Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia (Nepal)

Technical Assistance Consultant’s Report

Technical Assistance 8036-REG August 2013

Regional: Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia (Nepal)

Prepared by METCON Consultants

Kathmandu, Nepal

For the Ministry of Urban Development, Government of Nepal

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

Government of Nepal Ministry of Urban Development

Asian Development Bank

FINAL REPORT

TA-8036 REG “Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia-Nepal”

Preparation of National Tariff Guidelines for Water Supply and Wastewater

Submitted by:

August 2013 Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Table of Contents

Executive Summary……………………………………………………………………………..v Abbreviation……………………………………………………………………………………...x 1 Introduction ...... 1 1.1 General Background ...... 1 1.2 Objective and Scope of the Study ...... 2 1.2.1 Objective ...... 2 1.2.2 Scope of Study ...... 2 1.3 Rationale for Case Study Sample Town Selection ...... 4 1.4 Methodology ...... 4 1.5 Field Work and Information Collection...... 6 1.6 Project Benefits, Assumptions and Risks ...... 6 2 Regulatory and Institutional Arrangements for the Urban Water Sector ...... 7 2.1 General Background ...... 7 2.2 Legal and Regulatory Framework for the Water Sector ...... 8 2.3 Current Water Tariff Approval Procedures ...... 10 2.4 Key Issues ...... 15 2.5 Options for Streamlining and Making the Tariff Approval Process More Efficient ...... 16 3 Detailed Case Studies of Pilot Town Water Utilities ...... 17 3.1 Kathmandu ...... 17 3.1.1 Water System ...... 17 3.1.2 Tariff Structures and Institutions...... 20 3.1.3 Utility Management ...... 24 3.1.4 Financial Performance ...... 31 3.1.5 Social and Poverty Assessment ...... 39 3.1.6 Development of Water Tariff ...... 43 3.2 Bharatpur ...... 48 3.2.1 Water System ...... 48 3.2.2 Tariff Structures and Institutions...... 50 3.2.3 Utility Management ...... 52 3.2.4 Financial Performance ...... 55 3.2.5 Social and Poverty Assessment ...... 60 3.2.6 Development of Water Tariff ...... 63 3.3 Surkhet (Birendranagar)...... 65 3.3.1 Water System ...... 66

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3.3.2 Tariff Structures and Institutions...... 70 3.3.3 Utility Management ...... 71 3.3.4 Financial Performance ...... 74 3.3.5 Social and Poverty Assessment ...... 81 3.3.6 Development of Water Tariff ...... 83 4 Brief Case Studies Of Other Sample Town Utilities ...... 86 4.1 Bhaluwang ...... 86 4.1.1 Water System ...... 86 4.1.2 Tariff Structures and Institutions...... 86 4.1.3 Utility Management ...... 87 4.1.4 Financial Performance ...... 88 4.1.5 Social and Poverty Assessment ...... 89 4.2 Parsa ...... 89 4.2.1 Water System ...... 89 4.2.2 Tariff Structures and Institutions...... 90 4.2.3 Utility Management ...... 91 4.2.4 Financial Performance ...... 93 4.2.5 Social and Poverty Assessment ...... 95 4.3 Dhulikhel ...... 95 4.3.1 Water System ...... 95 4.3.2 Tariff Structures and Institutions...... 97 4.3.3 Utility Management ...... 99 4.3.4 Financial Performance ...... 101 4.3.5 Social and Poverty Assessment ...... 102 4.4 Biratnagar ...... 103 4.4.1 Water System ...... 103 4.4.2 Tariff Structures and Institutions...... 104 4.4.3 Utility Management ...... 105 4.4.4 Financial Performance ...... 107 4.4.5 Social and Poverty Assessment ...... 108 4.5 Itahari...... 109 4.5.1 Water System ...... 109 4.5.2 Tariff Structures and Institutions...... 109 4.5.3 Utility Management ...... 111 4.5.4 Financial Performance ...... 111 4.5.5 Social and Poverty Assessment ...... 112

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4.6 Damak ...... 113 4.6.1 Water System ...... 113 4.6.2 Tariff Structures and Institutions...... 116 4.6.3 Utility Management ...... 117 4.6.4 Financial Performance ...... 118 4.6.5 Social and Poverty Assessment ...... 119 4.7 Summary ...... 119 5 Comparitive Analysis and Lessons Learnt ...... 125 5.1 Overall Assessment ...... 125 5.2 Scorecard Analysis ...... 126 5.3 Lessons learned ...... 129 5.3.1 General lessons ...... 129 5.3.2 Lessons for determination of tariff structure ...... 130 5.3.3 Lessons for development of appropriate tariff ...... 131 5.3.4 Lessons for implementation of tariff adjustments ...... 131 6 National Tariff Guidelines for Water Supply and Wastewater in Nepal ...... 133 6.1 Preface ...... 133 6.2 Introduction ...... 133 6.3 Tariff Setting Principles ...... 134 6.4 Tariff Structure ...... 136 6.5 Cost Calculations ...... 138 6.6 Setting Water and Wastewater Tariff...... 140 6.7 Review of Tariff Adjustments ...... 147 6.8 Implementation of the National Guidelines ...... 149 7 Implementation Framework ...... 151 7.1 Implementation Activities ...... 151 7.2 Implementation Schedule...... 153 8 Conclusion ...... 154 Annexes

Annex 1: Personnel Schedule Annex 2: Work Schedule Annex 3: TORs of Consultants Annex 4: List of Documents collected Annex 5: Organization Chart of Candidate Towns‘ Utilities Annex 6: List of Persons Met and Offices Contacted during the Project Annex 7: Rationale for Selection of Three Pilot Towns for Detailed Study

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Annex 8: Report on Inception Workshop Annex 9: Some Definitions Annex 10: Photos from Field Trips to Different Water Utilities Annex 11: Report on Final Workshop Annex 12: Photos from Inception Workshop and Final Workshop Annex 13: Sample of Water Utility Questionnaire sent to Sample Town Water Utilities

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Executive Summary

The Asian Development Bank (ADB) contracted with M/S METCON Consultants to conduct the Regional Capacity Development Technical Assistance (R-CDTA)-8036 REG titled ―Promoting Financially Sustainable Regulatory Framework Water Tariff in South Asia - Nepal". This Technical Assistance (TA) Project was financed by ADB on a grant basis with counterpart support from Nepal government.

The main outcome of this TA study is the National Tariff Guidelines for Water Supply and Wastewater (the ―Guidelines‖). It is hoped that these Guidelines will contribute to enhanced sustainability and financial self-sufficiency in the sector and improved governance through the following:

i) Improved understanding of the current water tariff structures used in different systems throughout Nepal; ii) Improved understanding of water sector reforms and service management models in three pilot cities in Nepal; iii) Sound advice for designing water tariffs for cities and smaller communities; iv) Establishment of an implementation framework v) Recommendations for feasible measures to enhance good governance within service regulatory, supervisory and delivery structures for the three pilot cities where applicable; and vi) Establishment of knowledge channels to share sector-related information and experiences.

The study began on April 5, 2013. It involved nine (9) national experts for a total of eighteen (18) person-months. The Team Leader/Water Tariff and Knowledge Consultant, and the Financial Accounting and Management Consultant were dedicated to the project for its four (4) month duration. Inputs of other experts were intermittent. The project included site visits. There were two workshops held in Kathmandu: (i) Inception workshop on 2 May 2013; and (ii) Final workshop on 8 August 2013.

This Final Report includes the following:  a summary of activities and issues discussed during the study (Chapter 1);  an overview of the water and wastewater sector in Nepal (Chapter 2)  findings of detailed case studies of the service providers in three pilot towns: (i) Kathmandu, (ii) Bharatpur and (iii) Surkhet (Birendranagar) (Chapter 3);  brief analysis of six (6) other towns‘ water supply systems based on the information collected through questionnaires, site visits, and additional interactions with the concerned officials (Chapter 4);  comparative analysis (Chapter 5);  draft National Tariff Guidelines for Water Supply and Wastewater (Chapter 6); and  an implementation framework for operationalizing the guidelines in Nepal (Chapter 7).

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The guidelines and the implementation framework are based on (a) the findings of the case studies, (b) existing sector policies; (c) interactions with the key stakeholders; and (d) global best practice.

According to the original terms of reference (ToR) only five towns were to be selected for study and only two of these were to be selected for more detailed study. However, after the initial meeting with the ADB mission team, it was decided to increase the total number of candidate towns to seven and the number of towns for more detailed study to three to ensure that the study covered a broad spectrum of towns. During the Inception Workshop there was a high expressed demand from participants to broaden the cases further by including two more towns, including a rural water supply project. As a result, Surkhet(Birendranagar) a small town level system and a community level system (Bhaluwang Water Supply) were included in the list of study towns.

The nine towns that were included in the study represent different geographic locations, types of systems and sizes: Kathmandu, Dhulikhel, Itahari, Biratnagar, Damak, Bharatpur, Surkhet (Birendranagar), Bhaluwang and Parsa. The three towns of Kathmandu, Bharatpur and Surkhet (Birendranagar) were selected for more detailed analysis based on the following criteria (see Annex 7):

a) The towns should differ in their institutional arrangements in order to represent the diversity of WSS systems; b) The towns should represent different size communities (e.g., large, secondary, small/rural); and c) The towns should have different tariff structures.

During the inception phase of the project initial contact was made with several concerned offices and water utility agencies, either by telephone, e-mail or personal visit (for those within the Kathmandu Valley). Preliminary information on the nine towns was sought to understand:

i) the institutional arrangement in the respective cities/towns, ii) the current asset ownership structures, iii) the current organizational structure of utilities, and iv) the current operational status, including service duration, current population coverage vs. desired population coverage, production, supply and consumption levels taking into account of non-revenue water percentage, and etc.

During the inception phase the consultant collected and studied existing data and reports from the candidate towns. In the mid-term phase of the study, information was collected by incorporating the popular opinion of stakeholder participants of the workshop. A questionnaire with a checklist of key information along with a request letter from the Ministry of Urban Development (MOUD) was sent to all the sample towns. The consultant followed up with service providers to submit their completed questionnaires. Site visits were also made to Surkhet (Birendranagar), Bhaluwang, Bharatpur and Parsa, which are located in the western and central parts of Nepal.

The key findings from the detailed case studies are summarized below in three categories: (i) general; (ii) tariff setting process; and (iii) tariff structure. i) General

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 There is no uniformity in institutional arrangements for the provision of water services in towns in Nepal.  Though the studies of sample towns (except for Kathmandu) show the service providers are earning enough to meet their annual operation and maintenance costs, they do not have enough revenue to carry out major infrastructure improvement projects. So they still look for assistance from the Government of Nepal (GoN). Some of them still manage to get subsidies or grants from local government or central government. ii) Tariff Setting Process

- The Water Supply Tariff Fixation Commission (WSTFC) Act, 2026 establishes the WSTFC mandate to regulate all water supply and wastewater service providers (not only KUKL). However, Water User Associations/Committees also have the right to set tariffs for the water services with approval of their respective General Assemblies. - When KUKL wants a revision in its water tariff, it has to submit a proposal to WSTFC through KVWSMB with the justifications. KVWSMB forwards the proposal to WSTFC with its recommendations after reviewing the proposal. WSTFC approves it after its usual review procedure, which includes a public hearing. WSTFC may also ask for further clarifications with supporting evidence before approving a revision. WSTFC approves a tariff revision proposal only when it finds the proposal satisfactory i.e.; it should not be very profit oriented and should consider the implications of the tariff revisions for low-income consumers. It should be equitable and at the same time the O&M cost and capital costs are recovered. - In Bharatpur like in many other similar towns such as Hetauda, the drinking water supply is entrusted to a Board, in this case the Bharatpur Water Supply Management Board (BWSMB) established under Water Supply Management Board Act 2006. The Board plays the role of both operator and asset owner. Its regulator is the WSTFC and thus the Board is to apply to WSTFC for its tariff adjustments and provide adequate justification for requested revisions in the tariff. - In the case of Biratnagar, the water supply function is entrusted to the Branch Office of the Nepal Water Supply Corporation (NWSC), which was established as a public corporate body under NWSC Act 1989. It is also an asset owner cum operator. Clause 6.1 of NWSC Act 1989, states that, ―The Corporation may recover the fee for drinking water and the service charge for sewerage and the fixation of the taps etc. from the concerned person.‖ It is not clear whether it is authorized to fix the tariff on its own. NWSC is now making an application to WSTFC for tariff adjutment and also paying its annual dues (regulatory fees) to WSTFC, although not regularly. - In small towns and rural areas the locally established Water Users‘ Associations/Committees are undertaking water supply and sewage responsibilities as both operators and owners of the assets. They also set tariffs with approval of their respective General Assembly. These General Assemblies meet at least once a year. So far WSTFC has not played a role in tariff setting for small towns and rural areas.

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iii) Tariff Structure  With few exceptions, levels of existing tariffs in water services are too low to achieve cost-recovery for operations and maintenance, not to mention rehabilitation and replacement of existing infrastructure and capital expenditure for expansion and upgrading.  The subsidies are poorly targeted and as a result the interests of low-income households are undermined;  Tariff structures fail to provide correct signal for customers to use water more efficiently;  The mechanism for tariff setting provides little incentive for service providers to improve operational efficiency  There is no full uniformity in tariff structures for water services in towns in Nepal. Several types of tariff structures can be observed. All nine study towns have different water tariffs except for Biratnagar and Bharatpur. Bharatpur having taken over full responsibility from NWSC recently has not yet been able to set its own tariff structure and is still using the NWSC tariff structure. All towns operated by NWSC have the same water tariff in spite of their different sizes, systems and sources.  All of the study towns use an Increasing Block Tariff (IBT).  All of the 9 study towns have policy of metering all their connections (however Kathmandu valley towns, Bharatpur and Biratnagar do have some unmetered old taps which they are in the process of installing meters on). They use two-part tariffs with a fixed charge and a volumetric charge. The fixed part is the minimum charge up to a certain volume which is charged even if there is no consumption and other part is the volumetric charge which is applied on the volume consumed exceeding the initial limit volume (Block). The few customers with unmetered taps in case of KUKL, Bharatpur and Biratnagar are charged a fixed tariff.  Tariff structures of Surkhet, Bhaluwang and Dhulikhel have no classification of customers (e.g. by residential or non residential) and the tariffs are progressive(IBTs).  In Kathmandu, Bharatpur, Biratnagar and Damak, customer taps are classified on the basis of tap sizes (ferrule sizes like ½‖, ¾‖, 1‖ etc.) and they have different fixed part tariffs for each of the different sizes.  In Parsa the customers are classified into two water user groups: (i) domestic and (ii) institutional/commercial.  In Itahari customers have also been classified both in terms of users (i.e. residential and nonresidential) and connection size as well.  In towns that differentiate between uses, tariffs seem to be higher for connections of more than 1/2‖ and for non-domestic uses.  The minimum monthly charge for ½‖ domestic tap which is charged immaterial of the water volume used within certain specified volume (usually 6-10 cu-m) is termed the ―lifeline tariff‖.  In most of the sample towns, there are public taps and community taps to cater to low- income households. In some towns like Damak and Itahari low-income households are given a discount in connection charge only.

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 Sewerage services only exist in Kathmandu Valley towns at present and coverage is incomplete. Consumers covered by the sewerage network are charged an additional 50% of their water bills as the sewerage service charge. The National Tariff Guidelines for Water Supply and Wastewater have been developed based on the findings listed above and after several interactions with stakeholders. They are flexible enough to apply to all service providers in Nepal. The proposed guidelines introduce the following major changes to Nepal‘s current WSS sector:

 Tariffs are calculated according to the service provider’s current cost recovery objective. (i) Operations and maintenance (O&M); (ii) O&M + rehabilitation and replacement of existing infrastructure; or (iii) O&M + rehabilitation and replacement of existing infrastructure + new capital works (i.e. expansion).  A cash-needs approach is proposed to determine the tariff. Service providers calculate the ‗cash‘ they will need to pay for O&M, capital replacement and rehabilitation, and capital expansion over the planning horizon (3-5 years); and then calculate the tariff on this basis.  Lifeline should be applied to residential customers only and the size of lifeline should be reduced so the subsides can be targeted more effectively  Service providers' reliance on fixed charge should be reduced over time, and larger share of revenue should be collected through volumetric charge  Tariff increase should be linked with service providers performance and plan to increase operational efficiency  Data management is a priority in improving practices in tariff setting. The implementation framework then lays out the key steps for adopting and then operationalizing the guidelines across the country through a phased approach led by the Ministry of Urban Development.

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ABBREVIATIONS

ADB - Asian Development Bank NWSC - Nepal Water Supply Corporation KUKL - Kathmandu Upatyaka Khanepani Limited WSTFC - Water Supply Tariff Fixation Commission MOUD - Ministry of Urban Development KVWSMB - Kathmandu Valley Water Supply Management Board BWSMB - Bharatpur Water Supply Management Board DUDBC - Department of Urban Development and Building Construction DOLIDAR - Department of Local Infrastructure Development and Agriculture Roads HPCIDBC - High Powered Committee for Integrated Development of Bagmati Civilization DDC - District Development Committee WUC - Water Users‘ Committee DWSS - Department of Water Supply and Sewerage FY - Fiscal Year GON - Government of Nepal HHs - Households IA - Implementing Agency mld - Million Litres per day lpcd - Liters per Capita per day MOF - Ministry of Finance MPPW - Ministry of Physical Planning and Works NGO - Non-government Organization NRs - Nepali Rupees NRW - Non Revenue Water O&M - Operation and Maintenance PMO - Project Management Office TA - Technical Assistance TDF - Town Development Fund US $ - United States Dollar VDC - Village Development Committee WHO - World Health Organization WS - Water Supply WSSDO - Water Supply and Sanitation Divisional Office WTP - Water Treatment Plant WUSC - Water Users and Sanitation Committee KV - Kathmandu Valley MB - Management Board FEDWASUN - Federation of Drinking Water and Sanitation Users-Nepal

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1 Introduction

1.1 General Background

The water supply and sanitation (WSS) sector in Nepal is characterized by inefficient delivery of services, including high levels of nonrevenue water (NRW), intermittent water supplies and inadequate coverage of piped water supply and limited sewerage coverage. Poor cost recovery has rendered most of the water utilities in the country financially unsustainable. A large number of water utilities in Nepal complain of a lack of funds because of which they claim their service delivery is suffering. This shows that they are financially unsustainable. There could be various reasons for that and for their gradual failing service quality. Among those reasons unfavorable/low water tariff structure lies as number one reason in most cases according to the service providers that provided information. Many are relying on the government subsidy which is inadequate. This is leading to shortage of funds for proper operation and maintenance (O&M), and for timely replacement of old machinery and equipment which ultimately brings gradual decline in the quality of service. Nepal being a poor country cannot expect its government to continue subsidizing the water utilities all of the time with adequate funds. So the water utilities themselves need to generate enough fund/revenue, and for that they will have to set a good water tariff. To help the water utilities to set appropriate tariff structures there is need for National Tariff Guidelines for Water Supply and Wastewater (the ―Guidelines‖) which do not yet exist in Nepal. The Asian Development Bank (ADB) has contracted M/S METCON Consultants the Technical Assistance project TA-8036 REG titled ―Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia - Nepal". It is a part of Regional Capacity Development Technical Assistance (R-CDTA) which is financed by ADB on a grant basis with the counterpart support of the government of Nepal. Its main output is to the preparation of National Tariff Guidelines and implementation frameworks of those guidelines.

The study involved nine (9) national experts for a total of eighteen (18) person-months. The Team Leader/Water Tariff and Knowledge Consultant, and the Financial Accounting and Management Consultant were dedicated to the project for its four (4) month duration. Inputs of other experts were intermittent. The project included site visits. Counterpart supports from the government were in the form of availing office space and help in getting/providing necessary data and information from concerned offices.

Project Team

i) Team Leader/Water Tariff and Knowledge Consultant – Er. Gyanesh Nanda Bajracharya ii) Financial Accounting and Management Consultant – Dr. Radhe Shyam Pradhan iii) Institutional and Regulatory Consultant – Dr. Rajendra Suwal iv) Water Utility Management Consultant – Er. Narendra Man Pradhan v) Engineering and Cost Consultant – Er.(Dr.) Madhav Narayan Shrestha vi) Legal Consultant – Mr. Purna Man Shakya vii) Public Participation and communication Consultant – Mr. Kul Prasad Niroula viii) Social and Poverty Consultant – Ms. Geeta Adhikari ix) Data Management Consultant – Mr. Ashok Manandhar

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Two international experts and a resource person also advised the team throughout the study. These were (i) Jan Hoffer, Institutional Expert (Consultant); (ii) Dale Whittingon, Tariff Expert (Consultant); and (iii) Xun Wu, Tariff Expert (Resource Person)/ This Final Report provides a summary of activities and issues discussed during the study period, findings of detailed case studies of the three Pilot Towns Utilities of Kathmandu, Bharatpur and Surkhet(Birendranagar) and preliminary analyses of the six other sample town water supply systems based on the information collected during the field visits, interactions with the concerned officials and the information provided through the questionnaires. Thedraft Guidelines and implementation framework are based on the findings of the case studies, existing sector policies and international best practice.

1.2 Objective and Scope of the Study

1.2.1 Objective The objective of this TA study is the formulation of the National Tariff Guidelines on Water Supply and Wastewater that will contribute to enhanced sustainability and financial self- sufficiency as well as good governance of the water sector through the following:

1.2.2 Scope of Study A. To Review and Analyze the Current Water Tariff Structures

The scope included a broad sector review of the objectives and target parameters to be met in setting water tariffs and reforms, evaluation of the basis of the current tariff policies, the effectiveness of the reforms, the pros and cons of the current service management models, and the financial sustainability of the water sector given the current service management models, through case studies of five pilot cities/areas, and assess the effectiveness of the current policies in achieving financial, social, economic and environmental objectives. Review the national level water tariff policies as well as the relevant legal and regulatory framework and determine the extent to which water tariff is based on economic principles of pricing, namely, sufficiency of revenue, economic efficiency, equity and fairness. Cost recovery is for economic and financial sustainability.

B. To Propose Water and Wastewater Tariff Guidelines at National Level

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The scope also included review and assessment of the current policies and sector performance, past water tariff assessments and analysis, prescription of a practical set of objectives/ parameters to be included in the calculation of water tariffs. The National Tariff Guidelines for Water Supply and Wastewater will include among others the following. First, full cost recovery is a main objective for tariff setting. A detailed financial and tariff setting model should be developed which includes operations and maintenance (O&M) costs and capital costs to be recovered. Phase 1 in the short to medium term should focus on recovering only the O&M costs while capital costs would still be subsidized. Phase 2 in the long run should target full cost recovery of O&M costs covering manpower, energy, bulk water rates, chemical treatment, and repair and maintenance; and capital costs including interest, depreciation and reasonable return on equity. To assess and propose the range of tariff models which would be suitable for domestic, institutional, and industrial users. Second, to propose the actions required to assist the local government arrive at specific water tariffs for the pilot city/area with consideration of first O&M and then full cost recovery. Third, to propose mechanisms to ensure the poor have access to quality water supply through a lifeline tariff structure and other appropriate measures. Fourth, to indicate a mechanism to ensure that there is adequate consultation with the public in relation to the proposed water tariff increases - such as the need to hold a set number of public hearing meetings. The fifth objective is to clearly indicate the tariff approval process and the required institutional arrangements. The three pilot case study cities/areas should be consulted and their inputs and comments taken into consideration in preparing the draft Guidelines.

C. To Propose Specific Implementation Frameworks of the Guidelines and To Recommend the Pilot Cities on Implementation of the Guidelines

Based on detailed case studies, to prescribe a practical set of objectives/parameters to be included in the calculation of water tariffs at the local level, to assess the impact of the local implementation frameworks on the service management models by the water utilities or service providers, to recommend and assist improvements to enhance good governance, to establish the mechanisms within the implementation framework for adequate public consultation and the involvement of various stakeholders, and to propose recommendations for the pilot cities to implement the national guidelines.

D. To Organize Workshops to Disseminate Information and Experience of the Water Sector

During implementation of the TA, a total of two (2) workshops at the local levels are envisaged. The primary purpose of the workshops is to create a channel for disseminating best practice and to share among the participating agencies knowledge and experience in the water utility management, and disseminate major issues and findings for discussion during TA implementation. The workshops are to be conducted and administered by the consultants. A final publication of the study including among others a toolkit or handbook to define the Guidelines on water tariffs will be prepared for wider dissemination.

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1.3 Rationale for Case Study Sample Town Selection

Among many towns in Nepal with regular piped water supply, nine with different background and locations were selected: Kathmandu, Dhulikhel, Itahari, Biratnagar, Damak, Bharatpur, Surkhet (Birendranagar), Bhaluwang and Parsa. Three of these were chosen for more detailed analysis. To make the study even broader a community level Bhaluwang Water Supply was included. Among all these sample towns Kathmandu, Bharatpur and Surkhet were selected for more detailed case studies.

Earlier only five towns were chosen as candidates and only two were supposed to be selected for detailed study, however after the initial meeting with ADB mission team, it was decided to increase the number of candidate towns to seven and the number of the Pilot towns to be selected for detailed study to three to make the study to cover a broader spectrum of towns. Again after the Inception Workshop held (immediately after the submission of the Inception Report) on May 2, 2013 where there was a high demand from the stakeholder participants to make the study even broader by taking some rural water supply projects as well, one community level water supply project of Bhaluwang has been included in the study to make it even broader (in view of the demand of the stake holders) raising the total number of sample towns to nine.

The criteria adopted for selection of pilot towns for detailed study are as follows: a) they should have different institutional arrangements to represent similar towns b) they should be of different sizes like big, secondary and small to be able to represent towns of different sizes c) they should have different tariff structures

The rationale for selection of three Pilot towns: Kathmandu, Bharatpur and Surkhet (Birendranagar) for detailed case study is given in Annex 7.

1.4 Methodology

The approach and the methodology adopted by the project team are reviewing existing conditions/situations of selected typical sample town utilities, preparing case studies of the pilot towns, undertaking detailed analyses of their different aspects and getting the needed outputs based on the findings of/lessons learnt from those case studies. The steps and process followed are as under:

 Holding a meeting of all the team members and discussing the progress made on terms of reference of the project.  Names of the concerned offices and persons to be visited / contacted and the questions to be asked were listed first.  Relevant documents and published and unpublished data were collected from different sources.  Related information were extracted through interviews with the concerned responsible officials.  The information and data were analyzed in different aspects before arriving at any conclusion.

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 In between during the project period, there are workshops as well where the findings are to be shared among the stakeholders and their feedbacks are to be obtained. Their feedbacks are being studied thoroughly and are to be incorporated in the best manner.

Review of Existing Preliminary analyses Sharing with Field visit to sample situation in selected of the situation and stakeholders, towns, interaction with sample town utilities selection of 3 pilot incorporating local stakeholders, sample towns for their good study of their detailed case studies relevant situations suggestions

Finalization of Sharing/ consultation Drafting of National Case studies of National with stakeholders, Guidelines for Tariff sample towns, Guidelines for incorporation of relevant based on lessons of analyses of water tariff suggestions case studies situations

In other words the Team made field visits and carried out case studies on the three pilot towns during which the Team reviewed the past track record of tariff fixation in those pilot areas by various parameters. The team also reviewed the current practice of price fixation that is generally followed by water operators of study areas. Based on the review and analyses of current practices, the team has prepared a draft of the guidelines on water tariff fixation which was shared and discussed with GoN stakeholders, water operators and other stakeholders before finalization. Among the GON stakeholders the main ones are the Ministry of Urban Development (MOUD), Water Supply Tariff Fixation Commission (WSTFC), Town Development Fund (TDF), Kathmandu Valley Water Supply Management Board(KVWSMB), Department of Water Supply and Sewerage(DWSS), Nepal Water Supply Corporation(NWSC), Kathmandu Upatyaka Khanepani Limited(KUKL), and the sample town water supply operators/service providers etc.

The field visits were undertaken as indicated in the personnel schedule given in Annex 1.

In order to achieve the objectives of this TA project, two workshops were to be organized for consultations with the stakeholders. One was the inception workshop which was to be organized to disseminate the contents of the Inception Report to the main stakeholders and to get their feedback and suggestions on the work plan, approach and methodology. The Inception workshop was held on May 2, 2013 immediately after the submission of the Inception Report. The second workshop was held on August 8, 2013 after the submission of the Draft Final Report when the stakeholders were apprised of the contents of the Draft Final Report to get their feedback and suggestions on the outputs of the study. The workshop schedules are shown in the work schedule given in Annex 2. After consultation with the stakeholders including MOUD, the Guidelines have been modified by incorporating the relevant points raised by them and thus that way they have been finalized.

Work Plan

The plan of work had been made as per the requirements in the Project terms of reference (TOR). There were deliverables at different times like Inception Report, Mid-term Report, Draft

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Final Report and Final Report. Also there were provisions of field visits for different consultants. Most of the consultants gave their inputs in an intermittent manner as per need. These all had been well considered while planning and scheduling their field trips and duty periods. They all had been made available at the time of report submissions and workshops for their needful participation and inputs. The Work Plan is given in Annex 2.

1.5 Field Work and Information Collection

Relevant information and data are collected from concerned/related offices. For this project, during the Inception phase, concerned offices located within the Kathmandu Valley were visited and some preliminary relevant published documents/literatures were collected, while offices outside the Kathmandu Valley were contacted by telephone.

During the mid-term phase, the process was more or less same but it was done in more detailed form. Questionnaires with longer checklist of information were sent by express courier service to all the distant sample towns with a request letter from MOUD for co-operation/help. Follow up calls were made to those utility offices repeatedly for early return of those questionnaires well filled up. Besides several visits to concerned offices in the Kathmandu Valley, field visits were made to Surkhet, Bhaluwang, Bharatpur and Parsa and information were collected through interactions with the utility officials and other stakeholders. Similarly relevant reports, documents, publications were also collected from them. The concerned/related persons and offices that were contacted and visited are given in Annex 6.

1.6 Project Benefits, Assumptions and Risks

This project being a study project on a very important component ‗water supply and sanitation sector‘ thus carries its own value. The Guidelines that are prepared will definitely benefit the water service providers to set reasonable tariffs to be sustainable and improve the quality of their services ultimately benefitting the general people who are the water users. The study is based on the assumptions that the information and the data made available to the project team by the concerned officials and agencies are correct. Also the outputs are based on the learning of the studies of towns of different sizes in to ensure representation and applicability for all types of towns in Nepal. In spite of all this there remains the risks that the data and information made available to the team are not that accurate as record keeping in all the offices is often of low standard or not available in electronic form. The selected sample towns also cannot fully represent all the different towns in different parts of the country. However there have been best efforts to see that the sample towns studied represent general majority of towns

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2 Regulatory and Institutional Arrangements for the Urban Water Sector

2.1 General Background

The water supply sector in Nepal is in development. Outside Kathmandu waste water collection and treatment is virtually still non-existent and even in Kathmandu the waste water service in minimal. Kathmandu Valley has a developed professional water utility. The rest of the country with urban, semi-urban and peri-urban population is served by more than some 265 small (max. 20,000 connections) water service providers. The remaining of the population with piped water supply are looked after by the Department of Water Supply and Sewerage (DWSS) and Department of Local Infrastructure Development and Agricultural Road (DOLIDAR) by means of local branches and by small informal community systems under supervision of Water Users‘ Associations/Committees or Village Development Committees (VDCs). Most of them employ very few employees and some village level and community level Users‘ Committees employ just one or two plumbers. The rest of the population is rural and manages their own water needs.

Before we discuss the institutional arrangements for water tariffs, we need to understand the policy context and the roles and responsibilities of various institutions involved in tariff fixation. We therefore present here in brief the policies adopted by the Government of Nepal (GoN) over the years in water services sector and functions of various institutions. The Water Resources Act (1992) vests the ownership of water found in Nepal to the State. This is in conformity with the doctrine that the State owns all natural resources. Priority for the use of water resources as per section 7 of this Act is:

a) Drinking water and domestic use b) Irrigation c) Agricultural use such as animal husbandry, fishery d) Hydro-electricity e) Industrial use f) Navigation g) Recreation Other use

The priority given to the drinking water sector by the Government is obvious. Some of the policies pronounced and implemented over the years for the provision of drinking water and sanitation services available to all as per its MDG commitments are listed below:

 Rural Water Supply & Sanitation Policy 2003  National Water Supply Policy 1997  NGO Participation in WSS Programs 1997  National Sanitation Policy 1998  Rural Water Supply & Sanitation Strategy 2003  National Water Resources Strategies 2003  National Water Plan 2005

Based on above policies, many acts were enacted including Water Management Board Act, 2006.

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Ministry of Urban Development (MOUD) is the lead sector ministry and working with National Planning Commission (NPC), it has the responsibility to formulate policies, plans and strategies. These policies are implemented by its two departments: The Department of Water Supply and Sewerage (DWSS) which is responsible for policy implementation in small towns and rural areas and Department of Urban Development and Building Construction (DUDBC) which is responsible for cities and towns. NWSC, under MOUD also provides services in water supply in a number of major towns/urban centres in the country. Recent trend is to establish independent Water Management Boards in different towns to manage water and sanitation services. For example, with the help from ADB, another Board called Kavre Valley Integrated Water Supply Management Board is being established to cater to the drinking water needs of Dhulikhel, Banepa and Panauti towns in Kavre-Palanchowk District.

In addition the Local Self Governance Act 2055 (1999) gives local bodies (Village Development Committees, District Development Committees and Municipalities) responsibility for provision of drinking water and sanitation services. These are looked after by Department of Local Infrastructure Development and Agricultural Roads(DOLIDAR) under the Ministry of Local Development and in such cases rural communities are with population below 5000. They have also the power to make policies and implement programs for drinking water and sanitation and to raise revenue via local taxes and fees.

The Drinking Water Strategies that are adopted in Nepal in general could be summarized as follows:

 Encourage the private sector to participate in the development and management of urban water supply  Entrust responsibility to DDC, VDC and municipality as per the decentralization policy  Local bodies made responsible for the provision of drinking water (LSGA, 1999)  Cost Sharing & Cost Recovery  Financial Sustainability  Balanced regional development  Employment/ income generation opportunities  Equitable Services delivery systems

The water sector is in development. In some parts of the country, notably in the Kathmandu Valley there are severe shortages in available water sources. The economy of Nepal is in development and does not yet have the full capacity to generate sufficient internal financial resources to finance all required developments. With assistance of international donors prioritized projects are prepared and implemented.

2.2 Legal and Regulatory Framework for the Water Sector

It is observed that in Nepal, there is no principal distinction in the responsibility for drinking water and for waste water. In big towns, there might be a drainage system under Municipal responsibility, otherwise, collection and treatment of waste water is the responsibility of one water service provider. The organizations that undertake various functions of water supply in Nepal are mentioned in the following table.

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Table 2.1: Institutional framework for water supply in Nepal

Functions of Water Supply Role Organization 1. Definition Sector Policies (Central Government) 2. Management Water Resources Sector MOUD/DWSS 3. Legislative and Regulation Framework Strategy DUDBC 4. Tariff system WSTFC

5. Management of Debt Service - KVWSMB for KV - Water Boards in 6. Planning of new Investments and Financing Management of means to cities as Bharatpur, Hetauda, 7. Renewal of major Installations Implement sector Banepa, Panauti and 8. Design of Works strategy Dhulikhel and NWSC in other cities 9. Construction of Works -Water Users‘ Associations/ Committees in small towns and rural areas

10. Operation and Maintenance - KUKL for KV 11. Renewal of small Materials Operational - Water Boards management - Water Users‘ 12. Billing of the sector Associations/Committees 13. Collection 14. Relations with Consumers

The main legislation for drinking water is the Water Resource Act 2049 (1992). The Act gives priority to use water resources for drinking over any domestic and commercial use as mentioned earlier. There are two relevant regulations under the Act for drinking water: the Water Resource Regulation 2050 (1993) and the Drinking Water Regulation 2055 (1998). These regulations govern the Drinking Water User Associations, the quality of drinking water and drinking water suppliers.

The Drinking Water Regulation 2055 regulates the use of drinking water via different management systems:

Corporate Bodies: through a system of licensing

Groups of people: through Water Users Associations (WUA) which must be registered with the District Water Resources Committee

Individuals: no regulation for personal and non-commercial purposes. The use of water by an individual for commercial purposes is licensed.

The Water Supply Management Board Act 2063 (2006) makes provisions for the establishment of Water Management Boards that as autonomous body will own, build, expand and finance the infrastructure that is required for water services in Nepal. There are several Water Boards anticipated. The Boards can make arrangements with service providers to operate the

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infrastructure. For the Kathmandu Valley the Water Supply Management Board is established in 2006. There is now a transition period is which other Boards are being created (Bharatpur and Hetauda, Dhulikhel, Banepa and Panauti) The Act leaves the decision to operate the service itself or to contract the operations out to service providers to the Boards.

Nepal Water Supply Corporation (NWSC) is a government corporate body that is as well asset owner as well as the operator of the water systems in a number of (secondary) towns (Biratnagar, Birgunj, Dharan, Pokhara etc.). It applies one tariff for all systems, which causes cross-subsidizing of different water systems.

Water Users‘ Associations/Committees provide water services in small towns and communities. Often these are NGOs or Donor supported systems. Most of them are registered with the District Water Resources Committees. The Water Users‘ Associations/Committees have representatives of all wards of municipalities/VDCs as well as of people of different social stratums residing in the service areas. Operation and management is entrusted to the Water Users‘ Associations/Committees.

2.3 Current Water Tariff Approval Procedures

Water tariff reform is a necessary step towards moving to the market economy and at the same time providing quality water to the consumers at a reasonable tariff. However, tariff reform is complex process and needs to take into account social and equity aspects as well as commercial orientation and long term investment plans. For suggesting any reform, it is essential to understand the prevailing systems and issues to be addressed and hence the following analysis on Institutional arrangement for tariff fixation is carried out based on case studies of three cities in specific and other cities in general.

The major organization that is involved in Water Tariff Fixation is The Water Supply Tariff Fixation Commission (WSTFC) established under the Water Supply Tariff Fixation Commission Act, 2063 (2006). The Commission sets the tariffs that service providers may collect from the users. The tariffs will include, inter alia, depreciation and interest, appropriate profit, cost of operation and maintenance of the service, change in consumer price index, royalties. The tariffs will be based on the proposal from the service providers. The commission is composed of a Full time Chairperson and two part time members appointed by the Government through a selection process. The functions, duties and powers of the Commission are mentioned as follows in the Act:

(a) To fix the tariff for the service, as the service provider may collect from the users,

(b) To approve such policies and procedures as to be followed by the service provider in making an application to the Commission for the fixation of tariff,

(c) To maintain, or cause to be maintained the quality of service by monitoring the service to be provided by the service provider,

(d) To resolve, or cause to be resolved, disputes arising between the service provider and the users,

(e) To obtain statements related with the service provided by the service provider and publish, or caused to be published, the same,

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(f) To determine criteria on the fixation of tariff and cause such criteria to be implemented,

(g) To give necessary advice and suggestion to the Government of Nepal in relation to the water supply or sanitation service, and

(h) To perform such other functions as prescribed.

The act has elaboration on the criteria for fixation of tariff and the process to be followed in deciding on the tariff including the provision for public hearings.

The Act also defines ‗Service Provider‘ as: ‗any person, user groups or corporate body that provides the service by collecting tariff.‘ ‗Service‘ is defined as ‗water supply or sanitation service‘. Clause 3 of the Act states that ―A Water Tariff Fixation Committee is, hereby, formed for the protection of the interests of consumers by providing qualitative and reliable water supply and sanitation service to the consumers at a reasonable price, by fixing the tariff of water supply and sanitation service‖. Thus, it seems the Act does not restrict the mandate of the Water Supply Tariff Fixation Commission although its scope is not specifically mentioned. It is not clear whether all the Water Users‘ Committees had to come to the Commission for tariff fixation. Local Self Governance Act 2055 (1999) gives local bodies‘ responsibility for provision of drinking water and sanitation services. They have also the power to make policies and implement programs for drinking water and sanitation and to raise revenue via local taxes and fees. There is also an argument that Nepal Water Supply Corporation Act has bestowed on NWSC the authority to fix its own tariffs although it is also not clear from NWSC Act.

The Water Supply Tariff Fixation Commission also oversees the quality of the service and users may make complaints to the Commission. The Commission has the power to penalize the service provider and to settle disputes related with water supply. In KV region, the water tariff is low and it does not even cover the cost of operation and maintenance. Requests for tariff even for indexation of tariffs for inflation, cost of energy and cost of labor take a very long time to be considered by the WSTFC. The level of service in KV region is however found to be substandard.

So far three institutes KVWSMB/KUKL, BWSMB and NWSC have applied for tariff fixation. There is an issue whether it is feasible and also whether WSTFC has the capacity to cover all service providers for tariff fixation. Given the present state of WSTFC, it may not be realistic. The Commission does not seem to be organizationally as well as technically capable to provide the services it is mandated to carry out by the act. First, the Commission is running with only three non-gazette administrative staff. The Commission lacks budget for running a full-fledged organization structure as the service providers do not pay their dues in time and also not regularly. The proposed organization structure for the Commission is yet to be approved by the government.

However, in case of water services provided by the Water User Committees or Associations, the tariff fixation is carried out by the Committees themselves with the approval from Annual General Assembly. General Assemblies themselves are acting as regulators also.

Based on the above analysis, two distinct institutional arrangements for water tariff fixation emerge:

A. Institutional Arrangement for water tariff fixation for water supply organizations established under Water Supply Management Board Act, 2006:

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The Service providers established under WSMB Act, 2006 are found to be of two types: Service providers on behalf of the Water Supply Management Board on lease agreement such as KUKL which is a service provider for KVWSMB and Service providers that are also the asset holder such as BWSMB, HWSMB. In both cases, service providers are responsible for preparing tariff proposals and these are to be submitted to WSTFC. In the first case, the proposal is submitted to Board first and Board forwards it to WSTFC with its recommendation. In the second case, the service provider directly submits it to WSTFC. Section 10 of the Act mentions the criteria for the fixation of tariff as:

a) The Commission shall fix the tariff on the basis, inter alia, of depreciation, appropriate profit, cost of operation of the service, change in consumer price index, royalty, policies of the Government of Nepal in relation to water supply or sanitation service, exchange rate of convertible foreign currency and the matters set forth in Section 11. b) In fixing the tariff based on the criteria as referred to in Subsection (1), the Commission shall also have regard to the overall interest of the users and quality of water, purchasing power of users and standards of service. c) Section 11 of the Act describes the information and data requirements while applying for the tariff fixation:  Criteria on which the proposed tariff has to be fixed  If the rate of the tariff has to be changed, grounds thereof  A comparative price index so prepared as clearly reflecting the tariff being collected previously and the rate of proposed tariff  Reasonable profit that the service provider may earn from the tariff proposed by the service provider, also taking into account of the operational and repair and maintenance expenses of the service, depreciation, repayment of principal and interest of loans borrowed by the service provider for the operation of the service, and expenses that may increase as a result of annual price hike  If the proposed tariff does not appear to be adequate to maintain the expenses as referred to in Clause (d) and earn profits or if the tariff cannot be increased for the time being, reasonable grounds of the financial source and long-term planning identified by the service provider  A comparative analysis of yearly increase in operational expenses of the service and the proposed tariff  Grounds set in relation to providing concession of tariff to the users who cannot afford the proposed tariff and likely additional burden on the other users as a result of such tariff concession  Where the service provider has obtained license from or entered agreement with anybody established under the prevailing laws to operate the service, a copy of such a license or agreement  Such other matters as prescribed. After critical review of the proposals and public hearings on the proposal, WSTFC will fix the tariff that does not differ by more than twenty percent of the rate of tariff proposed by the applicant. The rate of tariff fixed by the Commission has to be published for the information to the people at large. There is a provision for review of the tariff set by WSTFC if the service

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provider is not satisfied with it. It can make an application to MOUD adequate reasons for disagreement.

The whole process is illustrated in the following diagram.

MOUD Service Providers WFTC - If the service provider - Preparation of tariff structures seeks review, the Tariff - Critical scrutiny of the proposal Review Commission - Submission to WSTFC - Conduct public hearings formed by the service providers and through - Approve with or without Water Board in case the government review the modification the tariff proposals tariff along with public service providers are - Issue public notification for public providing services on lease of hearing and publishes awareness- monitor service assets from the Board the tariff which is the providers to see that the abide by final tariff these tariff structures

Service Providers

- Implementation of the approved tariff

B. Institutional Arrangement for Water User Committees/Associations These include mostly the water supply systems supported by Small Town Water Supply Project and other NGOs and Donor supported systems: Here the operation and management of the water supply systems is entrusted to the Water Supply User's Committees or Associations. Most of them are registered with the District Water Resources Committee. The Users‘ Committees have representatives from all the wards of the municipality or urban areas. The Management and Technical unit prepares the proposal for tariff increase and forwards it to the Executive Committee of User‘s Committee which send it to the Annual General Meeting of the Committee/Association. The General Assembly approves it after extensive discussions and Executive Committee implements it once approved by the General Assembly. The factors considered in fixation of the tariff are the operation and maintenance cost of the system and loan repayments requirements. The tariff fixation process is simple and is illustrated by the following diagram:

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Management and Technical Unit prepares the proposal for tariff and submits it to the Executive

Committee of User‘s Committee

Executive Committee of User‘s Committee approves and forwards it to the Annual General Meeting

General Assembly endorses it after extensive discussions with the participants

The roles of institutions involved in water tariff fixation are summarized thus:

Table 2.2: Roles of institutions involved in water tariff fixation Types of Institutions Roles in Tariff Fixation

1. For water Boards providing services by itself

a. Management Initiates tariff proposal and submits it to WSTFC as per their Board requirements

b. WSTFC As per the WSTFC Act, 2006, it scrutinizes the proposal with respect to its own guidelines and directives, conducts public hearings and approves the tariff rates

c. MOUD The ministry is authorized to constitute a Tariff Review Commission if dispute arises between WSTFC and the Board regarding the tariff structures. The Commission's decision becomes final as per WSTFC Act, 2006.

2. For Service Providers providing services under asset lease agreement with Water Boards

a. Service Provider Initiates tariff proposal and submit it to Management Board recommendation to WSTFC as per the license and lease agreement with Management Board

b. Management Forwards the proposal after scrutinizing the proposal to Board WSTFC.

