Technical Assistance Consultant’s Report

Project Number: 34304 December 2006

NEPAL: Kathmandu Valley Water Distribution, Sewerage, and Urban Development Project (Financed by: Technical Assistance Special Fund, Government of Denmark and the Cooperation Fund for the Water Sector)

Prepared by: GHD Pty Ltd., Australia in assn with Integrated Consultants Nepal (ICON) Pvt. Lt. Nepal

For the Ministry of Physical Planning and Works

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.

TA 4893-NEP Project Feasibility Study

APPENDICES

Appendix 1 Design and Monitoring Framework (Draft)

Appendix 2 Sector Analysis and Lessons Learned

Appendix 3 CIAMP - Proposed Capital Investment Plan (2010 – 2025)

Appendix 4 Financial Management Assessment (FMA)

Appendix 5 Consulting Services TOR

Appendix 6 Procurement Capacity Assessment and Procurement Plan

Appendix 7 Financial and Economic Analysis

Appendix 8 Social Safeguards (Separate cover)

Appendix 9 Initial Environmental Examination (IEE) (Separate cover)

TA 4893-NEP Project Feasibility Study

APPENDIX 1

Design and Monitoring Framework (Draft)

TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study Appendix 1: Design and Monitoring Framework (Draft) Design Summary Performance Targets Data Sources / Assumptions and Risks / Heading / Indicators Reporting Mechanisms Impacts Urban Wastewater on the KUKL Public Non sewage related actions Environment streets and river complaints reports and impacts are appropriately improved in pollution reduced managed by others Kathmandu Valley Shallow well water Monitoring studies. quality improved Health1 Incidents of water Monitoring studies Awareness and health borne diseases and public health campaigns by health reduced statistics department are disaggregated Poverty Contribution made to Monitoring studies Political environment of country economic and economic stabilizes to allow economic development statistics development to take place Outcomes Improved water Customer surveys Customer surveys  KUKL Capacity building has supply services for show satisfaction in tangible outcomes in residents and the KUKL services customer service other customers in from 60% to 75% by  KUKL maintains customer KULK service area 2016 surveys Water Supply in DNI areas 490,000 beneficiary KUKL records and  Population growth is within population by 2016 population data. design assumptions Existing – 410,000 New – 80,000 Progress reports Low income – 9,000 Female – 249,000 Improved Services Flow measurements  Loan 1820-NEP MWSP Quantity and progress reports Subproject-1 and 2 on target From 45 to 135 lcpd and deliver 170 MLD by Accessibility: Tap flow 2014 from <1 hr per every 4  Design adequate days at ~ zero head to  Operator manages water > 2 hours supply at distribution system with minimum 4m. head to asset management in place 90% of customers  Infrastructure built to NRW. acceptable standards From >40% to 20% Accessibility: - low- KUKL’s “Low Income  KUKL’s “Low Income income areas: Access Consumer Support Consumer Support Unit to piped water supply Unit (LICSU)”records (LICSU)” effective in increased from 30% to managing standpipe supply 40% of affected  Design of infrastructure persons. allows for demands in low- income areas

Appendix 1 - DMF Page 1 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study Design Summary Performance Targets Data Sources / Assumptions and Risks / Heading / Indicators Reporting Mechanisms Quality: 95% of water Water sampling /  All treatment plants samples tested shall surveillance records rehabilitated and comply with Nepal constructed under Loan Drinking Water Quality 1820-NEP well operated and Standards producing water to Nepal Drinking Water Quality Standards  Operator manages water distribution system to maximise water quality delivered to customers with asset management in place  Infrastructure built to acceptable standards Water Supply in non-DNI areas An additional 840,000 Progress reports  Loan 1820-NEP MWSP population have Subproject-1 and 2 on target improved service Existing – 720,000 New – 120,000 Low income – 28,000 Quantity KUKL records  Melamchi Phase 1 on target From 45 to 85 lcpd Accessibility: Increased from current 1 hr per 4 days to approximately 1 hr. per day for 80% of customers Quality : 80% of water KUKL records and  Operator manages water samples tested shall independent test distribution system to comply with Nepal reports maximise water quality Drinking Water Quality delivered to customers Standards despite intermittent operation with assets management in place Wastewater:  900,000 population  Regulatory /  BCIDC constructs Less pollution benefit from surveillance interceptor sewers along of rivers in rehabilitated authority WWTP rivers and streams to urban reaches sewerage system effluent Sundarighat according to of Kathmandu  200,000 population monitoring Conceptual Wastewater from sewage benefit from new reports Master Plan sewer connection  Bagmati Action  BCIDC upgrades and  Low income – Plan (BAP) operates Guheswhori 45,000 population monitoring activity WWTP to agreed standards  Incidents of sewer reports  Combined Sewer overflow / blockage and  KUKL operating filter pilot is successful and flooding reduced by and public roll out continues 50%. complaints  Other pollution control  Volume of treated records activities of BAP are wastewater mobilised and successful increases from  KUKL capacity building 1 MLD to 22 MLD. activities successful  Effluent from including revenue increases WWTPs meets for sustainable operation of agreed standards equipment and assets

Appendix 1 - DMF Page 2 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study Design Summary Performance Targets Data Sources / Assumptions and Risks / Heading / Indicators Reporting Mechanisms Outputs Water supply infrastructure upgraded Water Storage 5 No. new service Financial statements reservoirs (68 ML) by and construction 2016 progress reports Ring & 35 km of new mains in Financial statements Transverse size from 600 to 1500 and construction Mains mm dia. By 2016 progress reports DNI Area 427 km of new mains Financial statements improvements: in size from 80 to 600 and construction mm dia. By 2016 progress reports Service 100,000 No. new KUKL customer connections service connections records Wastewater Infrastructure improvements Rehabilitation - 360 km existing Financial statements  Asset condition and survey of existing sewers cleaned progress reports and and Network Master / sewers - 76 km existing procurement Development Plan to be sewers rehabilitated documents prepared under Loan 1820- - 60 Combined Sewer NEP completed on time overflow (CSO) /filters  CSO / filter pilot under Loan installed. 1820-NEP is successful - 10.500 new (back- log) HH connections Expansion of - 28 km new sewers Financial statements  Network Master / collection constructed. progress reports and Development Plan to be system - 43,000 new HH procurement prepared under Loan 1820- connections documents NEP completed on time  Adequate co-ordination between KUKL and other agencies for planning Wastewater - 1 No. WWTP (0.5 Financial statements  Functional designs and Treatment MLD) rehabilitated progress reports and process option assessments Plants - 3 No. WWTPs (total procurement under Loan 1820-NEP 21.5 MLD) upgraded documents completed on time. On-site system 3 No. Septage Financial statements  Evaluations/lessons learnt of septage treatment facilities progress reports and past septage facilities in treatment with approx 84m3/day procurement Nepal completed on time. facilities capacity at WWTPs documents Equipment 4 No. Sewer cleaning Financial statements equipment sets and progress reports and vehicles purchased by procurement 2013 documents

Appendix 1 - DMF Page 3 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study Design Summary Performance Targets Data Sources / Assumptions and Risks / Heading / Indicators Reporting Mechanisms Activities with Milestones Inputs ($000) 1.1 Project Preparation By June 2011:  Land - $0 1.1.1 Project design and supervision Project DSC shortlisted and RfP  consultants (DSC) shortlisted dispatched. Civil Works $84,123. and selected  Equipment & Materials By September 2011: $2,573 1.1.2.Loan 1820-NEP MWSP For first year contracts prepared under  Consulting Services subproject-2 DSC prepare Loan 1820-NEP: MWSP subproject-2 : $6,026. detail designs for 1st year Environmental clearances obtained  Project Administration contract packages. Detailed topographical base maps $924. complete  Detail designs & tender documents Social & Environmental approved. Safeguards - $814  Contingencies 12,460. By October 2011:  Interest DC 22,410. Project DSC proposals evaluated Grand Total (129,330) First year contract packages

tendered.

