRs24,000 based on the size and nature
of the houses. Panauti collects NRs2,000 as a sewerage connection fee and Banepa levies 50% of the
building permit fee as a sewerage fee.
9
Panauti collects a sewerage tariff of NRs600/year, which is linked with the Integrated Property Tax collection.
10
Information collected from the field visit by the PCR mission members, April, 2012.
 Appendix 6 37

b. River Training Subprojects

15. River training works involved construction of embankments to protect against erosion
in three (Bharatpur, Hetauda, and Kamalamai) of the eight project municipalities. A total of
1.5 km river training works were constructed with project support, which is less than the
estimated length (2.54 km) of the subprojects identified in the project feasibility study, based
on the least-cost approach. The river training works contributed about 75 hectares of land
and infrastructures constructed on that land. Key economic benefits of the river training
works include:
(i) reduced vulnerability of the area to flooding;
(ii) use of protected public land for playgrounds and recreation and festival areas;
(iii) project infrastructure investment such as reed bed treatment plants and mini
markets protected;
(iv) public property such as hospitals, bus parks, and local markets protected from
possible damage; and
(v) agricultural land and private houses protected from possible damage.

c. Road Upgrading Subprojects

16. Road upgrading subprojects involved 7 km of expansion and blacktopping in

Ratnagar and Kathmandu, 5.4 km of earthen roads in Dhulikhel, and a 1.6-km foot path and
curved stone construction in Banpea. The total length constructed under the project is
almost equal to the total length (13.5 km) identified in the project feasibility study, based on
the least-cost approach. However, the road in KMC was not included in the feasibility study
and there were some alterations in roads and type when implemented. The economic
benefits of the roads upgrading included:
(i) travel time savings to the residents;
(ii) transportation cost shaving of products;
(iii) improved health conditions of the citizens living the surrounding areas due to
decreased air pollution; and
(iv) increased land value of the surrounding areas.

d. Neighborhood Road, Drainage, and Water Supply Development

17. Neighborhood road, drainage, and water supply development subprojects were
implemented in three municipalities. The subproject provided neighborhood roads, drainage,
and water supply facilities on about 50 hectares of land through a land-pooling approach.
The landowners in the subareas got access to the roads, and the provision of other urban
services led to significant increases in land prices. Overall, land prices in the subproject
areas has increased tenfold after the project.

e. Supplementary Urban Facilities—Revenue Generating Subprojects

18. Under the supplementary urban facilities subproject, 20 subprojects (public toilets,
vegetable markets, mini markets, bus parks, recreational parks, etc.) were implemented in
the municipalities. These newly constructed or rehabilitated subprojects not only provided
improved urban facilities to residents but also contributed to municipal revenue generation.
Municipalities have started to generate additional revenue, especially from the vegetable
markets, mini markets, and bus parks, by renting out shops to the private sector.

D. Project Benefit

19. Under the water supply subproject, 141,000 people are benefiting from the regular
water supply. The subproject not only supplied water to new households, it also improved
water supply services in existing service areas. Rehabilitation of old water supply systems
Appendix 6 38

ensured a reliable supply of quality water for the coming years. The main benefit is the
economic value of the time saved by household members and diverted to activities that will
enhance household income in new service areas. The average time shaving per household
from the two subprojects is estimated at 1.7 hours per day. In addition, the average water
supply from the subprojects is estimated at 81 lpcd, which is about 18% more than before
the project.11 Municipal residents are therefore enjoying more water for their daily use and a
reduction in the time needed to fetch water, which contributes to the communities’ economic
and health benefits.

20. The sanitation and waste management subproject was designed to provide improved
wastewater management service to about 91,000 residents. Although the existing
connection is at 33% of the target connection, municipalities are planning to cover the target
population within 1 year with proper institutional set-up. The reduced investment cost for
residents for septic tank construction and cost savings from septic tank cleaning are among
the project’s major financial benefits. The major economic benefit of the subproject is the
health and environmental benefit for municipal residents and people living downstream. The
improved sanitation and wastewater services contributed to protecting the environment,
especially through the safe disposal of wastewater.