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Types of Institutions Roles in Tariff Fixation

c.. WSTFC As per the WSTFC Act, 2006, it approves the tariff rates after series of public hearings and scrutinizing the proposals with respect to its own guidelines.

3. Water Supply Systems run by Water User‟s Committees/Association

a. Management of Initiates tariff proposal and submits it to Executive Committee Service Provider of the User‘s Committee/Association b. Management Executive Committee approves and takes it to Annual Board General Assembly for endorsement of the proposals

c.. AGM Conducts extensive discussion on the proposal in the meeting and approves as it is or with some amendments. It in fact acts as the regulator of the service provider

The experiences with tariff regulation over the last years are different.

There are no reported problems in tariff setting for the WUAs. The General Assembly holds representatives of various stakeholders, including poor and representatives of ethnic groups.

2.4 Key Issues

 Two distinct institutional arrangements emerged for tariff fixation: (i) WSTFC for Water Supply Management Boards/NWSC and (ii) AGMs for Water User's Committees/Associations. There is not one standard process for tariff fixation in Nepal. o There is some confusion about the mandate of WSTFC. It should be made clear to all the water service providers. .Although the Water Supply Tariff Fixation Commission Act (2006) does not gives any formal restrictions for the mandate of the Commission, the practice is that WUAs till now follow their own procedures for tariff fixation and do not apply for approval and fixation from the Commission.

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 The tariff review is set for every year. This puts a tremendous pressure on WSTFC, because public consultations and discussion of questions and requests for additional information are time consuming.  In general present institutional arrangements for tariff fixation seem appropriate.  The problems stem from inadequate technical expertise of WSTFC due to lack of professionally qualified staff. WSTFC has not been able to function effectively as it does not have fully functional organization structure at present because of lack of budget for its operations, including human resources.  The funding for WSTFC is inadequate. Section 16 of WSTFC Act, 2006 gives commission the power to levy a fee from the service providers not exceeding 2% of tariff to be collected by the service providers from the users. There are not many service providers applying for tariff fixation from the Commission and also KUKL and NWSC are not paying their dues regularly.  The time for tariff fixation is taking longer than is stipulated by the Act because of lack of human resources at WSTFC. But in case of water providers run by Water User‘s Committees or other NGOs, there was no such problem observed.  Another issue particularly related with KUKL is its poor service because of which citizens are not willing to pay higher tariffs. Without tariff hike, the organization is in shortage of funds to provide better services and thus it goes on a vicious circle.  It is, however, observed that people do not mind paying higher tariff if the services are better. For example, in the schemes managed by Water User's Committees such as Dhulikhel Water User‘s Committee, the tariff could be raised through consultations with people during the General Assembly meetings. DWUC raised its tariff last year by 20% and interestingly, it helped to increase income by about 27%.

2.5 Options for Streamlining and Making the Tariff Approval Process More Efficient

 The financial limitations for the WSTFC should be solved. KUKL and other service providers have to meet their obligations. At present the levy is set at 1% of total revenue. This could be raised to maximum 2%. Then WSTFC should be adequately staffed and trained.  The implementation of practical National Tariff Guidelines for Water Supply and Wastewater will facilitate staff of small water utilities with practical tools to prepare tariff review proposals.  In the present phase of development of the Nepalese water sector the scale of the utilities is small. The advantage is that the operation is very close to the consumers which creates a sense of ownership that proves to be very effective, but the staff may not have specific expertise to prepare adequate tariff review proposals. In a later phase of development of the sector the average size of the utilities may prove to be too small to meet various professional demands. Meanwhile it might be an option to sensitize Consultants to develop special skills and tools to offer their expertise to small utilities.

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3 Detailed Case Studies of Pilot Town Water Utilities

This chapter presents the detailed case studies of water utilities in the three Pilot Towns Kathmandu, Bharatpur and Surkhet (Birendranagar) on the basis of the information obtained/collected from the concerned offices, from interactions with concerned officials, studies of different relevant documents and the information that was collected during the field visits.

3.1 Kathmandu

Kathmandu is the capital city of Nepal and it is located in the Kathmandu valley which lies in central part of the country in Bagmati Zone of Central Development Region.

3.1.1 Water System Kathmandu City water supply system was first constructed in 1895 operating two surface source schemes namely Tri BhimDhara Scheme and BirDhara Scheme. Five surface sources namely Alle, Bounde, Bhandare, Panchmane and Chhahare for first scheme and two sources Bishumati and Shivpuri for second scheme were tapped and water was diverted to service reservoirs before supplying to the people of Kathmandu.

Kathmandu water supply system was gradually expanded in 1960 when water from the tailrace of Sundarijal Power Plant was tapped and supplied to the people of Kathmandu after treatment in a treatment plant with 20.50 MLD capacity. With the introduction of World Bank Projects (1974 to 1981 ), water supply system was further expanded by adding surface sources like Sat Mools (Seven springs, Mool- spring in Nepali) and KutoriMool located in the southern rim of the Kathmandu valley. By extracting ground water from various parts of the valley mainly in the north, additional demand was supplemented.

Nepal Water Supply Corporation (NWSC) a state owned corporate body was responsible for planning, investing, operation and managing the water utilities in the valley in addition to other municipalities of the country. The NWSC had been facing the challenges over the years of acute shortage of water supply and sanitation in the Kathmandu Valley. Being capital of the country, and center of all social-economic and political activities of the nation, the Government was serious to alleviate the shortage. Water has become a serious problem for the people of the valley both in terms of quantity and quality.

The water supply services have remained poor despite various attempts through many projects during last three decades. It was realized that the poor state of water services in the valley was a compounded result of deficiencies in water resources, weaknesses in system capacity, inadequacies in management efficiency and increasing political interferences after 1990‘s political change. Projected increase in population (Table 3.2), continuing urbanization of the valley at a similar rate to the past 10 years, and corresponding increase in water demand would suggest further aggravation of the situation. To meet the water demand that is exceeding supply, currently groundwater is the only source supplementary to the surface water.

To overcome the deplorable state of water supply and sanitation situation in the valley, GoN has adopted two pronged strategies of infrastructural development and institutional reform in the water sector. The infrastructure improvement program aimed to augment the supply both in terms of quantity and quality includes diversion of total of 510 MLD water from Melamchi River

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through 27 km long tunnel, provision of treatment facilities, strengthening of distribution by reduction in leakage and provision of equitable water distribution and expanding the distribution network by construction of new primary and secondary pipelines. The project, which was officially targeted to be completed in 2004, could not be completed in time due to several reasons. GoN has put a new target to complete it in 2016.

The government has further initiated institutional reform in water supply sector for Kathmandu Valley by establishing, Water Supply Management Board (KVWSMB) as the asset owner, Water Supply Tariff Fixation Commission (WSTFC) as tariff regulator and Kathmandu Upatyaka Khanepani Limited (KUKL) as system operator. KUKL is a public company registered under the Nepal Government's Company Act, 2006 and operates under the public private partnership modality and concluded a License and Lease agreement with Kathmandu Valley Water Supply Management Board (KVWSMB) for 30 years. The agreements define the details of the arrangement. KUKL is not only responsible for operation and maintenance of the existing infrastructure, but it also has to prepare and execute investment plans for improvement and expansion of the services. The investment plans are approved and financed by KVWSMB.

The service area includes 5 Municipalities and parts of some 48 VDCs (refer Figure 3.1). Water supply in other areas including the remaining 51 VDCs are under the jurisdiction of Department of Water Supply and Sewerage (DWSS). The towns in the Kathmandu valley are Kathmandu, Lalitpur (Patan), Bhaktapur, MadhyapurThimi, and Kirtipur. The water supply systems in the valley towns are interlinked or inter-related in one way or other. KUKL has branches in Tripureshwor, Chhetrapati, Maharagunj, Kamaladi, Mahankalchaur, Baneshwor, MadhyapurThimi, Bhaktapur, Lalitpur and Kirtipur. The main problem of water supply in the valley is the severe shortage of water sources. The demand is at least double the present capacity. The demand for water is estimated at 350 MLD; however, the water production is only about 140 MLD and 100 MLD respectively in wet and dry seasons. The key infrastructure of water system is presented in Table 3.1 below.

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Figure 3.1: Kathmandu Valley and KUKL service area. (Source: KUKL, 2013)

Table 3.1: Key Infrastructure of KUKL water supply system based on 2013

Population Length of Pipelines Valves Water Sources inclusive being Storage Treatment of 40% operated WTP Reservoir Floating at Surface Tube capacity Capacity popn. present sources wells in operation

Distribution Transmission No. No. No. No. No. cu-m cu-m

2.7 million 1140 km 300 km 1350 35 59 20 43 41500 117

The population served in the service area of Kathmandu valley is estimated at 2.7 million. As a result of this, the water supply is very much limited and people get hardly one hour supply in every fourth or fifth day. Many people have to rely on water vendors/private tankers, private tube wells, private shallow dug wells and bottled mineral water etc. for their additional needs.

Table 3.2: Projected population for Kathmandu Valley and KUKL service area

Year 2001 (census) 2010 2015 2020 2025

Kathmandu Valley 1,579,737 2,712,000 3,486,000 4,481,000 5,761,000

KUKL service area 1,285,737 2,135,000 2,713,000 3,242,000 3,963,000

(source: KVWSWSI, 2010).

Currently estimated unaccounted for water (UfW) for the system is 35-40% (KUKL, 2011). The portion of groundwater contribution in total production is 35% (in an average) during dry season (4 months from Feb to May) and 11% during wet season (remaining 8 months). The pumping rate of the private wells in the valley is smaller compared to KUKL‘s tube well abstraction. Deeper groundwater is being over-extracted and extraction is unsustainable. It is estimated that there are over 10,000 dug well which are used to supplement the KUKL water supply. More reliable water supplies will reduce the need for groundwater pumping, thus allowing more sustainable use of this valuable water resource.

The trend of groundwater extraction volume from private wells and gas wells remains almost constant during the last several years. But the production from KUKL wells is increasing greatly. Extraction of groundwater by pumping is increasing since 1984.

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Figure 3.2: Plan of KUKL‟s water supply systems

The KUKL is serving consumers through mostly ½ inch water connections(99.52%)

3.1.2 Tariff Structures and Institutions The tariff structure is to be reviewed every year as per the agreement between KUKL and KVSWMB. The factors to be considered while preparing the tariff structures along with the timelines are specified in the agreement. As per this agreement, KUKL is to submit tariff structures by Shrawan 15 (end of July) of every year to KVWSMB for recommendations to WSTFC and that WSTFC is to approve tariff structures within three months of receiving the proposal. In the first year of its operation, KUKL submitted its proposal to KVWSMB by Baisakh (April, 2007) itself and KVWSMB forwarded it to WSTFC. WSTFC asked KUKL to resubmit the proposal after addressing the issues it raised time and again and it took quite some time to approve the rates. WSTFC approved the rates later after discussion with Consumers Protection NGOs and authorized KUKL to implement the new approved tariff structures from January 14, 2009. Inflation was taken as the primary factor for increasing the tariff structures.

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However, KUKL was not satisfied with the decision and it went to the ministry of Urban Development for review of the tariff structure approved by WSTFC. The ministry constituted a Tariff Review committee. It took almost one year to complete its task and to approve to increase the tariff rates by 30 percent. It authorized KUKL to implement the new rates from December 16, 2009. KUKL again submitted new tariff proposal for the fiscal year 2010/2011 but no decision was taken on it. It did not submit any proposal for the fiscal year 2011/12 as it wanted to make the proposal more realistic and scientific. It has now submitted new revised proposal taking into consideration the issues raised by WTSC for the fiscal year 2012/ 2013. KUKL is still waiting for approval of these new revised rates. This means, the tariff structure has been revised only once after KUKL came into existence although there is a provision in the agreement between KUKL and KVWSMB to review and revise it every year. KUKL has to go to WSTFC for review of rates for all its services such as cost of Application form, penalties for nonpayment of dues on time, service charge for changing over of ownership of taps and so on.

The current tariff structure of KUKL is shown in Table 3.3. Table 3.3: Current tariff structure of KUKL

S.No. Connection Minimum Metered tariff Metered tariff Unmetered tariff Unmetered tariff size (Inch) Consumption (Litres) Minimum Additional Minimum Additional Monthly fixed Monthly fixed charge, charge Rs. charge, Rs. charge Rs. charge, Rs. charge, Rs. Rs. Per 1000 Per 1000 ltrs ltrs.

Old Newly Revised Old Newly Revised

1 0.50 10,000 55 17.5 100 32 432 785

2 0.75 27,000 1053 39 1910 71 2,535 4595

3 1.00 56,000 2184 39 3960 71 5,265 9540

4 1.50 155,000 6045 39 10950 71 14,508 26280

5 2.00 320,000 12480 39 22600 71 29,952 54255

6 3.00 881,000 34359 39 62240 71 82,485 149415

7 4.00 1,810,000 70590 39 127865 71 169,416 306880

Current tariff structure for tanker services is presented in Table 3.4 below.

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Table 3.4: Tariff Structure for tanker services Supplied by KUKL Rate ( Rs per tanker) Tanker

Capacity of Tanker Old Newly Revised ( liter)

5000 1110 1995

6000 1270 2300

8000 1580 2860

9000 1740 3155

10000 1895 3435

If sold to private Tankers------Revised Rate = Rs. 164 per cu-m

Other Main Charges Size of Charges During Making New Hole Change Sewer Cleaning Connection Connections (Rs) Charge(Rs) Charge(Rs) in Inch New New Upto sewer Sewer Connection Connection length-100 length Charge Deposit feet greater than 100 ft.

½ 1980 1600 2000 1000 1500

¾ 2475 4000 2800

1 3850 10000 5000

1½ 5000 25000 6000

2 7000 50000 10000

3 10000 105000 -

4 17000 200000 -

Rebates and Fines on Water Bill Payments

S. No. Description Rebate Fine

1 If water bill paid within 1st and 2nd months after billing 3% -

2 If water bill paid within 3rd month after billing - -

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S. No. Description Rebate Fine

3 If water bill paid within 4th month after billing - 10%

4 If water bill paid within 5th month after billing - 20%

5 If water bill paid after 5th month after billing - 50%

Main characteristics of the tariff structure:

 Customers are classified by the size of connection;  Except for the customers with 1/2 inch connections, all customers pay a uniform rate of Rs.39 per m3;  No differentiation in rate for customers in different sectors (residential, government, commercial);  There is a minimum charge and the minimum charge is calculated by minimum consumption times the tariff rate;  The minimum consumption differs based on size of connection;  Customers with 1/2 inch connections pay low tariff rate compared to other customers The minimum charge appears no different from the fixed charge in a two-part tariff system, except it is determined by tariff rate times a minimum level of consumption and that seems to be determined arbitrarily

For customers with 1/2 inch connections, it appears that the tariff structure is IBT with two blocks. However, given that consumers are paying a fixed charge for the first 10 m3 regardless of consumption level, the only real variable price they face is the price for consumption beyond 10 m3.

From an economic perspective, scarcity pricing has become quite important in Kathmandu Valley. As there is a severe water shortage in Kathmandu Valley, people are forced to depend on tanker supply for water. It is not just the case of local people but also the hotels, business houses, government agencies, NGOs, INGOs, hospitals etc are forced to depend on tanker water supply. The tanker supply of water has become a very profitable business for private water suppliers. Generally, the cost of tanker supply of water varies from one supplier to another supplier but generally, it varies from Rs. 2000 to 3500 for 10 CUM of water supply. In other words, people who can afford are paying much higher amount than the tariff charged by KUKL though the quality of water supplied by private tankers is very poor. Due to the shortage of water, the use of mineral water has also increased tremendously over a period of time leading to growth of a large number of mineral water suppliers.

Problems and disadvantages:

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 In a water system without rationing, the minimum charge does not provide incentive for consumers who are able to reduce the consumption level below the minimum.  The determination of the levels of minimum consumption for connections with different sizes seems to be quite arbitrary. In Kathmandu, consumers with large size connections may be severely penalized. The consequence is that they may simply refuse to pay or use other water sources.

3.1.3 Utility Management Introduction

Kathmandu water supply covers the water supply in all the cities/towns lying in the Kathmandu valley and some parts of the peripheral villages. The cities/towns in the Kathmandu Valley are Kathmandu, the capital city of Nepal, Lalitpur, Bhaktapur, Madhyapur Thimi, and Kirtipur which is located in the central part of Nepal. Kathmandu Upatyaka Khanepani Limited(KUKL) is the agency responsible for the daily operation and maintenance of the Kathmandu water supply .KUKL is a Public Company made under Nepal Company Act and under Public Private Partnership (PPP) model .Its main share holders are Nepal Government(30%), Kathmandu Metropolitan City (30%), Lalitpur Sub – Metropolitan (10%), Nepal Chamber of Commerce & other private sector organizations (15%), KUKL employees (5%), and Bhaktapur, Madhyapur Thimi & Kirtipur Municipalties(10%).To improve the present conditions, the Government of Nepal(GON) with several development partners, has embarked on a two – pronged improvement strategy that includes capital investment for infrastructure development ,i.e, supply augmentation( Melamchi Water Supply Project,MWSP) and system improvement ; and institutional reforms. As part of institutional reforms in Kathmandu Water Supply, GON has established; Kathmandu Valley Water Supply Management Board (KVWSMB) as the asset owner, Water Supply Tariff Fixation Commission (WSTFC) as tariff regulator and Kathmandu Upatyaka Khanepani Limited (KUKL) as system operator.

Evolution of the Water Utility:

The modern piped water supply system in Kathmandu was built about 120 years back for King‘s Palace and Rana‘s Durbars in 1895 A.D. Water to general public was provided through public standposts. Private connections were only provided after the completion of Sundarijal Water Supply Scheme in 1960‘s A.D. Chronology of the management of piped water supply system in Kathmandu:

1. In the early days water supply system was managed by Pani Adda and Pani Goswara, a fully government unit, till 1973 A.D 2. Water Supply Board, a semi government agency, from 1973 to 1984 A.D 3. Water Supply & Sewerage Board, from 1984 to 1990 4. Nepal Water Supply Corporation (NWSC), a semi government agency, from 1990 to Feb. 2008. 5. Kathmandu Upatyaka Khanepani Limited (KUKL),a Public Company, from Feb. 2008. Lease license granted by KVWSMB for 30 years as water utility operator.

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Present situation

KUKL was formed in 2008 A.D. It has license for 30 years under a Lease Agreement with KVWSKB .Kathmandu Valley is currently suffering from chronic water shortage. The demand for water in the service area of KUKL is estimated at about 350 mld.; however the water production is reported to be only 144 mld. and 84 mld. respectively in wet (June, July, August ,September) and dry(February, March ,April, May) seasons. Similarly, the population served in the service area is estimated at 2.7 million. As a result of this, the water supply is very much limited and people get on an average one two hour supply in every fourth to sixth day. Unaccounted for water is estimated to be about 35- 40 %.Many people have to rely on water vendors/private tankers, private tube wells, private shallow dug wells and bottled water etc. for their additional needs and supplement their requirements. Outline Organizational Structure of KUKL

Board of Directors

Standing Secretary MD/GM PID Committee

(Detail Organizational Structure is shown in Annexure)

The KUKL is working under the direction of seven Boards of directors. Four directors are nominated by shareholders (one each from Government of Nepal, Kathmandu Metropolis, Lalitpur Sub- Metropolis and Private Sector Organizations, presently from Nepal Chamber of Commerce) and three independently appointed. The chairman is selected among the Board of Directors)

As of 2012, there are 1204 employees in KUKL. Among the staff, 723 are permanent, 203 on contract service and 278 are daily wages staff. Out of 1205 approved posts, 280 persons are still to be recruited. Out of 120 officer level permanent staff 60 nos. are technical 32 nos. are administrative and 32 are in accounts. Similarly, out of 603 nos. non officer level permanent staff 273 are technical, 245 are administrative and 85 nos. are in accounts. Out of 203 contract staff, one is of officer level technical and rest 202 is of non officer level (assistants). The breakdown of 202 assistants are 56 technical, 135 administrative and 11 are in account.

The Human Resources function within KUKL is currently undertaken by Administration section of Finance and Administration Department of the Company. It is noticed that the age profile of staff within the organization is inclined towards the upper end of the age range and that there is, therefore, a likelihood of an increased exodus of retirees in the next five years. At present, there is no succession plan for the company. KUKL has its own Personnel Rules and recruiting its staff according to that Rules.

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Standards of Service

KUKL in their Business Plan (2012- 2016) has described the following objectives:

1. Ensure a continuously increasing supply of drinking water whilst meeting the best quality standards and delivery of services in terms of customer expectations and regulatory conformity. 2. KUKL seeks to achieve a significant increase in the level of control over production and distribution processes and to ensure improvements in sewerage collection so as to ensure an improved level of water and wastewater services. 3. KUKL will seek to expand the existing, and provide additional sewerage and sewage treatment facilities so as to make a significant contribution to the improvement of the environmental conditions in the valley. 4. KUKL will endeavor to raise the level of cash resources available to the company in order to enable all the other parts of the core business to operate effectively through regular tariff increases, improvements in the billing process, and achieving higher levels of collection of customer debts. 5. The company will seek to achieve optimum performance from its staff resources through providing training in the skills required to operate and manage a modern utility and utilizing the most appropriate systems, processes, procedures and practices available. 6. KUKL will improve relations with customers by applying policies and strategies that ensure consumer satisfaction and meet company objectives.

KUKL increased the tariff for water supply and wastewater services last in December 16, 2009 and recently on August 16, 2013. The tariff has not been increased in line with the increase in inflation. The Utility is not even able to cover operating costs. It has not been able to undertake even the regular preventative maintenance of facilities like treatment plants, pump stations etc. Besides, MWSP is taking longer time to complete its activities .As KUKL is not getting additional bulk water to meet growing demand due to rapid urban growth, it is making the water supply services in the service area very difficult and unmanageable.

The improvement in service cannot be achieved without additional operating expenditure .For improving financial health of the utility the strategy should include ,tariff increase, management of water resources including demand management and conjunctive use of surface water and ground water, reduction of Non Revenue Water (NRW) and source augmentation etc. About one and half year back NRW Department was established at KUKL. Due to financial constraints the Department is moving forward very slowly. Since the formation of KUKL in 2008 the company has struggled with the problems that were inherited from its predecessor, Nepal Water Supply Corporation (NWSC). Little has changed as far as the structure of the management of the Company is concerned since KUKL succeeded from NWSC, where management systems are based on governmental practices and not on a business oriented, customer focused approach .Existing Billing and Accounting systems are mostly manually based. Staff morale and motivation is low this reflects on performance and the public perception of the company.

Implications on Water Tariff Setting:

The tariff currently charged by KUKL has been in use for several years and was inadequate when introduced. The basic structure of tariff calculation is based on historic accounting. This basis has three major weaknesses:

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 The method is backward looking.  Historic accounts only show what was spent in past years and that is always constrained by what cash has been earned, so if performance is low then the ability to obtain an increase to bring the company back to the correct level is hampered.  It does not take account of the company‘s requirement for investment and to be a partner in infrastructure development and expansion of the facilities and networks. The current tariff needs a significant increase. Recently, KU KL introduced new tariff structure effective from July 16, 2013. This is the 2nd. tariff revision after its formation in 2008. As per the agreement between KUKL and KVWSMB, KUKL is to submit tariff structures by Shrawan15 (end of July) of every year to KVWSMB for recommendations to WSTFC and that WSTFC is to adjust the tariff structures within three months of receiving the proposal. The first tariff revision took place effective from Dec 16, 2009. At that time the tariff increase was about 30 percent. In the second revision the tariff increase is about 82 percent. The present tariff increase will not even cover O &M costs and debt service charges.

Table 3.4a: Kathmandu Water Supply in a nutshell, Production, Distribution and Consumption of water in KV (2011-2012) SN DESCRIPTION QUANTITY NUMBER 1 Demand 350 mld 2 Production 84min/144max mld 3 Unaccounted For Water (estimated) 35-40% 4 Total Service Connections 184832 4.1 1/2‖ Private House Connections(HC) 180278 4.2 Public Taps 1196 4.3 Government Connections 1015 5 Total Staff 1203 6 No of Staff/1000 Connections 6.5 Persons 7 Annual Income Around NR.360 Million Annual Expenditure Around NR.430 Million 8 Supply( Considering 20% Physical/Real Losses) Dry Season Around 67 mld Wet Season Around 115 mld

Thus on an average only 91 mld. is available for consumption by customers. Deficiencies in supply are about 259 mld .Particularly in dry season the distribution problem of water in the system is quite severe.

Under these water shortage conditions, KUKL has applied a rationing system whereby water is allowed to flow to different sections of the service area in rotation. It requires KUKL staff to open and close over 300 sluice valves every day. There are about 1350 valves in operation in the service area. As most areas receive intermittent supply with low pressure, water quality at consumers‘ ends is far less than desired. In a survey conducted in 2000, it was found that 86% of households use secondary sources of water such as shallow wells or private tanker supplies just to meet their basic needs.

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KUKL has been operating the water supply services on a deficit. The regular preventive maintenance of the facilities like treatment plants, pump stations etc. are almost nonexistent. The present state of inadequacy in maintenance and operation has resulted in very poor state of water supply and sewerage facilities in the Kathmandu valley necessitating massive rehabilitation works .In Kathmandu Valley Water Supply System Components, there are 35 Surface Sources, 20 Treatment Plants, 43 nos. reservoirs, 39 Pumping Stations, and 78 Tube Wells for ground water extraction. Of the total 78 Tube Wells, due to various reasons like ,lowering of ground water table, mechanical failure etc., at present, only 59 numbers of wells are in operation.

The existing water supply system in Kathmandu Valley broadly consists of seven sub- systems. Each sub – system is fed by a number of surface water sources Yields of these sources are seasonal with a maximum during wet season (June – September) and a minimum during dry season (February – May). Apart from these surface sources, ground water is extracted from deep tube wells, and is fed into the piped water system. Yields from these wells have been decreasing as a result of the gradual lowering of the ground water level .The quality of water at the outlet of treatment plants are generally satisfactory. However due to following reasons the quality of water deteriorates by the time it reach consumers‘ end.

 The old age of the pipe network in the distribution system.  The intermittent supply at the gap of about 100hrs.  The low water pressure at the consumer‘ end.

Data Management:

In KUKL the customer taps are classified by the tap sizes. There is no differentiation in rates for residential, government or commercial.

The distribution of connections by connection size and consumer types is presented in Table 3.5a and 3.5b. Private connections account for 99.72%. Table 3.5a. Distribution of Water Connections by size (as of July 15, 2012) Connecti No. of Percentage on Size Connections No. of connections of total (inches) connections

Private Government Metered Un-metered Metered Unmetered ½ 183944 167647 15631 421 245 99.52 ¾ 490 276 36 158 23 0.26 1 306 160 26 90 30 0.16 1½ 24 12 9 3 0.012 2 51 24 17 10 0.027 3 10 7 2 1 0.005 4 7 1 5 1 0.0038 Total 184832 168124 15693 702 313 100

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Table 3.5b. Distribution of Water Connection by Consumers type Types of Total Metered Unmetered Consumer

Private 183817 168,124 (91.5%) 15693 (8.5%)

Government 1015 702 (70%) 313(30%)

Stand post 1196 - 1,196( 100%)

Total 186028 168826( 90.75%) 17202(9.25%)

Unmetered connections are mostly of ½ inch of private connections and that account for 8.5%. All stand posts are unmetered. Next to supply through water connections, KUKL provides water services using 27 water tankers. Tanker services are separated in two types: Public (KUKL) and private. Public tanker services are dedicated for no supply areas and additional water injections in distribution system, whereas private tanker services for fulfillment of private extra demand. Private tanker services have water charge per liter of supply. In 2012-13, total tanker services are of 23546 trips, of which 14986 (64%) are of private types.

Operation and maintenance activities of KUKL during Year 2012-13 are listed in Table 3.6 below. Generally leakage in connections is considered as leak repaired in Table 3.6. Leak repaired in private lines is 5 times of leakage in water lines.

Table 3.6: Operation and maintenance activities during Year 2012-13 Activities Leak Water New Tap Connection Metered Repaired line connection changed Repair repaired Nos. 5749 1169 3981 946 3553

Leakage in service connections is about 5 times the leakage in distribution and main lines.

For operational purposes KUKL has branch offices at different areas of the valley. They are at Tripureswor, Chetrapati, Maharajgunj, Kamladi, Mahankalchaur, Baneswor, Madhyapur Thimi, Bhaktapur, Lalitpur and Kirtipur .Each of the branch offices and the Head office has Customers Relations Unit (CRU). This unit is responsible for processing all customers‘ complaints and keeping them satisfied.

Sewerage Operation Division

KUKL‘s sewerage capacity is very limited. The division has very limited manpower, budget and equipments. This Division is overshadowed by Water Supply. KUKL has institutional weaknesses in operation and maintenance (O&M), specifically with the Waste Water Treatment Plants and high non- revenue water (NRW).

Low Income Consumer Support Unit (LICSU)

Low Income Consumer Support Unit (LICSU) was established in 2008, with the objective to improve service delivery to the people living in marginal land areas (slum and squatters), to

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provide service to low income households. A pilot program has already been implemented through ADB fund and installed 101 numbers of Polyethylene tank of different sizes (2000, 3000 & 5000 Liters) in different locations of 5 municipalties of Kathmandu Valley. KUKL is providing regular water services through tankers.

PID & PMU (Project Implementation Directorate & Project Management Unit)

To address the growing shortage of drinking water in Kathmandu Valley, Melamchi Water Supply Project (MWSP) was started at 2000A.D.To facilitate implementation, in 2008, the project was split into two subprojects:

Subproject 1: This comprises Melamchi river diversion works, water diversion tunnel and construction of water treatment facility.

Subproject 2: This comprises Kathmandu Valley Water Supply and Sanitation Project (KVWSSP) designed to undertake distribution system improvement within. Kathmandu Valley.

PID has been established to undertake project management and implementation of the activities of Subproject 2. PID is accountable to the KUKL board.

Under ADB loan number 2059, Project Management Unit (PMU) has been established in KUKL. The main objective of the project is to establish an appropriate institutional framework and operational environment that will facilitate the provision of efficient and affordable water supply and wastewater services in the urban/metropolitan areas of Kathmandu Valley. The main components of the loan are: (i) engagement of a Capacity Building and Private Public Partnership Team (CBP Team) (ii) completion of the computerized billing and accounting systems for branches in Kathmandu Valley.

Conclusion

Until the MWSP is commissioned, KUKL‘s immediate focus should be on providing equitable and regular water distribution services (providing all consumers basic level service that is a few hours of supply on a regular schedule); optimizing bulk water sources within the Kathmandu Valley, particularly efficient conjunctive use of surface and ground water; implementing the distribution network improvement program to minimize water leakage; and improving overall management efficiency.

To conclude, as a measure to reform the activities of KUKL more emphasis should be given to following works:

 As quantity of water supplied in the valley is inadequate, more ground water should be tapped until MWSP is commissioned. There is big gap between demand and supply. Project Implementation Directorate (PID) is drilling several tube wells for KUKL, but the progress is very slow and has been unable to cope with the widening gap between demand and supply.  As water saved is water produced, more attention should be given to leak detection and water loss control works. Ultimate aim should be to reduce unaccounted for water

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leading to improvement in financial position. NRW Department should be strengthened by providing all resources and needed manpower.  Customer Relation Unit should be strengthened, leading to prompt response to consumer inquiries and complaints. Also good customer relation will help collection of revenue.

 As KUKL will be operating Melamchi System after completion of the project, due timely attention should be given to human resource development as the work load will increase tremendously later on.  Old distribution mains should be rehabilitated.  KUKL is not financially sustainable. Timely revision of tariff to address the inflation and other needs should be undertaken.  Melamchi Water Supply Project (MWSP) is taking longer time to complete. This is making the water supply services of Kathmandu Valley very difficult and unmanageable.  Better coordination and harmonization of activities of CBP Team and PID activities is needed to make KUKL more effective.

3.1.4 Financial Performance Introduction

This section aims at analyzing the financial performance of KVWSMB and KUKL which are based on the financial records obtained from KVWSMB and KUKL.

The financial analysis of the KV water sector needs to examine the performance of both actors: the owner of the infrastructure, the Management Board and at the same time also the performance of the Operator, KUKL. Both partners are bound to each other. The performance of one has a huge impact on the other. There is a high level of mutual dependency.

A) Financial Analysis of Kathmandu Valley Water Supply Management Board (KVWSMB)

The financial analysis of KUKL would be incomplete without the financial analysis of Kathmandu Valley Water Supply Management Board (KVWSMB) as it is the asset owner of all assets concerning the water supply and sewerage system in Kathmandu Valley. Formed under Water Supply Management Board Act, 2063, it is an autonomous government body and its line ministry is the Ministry of Physical Planning and Works.

The financial status of KVWSMB can be seen from Table 3.7 which shows its Balance Sheets over the period 2007/08 to 2009/10. The Board has not yet prepared the financial statements after 2009/10 and hence not available. The net worth was Rs. 2.653 billion in 2007/08 which increased to Rs. 3.777 billion in 2009/10. Its net fixed assets were Rs. 2.187 billion which increased to Rs. 2.208 million in 2009/10. It has been providing loan to KUKL which increased from Rs. 30 million in 2007/08 to Rs. 129.9 million in 2009/10.

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Table 3.7: Balance sheets of KVWSMB, 2007/08 to 2009/10 (In Million Rupees) Capital and liabilities 2007/08 2008/09 2009/10 Board's fund & liabilities Board's fund 1,710.56 1,710.56 1,710.56 Loan investment 1,206.85 1,751.75 2,620.92 Capital reserve fund 384.62 367.87 350.36 Profit and loss account (648.92) (848.90) (904.28) Net Worth 2,653.11 2,981.28 3,777.55 Current liabilities 613.16 688.42 767.76 Provisions for liabilities 544.09 639.71 636.68 Total current liabilities 1,157.25 1,328.13 1,404.44 Total liabilities and equity 3,810.36 4,309.41 5,181.99

Assets 2007/08 2008/09 2009/10 Fixed assets Gross block 2,187.58 2,218.20 2,208.84 Work in progress 271.35 278.95 528.16 Project Implementation Directorate - - 242.46 Total 2,458.93 2,497.15 2,979.46 Loan investment in KUKL 30.00 94.90 129.90 Current assets Receivables 917.94 893.01 862.65 Inventories 0.02 0.03 0.18 Advance & deposits 31.53 31.70 87.51 Life insurance fund 16.02 16.02 16.02 KUKL account 258.77 269.91 384.43 Cash in hand and at bank 97.16 506.69 721.85 Total current assets 1,321.44 1,717.36 2,072.64 Total assets 3,810.36 4,309.41 5,181.99

Operational results

Table 3.8 shows the statements of Profit and Loss for KVWSMB, 2007/08 to 2009/10. Its total revenue increased from Rs. 20.325 million in 2007/08 to Rs. 65.504 million 2009/10. The operating profits were negative in the first two years but they increased to Rs. 56.618 million in 2009/10. However the Board has been incurring the losses in all the years from 2007/08 to 2009/10.

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Table 3.8: Statements of Profit and Loss for KVWSMB, 2007/08 to 2009/10 (In Million Rupees) Particulars 2007/08 2008/09 2009/10 Approval charges 4.18 11.00 12.10 Lease fee 7.75 15.91 19.09 Fines 8.31 7.73 6.12 Interest & other income 0.09 5.15 28.20 Total 20.33 39.79 65.50 Administrative expenses 13.54 125.18 8.89 Service charges 3.99 2.07 - Write-offs 0.34 - - Other write-offs 2.77 4.25 - Total 20.64 131.50 8.89 Operating profit (loss) (0.31) (91.71) 56.62 Depreciation 15.73 40.19 41.53 Interest 17.97 70.23 73.51 Last year's income & expenditure adjusted (5.67) 0.34 - Other doubtful income adjusted (4.30) (2.49) (3.04) Total 23.72 108.27 112.00 Net profit (loss) (24.03) (199.98) (55.38) Accumulated loss till last year (1.12) (648.92) (848.90) Loss transferred from NWSC (623.76) - - Profit (loss) transferred to Balance Sheet (648.92) (848.90) (904.28)

B) Financial Analysis of KUKL

The financial status of KUKL can be seen from Table 3.9 which shows its Balance Sheets over the period 2007/08 to 2011/12. The net worth was Rs. 2.2 million in 2007/08 which became negative in the following years and which increased to minus Rs. 505.7 million by the year 2011/12. Throughout this report, 2007/08 figures are for five months only. The negative net worth is due to the increase in accumulated loss from Rs. 25 million in 2007/08 to Rs. 613 million in 2011/12. The loan also increased from Rs. 30 million in 2007/08 to Rs. 279.5 million in 2011/12 but it is not becoming sufficient. On asset side, there has been an increase in fixed assets from Rs. 26.3 million in 2007/08 to Rs. 86.8 million in 2011/12. The KVWSSDP ADB loan became effective in 2010 as a result of which work-in progress increased from Rs. 2.9 million in 2009/10 to Rs. 137.1 million in 2011/12. The Balance Sheet is typical for an operating company. The assets are relatively minor in value. KUKL‘s sheet is dominated by Creditor and Debtor positions. Creditors amount to 2.2 billion Rs in 2011/2012. To a large extent, the creditors are Government institutions that have not been paid by KUKL, e.g., lease charges, fee for WSTFC and so on. The debtors (Rs. 1.45 billion) are also Government institutions that have not paid the water bill.

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Table 3.9: Balance sheets of KUKL, 2007/08 to 2011/12 (In Million Rupees) Capital and liabilities 2007/08 2008/09 2009/10 2010/11 2011/12 Share capital 25.07 25.83 26.33 26.33 26.33 Reserve and surplus 2.14 7.19 23.34 4.15 2.63 ADB grant for WVWSSDP - - - 47.55 79.34 Accumulated (profit) & loss account (25.00) (135.80) (247.94) (364.12) (612.99) Net worth 2.22 (102.78) (198.27) (286.09) (504.71) Medium and long term loan Unsecured 30.00 94.90 147.56 213.95 279.58 Current liabilities and provisions Sundry creditors and other payables 1,419.16 1,771.07 1,854.90 2,104.65 2,192.30 Provisions 57.54 201.02 354.28 519.65 679.11 Total liabilities and equity 1,508.92 1,964.21 2,158.46 2,552.16 2,646.29

Assets 2007/08 2008/09 2009/010 2010/11 2011/12 Fixed assets Gross block 28.08 41.02 57.30 104.62 134.20 Less depreciation 1.80 7.26 15.30 26.60 47.36 Net bloc 26.28 33.76 42.00 78.02 86.84 Add differed tax assets 1.78 6.22 6.22 6.22 6.22 Work in progress - KVWSSDP ADB loan 2059 - - 2.90 51.70 137.05 Current assets Inventories 143.16 136.85 234.10 261.45 200.62 Sundry debtors and other receivables 1,026.67 1,167.08 1,244.41 1,434.36 1,455.04 Cash and bank balances 277.20 283.83 290.21 395.16 339.77 Pre-paid, advances, loans & deposits 33.83 336.46 338.62 325.25 420.76 Total assets 1,508.92 1,964.21 2,158.46 2,552.16 2,646.29 Note: 2007/08 figures are for five months only and 2011/12 figures are provisional only.

The balance sheet shows how net worth has worsened over a period of time which is due to a large amount of accumulated losses. More recently, loan represents about 10.6 percent while current liabilities and provisions constitute a very significant portion (82.8%).

On assets side, net fixed assets constitute a very small proportion i.e. 2 to 3 percent which would also mean that the current assets constitute a significant proportion. On current assets accounts receivable constitute a significant proportion (55%).

Operational results

Table 3.10 shows Profit and Loss Account of KUKL which shows the net results of the company for the period 2007/08 to 2011/12. The water sales revenue increased from Rs. 191.8 million in 2007/08 to Rs. 524.23 million in 2011/12, the increase being 2.73 times over the period. The cost of sales from Rs. 104.44 million in 2007/08 to Rs. 291.21 million in 2011/12, the increase

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being 2.79 times over the period. As a result, gross profit increased from Rs. 87.36 million in 2007/08 to Rs. 233.03 million in 2011/12, the increase being 2.67 times over the period.

The operating profit increased from Rs. 45.28 million in 2007/08 to Rs. 93.21 million in 2010/11 but declined to Rs. 2.75 million in 2011/12. Similarly, the net profit which was Rs. 43.16 million in 2010/11 which increased to Rs. 52.56 million in 2010/11. However, KUKL started incurring a loss thereafter and the loss was Rs. 90.6 million for the year 2011/12.

Table 3.10: Statements of Profit and Loss for KUKL,2007/08 to 2011/12 (In Million Rupees) Particulars 2007/08 2008/09 2009/010 2010/11 2011/12 Water & sewerage income 191.80 472.07 503.94 544.22 524.23 Less cost of sales 104.44 288.42 302.45 280.56 291.21 Gross profit 87.36 183.65 201.49 263.66 233.03 Other income 16.66 51.96 62.25 64.54 63.17 Selling expenses 12.44 39.06 48.86 48.25 55.68 Administrative expenses 46.29 123.02 138.78 186.74 237.77 Sub-total 58.74 162.07 187.64 235.00 293.45 Operating profit (Loss) 45.28 73.53 76.11 93.21 2.75 Retirement fund provision - 19.50 28.45 30.87 74.11 Preoperating expenses 0.33 Depreciation 1.80 5.03 6.52 9.77 19.24 Net profit (loss) 43.16 49.00 41.13 52.56 (90.60) Provision for doubtful debt 57.54 143.47 165.37 165.37 159.46 Income tax provision 12.39 20.92 Deferred tax assets (1.78) (4.45) Last year's income & expenditure adjusted - (0.15) 0.02 0.06 (2.25) Profit (loss) for the year (25.00) (110.80) (124.22) (112.75) (252.30) Profit (loss) transferred to Balance Sheet (25.00) (135.80) (260.02) (372.77) (625.07) Note: 2007/08 figures are for five months only and 2011/12 figures are provisional only.

The cost of sales was 54.5 percent of sales revenue in 2007/08 which increased to 61.1 percent in 2008/09. It then declined to 51.6 percent of sales revenue in 2010/11 but again increased to 55.5 percent in 2011/12. Similarly, gross profit was 48.4 percent of sales revenue in 2010/11 which declined to 44.5 percent in 2011/12. The operating profit was 23.6 percent of sales in 2007/08 which decreased to 0.5 percent in 2011/12. The net profit was 22.5 percent of sales in 2007/08 which declined to a minus 3.1 percent in 2011/12. The profit or loss for the year comprised of minus 13 percent of sales revenue in 2007/08 which increased to 33.1 percent in 2011/12.

Figure 3.3a shows that the O&M expenses and water and sewerage income for the period 2007/08 to 2011/12. The O&M cost includes cost of sales, sales expense and administrative fees less depreciation. Till 2010/11, water and sewerage income is more than O&M cost but in 2011/12, the water and sewerage income is less than O&M cost.

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Figure 3.3a: Water and sewerage income and O&M costs for the period 2007/08 to 2011/12 700.00

600.00

500.00

400.00 Water & sewerage income, Million Rupees 300.00 O&M expenses, Million Rupees

200.00

100.00

- 2007/08 2008/09 2009/010 2010/11 2011/12

The total revenues and total expenditures for the period 2007/08 to 2011/12 are shown in Figure 3.3b. It indicates that total costs are exceeding total revenues in 2011/12 leading to the losses.

Figure 3.3b: Total revenues and total expenditures for the period 2007/08 to 2011/12 700,000,000

600,000,000

500,000,000

400,000,000

300,000,000

200,000,000

100,000,000

- 2007/08 2008/09 2009/010 2010/11 2011/12 (100,000,000)

Ref: Total Revenue, Total Expenditure, Total Profit/Loss (in Rupees)

From the above, the total cost of the water services to be covered for KUKL in the first phase would be KUKL's expenses while in the second phase, capital cost of KVWSMB should also be covered and be included in the tariff. Since KUKL is the collecting agency, it should collect the capital cost from the customers and then transfer them to MB. If all was right this should be the appropriate amount of the lease charges.

C) Financial status

An analysis of financial performance of KUKL is demonstrated below using the information from the statements of profit and loans and balance sheets provided by KUKL. The analysis begins

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with cost recovery followed by profitability and other measures of performance. It then goes on to consider additional dimensions of financial performance based on cash flow and risk.

Cost recovery

In order to determine the coverage of expenditures by water sale revenues, the following two measures have been employed1:

 Water revenue/OM&A cost: At the very least, revenues from water tariffs should cover these costs which represent the cost of labor, materials, goods and services used in producing water.  Water revenue/ OM&A + depreciation + interest: A comparison of revenues to this measure of cost indicates the ability to recover depreciation and interest costs.

These measures are direct indicators of cost recovery and should exceed 100%.

Cost coverage indicators are shown in Table 3.11. More recently, water sales revenues have not been enough to cover operating and maintenance costs as well as depreciation as they are less than 100 percent. Before 2011/12, these ratios used to be more than 100 percent.

Table 3.11: Cost Recovery Indicators for KUKL, 2007/08 to 2011/12 (%) Year 2007/08 2008/09 2009/010 2010/11 2011/12 Water revenue/OM&A cost 117.54 104.79 102.83 105.56 89.67 Water revenue/ OM&A + depreciation + interest 116.26 103.63 101.48 103.60 86.81

Revenue collection

Revenue collection from water sales may vary from one organization to another organization. Generally, there is some delay between the time that invoices for water are issued for and the receipt of payments. The invoices raised against water sales are reported as revenues in the income statement. These invoices for water sales that have not paid are reported as accounts receivable in the balance sheet. If accounts receivable are high, it indicates that an enterprise is lagging behind the collection of receivables. It also means that more funds are tied up in receivables which must be financed somehow leading to higher short-term financing costs. When there are more receivables, it may cause financial problems also. Hence, an uncollectible water bills may reduce revenues and profits.

1 Water Tariff Study II, Peoples‘ Republic of China, TA No. 3250 PRC, November 2001.

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The table shows that KUKL is very much lagging behind the collection of receivables. Instead of an increase in collection ratios, they have a declining trend more recently. Likewise, the collection carrying period in days has been extremely high and it has an increasing trend.