By December 2011: Project DSC selected 1st year Contractors identified. (await loan effectiveness before signing contracts). 1.2 Water sector Infrastructure Improvement By January 2012: 1.2.1 Undertake surveys, investigations, and detailed Loan approved and effective DSC for project appointed designs, prepare technical specifications and contract Contractors for 1st year contracts documents and award tenders. engaged. By December 2012: 1.2.2 Supervise construction and For remaining contract packages: measure project works for water Environmental clearances obtained supply and wastewater system Detail designs approved. improvement. By December 2016: construction works completed and commissioned within budget with required quality.

1.3 Institutional Strengthening and By January 2011: Capacity Building (Loan 2059- KUKL training curriculum prepared NEP) and commenced 1.3.1 Design and implement capacity Database management packages for building and institutional KUKL designed. strengthening of KUKL. By December 2013: Within budget at required quality Asset data base up to date Training programs completed Streamlined information management systems operational Second 5th yr investment plan prepared by KUKL. Note: 1. Health impacts from this one project are not directly definable due to inter-linkages with many other factors beyond the control of this project.

Appendix 1 - DMF Page 4

TA 4893-NEP Project Feasibility Study

APPENDIX 2

Sector Analysis and Lessons Learned

TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Sector Analysis and Lessons Learned

This appendix provides background and supporting information to the Project Rationale (Main Report Section 4)

1. Sector Performance, Problems and Opportunities 1.1 Performance and Strategic Directions 1.1.1 Performance 1. The table below shows Nepal’s performance in relation to MDG target No 10 (to halve, by 2015, the proportion of people without sustainable access to safe drinking water): Parameter 1990 Latest (2006 or 2008) (%) Targets: GoN’s (%) Three-Year Interim Plan (%) Proportion of the population 46 81.8(2006) 85 with sustainable access to improved water sources Rural 43 80.2 (2008) see text below regarding 72 severe limitations Urban 90 89.5 (2006) 95 94 (2008) – see text below regarding severe limitations – a more indicative coverage is 49% from house connection perspective Proportion of the population 6 22.7 53 with sustainable access to improved sanitation Rural 3 19.8 52 Urban 34 36.9 (2006) 67 45 (2008) see text below regarding severe limitations Source: ADB Country Strategy 2010-2012 2. As the ADB Country Strategy 2010-2012 notes, taking into account functionality and water quality, the implication is that Nepal is seriously behind achieving its MDG target for water supply. In the urban areas this is largely due to the intermittency and poor water quality and serious functionality problems. 3. Similarly, in urban sanitation, the ADB Country Strategy 2010-2012 notes that sewerage systems are virtually nonexistent or non functional. Solid waste collection and disposal is poor in many of the urban areas. Assuming that the rate of increase in coverage between 2000 and 2006 is maintained until 2015, it appears that the MDG target for sanitation (53%, divided with 67% for urban and 52% for rural) will not be met either in urban or rural areas. The most recent sanitation coverage rates would further support this conclusion. 4. Lack of access to, and poor quality of, both water supply and sanitation services in growing urban slums is another area requiring urgent attention that sector performance needs to address to meet the targets. 1.1.2 GON’s Strategic Directions 5. The goal of the GoN’s Urban Water Supply and Sanitation Sector Policy (UWSSSP) is to ensure the socio-economic development, improved health status and quality of life of urban populations, including the poor and marginalized, through the provision of sustainable

Appendix 2 - Sector Analysis & Lessons Learnt Page 1 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study water supply and sanitation services and protection of the environment. Its main objectives include:  ensuring the availability of basic safe, accessible and adequate water supply and sanitation services to all urban population  recovering capital investment and generating funds for operation and maintenance through setting and collecting tariffs in an equitable and sustainable manner, and  ensuring the participation of the users especially women and vulnerable groups in decision-making at all levels. 6. The GoN’s Tenth Plan also emphasises the importance of access to safe water for improving health conditions and aims to increase access to safe drinking water, and to sewerage and sanitation services, in underserved urban areas. 7. Recent GoN budgets have confirmed that the main drivers and focus of the development agenda of the Government have been maintained. In particular, in relation to the water sector, the Government's strategy envisions tangible improvements in the living standards of the poor, disadvantaged and socially excluded sections of the population. 1.1.3 ADB’s Strategic directions in municipal water sector 8. In the municipal infrastructure and services sector, ADB’s current CSP includes outcomes of improved access to, and service level of water supply and sanitation. These outcome indicators include:  basic water supply coverage increased to 90% of the population by 2014  medium and high water supply coverage increased to 17% of the population by 2014  sanitation services coverage increased to 68% of the population by 2014  7600 cu.m. wastewater treated to meet standards 1.1.4 Impact of Past Assistance: 9. Foreign assistance in Nepal has contributed significantly to the Government's priority programs in all sectors, including drinking water. In recent reviews, ADB has noted that donor harmonization has increased efficiency and effectiveness of foreign support. 10. A recent country assistance program evaluation (CAPE, May 2004 quoted in ADB 2005-2009 CSP) concluded that most projects have been relatively successful and some have been very successful. The CAPE found that the overall development assistance impact, in areas in which ADB’s share was high, has been positive in terms of social, environmental, economic, and direct poverty impact. (ADB 2005-2009 CSP). 11. ADB notes (CPS NEP 2010-2014) that access to water supply and other municipal infrastructure and services facilities has increased significantly (although in some cases quality aspects require greater attention). 1.1.5 ADB’s Strategic Directions in Municipal Water Services 12. ADB’s strategic directions in relation to municipal water services is summarised as: ADB will continue to support the Government in: (i) improving urban infrastructure including water supply and sanitation, and urban transport; (ii) improving access to and service level of water supply and sanitation; (iii) supporting urban environmental improvement including municipal waste management and waste water treatment, and (iv) institutional capacity building to strengthen operation and management skills of local governments and WUSCs in accordance with the Government's policy. ADB will also assist the Government and