E. Financial Analysis

21. A financial analysis of the water supply subprojects in Bharatpur and Hetauda was
done at completion. The purpose of the financial cost-benefit analysis is to access and
compare the financial viability of the subprojects with estimations done during the project
feasibility study. The financial internal rate of return (FIRR) indicates that the project’s
profitability should exceed the weighted average cost of capital (WACC) to be financially
viable. All revenues and expenditures are taken from the actual revenue collected and
investment and operating costs incurred in the water supply subprojects. The following basic
assumptions were used to compute the FIRRs:
(i) All revenues and expenditures are expressed in constant 2011 prices.
(ii) Capital expenditures are recorded at the time they are incurred and
depreciations are excluded.
(iii) The WACC of the water supply subprojects is estimated to be 4.6%.
(iv) The design period of the subproject is 9 years after completion of the project, i.e.,
till 2019.
(v) Financial analysis is computed on a cash-flow stream for 20 years.
(vi) The replacement cost is 10% of capital investment assumed in year 10.
(vii) The financial opportunity cost of capital is considered at 12% to calculate the
average incremental economic cost.
(viii) Fifty percent of initial capital investment cost is assumed as selvage value in
year 20 of the civil structure.
(ix) Subprojects are financed by a 30% government loan at an 8% interest rate, a 50%
government grant, and 20% local contributions.
(x) O&M expenditure is assumed to increase 3% annually.

22. Revenue is derived from water sales from domestic taps based on the existing
average water supply (Bharatpur, 80 lpcd, and Hetauda, 82 lpcd) and non-domestic sales
are assumed to be 5% of domestic consumption. Existing tariffs collected by the NWSC and
WSMB at the prevailing tariff rate are taken as the basis on which to estimate the quantity of
water sales.

11
Before the project water supply is estimated an average of 75 lpcd in the two subprojects.
 Appendix 6 39

Table A6.5: Internal Rate of Return and Average Incremental Financial Costs
Indicator Bharatpur Hetauda
EIRR (%) 16.89 1.49
FIRR (%) 1.34 1.94
3
AIEC (NRs/m ) 13.86 15.76
AIFC (NRs/m3) 16.89 11.64
3
Average tariff (NRs/m ) 10.95 10.95
3
Financial subsidy (NRs/m ) 5.94 0.69
EIRR = economic internal rate of return, FIRR = financial internal rate of return, AIEC = average
incremental economic cost, AIFC = average incremental financial cost.
Source: Project Completion Review. April 2012

23. Table A6.5 shows FIRRs for both water supply subprojects. Although the FIRRs for
both projects are positive, they are less than the WACC and estimated FIRR in the project
feasibility phase. The average incremental financial cost is higher than the average tariff for
both subprojects. The average tariff collected by the NWSC and WSMB is less than the tariff
structure proposed in the project feasibility study in real value.12 Therefore, the tariff rate
should be increased along with a cost-effective operational system for long-term financial
sustainability.

24. As envisioned, the existing water supply system operated by the NWSC in Bharatpur
has been handed over to the WSMB and the Hetauda water supply subproject is currently
being operated jointly by NWSC and the WSMB. The WSMBs are authorized to provide new
connections, levy connection charges, and fix and collect monthly tariffs.13

25. The financial sustainability analysis of the subprojects shows whether the tariff
collection is sufficient to maintain a positive cash flow for 20 years while meeting all costs for
O&M and debt services within the current design capacity. The analysis shows that both
subprojects were running an operating surplus in 2011 before capital expenditures for
distribution system expansion and depreciation. Cumulative cash flow in year 20 is also
found to be positive after repayment of the government loan, but it recovers only 12%–17%
of capital investment, which may not be sufficient for the capital investment needs for
distribution system expansion for additional connections.

Table A6.6: Annual Cash Flow (in NRs millions)

Indicator Bharatpur Hetauda
Cash flow in 2011 9.1 10.7
Projected cumulative cash flow in 2027 30.2 33.2
Capital investment recovered (%) 12% 17%
Source: Project Completion Review Mission. April 2012.

26. The existing tariff band for both water supply subprojects is presented in Table A6.7.
The water tariff for the subprojects is fixed, based on the NWSC tariff rate, which has not
been revised since 2004.