Table 3.12: KUKL Performance in Revenue Collection, 2007/08 to 2011/12 Year 2007/08 2008/09 2009/010 2010/11 2011/12 Collection ratio, times 0.19 0.40 0.40 0.38 0.36 Collection period, days 1,927.0 890.0 889.0 948.8 999.2 Collection ratio = water sale revenues/receivables, times Collection period = (year-end accounts receivable/total annual operating revenues)*365

Current ratio and quick ratio

The current ratio is a widely used ratio in ascertaining the short-term liquidity position of the enterprise. It indicates the extent to which current assets are sufficient to pay current liabilities. The current ratio is a measure of liquidity of the enterprise. Liquidity indicates the KUKL‘s ability to pay outstanding short-term obligations from the current assets. It is computed by dividing total current assets by total current liabilities. The higher ratio indicates greater assurance of ability to pay current liabilities. The current ratio of 2:1 is generally considered an acceptable standard though it is a rule of thumb only. The consequences of lower current ratio of less than 2 show inadequate short-term liquidity which could be very serious. Hence the measures of such liquidity have been attached greater importance. If the current ratio is higher, it indicates that an enterprise has sufficient working capital to cover short-term financial obligations and support ongoing operations. The second measure of firm's liquidity is the quick ratio, which is a modified version of current ratio. The major defect of current ratio is that it includes inventories in current assets which are generally less liquid. A quick ratio ignores inventories and is therefore considered a better measure. The quick ratio indicates the KUKL‘s ability to pay outstanding short-term obligations out of quick assets. It is a ratio of total quick assets to total current liabilities and it should generally be 1:1 or greater. A quick ratio of this magnitude is one indication that an enterprise has sufficient quick assets to cover short-term financial obligations and support ongoing operations. The current ratio may not indicate KUKL‘s ability to pay outstanding short-term obligations out of current assets if its current assets comprise more of inventories. Hence quick ratio is computed by excluding inventories from current assets. Current ratios and quick ratios for KUKL are shown in Table 3.13 as reported in KUKL balance sheets. The current ratios and quick ratios are respectively less than 2:1 and 1:1 indicating poor liquidity position of KUKL. These ratios have deteriorated further more in recent years. If this situation continues, KUKL will have to face serious liquidity problems in the years to come.

Table 3.13: Current Ratio and Quick Ratio of KUKL, 2007/08 to 2011/12 (times) Year 2007/08 2008/09 2009/010 2010/11 2011/12 Current ratio, times 1.00 0.98 0.95 0.92 0.84 Quick ratio, times 0.91 0.91 0.85 0.82 0.77

Equity ratio

The equity ratio measures the relative share of equity in the enterprise‘s capital structure:

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Equity ratio = equity / (equity + liabilities)

It indicates the relative contribution of equity investors and the risk associated with debt. A lower equity ratio implies higher debt and higher fixed obligations for debt servicing against income.This is the source of greater risk to the KUKL and the shareholder. The equity ratio is used by the ADB as one test for loan qualification. ADB guidelines require this to be no less than 0.32.

Apart from equity ratio, it would be worthwhile to examine the operating profit / net worth ratio (%) and net profit / net worth (%).

Table 3.14 shows equity ratio along with operating profit / net worth ratio (%) and net profit / net worth (%). The table shows that all the ratios are very poor for KUKL. The ratios are mostly negative due to negative net worth.

Table 3.14: Equity Ratio, Operating Profit to Net Worth Ratio and Net Profit to Net Worth Ratio of KUKL, 2007/08 to 2011/12 Year 2007/08 2008/09 2009/010 2010/11 2011/12 Equity ratio, times 0.00 (0.05) (0.09) (0.11) (0.19) Operating profit / net worth (%) 2,043.31 (71.54) (38.38) (32.58) (0.54) Net profit / net worth (%) 1,947.40 (47.67) (20.75) (18.37) 17.95

The above financial analysis shows that the financial performance of KUKL is very poor. It cannot increase its supply capability due to the acute shortage of water which will continue unless Melamchi water supply is completed. There is no other alternative except for increasing the price of water.

3.1.5 Social and Poverty Assessment A) Social and Poverty Profile

Social and Poverty Profile

Kathmandu Valley has a mixed social fabric of diverse caste and ethnic groups with most belonging to the Newar ethnic group in core areas. In the surrounding areas within the valley there are many other ethnic groups like Brahmin, Chhettri, Dalits, and other Janajati groups that have resided permanently since long time. Beside these due to growing urbanization there is a huge influx of people migrating from other districts and regions who are residing in rented rooms/houses temporarily. These people have limited access to water and hence the sanitation and waste disposal practice is poor, including their practice of disposal of wastes and other garbage. Often they are not linked to the main water connection network system of the house. Systematic efforts to connect them to the network have not happened yet. Most of the low- income women indicated to suffer from reproductive health problems, including uterine issues (a common complaint), and diarrhoea and water borne disease / illnesses due to poor sanitary conditions. In addition, certain ethnic or caste groups may be deprived of access to

2 Water Tariff Study II, Peoples‘ Republic of China, TA No. 3250 PRC, November 2001.

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development benefits. The Dalits, minority and disadvantaged ethnic groups, and Muslims are considered such vulnerable groups.

Poverty Incidence and Monthly Income of Households;

The urban poverty is 15.5%, against the national poverty incidence of 25%. Kathmandu valley struggles to improve environment to keep pace with population growth resulting from rural- urban migration and semi urban-urban migration. The poverty incidence (headcount rate) for Nepal in 2010-11 is 25.16 percent. This is according to new poverty line 2010-11) which defines an individual as poor if his/her per-capita total annual consumption is below NRs. 19,261. The poverty rate is much lower in urban areas (15.5%) than in rural areas (27.4%). Female headed households have slightly lower poverty rates (23.7% against a national average of 25.2%).

Poverty incidence has decreased over the last decade. The poverty incidence is directly proportional to population distribution. The urban population is about 17% of the national population. The poverty incidence in urban Kathmandu found only 3 %.

Table 3.15: Poverty Incidence in Kathmandu ( 2003−2004 and 2010−2011) Poverty Head Count Rate Distribution of Poor Population Distribution Case Study City 2003-2004 2010-2011 2003-2004 2010-2011 2003-2004 2010-2011 Kathmandu Valley 3.3 11.47 0.6 2.6 5.4 5.7

Monthly Income No. of house household % Total no. of house Income group less than 5,000 178,832.00 3.50 6,259.12 Lifeline 5,000-10,000 178,832.00 18.00 32,189.76 Low income 10,000-15,000 178,832.00 16.00 28,613.12 15,000-20,000 178,832.00 13.00 23,248.16 84,051.04 more than 20,000 178,832.00 17.00 30,401.44 average income Not fixed income 178,832.00 17.00 30,401.44 Refused to answer 178,832.00 6.00 10,729.92 Do not know 178,832.00 9.50 16,989.04 178,832.00 100.00 88,521.84

Total 178,832.00 Public stand post 1,196.00 180,028.00 Source: CBS. 2011. National Living Standard Survey (NLSS-III) 2010−2011.

Water Supply Condition for the Low Income Communities/Poor

The use of public standposts for water in poor communities is very common in Kathmandu. Kathmandu has about 1,200 standposts. These public standposts are essentially unmetered public connections and users are not charged for the water they consume.

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The very limited (average 1 hour per 5 days) and poor quality of the drinking water provided by KUKL have been big factors discouraging customers from paying timely for water. The minimum tariff is based on 10 m³, but often that amount cannot be supplied in one month. The pressure in the network is nonexistent and intrusion of polluted ground water through leaks in the distribution network has a degrading effect on the quality of water at the tap. People still pay their bill, because they do not want to be disconnected in the hope of better services in future. In the city especially in low income areas, people tend to suffer more due to lack of access to piped water for domestic water use. The limited water supplied by the KUKL in Kathmandu is not of that quality and majority of people do not drink without filtering. Some even boil it before drinking. Kathmandu valley water supply system is poorly managed which has led to poor quality and shortage as well to great extent.

The poor have very little access or virtually no access to quality drinking water. Water service in low-income areas is often provided by informal service providers like NGOs and INGOs and others under donor programs. KUKL is unable to provide adequate drinking water to the increasing slum and squatter settlements. As a result, there are a couple Water User Groups in Kathmandu Valley who are involved in the operation and management of small drinking water systems from the locally available springs or water spouts.

Government of Nepal is discouraging public taps because it was found that they are not being maintained well and there is huge wastage of precious water from them. Regarding community taps, it was found that its users are spending more time and energy than the users of private taps because of the time and efforts in fetching water. Beside this, community tap users do not get needed amount of water. At the same time, the government is also discouraging community taps and is promoting private taps.

Obstacles in Water Supply for the Poor

Often poor people do not get access to piped water as landless people cannot apply for a private connection from KUKL, because they do not have a landownership certificate (LalPurja).

About 10%−15% of people living in KV are poor. The figures include the growing, and in some cases, fluctuating numbers of slums and squatter populations. As residents of the cities, they also should have adequate access to basic services. However, the reality is different. In most cases, the very low-income population, dalits, slum dwellers, and vulnerable groups do not enjoy basic services such as piped drinking water, access to drainage and sanitation, and solid waste management like others. The cities are ranked as very high to middle level in terms of urban services and financial resources. But the available services in these cities are limited to the upper and middle-class population. The poor and vulnerable lack these basic services even in a situation where they live right next to the upper and middle-class neighbors.

Water Consumption Status (consumption and expenditure on water)

Poor and slum population in Kathmandu, not connected to the network pay for water almost 5 to 10 times more than people connected to the network. The poor pay more, not because of ability and willingness to pay, but because of the lack of a household connection to the network.

The poorest households in a community generally do not have connection to water networks. Supply is limited to only a few hours per day. Poor people in KV depend on public

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taps/community taps, existing spring-fed public water spouts or water vendors. Water vending is not regulated and the cost of water depends on the market. Since there is not enough supply water is very expensive and poor people are driven to water vendors or polluted sources, shallow wells etc. where there is a common need to boil water for consumption.

Table 3.16 :Domestic Water Consumption by Household Type Household Type lpcd

Squatter House 29-35

Renter of Squatter House 35-40

One of the important factors affecting domestic water consumption is the economic status of the households.

Table 3.17: Status of Household Expenditure on Water Case City General Households Poor Households

% of household Income % of household Income

Kathmandu 4% 2%

The tariff structure should set an affordable price for the basic consumption needs of low-income households, particularly in those areas where functioning subsidy schemes are not already in place. According to international standards, the population should not pay more than 5% of its household income for water and wastewater services.

Potential Impact of Rate Increase

Water is a social good and is essential for human life; therefore increasing tariff has to be looked from the perspective of social justice and human rights. Human Development Report 2006 advanced water right as a human right, and urged states to provide a minimum of 20 litres of water to each individual daily(UNDP,2006). However, water is an economic good and therefore efficient pricing is necessary in order to promote its efficient utilization. It has assumed that impact of rate increase in water will be negative on poor households and low income communities.

The absolute value of subsidies to public taps is very small compared with subsidies to private taps, absorbing only 5% to 10% of overall subsidy resources. Barely a quarter of the subsidies provided by governments/KUKL and distributed in Kathmandu end up benefiting the poor.

Implication for Water Tariff Setting

Water and sanitation tariffs should take into account the special situation of the low income community, the level of service and the willingness and ability to pay.

Affordability is a problem for low-income consumers in most towns and cities including Kathmandu. Low- income households spend a substantial share of their income on water. The existing situation is;

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 KUKL has established Low Income Consumer Service Unit (LICSU) to facilitate poor communities to get access to the water distribution network including addressing affordability issue.  Poor people are provided with free water through public stand-post. But it is not enough for their basic use. They have to collect water from other sources and buy from private vendors (Tankers).

Therefore, pro-poor water supply policy is one of the key issues to be addressed in the proposed model for sustainable water supply management for urban areas of Kathmandu Valley. Other factors may also be relevant. This suggests strongly that there may be a need for a special tariff setting process to be applied for low-income communities as long as these are readily identifiable and the tariffs can be applied effectively. Since this is not feasible at the moment in Kathmandu due to the severe constraints in the provision of basic services, only temporary and emergency measures can help the poor. A structural solution is only possible when the basic provision of water to the city is meeting basic standards. The pricing policy requires decisions to be made about cost recovery, cross subsidy within the utility area of operations and future investment. This should all be done with full transparency to maximize community and political commitment to the tariffs applied.

Recommendations for Serving Poor:

KUKL should have a progressive tariff for water supply services.

Subsidies in Community Tap: The community taps users do not have any facility of minimum tariff rate. Therefore, tariff paid for community taps is generally same as the payment by a private household connection of the same half inch connection. The new tariff structure should propose a special tariff with the intention that poor households also can afford to have a private connection and they do not have to pay more for water.

3.1.6 Development of Water Tariff Projection of costs and tariff setting

Having analyzed the financial performance, next part of the analysis is concerned with estimate of costs and revenues that will improve the financial performance and estimate the tariff. In 2011/12, water and sewerage income was Rs. 524.23 million where as the average supply in the same year was 36.315 million CUM or 99 MLD. The average price may then be computed as under:

Average price = Water and sewerage income / average supply

= Rs. 524.23 million / 36.315 Million CUM = Rs. 14.15 per CUM.

Thus average selling price was Rs. 14.15 per CUM.

With the old tariff, the revenues are estimated as shown in Table 3.18.

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Table 3.18: Computation of revenues under old tariff S. Conne Minim Metered tariff Unmete No of No of No. ction um red tariff conne connect Number of connections Revenues (Million Rupees) size Consu ctions, ions Metered tariff Unmeter Metered tariff Unmet (Inch) mption % ed tariff ered ('000 tariff Litres) Minimu Additio Monthly Minimum Additiona Monthly Minim Additio Monthl m nal fixed charge, l charge fixed um nal y fixed charge, charge charge, Rs. Rs. Per charge, charge charge charge Rs. Rs. Rs. 1000 ltrs Rs. , Rs. Rs. , Rs. Per ('000) ('000) Per 1000 1000 ltrs ltrs

1 0.50 10 55 17.5 432 0.9980 184,351 110,610 55,305 18,435 73.0 303.6 95.6

2 0.75 27 1,053 39 2,535 ------

3 1.00 56 2,184 39 5,265 ------

4 1.50 155 6,045 39 14,508 ------

5 2.00 320 12,480 39 29,952 0.0020 369 222 111 37 33.2 17.8 1.1

6 3.00 881 34,359 39 82,485 ------

7 4.00 1,810 70,590 39 169,416 ------

Total - - - - - 1.0000 184,720 0.60 0.30 0.10 106.2 321.4 96.7 Total revenues Rs. 524 million Total revenues: Rs. 106.2 + 321.4 + 96.7 = Rs. 524 million

This level of revenues is not enough for level of costs that KUKL has to incur.

With the above rate, KUKL has been incurring the losses and hence there is a need for increasing the water tariff. This is evident from the estimate of costs for the period 2012/13 to 2014/15as shown in Table 3.19. The average annual increase in costs from 2008/09 to 2011/12 has been observed to be at the rate of 13 percent and the same has been used for forecasting total costs except for capital costs.

Table 3.19: Forecasts of KUKL‟s total costs (Million Rs.) Cost 2012/13 2013/14 2014/15 Staff costs 310.69 351.08 396.72 Chemical and others 16.03 22.27 30.96 Electricity 128.35 178.41 247.99 Maintenance: Water related 256.03 355.88 494.68 Sewerge related 16.65 23.14 32.17 Other costs 47.83 66.49 92.42 Total operating costs 775.58 997.28 1,294.94 Overheads: Administration 15.00 20.85 28.98 License fee 12.29 17.08 23.74 Water supply tariff fixation fee 49.16 68.33 94.97 Lease charge based on revenue 150.00 208.50 289.82

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Lease charge based assets value 25.51 35.46 49.29 CBP Team cost 41.04 57.05 79.29 Interest 7.74 10.76 14.95 Provision for staff gratuity 339.17 471.45 655.31 Provision for bad debts 22.80 31.69 44.05 Capital costs 86.65 86.65 86.65 Total overheads 749.36 1,007.81 1,367.07 Total costs 1,524.94 2,005.09 2,662.00

Instead of depreciation, capital costs have been used which have been computed as under3:

Capital investment plan of KUKL: Million $ Water Supply Capital Investment Plan Implementation Schedule (2010-2025) 246.66 Wastewater Capital Investment Plan Implementation Schedule (2010-2025) 95.38 Total 342.04 Average annual capital investment is $342.05/25 years = $22.8 million or Rs. 86.65 per year with 25 years of life.

KUKL is required to cover total costs Rs. 2005.09 million in 2013/14 which is much less than the current total sales revenues of Rs. 587.4 million in 2011/12. Hence, there is an urgent need to increase the water tariff. To recover this cost, the minimum price required to cover all the costs, total supply quantity remaining the same, would be as under:

(a) Total cost, Rs. In Million 2,005.09 (b) Total water sales quantity, Million CUM 36.14 (c) Minimum price, Rs. Per CUM = Total costs / average supply or (a)/(b) = Rs.55.48/CUM

Table 3.20 shows water sales revenues by customer type. The private connection metered sales represent the highest which is about 55 percent. Sales to government connection metered are only about 4 percent and unmetered are two percent. The private connection unmetered sales are about 14 percent. By applying the proportions indicated in the table, total water consumption has been computed. Then using the average price required per CUM, total costs are determined by customer type.

Table 3.20: KUKL's Revenue income by customer type in 2011/12 (In Million Rupees) Water sales In Million Proportion Total Average Total Rupees water price costs, in consumpti required M.Rs. on, M. per CUM CUM Government connection metered 21.24 0.04 1.47 55.48 82 Private connection metered 288.80 0.55 19.99 55.48 1,109 Government connection unmetered 11.04 0.02 0.76 55.48 42

3 Asian Development Bank (February 2010), Kathmandu Valley Water Supply and Wastewater System Improvement, CAPITAL INVESTMENT and ASSET MANAGEMENT PROGRAM, Final Report, (TA 4893-NEP).

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Private connection unmetered 75.57 0.14 5.23 55.48 290 Other sales (excl sewerage) 125.48 0.24 8.69 55.48 482 Total 522.12 1.00 36.14 2,005.09

Currently, KUKL has increased the tariff rate of water charges with effect from July 16, 2013. The comparative chart showing old and new rates has been provided in Table 3.21.

Table 3.21: KUKL's old versus new tariff rates by customer type S. Conn Minimum Metered tariff Unmetere Unmetere No. ection Consump d tariff d tariff size tion (Inch) (Litres)

Old New Old New Old New 2013- Minimu Minimu additio Addition monthly 14 m m nal al fixed charge, charge, charge charge charge, Rs. Rs. Rs. Rs. Per Rs. Per 1000 1000 ltrs ltrs 1 0.50 10,000 55 100 17.5 32 432 785 2 0.75 27,000 1,053 1,910 39 71 2,535 4,595 3 1.00 56,000 2,184 3,960 39 71 5,265 9,540 4 1.50 155,000 6,045 10,950 39 71 14,508 26,280 5 2.00 320,000 12,480 22,600 39 71 29,952 54,255 6 3.00 881,000 34,359 62,240 39 71 82,485 149,415 7 4.00 1,810,000 70,590 127,865 39 71 169,416 306,880

The new price is an increase of about 82 percent as can be seen from Table 3.22.

Table 3.22: Percentage of new tariff increase (%) S.No. Connection Minimum Metered tariff Unmetered size (Inch) Consumption tariff (Litres) Minimum Additional Monthly fixed charge, Rs. charge Rs. charge, Rs. Per 1000 ltrs 1 0.50 10,000 82 83 82 2 0.75 27,000 81 82 81 3 1.00 56,000 81 82 81 4 1.50 155,000 81 82 81 5 2.00 320,000 81 82 81 6 3.00 881,000 81 82 81 7 4.00 1,810,000 81 82 81

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With the above changes in the tariff structure, the new level of estimated revenues has been computed as shown in Table 3.23. The number of connections by customer type is not known. It is therefore assumed that the percentage of customers using 0.5 inches connection is roughly 66 percent. Similarly, the percentage of customers using 0.75 inches connection is about 10 percent and so on. Likewise, the number of connections by metered and unmetered tariff is not known. Hence it is assumed that the number of connections paying minimum charges with meter is 50 percent and that the number of connections paying additional charges is 30 percent, the rest 20 percent are number connections unmetered.

Table 3.23: KUKL's Revenue income by customer type after tariff increase (In Million Rupees) S. Conne Minimu Metered tariff Unmete No of No of Number of connections, Revenues (Million No ction m red tariff conn connect '000 Rupees) . size Consu ectio ions Metered tariff Unmete Metered tariff Unmet (Inch) mption ns, % red tariff ered ('000 tariff Litres) Minimu Additi Monthly Minimu Additio Monthly Mini Additio Monthl m onal fixed m nal fixed mum nal y fixed charge, charg charge, charge, charge charge, charg charge charge Rs. e Rs. Rs. Rs. Rs. Rs. e, Rs. , Rs. Per Per ('000) Rs. Per 1000 1000 1000 ltrs ltrs ltrs ('000)

1 0.50 10 100 32 785 0.998 184,351 110,610 55,305 18,435 133 172.6 173.7

2 0.75 27 1,910 71 4,595 ------

3 1.00 56 3,960 71 9,540 ------

4 1.50 155 10,950 71 26,280 ------

5 2.00 320 22,600 71 54,255 0.002 369 222 111 37 60 0.5 2.0

6 3.00 881 62,240 71 149,415 ------

7 4.00 1,810 127,865 71 306,880 ------Tot al - - - - - 1.000 184,720 0.60 0.30 0.10 193 173 176 Total revenues Rs. 542 million Total revenues: Rs. 542 million

Clearly, the increase in tariff will enable KUKL to generate revenues for Rs. 542 million but still not able to recover full costs which is Rs. 2,005.09 million. It is not even able to cover O&M costs and debt service charges and also a part of CAPEX. If the tariff increase would have been at the rate of 573 percent, then KUKL would have recovered all the costs as may be seen from Table 3.24. Table 3.24: KUKL's required tariff increase (In Million Rupees) S. Conn Minimum Metered tariff Unmetere No of No of Number of connections, No ectio Consumpti d tariff conne connect '000 Revenues (Million Rupees) . n on (Litres) ctions, ions Metered tariff Unmet Metered tariff Unmete size % ered red tariff (Inch tariff ) Minimu Additi Monthly Minimu Additio Monthl Minim Additiona Monthly m onal fixed m nal y fixed um l charge fixed charge, charg charge, charge, charge charge charge Rs. Per charge, Rs. e Rs. Rs. Rs. Rs. , Rs. , Rs. 1000 ltrs Rs. Per Per 1000 1000 ltrs ltrs

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1 0.50 10,000 370 118 2,910 0.998 184,351 110,610 55,305 18,435 492 636.9 643.6

2 0.75 27,000 7,092 263 17,073 ------

3 1.00 56,000 14,709 263 35,460 ------

4 1.50 155,000 40,713 263 97,711 ------

5 2.00 320,000 84,053 263 201,727 0.002 369 222 111 37 224 1.7 7.5

6 3.00 881,000 231,408 263 555,536 ------

7 4.00 1,810,000 475,424 263 1,141,017 ------Tot al - - - - - 1.000 184,720 0.60 0.30 0.10 715.25 638.69 651.10

Total revenues 2,005

With the increase in price by 573 percent, KUKL can generate the revenue that would be enough to cover to all the costs in 2013/14. However, it may not be possible to increase the tariff by so much at once.

3.2 Bharatpur

Bharatpur is a fast growing secondary level town located on the east-west highway in Inner TaraiChitwon District/Narayani Zone in central Nepal. It is also the District Headquarter town. It is a very fast growing commercial center in that area. It lies on the bank of the Narayani River and is located at the center of Mahendra (East-West) Highway and Kathmandu-Birgunj (north- south) road corridor. Because of this, Bharatpur has developed into a major commercial and industrial town. In addition to good road access, Bharatpur also has regular daily air services to Kathmandu.

3.2.1 Water System Bharatpur Water Supply Management Board (BWSMB) is responsible for supplying water in Bharatpur Municipality, which has 14 wards with a total area 162.16 sq. km. The municipality had a total population of 89,323 with a number of households of 19,910 as per the census of 2001. The population and number of households increased to 143,836 and 36,939 respectively in 2011 as per the National Population & Housing Census 2011 (National Report) 2012.

Service area under Bharatpur Water supply Management Board ( BWSMB) comprises Bharatpur Municipality and nearby areas. Total households covered by the system is 27224 through 14500 water connections and estimated served population of 85000 (up to May 2013). The growth rate of new taps is 1100 to 1500 connections annually. Besides this system, other water users groups are serving about 700 households. There were two schemes in the UEIP project. Scheme IA of the project ( refer Figure 3.5) included the Narayanghat Bazar and the Belchowk area which was proposed to be served by the new reservoir at Bharatpur Municipality. A ground reservoir and two tube wells were constructed in the Bharatpur Municipality Complex and another existing tubewell constructed by NWSC at NWSC office compound. Scheme IB included the eastern part as well as the some area in the western part and utilized existing facilities at NWSC compound to its full capacity.

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The water supply system is using groundwater from 18 tube wells (8 constructed by NWSC, 5 by Bharatpur Municipality and 5 by joint effort of BWSMB and Municipality). The production capacity is estimated to be 20 MLD, but present production is about 12 MLD due to interruption in electricity supply. The supply capacity of the system is estimated at 150 lps. The distribution network is operated by HDPE pipe ranging from 350 to 75mm diameter. The total length of pipelines is about 361 km. Total reservoir capacity is 3950 m3. The existing pumping system available at NWSC office compound is used to pump water in to elevated water tank.

Average supply duration of water supply at present is 10 hours per day. NRW is estimated at 35% and it is in decreasing order. The wider roads and paved roads are provided with pipelines on both the sides to avoid the pavement breaking and reinstatement during the construction and future connection requirements. Other roads are provided with only one pipe on any one side of the road, which ultimately will need to be complimented by additional parallel pipes later as the demand increases and the roads are paved.

Figure 3.4: Distribution area with Schemes

The people who are not covered by the piped water system use water of shallow dug wells and shallow handpumps. Such water is open to different contaminations. As the water table is high in the area, people have easy alternatives and can easily get access to water by digging own shallow wells or shallow tubewells. So the present BWSMB is conscious of the fact that raising

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water tariff substantially may drive back a section of people to traditional means of water supply from shallow dug wells and hand pumps/tubewells and discourage many from opting for new piped water connections.

Water Connections figures for July 2010 and July, 2013 are shown in Table 3.25. Majority of the water connections are ½ inch and private.

Table 3.25: Water connections figures in BWSMB Type of connection by size Numbers

As of July, As of July, 2010 2013

½ Inch 9787 14476

¾ Inch 8 16

1Inch 8 8

Total 9803 14500

3.2.2 Tariff Structures and Institutions Bharatpur Water Supply Management Board (BWSMB) is the asset owner as well as the operator of the water system in Bharatpur Municipality and the surrounding areas. It was established in 2007 under Water Supply Management Board Act 2006. However, the area of jurisdiction for it was officially established in year 2009/10 only through GON gazette. It is responsible for providing adequate safe drinking water to the residents of the Bharatpur municipality and surrounding areas covered by its service. Water Supply Tariff Fixation Commission is the regulator for its tariff. The Board has recently submitted water tariff structure for the fiscal year 2012/13 to WSTFC for approval. In absence of its own tariff structure, BWSMB is applying the tariff structure of NWSC at present. The tariff structure is simple of two- part IBT type with a fixed minimum charge for initial 10 m³ and a volumetric rate for additional consumption beyond that. There are different flat rates for unmetered taps of different sizes. There are no other classifications on the basis of use. Also there are additional flat rates for community connections. The charge for a new ½‖ tap connection is NRs.5000.00 at present and all other costs are to be borne by the customer himself/herself.

Current Water Tariff Structure in Bharatpur

Table 3.26: Current Water Tariff Structure of Bharatpur Connection Minimum Metered tariff Unmetered Branch size (Inch) Consumption tariff Tap/Tee (Litres) Minimum Additional Monthly Monthly charge, charge Rs. fixed fixed Rs. Per 1000 ltrs charge, Rs. charge, Rs. 100 0.50 10,000 50 15 360 0.75 810 30 1950 650

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27,000 1115 1.00 56,000 1680 30 4050 3000 1.50 155,000 4650 30 11160 5000 2.00 320,000 9600 30 23040 14830 3.00 881,000 26430 30 63450 4.00 1,810,000 54300 30 130320 30000

Main characteristics:

 Customers are classified by the size of connection;  Except for the customers with 1/2 inch connections, all customers pay a uniform rate of Rs30 per m3;  No differentiation in rate for customers in different sectors (residential, government, commercial);  There is a minimum charge and the minimum charge is calculated by minimum consumption times the tariff rate;  The minimum consumption differs based on size of connection;  Customers with 1/2 inch connections pay low tariff rate compared to other customers

The minimum charge appears no different from fixed charge in a two-part tariff system, except it is determined by tariff rate times a minimum level of consumption and that seems to be determined arbitrarily.

For customers with 1/2 inch connections, it appears that the tariff structure is IBT with two blocks. However, given that consumers are paying a fixed charge for the first 10 m³ regardless of consumption level, the only real price they face is the price for consumption beyond 10 m³.

From an economic perspective, scarcity pricing is not important in Bharatpur. As there is a good supply of water, water is not a problem. However, big section of the people are still using dug well and shallow tube well water, which is much cheaper than piped water. It shows a lack awareness among these people that piped water is of better quality than that from a dug well or shallow tubewell.

Problems and disadvantages:

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 The determination of the levels of minimum consumption for connections with different sizes seems to be quite arbitrary. Consumers with large size connections may be severely penalized. The consequence is that they may simply refuse to pay or find alternative water sources.

3.2.3 Utility Management Introduction

Bharatpur is a fast growing secondary level town located on the East- West Highway in Chitwan District in Central Region. The existing water supply in Bharatpur is fed by ground water pumped from deep tube wells and it serves most parts of Bharatpur Municipality including nearby Narayanghat .An independent agency Bharatpur Water Supply Management Board (BWSMB) is the asset owner and operator of water supply system .BWSMB has very recently taken the operational management of whole of Bharatpur from Nepal Water supply Corporation (NWSC). Though, BWSMB was formed in 17 September 2007(31, Bhadra 2064), the transfer of assets of NWSC could not take place for a long time. Finally it was on 5 September 2012 (20 Bhadra 2069) only, that such a transfer was materialized. It shows institutional reform is a time taking process. As Bharatpur Branch of NWSC was a profitable unit their reluctance to hand over the unit is the main reason for the delay of whole process.

Though BWSMB was formed on 17 September 2007, it started operating the physical facilities constructed under the project, Urban and Environmental Improvement Project,( UEIP) from the Fiscal Year 2010/11. For a few year, two agencies worked in parallel in Bharatpur for supplying water ,till 5 September 2012, when NWSC transferred their all assets in Bharatpur to BWSMB. UEIP is an ADB funded project. Government of Nepal (GON) signed for a loan agreement with ADB for this project on 20th. June 2003. Latter GON had subsidiary loan agreement with Bharatpur Municipality for the execution of this project. The construction work of this project started in the Fiscal Year 2005/06 and the project got completed in Fiscal Year 2910/11. At present, BWSMB is using all the facilities received from NWSC, and the facilities constructed under UEIP to supply water to people of Bharatpur. Outline Organizational Structure of BWSMB

BWSMB

Executive Director

Administrative Quality Control Technical Section Account Section Section Section

(Detail Organizational Structure shown in Annexure)

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The Board of Directors consist of Chief of Bharatpur Municipality, Chairman of local Federation of Nepal Chambers of Commerce & Industry, Representative of Consumers, Representative from NGO working in water supply sector, Representative from GON and expert of Water Supply Sector. These members elect the Chairman. At present, there are forty two (42) staff in the board. The Executive Director is on deputation from GON, four permanent staff are from NWSC, and the rest 38 staff are on contract basis (service). There is a shortage of technical staff in the organization at present.

The Board is preparing personnel rules and regulations at present for recruitment and career development of the staff.

Present Situation

Ground Water is main source of water supply. Sixteen tube wells are in operation and two more are under construction. Most of the people in the service area have alternate supply source from shallow tube wells and dug wells, besides having service connections from the Board. There are four sets of standby generators for use during the period of failure of electricity supply. There are five service reservoirs in the supply system. At present the utility is serving about 85000 populations through 14,500 no. service connections, with the help of about 341Km.pipe line network. On an average the supply hour is 10 hours per day and it is estimated that consumers are getting150 liters/capita/day. Computerized billing has been implemented in whole of service areas. About 85% of connections are metered, and only about 500 connections are unmetered. It is estimated that unaccounted for water is about 35%.Besides supplying water, the utility is engaged in Sanitation Promotion activities as well.

Major Challenges:

 As most of consumers have alternate source of water the utility should give due emphasis to the quality of water supplied. The staff should be efficient to reduce the leakage and wastage of water so that they can supply water at reasonable cost in comparison to the alternate sources.  Stand by diesel generator is in regular use during breakdown of electric power supply. Huge amount of operation budget is consumed by the operations of generators. No. of generators are insufficient with respect to the nos. deep tube wells in operations.  It is desirable to have Virtual Private Network (PVN), Networking and computerized accounting system for better service to consumers in coming years.  From the perspective of population growth in the service area, the present system would face new bottleneck in capacity of transformer, generator and size of over head tank in near future.  There are lot of leakage and wastage from High Density Polyethylene (HDP) Pipes used in UEIP Project.

Table 3.27: Bharatpur Water Supply in a nutshell: SN Description Quantity Number

1 Water Supply Delivered 13 mld.

2 No of service reservoirs 5

3 Total service connections 14500

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4 No. of staff 42

5 No. of staff per 1000 taps Aprox. 3

6 Unaccounted for Water Approx. 35%

7 Population served Aprox.85000

In Bharatpur customer taps are classified on the basis of tap sizes. There is no differentiation in rate for different uses or in different sectors (residential, government or commercial).

Table 3.28: Types of connection by size: Sr. Size of Number of Remarks No. Connections Connections 1 ½‖ 14476 Mostly Private

2 ¾‖ 16 Public and commercial

3 1‖ 8 Public and commercial

Table 3.29: Consumers According to Consumption: SN CONSUMPTION AVERAGE % OF CONSUMPTION CONSUMERs

1 1-10 cu-m block 5 cu-m per month 45

2 10-20 cu-m block 15 cu-m per month 30

3 20-40 cu-m block 30 cu-m per month 16

4 Above 40 block 55.8 cu-m per month 3

5 0(unmetered, temporary 26 cu-m per month 4.5 plugged, meter not working)

6 0(Institutions, unmetered) 30 cu-m per month 1.50

Implications on water tariff setting:

As shown in the above table the customers with metered connections consuming about 5 cu-m of water per month account for 45 %. On the other hand customers with consumption exceeding the minimum first block make about 49 %, 6% of customers without meters who pay monthly flat charge.

On an average consumers are using 14 cum. of water per month. Majority of consumers (about 45%) use less than 10 cu-m of water. Alternatives like ground water source due to high water table are easily available, and most of the consumers use these sources for purposes other

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than drinking. As big section of the population who need more water are relying on alternate sources like dug wells and tubewells, due care should be given while revising the tariff structure to avoid any chances of driving away good customers and discouraging potential new customers. Conclusion

 At present the water supply system is in good condition. When the mechanical and electric components will be old, replacement and rehabilitation will be needed. Enough funds should be saved for such future needs.  Management of the utility should be forward looking to improve the service level of service delivery.  Besides preparing for future needs, the utility should discourage the public from going for hand pump or shallow dug well water, and encourage them to use the organization‘s water which is comparatively safe to use. Marketing and Public Relation Units of the organization should be strengthened.  The Board is trying for tariff adjustments, has applied for approval from Water Supply Tariff Fixation Commission.  The tariff revision is a tricky issue, for it should meet the future requirements of the organization but should not be very high as consumers will be driven away to opt for alternate sources.  The present number of staff is insufficient. There is shortage of technical staff in the organization. Human Resources Unit of the Organization should be strengthened so that competent people could be recruited to enhance the service in quality, quantity and coverage in service area.

3.2.4 Financial Performance This chapter presents the financial analysis of BWSMB on the basis of the information and data made available to the TA team by concerned utility office/BWSMB.

1. Introduction

Bharatpur is a mid-sized municipality located in the Inner-Terai Region of the Central Development Region. It is the District Headquarters as well as a commercial center of Chitwan District in Narayani Zone. It lies on the bank of the Narayani River and is located at the center of Mahendra (East-West) Highway and Kathmandu-Birgunj (north-south) road corridor. Because of this, Bharatpur has developed as a major commercial and industrial town. In addition to good road access, Bharatpur has regular daily air services to Kathmandu.

Bharatpur Water Supply Management Board (BWSMB) is responsible for supplying water in Bharatpur Municipality, which has 14 wards with a total area 162.16 sq. km. The municipality had a total population of 89,323 with a number of households of 19,910 as per the census of 2001. The population and number of households increased to 143,836 and 36,939 respectively in 2011 as per the National Population & Housing Census 2011 (National Report) 2012.

Though BWSMB was formed in 17 September 2007, the transfer of assets of Nepal Water Supply Corporation could not take place for a long time. Finally it was on 5 September 2012 only that such a transfer was materialized. As a result of delay in transfer of assets, the two water operators, namely, BWSMB and Nepal Water Supply Corporation (NWSC) administered water supply in Bharatpur Municipality.

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BWSMB has been administering the water supply in Ward Numbers 1 to 14 serving the population of 85,870 with household connections of 13,850. The average daily production of water has been 13,000,000 liters and the average daily supply has been 8,450,000 liters. The new connections average 1500 per year. The leakage has been estimated to be 35 percent which will be reduced to 25 percent in coming years. It has received a loan from Government of Nepal for Rs. 21,015,080 at an eight percent interest rate.

2. Operating results

BWSMB has not been preparing the Balance Sheet and hence the financial position of the Board is not known. Its total fixed assets consist of Rs. 445.7 million in 2010/11. Of the total current assets, receivables represent Rs. 7.29 million 2009/10 which increased to Rs.9,803 million in 2011/12. The long term liabilities are reported to be Rs.84.17 million. BWSMB, however, does prepare income and expenditure account as presented in Table 3.30. The top section shows the annual income while the lower section shows the expenditures. Because of the delay in the transfer of assets, both water operators were operating the water supply in Bharatpur as shown in the same table. The total income increased from Rs. 29.163 million in 2009/10 to Rs. 39.211 million in 2011/12, the increase being 34.5 percent. Likewise, total expenditure increased from Rs. 14.24 million in 2009/10 to Rs. 32.482 million in 2011/12, the increase being 128 percent. The earnings before tax decreased from Rs.7.499 million in 2009/10 to a loss of Rs.7.419 million in 2011/12.

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Table 3.30: Bharatpur Water Supply Board Annual Income & Expenditure Accounts ('000 Rs.) Year 2009/010 2010/11 2011/12 Annual Income Under the operation of NWSC Water revenues 14,800 14,900 16,793 Other income 1,190 2,210 2,327 Total Income 15,990 17,110 19,120 Under the operation of Board Water revenues - 3,056 7,838 Other income including connection charges & pipe fitting sales 13,173 10,237 12,253 Total income excluding deposits 13,173 13,293 20,091 Total under both the systems: Total water revenues 14,800 17,956 24,631 Other income other than pipe fitting meter & sales revenue 1,470 2,963 3,965 Total income 29,163 30,403 39,211 Annual Expenditures (Rupees in Thousands) Under the operation of NWSC Staff costs 7,371 6,278 6,278 Electricity and fuel 4,350 3,712 3,712 Chemicals 41 20 20 Repair and maintenance 1,392 896 896 Other admin expenses 518 783 783 Total annual expenditures 13,672 11,689 11,689 Under the operation of Board Staff costs 353 1,568 3,447 Electricity and fuel 3,420 3,357 Chemicals 42 48 Repair and maintenance 1 185 1,582 Other admn expenses 214 956 1,427 Total annual expenditures 568 6,171 9,861 Total under both the systems Staff costs 7,724 7,846 9,725 Electricity and fuel 4,350 7,132 7,069 Chemicals 41 62 68 Repair and maintenance 1,393 1,081 2,478 Other admn expenses 732 1,739 2,210 Other costs 6,065 6,065 BNP 4,867 4,867 Total annual expenditures 14,240 28,792 32,482 Operating profit 14,923 1,611 6,729 Depreciation 7,424 7,424 7,424 Interest costs - 6,724 6,724 Earnings before tax 7,499 (12,537) (7,419)

Figure 3.5 below shows the O&M expenses and water and sewerage income of BWSMB for the period 2009/10 to 2011/12.The O&M cost includes cost of sales, sales expense and

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administrative fees less depreciation. The water and sewerage income of BWSMB is less than O&M cost in 2010/11 and 2011/12.

Figure 3.5: Water and sewerage income and O&M costs for the period 2009/10 to 2011/12

35,000

30,000

25,000

20,000 O&M expenses, In Thousand Rupees 15,000 Water sale revenues, In 10,000 Thousand Rupees

5,000

- 2009/010 2010/11 2011/12

The total revenues and total expenditures for the period 2009/10 to 2011/12 are shown in Figure 3.6. It indicates that total income was higher than that of total costs in 2009/10 but total income was lower than total costs thereafter.

Figure 3.6: Total revenues, total expenditures and net profits of BWSMB for the period 2007/08 to 2011/12

50,000

40,000

30,000 Total revenues, In Thousand Rupees 20,000 Total costs, In Thousand Rupees 10,000 Net profit (loss) In Thousand Rupees - 2009/010 2010/11 2011/12 (10,000)

(20,000)

3. Financial status

An analysis of financial performance of BWSMB is undertaken below by using the information from the statements of income and expenditures and from the available balance sheets figures.

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The analysis begins with cost recovery followed by profitability and other measures of performance. It then goes on to consider additional dimensions of financial performance based on cash flow and risk.

Cost recovery

In order to determine the coverage of expenditures by water sale revenues, the following two measures have been employed4:

These measures are direct indicators of cost recovery and should exceed 100%.

Cost coverage indicators for BWSMB are shown in Table 3.31. More recently, both of the ratios, namely water sales revenues as a percentage of OM&A cost and water revenue as percentage of OM&A plus depreciation and interest declined over a period of time. Water revenues have not been enough to cover operating and maintenance costs plus depreciation and interest costs as they are less than 100 percent in 2010/11 and 2011/12. In 2010/11, these ratios used to be more than 100 percent. Table 3.31: Cost Recovery Indicators for BWSMB 2009/10 to 2011/12 (%) Year 2009/010 2010/11 2011/12 Water revenue/OM&A cost 204.80 105.60 120.72 Water revenue/ OM&A + depreciation + interest 134.62 70.80 98.26

Profitability

The cost coverage considers the ability of BWSMB to pay for all factors of production other than the capital contributed by equity investors. If the coverage of all costs exceeds 100 percent, then the residual portion is the return or profit for equity investors. Indicators of profitability measure the rate of return on total or net assets. However, it is difficult to compute the ratios based on balance sheet data as BWSMB has not yet started preparing the balance sheets. Hence some assumptions are made to compute these ratios. The total assets are reported to be Rs.446.721 million in 2010/11. It is reported that average collection period has been 90 days5. With these, current assets are assumed at 4 months of water sales and current liabilities are on an average taken at 2.5 months of sales. In any case, one of the important measures of financial performance is profitability for BWSMB. Four measures of profit are shown in Table 3.32 which reveals a very low profit level of BWSMB. More recently, almost all the profitability measures show the deteriorating trend in profitability. The ratio of net profit to total assets and the ratio of net profit to net assets was positive in 2009/10 which became negative in 2010/11 and 2011/12.

4 Water Tariff Study II, Peoples‘ Republic of China, TA No. 3250 PRC, November 2001.

5 This is also consistent with the figure provided by BWSMB in the questionnaire form.

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Table 3.32: BWSMB Profit Level, 2009/10 to 2011/12 (%) Year 2009/010 2010/11 2011/12 Operating profit to total assets (%) 3.48 0.36 1.41 Operating profit to net assets (%) 4.32 0.44 1.71 Net profit to total assets (%) 0.02 (0.03) (0.02) Net profit to net assets (%) 2.17 (3.40) (1.89) Note: net assets are total assets minus total liabilities.

Revenue collection

Revenue collection from water sales may vary from one organization to another organization and one time period to another time period. Generally, there is some delay between the time that invoices for water are issued for and the receipt of payments. The efficiency of revenue collection can be judged by computing the performance measure known as the carrying period which is estimated by dividing 360 by the collection ratio. It shows the average number of days it takes to receive payment on an invoice. Lower the carrying period, the better it is. Collection ratios and carrying period for BWSMB are provided in Table 3.33. The table shows that BWSMB is lagging behind the collection of receivables. Instead of an increase in collection ratios, they have a declining trend more recently. Likewise, the carrying period in days has been observed to be higher and it has an increasing trend.

Table 3.33: BWSMB Performance in Revenue Collection, 2009/10 to 2011/12 Year 2009/010 2010/11 2011/12 Collection ratio, times 4.80 4.00 3.75 Carrying period, days 75.0 90.0 96.0 Collection ratio = water sale revenues/receivables, times. Carrying period in days = 360/collection ratio, days

Overall, the financial status of BWSMB is on decline.

3.2.5 Social and Poverty Assessment a)Social Profile and Economy:

Bharatpur city lies in the central-southern part of Nepal. Located in Chitwan Valley, Bharatpur is the district headquarters of Chitwan District, as well as is a separate Municipality. Its population is 143,836 (Census 2011). Bharatpur is also one of the fastest growing cities of Nepal. It lies on the bank of Narayani River and serves as a commercial centre of Chitwan district and central region of Nepal as well. It is centrally located on Mahendra (East -West) highway and Kathmandu - Birgunj (North-South) road corridor. The proximity of this city from Kathmandu (146 km), Pokhara (126 km), Butwal (114 km), Birganj (128 km), Hetauda (78 km) and Prithivinarayan (Gorkha) (67 km) has augmented the importance of its advantageous geographical location. In addition to good road access, Bharatpur has regular daily air services to Kathmandu. . About 35% of the total population has access to piped drinking water while 95%

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have electricity. The literacy rate of the Municipality is 76%. It is estimated that about 15-20% of the population live below the poverty level.