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municipalities to promote PPPs to offset the low revenue base of local bodies, and to mainstream climate change into planning, design and implementation of projects. 13. Expanding access to potable drinking water, and improving sewerage and sanitation facilities are the highest water supply and sanitation sector priorities ADB CSP 2005-2009) 14. ADB’s last Nepal Country Strategy includes continued support for infrastructure-led inclusive growth (including water supply and other municipal infrastructure and services). This is included under the Inclusive Social Development pillar under the banner of Access to basic services (water &sanitation). 1.2 Major Issues Affecting the Sector 15. This section provides a summary of the major issues affect the sector in bullet point form. 1.2.1 Constraints and Opportunities:  poor quality and access of water supply and sanitation services in urban areas  limited capacity of local governments, WUSCs and newly established institutions. although this capacity is being continuously strengthened in the Kathmandu Valley  socio-cultural values and norms restrict access to water supply and participation  low priority accorded to rehabilitation, operation and maintenance of water supply and sanitation systems  inadequate water sources, particularly for Kathmandu Valley, to meet the increasing demand due to rapid urbanization (being addressed under separate investments)  ADB’s experience in Kathmandu Valley urban water sector  haphazard, un-planned, uncontrolled urban development 1.2.2 Challenges  high urban population growth in Kathmandu Valley leading to deficiencies of urban and environmental infrastructure and services – these in turn pose health threats to the urban population  need to increase the access of the urban population to urban infrastructure, and to ensure sustainable and quality service delivery.  complex and overlapping institutional arrangements  lack of coordination of and overlapping responsibilities especially in Kathmandu Valley sanitation and sewerage services  poor solid waste collection  slow pace of service delivery  poor condition of infrastructure and inadequate O&M of existing infrastructure  poor implementation performance in water supply and sanitation subsector (ADB 2005-2009 CSP)  frequent staff changes in government (ADB 2005-2009 CSP)  poor governance - this has significant implications for improving delivery of economic and social services, and for effective aid utilization (ADB 2005-2009 CSP)

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1.2.3 Opportunities  existing investment in the sector especially to increase potable water supply to the Kathmandu Valley.  continued progress in reforms to the governance and capacity of KUKL and KVWSMB 1.2.4 Reforms  success, although slow, of the institutional reforms in the Kathmandu Valley water sector  sector policy stipulating cost recovery principle  continued support for decentralization 1.2.5 Strengths  ADB’s experience in the Kathmandu Valley urban water sector - in recent years, the ADB has been the largest development partner in the urban water supply and sanitation sector, and has been chairing the development partners' group for urban development.  history of governance support and capacity building has that is strengthening the sustainable likelihoods of urban water sector projects  improved water supply and other municipal infrastructure and services has a direct impact on the inclusive social development and health objectives of other and broader programs 1.2.6 Risks  weakened commitment from the Government due to complex political context  water sector tariffs (in this case in the Kathmandu Valley) not adjusted periodically to enable sustainable operation of the system  inadequate power supply to operate infrastructure (e.g. treatment plants, pumping stations) 1.3 Assessment of Water Sector Investment Opportunities 1.3.1 Physical Investments 16. The findings of the 2004 benefit monitoring and evaluation survey noted that the Small Town Water Supply and Sanitation Project (STWSSP) had been "effective" in terms of (i) reducing the prevalence of diseases such as diarrhoea, jaundice, and typhoid fever, as well as skin allergies; (ii) improving personal hygiene; (iii) improving the environment; and (iv) increasing the availability of safe drinking water. The project had done well in terms of beneficiary participation and adopting good governance practices in all stages of subproject implementation. This had helped strengthened the technical, financial, and management capacity of the WUSCs to evolve as effective institutions to manage urban development in the future. The introduction of revolving funds through partnerships with UN-Habitat, Town Development Fund (TDF) and private sector organizations was considered an innovation. The ongoing Community Based Water Supply & Sanitation Project (CBWSSP) had been effective in orienting all project stakeholders toward gender and cultural sensitivity and sanitation awareness and education, and it had recorded the improved participation of women and disadvantaged groups in project affairs. Significant gains were achieved with respect to indicators supporting decentralization, the institutional reform of DWSS, and instituting a sector-wide approach and donor coordination. These achievements are

Appendix 2 - Sector Analysis & Lessons Learnt Page 4 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study expected to significantly help the project deliver outputs within the remaining period and realize the planned outcome. The project is rated as likely "effective." 1 17. The STWSSP has been substantially completed and the loan account was closed on 31 December 2008 after being extended for 24 months. Due credit goes to the adoption of a conflict-sensitive implementation approach that eventually helped complete construction of all 29 small town subprojects without cost overruns. The project is rated likely "efficient." Beneficiaries contribute 50% of the capital cost, of which 30% is loan repaid to TDF by mobilizing a water tariff. Besides the demand-responsive and interactive development process instituted by project design, wherein water users participate in decision-making at every stage of project formulation, implementation and operation and maintenance are likely to make the project efficient. In the case of the ongoing CBWSSP, physical progress was recorded at 54.2% against elapsed time of 78.4%, and the development phase of all 690 subprojects to be completed by June 2009, leaving only the construction phase in the next year. Thus, the completion of all project activities is likely without time or cost overruns, making the project's rating as likely "efficient." But this is contingent on the efficient performance of NGOs responsible for social mobilization and technical design. 18. Consequently, "substantial" impacts are expected after the completion of subsector activities with the caution that the absence of elected local governments may erode the spirit of decentralization and to some extent, impacts. Therefore, the initial combined rating for STWSSP and CBWSSP is "highly relevant," likely "effective," likely "efficient," "likely sustainable" with likely "substantial" impacts. The CAPE initially rates this subsector as "successful. 19. The implementation of the Melamchi Water Supply Project was delayed by conflict, political instability, and noncompliance with a loan covenant requiring a performance-based management contract to be engaged prior to commencing tunnel construction. Since then, Kathmandu Upatyaka (valley) Khanipani (drinking water) Limited (KUKL) was incorporated under the Companies' Act in January 2007 and is now fully functional. On 7 February 2008, the ADB Board approved the restructuring of the project with major changes in scope and implementation arrangements, including removing the loan covenant. The restated and amended Loan Agreement was signed on 6 April 2008 and declared effective in July 2008. Recruitment of a KUKL Capacity Building and PPP consultant support team as an alternative to a management contractor is under evaluation. In 2009 the project had achieved 45% physical progress with cumulative disbursement of only 16% of net loan amount against the revised elapsed loan period of 64%. The elapsed loan period is computed against the revised loan closing date of 31 December 2013. Based on the foregoing, the Melamchi Water Supply project is initially rated "highly relevant," likely "less effective," likely "less efficient," "less likely sustainable," and with likely "modest" impact. 20. On the whole, ADB's assistance to the water supply, and sanitation subsector is initially rated as "highly relevant," likely "less effective," likely "less efficient," "less likely sustainable" and with likely "modest to substantial impact." Based on these, the CAPE initially rated the subsector as "partly successful." Without the Melamchi Water Supply Project, the overall rating of WSS would have been "successful."