12
The average tariff rate proposed in the project feasibility study in 2002 was NRs11/cum for Bharatpur and
NRs13/cum for Hetauda.
13
Bharatpur’s WSMB collected NRs5,000 and Hetauda’s WSMB collected NRs7,000 in connection charges for
new connections.
Appendix 6 40

Table A6.7: Tariff (in NRs millions)

Tariff Band NRs/month
½ inch Distribution Pipeline
Up to 10 Cum – Minimum 50
> 10 Cum 15
3/4inch Distribution Pipeline
Up to 10 Cum – Minimum 810
> 10 Cum 30
1inch Distribution Pipeline
Up to 10 Cum – Minimum 1680
> 10 Cum 30
Cum = cubic meter.
Source: Nepal Water Supply Corporation and Water Supply Management Board, Bharatpur.

F. Financial Capacity of Implementing Agencies

27. A financial capability analysis was carried out by comparing municipal actual
recurrent revenue for FY2010/11 and revenue projected for FY2010/11 in the project
feasibility study, excluding the water supply subproject. The financial projections were based
on proposals for improved revenue generation, in particular from land and property taxes.

Table 6.8: Actual Municipal Revenue and Revenue Projected in the Project Feasibility Study for
FY2010/11 (in NRs millions)

Local Other Taxes and Achive

Property Tax Total
Municipality Development Fee Fees ment
Projected Actual Projected Actual Projected Actual Projected Actual Rate %

Bharatpur 37.8 46.9 139.6 8.9 80.9 50.2 258.3 105.9 41%
Hetauda 21.1 41.7 114.6 9.9 48.8 47.9 184.5 99.5 54%
Banepa 26.0 25.2 25.2 1.6 41.9 5.6 93.1 32.4 35%
Ratnanagar 4.8 9.6 75.4 3.4 27.4 6.9 107.6 19.9 19%
Dhulikhel 14.5 16.2 8.2 2.4 20.3 3.7 43.1 22.3 52%
Panauti 8.2 11.0 8.2 1.5 16.2 4.4 32.6 17.0 52%
Kamalamai 1.2 2.8 7.8 1.6 23.7 2.8 32.7 7.2 22%
Bidur 8.0 10.5 11.5 0.9 19.3 3.3 38.8 14.7 38%
Total 121.6 163.9 390.5 30.2 278.5 124.8 790.6 318.9 40%
Source: Project Completion Review Mission, April 2012.

28. Actual revenue is only 40% of the projected revenue mainly due to huge deviations in
property tax collection and projection.
 Appendix 6 41

Table A6.9: Property Tax Mobilization by the Project Municipalities in FY2010/11

Total No. Number of Tax
of Tax Payers in Collection Tax per Capita
Municipality Payers 2010/11 Efficiency (%) (NRs)
Bharatpur 43,341 18,300 42 204
Hetauda 21,355 17,900 84 464
Banepa 8,890 4,251 48 176
Ratnanagar 15,494 7,200 46 220
Dhulikhel 5,437 2,587 48 445
Panauti 4,200 3,464 82 357
Kamalamai 11,746 5,603 48 137
Bidur 8,242 6,300 76 108

Total 118,705 65,605 55 254

Source: Project Completion Review Mission, April 2012.

29. The projections were based on assumptions about increases in tax rates, collection
efficiency, and modest increases in the level of housing stock. The existing property tax
collection efficiency is 55%, which is assumed to increase up to 90%. It is noted that the
average per capita tax collection is NRs 254, which is much less than the assumed per
capita tax collection. With project support for institutional strengthening and capacity building
to increase revenue generation, the revenue collection capacity of the project municipalities
improved significantly. However, due to the absence of elected political representatives, the
frequent transfer of executive secretaries, and political instability, the municipalities were
unable to increase tax- and property valuation rates during the period. Therefore,
implementing municipalities need to focus on improving property valuation rates, increasing
tax collection efficiency, and lobbying the central government to revise property tax rates as
guided by the Local Self-Governance Act (1999) in considering inflation and expenditure
needs for urban service delivery.