Table 3.34: Key Indicators on the Social and Poverty Profile of Bharatpur Town City/Town Total Urban HDI HDI Ranking Human Population Population Poverty Index

Bharatpur 579984 194384(33.5%) 0.5 12 31.9

The economy of Bharatpur was traditionally based on agriculture as the flat land in the area is very fertile. The agricultural land is gradually being converted into the residential and industrial areas. Main industries of Bharatpur are small scale processing industries. A large number of poultry industries have developed in the municipality and surroundings. It is believed that it covers more than 60% of the total poultry demand of the country. This municipality has a substantial volume of poultry products for export trade also. Other major productions of the area are honey, mushrooms, floriculture, and service industry (education and health). Chitwan is regarded as food surplus district. Surplus food is processed in Bharatpur and sold to major cities of the country including Kathmandu and Pokhara. Besides these, multinational companies like Coca-Cola, San Miguel and Lay D Bois are also situated within the city. A large number of business and trading houses are based in the city. The major companies across the country have opened their branches in the city. Its location at the crossroads of two prominent highways has enabled it to increase its wholesale and retail trading function. Also Bharatpur has become a city of Banks and Hospitals. There are more than 40 Banks and Financial Institutions in nearby Narayanghat township only.

Water Supply Condition for the Low Income Communities/Poor

Its main water source is ground water fed by deep tube wells. The current population coverage is 35% and service duration is about 10 hours a day. Bharatpur is fast growing secondary level town with a water system operated by an independent agency Bharatpur Water Supply Management Board (BWSMB). It is the asset Owner as well as the Operator with WSTFC as the regulator.

There is a provision to construct community taps so that communities in poor areas can get relief from paying high tariff and connection fees. However less than 5% of the total population belonging to the poorer section has been served till now by such community taps. Landless people of the municipality cannot apply for a connection due to lack of land ownership certificates. This deprives them from getting access to the improved piped drinking water to some extent.

Table 3.35: Water Supply Source and HH Coverage in Bharatpur Source of Tap/Piped Tube Covered Uncovered Spout River Others Drinking Well/Hand Well/Kuwa Well Water Stream water Pump /Kuwa

% HHs 35.0 49.3 8.0 5.5 0.5 0.4 1.1 Cover

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Table 3.36: Domestic Water Consumption Status Case City General Households Poor Households

% of HHs water Use consume lcd per % HHs water Use consume lcd per (Cubic meters) family(average 5 in (Cubic family(average 5 members per meters) members per family) family)

Bharatpur 90% 10.0 70-80 lcd 25% 10.0 40-45lcd

Table 3.37: Status of Household in Expenditure on Water Case City General Households Poor Households

% of household Income % of household Income

Bharatpur 3% 1%

 Potential Impact of Rate Increase Bharatpur Water Supply Management Board-BWSMB follows a progressive tariff for water supply services. It is reported that the current lifeline rate has been set in line with per unit cost of production of water. There is no differentiated rate for categories of users in domestic and industrial. However, a mechanism has been built in to charge different rates according to the quantity of consumption of water and the size of the tap. Even though progressive tariff rate has been designed in order to maintain equity, no attention has been given for special considerations of poor and disadvantage group. So any increase in tariff will have adverse impact on the poor also.

 Implication for Water Tariff Setting Affordability is a problem for low-income consumers in all case study towns. Low income household spends a substantial share of their income on utility services such as water. The difficulty these socially vulnerable consumers have in affording further tariff increase is often used as an argument against tariff reform.

Social impact of tariff adjustments can be mitigated through targeted assistance programs and lifeline tariffs. Following recommendations for addressing the poor/disadvantaged are suggested:

 Mobilization of a Fund to be received from external sources for community- and HH connection for poor HHs.  To initiate new schemes and giving privilege in payment of the connection charge on an installment basis to poor HHs.  Motivation of the poor HHs through awareness program is necessary to encourage poor HHs to get connected to the network.  Starting income generation programs through the establishment of a revolving fund with 1% interest rate and other possible funds that could support poor HHs to get connections.

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3.2.6 Development of Water Tariff Projection of costs and tariff setting

Having analyzed the financial performance, next part of the analysis is concerned with estimate of BWSMB‘ costs and revenues that will improve the financial performance and estimate the tariff. In 2011/12, water and sewerage income was Rs. 24.63 million whereas the average supply in the same year was 1.89 million. The average price may then be computed as under:

Average price = Water and sewerage income / average supply

= Rs. 524.23 million / 36.315 Million CUM = Rs. 13.03 per CUM.

Thus average selling price was Rs. 13.03 per CUM.

Table 3.38 shows the structure of current tariff, connections, and water sale revenues by customer type. It indicates how Rs. 39.2 million of revenues of 2011/12 have been arrived at. The total revenues are computed by multiplying the rate by the number of connections.

The metered tariff minimum charge customers represent the 45 percent while the metered tariff additional charge customers represent the highest which is about 49 percent. There are 6 percent of customers without meters who pay monthly fixed charge. The number of connections by customer type is not known. It is therefore assumed that the percentage of private customers using 0.5 inches connection is roughly 83 percent. Similarly, the percentage of institutional customers using 0.5 inches connection is about 10 percent and so on. Likewise the number of connections paying minimum charges with meter is 45 percent and that the number of connections paying additional charges is 49 percent while the rest 6 percent are number of connections unmetered.

Table 3.38: BWSMB's structure of current tariff, connections, and water sale revenues by customer type in 2011/12 before increasing the tariff (In Million Rupees) S. Conn Type Mini Metered tariff Unmet Consu Total Total Number of Revenues (Million No ectio mum ered mption: conn conne connections Rupees) . n Cons tariff Unmete ectio ctions, size umpti red ns, % numbe Metere Un Meter Unm (Inch) on r d tariff met ed etere ('000 ered tariff d Litres tariff tariff ) Mini Additi Monthl Minim Additi Mon Mini Additi Mont mu onal y fixed um onal thly mum onal hly m charg charge charge charg fixe charg charg fixed char e Rs. , Rs. e Rs. d e, e Rs. charg ge, Per Per char Rs. Per e, Rs. 1000 1000 ge 1000 Rs. ltrs ltrs ltrs 1 0.50 Private 50 15 10 360 24.00 0.83 11,496 5,173 5,633 690 3.10 19.47 2.98 2 0.50 Institutio 50 15 nal 10 360 24.00 0.10 1,385 623 679 83 0.37 2.35 0.36 3 0.75 Private 810 30 institution 27 1,950 65.00 0.05 693 312 339 42 3.03 2.35 0.97

4 1.00 Private 168 30 institution 56 0 4,050 135.00 0.02 277 125 136 17 2.51 0.94 0.81

Tot - - - - - al 248.00 1.00 13,850 0.45 0.49 0.06 9.02 25.10 5.12 Total revenues Rs.39.2 million

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Total revenues: Rs.39.2 million

The total revenue with the current tariff in 2011/12 was Rs.39.2 million. This level of revenues is not enough for the level of costs that BWSMB has to incur. With the above tariff, BWSMB has been incurring the losses. The loss for the year 2011/12 was Rs.7.4 million. However, by generating revenues for Rs.39.2 million in 2011/12, BWSMB can cover all the O&M costs and interest charges but not the CAPEX. Therefore, BWSMB has been proposing to increase the tariff. This is required also due to increased cost that BWSMB will have to bear in future. BWSMB‘s revenues and costs for 2013/14 to 2015/16 have been estimated as shown in Table 3.39.

Table 3.39: Forecasts of BWSMB‟s revenues and total costs from 2013/14 to 2015/16 (In Million Rs.) 069/70 070/71 071/72 Description (2013/14) (2014/15) (2015/16) Water Sales 30,407 61,141 66,643 Other Income 3,353 3,623 3,949 Connection Charge 6,233 6,454 6,253 Pipe,Fittings, Meter Sale 3,200 1,000 1,000 Total Revenue 43,192 72,218 77,846 Operating Costs: Staff Costs 8,100 9,415 10,357 Electricity/ Fuel Cost 10,790 12,601 13,735 Maintenance Costs 2,300 2,530 2,783 Chemicals (Bleaching powder) 75 100 150 Administrative Expenses 2,357 3,217 3,500 Other Costs 13,800 15,500 18,050 Total Operating Costs 37,422 43,364 48,576

Surplus Before Admin., Fees and Others 5,770 28,854 29,270

Indirect Cost: Capital costs 12,500 15,000 17,500 Provision for Gratuity 810 1,023 1,126 Provision for Leaves 50 512 563 Interest 6,733 6,733 WSTFC Fee 611 666 BNP 4,000 2,500 - Provision for bad debts 5% 1,520 3,057 3,332 Total Overheads 18,880 29,437 29,920 Total Costs 56,303 72,801 78,496 EBITA (4,188) (2,235) (4,397)

Since the total costs are likely to increase to Rs. 56.3 million in 2013/14 which is much less than the current sales revenues of Rs. 39.2 million in 2011/12, there is a need to increase the water

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tariff. To recover this cost, if BWSMB may decide to increase the water tariff as shown in Table 3.40.

Table 3.40: Proposed percentage increase in BWSMB‟s tariff S.No. Connection Minimum Metered tariff Unmetered tariff size (Inch) Consumption

Minimum charge Additional charge Monthly fixed charge 1 0.50 10 120 20 150 2 0.50 10 200 33 233 3 0.75 27 33 - 54 4 1.00 56 33 - 48 With the above increase, BWSMB new tariff structure, number of connections and water sale revenues would be as shown in Table 3.41.

Table 3.41: BWSMB's structure of proposed tariff, connections, and water sale revenues by customer type in 2011/12 after increasing the tariff (In Million Rupees) S. Con Type Mi Metered tariff Unm Cons Total Total Revenues (Million No nect ni etere umpti conne conne Number of connections Rupees) . ion mu d on: ctions, ctions, Metered tariff Unme Metered tariff Unmetere size m tariff Unm % numbe tered d tariff (Inc Co etere r tariff h) ns Mini Additi Mont d Minim Addition Month Mini Additi Monthly um mum onal hly um al ly mum onal fixed pti char charg fixed charge charge fixed charg charg charge, on ge, e Rs. charg Rs. Per charg e, e Rs. Rs. ('0 Rs. Per e, 1000 ltrs e Rs. Per 00 1000 Rs. 1000 Litr ltrs ltrs es) Private 1 0.50 10 110 18 900 24.00 0.830 11,496 5,173 5,633 690 6.83 23.36 7.45 Instituti 2 0.50 onal 10 150 20 1,200 24.00 0.100 1,385 623 679 83 1.12 3.13 1.20 Private institutio 3 0.75 n 27 1080 30 3,000 65.00 0.050 693 312 339 42 4.04 2.35 1.50 Private institutio n 135.0 4 1.00 56 2240 30 6,000 0 0.020 277 125 136 17 3.35 0.94 1.20 Tot 248.0 al - - - - - 0 1.00 13,850 0.45 0.49 0.06 15.34 29.77 11.34 Total revenues Rs.56.4 million Total revenues: Rs.56.4 million

After the increase in tariff, total revenues will be Rs. 56.4 million. With the proposed increase, BWSMB can recover all the O&M costs, interest costs, and the CAPEX.

3.3 Surkhet (Birendranagar)

Surkhet presently called Birendranagar is a fast growing town and lies in the Surkhet valley which is located in western Nepal in the mid-hills. It is the headquarter of Surkhet District and also the regional headquarter of Mid-western Region.

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3.3.1 Water System Surkhet(Birendranagar) is served by Jhupra Extensive Water Supply system which is operated by locally established Jhupra Extensive Water Supply and Sanitation Users‘ Organization(JEWSSUO). Jhupra water supply system is a comprehensive water system with several separate sources serving different areas in the Surkhet Valley. The system covers all wards of Birendranagar Municipality, Latikoilee VDC, Uttarganga VDC and 4 wards ( 1-4) of Jarbutta VDC, located within Surkhet Valley. The system is named in the name of Jhupra Khola the biggest source among the several sources in the system. The system is presently serving 37500 households with population 150,000 whereas it was initially designed for only population of 104239 (2020). This brings shortfall in the water supply. Areas served by the system are divided into 10 schemes as shown in Figure 3.7 below and schemes 7, 8 and 9 serve/cover densely populated areas.

Figure 3.7: Service Area and Schemes

Jhupra Water Supply and Sanitation system was designed and constructed under ADB funded First Small Towns Water Supply and Sanitation Sector Project (STWSSSP), and was completed in June 2007. There were three water sources considered in the design of which Karkre Khola, is the biggest one yielding 76 liters per second (l/s) as shown in Figure 3.7. Itram source and Khorke source having 17 l/s and 5 l/s respectively are the other sources used by the system. Earlier the total designed yield was taken 104 l/s including that of Bulbule spring, another local source of 4 l/s yield. The sources dry out considerably during dry seasons. At the time of field visit, the total yield was found to be only 52 l/s. Lowest yield observed so far during dry period is 31.5 l/s (Ashad 2069/ June, 2012). So there is substantial fluctuation in the total water availability in the sources during various seasons which brings variation in the quantity of supply

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as well. Thus the water supply badly gets affected in the dry season. The system has total 21 reservoir tanks (refer Fig 3.8.) and of them Itram reservoir tank is the largest one with 900 m3 capacity. Total reservoir tank capacity of the whole system is 3220 m3.

Current status of reservoir tanks and its capacity serving scheme wise is presented in Table 3.42. Main infrastructures in the water supply system are 4 intake sources, 2 grit chambers, 21 RVTs, 6 treatment plant units, 1 laboratory, 11 chlorination units, 38.4 km of main pipe line and 210 km of distribution pipe lines.

Table 3.42. Schemes and its reservoir tank (RVT) capacity Scheme No Total no. of RVT Total capacity, m3

1 4 4 x20 = 80

2 2 150+90 = 240

3 2 50+20 = 70

4 1 100

5 1 150

6 1 100

7 1 200

8 3 150x2+400 = 700

9 5 300 x3+80+400= 1380

10 1 200

Total 21 3220

Table 3.43 shows variations in discharge of the water sources in different seasons Table 3.43: Variations in discharge of the water sources in different seasons Sr. Name of Source Discharge/Yield of Sources at Different Times(Litres per Second) Remarks No. As per Dry season Dry season Present original design Winter (June,2011) (July,2012) (May,2013)

1 Jhupra Khola 76 76 47 25 40

2 Itram Khola 17 14 6 4 8

3 Khorke Khola 7 5 2 1.5 2.5

4 Bulbule Spring 4 3 1.5 1.5 1.5

Total 104 98 56.5 32.5 52

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Total number of water connections in the system is 11, 910 (as of April, 2013), of which 11362 are private, 226 community, 282 Institutional and 40 public taps. All the water connections are of ½" size and the supply is intermittent. The system has average of 15 leak repair work daily of which 8 to 10 repairs are in private connections and 5 to 6 in distribution network.

Because of the rapid growth of the population of Surkhet (Birendranagar) and the fast reduction in the yields of the sources, Surkhet (Birendranagar) is badly suffering from water shortage. The situation gets worse in the dry season when the water has to be rationed through intermittent supply by supplying areas at varying gaps, even going as high as one hour supply once in 2 days in many areas. Because of acute water shortage new connections are discouraged. There are around 1000 applications for new connections pending and waiting for approval.

The people in service area have very few alternatives. Those who are not covered /connected to the pipe water system have to rely on few available shallow tube wells, dug wells and ponds fed by local springs water of which is not of good quality wise. The hotels, restaurants and factories that need more water, buy water from vendors who are selling water in available few (3/4 )small tankers of 3 m³ and 1m³ capacities. The cost of 3 m³ water tanker is NRs.2000.00 and that of 1 m³ water is NRs.700.00. The vendors bring water from Jhupra Khola or from nearby Bulbule spring. Also people who do not trust the quality of public water supply and drink bottled water. There is one Bottled Water Company in Surkhet (Birendranagar) which is supposed to be doing business reasonably well.

Besides having the problem of inadequate water in the system other big problem that Surkhet water supply faces today is the damage done to the transmission mains by the landslides every year in the rainy season. So far Users‘ Committee itself has been doing the necessary repairs which are costly. Because of this timely debt servicing by the Committee is being affected adversely.

The Users‘ Committee is already looking for alternative water sources to supplement the short fall of water and for long term solution to the water supply in Surkhet valley. They are seeking financial support from the government and different donor agencies.

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Intake

Karekhola Treatment Plant

Itram Treatment Plant 76 l/s

Source 5 l/s 17 l/s 73 l/s 3 l/s

Karekhola RVT 1-80 cum Devisthan Danda 54 l/s 19 l/s

4 l/s 5 l/s 16 l/s 47 l/s 4 l/s 4 l/s 4 l/s 5 l/s 6 l/s

200 150

Bstipur Bstipur RVT 3 cu.m -70

Khorke RVT cu.m 8 -300 Itram RVT cu.m 9 -900 Dharapani Dharapani RVT 7- cu.m cu.m Koldanda RVT 6-100 cu.m KakrebiharRVT KakrebiharRVT cu.m 10-200 Amrit Danda RVT 4-100 cu.m

Chanaute RVT cu.m cu.m 2 -240 Bamekhola RVT cu.m 5-

Fig. 2 Jhupra Water Supply Flow Diagram

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3.3.2 Tariff Structures and Institutions

The water tariff is decided by the Users‘ Committee and is approved by the General Assembly. The tariff is revised time and again based on cost recovery principle and paying capacity of the consumers. The General Assembly meets at least once a year.

The Users‘ Committee consists of nine members and they all come through election from the different service areas called schemes. The General Assembly consists of 127 members which includes the executive council members and representatives from the 10 schemes. The representatives from those 10 schemes themselves are elected members who come through elections in their respective schemes. The tariff structure of Surkhet water supply is a two- part Increasing Block Tariff with 7 Blocks. There are no classifications either on ferrule sizes or in terms of uses.

The connection charge for a new ½‖tap for domestic use is NRs.15000.00 while that for institutional is NRs.21000.00. On the top of this there is additional charge of NRs. 1000.00 if the connection is to be made on GI pipe and NRs.500.00.if that is on HDPE pipes.

Table 3.44: Existing Water Tariff Structure in Surkhet (Birendranagar) Units ( cu.m) Rate NRs. per unit

0-8 (minimum) 60

9-18 12 for additional unit

19-28 15 for additional unit

29-38 20 for additional unit

39-48 25 for additional unit

49-58 40 for additional unit

59 and above 50 for additional unit

Main characteristics:

 Customers are not classified;  No differentiation in rate for customers in different sectors (residential, government, commercial);  There is a minimum charge and the minimum charge is calculated by minimum consumption times the tariff rate;

The minimum charge appears no different from fixed charge in a two-part tariff system, except it is determined by tariff rate times a minimum level of consumption seems to be determined arbitrarily.

From an economic perspective, scarcity pricing is important in Birendranagar particularly in dry season. As there is a poor supply of water, water is the problem during the dry season. Those who can afford mainly hotels, business houses, and individuals will have to go for tanker/tractor

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supply of water. However, big section of the people are still using spring water, dug well water, and shallow tube well water, which is much cheaper than piped water though quality is poor. It shows that piped water supply needs to be strengthened in Birendranagar.

Problems and disadvantages:

 In a water system with rationing, the minimum charge based on consumption level higher than what the utilities are able to provide may face resistance from the consumers in payment.  In a water system without rationing, the minimum charge does not provide incentive for consumers who are able to reduce the consumption level below the minimum.  The determination of the levels of minimum consumption for connections with different sizes seems to be quite arbitrary. Consumers with large size connections may be severely penalized. The consequence is that they may simply refuse to pay.

3.3.3 Utility Management Introduction

Jhupra Extensive Water Supply and Sanitation Users Organization (JEWSSUO), was established in 2057 B.S (2000AD) in Birendranagar, Surkhet when Surkhet Valley was suffering from extreme water scarcity. The main objective of the organization was to solve the problem of water scarcity and sanitation. Following steps were taken during the formation of Organization:

1. Formation of Scheme committee from Birendranagar Municipality (1- 12 wards), Latikoile VDC (1-9 wards), Uttarganga VDC (1-9 wards)and Jarbuta VDC(1-4 wards) in2057B.S,Baisakh. 2. Formation of Main Users Committee (working body) in 2057 Jestha,15(2000 AD) 3. Registered in Water Resources Committee in 2057 B.S(2000 AD) 4. Merging of all small users committee of the Surkhet Valley to the main User Committee in 2057 Srawan 3(2000 AD).

Evolution of Water Utility:

Before the formation of JEWSSUO, there were seven water supply schemes in the valley. All these schemes were serving about 35,000 inhabitants. Government of Nepal(GON) has initiated a 15 years program(2000- 2014) for the improvement of water supply and sanitation in 209 small towns of the country by giving birth to Small Town Water Supply and Sanitation Sector Project (STWSSSP). The financial assistance has been provided by ADB through loan No. 1765- NEP- SF. JEWSSUO made final agreement with GON for the execution of Birendranagar Water Supply and Sanitation Project (town project) in2002. Construction work started in 2004 and completed all works in 2007.

Present Situation

At present the town water supply system comprises of 10 subs – systems. The new water supply project is extension of old surface water system.

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The total water demand in service area is about98.5 lps. and max. Supply during wet season is about 100lps. and min. supply during dry season is about 55lps. The supply system is intermittent most of the time in most of the areas .Seasonal water distribution has been scheduled at the gap of 12, 24, 36 and 48 hrs. During the driest period, on average consumers get supply for one hour at the gap of 48 hours.

Institutional Capacity of WUSC (Water Users and Sanitation Committee):

In 2010, the present executive committee was formed through election process. The committee comprises 9 members with 3 female members. The executive committee and sub – scheme committees are inclusive because as per the provision of constitution of WUSC, there should at least 2 women, 1 Dalit and 1Janjati members in the executive committee. General Assembly of Water Users Association is organized every year. The last assembly was organized in 2010 that also elected the executive committee members. In annual assembly meeting financial report and proposal of major decisions are presented for approval. As per the provision of constitution of Users‘ Committee, all members (127 currently) of scheme committees are members of general assembly of water users‘ association. At present, chairman of Executive Committee is working as the Chief Executive Officer of the organization. Out of total 59 staff 39 are permanent type and rest 20 is of daily wages. Similarly, 25 no. of staff are working for Corporate Services, and rest 34 are working for water supply operations.

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Organizational chart of JEWSSUO

CEO

Administratio Leak and Billing Revenue Account Technical n Monitoring

Major Challenges:

 Periodical reduction of source capacity in every year, present discharge only 50 % of design discharge.  Increase in population by 1.5 factor than calculated during design period.  Failure to supply for 24 hours, the whole system was designed for continuous supply.  Leakage from old and damaged distribution pipes in core parts of service areas (sub- system no8 and 9).

Although the distribution pipe networks of the system have been designed for 24 hours supply from the very beginning, the supply was intermittent, which is the main cause of low residual head in entire distribution system.

Table 3.45: Brief Description of Jhupra Extensive Water Supply: SN. Description Quantity Number 1 No. of Schemes, Service Areas 10 2 Maximum Supply 100 lps Min. Supply 55 lps 3 Total Water Demand 98.5 lps 4 Total service connections 11910 5 Private connections: 11362 Community: 226 Institutional: 282 Public: 40 6 No. of staff 59 7 No. of staff per 1000 taps 5 8 Unaccounted for Water Aprox 35% 9 Population served Aprox 40000

10 Three biggest sources of water Jhupra Khola: 100 lps Max 55 lps Min Itram Khola: 17 lps Max 6 lps Min Khorke Khola: 7 lps Max 2 lps Min

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Table 3.46: Data Management Before Jhupra Khola Project After Jhupra Khola Project-Present Status Type Size Number Type Size Number Private ½‖ 1084 Private ½‖ 11362 Connections Connections Public Taps ½‖ 308 Public Taps ½‖ 40 Community ½‖ 16 Community ½‖ 226 Taps Taps - Public ½‖ 282 Institutions Total 1408 Total 11910

There are about 5000 applicants waiting for new connections. As there is inadequate water in the system the utility have temporarily stopped new connections.

Implications on water tariff setting:

Depletion of surface water sources has affected the service delivery; causing very difficult to revise existing tariff structure. The water tariff is decided by the Users Committee and is approved by General Assembly. The tariff is revised time and again based on cost recovery principle, paying capacity of the consumers and loan repayments requirements (Town Development Fund Board). These General Assemblies meet at least once in a year and they work as a regulator of tariff. Conclusion:

 As surface water is depleting the User Organization is facing lot of complaints from consumers for poor service .All new service connections has been stopped temporarily.  During dry season, there is big gap between demand and supply, for rationing the limited water they are operating more than 200 valves daily to deliver water to every household, on 48 hour schedule.  All the service connections are metered, but the bulk water meter of Jhupra Water Treatment Plant is not working. There are no bulk water meters at distribution mains and sub – systems.  As the distribution system covers big area, about 150 sq. km; with 10 subs – systems, it is recommended to have a movable ultra- sonic meter.  As about 50% of water losses is from old GI pipes at Sub- System no.9, these pipes should be replaced by new pipes of suitable materials.  To combat the needs of growing population and to supplement the decreasing water source, new water sources should be explored and augmented in nearest future.

3.3.4 Financial Performance 1. Introduction

Jhupra Extensive Water Supply and Sanitation Users Organization (JEWSSUO) was established with a view to meet the increasing demand for the water in Surkhet Valley, the project site of JEWSSUO. Surkhet Valley lies in Bheri Zone of Mid-Western Development Region of Nepal. Birendranagar Municipality, a mid-sized municipality, is the headquarters of Surkhet district as well as the Mid-western Development Region. The municipality, which lies at the bank of Jhupra and Bheri River, is located in a small, bowl shaped and beautiful valley

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surrounded by Mahabharat and Chure hills. It is at an elevation of 655-m from the sea level and the climate is moderate. The municipality is bordered by Lati koili and Uttarganga VDC in the south, Gadhi VDC in the north, Jarbutta VDC in the east and Uttarganga and Lekhgaun VDC in the west. The city is known as the gateway to Karnali zone and is a major administrative and commercial center of this region. This planned city has seen increased migration from the surrounding mountain regions as well as other parts of the country.

JEWSSUO is a continuation of old project with adaptation from STWSSP. It is the biggest project among 29 towns in terms of loan. The loan outstanding of the project is Rs 85.3 million at of end of FY 2011/12.

The migration of population from rural to urban areas of Surkhet Valley are due to economic opportunities, transportation and other service facilities and also due to the conflict in the recent past. As a result, the existing water supply and sanitation services have been inadequate in Surkhet Valley area.

2. Present Situation

JEWSSUO is currently engaged in supplying water in wards 1 to 12 of Birendranagar Municipality, wards 1 to 9 of Uttarganga VDC, wards 1 to 9 of Latikoili VDC and wards 1 to 4 of Jarbutta VDC leading to a total of 34 wards. As per the National Population and Housing Census 2011 (National Report) 2012, the population of Surkhet district is 350,804 and number of households is 72,863 leading to an average household size of 4.81. Of this population, Birendranagar Municipality has 47,914 (12,029 households), Latikoili VDC wards 1 to 9 has 19,963 (4330 households), Uttarganga VDC, wards 1 to 9 has 17,261 (4081 households) and Jarbutta VDC wards 1 to 4 has 8,580 (1837 households). In this way, the operation area of JEWSSUO has a total population of 93,718 leading to the 22,277 households. The total water demand has been estimated at 320 MLD where the supply has been only 119.2 MLD. The total connections have been 11,910 as of May 2013.

The Government of Nepal has handed over the water supply assets to JEWSSUO in Shrawan 3, 2057. Since then JEWSSUO is operating the systems till now and it is fully responsible for regular O&M, new HH connections, tariff collection etc. The major problems faced by JEWSSUO presently are decreasing water at source, load shedding of electricity, increased population and so on.

3. Financial position

The financial status of JEWSSUO can be seen from Table 3.47 which shows its Balance Sheets over the period 2007/08 to 2011/12. The net worth was negative until 2009/10 which became positive in the following years and which increased to Rs. 208.36 million by the year 2011/12. The negative net worth is due to the accumulated losses from 2007/08 to 2009/10. The TDF loan was Rs. 94.692 million in 2007/08 which decreased to Rs. 63.884 million. On asset side, there has been an increase in fixed assets from Rs. 2.96 million in 2007/08 to Rs. 280.206 million in 2011/12.

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Table 3.47: Balance Sheets of JEWSSUO, Birendranagar, 2007/08 to 2011/12 („000 Rupees) Capital and liabilities 2007/08 2008/09 2009/010 2010/11 2011/12 Share capital - - - 194,984 196,409 Reserve and surplus 5,811 2,935 235 4,940 11,952 Accumulated (profit) & loss account (81,501) (72,794) (73,921) - - Net worth (75,690) (69,860) (73,685) 199,923 208,361 Medium and long term loan TDF loan 94,692 94,692 92,967 70,970 63,884 Current liabilities and provisions Sundry creditors and other payables 321 43 123 28,618 23,086 Provisions - - - 7,313 7,996 Total liabilities and equity 19,322 24,874 19,405 306,825 303,329

Assets 2007/08 2008/09 2009/010 2010/11 2011/12 Fixed assets Gross block 3,120 5,748 6,583 338,057 342,410 Less depreciation 159 406 426 47,356 62,204 Net bloc 2,961 5,341 6,157 290,701 280,206 Current assets Inventories 19 1,101 1,612 843 3,689 Sundry debtors and other receivables 2,905 2,941 3,050 2,480 4,065 Cash and bank balances 13,423 15,491 8,585 10,221 13,429 Pre-paid, advances, loans & deposits 14 - - 2,580 1,940 Total assets 19,322 24,874 19,405 306,825 303,329

4. Operational results

Table 3.48 shows Profit and Loss Accounts of JEWSSUO which shows the net results of the company for the period 2007/08 to 2011/12. The water sales revenue increased from Rs. 6.688 million in 2007/08 to Rs. 20.221 million in 2011/12, the increase being 2.02 times over the period. The cost of sales increased from Rs. 0.317 million in 2007/08 to Rs. 3.876 million in 2011/12, the increase being 11.24 times over the period. As a result, gross profit increased from Rs. 6.372 million in 2007/08 to Rs. 16.34 million in 2011/12, the increase being 1.57 times over the period. Finally, net profit increased from minus Rs. 35.6 million in 2007/08 to Rs. 7.01 million in 2011/12. However this net profit is due to the grants included in ‗other income‘. If this grant is excluded, there is a loss for Rs. 11.571 million as shown in Table 3.49.

Table 3.48: Statements of Profit and Loss for JEWSSUO, Birendranagar, 2007/08 - 2011/12 („000 Rupees) Particulars 2007/08 2008/09 2009/010 2010/11 2011/12 Water & sewerage income 6,688 10,126 9,607 11,485 20,221 Less cost of sales 317 150 5,910 3,067 3,876 Gross profit 6,372 9,976 3,698 8,418 16,344 Other income 3,874 7,300 20,324 2,921 22,018

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Administrative expenses 3,822 5,730 6,447 15,122 10,473 Sub-total 3,822 5,730 6,447 15,122 10,473 Operating profit (Loss) 6,424 11,546 17,575 (3,782) 27,889 Interest - - 18,276 6,278 6,029 Project account (income less expenditure) (42,055) (2,433) - - - Depreciation 40 406 426 15,362 14,848 Net profit (loss) (35,671) 8,706 (1,126) (25,422) 7,013

Table 3.49: Revised Statements of Profit and Loss for JEWSSUO, Birendranagar, 2007/08 to 2011/12 („000 Rupees) Particulars 2007/08 2008/09 2009/010 2010/11 2011/12 Water & sewerage income 6,688 10,126 9,607 11,485 20,221 Less cost of sales 317 150 5,910 3,067 3,876 Gross profit 6,372 9,976 3,698 8,418 16,344 Other income 3,874 7,300 20,324 2,921 3,434 Administrative expenses 3,822 5,730 6,447 15,122 10,473 Sub-total 3,822 5,730 6,447 15,122 10,473 Operating profit (Loss) 6,424 11,546 17,575 (3,782) 9,305 Interest - - 18,276 6,278 6,029 Project account (income less expenditure) (42,055) (2,433) - - - Depreciation 40 406 426 15,362 14,848 Net profit (loss) (35,671) 8,706 (1,126) (25,422) (11,571)

Figure 3.8 shows that the O&M expenses and water and sewerage income of JEWSSUO for the period 2007/08 to 2011/12. The O&M cost includes cost of sales, sales expense and administrative fees less depreciation. Till 2008/09, water and sewerage income is more than O&M cost but thereafter the water and sewerage income is less than O&M cost till 2010/11. In 2011/12, again the water and sewerage income is more than the O&M costs.

Figure 3.8: Water and sewerage income and O&M costs of JEWSSUO, Birendranagar for the period 2007/08 to 2011/12

25,000

20,000

15,000 O&M costs

10,000 Water & sewerage income 5,000

- 2007/08 2008/09 2009/010 2010/11 2011/12

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The total revenues and total expenditures for the period 2007/08 to 2011/12 are shown in Figure 3.9. It indicates that total costs and total revenues are quite fluctuating. Except for 2008/09, there is a loss in all the years during the study period.

Figure 3.9: Total revenues and total expenditures of JEWSSUO, Birendranagar for the period 2007/08 to 2011/12 60,000 50,000 40,000 30,000 20,000 Total revenues in Rupees 10,000 Total costs in Rupees - Net profit (loss) in Rupees (10,000) 2007/08 2008/09 2009/010 2010/11 2011/12 (20,000) (30,000) (40,000)

5. Financial status

An analysis of financial performance of JEWSSUO, Birendranagar is demonstrated below using the information from the statements of profit and loans and balance sheets provided by JEWSSUO, Birendranagar. The analysis begins with cost recovery followed by profitability and other measures of performance. It then goes on to consider additional dimensions of financial performance based on cash flow and risk.

Cost recovery

In order to determine the coverage of expenditures by water sale revenues, the following two measures have been employed6:

These measures are direct indicators of cost recovery and should exceed 100%.

Cost coverage indicators are shown in Table 3.50. In the recent past, the water sales revenues have not been enough to cover operating and maintenance costs as well as depreciation and interest costs as they are less than 100 percent. In 2007/08 and 2008/09, these ratios used to be more than 100 percent.

6 Water Tariff Study II, Peoples‘ Republic of China, TA No. 3250 PRC, November 2001.

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Table 3.50: Cost Recovery Indicators for JEWSSUO, Birendranagar 2007/08 to 2011/12 (%) Capital and liabilities 2007/08 2008/09 2009/010 2010/11 2011/12 Water revenue/OM&A cost 161.61 172.20 77.75 63.15 140.92 Water revenue/ OM&A + depreciation + interest 160.08 161.07 30.93 28.84 57.40

Profitability

The cost coverage considers the ability of JEWSSUO, Birendranagar to pay for all factors of production other than the capital contributed by equity investors. If the coverage of all costs exceeds 100 percent, then the residual portion is the return or profit for equity investors. Indicators of profitability measure the rate of return on total or net assets. Thus one of the important measures of financial performance is profitability for JEWSSUO, Birendranagar. Four measures of profit are shown in Table 3.51 which reveals a very low profit level. All the four ratios were negative in 2010/11. However, there has been some improvement more recently in 2011/12 as operating profit to total assets and operating profit to net assets were positive.

Table 3.51: JEWSSUO, Birendranagar Profit Level, 2007/08 to 2011/12 (%) Capital and liabilities 2007/08 2008/09 2009/010 2010/11 2011/12 Operating profit to total assets (%) 33.25 46.42 90.57 (1.23) 3.07 Operating profit to net assets (%) (8.49) (16.53) (23.85) (1.83) 4.30 Net profit to total assets (%) (184.61) 35.00 (5.80) (8.29) (3.81) Net profit to net assets (%) 47.13 (12.46) 1.53 (12.27) (5.35)

Revenue collection

Revenue collection from water sales is an important activity of any water operator. If accounts receivable are high, it indicates that an enterprise is lagging behind the collection of receivables. It also means that more funds are tied up in receivables which must be financed somehow leading to higher short-term financing costs. When there are more receivables, it may cause financial problems also. Hence, an uncollectible water bills may reduce revenues and profits.

The efficiency of revenue collection can be judged by computing another performance measure known as the carrying period which is estimated by dividing 360 by the collection ratio. It shows the average number of days it takes to receive payment on an invoice. Lower the carrying period, the better it is. Collecton ratios and carrying period for JEWSSUO, Birendranagar are provided in Table 3.52. The table shows that JEWSSUO, Birendranagar was very much lagging behind the collection of receivables initially but slowly it is improving. Likewise, the carrying period in days has been observed to be high though it has improved in more recent years.

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Table 3.52: JEWSSUO‟s Performance in Revenue Collection, 2007/08 to 2011/12 Capital and liabilities 2007/08 2008/09 2009/010 2010/11 2011/12 Collection ratio, times 2.30 3.44 3.15 4.63 4.97 Carrying period, days 156.4 104.6 114.3 77.7 72.4 Collection ratio = water sale revenues/receivables, times Carrying period in days = 360/collection ratio, days

Current ratio and quick ratio

The current ratio indicates the JEWSSUO‘s ability to pay outstanding short-term obligations from the current assets. The higher ratio indicates greater assurance of ability to pay current liabilities. The current ratio of 2:1 is generally considered an acceptable standard though it is a rule of thumb only. The consequences of lower current ratio of less than 2 show inadequate short-term liquidity which could be very serious. The second measure of firm's liquidity is the quick ratio, which is a modified version of current ratio. The quick ratio indicates the JEWSSUO‘s ability to pay outstanding short-term obligations out of quick assets. It is a ratio of total quick assets to total current liabilities and it should generally be 1:1 or greater. A quick ratio of this magnitude is one indication that an enterprise has sufficient quick assets to cover short-term financial obligations and support ongoing operations. Current ratios and quick ratios for JEWSSUO are shown in Table 3.53 as reported in JEWSSUO‘s balance sheets. The current ratios and quick ratios were sufficiently higher until 2009/10 after which they declined significantly leading to current ratio of much less than 2:1 and quick ratio of less than 1:1 indicating poor liquidity position of JEWSSUO. If this situation continues, JEWSSUO will have to face serious liquidity problems in the years to come.

Table 3.53: Current Ratio and Quick Ratio of JEWSSUO, Birendranagar, 2007/08 to 2011/12 (times) Capital and liabilities 2007/08 2008/09 2009/10 2010/11 2011/12 Current ratio, times 51.02 457.62 107.79 0.45 0.74 Quick ratio, times 50.96 431.83 94.68 0.43 0.63

Equity ratio

The equity ratio measures the relative share of equity in the enterprise‘s capital structure: Equity ratio = equity / (equity + liabilities) It indicates the relative contribution of equity investors and the risk associated with debt. A lower equity ratio implies higher debt and higher fixed obligations for debt servicing against income.This is the source of greater risk to the JEWSSUO and the shareholder. The equity ratio is used by the ADB as one test for loan qualification. ADB guidelines require this to be no less than 0.37.

Apart from equity ratio, it would be worthwhile to examine the operating profit / net worth ratio (%) and net profit / net worth (%).

7 Water Tariff Study II, Peoples‘ Republic of China, TA No. 3250 PRC, November 2001.

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Table 3.54 shows equity ratio along with operating profit / net worth ratio (%) and net profit / net worth (%). The table shows that all the ratios are poor for JEWSSUO. Some sign of improvement was visible only in 2011/12 in terms of equity ratio and operting profit to net worth. The net profit ratios are all negative due to negative net worth and the loss.

Table 3.54: Equity Ratio, Operating Profit to Net Worth Ratio and Net Profit to Net Worth Ratio of JEWSSUO, Birendranagar, 2007/08 to 2011/12 Capital and liabilities 2007/08 2008/09 2009/010 2010/11 2011/12 Equity ratio, times (3.92) (2.81) (3.80) 0.65 0.69 Operating profit / net worth (%) (8.49) (16.53) (23.85) (1.89) 4.47 Net profit / net worth (%) (47.13) (12.46) (1.53) (12.72) (5.55)

3.3.5 Social and Poverty Assessment The city and the surrounding areas of Surkhet are also historically indicated as being the land of the indigenous Tharu and Local Rajhi communities. However the region has seen an increased migration from the surrounding mountain regions as well as from other parts of the country.

Poverty Situation: Most of the poor residents belong to vulnerable groups such as blacksmiths, cobblers and tailors groups also known as dalits. Most poor people earn their livelihood from daily wage, vegetable gardening and livestock farming. They can earn about NRs. 300-500 per day. The level of poverty is fairly high in this community.

Table 3.55: General Water Supply Sources and HHs coverage in the town Source of Tap/Piped Tube Covered Uncovered Spout River Others Drinking water Well/Hand Well/Kuwa Well Water Stream water Pump /Kuwa

% HHs 60.9 1.8 3.5 9.1 18.4 4.5 1.1 Cover

Slums and Poor Communities and Connection Status

The exact number of HHs and population in service area could not be found because the WUSC and Municipality have not maintained reliable and updated database. Based on other available information, it was estimated that about 15000 HHs are in the service area. Among them approximately 3600(24%) are poor HHs. Major 5 poor settlements have been identified in the service area. Of the total poor HHs 490 are residing in these settlements, while 3100 poor HHs are scattered over the service area in different settlements. Out of total poor HHs about 1000 HHs are benefited by community taps and another 10000 from private connections. As such about 2000 poor HHs are benefited by the system. While others 1600 HHs do not have tap connections. Table 3.56: Major Identified Poor Settlement in the Service Area S.N Name of Settlement VDC/Ward No. No. of HH Benefitted HHs

1. Khorke(Scheme-8) Bir. Muni.-4 100 35

2. Khorke Khola Bir. Muni.-6 70 50

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S.N Name of Settlement VDC/Ward No. No. of HH Benefitted HHs

3. Itaram Khola Bir. Muni.-8 & 10 100 100

4. Itaram Khola Bir.Muni.-11 150 50

5. Khorke Khola Bir. Muni.-5 70 70

6. Other Scattered --- 3110 1695

Total 3600 2000

Table 3.57: Domestic Water Consumption status Case Study City General Households Poor Households

% of water Use in consume lcd per % HHs water Use consume lcd per HHs (Cubic family(average 5 in (Cubic family(average 5 meters) members per meters) members per family) family)

Birendranagar(Surkhet) 90% 10.0 70-80 lcd 25% 10.0 40-45 lcd

Table 3.58: Picture of Expenditure on Water Case City General Households Poor Households

% of household Income % of household Income

Birendranagar(Surkhet) 3% 1%

Potential Impact of Rate Increase

Poor Community have very stressful life and struggle to make a decent living. Naturally they will face hardship to pay higher tariffs and connection fees if there is any hike.

Obstacles in Water Supply for the Poor

Landless people of the municipality cannot apply for a water connection due to the lack of land ownership/house ownership certificate and therefore do not have access to the improved piped drinking water. Implication for Water Tariff Setting

The WUSC is of opinion that subsidy in monthly tariff is not practical because it will have long term impact and also possibility of social conflict among the users since there is no clear demarcation between poor or low income group, and average income groups. There is a possibility of subsidy in connection charge. According to the WUSC members, they are not able to offer the subsidy in the connection charge to a large number of poor HHs because of low financial capacity of the organization.

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The water tariff is decided by the Users‘ Committee and is approved by the general Assembly. The tariff is revised time and again based on cost recovery principle and paying capacity of the consumers Recommendations for Serving the Poor /disadvantaged groups

 Need of external support for providing subsidies to the poor.  Mobilization of Municipalities fund for community connections to serve the poor HHs.  Establishment of a revolving fund for poor HHs which can be used for making house connections and the money should be allowed to be paid back in small installments.

3.3.6 Development of Water Tariff

Projection of costs and tariff setting Having analyzed the financial performance, next part of the analysis is concerned with estimate of costs and revenues that will improve the financial performance and estimate the tariff. In 2011/12, water and sewerage income was Rs. 20.21 million where as the average supply in the same year was 1.606 million CUM. The average price may then be computed as under: Average price = Water and sewerage income / average supply = Rs. 20.21 million / 1.606 Million CUM = Rs. 12.59 per CUM. Thus average selling price was Rs. 12.59 per CUM. Table 3.59 shows the structure of current tariff, connections, and water sale revenues by customer type. It indicates how Rs. 20.22 million of revenues of 2011/12 have been arrived at. The total revenues are computed by multiplying the rate by the number of connections. The number of connections by customer type is not known. There are 11,910 connections in June 2013 however, the number of connections by customer type is not known. It is therefore assumed that the percentage of customers using 0-8 CUM is roughly 61 percent and there are 24 percent of customers using 9-18 CUM and so on.

Table 3.59: Estimate of revenues using current tariff for JEWSSUO, Birendranagar Units ( CUM) Rate: Rs. Proportion No. of Revenue, Net revenue per CUM connections Million Rs. (after 5% bad debts & rebates) 0-8 (minimum) 60 0.61 7,265 5.23 4.97 9 - 18 12 0.24 2,858 4.12 3.91 19-28 15 0.05 596 1.82 1.73 29-38 20 0.04 476 2.46 2.34 39-48 25 0.03 357 2.81 2.67 49-58 40 0.02 238 2.80 2.66 59 and above 50 0.01 119 2.04 1.94 Total 1.00 11,910 21.28 20.22 Total revenues: Rs. 20.22 million

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This level of revenues is not enough for level of costs that KUKL has to incur. With the above tariff, JEWSSUO, Birendranagar has been incurring the losses in all the years except for 2008/09. If the increase in costs is assumed at 10 percent, JEWSSUO, Birendranagar will not be able to cover all the costs. Hence there is a need for increasing the water tariff which is evident from the cost estimates for 2013/14 as shown in Table 3.60. By generating revenues for Rs.20.22 million in 2011/12, JEWSSUO, Birendranagar can cover all the O&M costs and part of interest charges only. In other words, it is not able to cover a part of interest costs and the whole of CAPEX. Therefore, JEWSSUO, Birendranagar needs to increase the tariff. This is required also due to increased cost that JEWSSUO, Birendranagar will have to bear in future as shown above.