1 ADB Country Assistance Program Evaluation (CAPE)(June 2009)

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1.3.2 Governance and PPP in the Water Sector 21. ADB has supported PPP in water supply and sanitation services through TA and policy dialogue for related sector reforms, measures to build capacity, preparation of PPP projects, and inclusion of a PPP component in public sector investment projects. Policy dialogue in Nepal promoted management of the Kathmandu water utility by a private operator, and adoption of new sector legislation clarifying the use of PSP. 22. Sustainability assesses the likelihood of project outcomes being maintained. The rating for completed assistance is "less likely sustainable."2 The same factors that reduced the achievement of assistance outcomes also affected their sustainability. In addition, policy changes and capacity issues hindered the continuation of project attainments. Comparatively little assistance was extended for developing PPP capacity in the past. Only in recent years, more systematic efforts were made to help central governments and ministries build up PPP units, which together with ongoing support for cross-sector PPP regulatory and policy frameworks are likely to improve the sustainability of ongoing and future ADB assistance. ADB has also sought to address PPP capacity constraints by collaborating with the Asian Development Bank Institute (ADBI) on related efforts. Despite improved approaches for PPP assistance, waning political commitment and lack of stakeholder support has been reducing the long-term prospects of ongoing PPP support in Nepal. In Nepal the conflict situation during the last decade reduced the scope for private sector involvement in the economy. 23. Sustained Political Will Is the Ultimate Determinant of PPP Success. Opposition to change and fear of consequences (job losses, higher tariffs, loss of political control) and resistance by nongovernment organizations opposed to private sector entry have thwarted many attempts to introduce PPP, particularly in the water sector. The development of PPPs was derailed in Nepal due to changes in (local) government commitment. The challenge in introducing PPPs is to make political leaders at all levels understand that PPP, if structured properly, could indeed be the most effective and fastest way of improving utility performance, and the quality and reliability of services provided. 1.4 Water Sector’s Development Contribution 24. The provision of improved water supply and other municipal infrastructure and services has a direct impact on inclusive social development. Such services will directly benefit the health of the population with a reduction in the occurrence of waterborne diseases, resulting in less expenditure on health services. Time-saving for water collection will provide more time, particularly to women and children, for social interaction and other social or economically productive activities. Support given to the Government in mainstreaming gender in its projects will enhance the access of disadvantaged groups to water sector services and their participation in decision-making processes. Specific interventions should ensure affordable access to improved water supply for the urban poor. 25. Increased participation and accountability in project design as well as measures for strengthening local governance will improve outcomes of water supply and sanitation schemes. Urban development such as the water sector improvements in towns with economic growth potential, such as tourism development, will support the promotion of broad-based and inclusive high economic growth. The urban economy plays a key role in providing income and employment opportunities to the rural economy by providing outlets.

2 ADB Assistance for Public-Private Partnerships In Infrastructure Development (IEC September 2009)

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2. Government's Sector Strategy 2.1 Sector Strategy and Sectoral Public Investment Plan 26. National Urban Water Supply and Sanitation Sector Policy 2009 was recently formulated to provide overall policy support and guidance towards achieving equity in service delivery by ensuring that the financially marginalized households within the system areas are mainstreamed as valid customers of service through design and implementation of financial incentives where so required. The policy stresses for demand side management of water supply and promotion of effective and appropriate institutions at local level for implementation, operation and management of water supply and wastewater systems. The policy discourages central subsidies at the operational level and encourages private sector participation and involvement of users in the decision making process. The policy on cost recovery in water is to achieve full cost recovery of operation and maintenance and a portion of the capital cost. 27. Although the National Urban Water Supply and Sanitation Sector Policy 2009 provides the overarching framework for sector development, there are a number of other Government Acts and Regulation which have a bearing on the sector and its strategy. 28. National Drinking Water Quality Standards (2006) provide details of the water quality standards to be applied to all new urban systems and complements the Environment Protection Act (1997) which requires Environmental Assessments of all new projects and pollution control for all water resources. Similarly, a number of Government promulgations specifically for institutional restructuring of the Kathmandu Valley water supply and sanitation services have a larger bearing on the urban water supply and sanitation sector. 29. The Nepal Water Supply Corporation Act (2nd Amendment) (2007), as part of the overall institutional reforms in the urban sector provided the legal base for transfer of ownership of water supply and wastewater service system of any urban centre operated by NWSC to any other appropriate organization as decided by the Government. It also opened the door for NWSC to engage companies to operate and manage its system under management contracts. 30. Water Supply Management Board Act (2006). This Act places emphasis on the involvement of local bodies and institutions in the water supply and wastewater sector development in the urban areas. It allows for the establishment of autonomous and independent water supply management boards for a municipality or a group of municipalities at local level for providing water supply and wastewater services. It also allows for involvement of the private sector in the management and operation and maintenance of the systems. In case of Kathmandu Valley, the act has made it mandatory for Kathmandu Valley Water Supply Management Board (KVWSMB) to issue a license to a service provider for operation and management of its water supply and wastewater system. 31. Water Supply Tariff Fixation Commission Act (2006) provided the authority to the Water Supply Tariff Fixation Commission (WSTFC) for economic regulation of water supply and wastewater services and in resolution of consumer complaints. This autonomous corporate body is empowered to fix the tariff for water supply and wastewater services independently at a reasonable price based on level of service and the cost involved in providing the service. WSTFC shall ultimately be responsible for regulation of water supply and wastewater services throughout the country though it has initially started its activities from Kathmandu Valley.

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32. Government’s 3 Year Interim Plan (2007- 2010) provides the most recent guidance on urban sector priorities highlighting, in particular, the need to address the effects of rapid urbanisation on service levels, water quality and scheme maintenance. It proposes the full integration of sewerage, on-site sanitation and solid waste management in all urban schemes and specifically endorses cost recovery from consumers. Local authorities are responsible for overseeing project implementation but with private sector organisations playing increasing roles. 33. The Interim Plan further highlights the need for improved transparency and governance systems, including consumer protection. Social inclusion is particularly emphasised including a requirement to ensure that women and disadvantaged groups are fully represented and involved in development processes. 2.2 Promoting and Limiting Factors 34. Although significant progress has been achieved in the sector both in terms of physical facilities and capacity enhancement, there still remain a number of issues which hamper sector development and its sustainability. Expansion of services has not been very systematic and effective in the absence of master plans to guide the development of water supply and sanitation systems especially in urban areas. Sanitation services are still very limited and require considerable efforts to enhance the current degraded living environment, particularly in urban areas. 35. Coordination in the sector is not very effective as the institutional frameworks for providing water and sanitation services are still fragmented. WUSCs and local bodies (municipalities / VDC) require significant strengthening for effective management and implementation of water supply and sanitation schemes. 36. Safeguards need to be developed to minimize the risk of poor and marginalised groups that are not being adequately served in the prevailing environment of putting more emphasis on cost recovery. 37. The new institutional reforms, especially in relation to the Kathmandu Valley, have encouraged the private sector but government policies have yet to attract the domestic private sector to take on the operation and management of schemes due to low tariff levels. 38. Reliable information on coverage, system performance and service delivery are not available due to lack of benchmarking and monitoring and evaluation – consequently functionality of schemes is a big question in many instances. 39. There is a sizable financial resource gap in the sector and additional funds will be required if the sector is to keep pace with projected growth. The increasing size and number of urban settlements with limited availability of water supply sources poses a balancing challenge between supply and demand. Poor Coordination and Harmonization 40. The sector has been talking about coordination and harmonization of efforts, or the lack of it, for many years. However, the sector has hardly moved forward. The sector wide approach (SWAp) and operationalization of a sector level M&E unit at MPPW have been touted to be on the critical path for sector coordination and harmonization. A recent Sector Stakeholders’ Group meeting identified a number of urgent actions:

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 Effectively operationalize the M & E Unit at MPPW and share data among agencies  Establish an effective platform for Knowledge Sharing including best practices  Coordinate planning and review through Joint Sector Planning and Joint Sector Review workshops  Replicate the Multi stakeholder forum model in other districts  Establish regulatory body for accountability for service (technical and social audit) 41. Various sector stakeholders’ forum have assessed that the Government leadership at central level needs to be more proactive and there needs to be more harmonisation among the donors themselves. These issues have been addressed before, but no real effective steps have been taken. Steps to initiate Joint Sector Planning and Joint Sector Review need to be taken and the entire process needs to be more effectively facilitated. Improving Functional Coverage 42. Nepal shows an incremental progress on water coverage. If this trend continues Nepal could meet its MDG target by 2015 but will miss the Government of Nepal’s target of universal coverage by 2017. However, there is high debate on the coverage data. The coverage figures do not include information on accessibility; reliability and quality of supply and overall the functionality of the existing schemes. If these aspects are considered in terms of coverage assessment then the country will miss both universal access as well as MDG targets. 43. It has been observed that most agencies are obsessed with building new schemes and often find repair and rehabilitation works less “rewarding”. There exists no reliable data on status of existing schemes, but some information indicate that over 50% of existing schemes have either reached their design life or are performing below their design capacities or are in a state of disrepair because of many reasons. Therefore, issues on policy implementation, duplication, effective coverage and focus on sustainable practices for O&M need to be addressed. Policy Review, Gaps and Reforms 44. Currently the sector is governed by the Vision Paper of Ministry of Physical Planning and Works, which states that safe drinking water is everybody’s right and good sanitation, is the hallmark of healthy living. Long, medium and short term targets are also set to meet this visionary ideology. 45. Rural Water Supply and Sanitation Policy 2004 and Urban Water Supply and Sanitation Policy 2009 are key guiding policy documents. National Water Plan Nepal (2002- 2027) and Fifteen Year Small Towns Development Plan (2000 modified 2009) are major planning documents for facilitating implementation of the policies. 46. However, time has elapsed and first-hand knowledge about the development and short-comings in the sector could be assessed. It may be prudent to assess the 2004 RWSS policy document in in view of progress in the past 5 years. What are the achievements and what needs to be modified in the present day context? Although, sanitation coverage is steadily increasing, the figure so far achieved is far behind the target and wastewater management in urban areas is not encouraging. Special attention and effort to achieve the sector vision is urgently needed. The recently promulgated Urban Water

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Supply and Sanitation Policy 2009 focuses on water supply and its management more and probably lacks in-depth portraying of sanitation. In this regards, reviewing and updating existing policy documents to reflect recent concerns seems necessary. Sustainability 47. Sustainability and its monitoring is the key issue in Water Supply and Sanitation (WATSAN) sector. Sustainability monitoring is complex and is composed of many factors and sub factors. Long Term Sustainability Monitoring for WaterAid Nepal (September 2007) proposed sustainability assessment by utilizing integrated framework for technical, socio- economic, financial and institutional aspects of sustainability. Critical and sometimes referred to as the “killer” aspect in the sustainability of water supply schemes apart from the technical aspects are the institutional and financial factors. Sustainability monitoring of urban or town projects, indicators like existence and functioning of WUSCs, regular O&M and collection of tariff, contribution of the users in the initial implementation, etc. are critical. 48. In the recently concluded Small Towns Project, operations and maintenance issues have surfaced critically and need to be addressed with more focused capacity building measures for local staff recruited by WUSCs for regular O&M works. Critical issues in the sustainability of the towns projects implemented in the recent past are related to institutional factors like the functioning and capacity of the Water Users Association and the elected Water and Sanitation Users Committee (WUSC). Similarly, financial factors like contribution of upfront cash and kind, regular collection of requisite water tariff and repayment of any loan reflect on the financial soundness and sustainability of such projects. 49. Loan payback performance of the sub-projects under the Small Towns Project has shown mixed results till now and the initial loan recovery trend is not satisfactory, but on the other hand the very fact that loan is being considered for building local infrastructure by local communal institutions is indeed encouraging. 50. Recent studies have shown that to ensure the long term institutional and financial sustainability of built projects it is necessary to carry out the following:

 Water tariffs need to be raised to a level sufficient to cover investment repayment and O&M costs.  Introduction of community taps and reduction of connection fees for urban poor would promote further inclusion of such HHs in the service area.  Financing institutions like TDF should not only focus on the collection of due payment but also must extend its role of supporting means to uplift the capacity of WUA through specific training on financial aspects and other facility provider.  Revolving fund concept could be initiated for the access of the ultra poor to private and community taps.  WUSC members should be provided with adequate leadership and management training on on-going basis during the entire duration of the sub-project and imparted with adequate technical and financial skills.  The GoN should consider reduction in interest rate to financing institutions involved in infrastructure financing Water Resources Planning and Water Rights 51. With growing demand for water by communities and assertive attitude of adjacent communities on water sources in their “neighbourhood”, problem of water rights and its

Appendix 2 - Sector Analysis & Lessons Learnt Page 10 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study priority use will become more prominent. Inter-basin water transfer, like Melamchi Valley water to Kathmandu, will or has become a bigger problem or challenge. This brought many issues and posed several questions, including - What should be the process of benefit sharing from water resources among competing communities?

 Co-operation and benefit sharing arrangement that result in a “win-win” or at least “win-no lose” situation  Full assessment of current and future water demand in the donor basin  Full compensation of all losses and internalization of all externalities  Stakeholder consultations and negotiation between local community/government (Melamchi Valley) and the recipient (Kathmandu Valley-KV) with facilitation of central government and civil society  Since Kathmandu Valley water supply services falls under PPP model – major stakeholders like the WSTFC, KVWSMB, KUKL and local government (municipalities/DDCs) should be involved in the negotiation process. 52. Implementation challenges being faced by many water projects have posed several questions that require a holistic and consolidated approach. Some of the issues that require stakeholders attention with regards to use of water sources and water rights are:

 Valuation and sharing of costs and benefits.  Sharing of “Royalty” or “Water Levy” between State, Local Government and Local Communities – if plausible.  Ensuring good economics (benefits for all), good politics (reduce conflicts, yield equitable and reasonable benefits) and good environmental management  Considering access to water supply as a basic human right, should water be treated as a ‘social’ or ‘economical’ good?  Address the concerns of the poor, deprived, marginalized people in urban areas through favourable tariff setting, cross-subsidy, etc. 53. This has become a very complex problem and needs to be addressed carefully. The Urban Water Supply and Sanitation Sector Policy 2009 briefly touches upon this issue by suggesting that all such issues should dealt under the umbrella Water Resources Act. However, a more holistic approach is required. 2.3 Governmental Safeguards and Governance 54. With growing focus on infrastructure development, the Government of Nepal has been actively working to ensure that development activities do not harm the physical environment and the social fabric. All the Government’s policy and planning documents have given specific attention to environmental protection and burning social issues like gender, inclusion and equity among many others. Some of the existing acts and regulations having direct relevance to governance and environmental and social safeguards are briefly discussed here. Environment Protection Act, 1996 55. The main regulatory requirement for Environmental assessment of infrastructure projects is the Environment Protection Act 1996. This legislation enables Government of

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Nepal (GON), Ministry of Environment (MOE) to require mitigation measures for all potential sources of air, land, water degradation impacting on natural and social environment. Environment Protection Rules, 1997 56. As enshrined in the Environment Protection Act, 1996; the concept and vision needs to be transplanted in concrete projects for which Environment Protection Rules, 1997 (first amendment, 1999 and second amendment 2007) were formulated by Government of Nepal. Altogether 54 rules have been enlisted with 7 annexes which attempt to cover all major sectors of Nepalese economy, namely: forest, industry, mining, roads, water resources and energy, tourism, water supply, solid waste, agriculture and others. Although some rules such as those related to Environmental Inspectors are not yet functional, rules related to the preparation of environmental reports are well established and are in practice. Land Acquisition Act 1977 57. The Land Acquisition Act 1977 was promulgated by the Government of Nepal for the acquisition of any land for development, subject to payment of compensation and all other expenses. Land acquisition is envisaged under the act for construction of residential quarters for the staff, workers or laborers of any governmental institution, or otherwise provide for their welfare, or undertake any function in the interest of the general public. Additionally, it may also acquire land to operate a project connected with an institution fully owned by Government of Nepal, or to construct warehousing for the storage of any commodities or material connected with or manufactured by any such institution. However, in doing so the Government has to ensure that the basic rights of such persons owning the required land are not compromised. 58. The Act ensures that compensation shall be paid for losses resulting from clearing of crops and trees, and of demolition of walls, etc., or for damage, if any, suffered as a result of the removal or digging of earth, stone, ditches, or boring on such lands. The officer responsible for preliminary action shall determine the amount of compensation payable and pay the same to the concerned person. 59. In case the concerned person is not satisfied with the amount of compensation determined, he/she may file a complaint with the chief District Officer on which he/she receives information thereof, and in such cases the decision of the Chief District Officer shall be final. Other Provisions 60. A number of basic rights and social safeguards have been ensured in the Interim Constitution. Similarly, the erstwhile Mulaki Ain Act has been repeatedly amended to reflect and protect the prevailing social issues, such as, the rights of women, various ethnic castes and groups, underprivileged and backward groups in the society. 61. Various ongoing social development programs aim to ensure social security of senior citizens, single women, Dalits, communities in danger of extinction, and physically challenged people so that they live normal lives. Programs on social mobilization and social security are being carried out in an attempt to achieve physical development along with social empowerment. The Government has been giving continuity to security arrangements to senior citizens, incapacitated, disabled and widows through various programs including providing regular allowances.

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3. ADB Sector Experience and Assistance Program 3.1 Lessons of External Assistance 3.1.1 Summary of Key Lessons 62. A summary of the key lessons from ADB’s past involvement in the sector include: (i) complex and costly projects should be avoided if the executing agencies have limited experience (ii) all stakeholders should be fully involved in project identification and design from an early stage especially if water user committees are expected to operate and maintain the systems (iii) larger physical works packages should generally be used to attract qualified contractors (iv) projects involving municipalities and rural communities should take into account potential delays in the project design, and (v) project quality should be carefully monitored at all stages of project execution (ADB CPS NEP 2010-2014) 63. The sections below briefly review major projects implemented earlier in the urban water supply sector and summarize the lessons learnt from their implementation. Attachment 1 to this appendix provides a summary of external assistance to Nepal in the Water Sector. 3.1.2 Previous IDA Projects 64. The first WB/IDA project was executed by Water Supply and Sewerage Board (WSSB) in 1974-1980. After the completion of the first IDA project, the water supply and sewerage system of Kathmandu, Patan and the water supply system of Pokhara expanded considerably. 65. Meanwhile the water supply and sewerage systems of Bhaktapur core areas were extended under the Bhaktapur Development Project supported by the German government. The World Bank agreed to provide assistance to other towns outside the Kathmandu Valley, HMG formed Water Supply and Sewerage Corporation (WSSC) under the Corporation Act in 1984 expanding the jurisdiction of WSSB to other municipal towns. The second and third WB/IDA projects completed in 1987, were executed by WSSC to extend the water supply facilities in the additional new towns. 66. Implementation of the three IDA projects greatly enhanced the water supply services in Kathmandu and outside valley towns. However, some institutional weakness of WSSB and later the WSSC were identified by the World Bank in the late 80's. Information on specific issues and lessons to be gained from the IDA projects is scarce. However, apart from institutional factors, which focused mainly on utility management and financial sustainability of large utility agencies, other technical issues especially in demand projection and packaging of contract packages were encountered during implementation. A major institutional structuring and operational issue was interference by political bodies leading to increased overheads of the then WSSC due to hiring of too many non-productive staff – mostly non-technical. Implementation of these IDA projects was also hampered due to lack of suitably qualified contractors and suppliers in Nepal. Since then with the growing economy and more vibrant private sector this problem has largely been overcome.