Table 3.60: Forecasts of total costs for JEWSSUO, Birendranagar Particulars 2013/14 2014/15 2015/16 O&M Expenses Electricity 0.14 0.16 0.17 Chemicals 0.09 0.10 0.11 Repair and maintenance (water system) 3.54 3.90 4.29 Repair and maintenance (spare parts) 0.91 1.00 1.10 Total O&M 4.69 5.16 5.68 Administrative expenses 12.67 13.94 15.33 Interest 7.29 8.02 8.83 Capital costs 17.97 19.76 21.74 Total 42.62 46.89 51.57

Since the total costs are likely to increase to Rs. 42.62 million in 2013/14 which is much less than the current total sales revenues of Rs. 20.22 million in 2011/12, there is a need to increase the water tariff. To recover this cost, the minimum price required to cover all the costs, total supply quantity remaining the same, would be as under:

(a) Total cost Rs. 42.62 million (b) Total water sales quantity 1.606 Million CUM (c) Minimum price, Rs. Per CUM = Total costs / average supply or (a)/(b) = Rs.26.54/CUM

Table 3.61 below shows required tariff, connections, and water sale revenues by customer type in order to meet the above expenditure. It shows that tariff needs to be increased by 110 percent, supply remaining the constant, so as to meet the increased costs for Rs. 42.62 million. With this level of revenues, JEWSSUO, Birendranagar will be able to cover all the O&M costs, interest charges and CAPEX.

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Table 3.61: Required tariff increase for JEWSSUO, Birendranagar Units ( CUM) Rate:Rs. Proportion No. of Revenue, Net per CUM connections Million Rs. revenue (after 5% bad debts & rebate) 0-8 (minimum) 234.24 0.61 7,265 20.42 19.40 9 - 18 24 0.24 2,858 12.151 11.54 19-28 30 0.05 596 1.822 1.73 29-38 40 0.04 476 2.458 2.34 39-48 50 0.03 357 2.808 2.67 49-58 80 0.02 238 2.801 2.66 59 and above 100 0.01 119 2.401 2.28 Total 1.00 11,910 44.863 42.62 Total revenues: Rs. 42.62 million in 2013/14. It may not be possible to increase the tariff at once by so much but the water operator should aim at it slowly in order to achieve sustainability.

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4 Brief Case Studies Of Other Sample Town Utilities

This chapter gives brief analyses of water utilities in six other sample towns of Bhaluwang, Parsa, Dhulikhel, Biratnagar, Itahari and Damak on the basis of the information obtained/collected from the concerned offices, from interactions with concerned officials, studies of different relevant documents and the information that was collected during the field visits.

4.1 Bhaluwang

4.1.1 Water System Bhaluwang is a fast emerging town located on the east-west highway (Mahendra Highway) in Dang District which located in mid-western Nepal.

Bhaluwang water supply and sanitation project was designed under ADB grant Project. The system covers Pulchowk, Pakhapani, and Bhaluwang settlements. The water supply system is groundwater pumping system consisting of two tube wells and supplied through three overhead tanks, one of 400 m3 capacity in Bhaluwang compound, one of 200 m3 and other of 100 m3 at Pakhapani area. The system covers about 2000 households and total service connection number is 755. The water is supplied 3 hrs a day during load shedding; otherwise supply is 5 hrs per day. Water production is 0.8 MLD.

4.1.2 Tariff Structures and Institutions This Water Users‘ Committee which is the asset owner and service provider as well, is responsible for setting the water tariff which is implemented after the approval and adjustments if any from the General Assembly meeting which takes place once a year as per the Rules and Regulations of the Users‘ Committee. Present water tariff structure is shown in Table 4.1. For a new ½‖ tap connection the Users‘ Committee charges NRs.3500.00 as connection fee to people who had contributed voluntary labour during the project implementation and to others NRs. 12,000.00 as the connection. All other costs have to be borne by the customers themselves except a water meter which the Committee provides from the fee. The tariff setting mechanism is satisfactory for service provider and customers.

Table 4.1: Water Tariff Structure of Bhaluwang Block/Consumption m³ Tariff Rate (NRs.)

Upto 10 m³ 100

11 and above 15 per m³

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Main characteristics:

 Standard IBT;  No differentiation in rate for customers in different sectors (residential, government, commercial);  There is a minimum charge and the minimum charge is calculated by minimum consumption times the tariff rate;

Problems and disadvantages

 The determination of the number of blocks, size of blocks, price differentials across blocks, can be quite arbitrary.  Significant discount has been given to the first 10 m3 of water consumption but there is no justification to give such discount to such commercial users;

4.1.3 Utility Management Present Situation

Bhalubang Water Supply & Sanitation User‘s Committee is situated at Lalmataiya Village Development committee, at ward – 3, Bhalubang, Dang District. The existing water supply in Bhalubang is fed by ground water pumped from deep tube well and it serves most parts of Lalmataiya Ward no. 4 & Ward no.3 including Bhalubang. As indicated earlier, the User‘s Committee is the asset owner and operator of water supply system as well. The Utility was formed in B.S 2057/4/8 (2000A.D). Ground Water is main source of water supply. One tube well is serving 1280 households, with the help of 755 service connections. All the service connections are metered. In the service area there are about 2000 households. The nature of service area is rural and partly urban. The supply hours are three hours per day.

Major Challenges:

-The major constraint for the Utility is that they do not have a Generator set to run pumps to produce water during power outage and load shedding hours are increasing. -For better service delivery and increase in the coverage there is a need of one more reservoir to be constructed at an elevated place. -There is shortage of pipes & fittings for regular maintenance.

Bhalubang water supply in a nutshell:

 Water Supply Delivered = about 0.8mld.  No of service reservoir = 1 (Capacity 400000 Liters)  Production Capacity of tube well = 50000l= Liters/hour  Total service connections = 755  No. of staff = 6  No. of household served = 755

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Conclusion

4.1.4 Financial Performance This section analyzes the financial information of Bhaluwang water supply system based on the survey questionnaire containing questions on financial information such as Water billing/sales (annual for 2011), basis for billing, how frequently are consumers billed and paid, water supply revenue in 2011 year-end accounts receivable, water supply O&M expenses in 2011, depreciation, total debt service (interest & principal) in 2011, annual capital development expenses in 2011, total capital expenditures in the last 5 years, and gross fixed asset value. The responses on these various items are as shown in Table 4.9.

Table 4.2: Financial information on Bhaluwang water supply S. Item Bhaluwang No. 1 Water billing/sales (annual for 2011) in Million Rs. 1.134 2 Basis for billing metered 3 How frequently are consumers billed? monthly 4 Water bills are paid in cash 5 Water bills are paid through Water utility office 6 Water supply revenue in 2011 in Million Rs. 1.990 7 Year-end accounts receivable in Million Rs. 0.262 8 Water supply OM&A expenses in 2011 in Million Rs. 0.584 9 Depreciation in Million Rs. 0.041 10 Total debt service (interest & principal) in 2011 - 11 Annual capital development expenses in 2011 in Million Rs. 1.157 12 Total capital expenditures in the last 5 years in Million Rs. NA 13 Gross fixed asset value in Million Rs. 1.728

The billing is based on the meter reading and the customers are billed on monthly basis. The water bills are paid in cash by the customers by visiting the nearby water utility office. Financial ratios have been computed as shown in Table 4.10.

Table 4.3: Financial information on Bhaluwang water supply S.No. Item Bhaluwang 1 Ratio of water billing to water supply revenue (%) 56.96 2 Water revenue/OM&A cost (%) 194.23 3 Collection ratio, times 4.34

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4 Carrying period, days 83.04 5 Ratio of sales to gross fixed assets (times) 0.66 Source: Table 4.9. Cost coverage indicator is shown in Table 4.10. Water sales revenue is enough to cover operating and maintenance cost in the town as ‗Water revenue/OM&A cost ratio is more than 100 percent.

4.1.5 Social and Poverty Assessment

Bhaluwang is an emerging town/bazaar on the Mahendra Highway and is situated in Dang District. Mahendra Highway—the main east-west highway across Nepal—follows Deukhuri Valley, passing Bhalubang bazar at the upper end and Lamahi downstream. From Bhalubang, branch roads lead up the Rapti River into Pyuthan and Rolpa Districts. From Lamahi there are roads north across the Dang Range to Ghorahi, and south over the Dudhwas to Koilabas bazaar on the international border where goods enter Rapti Zone from India. At Tarigaun VDC, all-weather Tarigaun Airport exists which is about 1.5 km far from Tulsipur and 30 km from Ghorahi. Bhaluwang is well connected to other towns because of its location on the highway. It is also gateway to Rolpa, Salyan and Pyuthan districts and also Sworgadwari, a popular place of pilgrimage of Hindus.

It is a market center on the highway with many shops, hotels and restaurants. Small scale trade shops and restaurants are the main business activities of the people in Bhaluwang bazaar. Bhaluwang bazaar has facilitated a north-south flow of trade and traffic.

Regarding water supply most of the people in Bhaluwang depend on the service provided by Bhaluwang WUSC. As there are no public taps or community taps in Bhaluwang, poor who don‘t have private tap connection either share water with others with private connections or go to nearby small springs to fetch water. Though the big Rapti River is flowing nearby people do not use its water for drinking as most of the time the water is turbid.

4.2 Parsa

4.2.1 Water System Parsa is small town located in inner Tarai plains on the east-west highway (Mahendra Highway) about 15-20 kilometres away from Bharatpur in the east. It lies in Chitwon district which is located in central Nepal.

Parsa Small Town Water supply and sanitation project was designed and constructed under ADB funded First Small Towns Water Supply and Sanitation Sector Project ( STWSSSP). It was started in 2003 and completed in 2006. The project covered area is Khairahani VDC ward no 2,4,6, 7 and 8 ( refer Fig.4.1) with 2072 households and population of 14995. The system is ground water pumping system with two tube wells and supplied by a overhead tank of 450m3 capacity. The design period was of 15 year i.e. Year 2020. The project was designed with water demand of 21,46,476 liter per day. The coverage area is extending fast including ward no 9 of Khairahani VDC and 3 & 4 wards of Chainpur VDC. The project has 2 pump houses with chlorination plants and 47 valve chambers.

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Figure 4.1: Distribution area

Currently the utility is serving 29154 population of which 16220 are served by 2256 private house connections. The supply is continuous 24 hours. Total operating valve chambers are 56 along with 5 fire hydrants. Total number of house connections, industrial connections and institutional connections were 2205, 6 and 45 respectively in fiscal year 2011/12. Total number of households in the service area at present is 4103. The system is operating with 79km of distribution pipe lines covering 21 km2 service area. At present the total number of water connections is 2411 (May 2013).

4.2.2 Tariff Structures and Institutions

The water supply system is managed by Parsa Small Town Water Supply & Sanitation Consumers Association (PWSSCA). It was established in year 2001 and is responsible for providing drinking water in Khairahani VDC and some wards of adjoining VDCs.

The water tariff structure and the tariff are proposed by the Association and approved by the General Assembly meeting of the members as in the case of other Users‘ Committees. It has recently increased the tariff by more than 30%. No other institutions are involved in tariff fixation.

For a new ½‖ tap connection the users‘ committee charge minimum of NRs.8,500 as a connection charge. In case someone does not pay the water due for more than 3 months, he/she is pressurized to pay the bill by the local VDC government by refusing to give its services until he/she clears the water bill. They do not have the system of disconnection yet as the users‘ committee feels that it might encourage the customer to go for an alternative as water is easily available in shallow dug wells and hand pumps which means loss of a customer.

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As such the tariff arrangement functions well at the moment. There is competition with private wells and other sources when customers find the balance between the price and the service not reasonable. Table 4.4: Current Water Tariff Structure in Parsa Parsa WSSCA Domestic Commercial Block Tariff (Rs.) Tariff (Rs.)

1-10 m³ 130.00 150.00

11-20 m³ 20.00 per m³ 30.00 per m³

21-50 m³ 25.00 per m³ 40.00 per m³

51-m³ 35.00 per m³ 45.00 per m³

Main characteristics:

 Typical IBT as applied in many cities in developing countries.  Customers are classified by type of users (residential versus commercial).  There is a minimum charge based on the minimum consumption level (10 m3), which is the same regardless of the type of customers.  Since the water supply in Parsa is 24 h, the minimum charge is more about low price charged for the first block.  Customers pay high volumetric charge for higher consumption (IBT), and there are four blocks.  Customers of different classes (residential versus commercial) for different rates at each block.

Problems and disadvantages:

 Commercial customers are paying the low rate for the first block and there is no justification for that.  The determination of the number of blocks, size of blocks, price differentials across blocks, price differentials across customer classes, can be quite arbitrary.  More difficult to administer and can cause confusion to users.

4.2.3 Utility Management

Introduction

Parsa is a fast growing small town located a few kilometers away from Bharatpur, District Quarter of Chitwan on the East – West Highway, at Khairahani- 4, in Chitwan. It has a completely new water supply and sanitation project based on ground water with tube wells and overhead RCC Tank. The system is operated by an independent local agency, Parsa Water

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Supply and Sanitation Users Organization. The same agency is asset owner as well. The utility was formed at 2058 B.S (2001 AD).

Present Situation

Two deep tube wells have been drilled and installed. First tube well (TW#1) has been located near eastern boundary wall of office premises and next tube well (TW#2) is located behind the Users Organization office building. The TW#1 and TW#2 are about 101 and103m. depth, respectively. Both of these tube wells are of 300/ 200 mm. size.

As ground water is of good quality no treatment is required except the disinfection, done by chlorine dosing machine. Routine water test is done on daily basis. There is a 450 cum. RCC over head tank in the office compound, most of the time they keep it full by the alternate running of the two tube wells. The total length of distribution network is appx. 79 km. Total service connections are 2256 and all of them are metered. Presently, there is 24 hours supply in the distribution system with more than 6m. of residual head .Bulk water meter has been installed in main outlet of the distribution system. Production of the system has been estimated with help of bulk water meter. Consumed units have been taken from software of computer billing. The estimated Non Revenue Water (NRW) is about 18.6 %. The entire water supply system is in excellent condition. Organizational chart of Parsa Consumers Organization

CEO

Revenue Sec. Micro Finance Technical Admin Sec. Account Sec. Sec. Sec.

Administration Guard

Pump Plumber Sub Plumber Operator

Major Challenges:

 To maintain the present standard of excellent service delivery there is a need of additional water tank to meet the needs of new consumers.

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 Stand by diesel generator is in regular use during breakdown of electric power supply. Huge amount of operation budget is consumed by the operations of generators.  It is desirable to have computerized billing and accounting system for better service to consumers on coming years.  From the perspective of population growth in the service area, the present system would face new bottleneck in capacity of transformer, generator and size of over head tank in near future.

Table 4.5: PARSA water supply in a Nutshell: SN. Description Quantity Number

1 Water Supply Delivered 36 lps

2 Design discharge 25 lps

3 Total service connections 2256

4 Community Taps 10

5 No. of staff 13

6 No. of staff per 1000 taps Approx.6

7 Unaccounted for Water Approx. 18.6%

8 Population served Approx.25000

Conclusion

 At present the water supply system is in excellent condition. When the mechanical and electric components will be old, replacement and rehabilitation will be needed. Enough funds should be allocated for such future needs. 3

 Management of the utility should be forward looking to maintain the present level of service delivery, in spite of population growth.

 Besides preparing for future needs, the utility should discourage the public to use hand pump water, and encourage using the organization‘s water which is comparatively safe to use.

4.2.4 Financial Performance

This section analyzes the financial information of Parsa water supply system based on the responses on the survey questionnaire containing questions on financial information such as Water billing/sales (annual for 2011), basis for billing, how frequently are consumers billed and paid, water supply revenue in 2011, year-end accounts receivable, water supply O&M expenses in 2011, depreciation, total debt service (interest & principal) in 2011, annual capital

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development expenses in 2011, total capital expenditures in the last 5 years, and gross fixed asset value. The responses on these various items are as shown in Table 4.6.

Table 4.6: Some Financial information on Parsa water supply System as on 2011 S. Item Parsa No. 1 Water billing/sales (annual for 2011) in Million Rs. 6.535 2 Basis for billing metered 3 How frequently are consumers billed? monthly 4 Water bills are paid in cash 5 Water bills are paid through Water utility office 6 Water supply revenue in 2011 in Million Rs. 17.230 7 Year-end accounts receivable in Million Rs. 1.276 8 Water supply OM&A expenses in 2011 in Million Rs. 4.755 9 Depreciation in Million Rs. 1.031 10 Total debt service (interest & principal) in 2011 2.302 11 Annual capital development expenses in 2011 in Million Rs. 3.567 12 Total capital expenditures in the last 5 years in Million 20.639 Rs. 13 Gross fixed asset value in Million Rs. 21.627

The billing is based on the meter reading and the customers are billed on monthly basis. The water bills are paid in cash by the customers in the nearby water utility office. With this information, some financial ratios have been computed as shown in Table 4.7.

Table 4.7: Financial information on Parsa water supply S.No. Item Parsa 1 Ratio of water billing to water supply revenue (%) 37.93 2 Water revenue/OM&A cost (%) 137.44 3 Collection ratio, times 5.12 4 Carrying period, days 70.28 5 Ratio of sales to gross fixed assets (times) 0.30 Source: Table 4.11.

Table 4.7 clearly shows water sales revenue enough to cover operating and maintenance cost in Parsa as ‗Water revenue/OM&A cost‘ ratio is more than 100 percent.

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4.2.5 Social and Poverty Assessment

Slums and Poor Communities and Connection Status Parsa being a town on the East west Highway is fast growing as a commercial hub. Its proximity to Bharatpur, the district headquarter has further helped in its development. There lots of shops and restaurants which cater to the villages in the surroundings.

It was estimated that there are about 511 (17 % of total HHs) poor HHs within the service area. Of the total poor HHs 401 either already has a tap connection or has paid connection charge and tap connection is under process. While rest 5 poor HHs do not have tap connections. Major 7 poor settlements have been identified within the service area. About 138 poor HHs are residing in these settlements, while another 373 poor HHs are scattered over the service area in different settlements. The major poor communities settlements are Bairen Sukumbasi Tole, Surtani, Khaireni, Dalit basti, Saloli,and Sukumbashi Basti.

Table 4.8: Major Identified Poor Settlement in the Service Area/Parsa S.N Name of Settlement VDC/Ward No. No. of HH Benefitted HHs 1. Bairen Sukumbasi Tole 2 30 30 2. Surtani 2 26 20 3. Khaireni/Sunderbasti 8 25 25 4. Dalit Basti 9 7 - 5. Saloli 8 25 25 6. Sukumbasi basti 7 18 - 7. Sukumbasi Basti 6 7 - 8. Other Scattered HHS 373 370 Total 511 461

Poor people who do have private connections use community taps for water supply. Also there are hand pumps and shallow dug wells in Parsa area as ground water table is quite high, and many also opt for water from such alternate sources though the quality of such water is not as good as piped water.

4.3 Dhulikhel

4.3.1 Water System

Dhulikhel is the headquarters of Kavre District and lies in Bagmati Zone and Central Development Region. It is fast growing as a tourist hill town with growing number of resorts and hotels in the surrounding. Location of Kathmandu University and its affiliated other colleges in the proximity has further boosted its growth. Dhulikhel is located 30 km east of Kathmandu, the capital city of Nepal and it is one of the three municipalities of Kavrepalanchok district. The municipality has 14,238 populations living in 3,279 households as per 2011 census. Newar, Tamang, Brahmin and Chhetri are major caste and ethnic groups of the municipality. Dhulikhel will become a gate way to Kathmandu after the full operation of Bishweshwar Prasad (BP) Koirala Highway, which links it with Terai region of the country.

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The Dhulikhel municipality has two water supply systems; one is the old and other is the new supply system. Old system was built at the initiation of community with the financial support of Indian Embassy as early in 1982, covering wards 2, 3, 4 and 5 of the municipality with 27 public taps. The system collects water from three springs located nearby a forest area. The capacity of reservoir of the system is only 40,000 litres, which was insufficient to meet the growing demand for water of even the population of core urban areas. Moreover, drinking water supplied from this system was contaminated due to unscientifically constructed intake and reservoir. However, public taps are still functional and are managed by the user committee formed for the new water supply system.

With the rapid increase in population, and number of hotels, educational as well as health institutions, pressure on old system started mounting. In 1983 people of Dhulikhel requested to the government to provide adequate drinking water supply in the municipality. Dhulikhel community had approached German Development Agency (GTZ) in 1987. GTZ had put two conditions to the community: first to bring a request letter from the government, and the second to convert Dhulikhel Village Development Committee (VDC) into municipality. With the fulfillment of the conditions, GTZ provided technical and Figure 4.2: Treatment Plant financial assistance to establish Dhulikhel Drinking Water Supply system. KharKhola (Khar Stream) located at 13.5 km in Bhumidanda Village Development Committee (VDC), southeast of Phulchoki Mountain is used as the new source for the project. Water from Kharkhola is treated byhorizontal roughening filter and slowsand filtration unit (Figure 4.2).

Dhulikhel Drinking Water Supply system is one of the first few systems managed by a Water Users‘ committee in Nepal. Initially the total capital cost of the system was NRs.37.6 million. This system covers ward no.2, 3, 4, 5 and some parts of 1 and 6 of the municipality and presently being served by the existing Kharkhola water supply scheme. The government of Nepal handed over Dhulikhel Drinking Water Project to Dhulikhel Drinking Water User's Committee (WUC) officially on the 7th July 1992 and also handed over the old drinking water system at the end of January 1993. Since then all the management of both systems has been performed by the Dhulikhel WUC effectively, which includes production and distribution of water, day-to-day maintenance of system, financial, administrative, personnel as well as overall management of the two systems.

The Water Users‘ committee has been effectively managing the system and supplying water to 19800 populations of 1992 households. Size of utility's area is 6 km2.Currently, a management and technical unit with 20 paid staff carries out the daily operation and maintenance of the system. The system has been operating sustainably mainly because of the efficient management by the user committee and active leaders of the community.

Estimated total demand is 3000m3/day and total production capacity of 1400 m3/day. The storage capacity in network is 500m3. The system is fed by surface sources with production of 14 MLD. Total of 1997 service connections is served by 43 km of distribution pipe network and

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the supply is intermittent with an average of 3 hours a day. The average number of people per connection is 7. There are 370 commercial & industrial connections and 128 institutional connections. Kathmandu University and the local hospital share 2 bulk connections. It is estimated that water consumption for metered connections is 1204 m3 and 196 m3 that of unmetered connections. Non-revenue water is estimated as 17%. There are 186 numbers of public taps supplying raw water for free of cost.

The project work started in 1987 and was completed in 1991. Altogether 1,033 private taps were connected till July 2006 in the new system covering 46 percent of households in the municipality. Of them about seven percent have been connected to the institutions (government, semi-government, non- government offices, hotels, and educational institutions). This project covered 6,840 populations in base year (1987) and estimated that it will reach 14,387 in design period (after 25 years) in 2012. The system was designed to distribute drinking water to core city area (i.e. ward no. 2, 3, 4, 5) of Dhulikhel municipality, but at present it covers almost all parts of the four core city wards and some parts of wards 1, 6, and 7 as well as shown in Figure 4.3 below. Figure 4.3: Distribution area

Most of the households express satisfaction over the service of the water supply system, and are content with water quality and the management of the system as well. Generally 20 samples are tested for residual chlorine on a day and 70% are found within acceptable range. Three out of four households have toilet of one type or the other.

4.3.2 Tariff Structures and Institutions Dhulikhel Drinking Water Users‘ Committee (DDWUC) formed in 1992 as the operator as well as the asset owner of the Dhulikhel water supply. General Assembly it approves water tariffs for the system. DDWUC first proposes for tariff adjustment to the General Assembly. The entire

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private tap owners are members of the General Assembly. They openly discuss all issues of the system including its management. The assembly elects a nine member water Users' Committee (WUC) for four years including one chairman, one vice-chairman and two female members, based on one tap (private) one vote basis. Besides, the Mayor of Dhulikhel Municipality or a person nominated by him/her, and the Manager of the Users' Committee Office are the ex- officio member and secretary of the committee respectively. Thus, the total members of the committee are more than 11. A management and technical team of 20 paid staffs are taking care of day-to-day operation and maintenance work of the system. A Manager heads the team. He/she reports to the Water Users‘ Committee and the Committee, in turn, is accountable to the General Assembly. The DWSS had provided technical and financial help to the Users' Committee for the first three years after the project handover in declining manner (100 percent, 50 percent and 25 percent of the total budget in the first, second and third year, respectively).

The water tariff rate is given in Table 4.9 below. The household survey conducted in November 2006 found that half of the sample households are paying water bill ranging from NRs51 to 100, and additional 16 percent are paying in between NRs.101 to NRs.150. It is interesting to note that another 16 percent of households are paying even less than NRs.50 per month. This indicates that there are households who are paying less than current lifeline rate. This could be due to two or more families having one connection and sharing it between them. In the beginning the minimum rate was fixed on the basis of the cost per unit of water.

Table 4.9: Water Tariff in Dhulikhel Water used m³ Rate ( NRs)

Up to 10 units 125

11 – 25 unit 17 per unit

26 – 50 units 25 per unit

Above 50 units 58 per unit

Water tariff is progressive. It ranges from NRs.12.5 to NRs.58 per cubic meter. A timely paying consumer receives a rebate of NRs.10. The very poor people, who cannot afford connection charge for private tap connection, are provided free water from public taps. According to the current provision, a household is responsible to pay water tariff within 60 days from the first day of the month. Those who pay within 45 days can get NRs.10 as rebate/discount. Household failing to pay within this period has to pay fine which ranges from five percent to 48 percent (Table 4.10). It is interesting to note that the rate of fine is fixed at the regressive rate, initially at the rate of five percent per week then later at the rate of two percent of the water bill per week. If the bill is not paid within 144 days, the management of users' committee can disconnect the water tap of the defaulter any time giving notice or without doing so. After disconnection the costumer can connect the tap paying all dues including fine as per the rule of the user committee. The amount the Users‘ committee charge for a new ½‖ tap as connection charge is NRs.6600.00 and this includes the cost of the water meter which is provided by the committee. All other costs are borne by the customer himself/herself.

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Table 4.10: Fine and rebate arrangement Fine for the delayed payment Rebate/Fine Period Within 45 days Rebate NRs.10 46 – 60 days Full amount of water bill From 61 to 116 days Additional 5 percent fine on total water bill every week (i.e. 5% to 40%) From 117 to 144 days Additional 2 percent fine on water bill every week (i.e. 42% to 48%)

Main Characteristics:

Problems and disadvantages

4.3.3 Utility Management Introduction

Dhulikhel is the headquarters of Kavre District. It has one of the first few water systems to be run by an independent local water users‘ committee (DWSUC).The Users‘ Committee has been running the water supply system for the last several years. Though this water system does not cover all of Dhulikhel, it does cover major parts of old Dhulikhel (wards 1-9 ).It has become a tourist place with quite a numbers of hotels and resorts located in its peripheral area. Besides its development got a major boost with the establishment of Kathmandu University and its affiliated other schools and colleges within its area. Dhulikhel Municipality is quite scattered and hence areas that are not covered by the old system, are served by separate small water systems. With growing population and rising standard of living of the people, water demand has risen very high and the existing systems have become inadequate. Nepal Government with the support of ADB has started a new project called Kavre Valley Integrated Water Supply Project integrating the water systems in Dhulikhel, Banepa and Panauti. Present Situation

The Utility covers 1- 9 wards of Dhulikhel Municipality. The Utility was formed in 2047 BS (1990 AD).Out of about 7.00 sq.km. of areas of Utility‘s responsibility, it covers about 6.00 sq. km. of service area. Out of the total population of about 21000 it has served about 19800 with the help of 1997 service connections, 186 Public Taps and about43 Km. of distribution network. The source of water is surface water. The total production is about 14 mld. All service connections are metered.

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Organization Structure of Dhulikhel Drinking Water Users` Committee

General Assembly 1033

Executive Committee 14

Chair Person 1

Vice Chairperson 1

Female Members 2 Male Members 10

Management & Technical Unit

Manager 1

Operation & Maintenance Account

Administration Plumbers/ Plants/ Operators 10 General Meter Revenue 1 Acct 1 Reading 2

General 4 Store 1

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Major Challenges:

1 The Utility needs additional water. 2 For better service delivery and increase in the coverage there is a need for expansion of distribution network. 3 There is shortage of pipes & fittings for regular operation & maintenance. 4 For better service delivery there is need of additional water treatment plant.

Dhulikhel water supply in a nutshell:

SN. Description Quantity Number

1 Water Supply Delivered ≈ 14 mld

2 Total service connections (including public taps) 2183

3 Public Taps 186

4 No. of staff 20

5 No. of staff per 1000 connections ≈ 9

6 Water supply duration ≈ 2 hrs/day

7 Annual income ≈ 12.9 million

8 Annual expenditure ≈ 7.0 million

9 Estimated non- revenue water ≈17%

Conclusion

 Very soon the present water supply system will be a part of Kavre Valley Integrated Water Supply Project integrating the water systems in Dhulikhel, Banepa and Panauti.

 After the implementation of new project the service delivery including the quality, quantity and coverage in the service area will be improved.

4.3.4 Financial Performance This section analyzes the financial information of Dhulikhel water supply based on the responses of survey questionnaire containing questions on financial information such as Water billing/sales (annual for 2011), basis for billing, how frequently are consumers billed and paid, water supply revenue in 2011 year-end accounts receivable, water supply O&M expenses in 2011, depreciation, total debt service (interest & principal) in 2011, annual capital development expenses in 2011, total capital expenditures in the last 5 years, and gross fixed asset value. The responses on these various items are as shown in Table 4.11.

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Table 4.11: Financial information on Dhulikhel water supply S. Item Dhulikhel No. 1 Water billing/sales (annual for 2011) in Million Rs. 2.700 2 Basis for billing metered 3 How frequently are consumers billed? monthly 4 Water bills are paid in cash 5 Water bills are paid through Water utility office 6 Water supply revenue in 2011 in Million Rs. 12.700 7 Year-end accounts receivable in Million Rs. 1.677 8 Water supply OM&A expenses in 2011 in Million Rs. 1.133 9 Depreciation in Million Rs. 2.622 10 Total debt service (interest & principal) in 2011 1.600 11 Annual capital development expenses in 2011 in Million Rs. 6.800 12 Total capital expenditures in the last 5 years in Million Rs. NA 13 Gross fixed asset value in Million Rs. 65.559

The billing is based on the meter reading and the customers are billed on monthly basis. The water bills are paid in cash by the customers in the water utility office in the town. With this information, some financial ratios have been computed as shown in Table 4.12.

Table 4.12: Financial information on Dhulikhel water supply S.No. Item Dhulikhel 1 Ratio of water billing to water supply revenue (%) 21.26 2 Water revenue/OM&A cost (%) 238.37 3 Collection ratio, times 1.61 4 Carrying period, days 223.60 5 Ratio of sales to gross fixed assets (times) 0.04 Source: Table 4.11.

As demonstrated in Table 4.12, water sales revenue is enough to cover operating and maintenance cost in the town since ‗Water revenue/OM&A cost‘ ratio is more than 100 percent.

4.3.5 Social and Poverty Assessment

Social Profile: Dhulikhel is the administrative center of Kavrepalanchok District, Nepal. During the 2011 Nepal census it had a population of 14,283 people in 3,279 households. Dhulikhel lies along the B.P. Highway and Arniko Highway. Arniko Highway connects Kathmandu, Nepal's capital city with Tibet's border town of Khasa. Dhulikhel is located at the Eastern rim of Kathmandu Valley, south of the Himalayas at 1550m above sea level and is situated 30 km southeast of Kathmandu and 74 km southwest of Kodari, the border town with China in the north..

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The people in the town are mostly Newars, Brahmins, Chhettris, Tamangs and Dalits. Drinking water system in Dhulikhel is supposed to be one of the best community managed water system in Nepal. The oldest area of the town, the southern end, is an assembly of fine old Newari houses, often occupied by 20 or more members of the local extended families. Their most valuable assets are the beautifully carved windows and doors, fine examples of traditional Newari craftsmanship. The socio-economic condition of Dhulikhel is moderate and the society is heterogeneous in nature; people of different ethnic groups are living together with good harmony.

Economy: Dhulikhel has for many centuries been an important trading center on the ancient commercial route linking Nepal to Tibet. Since time immemorial, people of Nepal traveled to Tibet to bring home salt and gold. Likewise, the Tibetans every year with their flocks of sheep entered into Nepal during Dashain, the greatest Hindu festival. They purchased chilies and other daily necessities in Nepal and returned to their homeland. There are organically developed compact settlements around Dhulikhel. These settlements in one hand conserved heat in the cold valley, and at the same time maximized land for agricultural use.

Regarding water supply, the poor people in Dhulikhel have access to public taps where they do not have to pay anything. Also many those do not have private connections share water with others who have private connections.

4.4 Biratnagar

4.4.1 Water System Biratnagar is an industrial town and the head quarter of the Morang District in eastern Nepal. Politically it lies in Kosi Zone and Eastern Development Region and it is located in flat Tarai plain. Biratnagar, with an area of 59.48 sq. km, is the second largest town in the country. It is bordered by Indian international boundary in the south.

Water supply in Biratnagar is under the jurisdiction of Nepal Water Supply Corporation(NWSC established under the NWSC Act, 1989, which is an autonomous government controlled corporate body responsible for supply of drinking water in major urban areas of Nepal). Nepal Water Supply Corporation, Biratnagar (NWSCB) utilizes groundwater which is distributed through 11000 service connections scattered in the 22 wards of the municipality. The system has water production of 9.1 MLD through 10 deep tube wells and stored in 3 overhead reservoir tanks, each of capacity 500m3. Estimated water demand is 135 MLD. The system comprises of very old pipelines which are in use for more than 40 years. Water is distributed thrice a day, in the morning, day time and in the evening for 12 hours per day. There are about 24 public taps, 200 commercial connections, 30 industrial connections and 25 institutional connections. Water is simply chlorinated before being sent for distribution and the quality test is done on monthly basis; if needed, it is done even twice a month. The water contains little amount of iron which is still within the allowable level for human health. The municipality is also involved in some water supply extension works. In spite of availability of piped water big section of people still use shallow hand pump water due to various reasons like water being easily available because of many shallow hand pumps, ignorance of benefits of piped water etc.

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4.4.2 Tariff Structures and Institutions Prior to enactment of Water Supply Management Board Act, 2006, NWSC had the sole responsibility to regulate water supply system including tariff fixation and managing the water supply system infrastructure. It is now made responsible for planning, and investing, operation and managing the water utilities in the major towns not covered by other agencies. In Biratnagar , NWSC has a Branch office which is responsible for operation and management of water supply. Clause 6.1 of the Act mentions that the Corporation may recover the fee for drinking water and the service charge for sewerage and the fixation of the taps etc. from the concerned person which means it still has the authority to fix water tariff. The water tariff structure is thus proposed to the Board of Directors by the central management of the Corporation and the Board approves and adjusts the tariff with the consent from the Government of Nepal although it is not mandatory. The Branch office implements the tariff structures approved by the Board of Directors. However in spite of the authority they formally have, NWSC is now under the mandate of the WSTFC and has applied to WSTFC for revision of the tariff, this includes Biratnagar.

Table 4.13: Current Water Tariff Structure of Biratnagar Connection Minimum Metered tariff Unmetered Branch size (Inch) Consumption M³ tariff Tap/Tee

Minimum Additional Monthly Monthly charge, charge Rs. fixed charge, fixed charge, Rs. Per m³ Rs. Rs.

0.50 10 50 15 360 100 0.75 27,000 810 30 1950 650 1.00 56,000 1680 30 4050 1115 1.50 155,000 4650 30 11160 3000 2.00 320,000 9600 30 23040 5000 3.00 881,000 26430 30 63450 14830 4.00 1,810,000 54300 30 130320 30000

Main characteristics:

 Customers are classified by the size of connection;  Except for the customers with 1/2 inch connections, all customers pay a uniform rate of 30Rs per m3;  No differentiation in rate for customers in different sectors (residential, government, commercial);  There is a minimum charge and the minimum charge is calculated by minimum consumption times the tariff rate;  The minimum consumption differs based on size of connection;  Customers with 1/2 inch connections pay low tariff rate compared to other customers The minimum charge appears no different from fixed charge in a two-part tariff system, except it is determined by tariff rate times a minimum level of consumption seems to be determined arbitrarily.

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Problems and disadvantages:

 Customers with 1/2 inch connections include commercial/business users and there is no justification to give such deep discount to such users;  In a water system with rationing, the minimum charge based on consumption level much higher than what the utilities are able to provide may face resistance from the consumers in payment.  In a water system without rationing, the minimum charge does not provide incentive for consumers who are able to reduce the consumption level below the minimum.  The determination of the levels of minimum consumption for connections with different sizes seems to be quite arbitrary. Consumers with large size connections may be severely penalized. The consequence is that they may simply refuse to pay.

4.4.3 Utility Management Introduction

Biratnagar is the biggest city in Eastern Nepal and is the head quarter of Morang Distract. The water supply in this city is looked after by Nepal Water Supply Corporation (NWSC), a semi- autonomous government corporate body. The size of utility‘s present service area is about 200 sq. km. The source of water here is ground water fed by deep tube wells. Present Situation

The Utility covers all the 22 wards of Biratnagar Municipalty. There are nine tubewells located at different places within the service area. The water from these tubewells is chlorinated before being sent for distribution. The water tariff adopted is the common NWSC town tariff. The total production capacity is about 9.1 mld.

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Organization Chart of Biratnagar Branch (NWSC)

Branch Chief

Production Distribution Administration Quality Engineering Finance Sec. Sec. Sec. Control Sec.

Revenue Expenditure

Major Challenges:

 The Utility need additional tube wells.  For better service delivery and increase the coverage there is a need of expansion of networks.  There is shortage of pipes & fittings, for regular operation & maintenance, in the Utility‘s store.  As the service area is growing fast more stress should be given for vehicle management for better service delivery.  For better service delivery there is need of additional Generators Set.

Brief Description of Biratnagar water supply:

SN. Description Quantity Number

1 Water Supply Delivered ≈ 9.1 mld

2 Total service connections 11000

3 No. of staff 50

4 No. of staff per 1000 connections ≈ 4.5

5 Water supply duration ≈ 12 hrs/day

6 Annual income ≈ Rs. 24 million

7 Annual expenditure ≈ RS. 20.1 million

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Conclusion

 Management of the utility should be forward looking to improve the service level of service delivery.

 The Utility need, additional tube well, more over head tank to meet the growing need of people of service areas, in coming years.

4.4.4 Financial Performance This section analyzes the financial information of Biratnagar water supply based on the responses of survey questionnaire containing questions on financial information such as Water billing/sales (annual for 2011), basis for billing, how frequently are consumers billed and paid, water supply revenue in 2011 year-end accounts receivable, water supply O&M expenses in 2011, depreciation, total debt service (interest & principal) in 2011, annual capital development expenses in 2011, total capital expenditures in the last 5 years, and gross fixed asset value. The responses on these various items are as shown in Table 4.14.

Table 4.14: Financial information on selected water supply towns S.No. Item Biratnagar 1 Water billing/sales (annual for 2011) in Million Rs. 26.01 2 Basis for billing metered 3 How frequently are consumers billed? monthly 4 Water bills are paid in cash 5 Water bills are paid through Water utility office 6 Water supply revenue in 2011 in Million Rs. 29.41 7 Year-end accounts receivable in Million Rs. 8.70

8 Water supply O&M expenses in 2011 in Million Rs. 20.63 9 Depreciation in Million Rs. - 10 Total debt service (interest & principal) in 2011 - 11 Annual capital development expenses in 2011 in Million Rs. 6.66 12 Total capital expenditures in the last 5 years in Million Rs. 33.28 13 Gross fixed asset value in Million Rs. -

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Table 4.15: Financial information on selected water supply towns S.No. Items Biratnagar

1 Ratio of water billing to water supply revenue (%) 88.42

2 Water revenue/OM&A cost (%) 126.10

3 Collection ratio, times 2.99

4 Carrying period, days 120.41

5 Ratio of sales to gross fixed assets (times) -

Source: Table 4.14.

In Table 4.15, water sales revenue is seen enough to cover operating and maintenance cost in the town as ‗Water revenue/OM&A cost‘ ratio is more than 100 percent.

4.4.5 Social and Poverty Assessment Social Profile: Biratnagar which is ranked as a Sub-metropolitan City, is a place of extreme diversity. There are very rich people and also very poor people. There are people of different social status and castes. Dalit which is taken as people of lowest social status is in remarkable numbers accounting 17% of the population. Similarly other indigenous ethnic groups like the Janajatis make up 36%, and the rest belong to other ethnicities. About 37% of the people in Biratnagar are indigenous local people while 62% are those who have migrated from other parts of the country especially from north hill districts. Male headed families make more than 92% of the households and only about 7% are female-headed households.

Economy and Income Group: Biratnagar is supposed to be the most industrialized town in Nepal. Earlier all the big industries of Nepal were located in this very town. Still Biratnagar- Itahari corridor is the place where most of Nepal‘s prominent industries are located. It is a famous commercial and business trade center of Nepal. Beside this Biratnagar being the headquarters of Morang district and Kosi Zone respectively, all the district level and zonal level government offices are located here. There are large numbers of educational institutions including those of higher learning and professional studies/subjects. This keeps Biratnagar as the second largest town after Kathmandu. Its proximity to the Indian Border and well connection to the others parts of the country with good roads have helped it in the development of industries in that area. There are more than 500 large and medium companies operating related to following industries: agriculture, forestry, manufacturing, mining, quarrying, electrical, vegetable, oil, garments, IT etc.

Regarding water supply, the poor have access to the public standposts. Also there are many hand pumps and dug wells where poor easily get water as water table is high in Biratnagar areas. Nevertheless the quality of water from handpumps and dugwells is not as good as piped water supply.

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4.5 Itahari

4.5.1 Water System

Itahari municipality is a very fast growing town in Sunsari District of eastern Nepal. It is located in plain Tarai and lies in Koshi Zone and Eastern Development Region.

Water supply in Itahari is operated by an independent local Itahari Small Town Water Supply and Sanitation Users‘ Association. Because it lies on the highway junction of the east-west highway in the tarai it is bustling as a business centre. The reason for its very fast growth is that it is the gateway to industrial north-south corridor along Duhabi- Biratnagar road and Dharan- Dhankuta areas. The Itahari water system was constructed under an ADB project and has water fed by deep tube wells. The project was started in 2005 and completed in 2008. The whole water system is made of three smaller systems A,B and C. There are three Overhead Tanks of 450 m³ capacity each. The water is treated with filtration and chlorination before being supplied to the consumers. The system has about 300 km of distribution network. The pipes used are HDPE.GI and DI. The service area covers ward no 1 to 9 of Itahari Municipality, ward no 1 of Hansposa VDC and ward no 4 of Ekamba VDC measuring around 36 square km. The area of Itahari Municipality is around 4377 Hectares. According to the officials of Itahari Small Town WSSA, the daily water production is about 5,000 m³ per day serving some 8562 private house connections. There are no public taps, only private connections and all are metered. The supply is intermittent and duration of water supply is about 9 hours a day. Many claim that the population served by Itahari water supply far exceeds the earlier claimed figure 60000 and it is now around 100000 including the floating population. The total water demand is estimated at about 6 mld and the NRW figure lies between 13-15%. Itahari has its own water tariff and the annual income is about NRs. 20.0 million and the annual expenditure excluding debt service is NRs.14.4 million. The number of staff with the Users‘ Association is 31 and hence the staff per 1000 taps figure stands at 3.73.

4.5.2 Tariff Structures and Institutions Itahari Small Town Water Supply and Sanitation Users‘ Association(ISTWSUA) established in 1996 operator as well as the asset owner of the water system in Itahari town. It is responsible for providing drinking water and sanitation facilities to all the wards of Itahari municipality and three other surrounding VDCs. In case of tariff setting or revision ISTWSUA can do by it itself and there is no regulator yet. Tariff is proposed by the Board of Directors of the Association and it is approved and adjusted by the annual General Assembly meeting of the Association. The tariff is revised time and again based on cost recovery principle and paying capacity of the consumers. Town Development Fund(TDF) which has provided loans to the Users‘ Committee, helps the latter to fix the tariff that covers all the costs including fund for debt service.

Presently ISTWSUA has its own Tariff structure which is progressive. Present lifeline rate is NRs.80 for 10 m³ and the rate has been set in line with per unit cost of production of water. Present tariff structure has differential rates with respect to domestic or industrial as shown in Table 4.16 below. The users with 3/4 inch tap are mainly industries and institutions which pay more than ordinary users for the water consumed as per their larger tap.

The connection charge for a new 1/2‖ connection is NRs.10,525/- and this includes the cost of a water meter as well. If someone does not pay the water due within 3 months the committee

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gives a notice and the tap is disconnected. For one level of poor people, the Municipality, NGO like LUMANTI help to manage the connection fee and help them to get a water connection. For extreme poor and destitute, the Users‘ Committee gives a very heavy rebate in the connection fee and just charges Rs.525.00 and gives a connection. But they (poor) too have to pay the water charge just like others as per the water tariff.

Table 4.16: Water Tariff Structure In Itahari ½ " taps ¾ " taps

Domestic Industrial/Institutional Industrial/Institutional

Units (m³) Rate Rate (NRs) Units (m³) Rate (NRs) ( NRs)

0 - 10 80 200 0 – 30 800

11 – 20 13 per unit 15 per unit 31 – 60 30 per unit

21 - 30 17 per unit 20 per unit 61 and above 35 per unit

31 -50 20 per unit 25 per unit

Above 51 24 per unit 30 per unit

Main characteristics:

 Typical IBT as applied in many cities in developing countries.  Customers are classified by the size of connection as well as the type of users.  The number and size of blocks are different across connections in different sizes.  Customers of different classes (residential versus commercial) for different rates at each block.  Customers with connections of large size pay higher rates.

Problems and disadvantages:

 In a water system with rationing, the minimum charge based on consumption level much higher than what the utilities are able to provide may face resistance from the consumers in payment.  In a water system without rationing, the minimum charge does not provide incentive for consumers who are able to reduce the consumption level below the minimum. This is especially true for commercial users here.  Commercial customers are paying the low rate for the first block and there is no justification for that.  The determination of the number of blocks, size of blocks, price differentials across blocks, price differentials across customer classes, can be quite arbitrary.  More difficult to administer and can cause confusion to users.

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4.5.3 Utility Management Present Situation

Ground Water is main source of water supply. The total production capacity is 5 mld.. With the help of 8562 service connections the Utility is serving about 100000 populations in its service area, one Municipality and parts of three other surrounding Village Development Committees. The service area is about 36 sq. km. All service connections are metered. Typical duration of supply is about 9 hrs /day. The total length of distribution network is about 300km.