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3.1.3 Urban Water Supply and Sanitation Rehabilitation Project: 67. The Urban Water Supply and Sanitation Rehabilitation Project (UWSSRP) was designed with assistance from the WB to strengthen the technical, managerial, financial and operations / maintenance capability of WSSC and to increase utilization of existing water supply and sanitation systems through rehabilitation and extension. The major project components were classified into three components. The first component was designed to provide institutional strengthening to Nepal Water Supply Corporation (NWSC). The second component was designed to increase utilization of physical infrastructure in Kathmandu and to reduce public health risks to its residents. The third component focused on improvement of physical infrastructure of towns outside the valley. The UWSSRP became effective in 1992 and a midterm review was carried out in 1996. The Project was officially closed in 1999. However, many of its original objectives were not met and the outcome of the project activities was rated as “unsatisfactory” by the World Bank. It was identified that there were factors that were either beyond the control of the concerned project stakeholder or they did not adhere to them seriously. Some of these factors are listed below:  Factors outside the control of Government or Implementing Agency: Some delay in project implementation took place because of changes made by the donors in identifying suitable implementation agency and partners for the implementation of project related capacity building programs.  Factors Generally subject to Governmental Control: Institutional autonomy in the formation act of Nepal Water Supply Corporation Act was not effective; frequent turnover of staff especially in managerial positions; tariffs not being raised in a timely manner; dues to NWSC not paid by the Government; and, lack of commitment towards strengthening NWSC’s financial operations.  Factors Generally Subject to Implementing Agency control: - NWSC failed to exercise autonomy power granted under the act; procurement process incurred substantial delays; NWSC management was slow in making key decisions. 68. Lessons Learnt – The major lessons learnt from the UWSSRP revolved around institutional weaknesses in implementing and managing a project of this size and nature plus sequencing of Technical Assistance programs tied to the Project and procurement processes. Some of the specific lessons learnt from the implementation and the delay associated with it are listed below:  Institutional autonomy was essential to reduce political interference in day-to-day management and to meet development objectives. The NWSC Act provided autonomy on paper, but in practice it was never implemented. This was the single greatest failure of both the Bank and the Borrower.  Frequent changes of the Board and General Manager were very disruptive to continuity, commitment and to meet development objectives.  Politicization of tariff increases, staff recruitment and other administrative and financial matters undermined the potential for reform and diminished service delivery.  Wide participation and discussions with various stakeholders were essential for ownership and commitment to reforms.

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 Involvement of implementing agencies at the outset was critical to aligning the project concept from start to finish. Bringing UN-ILO after the project document had been drafted as the executing agency for the management support component caused delays and modifications, which did not prove successful.  Investment in physical infrastructure needed to be properly sequenced with institutional reform. Trying to achieve reforms in parallel with investment did not prove successful, since the focus of the implementing agency was on meeting physical targets while institutional change was marginalized.  Poor procurement performance inevitably diminished the achievement of project objectives, both physical and institutional.  Appraising projects before any detail design is carried out is not a good practice.  There was a tendency for NWSC to neglect its financial management and thus not have a true and fair picture of its financial health. This and paying heed to audit recommendations and internal control systems need to be emphasized.  For a state-owned corporation like NWSC, it is important to ensure that its accounts are maintained and audited in accordance with recognized international accounting standards and practices. 3.1.4 Small Town Water Supply and Sanitation Sector Project 69. Government of Nepal has been implementing the Small Towns Water Supply and Sanitation Sector Project in order to improve health and quality of life of the people living in small towns by extending better and sustainable water supply and sanitation services and providing health and hygiene education programs. The project design takes the community- based demand responsive approach such that the Water User and Sanitation Committee (WUSC) are fully involved and jointly responsible for all major decisions. Mobilization of local resources has been a major achievement and a significant feature considering the urban nature of the settlements and communities under consideration in the Project. While this has had significant impact on ownership of the built infrastructure, there have been concerns of affordability and its affect on the urban poor. The prevailing development scenario, especially in the water and sanitation sector, is very dynamic and it has become imperative to recognize the needs and requirements of the people such that development investments benefit a larger part of society and are sustainable. Some of the major lessons learnt from the Project have been: 70. Local Resource Mobilization and Cost sharing – The principle of cost sharing is generally accepted in Nepal for rural schemes but has been taken to a new level in the STWSSSP-I. It has achieved a beneficiary contribution of 50% of the total capital cost of construction, one of the highest levels in South Asia. This is supported by setting tariffs to recover the loan proportion of capital cost. The result is a strong sense of community ownership. 71. Technical Issues and Construction Quality – Jointing of High Density Polyethylene (HDPE) pipes was problematic. Contractors used the traditional method of butt welding in the rural hill gravity flow schemes using heating plates rather than following the specification in the contract. Although this method has proved effective for small diameter pipes, it is not fool proof for larger diameter pipes usually encountered in urban systems – resulting in weak pipe joints and leaks.

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72. In the STWSSSP-I, 15% contribution (in-kind or cash) from WUSCs was required on top of upfront 5% cash contribution. In reality, there was little in-kind contribution, and many towns collected cash to satisfy the requirements. This 15% contribution was used for community work, such as excavation, pipe laying and back-filling of some transmission and distribution pipelines. This created problems, such as difficult synchronization between the main contractor's work and the community work resulting in delay and poor quality. Work for house connections were undertaken by WUSCs, which also led to delay and poor quality because of constraints in skilled manpower and capability with a mismatch to the Contractor’s work schedule. 73. Another major problem was water meters distributed by the Project and improper installation. To date, in the 8 towns studied, about 15% of the meters distributed are damaged, though replaced in most cases. None of the town projects had established a water meter repair and resale business as mentioned in the Project document. The main bulk meter, to quantify actual water production, was also damaged in some towns and the exact water loss could not be calculated. 74. Procurement Strategy / Approach – The STWSSSP adopted a single package procurement approach wherein all civil works and materials were lumped into one package. Supply and installation was a fairly new experience for the civil works contractors and their associates. This resulted in below par performance of some of equipment installed especially pressurized mechanical treatment plants, electro-mechanical equipment (pumps, generators, transformers, etc.). Therefore, completion of works was often delayed and malfunction in equipment supplied was often difficult for the contractors to remedy during the defects liability period. 75. Based on this lesson, the new Project (Second Small Town Water Supply and Sanitation Sector Project) has proposed the combining construction and First-Year Operation in the new contracts. This will include technical operation of facilities in the first year in the main civil works contract, in particular incorporating operational performance in payment conditions, is expected to (i) speed up the construction, (ii) ensure good quality of construction work, and (iii) ensure smooth operation of the facilities. During the first year of operation, management staff to be engaged by WUSCs taking operational responsibility for the system will receive full on-the-job training from the contractors to ensure the seamless transition after the first year of operation. 76. Water Quality – The STWSSSP-I has been designed to supply water as per National Drinking Water Quality Standard 2005. Depending upon the quality of raw water, the treatment plant has been provisioned to comply with the standard. However, according to the water quality tests of end points conducted several towns studied were found contaminated with bacteria. In most towns, bleaching powder is used as disinfectant but in a very unscientific manner including storage and handling of chlorine powder. The water quality monitoring system is also nonexistent. The PMO supplied up to three different kits to some town projects, but most of them are not in use due to lack of knowledge and expertise in the use of such equipment. 77. Financial Viability – The percentage to be contributed by the community was 50%, and 15% in-kind or cash contribution as well as 5% upfront cash contribution by WUSCs was required. In some places the service areas originally considered were reduced, mainly in order to make the project more affordable and financially viable. Usually, it is the outer, peri- urban parts of the area, which have lower population density and are more expensive to