Major Challenges:

-The Utility needs additional tube wells. -For better service delivery and increase in the coverage area there is a need for one more overhead tank. -There is shortage of pipes & fittings for regular maintenance. -As the service area is growing fast due importance should be given for transport management for better service delivery.

Itahari water supply in a nutshell:

 Water Supply Delivered = about 5.0mld.  No of service reservoir = 1 (Capacity 1350 cum.).  Total service connections = 8562  No. of staff = 31  No. of staff per 1000 connections = about 4 Conclusion

 At present the water supply system is in good Condition. When the mechanical and electric components will be old, replacement and rehabilitation will be needed. Enough funds should be allocated for such future needs.  Management of the utility should be forward looking to improve the service level of service delivery.  The Utility needs additional tube well, more over head tank to meet the growing need of people of service areas, in coming years.

4.5.4 Financial Performance

This section analyzes the financial information of Itahari water supply system based on responses on the survey questionnaire The responses on the various items are as shown in Table 4.17.

Table 4.17: Financial information on Itahari water supply S. Item Itahari No. 1 Water billing/sales (annual for 2011) in Million Rs. 17.215 2 Basis for billing metered 3 How frequently are consumers billed? monthly 4 Water bills are paid in cash

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5 Water bills are paid through Water utility office 6 Water supply revenue in 2011 in Million Rs. 31.21 7 Year-end accounts receivable in Million Rs. 0.278 8 Water supply OM&A expenses in 2011 in Million Rs. 21.230 9 Depreciation in Million Rs. 1.390 10 Total debt service (interest & principal) in 2011 12.000 11 Annual capital development expenses in 2011 in Million 4.278 Rs. 12 Total capital expenditures in the last 5 years in Million 36.751 Rs. 13 Gross fixed asset value in Million Rs. 26.060

The billing is based on the meter reading and the customers are billed on monthly basis. The water bills are paid in cash by the customers in the water utility office. Some financial ratios have been computed as shown in Table 4.18.

Table 4.18: Financial information on Itahari water supply S.No. Item Itahari 1 Ratio of water billing to water supply revenue (%) 55.16 2 Water revenue/OM&A cost (%) 81.09 3 Collection ratio, times 61.92 4 Carrying period, days 5.81 5 Ratio of sales to gross fixed assets (times) 0.66

Source: Table 4.17.

The above table shows that revenue from simple sales of water is not covering the operation and maintenance cost in Itahari as the ‗Water revenue/OM&A cost‘ ratio is coming less than 100% and there is need for tariff adjustment.

4.5.5 Social and Poverty Assessment Social Profile: Itahari is an impotant town/municipality in Sunsari District/ Kosi Zone and is located in southeastern Nepal. It lies at a junction of the west-east Mahendra highway and south-north Koshi Highway and thus is a town of strategic importance. As all the vehicles moving from east to other parts of the country and also those coming to east have to pass by this town it is fast developing as a commercial hub with large number shops, hotels, lodges and restaurants. It is acting like a gateway to prominent towns like Dharan, Dhankuta etc. in the north and Biratnagar, Duhabi etc. in the south. The people living in Itahari are mostly engaged in trade/business and agriculture. The reason for its fast growth is the migration of people from the hilly regions. This migration of well to do people from the hilly region has led to growth in the construction of large number of modern concrete houses in the market area. The population density in Itahari is fast getting heavy. As the town itself is located in plain Tarai area and growing fast with migration from surrounding districts, its residents are of very mixed cultures. They belong to many ethnic groups with different languages and cultural backgrounds. People

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of Itahari speak many languages like Nepali, Maithali, Tharu, Tamang, Magar, Limbu, Gurung, Sherpa, Ranjbansi etc. Religionwise there are Hindus, Buddhists, Muslims, Kirats and Christians. Economy: Itahari is commercially doing very well. Almost all major banks of Nepal have opened branches here. Itahari is getting busy and expensive day by day with many people travelling/ going to different districts spending nights in the local hotels. Growth in movement/traffic of outsiders in the town has helped Itahari economically very well. However this has also brought many social ills, social harmony of the local residents has been affected adversely. This has led to the growth of anti-social activities like hooliganism, illegal drug trade and sex trade in the town. Nevertheless Itahari is changing into a beautiful town with streets lined with trees and greenery, department stores and big Bus Station. In regard to water supply for poor, there are no public taps in Itahari, however the poor people are given some rebate in the connection charge. Besides that water is easily accessible to people at handpumps and dugwells as those are many there because groundwater table is high in Itahari area. However the quality of water is not good as that of piped water supply.

4.6 Damak

4.6.1 Water System Damak is a fast growing town located on the east-west highway in Jhapa District in eastern Nepal. The water supply in Damak is looked after by Damak Water Users‘ and Sanitation Committee, a locally constituted organization. The total population of Damak municipality is 75102 and total households 18104 as per 2011 census. The existing water supply in Damak fed by ground water pumped from two deep tube wells covers only a part of Damak Municipality(part of ward nos. 1, 10, 11, 12, 13 and14) and it is very inadequate. For rest of the town the only source of water supply is ground water from shallow tube wells of 18 to 26 feet depth run by hand pumps which are highly prone to pollution and contamination. On the other hand most of these shallow tube wells hardly remain functional all over the year because of rapid draw down and many even do not function at all due to unexpected lowering of water table. The growing population and increasing pressure on drinking water has forced the service provider to go for proper management and expansion. The existing system covers only 40-44% of the total population of the town. About 60 percent of the population has their own private dug wells or handpumps. As the water from those old sources/shallow wells has high iron content and is not safe for drinking local people are using their traditional technology for making water drinkable.

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Figure 4.4: Water supply Distribution Area

Water supply and sanitation service was first initiated in the year 1986 by the Department of Water Supply and Sewerage with the financial assistance of the British Government. The project was expected to build around 105 public taps in the municipality. However, the project was interrupted before completion due to various reasons. In 1991-92 the project was restarted by Damak Municipality in order to supply groundwater through a system of private taps and community taps. The project was completed in 1994. As quality of the water provided by this system was the same as other local private water sources in the municipality, the number of water connection applications was not high as expected in the beginning. Demand for new connections increased gradually after a treatment unit was installed. In 2006 the system was supplying drinking water to 2697 private taps and community taps whereas it rose to 3800 new taps without any community tap by May, 2013. The system is management was given to Damak Water Supply and Sanitation Users Committee (DWSSUC) which was formed short after the completion of the works. The measure has been proved to be very effective and currently Users‘ Committee is very active and the degree of local participation is very satisfactory. One of the major problems faced by the users committee is the inability to extend the system due to technical limitations. Many applications for new private connections are pending in the DWSSUC but unless a new scheme is constructed they will not be resolved. The water supply system serves seven of the 19 wards of the municipality (refer fig 4.4.). These are wards 1, 2, 10, 11, 12, 13, and 14, which form the core part of the municipality. Of the seven wards, it is only ward 11, which is fully served by the drinking water system. The water supply system is 24 hours supply.

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The system extracts ground water from four deep tube-wells, two of them were constructed at the beginning of the project and two more during the extension phase in 2004-05 (Figure 4.5). Three deep tube-wells were installed within office premises, whereas the other one was installed within the compound of reserve tank, which is occasionally operated during emergency and is not connected to the treatment unit. Out of three tube-wells located within office premises, only two are fully functional. The water is lifted and sent for filtration using 4 submersible pumps, which get electricity supply from two 100 KVA transformer. A treatment unit with the capacity of 90 m3 was installed near the deep tube-wells for treatment of water (Figure 4.6). After the filtration, water is reserved in a 450 cu-m capacity overhead tank (Figure 4.7). Estimated total demand is 3200 m3/d, whereas the total production capacity is 2700 m3/d. NRW is estimated at 17%.The system has 41 km of distribution network pipe of 20 years of average age.

Total water production was recorded to be 690,000 m3 of which 570,000 m3 were recorded on the meter of consumers. It is also observed that around 50 to 60 m³ is supposed to be wasted

Figure 4.5: Deep Tube Well Figure 4.6: Treatment Unit

Figure 4.7: Overhead Reservoir Tank

Total water production was recorded to be 690,000 m3 of which 570,000 m3 were recorded on the meter of consumers. It is also observed that around 50 to 60 m³ is supposed to be wasted daily during the cleaning of treatment unit. The use of water by the fire brigade department of municipality has also contributed to the UFA. DWSSUC has requested municipality to install meter to measure the quantity used by the fire brigade.

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4.6.2 Tariff Structures and Institutions Damak Water Supply and Sanitation Users‘ Committee (DWSSUC) established in 1995 and is the operator as well as owner of assets of the water system and thus is responsible for providing adequate safe drinking water to the residents of the Damak Municipality. As is the case with other Committees and Associations, the proposal for water tariff is initiated and set by the Executive Committee of DWSSUC and the proposal is adjusted if there is a need by the Annual General Assembly Meeting.

DWSSUC has its own tariff structure at present. It is following a progressive two-part increasing block tariff for water supply services with lifeline rate of NRs.80 and the rate has been set in line with per unit cost of production of water. The minimum charge has been increased thrice after the completion of the system: first it increased from NRs.25 to 40 in 2001, and then again from NRs.40 to 45 in 2005 and it is Rs.80 now. The primary reasons for the increase in lifeline rate are the increase in electricity tariff, price of petroleum products and construction materials. There are no differential rates with respect to purpose of water for domestic or industrial. However, a mechanism has been built to charge different rates according to the quantity of consumed water and tap size as shown in Table 4.19 below.

Table 4.19: Water Tariff structure In Damak ½ inch water taps 1 inch water taps Water Tariff Water Tariff Quantity, (NRs) Quantity, (NRs) m3 m3 0 – 8 80 1520 9 20 12/³ – 0 - 50 21 – 30 15/m³ 31 – 100 17/m³ More 18/m3 More 35/m³ than 100 than 50

The connection charge collected by the committee for a new ½‖ tap is NRs.10,500.00 and this includes the cost of the water meter which is given by the committee itself. The rest cost of labour for digging trench and backfilling and necessary pipe fittings are all borne by the customer.

For poor people who cannot afford to take a private connection, the committee has a nice provision to address their plight. In this case the poor people should apply in a group and they are given a community tap with 25 m3 as the initial minimum block for NRs.90 per month. Exceeding this they are charged at the usual tariff rate.

There is not much problem in the collection of tariff and other charges in Damak. In fact, DWSSUC has taken dual approach to correct the delay of payments. Firstly, an incentive of 2% discount has been given for consumers to encourage timely payments. No additional fine is charged if consumers pay their bill within a month from the date of meter reading. Besides, there is a provision of honoring every year two consumers for their timely payments of bill throughout the year. Secondly, a strong penalty system has been set so as to discourage

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untimely payments of the dues. Nevertheless if a customer does not pay the water due for three months then he is given a notice and his tap is disconnected.

Main characteristics:

 Customers are classified by the size of connection;  No differentiation in rate for customers in different sectors (residential, government, commercial);  There is a minimum charge and the minimum charge is calculated by minimum consumption times the tariff rate;  The minimum consumption differs based on size of connection;  Customers with 1/2 inch connections pay low tariff rate compared to other customers Problems and disadvantages:

4.6.3 Utility Management Present Situation

The existing water supply is fed by two tube wells. The system has a twenty four hour supply and all service connections are metered.

The Utility has a Master Development Plan for the period of BS 2067- BS 2072 (2010 AD- 2015 AD). Ground Water is main source of water supply. The total production capacity is 2.7 mld. The total length of distribution network is about 41km.

Major Challenges:

 The Utility need additional tube wells.  For better service delivery and increase the coverage there is a need of expansion of networks.  There is shortage of pipes & fittings, for regular maintenance.  As the service area is growing fast due importance should be given to transport management as well for better service delivery.

Damak water supply in a nutshell:

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 Water Supply Delivered = about 2.7mld.  Total service connections = 3800  Community Taps = 15  No. of staff = 14  No. of staff per 1000 connections = about 4 Conclusion

 At present the water supply system is suffering from water shortage and inadequate pipeline coverage because of which large section of the municipality is not covered and those with connections from the present system do not get water properly due to uneven supply despite the supply is 24 hours

 Management of the utility should be forward looking to improve the service level of service delivery.

 The Utility badly needs additional tube wells, additional over head tank and extensive expansion of distribution net work to meet the growing need of people of service areas, in coming years.

4.6.4 Financial Performance This section analyzes the financial information of Damak water supply system based on the survey questionnaire containing questions on financial information such as Water billing/sales (annual for 2011), basis for billing, how frequently are consumers billed and paid?, water supply revenue in 2011 year-end accounts receivable, water supply O&M expenses in 2011, depreciation, total debt service (interest & principal) in 2011, annual capital development expenses in 2011, total capital expenditures in the last 5 years, and gross fixed asset value. The responses on these various items are as shown in Table 4.20.

Table 4.20: Financial information on Damak water supply S. No. Item Damak 1 Water billing/sales (annual for 2011) in Million Rs. 7.000 2 Basis for billing metered 3 How frequently are consumers billed? monthly 4 Water bills are paid in cash 5 Water bills are paid through Water utility office 6 Water supply revenue in 2011 in Million Rs. 8.000 7 Year-end accounts receivable in Million Rs. 0.200 8 Water supply OM&A expenses in 2011 in Million Rs. 4.000 9 Depreciation in Million Rs. 1.050 10 Total debt service (interest & principal) in 2011 - 11 Annual capital development expenses in 2011 in Million Rs. NA 12 Total capital expenditures in the last 5 years in Million Rs. 3.050 13 Gross fixed asset value in Million Rs. 30.000

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The billing is based on the meter reading and the customers are billed on monthly basis. The water bills are paid in cash by the customers in the nearby water utility office. Some financial ratios have been computed as shown in Table 4.21.

Table 4.21: Financial information on Damak water supply S.No. Item Damak 1 Ratio of water billing to water supply revenue (%) 87.50 2 Water revenue/OM&A cost (%) 175.00 3 Collection ratio, times 35.00 4 Carrying period, days 10.29 5 Ratio of sales to gross fixed assets (times) 0.23 Source: Table 4.19.

Water sales revenue is enough to cover operating and maintenance cost in Damak as ‗Water revenue/OM&A cost‘ ratio is more than 100 percent.

4.6.5 Social and Poverty Assessment Social Profile: Damak is also a fast growing town located on the east-west highway in Jhapa district in eastern Nepal. It is one the important trade center in the eastern part of Nepal. The city had 28,000 people. Add to that 50,000 plus Bhutanese refugees still living in the northern region of the municipality. They are part of the municipality‘s socio-cultural dynamics, prone to security threats or social conflicts. Agricultural lands are vanishing fast with real state encroachment taking place everywhere. The city today is a busting provincial hub thanks largely to the continual flow of people from villages. Economy: Municipality that has 70 percent population working in the agriculture sector. Damak has emerged as a ―model‖ in people‘s participation in development works. Many of the roads have been built by people‘s own initiative. It is one of the major places for the production of Tea and Rice. The Large Tea Estate is also located in Damak. The Sattighatta Tea Estate is the major one. Damak is very well connected with other towns in the country by communication medium. Regarding water supply, the poor people who do not have private taps get water from the community taps. Beside this there are plenty of hand pumps and shallow dug wells where the poor go to fetch water. Nevertheless the water quality from such sources is not as good as that from a piped system. In Damak the poor are also given rebate on the new connection charge/ fee to facilitate them to get access to private connections.

4.7 Summary

The findings of the studies of water utilities in the sample towns are summarized in Table 4.22 below. They are based on the information received by the Study Team from the interactions with the concerned people, the relevant published and unpublished literature, the responses on the survey questionnaires etc.

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Table 4.22: Findings of the studies of water utilities in the sample towns

Sr. No. 1 2 3 4 5 6 7 8 9

Sample Katmandu Bharatpur Surkhet Parsa Bhaluwang Damak Itahari Dhulikhel Biratnagar Towns (Birendranagar) Issues

Type/Level Big Secondary Small Town Small Emerging Small Small Town Small Town Secondary of Water Town Town Town Town Town Supply Institutional arrangement KUKL BWSMB PWSSUA DWUSC ISTWSSUC DDWUC of utilities -- JEWSSUO BWSSUC NWSC Operator

(ii) current Asset KVWSMB BWSMB PWSSUA DWUSC ISTWSSUC DDWUC Owner JEWSSUO BWSSUC NWSC

(iii)Current - - - - WSTFC WSTFC - - - Regulator

(iv) current organization al structure Staff≈925 Staff≈43 Staff≈13 Staff≈14 Staff≈31 Staff≈20 of the Staff≈59 Staff≈6 Staff≈43 utilities- Staffing

(v) current

operational status including

- Service ≈1 hr every 3- ≈10 ≈24 ≈24 ≈2 hours/ day 5 days hours/day ≈1 -2 hr every 2 hours/day ≈3 hours/day hours/day ≈9 hours/ ≈10-12 duration days day Hours /day - Current population coverage ≈40.3- ≈80% ≈55% ≈90% 80% ≈66.13% v/s desired ≈65.65% ≈38-40% 44% ≈70% population coverage

- Production Max. ≈ 8,64 mld

≈Min 84 mld Min. ≈ 4.75mld. ≈1.2-1.5 ≈13 mld ≈1.62 mld ≈5-5.5 mld ≈1.38 mld mld ≈0.8-0.5 mld ≈12 mld Max 144 mld

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Supply & Connections≈ Total Private Private Private Total Connections consumption 184,720 tap≈14500 Connections≈ tap≈2256 Connections≈ taps≈3800 taps≈8300 Taps≈1710 Public 11910 Communit 755 Communit Public ≈11000 -No. of taps≈25 Public Taps≈40 y tap≈10 y taps≈15 Taps≈186 Connections

Water ≈350mld ≈20 mld ≈1.67 mld ≈3.689 ≈7.5 mld ≈2.4mld -1.2 mld demand, ≈12 mld ≈1 mld ≈24 mld mld

Leakage/ ≈35-40% ≈35% ≈15% ≈10% ≈18-19% ≈15% ≈41% ≈25% ≈35-40% NRW

Beneficiaries ≈2.7 million ≈85,000 ≈26,000 ≈60000 14435 ≈98480 ≈12000 Staff per 1000 5 3.07 5.4 4.02 3.73 10 4.95 7.95 4.9 connections

Income ≈570.0 million ≈39.2 million ≈17.23 ≈8.4 ≈20.0 ≈12.9 million ≈20.22 million ≈1.99 million million ≈24.0 (annual million million million )NRs.

Expenditure ≈710.0 million ≈21.55 ≈4.755 ≈7.2-6.8 ≈14.4 ≈7.0 million million ≈11.82 million million ≈0.584 million million million ≈20.4 (annual) million

NRs.

Increasing Type of Block IBT & IBT & IBT & IBT & IBT & IBT & IBT & Water IBT & Two Part Tariff(IBT) & Tariff Two part Two Part Two Part Two Part Two Part Two Part Two Part Two Part

Are taps Yes Yes Yes Yes Yes Yes Yes Yes Yes being metered?

Minimum Yes Yes Yes Yes Yes Yes Yes Yes Yes Monthly Bill regardless of (NRs.55) (NRs.50) (NRs.60) (NRs.130) (NRs.100) (NRs.80) (NRs.80) (NRs.125) (NRs.50) consumption

Has tariff been None and in None and in Yes Yes Yes Yes Yes Yes None and in revised process for process for process for recently? revision revision revision

Lifeline Yes Yes Yes Yes Yes Yes Yes Yes Yes Tariff (NRs.55) (NRs.50) (NRs.60) (NRs.130) (NRs.100) (NRs.80) (NRs.80) (NRs.125) (NRs.50)

Pro-poor Yes (Public Yes (Public Yes (Public Taps Yes None Yes Yes Yes (Public Yes provisions Taps and Taps and and Community (Public (Public Taps and (Public Community Community Taps) Taps and Taps and (Rebate in Community Taps and Taps/LICSU) Taps) Communit Communit Tap Taps) Communit y Taps) y Taps) connection y Taps) fee)

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Different Yes( in respect Yes( in None Yes(in None Yes ( in Yes ( in None Yes( in classes of to sizes of respect to terms of respect to respect to respect to users connections) sizes of uses) sizes of sizes of sizes of connections) connectio connection connections) ns ) s and uses)

Waste Yes(50% of None(no None(no None(no None(no None(no None(no None(no None(no water the total water sewerage sewerage service sewerage sewerage sewerage sewerage sewerage sewerage surcharge bill/charge) service exists) service service exists) service service service exists) service exists) exists) exists) exists) exists)

Any new tap Yes Yes Yes Yes Yes Yes Yes Yes Yes connection charge? (NRs.1000+Rs (NRs.5000) (NRs.15000 for (NRs. (NRs.3500 for (NRs. (NRs.1152 (NRs.6600) (NRs.5000) .1600 for first Domestic. & voluntary 5) 100 ft. and 8500 or contributors & 10500) then Rs.16.5 NRs.21000 for more) 12000 for per r-ft pipe Institutional) ordinary) line upto the house)

Any subsidy None Yes Yes Yes None None None None Yes i)Inadequate Main three Water, need i)Inadequate i)Inadequate i)Inadequa i)Need for a i)Need for i)Need for i)Need for i)Need for constraints for new water water supply water, need for te water generator set improvem additional additional additional sources coverage new source storage against load ent of the Tube well Tube well Tube well development capacity shedding system ii)Water network ii)Need for ii) Need for ii) Need for ii)Fund crunch quality ii)Improvement of ii)Comput ii)Need for a new pipeline pipeline for minimum and improvement distribution erized reservoir at extension Overhead extension extension maintenance network billing and elevated Tank work & admin. iii)Inadequat accountin place ii)Need for iii)Need for iii)Need for e fund to do iii)Source/ g system additional iii)Need for additional additional cost these iii) lack of water pipeline storage tank storage tank Catchment iii)Running enough extension improvement sources iii)Need for generator fittings and and means rehabilitation for power pipes for O/M. of of old leaking proving transportati pipes expensive on

Financial Analysis The analyses of the financial information on water supply systems in sample towns of Bhaluwang, Damak, Dhulikhel, Itahari, Parsa and Biratnagar based on the responses on survey questionnaire containing questions on financial information such as Water billing/sales (annual for 2011), basis for billing, how frequently are consumers billed and paid, water supply revenue in 2011 year-end accounts receivable, water supply O&M expenses in 2011, depreciation, total debt service (interest & principal) in 2011, annual capital development expenses in 2011, total capital expenditures in the last 5 years, and gross fixed asset value are all summarized in Tables 4.23 and 4.24.

Table 4.23: Financial information on selected water supply towns S.No Item Bhaluwan Damak Dhulikhel Itahari Parsa Biratnagar . g 1 Water 26.01 billing/sales 1.134 7.000 12.700 17.215 6.535 (annual for 2011) in Million Rs. 2 Basis for billing metered metered metered metered metered metered

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3 How frequently monthly monthly monthly monthly monthly are consumers monthly billed? 4 Water bills are cash cash cash cash cash cash paid in 5 Water bills are Water Water Water utility Water Water Water utility paid through utility utility office office utility office utility office office office 6 Water supply revenue in 1.990 8.000 12.700 31.21 10.092 29.41 2011 in Million Rs. 7 Year-end accounts 0.262 0.200 1.677 0.278 1.276 8.70 receivable in Million Rs. 8 Water supply O&M expenses 0.584 4.000 11.327 21.230 4.755 20.63 in 2011 in Million Rs. 9 Depreciation in - Million Rs. 0.041 1.050 2.622 1.390 1.031 10 Total debt service - - 1.600 12.000 2.302 - (interest & principal) in 2011 11 Annual capital NA development 1.157 6.800 4.278 3.567 6.66 expenses in 2011 in Million Rs. 12 Total capital NA NA expenditures in 3.050 36.751 20.639 33.28 the last 5 years in Million Rs. 13 Gross fixed - asset value in 1.728 30.000 65.559 26.060 21.627 Million Rs. Source: Questionnaire survey May 2013.

In almost all the towns, the majority of billing is based on the meter reading and the customers are billed on monthly basis. The water bills are paid in cash by the customers by visiting the nearby water utility office in all the towns.

Table 4.24: Financial information on selected water supply towns S.No. Item Bhaluwang Damak Dhulikhel Itahari Parsa Biratnagar

1 Ratio of water billing to water 56.96 supply revenue (%) 87.50 100.00 55.16 64.76 88.42

2 Water revenue/OM&A cost (%) 194.23 175.00 112.12 81.09 137.44 126.10

3 Collection ratio, times 4.34 35.00 7.57 61.92 5.12 2.99

4 Carrying period, days 83.04 10.29 47.54 5.81 70.28 120.41

5 Ratio of sales to gross fixed assets 0.66 - 0.66 0.30 (times) 0.23 0.19

Source: Table 4.23.

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In order to determine the coverage of expenditures by water sale revenues, the ratio of water revenue to OM&A cost has been computed. At the very least, revenues from water tariffs should cover these costs which represent the cost of labor, materials, goods and services used in producing water. The measure is a direct indicator of cost recovery and should exceed 100%. Cost coverage indicator is shown in Table 4.24. Clearly, water sales revenues have been enough to cover operating and maintenance costs in all the towns except Itahari as they are more than 100 percent. In case of Kathmandu the water revenue does not cover the operation cost in 2011/12 (Refer Table 3.12).

Revenue collection: Generally, there is some delay between the time that invoices for water are issued for and the receipt of payments. If accounts receivable are high, it indicates that an enterprise is lagging behind the collection of receivables. It also means that more funds are tied up in receivables which must be financed somehow leading to higher short-term financing costs. When there are more receivables, it may cause financial problems also. Hence, an uncollectible water bills may reduce revenues and profits.

The efficiency of revenue collection can be judged by computing the ratio of total sales to accounts receivable which is also known as a collection ratio. Higher the ratio, the better it is. If the collection ratios are higher, it would indicate that customers pay their bills quickly which would improve the cash flows. Generally, the collection ratio varies from one industry to another. The efficiency of revenue collection can be judged by computing another performance measure known as the carrying period which is estimated by dividing 360 by the collection ratio. It shows the average number of days it takes to receive payment on an invoice. Lower the carrying period, the better it is.

Gross fixed assets turnover: Another measure of performance is to compute gross fixed assets turnover. The higher the ratio the better it is as it indicates the efficiency with which fixed assets are employed by the water supply towns.

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5 Comparitive Analysis and Lessons Learnt

5.1 Overall Assessment

The Nepalese water sector is in development. Kathmandu Valley is facing severe water shortages and the existing infrastructure is in very poor condition. The country is experiencing rapid urban development. Outside Kathmandu wastewater collection and treatment is still nonexistent and even in Kathmandu the wastewater service is minimal. Kathmandu Valley has a professional water utility. The rest of the population in urban, semi-urban, peri-urban areas in Nepal is served by over some 265 small (max. 20,000 connections) water service providers. The remaining rural population outside the Kathmandu Valley is served by the Department of Water Supply and Sewerage (DWSS) and Department of Local Infrastructure Development and Agricultural Roads(DOLIDAR) by means of local branches or by small informal community systems under supervision of water users‘ associations/committees or Village Development Committees(VDCs). Most of these systems employ only 1 or 2 plumbers. The capital assets of these systems are paid for by the Government on a grant basis. Rapid urbanization creates a growing demand for better water services. Existing and new water utilities are striving to meet this demand, but find it difficult without adequate revenues and capital financing. It is anticipated that there will be rapid increase in the number and size of service providers in Nepal.

The water sector is unbalanced. KVWSMB supplies 185,000 connections. The next largest service provider supplies about 30,000. The remaining over some 265 water service providers are much smaller. The vast majority of the population is rural without access to good piped network services or is served by very small piped supply systems. Regulation and legislation of the water sector is not comprehensive and fragmented. Political instability over the past decades has been a serious obstacle to the improvement of stable and continuous development of the water sector.

Due to great differences between KV/KUKL and the rest of the Nepal water sector in terms of size and specific problems of water shortage, a direct comparison is not useful. This is especially important for the development of tariff guidelines. Although the policies and objectives are the same for all water service providers, the application of the guidelines to the Kathmandu Valley has special features.

Tariff regulation, tariff structures and tariff setting legislation and regulation reflects the current underdeveloped status of the water sector. There is limited regulation, but it is rudimentary and needs development of jurisprudence and good practice. The regulation by the Water Supply Tariff Fixation Commission Act is relatively new and in many ways still being operationalized. It is only applied for service providers under the Water Management Board Act and for bigger systems. Tariff setting for small community systems follows the Water Users Association (WUA) regulations. This is closer to the owners of the systems, more accepted and more flexible in application. It is functioning in a satisfactory manner in the present circumstances. For smooth development of new small systems and for further growth of the existing systems it is recommended that local governments continue in this oversight role. However small service providers have limited staff and no specific expertise in tariff issues, and should benefit from having National Tariff Guidelines to which they can refer to for guidance.

Both policy makers and water sector professionals believe that the Government should provide the capital needed for water and sanitation infrastructure. However, the services that provided at present are the bare minimum. In most small systems there is no raw water treatment, and the

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majority of the population is served by community taps. Consumers express willingness to pay for improved services, including treated water delivered to the house by piped system.. The cost of the service of treatment, transport and distribution has to be recovered from the users. Public education programs are needed to explain to customers that providing these funds from general taxes is not economically efficient or financially feasible.

As communal rural basic water systems transition to piped supply systems with raw water treatment, and individual connections, there is a need for guidelines for tariff setting. These Guidelines need to provide guidance on how to prioritize and balance the following objectives:

 Social equity and serving the poor;  Financial cost recovery;  Economic efficiency (so customers receive the correct signal about the scarcity value of the water resource and the cost of using an additional unit of water);  Tariff revision transparency (so customers can have trust in the tariff setting process);  Simplicity (so customers can link their tariff bill to their consumption). Furthermore, small service providers will not have the expertise to conduct the tariff design and calculation in a professional manner. It is not part of their daily routine, and they do not have easy access to information that would enable them to benchmark their performance with peers. From the cases studied under this project we learned that every water service provider applies its own method to establish water tariffs. The development of the water sector and the individual water service providers will benefit from a set of National Water Tariff Guidelines, The Guidelines should be easy to understand, based on accepted principles and leave room to take into account the very different customer structures of the service providers.

The survey conducted as part of this project revealed that the availability and quality of data about the performance of the service providers is minimal. Improvement of performance can only be achieved when the baseline is exactly known so that attainable targets can be formulated by management and improvement can be monitored by supervisors and customers. It seems that often – in the absence of reliable information – decisions are made on (calculated) guesses or gut feelings. For the implementation of Tariff Guidelines the availability of reliable data is a basic requirement.

5.2 Scorecard Analysis

A scorecard has been developed to present the key results of the study and to facilitate comparison of the financial and operational performance and the status of present tariff structures and ongoing tariff adjustments across service providers.

The financial performance target depicted in the scorecard is to cover O&M costs. It is however questionable what conclusions can be derived from the results. This data must, however, be interpreted carefully because in some or most cases the service providers‘ O&M expenditures are adjusted to the available budget. The data does not reflect the O&M expenditures that are needed to provide high quality services. All cases depended on external sources for funding capital investments. Data on non-revenue water and collection efficiency are either unavailable or unreliable.

Repairs and maintenance seems to be ad hoc, reactive and not directed to preventive maintenance. The overall state of the capital assets in most systems is poor. There are many

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breakdowns, leakages and installations that do not meet the output specifications. The overall conclusion is that given the available budget (based on the revenues) the utilities do what they can and that is not enough.

Service in most cases is poor. There is only one case (Parsa) that supplies 24 hours, 7 day a week water service. Parts of Damak also receive 24/7 service. Service quality is the worst is KV where most households have water for 1-2 hours every 4-5 days. With this intermittent supply the water delivered is not potable.

Name of Present status of Present status of Existing Tariff Ongoing Town Utility financial health the water supply Structure. What tariff service needs to be done adjustments in regards to tariff

Kathmandu Very bad, water revenue Poor, inadequate Two- Part Tariff, Yes, WSTFC is expected to be water, 1-2 hours of IBT, no classification recently sufficient for O&M after supply every 4-5 on the basis of use approved the latest tariff days but on size only KUKL tariff adjustment adjustment Tariff still low and needs adjustment.

Bharatpur Revenue from water Fairly satisfactory, Two Part Tariff, ITB, Yes, adequate to meet O&M Adequate water till No classification on BWSMB in cost but not enough for now as people the basis of use but the process further extensions; have other on size only. of tariff receives subsidies from alternatives and revision. Tariff low and needs local government for many areas not adjustment. extension. covered yet; Service area to be extended; 10 hours of supply per day

Surkhet Revenue from water Poor, inadequate Two Part Tariff, ITB; None in the (Birendranag adequate to meet O&M water, 1-2 hours of no classification on near future. ar) cost but not enough for supply once every the basis of use. further extension work, 2 days Tariff low and needs receives subsidies from adjustment. local government for extension.

Bhaluwang Revenue from water just Not that Two Part Tariff, ITB; None in the adequate to meet O&M satisfactory; no classification on near future. cost but not enough for inadequate water, the basis of use. further extension work; limited coverage, 3 Tariff low and needs receives subsidies from hours of supply per adjustment. local government for day. extension.

Parsa Revenue from water Fairly satisfactory; Two Part Tariff, ITB, None in the adequate to meet O&M adequate water till classification done near future. cost but not enough for now as people on the basis of use. further extension work; have other Tariff low and needs receives subsidies from alternatives and adjustment. government agencies for many areas not

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Dhulikhel Revenue from water just Unsatisfactory; Two Part Tariff, ITB; None in the adequate to meet O&M Inadequate water, no classification on near future. cost but not enough for limited coverage, 2 the basis of use. further extension work, hours of supply per Tariff low and needs government has included day, very soon adjustment. Dhulikhel in Integrated Dhulikhel to get development program additional water with other two nearby under ADB towns under ADB loan. assisted Integrated Kavre Valley Development project already under construction.

Biratnagar Revenue from water just Fairly satisfactory; Two Part Tariff, ITB; Yes, NWSC adequate to meet O&M Adequate water till No classification on in the cost but not enough for now as people the basis of use but process of further extension work; have other on size only. tariff revision. collected revenue goes alternatives and Tariff low and needs to the central account of many areas not adjustment. NWSC which allocates covered yet; annual budget in its way Service area needs to subsidize other towns. to be extended, 10- NWSC receives 12 hours of supply subsidies from the per day. government for extension works.

Itahari Revenue from water and Fairly satisfactory; Two Part Tariff, ITB, None in the others just adequate to adequate water till classifications on near future. meet O&M cost but not now as people the basis of use and enough for further have other on size as well. extension work. alternatives and Tariff low and needs many areas not adjustment. covered yet; Service area needs to be extended, 10- 12 hours of supply per day.

Damak Revenue from water and Poor, inadequate Two Part Tariff, ITB; None in the others just adequate to water, unevenly no classification on near future. meet O&M cost but not distributed, vast the basis of use but enough for further areas not covered, on size only.

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Name of Present status of Present status of Existing Tariff Ongoing Town Utility financial health the water supply Structure. What tariff service needs to be done adjustments in regards to tariff extension work. although 24 hour Tariff low and needs supply in the limited adjustment. service area many have virtually dry taps or very little water, because of the inadequate distribution pipeline network and inadequate water production and storage facilities; ADB assisted project under construction and envisaged to be completed within few years. ADB = Asian Development Bank; IBT = increasing block tariff; O&M = operations and maintenance; WSTFC = Water Supply Tariff Fixation Commission

5.3 Lessons learned

Analysis of the cases revealed the following lessons learned with respect to the tariff framework and tariff policies and setting in Nepal:

5.3.1 General lessons

 Currently there is not a clear water tariff policy. The Water Supply Tariff Fixation Commission Act is a good starting point, but the policy has not been effectively implemented and has had little influence on the majority of service providers.

 Get the basics right. In all cases it was hard and impossible to gather the basic data required for proper tariff setting. We were unable to obtain and analyze customer billing records because in the cases we examined computerized records do not exist. Even for small systems there are no functioning systems to process basic customer data.

 The lack of reliable data is a major obstacle to designing professional tariff structures and setting robust tariffs. For the development of an adequate tariff structure that serves its principle objectives it is essential to have access to reliable key data on both the customers served and the current and future costs of service provision.

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 The issues in the KV case are so different in magnitude and nature from the small utilities that they must be treated separately.

 There is not much transparency in the performance of the water service providers, particularly because they do not have proper data capture systems.

 It is important to recognize that technically there is no ―cross subsidization‖ between customers anywhere in Nepal because no one is paying the full cost of providing water and sanitation services. The different prices paid imply that the extent of subsidization differs, but everyone is receiving below-cost water service.

 Our case studies revealed that a few service providers are facing severe local water shortages. From an economic perspective, this means that scarcity pricing is especially important in these locations. The National Tariff Guidelines need to provide guidance on how tariff revisions can help address such problems.

5.3.2 Lessons for determination of tariff structure  Tariffs need to be designed to meet multiple objectives – financial cost recovery, equity, economic efficiency, etc. But there are tradeoffs between these objectives, and it is not possible to achieve all these objectives now. The Guidelines should discuss and justify what objectives should receive greater priority in the current context.  The current widespread use of a minimum bill is ill-advised. A better approach is to use a two-part tariff with a positive fixed charge and a volumetric rate. The minimum bill is inequitable because it treats all low volume consumers the same, when in fact a customer that uses 5 cubic meters per month will pay twice the average cost per cubic meter as a customer that uses 10 cubic meters.

 In many cases customers rely on secondary sources of water due to poor services of the utilities. There is not a good system for licensing private wells. Increases in tariffs may cause customers to revert to alternative sources, especially when the quality of service is poor. In general there is limited information available on how households will respond to service quality improvements and tariff increases. This lack of understanding of customer behavior complicates the analysis of tariff revisions.

 Service providers in Nepal use different tariff structures. Most apply increasing block tariffs (IBTs), often with a minimum bill. Some of them distinguish between domestic and commercial or institutional customers. Others apply different volumetric rates for different size connections.

 Service providers are concerned about how water tariffs affect poor households, but the data are not available to analyze how tariff revisions will affect the water bills of poor households. Currently it is not possible to effectively target subsidies to poor households. More information is needed.

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 When IBT is used in conjunction with a minimum water bill, it is especially difficult to determine whether the water bills that poor households receive are equitable. Poor households with low water use may end up paying higher average water prices than middle and upper income households that use more water than the lifeline block.

5.3.3 Lessons for development of appropriate tariff  Water service providers currently appear to be capable of recovering current O&M costs, but this finding must be interpreted carefully. O&M expenditures are low because service is poor and repairs and rehabilitation of capital assets is minimal in many systems. Tariffs are not sufficient to recover O&M costs if the service providers were providing better quality services and doing minor repairs. None of the systems are recovering capital costs.

 The review of the financial accounts of service providers revealed that depreciation is a very small proportion of total costs. This probably means that the depreciation charges carried in the service providers‘ financial accounts are a very poor estimate of the actual cash needed for repair and rehabilitation of capital assets. This is turn implies that the service providers need much higher revenues (and higher tariffs) to achieve cost recovery than one would estimate using depreciation to estimate cash needs.  Similarly, the service providers do not have good estimates of future cash needs for capacity expansion. This is understandable at present because the service providers are not responsible for financing such investment. But this also means that it is different to estimate the tariffs required to reach a target of full cost recovery in Phase 2.  The current quality of service is very low (especially in KV). The current O&M expenditures are not a good indicator of the O&M expenditures that will need to be incurred when service quality is improved. Setting the tariff based on current O&M will result in revenues that will be too low to cover future O&M expenditures when service improves.  The function of forecasting and long term planning is not developed. Such forecasts are fundamental to tariff analysis, and are the heart of tariff modeling software.

 The tariff structures of water service providers may need to be different to reflect local water resources conditions and different population and economic growth dynamics. But the differences in tariff structures that currently exist across service providers in Nepal are not based on sound tariff analysis and local specific conditions.

5.3.4 Lessons for implementation of tariff adjustments  An important next step is to enhance the capacity of service providers in Nepal to undertake analysis of how changing tariffs will affect different objectives. This will require training in the use of tariff setting model that can simulate the effects of changing tariffs on the service provider‘s financial accounts and on the water bills of different customers, especially poor households.  More information is needed about the future capital costs required to provide high quality water and sanitation services in Nepal. Civil society needs to better understand the size

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of the gap between the current revenues of service providers and the revenues needed for full cost recovery of improved network services.  Service providers and the Water Supply Tariff Fixation Commission need to focus on public education and outreach. Civil society in Nepal needs to better understand the challenges facing the water supply and sanitation sector and the policies needed to address these challenges. Tariff reform is not possible without better engagement with civil society. The National Tariff Guidelines should offer practical advice on how this can be better achieved.

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6 National Tariff Guidelines for Water Supply and Wastewater in Nepal

6.1 Preface

The Ministry of Urban Development is leading the development of national guidelines for tariff setting that apply to all water supply and wastewater (WSS) service providers in Nepal. The main objective of the guidelines is to provide service providers with the principles and basic structure to develop customized tariffs that reflect (i) cost recovery, (ii) economic efficiency and (iii) affordability. The hope is that the guidelines will provide a more systematic, transparent and scientific method to design water and wastewater tariffs in Nepal.

Agreement on the principles and proposed tariff structure is a prerequisite to the next step – tariff design in which service providers actually calculate their tariffs and model the consequences of tariff reforms. It is important that stakeholders understand and agree on the underlying principles of a sound tariff structure that leads to financial sustainability before computing the actual numbers.8

The guidelines have been designed based on a review of Nepal‘s current sector practices and policies; and on global standards. They are flexible enough to support Nepal‘s WSS sector for a number of years. They provide options for service providers so that their tariff structure can evolve as their operations improve.

The proposed guidelines introduce the following changes to Nepal‘s current WSS sector:

1. Tariffs are calculated according to the service provider’s current cost recovery objective. (i) Operations and maintenance (O&M); (ii) O&M + rehabilitation and replacement of existing infrastructure; or (iii) O&M + rehabilitation and replacement of existing infrastructure + new capital works (i.e. expansion).

2. A cash-needs approach is proposed to determine the tariff. Service providers calculate the ‗cash‘ they will need to pay for O&M, capital replacement and rehabilitation, and capital expansion over the planning horizon (3-5 years); and then calculate the tariff on this basis.

6.2 Introduction

6.2.1 Many water service providers in Nepal are financially unsustainable, resulting in inadequate coverage and inefficient delivery of services. Water systems have been deteriorating in many cities, towns, and communities. In Kathmandu, for example,

8 The adoption of more sustainable tariff structure throughout Nepal will require a phased approach: (i) first, the adoption of the guidelines; (ii) second, further training to help stakeholders throughout the country understand the purpose and content of the guidelines; and (iii) third, training on translating the guidelines into a tariff structure using a tariff model.

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households are getting one or two hours of water service every few days from the piped system; and they are paying very little to the service provider for this poor service. However, households are paying a significant portion of their income purchasing water from vendors, treating their water at home, investing in home water storage and pumping costs.

6.2.2 The water tariffs currently in use in many cities, communities, and rural areas in Nepal are inadequate. They are not generating sufficient revenues to ensure that utilities can recover their short term and long term financial costs. They are not sending the correct economic signals to households to only use what they are willing to pay for and make efforts to conserve water. They are not helping the majority of the low-income households, as many of them are not connected to a piped distribution system.

6.2.3 The purpose of these National Tariff Guidelines for Water and Wastewater (hereafter ‗the Guidelines‘) is to help service providers deliver better services by promoting good practices in water and wastewater tariff setting. The Guidelines are designed to assist the service provider achieve a specified cost recovery target while fulfilling other important objectives.

6.2.4 The intended users of the Guidelines include regulatory agencies such as the Water Supply Tariff Fixation Commission (WSTFC), Town Development Fund (TDF), Sector Efficiency Improvement Unit (SEIU), service providers,9 international organizations, local governments (city/town/community), consumer groups, civil society groups, NGOs, and professionals in the water and wastewater sector. The Guidelines can be used to examine the adequacy of existing tariffs with regard to key objectives of tariff setting, to evaluate rate increase proposals made by service providers, and to educate consumers about the importance of adopting good practices in tariff setting.

6.3 Tariff Setting Principles

6.3.1 The main objectives of water and wastewater tariff setting are as follows:

6.3.1.1 Cost Recovery. The main purpose of the tariff is cost recovery. The tariff should generate revenue from water users to pay the operation and maintenance costs, to repay loans undertaken in the past, and to pay capital costs of replacement and expansion.

6.3.1.2 Economic Efficiency. Economic efficiency requires that the water prices be set to signal to the customers the value of water and to encourage efficient use. This will help resource conservation and sustainable consumption.

9 Service providers include utilities in large, medium and small towns, including systems operated by Water User Associations (WUA).

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6.3.1.3 Fairness. The water and wastewater tariff should be equitable. Fairness here means that the water and wastewater tariff treats customers with similar socioeconomic and water and wastewater conditions equally, and that the customers in different situations (i.e., their water use imposes different costs on the service provider) are not treated the same. In general, fairness requires that users should pay monthly water bills that are proportionate to the costs they impose on the service provider and society by their water use and wastewater discharges.

6.3.1.4 Affordability. Affordability requires that water and wastewater tariff results in water bills that are affordable for low-income groups. Service providers should ensure that the water and wastewater services meet society‘s standards for the amount of the water and wastewater services that everyone, including the low-income households, deserves or needs.

6.3.1.5 Operational Efficiency. The tariff should also consider the level of operational efficiency of the service provider, and care should be taken to see that customers are not made to pay for wasteful costs due to inefficiency of the service provider. Cost recovery can be enhanced by systematic efforts to reduce service costs through improved management and technical efficiencies, reducing water losses in the system, reducing illegal connections, and by increasing revenues through improved collection efficiency.

6.3.2 The above principles act as criteria for selection of the appropriate tariff. The other factors that need to be considered from a practical implementation point of view are:

6.3.2.2 Simplicity and Transparency. The water and wastewater tariff should be simple and transparent so that the customers can understand easily how their water bill is calculated. The process of tariff adjustments should be transparent.

6.3.2.3 Ease of Implementation. The implementation of the revised tariff should not encounter significant barriers in terms of legal authority, administration competence, information requirements, or billings procedures. Specifically, the tariff structure should also be easy for the staff of the service provider to use when calculating the amount of the water and wastewater bill and doing the necessary billing.

6.3.3 A key challenge is that the above objectives (i.e. cost recovery, economic efficiency, fairness, affordability, operational efficiency) may conflict with each other. A tariff design that contributes to the achievement of one objective may be detrimental to the achievement of another. Tradeoffs need to be made and priorities need to be set.

6.3.3 The tariff structure should balance three main objectives: (1) to send as many customers as possible the correct signal about the economic value of water, (2) to collect sufficient revenues to put the utility on a sound financial basis (but not more revenue than is necessary) and (3) to ensure that most low-income households can access high-quality water and wastewater services. When demand for improved services is strong, this balancing task is often not as difficult as it might at first appear.

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6.4 Tariff Structure

6.4.1 A tariff structure is a set of procedural rules used to determine the monthly bills for water users in various categories and their conditions of service. Two main types of tariff structures used in the water and wastewater sector are a single-part tariff and a two-part tariff. Water users can be categorized into residential and non-residential (public institutions and commercial/industrial users).

6.4.2 With a single- part tariff, a consumer‘s monthly water bill is based on a single type of calculation. This single type of calculation can be one of two types: a fixed charge (i.e., independent of the quantity of water used) or a water use (volumetric) charge. A volumetric charge can be calculated in several different ways.

6.4.2.1 With a fixed charge, the consumer‘s monthly water bill is the same regardless of the volume used. In the absence of metering, fixed charges are the only possible tariff structure. From the perspective of economic efficiency, the problem with a fixed-charge system is that consumers have no incentive to economize on water use, as using more water will not increase their water bill.

6.4.2.2 Volumetric charges base consumers‘ water bills on the amount of water they use. There are two main options: (1) a uniform volumetric charge; (2) a block tariff where the unit charge is specified over a range of water use for a specific consumer, and then shifts as use increases.

6.4.3 With a two-part tariff, the consumer‘s water bill is based on the sum of two calculations: (1) a fixed charge, and (2) a charge related to the amount of water used. There are many variations in the way these two components can be put together. The fixed charge can be either positive (a fixed fee) or negative (a rebate). The water use charge can be based on any of the volumetric tariff structures described above, such as a uniform volumetric tariff, or an IBT.

6.4.4 Uniform volumetric charge. With a uniform volumetric charge, the household‘s water bill is simply the quantity used times the price per unit of water. This is the most common type of volumetric charge among service providers in United States, Australia, and a number of European countries. It is also very common for industrial and commercial users throughout the world.

6.4.5 Increasing Block Tariff (IBT). With an IBT, consumers incur a low volumetric per-unit charge (price) up to a specified quantity (or block); for any additional water consumed, they pay a higher price up to the limit for a second block, even higher for the third, and so on.

6.4.6 The IBT has become widely used in both industrialized and developing countries, and many professionals working in the water sector assume that it must always be the most appropriate tariff structure. Evidence suggests that this is not the case. For example, while it has been argued that the IBT can achieve three objectives, namely, economic efficiency, affordability and cost-recovery, in practice, often none of these objectives is met in practice because it is poorly designed.

6.4.7 A two-part tariff shall be considered as the primary choice unless it is demonstrated that an alternative tariff structure is more effective in achieving objectives. A positive fixed charge offers utilities some revenue stability. The volumetric charge of the two-part tariff

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system can help send the appropriate price signal to consumers. The relative distribution of the two components in a two-part tariff is based on the trade-off between the need for revenue and revenue stability and economic efficiency. However, in many cities, towns, and communities, many customers are not metered, or do not have functioning meters. In this case a fixed charge is the only possible tariff structure that can be used (in the short term) until meters can be installed or repaired.

6.4.8 The uniform volumetric charge shall be considered as the primary choice for the volumetric component of a two-part tariff unless it is demonstrated empirically that an alternative tariff structure (e.g., an IBT) is more effective in achieving objectives. A uniform volumetric charge has the advantage that it is easy for the consumer to understand, in part because this is how most other commodities are priced. From an economic efficiency point of view, it can be used to send a clear, unambiguous signal about the marginal cost of using water.

6.4.9 In the long run, the discrepancy between industrial (and commercial) and residential water tariffs should be minimized. The economic efficiency and fairness objectives require that industrial and commercial water users should not be charged more than the full costs of water and wastewater services that they impose on the service provider. Industrial water use is typically much more price-elastic than residential water use. This means that prices to industrial customers must be raised a great deal to raise funds for cross-subsidies, resulting in significantly reduced, inefficient water use by industries. Moreover, charging industrial users more than the real resource cost of providing them services often drives them off the piped distribution system altogether, thus reducing the revenue of the service provider and leading to inefficient self-supply investments by industrial and commercial users.

6.4.10 Low-income residential consumers can be offered a discount for the first 5 cubic meters of water consumption to ensure that basic water needs are not compromised due to poverty. Effectively, such a rate structure can be interpreted as an IBT with two blocks for low-income residential customers: (1) a lower volumetric charge for the first block, or the lifeline, and (2) higher volumetric charge for water use beyond the first lifeline. Such an arrangement takes into consideration the affordability objective while ensuring that higher income consumers do not receive the subsidy. This approach to assisting low- income households is only appropriate when low-income households can be identified and have metered connections for the exclusive use of household members.

6.4.11 This lifeline discount on the first 5 cubic meters will result in less revenue being collected by the service provider compared to a tariff structure with a uniform volumetric rate equal to the volumetric rate in the second block of the tariff structure with a lifeline rate. For a given subsidy level to the service provider, this revenue loss associated with the lifeline discount can be compensated by a balance of a higher fixed charge and a higher volumetric rate in the second block. Analysis is required to determine whether low- income households actually benefit from the implementation of such a lifeline discount compared to a two-part tariff with a uniform volumetric rate for all residential customers (refer also to 5.12 and 5.23).

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6.5 Cost Calculations

6.5.1 Costs shall be calculated on the basis of the actual expenditures made in earlier years (cash needs approach) and cost projections based on a business plan or financial improvement plan of the service provider. The essence of the cash-needs approach is that the revenues of the utility must be sufficient to cover all cash needs, including debt obligations as they come due, for the period over which the rates are intended to be in effect.

6.5.2 The total costs for providing water and wastewater services include operation and maintenance cost (O&M), capital costs of maintenance and replacement (to ensure that existing assets remain operational), and capital costs for system expansion and upgrading.

Figure 6.1 Spectrum of cost recovery targets (1)

Operation and Capital costs of Capital costs of maintenance renewal and expansion and costs replacement upgrading

6.5.3 Operating and maintenance costs. The O&M expense component of revenue requirements is based on actual expenditures derived from accounting records with adjustments to reflect the level of expenditure anticipated to be incurred during the period that rates are to be effective. They include salaries and wages, employee fringe benefits, purchased electricity, other purchased services, rent, chemicals, other materials and supplies, smaller items or equipment that do not extend the useful life of major assets, and miscellaneous costs.

6.5.3.1 Miscellaneous costs may include property/liability insurance, regulatory fees, lease fees10, bad debt allowances, contribution to working-capital reserve fund, and contribution to emergency reserve fund.

6.5.4 Capital costs for renewal and replacement. The capital costs for renewal and replacement are critical expenditures to ensure that the service provider‘s existing capital assets do not deteriorate and continue to deliver the required benefits over the long-term. Sufficient revenue must be allocated to make principal and interest payments on current and future debt, and for capital expenses for renewal and replacement that

10 In the case that the service provider has taken the water system on lease and it has to pay a lease fee for the infrastructures in the system, the lease fee calculated as per the agreement between the lessor and the lease will be also taken as an O&M cost.

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will be paid in cash. The debt service components of the revenue requirements consist of principal and interest requirements on loans outstanding during the period that rates are effective. The amount of cash required to pay principal and interest on outstanding debt is obtained from established debt-service schedules. Capital costs required to reduce system losses (NRW)and install and repair meters should be prioritized.

6.5.5 Capital costs for expansion and upgrading. The capital costs for expansion and upgrading are cost of capital required to improve water services to meet the needs of increased population and economic growth, as well as to improve the quality of service. They may include expansions and upgrades of the treatment and distribution systems, interconnections to other systems, development and protection of new raw water sources, among others. Such expenditures are needed to expand the stock of assets to meet increases in demand, to meet required service standards, and to address any increases in regulatory obligations.

6.5.6 Cost calculations are based on actual expenditure for the current year, and on planned expenditures for the future years of the planning period. From a strategic financial planning or revenue-adequacy standpoint, projections beyond 5 years tend to be quite speculative. Given the limited data currently available for some service providers in the country and the capacity for conducting financial planning, a projection period of 3 to 5 years should be considered for tariff setting purposes.

6.5.7 Since a significant portion of the costs are related to water produced and consumed, demand analysis is critical in projecting the costs of providing water services in the period over which the rates are intended to be adequate. Factors such as population, number of new connections, and changes in alternative sources of water, should be considered in determining the amount of water services to be provided and changes in costs of providing water services. Also, the amount of water to be provided over the planning period depends in part on the tariff to be charged. One of the main benefits of sound tariff setting procedures is that investments in increased capacity are not taken prematurely.

6.5.8 The tariff should be automatically adjusted annually to increase in line with inflation. Financial projections should be based on this assumption.

6.5.9 The projection of capital costs for maintenance and replacement and capital costs for expansion and upgrading should be based on an asset management plan. An asset management plan helps the utility to determine how much money will be required for renewal, replacement, rehabilitation, expansion and upgrading. An asset management plan serves as the basis for determining capital costs required over the planning period and the cash needed to pay these costs.

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6.6 Setting Water and Wastewater Tariff

6.6.1 Once cost calculations are made, the following six steps are involved in setting the water and wastewater tariff:

Figure 6.2: Steps for setting the tariff

Step 1: Determine Level of Service

Step 2: Identify Objectives

Step 3: Identify Revenue Requirements

Step 4: Allocation of Costs based on Water Uses

Step 5: Determining Water Tariff

Step 6: Implementation

6.6.2 The first step is to determine the level of service to be provided. In Nepal the level of service standard can be categorized into basic, medium and high.11 The choice of the level of service can directly affect the revenue requirements. Tariffs need to be adjusted accordingly. These Guidelines are written to assist with setting water and wastewater tariffs for piped water and sewer services, not for basic services such as public taps or public latrines.

6.6.3 The second step is to identify the cost-recovery target. Three cost-recovery targets can be considered based on the existing situation of the water utility and the service population. The first level is ―O&M‖, the second is ―O&M + capital costs for maintenance and rehabilitation‖, and third is ―O&M + capital costs for maintenance and rehabilitation + capital expenditure for expansion and upgrading‖ (see Figure 6.3). A ―phase-in approach‖ should be considered for utilities to move up to a revenue target of full cost- recovery. Over the long term a service provider risks serious problems if it commits tariff revenues to building or operating new or expanded services without first assuring that the full costs of its current services are being met by revenues from current tariffs or other sources.

11 Government of Nepal. Ministry of Physical Planning and Works. 2009. National Urban Water Supply and Sanitation Sector Policy.

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Figure 6.3: Spectrum of cost recovery targets (2)

Capital costs for Capital costs for Operation and renewal and expansion and replacement Maintenance growth (subsidized (subsidized or or postponed) (Subsidized) postponed)

Capital costs for Capital costs for renewal and Operation and expansion and replacement growth (subsidized (subsidized or Maintenance or postponed) postponed)

Capital costs for Capital costs for Operation and expansion and renewal and growth (subsidized replacement Maintenance or postponed)

Operation and Capital costs for Capital costs for renewal and expansion and Maintenance replacement growth

6.6.4 The third step is to determine the total annual operating revenue requirements given (1) the target for cost-recovery for the period in which the rates are to be effective and (2) the year of the planning period in which the cost recovery target should be reached. The annual revenue requirements of the utility are total annual cost of providing water service minus the subsidies or grants from government and (or) international organizations. Revenue requirements are the part of the total costs that must be recovered through water and wastewater rates and charges.

6.6.5 The fourth step is to allocate costs based on water use so that the service provider can recover the cost of providing service to the various classes of customers of the utility in an equitable manner. The total costs of providing water services should be categorized into three classes based on their relationship to water use: (i) commodity costs, (ii) demand-related costs, and (iii) customer costs.

6.6.5.1 Commodity costs. Commodity costs vary with the quantity of water produced, and can thus be interpreted as variable costs. They usually include energy costs for pumping, cost of chemicals, a large portion of the costs of parts, costs of purchased raw water and cost of materials.

6.6.5.2 Demand-related costs. Demand-related costs are a part of fixed costs in the short run, but vary with the water and wastewater services provided over the long run. From the perspective of fairness, demand-related costs should be distributed to different classes

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of customers in proportion to the total water use of each class. Demand-related costs usually include wages and salaries, payments on current debt, cost of insurance, administration, legal and personnel service, and capital costs of maintenance and rehabilitation.

6.6.5.3 Customer costs. The customer costs are the costs associated with serving customers, irrespective of the quantity of water use. They include, but are not limited to, meter reading, billing, customer accounting, customer service, and bill collecting expenses, as well as maintenance and capital costs related to meters and services.

Figure 6.4: Allocation of Customer, Demand-related, and Commodity Costs to the Fixed and Volumetric Charge Components of a Two-Part Tariff

6.6.6 The calculation of the tariff requires that different costs of water and wastewater services be allocated to the different customers. The cost allocation procedure specifies how much customers in each category pay for these services. The cost allocation procedure is used to determine the fixed charge and volumetric charge in a two-part tariff system for each class of customer. 6.6.7 In general, customer costs should be recovered through the fixed charge, and commodity costs should be recovered through the volumetric charge in the two-part tariff. A significant portion of the costs for water utilities are the demand-related costs, and these costs can be recovered either through the fixed charge, or the volumetric charge, or a combination of the fixed and variable charges, depending on the characteristics of the water systems, the desired balance between the revenue stability and economic efficiency objectives, and the data available to the service provider.

6.6.8 A service provider may recover all or a major portion of the demand-related costs through the fixed charge initially if revenue stability is a dominant concern, and then

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gradually move to a tariff structure that recovers most of its costs through the volumetric charge.

Figure 6.5: Shift over Time of Demand-Related Costs from Fixed Charge to Volumetric Charge Component of a 2-Part Tariff Fixed Charge Volumetric Charge

Customer Demand-Related Costs Operation & Maintenance

6.6.9 Fixed charges can be determined based on the distribution of customer costs and demand-related costs (if applicable) across different classes of customers (see 5.10). The monthly fixed charge for an individual consumer consists of average customer cost (same for all customers) and average demand-related cost (varies according to the class of consumers).

6.6.10 The distribution of the demand-related costs among different consumers. Ideally, accurate information would be available on the demand-related costs of the different types of customers. However, if this information is not readily available, an alternative is to divide end uses of water based on meter size and/or pipe size. In Nepal, meter sizes include ½‖, 3/4‖, 1‖, 2‖, 4‖, and 6‖ meter size, and equivalent meter method can be used to determine different fixed charges for consumers with different meter sizes.

6.6.11 The balance of the costs, or revenue requirements (total revenue requirement – cost recovered through fixed charge) and total amount of water sold form the basis for the calculation of uniform volumetric charge. This requires an iterative planning process because customers‘ water use will respond to changes in the volumetric charge.

6.6.12 There are two main ways that the tariff structure may be modified to assist low-income households. First, the tariff structure may include a lifeline tariff for low-income residential customers. This can be achieved by offering low-income households a discount on the volumetric charge for the first 5 cubic meters per month of water consumption. Second, low-income households can be offered a discount on the fixed charge. From an economic efficiency perspective, the second approach is preferable. The size of such a discount may vary across different service providers.

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6.6.13 Where service providers have not yet achieved 100% metering, they must apply a fixed monthly tariff for customers without meters (unmetered customers) and should plan to move to 100% metering. This monthly fixed charge should be set such that it will motivate unmetered customers to switch to metered supply.

6.6.14 The appropriateness of the tariff should be assessed based on customer responses to it. Two factors should be given attention. The first is the bill collection rate. The customers may react to rate increase by refusing to pay, and rates may have to be modified given the change in bill collection rate. The second is the price elasticity of demand. It is true that residential demand for water is usually price inelastic, but what is often misunderstood is that price inelasticity does not imply complete insensitivity to price changes. Rather, there is a proportionately lower response of quantity demanded to a given price change. If large price increases are needed to achieve cost recovery targets, the quantity of water used by customers may decrease significantly even though demand is price inelastic.

Figure 6.6 Tariff setting process

6.6.15 Wastewater tariffs. Piped sewerage collection systems and associated wastewater treatment plants entail high capital costs and additional O&M expenditures. The O&M expenditure, capital costs for renewal and replacement, and capital cost of expansion and upgrading for the sewerage collection network and for method of wastewater treatment used can be determined and then allocated to cost categories in the same way that is done for piped water networks. Where the service provider provides both water supply and sewerage collection and treatment services, it will allocate administrative and overhead costs between the two services in a proportionate manner. If a service provider is involved in providing only sewerage collection and treatment services but not water supply, it can directly determine and allocate the costs of the sewerage collection network and wastewater treatment facilities, and estimate the total required revenues for providing these services.

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6.6.16 Where the water supply is metered it is appropriate to apportion the total wastewater costs based on metered water consumption. Similar to tariffs for water supply, user charges for sewerage systems can comprise a combination of fixed and variable components. Where water services are not metered, the service provider must apply a fixed monthly charge for customers without meters (unmetered customers) and should plan to move to 100% metering. Because wastewater discharges cannot be independently metered, volumetric charges for wastewater services must be estimated based on metered water use. The volumetric charge for wastewater services is thus established as a surcharge on either the total water bill or the volumetric portion of the customer‘s water bill. Typically a full cost recovery target will require that this wastewater surcharge be at least 100% of the volumetric charge for water. Such a high increase in the volumetric water charges may compromise the affordability objective of the tariff and render full cost recovery unrealistic in the short run. In this case, subsidies from higher- level government are needed until economic growth and higher levels of income make full cost recovery feasible.

6.6.17 Connection charges. In general, connection charges should cover the full direct cost of connecting a household to the piped water and sewer networks. The connection charge may also include an additional, second component so that new customers connecting to the network(s) pay a fair share of the capital costs already accrued. If the total of the first and second components of the connection charges is large, it can create significant barriers for low-income families to connect to the piped network(s). In such situations, service providers should allow these families to pay for connection charges through periodic installments on their water bill or at a reduced, subsidized cost. If the connection charge is subsidized, then this cost needs to be treated as a cash need, and recovered through the fixed and/or volumetric component of the two-part tariff.

6.6.18 Implementation. The last step in tariff setting is implementation. The service provider shall determine the water bill of each customer in its database according to the official, approved tariff structure in effect at the time the water bill is issued. The service provider shall give customers a minimum of one month‘s notice prior to implementing a tariff increase. The service provider shall notify customers by placing announcements in newspapers and appropriate websites, and including a notice with the customer‘s previous water bill. In addition, the service provider shall provide documentation explaining the reasons for the tariff increase. This documentation should be available to all customers upon request during business hours. The service provider shall post copies of the revised tariffs at pay stations, on office notice boards in the offices of the service provider, and appropriate websites.

6.6.19 The service provider should have a plan for establishing an electronic customer database and installing water meters on every unmetered connection it serves. A water bill should be prepared for each connection in the service provider‘s customer database.

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6.6.20 A service provider shall have the responsibility for the management of various metering and measurement instruments and enforce a water supply metering policy and monitoring system in its service area.

6.6.21 In case the service provider has overcharged customers, it shall correct the tariff in the next billing cycle and issue a refund for the amount overcharged to each customer affected by the incorrect application of the approved tariff adjustment.

6.6.22 A customer shall pay its water bill every month. If a customer does not pay the water bill within 30 days after receiving the water bill, in addition to the amount of the water bill, the service provider may add a penalty charge. If the water bills and any accumulated penalties are not paid for three consecutive months without justifiable reasons or special circumstances, the service provider may temporarily stop supplying water or take actions as per the rules and regulations of the service provider. On the other hand, a customer should be able to disconnect from the piped system at no charge if they are dissatisfied with the service provided. If a customer disconnects and later decides to reconnect, he may be charged a reconnection fee.

6.6.23 The service provider should strengthen non-tariff mechanisms to assist the low-income families when a large increase in the water tariff is required. Low-income households are hurt most when they have few options to help themselves and when others have restricted their choices. One important way to protect low-income households, particularly in situations where supply or coverage is low and/or service is low, is to preserve their choices to minimize the chances that they will be exploited by other groups. There are three main things that can and should be done:

6.6.23.1 When the service provider is convinced that low-income households have the financial capacity and the willingness to pay for private water (and sewer) connections, the policy of the service provider should be to provide such services. Pro-poor policies should not trap low-income households into always accepting a low level of off-site, nonpiped water service. If a low-income household has the option of choosing a private connection, when they can afford it, there are limits to the degree they can be exploited by others.

6.6.23.2 Legalize water vending and selling of water by neighbors. Vendors and neighbors with private connections create options for low-income households; they promote competition in local water markets, limit the reach of spatial monopolies, and drive down water prices. Low-income households will benefit most from these lower prices. A system of public taps will add to the choices available to low-income households, will foster competition, and thus will protect low-income households from exploitation.

6.6.23.3 Do not give private operators exclusive rights to provide water within a service area.

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Generally contracts with private operators should not contain exclusivity clauses; these limit competition and typically end up restricting the choices of low-income households. Small-scale providers can often lower the cost of providing piped water to low-income households; they should be permitted to operate within the contract areas of larger private operators.

6.7 Review of Tariff Adjustments

6.7.1 Review of tariff adjustments might be required in the following situations:

. The existing water tariff fails to generate sufficient revenue to reach a cost-recovery target; . Extraordinary circumstances result in a significant increase in the price of a major input; . Pre-scheduled, periodic tariff review; . Regulatory requirements; . In response to legal action; . In response to a change in policy direction from government.

6.7.2 Review of tariff adjustments can be initiated by the service provider, by the regulatory body (WSTFC) or by the General Assembly of WUA.

6.7.3 In general, a tariff review should be conducted every 3-5 years to ensure that the water and wastewater tariffs are adequate given changing circumstances and cash needs.

6.7.4 The service provider should prepare tariff adjustment proposals along with the following documents:

 Billing and customer records that include annual revenues received by customer class and revenue derived from commodity charges and fixed charges by customer class for the reporting period.  Operating and maintenance budget  Copy of the education materials sent to customers with their water bill at least once a year.  Estimate of the full costs of providing services to the customers  Comparison of the full costs of providing services to the customer with the customer‘s monthly water bill, and an estimate of the magnitude of the subsidy the customer is receiving each month  Asset Management Plan  Capital Improvement Plan  Business plan in improving utility efficiency  Financial impact assessment of rate adjustments on revenues and costs

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 Assessment of tariff adjustments on low-income households  Customer satisfaction evaluation results

6.7.5 In the case of service providers regulated by a regulatory body, failure to submit any of the documents listed above will lead to a refusal by the regulatory body to review the Tariff Adjustment Proposal. Also the regulatory body may ask for additional documents and further justifications if it determines that additional information or explanation are needed.

6.7.6 In the case of self-regulation by the service provider, these documents should be prepared and made available to consumers and other stakeholders upon request.

6.7.7 The regulatory agency will make a thorough study of the tariff adjustment proposal submitted by the service provider and decide the extent to which O&M and capital costs of service providers are ―reasonable and necessary‖ for the provision of efficient services. Therefore it may decide to undertake a cost analysis of the service provider‘s operations. This will be done to ensure that customers are only paying for justified costs and are protected against excessive tariffs.

6.7.8 The Authority may not only analyze the costs of a service provider, but also compare (benchmark) these costs with those of other similar service providers. The service provider should have the opportunity to explain the reasons for any significant differences between its operations and those of similar service providers. If the explanations given by the service provider are not satisfactory to convince the Authority that the current level of costs is justified, the Authority may propose deductions from the service provider‘s projected costs. The reasons for deductions shall be clearly explained.

6.7.9 While assessing the Tariff Reform proposal, the Authority may undertake a performance analysis of the service provider as well. The performance assessment will concentrate on certain indicators to determine whether there are deviations from the agreed performance and whether improvement has been made over the last period. These key performance indicators (KPI) include but are not limited to the following:

 Non-revenue Water (NRW)  Level of Metering  Drinking Water Quality  Service Hours  Energy Efficiency  Staff Efficiency (Staff/1000 connections)  Water Coverage  Sanitation Coverage/Environmental Protection  Extraordinary efforts and initiatives to improve efficiency, service or access  Collection Efficiency

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6.7.10 At least one public hearing should be conducted by regulatory authority (or service provider if there is no regulatory authority) before the tariff adjustment becomes effective. A public hearing in this context means a forum or a medium of public discussion or consultation between the service provider and its customers, the primary purpose of which is to inform the latter about a proposed tariff increase and the reasons it is needed. Prior to the public hearing, the regulatory authority or the service provider should undertake a public information program in the areas affected by the tariff increase.

6.8 Implementation of the National Guidelines

6.8.1 There are a number of critical operational improvements that are needed in order to properly structure tariffs. For example, accurate customer data are critical inputs in the tariff setting process. The primary source of customer information is the utility‘s billing system. Accurate and detailed information on the number of customers, metered consumption, and amount billed are critical for the purposes of water tariff setting:

. Number of Customers. Service providers should maintain an electronic database with standard customer-related information, such as customer names and their billing addresses, size of each customer‘s meter, and the class of each customer. . Metered Consumption. It is important to have detailed customer water use records in order to design and evaluate alternative water tariff structures that would meet the objectives of revenue sufficiency, fairness, efficiency, and equity. Individual customer data should be maintained on a billing cycle basis (e.g. monthly or bimonthly). . Billed Amount. This information should be available for individual customer records for each customer class and meter size (if the tariff structure involves a charge that varies by meter size). This information is important for the utility in proposing new water tariffs because it allows them to compare the actual billed amount to the estimated revenue anticipated from proposed new tariffs.

6.8.2 In the absence of adequate (accurate) customer records, the service provider should prepare a detailed plan to improve its customer information and to establish electronic (digital) customer billing systems where these are not currently in place. Prior to such an investment, however, the service provider should attempt to identify problems with their existing customer records. Possible short-term improvements could include a customer profile survey, the recreation of records, or verification of information and other methods, dependent on the particular shortfalls in the service provider‘s customer database.

6.8.3 It is likely that much of the information needed to calculate water rates is contained and available within the service provider‘s billing system and financial accounts. However, accessing that data in a timely and cost-effective fashion may not be possible. It is important that, as part of the rate-study process, ample time is allowed for the identification, extraction, compilation, and review of the customer data from the electronic customer billing records and the service provider‘s financial accounts.

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6.8.4 Service providers should increase their operational efficiency by accounting for the water they produce and sell. They should measure water and wastewater network flows. More extensive measurement helps establish the location and amount of water losses and infiltration and is key to identifying the most cost-effective investments in the water and wastewater network. This will enable the service provider to see how much water is lost to inefficient processes and where those processes are in the system. Then, the service provider can start to reduce water losses by repairing leaks and addressing other inefficiencies through new treatment and distribution methods and technologies. This will allow service providers to deliver the same amount of water to customers while producing less water in their treatment and distribution operations.

6.8.5 Data should also be collected to construct performance indices that help measure changes in the effectiveness and efficiency or the water system programs and management. These can be used as important indicators to the service provider and those responsible for water system oversight.

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7 Implementation Framework

Implementation Framework of National Tariff Guidelines for Water and Wastewater

The National Tariff Guidelines for Water and Wastewater are a set of advisory inputs from national and international experts. It does not have any legal status. Once the Final Report of the consultants is submitted to the Government of Nepal, the proposed National Tariff Guidelines for Water Supply and Wastewater and the report become the property of the Government of Nepal. The government of Nepal then has to follow its own process and schedule for adopting the guidelines. This chapter lists the ten (10) key steps that need to be followed by the Ministry of Urban Development to formally adopt the guidelines, disseminate them to all service providers and ensure they are applied to calculate and review tariff structures.

7.1 Implementation Activities

i) Formation of a review committee under the leadership of Ministry of Urban Development (MOUD).

The first step of the government will be to form a review committee under the chairmanship of MOUD.12 The review committee should include representatives of all major stakeholders, The members of the review committee (hereinafter referred to as ‗Committee‘) includes representatives from NWSC, Water Supply Management Boards, Water User Associations, service providers, DWSS, TDF, WSTFC and others. ii) Amendment.

The review committee under the chairmanship of MOUD will review the Guidelines and suggest changes to be incorporated by the consultant. iii) Translation of the guidelines into Nepali

The third step would be to translate the guidelines into Nepali language. The translation shall be funded by the Sector Efficiency Improvement Unit (SEIU). iv) Circulation of the National Guidelines for Stakeholder Comments

MOUD is then expected to circulate the Nepali version of the guidelines with the full report to all stakeholders for their comments. MOUD will deal with big water utilities directly while it will reach smaller service providers through the Federation of Drinking Water and Sanitation Users (FEDWASUN). SEIU can fund these activities as these are related to water sector efficiency improvements. v) Review of the comments and revision

The fifth step is for the Committee to review the comments of the stakeholders and make a decision on which comments to incorporate. The Committee shall prepare responses for each

12 Note: the review committee was established during the final workshop held on 8 August 2013.

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comment in a comments matrix. Review committee submits the revised draft to the MOUD for approval with the comments matrix. vi) Make a proposal to the cabinet approval of the National Guidelines

Once the National Tariff Guidelines for Water Supply and Wastewater are approved by MOUD it should prepare the proposal for cabinet approval of the national guidelines. The Guidelines have to be approved by the government before it is formally issued as a national policy on water tariff. vii) Cabinet approval

Once the guidelines are presented for approval to the cabinet by the line ministry/MOUD, they are deliberated, discussed and finally approved by the cabinet with or without amendment. viii) Submission of National Guideline for adoption by Water Supply Tariff Fixation Commission

As eighth step is that the Water Supply Tariff Fixation Commission formally adopts the Guidelines as a guiding tool for the water service providers as a part of water tariff fixation work under section 6 of Water Supply Tariff Fixation Commission Act 2063. ix) Preparation of User Manual for National Guidelines

Government of Nepal/Tariff Fixation Commission has to prepare a user friendly Users‘ Manual of National Guidelines. The Commission should lead this job under the leadership of MOUD. x) Education and training to service providers and employees of the Commission for the use of National Guidelines

Lastly the Water Supply Tariff Fixation Commission will organize education and training programs for the service providers and employees of the commission. Training must emphasis the application of guidelines for calculating tariffs. WSTFC will carry out these activities for bigger water utilities. Similarly, SEIU will carry out the activities for smaller and emerging towns. Case method is emphasized for effective result. Also, the training and MOUD must emphasize to service providers the importance of having proper data management system and a business plan for calculating tariffs effectively and for overall financial sustainability.

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7.2 Implementation Schedule

Implementation Schedule

S.N. Activity Tentative Time Responsibility required

1. Formation of a review committee and August 2013 MOUD review

2. Translation of the guidelines into September 2013 MOUD/Ministry of Nepali Law and Justice/Review Committee

3. Circulation of the Guidelines for September 2013 MOUD Stakeholder Comments

4. Review of the comments and selective October 2013 Review Committee Incorporation

5. Make a proposal for the cabinet November 2013 MOUD approval

6. Cabinet approval November 2013 Cabinet / Cabinet secretariat

7. Adoption by Water Supply Tariff December 2013 Commission Fixation Commission

8. Preparation of User Manual for Jan- Feb 2014 Commission National Guidelines

9. Education and training on use of March – April Commission National Guidelines 2014

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8 Conclusion

At the start of this study expectations were high. The expected outcome for this project and the formulated outputs were challenging. The objective and scope of the study were indicating a high level and broad assessment of the current situation and a comprehensive set of recommendations and products. Initially the scope of the study was even broader and was targeted to cover South Asia, in particular Sri Lanka, India and Nepal. The underlying assumption was including the exchange of experiences in the various countries. In the end the study was limited to Nepal.

The water sector in Nepal is in an early phase of development. The institutional arrangements for the sector are strongly influenced by the specific conditions of water services in Kathmandu Valley. KV faces a severe shortage of available water and a very poor level of service. For most parts of the service area water supply is one or two hours in 5 days. Under guidance of international donors a sector reform was implemented and Water Management Boards were introduced to open options for firm measures to improve the situation. Following the creation of Management Boards the split of asset ownership and operations was introduced to allow for professional management and the lease construction was made. Meanwhile the overall solution for the water sources by means of the Melamchi tunnel project was dragging on for several reasons. Meanwhile, the residents of KV manage their own water supply through water tankers and private wells.

The rest of the Nepal water sector is going in its own pace in development. With the assistance of many central and local Government organizations and many international donors, national and international NGOs many projects have been realized and serving millions of people in the urban and peri-urban sector. Small is the overall impression of the water sector outside Kathmandu. Kathmandu has about 186,000 connections. All other water service providers are at least 90% smaller. Over 200 small water service providers are emerging. Some of them have a long tradition and they fit in the new structure of Management Boards. However most of the service providers are Water User Associations/Committees, with the General Assembly as Regulatory Authority. This is an exceptional example of direct representation. The meetings of the General Assembly can consist of more than 100 representatives and even interested individuals are invited to join the meeting and participate in decision making. This decision making process including the fixation of water tariffs is reported to function very satisfactorily.

The sample of the cases in the study was a mix of what is happening in the Nepal water sector. The case of KV is dominating because of the enormity of the problems. The other cases are representative for the rest of the water sector. There is one other Management Board in the sample of cases: Bharatpur; there is Biratnagar as part of NWSC and the other cases are Water User Associations as the dominating service model in Nepal.

The study revealed that each case has its own tariff structure, but all with different modalities with the common feature of a two part tariff system and Increasing Block Tariffs. In particular the Water User Associations/Committees seem to have developed a satisfactory procedure for tariff setting. It is recommended therefore not to deviate from a functioning practice, but to facilitate and improve it.

All small cases studied do not have sophisticated financial and management systems. In fact the financial and customer administrations were found not to be of required standard. Though with the small size of the operations, for the development of a sustainable service the level of financial and customer administration needs to be upgraded. There are currently over 200 water

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service providers of average 5,000 connections upcoming. Many of them have had financial injections to upgrade the facilities. They could benefit much from a set of transparent and easy to understand and apply guidelines to prepare water tariffs. There is momentum for that, because all service providers are now trying to find their way and the risk is that some unexpected problems may develop in absence of necessary guidance.

It is recommended not to opt for a structural reform to introduce the guidelines. The Water Supply Tariff Fixation Commission Act had vested the mandate for the fixation of all water service providers in the Water Supply Tariff Fixation Commission. The Commission has the authority to delegate powers. If the Commission governs the tariffs of the bigger water service providers itself, it could decide to delegate the tariff approval authority for the Water User Associations smaller than 25,000 connections to the General Assemblies of the Associations. The existing practice that involves the participation of all users in the decision making process in an excellent manner could be continued and even improved. The impact of the Guidelines would:

 Ensure cost recovery if set an appropriate level  Ensure social equity  Ensure uniform quality standards for water and services  A transparent process of tariff revision understood by all the consumers  Customers can link their tariff bill to their consumption The case studies revealed that the current state of the water service providers‘ financial and customer administrations are in general not up to the required standard and it can be assumed that this is typical for the majority of the sector. It is therefore necessary to prepare an implementation strategy that will address to strengthen the capacity of the water service providers to manage the financial and customer administrations. These performance improvements coupled with an improved tariff structure should go a long way in supporting the sustainability of the water sector in Nepal.

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ANNEXES

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Annex1: Personnel Schedule TECH -4 PERSONNEL SCHEDULE

Project : TA - 8036 : Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia - Nepal Consulting Firm (45373-001)

No. Name Experts input (inperson/month) per each deliverable (listed in TECH-3) Total time-input

Year 2013 (in Months)

Position April May June July HFT

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1 Mr. Gyanesh Nanda Bajracharya Water Tariff and Knowledge Home 3.00 4.00 Consultant and Team Leader Field 1.00 2 Dr. Rajendra Suwal Institutional and Regulatory Home 2.00 2.00 Consultant Field 0.00 3 Dr. Radhe Shyam Pradhan Financial Accounting and Home 3.00 4.00 Management Consultant Field 1.00 4 Mr. Narendra M. Pradhan Water Utility Management Home 1.75 2.00 Consultant Field 0.25 5 Dr. Madhav Narayan Shrestha Engineering and Cost Consultant Home 1.00 2.00 Field 1.00 6 Mr. Purna M. Shakya Legal Consultant Home 1.00 1.00 Field 0.00 7 Mr. Kul Prasad Niraula Public Participation and Home 0.75 1.00 Communication Consultant Field 0.25 8 Ms. Gita Adhikari Social and Poverty Consultant Home 0.75 1.00 Field 0.25 9 Mr. Ashok Manandhar Data Management Consultant Home 1.00 1.00 Field 0.00 DELIVERIES 1 Report (i) Inception Report. (ii) Mid-term Reports (iii) Draft Final Reports. (iv) Final Report 2 Workshop (i) Inception workshop or round table discussion (May 3, 2013) (ii) National workshop (July 7, 2013)

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Annex 2: Work Schedule

TECH 3 WORK SCHEDULE

Project : TA - 8036 : Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia - Nepal Consulting Firm (45373-0

S. Activities 2013 N. April May June July 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1 Review of the objectives and target parameters in setting water tariffs and the reforms; 2 Fix criteria and Select two pilot cities or areas for case studies. 3 Collect Information and data on water utilities and service providers of pilot areas 4 Review of the current water tariff policies & effectiveness in achieving financial,. social, economic, and environmental objectives and evaluation of current water tariff approval procedures, and identification of key issues 5 Review of the relevant legal and regulatory framework, identification of key issues and institutional arrangements for the urban water sector. 6 Develop a detailed financial and tariff-setting models for domestic, institutional, and industry users including recovery of O&M costs and capital costs; 7 Assess the effectiveness and impact of O&M cost recovery and full cost recovery tariff on operational efficiency of the water utilities and service providers in the pilot cities/areas; 8 Assess the nature of the capital and operation and maintenance expenditures and preparation of an itemized cost template for the optimal operation structure and the current operation structure; 9 Prepare mechanisms to ensure the poor have access to quality water supply through a lifeline tariff structure and other appropriate measures; 10 Analyze existing census of the pilot cities/areas and assess the affordability level of the current water tariffs, 11 Conduct affordability analysis and poverty impact analysis based on the proposed O&M and full cost recovery tariffs of the pilot cities/areas. 12 Establishment of the mechanisms for adequate public consultation and public hearing meetings for fixing water tariff. 13 Draft the national guidelines on water tariffs and the implementation framework 14 Assess the impact of the recommend improvement measures to the current implementation frameworks. 15 Develop a feasible methodology to facilitate future willingness to pay the water tariff recommended by this study. 16 Make recommendations to implement the national guidelines on water tariff. DELIVERIES 1 Report (i) Inception Report. (ii) Mid-term Reports (iii) Draft Final Reports. (iv) Final Report 2 Workshop (i) National workshop or round table discussion (ii) National workshop Legand : Activities : Full-time; Part-time Deliveries : Report; Workshop/round table discussion

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Annex 3: Terms Of reference for the consultants

I. BACKGROUND

1. A Regional Capacity Development Technical Assistance (R-CDTA) will be financed by ADB on a grant basis with the counterpart support from the governments to conduct the study of current water tariff structures in Nepal and to prepare national water tariff guidelines and the implementation frameworks of the national guidelines.

II. OUTCOME AND OUTPUTS

2. The outcome of the R-CDTA is to formulate the National Tariff Guidelines for Water Supply and Wastewater that will contribute to enhanced sustainability and financial self-sufficiency as well as good governance of the water sector through the following outputs:

(i) Improved understanding of the current water tariff structures; (ii) Improved understanding of water sector reforms and service management models in two pilot cities in Nepal; (iii) Establishment of water tariff guidelines at the national level; (iv) Establishment of the implementation frameworks of the Guidelines and recommend and assist to apply feasible measures to enhance good governance within service regulatory, supervisory and delivery structures for the two pilot cities where applicable; and (v) Establishment of knowledge channel to share sector related information and experiences.

III. SCOPE OF SERVICES

A. Review and Analyze the Current Water Tariff Structures 3. Undertake a broad sector review of the objectives and target parameters to be met in setting water tariffs and the reforms, evaluate the basis of the current tariff policies, the effectiveness of the reforms, the pros and cons of the current service management models, and the financial sustainability of the water sector given the current service management models, through case studies of two pilot cities/areas, and assess the effectiveness of the current policies in achieving financial, social, economic and environmental objectives. Review the national level water tariff policies as well as the relevant legal and regulatory framework and determine the extent to which water tariff is based on economic principles of pricing, namely, sufficiency of revenue, economic efficiency, equity and fairness. Cost recovery is for economic and financial sustainability.

B. Propose Water Tariff Guidelines at National Level 4. Based on the review and assessment of the current policies and sector performance, past water tariff assessments and analysis, prescribe a practical set of objectives/parameters to be included in the calculation of water tariffs. The National Tariff Guidelines for Water Supply and Wastewater should include among others the following. First, full cost recovery as the objectives for tariff setting. A detailed financial and tariff setting model should be developed which includes operations and maintenance (O&M) costs and capital costs to be recovered. Phase 1 in the short to medium term should focus on recovering only the O&M costs while capital costs would still be subsidized. Phase 2 in the long run should target full cost recovery of O&M costs covering manpower, energy, bulk water rates, chemical treatment, and repair and maintenance; and capital costs including interest, depreciation and reasonable return on equity. Assess and propose the range of tariff models which would be suitable for domestic, institutional, and

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industrial users. Second, propose the actions required to assist the local government arrive at specific water tariffs for the pilot city/area with consideration of first O&M and then full cost recovery. Third, propose mechanisms to ensure the poor have access to quality water supply through a lifeline tariff structure and other appropriate measures. Fourth, indicate a mechanism to ensure that there is adequate consultation with the public in relation to the proposed water tariff increases - such as the need to hold a set number of public hearing meetings. Fifth, clearly indicate the tariff approval process and the required institutional arrangements. The two pilot case study cities/areas should be consulted and their inputs and comments taken into consideration in preparing the draft National Guidelines for Water Supply and Wastewater.

C. Propose Specific Implementation Frameworks of the National Guidelines and Recommend the Pilot Cities on Implementation of the Guidelines 5. Based on detailed case studies, prescribe a practical set of objectives/parameters to be included in the calculation of water tariffs at the state/local level, assess the impact of the state/local implementation frameworks on the service management models by the water utilities or service providers, recommend and assist improvements to enhance good governance, establish the mechanisms within the implementation framework for adequate public consultation and the involvement of various stakeholders, and propose recommendations for the pilot cities to implement the national guidelines.

D. Organize Workshops to Disseminate Information and Experience of the Water Sector 6. During implementation of the R-CDTA, a total of two (2) workshops are envisaged. The primary purpose of the workshops is to create a channel for disseminating international best practice and share among the participating countries knowledge and experience in the water utility management, and disseminate major issues and findings for discussion during R-CDTA implementation. The workshops are to be conducted and administered by the consultants. A final publication of the study including among others a toolkit or handbook to define the National Tariff Guidelines for Water Supply and Wastewateron water tariffs will be prepared for wider dissemination.

E. Preparation of Water Tariff Study

IV. DELIVERABLES

A. Reports 7. The Consultants, with the assistance from the International Advisors, will prepare the following reports in English. One hard copy and one electronic copy of the report will be submitted to the relevant implementing agencies and ADB.

(i) Inception Report. To be submitted within two weeks after commencing the services. The report will contain a summary of issues discussed at inception stage, refined study design (approach, methodology and work plan), outline table of contents of the final report, highlight problems encountered and anticipated, and recommended solutions. (ii) Mid-term Reports. To be submitted by each participating countries within six weeks after commencing the services. This report shall include the detailed case studies of water utilities in the pilot cities. (iii) Draft Final Reports. To be submitted by each participating countries within ten weeks after commencing the services. This report will present all TA outputs. The report will contain a concise Executive Summary.

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(iv) Final Consolidated RETA Report. With the assistance from the International Advisors, a consolidated report will be submitted at the end of the four month, and will incorporate comments on the draft final reports from the relevant implementing agencies and ADB.

B. Workshops

8. The Consultants will deliver following workshops:

(i) Knowledge Workshops. Each participating country will have at least one (1) national level workshop and/or roundtable discussions before the completion of the mid-term report. A local or regional level workshop will be held at the final stage before the finalization of the TA Report by inviting officers from the implementing agencies and personnel from water utilities and the International Advisors to share knowledge, experience and international best practice in the water sector on tariff formulation and water utility management. The knowledge workshops will be conducted by the Consultants, with support from the International Advisors. The Consultants will administer all logistic procedures, including cost administration, of the workshops.

C. Firm Qualifications 9. The consulting firm should have extensive experience in providing advisory services to central, state, and/or local governments and public utilities in the urban sector. The firm should also have engaged in projects with multilateral and bilateral institutions in respective participating countries. The firm must have expertise in water tariff policy advisory, water utility management, financial accounting and financial management in order to carry out the above scope of services.

10. The Consultants and International Advisors will collaborate and will be in close consultation with the implementing agencies, other responsible government departments and agencies at the central, state and the local levels, as well as ADB to ensure full acceptance of the TA outcome.

11. The team leaders of both firms will, in addition to technical functions, have overall responsibility for the effective and timely implementation of the TA. The team leaders of both firms will collaborate on implementation progress in both participating countries and foster close coordination between the Consultants and the International Advisors; and coordinate with the implementing agencies, other government departments and agencies and ADB. The team leaders will periodically report progress to the implementing agencies and ADB and are designated with the overall responsibility to ensure submission of high quality reports to ADB.

D. OUTLINE TERMS OF REFERENCE FOR CONSULTANTS FROM NEPAL

Number of Specialists Total Person-Months National Consultants 9 18 a) Water Tariff and Knowledge Consultant and Team Leader (national, 4 person-months)

12. The consultant and team leader must have a degree in civil, mechanical, or electrical engineering; environmental or water resource management, with 15 years of experience in the water sector either as a policy regulator or as an industry expert. The consultant will (i) undertake a broad sector review of the objectives and target parameters to be met in setting water tariffs and the reforms; (ii) evaluate the basis of the current tariff policies, the effectiveness of the reforms, the pros and cons of the current service management models, and the financial

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sustainability of the water sector through case studies of two pilot cities or areas; (iii) assess the effectiveness of current policies in achieving financial, social, economic, and environmental objectives. She/he will review the national water tariff policies as well as the relevant legal and regulatory framework and determine the extent to which water tariffs are based on economic principles of pricing, i.e., sufficiency of revenue, economic efficiency, equity, and fairness; (iv) draft the National Tariff Guidelines for Water Supply and Wastewater and the implementation framework; (v) based on detailed case studies prescribe a practical set of objectives and parameters to be included in formulating and implementing water tariffs under the relevant service management models; (vi) assess the impact of and recommend improvement measures to the current implementation frameworks on service management models of the water utilities and other service providers; (vii) establish the mechanisms within the implementation framework for adequate public consultation and the involvement of various stakeholders; and (viii) propose recommendations to implement the national guidelines. b) Institutional and Regulatory Consultant (national, 2 person-months)

13. The consultant must have a degree in political economy, law, public administration, business administration, or other related field, with at least 8 years of experience either in civil services at a senior level or as a consultant in institutional and regulatory reform. The consultant will (i) assess the regulatory and institutional arrangements for the urban water sector; (ii) assess the current tariff approval procedures and identify key issues; (iii) recommend options for streamlining and making the tariff approval process more efficient; (iv) provide inputs and advice in formulating the National Tariff Guidelines for Water Supply and Wastewater; and (v) participate in the workshops. c) Financial Accounting and Management Consultant (national, 4 person-months)

14. The consultant must have a degree in accounting, business administration, finance or other related field, with at least 8 years of experience either in managerial accounting, cost accounting, and financial management. The consultant will recommend a practical set of objectives/parameters to be included in the calculation of water tariffs. The two pilot case study cities or areas should be consulted and their inputs and comments taken into consideration in preparing the draft National Tariff Guidelines for Water Supply and Wastewater. The consultants will (i) develop a detailed financial and tariff-setting model including recovery of O&M costs and capital costs; (ii) assess and propose the range of tariff models which will be suitable for domestic, institutional, and industry users; (iii) specify actions required and timeline to get to the local government specific water tariffs within an overall range; and (iv) recommend and assist to apply feasible measures to enhance good governance. d) Water Utility Management Consultant (national, 2 person-months)

15. The consultant must have a degree in civil, mechanical or electrical engineering, environmental or water resource management, with 10 years of hands-on management experience at senior level in the water sector. Experience in capital structuring and budgeting is highly preferred. The consultant will (i) assess the overall operational efficiency of the water utilities and service providers in the pilot cities/areas; (ii) with assistance from the engineering and cost consultant, assess the effectiveness and impact of O&M cost recovery and full cost recovery tariff on operational efficiency; (iii) propose recommendations to improve organizational and operational efficiencies; and (iv) contribute to the national guidelines. e) Engineering and Cost Consultant (national, 2 person-months)

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16. The consultant must have a degree in civil, mechanical, or electrical engineering; environmental or water resource management; or other related field, with at least 8 years of engineering experience. The consultant will (i) have complete understanding and knowledge of the necessary capital expenditure as well as O&M requirements for water utilities and service providers of various production capacities; (ii) collect data and information on water utilities and service providers of pilot cities/areas to conduct capacity analysis in order to determine the optimal operation structure and capital requirements as well as the current operation structure and capital requirements; (iii) based on the analysis conducted in (ii), assess the nature of the capital and operation and maintenance expenditures and prepare an itemized cost template for the optimal operation structure and the current operation structure; and (iv) assist the financial and accounting management consultants to establish appropriate cost allocation methodologies for purposes of O&M cost recovery and full cost recovery based on the optimal and the current operation structures. f) Legal Consultant (national, 1 person-months)

17. The consultant must have a degree in law with 10 years of experience in legal practice with a focus on the public utility sectors. Sufficient knowledge of the legal framework in the water sector is a must. The consultant will (i) assess the legal and regulatory framework for the water sector in Nepal; (ii) highlight key issues and propose recommendations to strengthen the existing legal framework; and (iii) review and strengthen the draft National Tariff Guidelines for Water Supply and Wastewater and the implementing frameworks. g) Public Participation and Communication Consultant (national, 1 person-month)

18. The consultant must have a degree in social science, political science, communications, or other related field with at least 8 years of experience working with governments in structuring and conducting public consultation events and public hearing meetings. The consultant will (i) assess the existing system on consultations with the public in relation to water tariff increases; (ii) formulate a realistic mechanism to ensure that there is adequate consultation with the public in relation to the proposed water tariff increases—such as the need to hold a set number of public hearing meetings—should be indicated; and (iii) prepare and finalize the clauses that should be included in the National Tariff Guidelines for Water Supply and Wastewater in relation to public consultation and public hearing meeting requirements. h) Social and Poverty Consultant (national, 1 person-month)

19. The consultant must have a degree in social science or other related field with at least 8 years of experience in conducting social studies and poverty analysis. The consultant will (i) have good understanding of the current social development trend in the pilot cities/areas and assess existing programs and measures targeting provision of water services in slum or poor areas; (ii) propose mechanisms to ensure the poor have access to quality water supply through a lifeline tariff structure and other appropriate measures; (iii) recommend measures to be included in the National Tariff Guidelines for Water Supply and Wastewater addressing water supply services to the poor; (iv) analyze existing census of the pilot cities/areas and assess the affordability level of the current water tariffs, if applicable; (v) conduct affordability analysis and poverty impact analysis based on the proposed O&M and full cost recovery tariffs of the pilot cities/areas; and (vi) cooperate with the data management consultants to develop a feasible methodology to facilitate future willingness to pay study.

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i) Data Management Consultant (national, 1 person-month)

20. The consultant must have a degree in statistics or in information systems management and information technology with solid experience and knowledge of statistical analysis; post- graduate degrees will be preferred. She/he must have at least 6 years of relevant experience. The consultant will (i) develop and maintain a comprehensive database along with indicators, among other items, on water tariffs, cost recovery levels, and full cost calculations, and (ii) with the guidance from the team leader and water tariff and knowledge advisor together with the assistance from the social and poverty consultant, develop a feasible methodology, including but not limited to sample design and selection, to facilitate future willingness to pay study.

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Annex 4: List of Documents collected

 The Nepal Water Supply Corporation Act, 1999  Water Supply Tariff Fixation Commission Act, 2063 (2006)  Water Tax Act, 1963  Water Resources Act, 1992  Water Resources Rules 1993  Drinking Water Regulation 1998  Water Supply Management Board Act, 2006  Water Supply Management Board Regulation, 2064  KUKL at a glance, 2068 Falgun  KUKL Annual Report, Fifth Anniversary, 2069 Falgun  Nepal Water Supply Corporation Annual Report FY 2066/67.  Nationwide Coverage and Functionality Status of Water Supply and Sanitation in Nepal, Final Report, March 2011.  Asset Lease Agreement Between KUKL and KVWSMB  Updated Fifteen-Year Development Plan for Small Towns Water Supply and Sanitation Sector (WSS)-April,2009.

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Annex 5 : Organization Chart of Candidate Towns Annex 5 (a) : Organization Chart of Kathmandu Upatyaka Khanepani Limited

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Annex 5 (b): Organization Chart of Dhulikhel Khanepani Users‟ Committee

General Assembly

Executive

Committee

Chairperson (1)

Vice-Chairperson (1)

Female Members Male Members (2) (10)

Management & Technical Unit

Manager (1)

Operation & Maintenance Administration Account

Plumbers/Plant General Store General Meter Revenue Operators (10) (4) (1) Account - 1 Reading (2) (1)

*Note: Figure in ( ) denotes number of staff

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Annex 5 (c): Organisation Chart of Parsa Small Town Water Supply & Sanitation Consumers Organization

CEO

Revenue Section Administration Account Section Micro Finance Section Technical Section (1) Section (1) (1) (1)

Administration (1) Guard (1) Peon (2) Pump Operator (1) Plumber (1) Sub Plumber (3)

*Note: Figure in ( ) denotes number of staff

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Annex -5 (d) Organisation Chart of Itahari Small Town Water Supply & Sanitation Users‟ Association

Consumers Council

Account Working Consultancy Committee Committee Council

Ward Users‘ Committee Office Manager(1)

Accounts and Administration Technical Consumers Service Section Section Section

Administrative Officer(1) Plumber(1) Office Assistant(1) Account Assistant(2) Junior Engineer(1) Administrator(2) Computer Operator(1) Plumber(10) Meter Reader(5) Assistant Plumber(1) Office Assistant(1) Assistant Electrician(2) Guard(2)

*Note: Figure in ( ) denotes number of staff

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Annex-5(e) :Organisation Chart of Damak Water Supply and Sanitation Consumer Committee

Office Chief

Administration Section Account Section Project Section

(No. of Staff- 3) (No. of Staff- 4) (No. of Staff- 6)

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Annex: 5(f): Organisation Chart of Jhupra Extensive Water Supply and Sanitation Users‟ Organization (Surkhet/Birendranagar)

CEO

Billing Revenue Administration Account Technical Leak & Monitoring Section Section Section Section Section Section

(No. of Staff- 5) (No. of Staff- 3) (No. of Staff- 2) (No. of Staff- 2) (No. of Staff- 31) (No. of Staff- 3)

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Annex -5(g): Organisational Chart of Bhaluwang Water Supply & Sanitation Users‟ Committee

Office Chief cum Administration Chief

Technical Administration Section Section

Pump Operator Plumber Meter Reader Helper

(No. of staff-1) (No. of staff-1) (No. of staff-1) (No. of staff-1)

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Annex -5(h): Organisational Chart of Biratnagar Nepal Water Supply Corporation Biratnagar Branch

Branch Chief

Production Section Distribution Section Administration Section Finance Section Quality Control Engineering Section

Revenue Expenditure

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Annex: 5(i): Organisation Chart of Bharatpur Water Supply Management Board

Executive Director

Technical Section Administration Section Account Section Quality Control Section

Engineer (7 level) -1 Section Officer (6) -1 Accounts Officer (6) -1

Production Distribution & Maintenance Senior Assistant (5) -1 Lab Technician (5) - 1 Administrative Assistant (4) - 4 Assistant (3) - 1 Security Guard (1) - 3 Senior Accounts Assistant (5)-2 Senior Pump Operator (4)-1 Sub Engineer (5) -1 Driver - 1 Accounts Assistant (4 )- 5 Assistant Pump Operator (3) - 2 Senior Assistant (5) - 1 Office Assistant (1) - 3 Senior Meter Reader (4) - 2 Pump Helper (2) - 8 Senior Plumber (4) - 2 Meter Reader (3) - 10 Junior Plumber (3) - 2 Helper (2) - 3 Kullie (1) - 4

* Note: Figure in ( ) denotes Level/Category of Staff and other figure denotes Number of Staff

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Annex5(j) Organisational Chart of Water Supply Tariff Fixation Commission

Chairman (1) Member Member

Internal Audit Secretariat (1) (1)

Legal Advisor (1)

Policy & Research Division Technical & Monitoring Division General Admin Division

Division Chief (1) Division Chief (1) Division Chief (1)

Economic & Water Monitoring & Financial Implementation Human Admin & Resource Info Evaluation Studies Dept Resource Finance & MIS Dept Dept Dept. Dept. Dept.

Officer(1) Officer(1) Officer(1) Officers(2) Officers(1) Officers(2)

Support Staff Support Support Support Support Support (1) Staff (1) Staff(1) Staff (3) Staff(1) Staff (3)

*Note: Figure in () denotes number of staff METCON Final Report

Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Annex 5(k): Organisational Chart of Kathmandu Upatyaka Khanepani Management Board Board Organiser

Executive Director(1) Personal Secretary (1)

Administration & Finance Division Technical Division

Administration Chief (1) Division Chief (1)

Administration Section Legal Section Admin & Finance Section Policy, Planning & Technical Assistance, Communication Section Monitoring and License Section

Sr. Administrative Officer (1) Senior Legal Senior Finance Officer(1) Admin. Assistant (2) Officer(1) Account Assistant (1) Senior Planning & Communication Officer(1) Senior Technical Assistance, Store Assistant(1) Planning & Communication Officer(1) Monitoring & License Officer(1) Computer Assistant(2) Sub Engineer(1) Monitoring & License Officer(1) Receptionist(1) Sub Engineer(1) Driver (2) Messenger(3)

*Note: Figure in ( ) denotes the number of staff

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Annex 6: Name of Persons Visited & Contacted During the Project

Personally visited or contacted by SN Name Position Organization phone 1 Mr. Kalyan Singh Thapa Act. General Manager KUKL Personally met 2 Mr. John Waldron Finance Manager KUKL,(Berlin Wasser) Personally met 3 Mr. Bhupendra Prasad Act. General Manager NWSC Personally met 4 Mr. Hari Prasad Sharma Chairman WSTFC Personally met 5 Mr. Shiva Raj Pathak Act. Executive Director KWSMB Personally met 6 Mr. Rameswor Parajulee Manager Dhulikhel Water User's Committee Personally met Contacted by 7 Mr. Pradeep Lal Karna Senior Divisional Engineer DWSS/ Sunsari Division phone Contacted by 8 Mr. Ram Prasad Chaulagain Chairman Itahari WUSC phone Contacted by 9 Mr. Hari Bahadur Katuwal Admin Chief Itahari WUSC phone Contacted by 10 Mr. Pashupati Raj Gautam Chairman Damak WUSC phone 11 Mr. Sherman Tamang Chairman Parsa WUSC Personally met 12 Mr. Salik Ram Poudel Managing Director Bharatpur Water Supply Management Board(BWSMB) Personally met 13 Mr. Sushil Geywali Executive Director TDF Personally met 14 Mr. Bal Mukunda Shrestha Senior Divisional Engineer MOUD Personally met Jhupra Extensive Water Users' and Sanitation 15 Mr. Kulmani Devkota Chairman Committee Personally met 16 Mr. Bhoj Bikram Thapa Deputy Project Director Second Small Town Water Supply & Sanitation Project Personally met Contacted by 17 Mr. Ram Deep Shah Project Director Second Small Town Water Supply & Sanitation Project phone Vice General Manger/Team 18 Mr. Richard Pope Leader KUKL(CBP Team - Berlin Wasser) Personally met 19 Mr. Kamal KC Act. Office Chief Bhaluwang Water Users' and Sanitation Committee Personally met Committee Member/Board 20 Mr. Tanka Prasad Sharma Director Bhaluwang Water Users' and Sanitation Committee Personally met

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Annex 7: Rationale for Selection of Three Pilot Towns for Final Study

Rationale for selection of Kathmandu, Bharatpur and Surkhet(Birendranagar): i) All three are isolated systems; operated by independent agencies KUKL, BWSMB and Jhupra Extensive WUSC respectively and each of them has a different institutional arrangement and a different tariff structure. So they represent three different institutional arrangements available in urban water supply in the country at present. In case of Kathmandu, there are three institutions involved in the management of water supply, KVWSMB as the asset owner, WSTFC as the tariff regulator and KUKL, a company as the operator. In case of Bharatpur, BWSMB is the asset owner and the operator as well. WSTFC is the regulator. In case of Surkhet(Birendranagar) it is the local Jhupra Extensive WUSC that is the asset owner and the operator as well. It is still not regulated by any agency yet. They all have different tariff structures. ii) Kathmandu water supply covers the capital city of the country and is a big system and thus can be representative of other big towns/cities while Bharatpur is a progressive fast growing secondary level town and hence can be representative of such fast growing secondary towns. Similarly Surkhet(Birendranagar) is a growing small town and it can be representative of small towns. iii) Kathmandu and Surkhet are located in mid mountains thus can be representative of cities/towns in the mountains while Bharatpur is located in inner tarai plain area and can be representatives of secondary and small towns respectively in tarai plain area as well. iv) Kathmandu has both surface sources and ground water sources(tube wells) so it is a complex system and thus can be representative of cities/towns with such complex cases while water source of Bharatpur is ground water fed by deep tube wells and hence it can be good representative of towns fed with ground water. On the other hand Surkhet(Birendranagar) has only surface water from streams as its main source, hence it can be a very good representative of towns having only surface water as the source. v) Both Bharatpur and Surkhet(Birendranagar) are gradually doing well financially, hence they can be good example for replication in other similar towns. vi) Both Kathmandu and Surkhet(Birendranagar) are having acute water shortage problems leading to heavy water rationing, so both of them can be good representatives of towns with water shortage.

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Annex 8: Report On Inception Workshop

TA-8036 “Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal” Date: 2 May, 2013. Venue: Hotel Annapurna, Kathmandu. List of Participants

S.N. Name Designation & Organisation 1 Mr. Abadh Kishore Mishra Joint Secretary,Min. of Urban Development 2 Mr. Hari Prasad Sharma Chairman,WSTFC 3 Mr. Sushil Gyawali ED, TDF, New Baneshowr 4 Mr. Kalyan Singh Thapa Act. GM, KUKL 5 Mr. Chandra Lal Nakarmi Sr. Manager, KUKL 6 Mr. Mani Ram Gelal Project Director,STIEI project 7 Mr. Tilak Mohan Bhandari Technical Manager, KUKL 8 Mr. Bijaya Man Shrestha Manager,NRW Division/KUKL 9 Mr. Sunil Dhoj Joshi Manager,Sewerage Division KUKL 10 Mr. Parag Kayastha Senior Div. Engineer, DUBDC 11 Mr. Gyanesh Nanda Bajracharya Team leader-TA Consultants(METCON) 12 Dr. Jan Hoffer International Institutional advisor 13 Dr. Wu Xun International resource person 14 Prof. Dr. Radheshyam Pradhan Financial Mgmt & A/c Consultant/METCON 15 Mr. Narendra Man Pradhan Water utility mgmt Consultant/METCON 16 Dr. Madhav Narayan Shrestha Engg & cost Consultant/METCON 17 Dr. Rajendra Suwal Institutional & regulatory Consultant/METCON 18 Ms. Gita Adhikari Social and poverty Consultant/METCON 19 Mr. Kul Prasad Niraula Public participation & comm. Consultant/METCON 20 Ms. Ashok Manandhar Data mgmt. Consultant/METCON 21 Dr. Madan Kaji Manandhar Director,METCON Consultants 22 Mr. Shanti Kumar Hyoju Project Director,METCON Consultants 23 Mr. Pragya Ratna Shakya Administrative Manager,METCON 24 Mr. Tivesh Pd. Khatri DWSS,SSTWSSP 25 Mr. Takashi MOUD, JICA 26 Mr. Naw Raj Khadka SACOSAN 27 Mr. Nanda Khanal MOUD/SEIU 28 Ms. Subha laxmi Manandhar Administrative Officer, WTP/METCON

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Activities and Matters Discussed:

The programme started at 9.00 AM. Er. Abadh Kishore Mishra /Joint Secretary - Ministry of Urban Development (MOUD), Er. Hari Prasad Sharma/Chairman-Water Supply Tariff Fixation Commission(WSTFC) and Er. Gyanesh Bajracharya/Team Leader-TA Cosultants‘ Team(METCON Consultants) were requested to take seats on the podium.

The programme started with a welcome speech by Er Abadh Kishore Mishra/Joint Secretary- MOUD. He welcomed all the participants on behalf of the Ministry of Urban Development/ the organizer of the workshop. In his welcome speech he highlighted the main objectives of the TA project and importance of the workshop. He expressed his hope of a fruitful outcome of the workshop with active participation of all the participants.

The welcome speech was followed by a self introduction by all the participants.

Then Er. Hari Prasad Sharma/Chairman-WSTFC was nominated to chair the paper presentation session. There were three papers presented, one by Er. Gyanesh Bajracharya/Team Leader-TA Consultants‘ Team, and other two International Experts, Dr. WU Xun from Singapore and Dr. Jan Hoffer from The Netherlands, both invited by ADB for the workshop.

1) Firstly Er. Gyanesh Bajracharya presented his paper on the Inception Report the TA consultants had prepared on the TA Project. His presentation was mainly on the contents of the Inception Report. His presentation has introduction of the TA Project(R-CDTA), its main objectives, the expected outcome and the outputs, the activities of the TA consultant‘s team during the inception phase and the findings, approach and methodology to be followed during the next phase of the study, the schedule of manpower and activities, and the proposed outline of the Final Report. During the inception phase the TA consultants selected seven towns with existing regular piped water supply system from different parts of Nepal as sample towns for initial case studies. They were Kathmandu, Dhulikhel, Itahari, Damak, Biratnagar, Bharatpur and Parsa. Out of those seven, Kathmandu, Bharatpur and Parsa were selected for final detailed case study on the basis of different institutional arrangements, sizes of the systems and locations. The presentation was followed by question answer session. There were various questions/issues raised by different participants and they are as follows;

i) Why was the study covering only urban water supply? To make it national as the objective of the Study mentions, should not it cover rural water supply also? ii) Why were the towns selected for Final Report/detailed case study located very proximate and located in central region only and very close to Kathmandu? Why not a far away town likes Surkhet in the west? iii) Why was not any town run by NWSC (Nepal Water Supply Corporation) covered by detailed case study? iv) some emerging towns also should be included for case study; v) Municipalities/towns should be educated to take only financially viable projects and should be made to realize that they have to pay back the loans and thus should avoid very expensive projects.

2) Second presentation was made by Dr. Wu Xun. The topic of his presentation was ―Pricing of Municipal Water Supply and Regulation of Water Utilities‖. In his presentation he gave the

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

definition of tariff, principles of a tariff setting, functions of tariff, challenges in tariff setting, examples of tariff structures in other countries etc.

Some time was given for discussion and question/answer.

3) Third presentation was made by Dr. Jan Hoffer. There were two parts in his presentation. First part was presentation on different models of water utility operation practiced in different European countries like England, Holland, France etc. The second part was on Pnom Penh water supply in Cambodia.

Some time was given for discussion and question/answer.

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Annex 9: Some Definitions

Customers‘ are all (present and future) service beneficiaries in the categories household, institutional and commercial customers who use the water supply and sewerage services.

‗Water supply system‘ is a system comprising the following main components: intake/reservoir, pumping station, water reservoir, disinfection/chlorination unit, transmission mains and distribution network.

‗Sewerage system‘ is a system comprising the following main components: wastewater discharge and disposal lines, main collectors and pumping stations for wastewater, discharge points into receiving water bodies and wastewater treatment plants.

‗Fee for additional services‘ is used for all services of a water and/or a sewerage service provider which do not relate directly to the delivery of water and the discharge/treatment of wastewater but should to be paid by customers for additional services.

‗Full cost recovery‘ means the service provider has sufficient revenue from customers to pay for all the costs of providing water and wastewater services.

‗Jurisdictional zone‘ is the area in which the licensed service provider is responsible for providing water and wastewater services.

‗Lifeline tariff‘ – also called ‗social tariff‘ – means a tariff that is designed to provide minimum amounts of water for the basic consumption needs of poor households.

‗Revenue‘ in its narrow sense means the money that is collected by the companies for services performed. However, when the WSTFC analyzes whether costs are being recovered through revenues, this always implies that additional income – e.g. from bad debts – and subsidies are also taken into consideration.

‗Service provider‘ is an entity licensed by a government organization or a law/ laws that carries out activities in the sector of water supply, gathering, discharge and treatment of wastewater, and provides one or several of these services according to the categories defined in the license.

‗Tariff system‘ means the parameters, criteria and standards used in pricing water and wastewater services for different customer categories and levels of consumption.

‗Tariff structure factors‘ refer to the relative weights of tariffs given to the unit volumes of water use between different user groups and at different water use levels.

‗Tariff‘ is the specific value that arises from the particular tariff system of a service provider. It is used either for the ‗flat tariff‘ or the ‗two-part tariff‘. The term ‗price‘ is used interchangeably. Both ‗tariff‘ and ‗price‘ always relate to the core activity of a water and/or a sewerage service provider: the delivery of water and the discharge/treatment of wastewater.

‗Two-part tariff‘ consists of a variable tariff component and a fixed tariff component. The variable component is indicated as a price/m³. The fixed component is a fixed charge per time period (e.g., per month). A two-part tariff can only be applied where meters are installed and read. Otherwise a ‗flat tariff‘ has to be charged.

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

‗Increasing Block Tariff‘(IBT) is a tariff structure in which there are different blocks with increasing volumetric rates.

‗Water Supply and Sewerage Services‘ is the entirety of the services performed by the service provider to customers via the water supply system and the systems for collection, disposal and treatment of wastewater.

‗Wholesale of Water‘ is the situation in which water is sold to a wholesale buyer from one or several distribution points with the purpose of reselling to individual customers within the service area of the wholesale buyer.

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Annex 10: Photos from Field Trips to Different Water Utilities Surkhet WSUC

Bharatpur WSMB Bhaluwang WSUC

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Field Trip to Parsa WSUC

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Annex 11: Report on Final Workshop

Project: ADB TA-8036 NEP Workshop Title: Draft National Guidelines for Water Tariff in Nepal Venue: Hotel Annapurna, Durbar Marga Date: 8th August, 2013

Programme:

 08:00 – 09:00 am Registration and Breakfast  09:00 – 09:30 am Welcome note by Er. Abadh Kishore Mishra, Joint Secretary, MoUD Introduction of Participants Technical Session  9:30 – 9:45 am Workshop objectives/ Project Overview by TL G.N. Bajracharya  9:45 - 11:00 am Presentation of Draft National Guidelines for Water Tariff setting in Nepal By Team Leader and TA Team/ Reactions and Comments  11:00 – 12.15 pm Small group discussions and Tea  12:15 - 1:30 pm Presentations by the Small Groups and Discussion  1:30 - 1:45 pm Closing Remarks  1:45 pm Lunch

Content:

i. Welcome Speech:

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Workshop started with chairing key dignitaries followed by Welcome Speech by the Mr. AbadhKishoire Mishra, Joint Secretary of the Ministry of Urban Development. The Welcome Speech noted the importance of National Water Tariff Guideline in the present context of the country where different water utility companies are operating by setting the tariff on their own; and hoped that the output of the study Water Tariff Guideline will fulfill the need. ii. Presentation by the Team Leader Mr. G. N. Bajrachrya supported by the international Consultants Dr. Whittington and Dr Wu. Presentation Slide : a. Revised-Presentation on TA-8036 Tariff Study-Nepal.ppt b. Revised-Presentation on National Guidelines for Water Tariff Setting in Nepal

iii. Floor Discussion and comments on the Study Report (Water Tariff Guideline)

SN Comments from the Open Floor 1 Guideline document should cover such aspects as fundamental right of people over access to drinking water. 2 When there the dearth of water supply, how can we think about tariff fixation and charging or water. 3 In the Nepalese context, it is not Water Tariff but it Is the Water Service charge that we charge 4 Even if there is no water people are forced to pay the minimum bill. This is not fair. 5 On the Water Tariff, there must be a provision of cost auditing to justify the tariff fixed and ensure fair rate. 6 Guideline must also note/remark on environmental consideration not just water supply while fixing tariff. For instance, cost required to maintain the surrounding environment while construction or building water supplies schemes. 7 Guideline seems to consider discounted rate for poor. But does not talk about where such discounts can or shall be compensated. Will it be subsidized by the government or donor institutions? 8 In case of two tariff structure (where the different between basic tariff and volumetric rate is high), the customers teds to make manipulations wherever possible to remain

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

SN Comments from the Open Floor within the basic volume ceiling. That is the different between basic tariff and volumetric tariff should be minimal. 9 Water Tariff fixation model should also consider initial investment as well. 10 A single Water Tariff model is not practical. There must be different models for different scenarios - KUKL (Private), Small Town, Water Management Board, Water users Committee. 11 The guideline document does not seem to be considering all available related documents. 12 The study sample does not seem fairly representative. The three towns selected are all large towns,Surkhet is perhaps from the small town group, but still it the larget among all small towns. Sample Selection ? 13 Key Performance Indicators should be identified to monitored to assess and evaluate the Tariff Structure. 14 Guideline document does not seem to consider Source of Finance aspect. 15 Customers should not be categorized as poor and rich. Considerations to handle such issues must built within the tariff structure itself. 16 The study seems to be biased to KUKL only. 17 Tariff Fixation Process must consider the participation of beneficiary group. 18 The guideline document states, current tariff fixation procedure and tariff structure is "not transparent". This is not true. 19 Tariff model should also consider Service Quality and Customer Satisfaction as well. 20 What is the legal base of the document? 21 The guideline document must also address the issue of those who do not have service connections. 22 There must be a provision of Minimum Cash Balance (liquity - for regular maintenance of the scheme infrastructure) in the tariff model. 23 KUKL Water Tariff includes 50% for sewerage service and hence, KUKL is responsible to provide sewerage service (including maintenance). In our context, there are different entities other than KUKL who can build sewerage related constructs - e.g., Department of Roads, Water Users Committee, etc. 24 In such cases KUKL may fail to consider the cost of such sewerage related constructs built by other entities. 25 The service model can be categorized as: Basic Level Service, Middle level Service and High level Service. And the Tariff model also should be defined accordingly.

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

iv. Group Discussion and comments on the Study Report (Water Tariff Guideline) Three groups were formed to address three different aspects of the report to discuss, comment on the study report. The group discussions were conducted in each group on the designated subject and the groups presented their output in the floor. Group A:

SN Comments - Group A on CLARITY Linkage of tariff with Utility Business Plan of service provider Plan regulatory mechanism to enforce this guideline Spell about waste water tariff Mention about connection and other charges Ensure service seekers (users), participation, representation in tariff fixing Recommend tariff revision period (no. of years) Maximum period for no service should be fixed and fix charges should be weaved out

Group B:

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

SN Comments - Group B on SUGGESTIONS Cash need basis: Break Even Price with partial or full cost cash recovery depending upon size of the project, service level and geographical region Should be acceptable by the users Field test before implementation Rules and Regulation (Governance) Revision of Tariff periodically( not later every 3 year) Comprehensive Manual 1. Design period 2. Operation 3. Consideration of Cost recovery period 4. Cost code and Guide line with cost sheet 5. Cost audit system 6. Fixed and Volumetric with the ; step variable( fixed plus Volumetric with step variable cost) cost with more slab steps. 7. Pricing Mechanism for temporary service Theoretical parts are more considered should be with more detailed manual (Tariff Template) Detail costing for the connection or new users should be clear Should be applicable Small medium and large size project Applicable for different model of water supplies system

Group C:

SN Comments - Group C on NEXT STEP Own by the government: • Formation of appropriate group. • Guideline should be studied thoroughly by the group/team government. • Correct the guideline as GoN requirement. • Convert into Nepali Language. • Finalization and submission to the GoN

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

SN Comments - Group C on NEXT STEP Study by the legal team of the Ministry and Ministry of Law Correct and prepare the guideline according to GoN standard Submit for the approval Approved by the GoN Send the Guideline to WSTFC and other water utilities for the use and implementation Implement the guideline for the preparation of the proposal for Water Tariff Revision Implement the guideline by WSTFC for the review of the Water Tariff Revision proposal submitted by the water utilities. Preparation of Operating Manuals Capacity Development and Trainings to utility operators to make them able to use and convince people Capacity enhancement of WSTFC/Regulator to supervise the implementation of the Guidelines Continuous monitoring and updating the guideline by WSTFC

v. The workshop concluded with a Closing Remark followed by Lunch.

Group Presentation :  Workshop Group A - Presentation Clarity.ppt  Workshop Group B - Tariff setting principles Group 2 Suggestions, August 8, 2013.ppt  Workshop Group C - Implementation Suggestions.ppt

Special Note: The Joint Secretary Mr. Abadh Kishore Mishra announced and formed a working group represented by different stakeholders and key experts to carry on with the study report. And, asked to amend the report wherever and however required to incorporate relevant comments and submit it at the earliest possible (in 1-2 weeks of time).

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

List of Partcipants of Final Workshop held on 8th August, 2013

S.N Name Designation and Organisation 1 Mr. Abadh Kishor Mishra Joint Secretary, Ministry of Urban Development 2 Mr. Binod Chandra Jha Joint Secretary(Planning), Ministry of Urban Development 3 Mr. Hari Prasad Sharma Chairman, WSTFC 4 Mr. Ram Chandra Devkota DDG, DWSS 5 Mr. Khum Bahadur Subedi DDG, DWSS 6 Mr. Nabal Kishor Mishra RD,Central Regional DWSS 7 Mr. Arjun Babu Dhakal DG, Nepal Water Supply Corporation 8 Mr. Kileshor Malla Project Finance Specialist, TDF 9 Mr. Ram Chandra Dhakal Finance Chief 10 Mr. Kalyan Singh Thapa Act. GM, KUKL 11 Mr. Ram Deep Shah PD, Second STWWSSP 12 Mr. Mani Ram Gelal PD, UEIP 13 Mr. Chandra lal Nakarmi Senior Manager, KUKL 14 Mr. Tilak Mohan Bhandari Technical Manager, KUKL 15 Mr. Bijaya Man Shrestha Manager, NRW Division, KUKL 16 Mr. Sunil Dhoj Joshi Manager, Sewerage Division, KUKL 17 Mr. Muman Singh Karki Finance Chief, KUKL 18 Mr. Kedar Prajapati MOUD 19 Mr. Tulasi Basnet MOUD 20 Ms. Laxmi Sharma Senior Project Officer, ADB, NRM 21 Ms. Vivian Castro Urban Development Specialist, ADB 22 Prof. Dale Whittington Resource Person/Tariff Expert, ADB 23 Dr. Wu Xun Resource Person, ADB 24 Mr. Ishor Man Tamrakar ERMC 25 Mr. Binay Shah ICON 26 Mr. Kul Mani Devkota Chairman, JEWUSC,Birendranagar, Surkhet 27 Mr. Salik Ram Poudel CEO, BWSMB,Bharatpur,Chitwan 28 Mr. Kamal K.C. Bhaluwang WSSUC 29 Mr. Gyanesh N Bajracharya TL, Water Tariff Project 30 Dr. Radhe Shyam Pradhan Financial management Consultant, Water Tariff Project 31 Dr. Rajendra Suwal Institutional and Regulatory Consultant, Water Tariff Project 32 Dr. Madhav N Shrestha Engineering and Cost Consultant, Water Tariff Project 33 Mr. Narendra Man Pradhan Water Utility Management Consultant, Water Tariff Project 34 Mr. Kul Prasad Niraula Public Participation Communication Consultant,Water Tariff Project 35 Ms. Gita Adhikari Social and Poverty Consultant, Water Tariff Project 36 Mr. Ashok Manandhar Data Management Consultant, Water Tariff Project 37 Mr. Purna Man Shakya Legal Consultant, Water Tariff Project 38 Dr. Madan Kaji Manandhar Director, METCON 39 Mr. Shanti Kumar Hyoju Project Director, METCON 40 Ms. Reenu Joshi Assistant Director, METCON 41 Mr. Aleosh Malekhu Admin Manager, METCON 42 Ms. Subha Laxmi Manandhar Admin. Officer, Water Tariff Project 43 Mr. Narendra Nepal Assistant for Workshop/METCON 44 Mr. Nanda Khanal SDE/SEIU 45 Mr. Harka Bdr. Chettri TDF 46 Mr. Rajendra Aryal National President FEDWASUN

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Annex 12: Photos from Inception Workshop and Final Workshop

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Annex 13 : Sample of Water Utility Questionnaire sent to Sample Town Water Utilities

WATER UTILITY QUESTIONNAIRE

Date: ______

GENERAL UTILITY INFORMATION

1.1 Name of Water Utility: ______Short Name/Acronym: ______1.2 Address: ______1.3 Telephone Number(s):______1.4 Fax Number(s): ______1.5 E-mail address: ______1.6 Head of the Water Utility: Name : ______Title : ______1.7 Year utility was formed: ______1.8 Type of water utility: ___ Municipal Corporation/Council ___ Water Supply Management Board ___ National Water Supply Corporation ___ Water User and Sanitation Committee ___ Private Water Utility ___ Others (Please specify) ______

1.9 Type of services provided by utility: ___ Water supply services ___ Wastewater and sewerage services ___ Others (Please specify) ______

1.10 Who owns the assets of the utility? Provide an organization chart. 1.11 Is the annual report available to the general public? 1.12 Management information system: ___ well developed ___ partly developed ___ Non-existent

1.13 Does the utility have a customer register? Is it computerized? 1.14 What aspects of the water utility‘s operation are computerized or automated?

___ None ___ Billing ___ Accounting ___ Pumping ___ Treatment ___ Others ______1.14 Does the utility have a Master Development Plan? ___ Yes ___ No If Yes, indicate period covered. Year _____ to Year ______1.15 Top three (3) priority needs of the utility: 1. ______(As seen by management) 2. ______3. ______

SERVICE AREA

2.1 Number of cities/towns served by utility ______2.2 Name of cities/towns served ______2.3 Nature of service area ___ urban ___ rural ___ urban & rural 2.4 Region where utility is located ______2.5 Size of utility‘s area of responsibility ______sq. km.

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

2.6 Size of utility‘s present service area ______sq. km. 2.7 Population of the cities/towns ______2.8 Population served by utility ______2.9 Population served with house connections ______Population served with public taps ______Population served by tankers ______Population served by hand pumps ______

2.10 Where will households not connected get their water supply? ___ Other piped water service providers ___ Tube wells ___ Dug wells ___ Ponds ___ Rain collectors ___ Others (please specify) ______

2.11 Current Water Vending

Tanker truck vendors - Does the water utility/company own (operate) any tanker trucks? If so, how many? What is the capacity of the tanks they carry? - Are there private water tanker trucks? If so, how many? What is a typical capacity of the tanks they carry? - What prices do tanker trucks (public and private) charge for water? - Can you estimate how much a household that regularly buys water from tanker truck vendors would spend per month? - Where do tanker trucks obtain the water that they sell? - Do water vendors operate throughout the community or only in specific neighborhoods? Describe the extent of water vending spatially? - Do the prices charged vary at different times of the year? Or does it occur only seasonally or at certain times of the year? - If so, what prices are charged at different times? - About what percent of households in the city/community purchase water regularly from tanker truck vendors? (even a rough estimate would be helpful)

Individual vendors (pushing carts, carrying water on bicycles, carrying water on poles, etc.) - Are there private individuals selling water? If so, how many? What is a typical quantity of water that they would carry? - What prices do individual vendors charge for water? - Can you estimate how much a household that regularly buys water from private vendors would spend per month? - Where do individual vendors obtain the water that they sell? - Do individual water vendors operate throughout the community or only in specific neighborhoods? Describe the extent of water vending spatially. - About what percent of households in the city/community purchase water regularly from individual vendors? (even a rough estimate would be helpful) - Does water vending occur throughout the year? Or does it occur only seasonally or at certain times of the year? If so, what prices are charged at different times? - About what percent of households in the city/community purchase water regularly from individual vendors? (even a rough estimate would be helpful)

Regulation of water vendors - Is there any attempt to regulate individual water vendors and/or tanker truck vendors? - If so, do vendors need a license to operate? How much do vendors pay for this license?

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

- Is there any attempt by public authorities to test the quality of water sold by water vendors? If so, what do these water quality test show? (i.e., what is the quality of water sold by vendors?)

Bottled Water - Is it common for households in the city/community to purchase bottled water for drinking? - If Yes, what is the price of bottled water? - Can you estimate how much a household that regularly buys bottled water would spend per month? - Is there a bottled water company (ies) in the city/community? - If YES, is it possible to estimate the size of their business (annual revenues)?

Customer satisfaction with water vending system - Can you describe households‘ attitudes and perceptions of the existing water vending systems? - How satisfied are households with the quality, quantity, and reliability of the water provided by vendors?

Utility‘s knowledge of the water vending system in the city/community? - How aware is the water company (utility) about the details of the water vending system in its service area? - Has the company ever conducted a study of water vending? If Yes, can you obtain a copy of this study?

PRODUCTION

3.0 Utility is responsible for ___ Production ___ Distribution ___ Source Development

3.1 Sources of Water: Annual production volume (cu m/year) ___ Surface water ______Groundwater ______Other (please specify) ______Total production: ______

3.2 Is total production all metered? ___Yes ___ No If No, what proportion is metered? _____ % How is unmetered volume estimated? ______

3.3 Do you buy bulk water for distribution? Raw Water ___ Yes ___ No Treated Water ___ Yes ___ No

3.4 Main methods of treatment used: ___ none ___ disinfection ___ filtration ___ sedimentation ___ aeration ___ desalination ___ other (please specify) ______

3.5 Estimated total demand: ______cu m /day

3.6 Total production capacity: ______cu m /day

3.7 Storage capacity in network: ______cu m

3.8 Estimated Non-revenue water ______cu m

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

DISTRIBUTION AND CONSUMPTION

4.0 Total Service Connections ______

4.1 Number of House Connections (HC) ______Average number of people per HC ______

4.2 Number of Public Taps (PT) ______Average number of people per PT ______

4.3 Number of Commercial Connections ______

4.4 Number of Industrial Connections ______

4.5 Number of Institutional Connections ______

4.6 Number of Bulk Connections ______(Apartments/condominiums)

4.7 Number of Bulk Connections (Others) ______

4.8 Number of Other Connections ______(accounts served by tankers or hand pumps)

4.9 Number of connections metered ______

4.10 Proportion of metered connections with operating meters: % 4.11 Total length of distribution network: ______km

4.12 Average age of distribution pipes: ______years

WATER CONSUMPTION (in FY2011 or calendar year 2011)

Metered Estimated* Total (cu.m.) (cu.m.) (cu.m.) 5.1 Total for all House Connection ______5.2 Total for all Stand Posts ______5.3 Total for all commercial use ______5.4 Total for all industrial use ______5.5 Total for all institutional use ______5.6 Total for all bulk use (apt) ______5.7 Total for all bulk use (others) ______5.8 Total for all other use ______5.9 Grand Total ______* Estimated consumption refer to unmetered consumption (normally flat rate connections)

WATER SERVICE PERFORMANCE (in FY2011 or calendar year 2011)

6.1 Number of connections with intermittent supply: ______connections 6.2 Typical duration of supply: ______hours/day 6.3 Average residual head at consumer points: ______

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

6.4 Number of pipe breaks in the distribution network ______6.5 Number of meters replaced/repaired ______6.6 Number of samples for residual chlorine test taken: ______6.7 Number of samples passing residual chlorine test: ______

STAFF INFORMATION 7.1 Number of staff (in full-time equivalent – FTE)

Corporate services (management, admin., finance, technical, etc) Water supply operations (O&M, customer service, support service) Other non-water supply services (wastewater, sewerage, drainage) Total

7.2 Number of personnel in contracted out services: ______7.3 Number of staff attending training in 2011: ______7.4 Total number of training days (sum of staff x training days attended): ______7.5 Proportion of operating budget spent for training and human resources development: _____ % 7.6 Average annual salary of the three highest paid full-time management personnel: Rs

CUSTOMER SERVICE 8.1 Number of new connections installed in 2011: 8.2 Number of connections disconnected in 2011: 8.3 What is the policy for providing water to the poor? 8.4 What is the percentage of the poor to the total population served? 8.5 What is the community participation activity in water supply services?

FINANCIAL DATA 9.0 Water billing/sales (annual for year 2011) (Rupees) • Total for all HC Rs. ______• Total for all PT/SP Rs. ______• Total for all commercial use Rs. ______• Total for all industrial use Rs. ______• Total for all institutional use Rs. ______• Total for all bulk use (apartments) Rs. ______• Total for all bulk use (others) Rs. ______• Total for all other use Rs. ______• Grand Total Rs. ______

9.1 Basis for Billing for Water Consumers Pay on: ___ Metered Use ___ Flat Rate 9.2 How frequent are consumers billed? ___ Monthly ___ Every 2 months ___ Others ______9.3 Methods of Payment Water bills are paid through ___ Bill Collector ___ Water Utility Office ___ Bank ___ Automated Teller Machine ___ Post Office ___ Others ______

9.4 Water supply revenue in 2011 • Water sales (consumption charges, connection, etc): Rs. ______• Other revenues (materials sales, construction, etc.): Rs. ______• Subsidies/grants (government and other sources): Rs. ______

9.5 Year end accounts receivable (water billing & all other outstanding invoices):

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Rs. ______

9.6 Water supply O & M expenses in 2011:

Purchase of Bulk Supply, if any (raw water or treated water) Rs. ______

Personnel Rs. ______Power/Fuel Rs. ______Chemicals and materials Rs. ______Repair and maintenance Rs. ______Transport Rs. ______Other (Identify) ______Rs. ______Total O&M Cost Rs. ______

Depreciation Rs. ______

9.7 Total debt service (interest and principal) in 2011: Rs. ______9.8 Annual capital development expenses in 2011: Rs. ______

9.9 Total Capital Expenditure in the last 5 years: Rs. ______

Funded by: ___ internally generated reserves ______% ___ government grant ______% ___ government loan ______% ___ commercial loan ______% ___ other ______% Total: 100 % 9.10 Gross fixed asset value including works in progress: Rs. ______

TARIFF STRUCTURE

10.0 Please submit a copy of the tariff structure/rates used in 2011. 10.1 Who sets up water tariff? What is the legal basis? 10.2 Who approves water tariff and tariff adjustments? 10.3 Current Water Tariff Structure: (Yes/No, NRs/kilo-liter) Fixed rate Volumetric rate Fixed plus volumetric rate Flat Progressive Connection Charge How is connection charge paid? One time In installments

Metered Un-metered Connection charge • Domestic • Commercial • Industrial • Institutional • Stand posts • Others

• Tanker

10.4 What data/information on water supply services are reported or disclosed by the city/town/utility to

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

the general public? Please enumerate/indicate. ______

PLEASE FORWARD COMPLETED QUESTIONNAIRE PLUS:

1) Copy of latest annual report, if any 2) Copy of current Tariff Structure*

* Provide details of its approval date and effective date.

BY COURIER SERVICE OR MAIL TO:

Mr. Gyanesh Nanda Bajracharya Team Leader, Metcon Consultants P.O. Box 4412, SMR House 43/15 Dandibaba Marg, Tangal, Kathmandu-2, Nepal

This questionnaire may also be sent:

a) by fax to +977 1 441 8478 or b) as an attachment by e-mail to: [email protected] or [email protected]

This Questionnaire was completed by:

Name : ______Designation : ______Address : ______Telephone : ______Fax : ______Mobile phone : ______E-mail : ______

METCON Final Report Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal

Final Report METCON