Appendix 2 - Sector Analysis & Lessons Learnt Page 16 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study serve in terms of capital costs, though these areas tend to be where poorer people live. The end result is that some of the poorest people were excluded. 78. The subprojects have lower tariff rates than the design estimates and recommended by Engineering Design Consultants (EDC). The analysis shows that the current tariff rate will not be sufficient for the subprojects to cover the costs for operation, maintenance and loan repayment to make them financially sustainable. None of the towns studied in the BME has instituted an automatic tariff adjustment mechanism for price increases. 3.2 ADB Sector Assistance in Kathmandu Valley 3.2.1 Background 79. Although water system in the Kathmandu Valley were initiated more than a century ago, planned efforts in terms of projects with specific objectives and outputs were started in the early sixties with investments made with the support of the Indian Government under the Indian Cooperation Mission (ICM). Thereafter, the World Bank began supporting the development of the urban water supply and wastewater systems in Kathmandu and major towns outside the Valley through a series of projects starting from 1974 culminating with the closure of the Urban Water Supply and Sanitation Rehabilitation Project in the late nineties. During the decades of eighty and ninety other efforts also took place focusing on improving the beleaguered water supply scenario of Kathmandu. Among them investments made by the Japanese Government through JICA have been notable. During all this period, planners and water experts strongly advocated for developing additional water sources from outside the valley and the concept of bringing water from the Melamchi Valley – a trans-boundary water transfer effort – began to take shape. More than a decade has gone since concrete efforts were initiated to transfer water from the Melamchi Valley to Kathmandu. Chronology of Water Sector Development in Kathmandu Valley 80. The Table below lists the events during the past twenty years leading to the development of water resources outside the Kathmandu Valley and associated infrastructural investments and institutional reforms for improving the water supply and wastewater systems in the Kathmandu Valley.

Problem and Constraints Analysis 81. ADB has taken the lead in supporting the Melamchi Water Supply Project (MWSP) and associated improvements in the water transmission and distribution system in the Kathmandu Valley. Lessons learnt from the planning and implementation of various previous projects has assisted in formulating, designing and implementing new projects more effectively. In summary, problems encountered by previous projects have ranged from institutional, social to technical and procurement related issues.

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Table 1: Chronology of Water Sector Development in Kathmandu Valley

S.N. Event Date 1. Prefeasibility study of the Out-of-Valley Sources for Kathmandu April 1988 and Lalitpur conducted by Binnie and Partners et al 2. Environmental Assessment of the Melamchi Project (Stanley 1990 Associates) 3. Feasibility study of Greater Kathmandu Water Supply Project November 1992 (Melamchi Water Supply Project) was carried out by SMEC 4. Bankable Feasibility Study of the Melamchi Project was 1996 conducted by Butwal Power Company (BPC) 5. Preparation of a Management Contract for the Urban Water May 1998 supply and Sanitation Services in Kathmandu Valley. (Binnie Thames Water et al) 6. Formation by GoN of the Melamchi Water Supply Development September 1998 Board (MWSDB) 7. Establishment of Private Sector Participation Committee (PSPC) 1999 by GoN 8. TA Loan Agreement (Melamchi Water Supply (Engineering) 21 February 1999 Project, Loan 1640 – NEP (SF), 1999-2003 9. Urban Water Supply Reforms in the Kathmandu Valley. (ADB February 2000 TA conducted by Metcalf and Eddy) 10. Loan 1820-NEP (SF): Melamchi Water Supply Project (MWSP) Approved 21 December 2000 and effective on 28 November 2001 11. Withdrawal of World Bank from Melamchi Water Supply Project June 2002 12. Loans 2058/2059-NEP(SF): Kathmandu Valley Water Services Approved 18 December Sector Development Program (SDP) 2003 effective from 7 December 2004 13. Withdrawal of NORAD and SIDA from Melamchi Water Supply 1 February 2005 Project 14. Formation and Establishment of Kathmandu Valley Water November 2006 Supply Management Board (KVWSMB) 15. Formation of Water Supply Tariff Fixation Commission 2006 16. GON’s decision to cancel Performance Based Management August 2007 Contract (PBMC) of Water Supply and Wastewater Services in Kathmandu Valley 17. Major Change in scope and Implementation Arrangements. January 2008 Nepal: Melamchi Water Supply Project and Kathmandu Valley Water Services Sector Development Program. Loans 1820, 2058 and 2059 18. Formation and Establishment of Kathmandu Upatyaka February 2008 Khanepani Limited (KUKL) 19. Project Agreement between ADB and KVWSMB 27 October 2008 Novation and Assumption Agreement – ADB and KUKL 20. Finalization and Promulgation of National Urban Water Supply April 2009 and Sanitation Policy 21. Formation of Project Implementation Directorate (PID), KUKL April 2009 22. TA 4893-NEP: Preparing the Kathmandu Valley Water Commenced Distribution, Sewerage and Urban Development Project 18 May 2009

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3.2.2 Melamchi Water Supply Project (MWSP) 82. The main objective of the MWSP is alleviating the chronic shortage of potable water in Kathmandu Valley, with expected outcomes of improving the economy and the health and wellbeing of its inhabitants, particularly the poor. MWSP includes comprehensive institutional reforms as well as infrastructure development to achieve this outcome. The MWSP was designed to finance four major components: (i) infrastructure development, comprising a 26 km water diversion tunnel, access roads, water treatment plant and bulk distribution system, distribution network improvement and wastewater system improvements in Kathmandu Valley; (ii) social and environmental support to mitigate potential negative project impacts and improve the living conditions of the beneficiaries; (iii) institutional reforms for water services delivery in the Kathmandu Valley; and (iv) project implementation support. MPPW is the Executing Agency and MWSDB was the original Implementing Agency. 83. The MWSP was projected to cost $464 million at 2000 prices. According to the original financing plan, ADB shouldered the largest financing share followed by the World Bank and others including JBIC, JICA, NORAD and others. The Government’s original financing share in the MWSP was $118 million equivalent. However, with the withdrawal of the World Bank, NORAD and SIDA and changes in conceptual approach in operations of the water supply and wastewater services in the Valley, the Project was restructured. 84. MWSP was being implemented as a technical water engineering project rather than as a major civil infrastructure project involving extensive contract management / administration and social development activities. It was generally felt by project stakeholders, in particularly the donors, that the MWSP management was overstaffed with water engineers deputed by MPPW rather than personnel experienced in project and contract management. Although the project was being implemented by an independent board (Melamchi Water Supply Development Board), the organization was tightly governed by the civil service regulations and a restrictive decision making culture. It was also observed that this multi-faceted project, which included institutional, engineering, environmental and social components, was too large and complex for engineering biased management. These problems required major restructuring and changes in the management structure of the MWSP, including the restructuring of the MWSDB. 85. The funding agencies noted the serious delays in implementation of the Melamchi Water Supply project, which were made worse by the political and social instability in Nepal. These and institutional factors led to funding withdrawals from the World Bank and NORAD development partners. Institutional factors included the inefficiency of the existing implementing agency’s organizational structure and weaknesses in its administrative, accounting, and reporting systems which contributed to substantial delays. To overcome these impediments MWSP was divided into two sub-projects, namely Melamchi River Diversion Subproject (Subproject 1) and Kathmandu Valley Water Supply and Sanitation Subproject (Subproject 2). It was concluded imperative to establish an effective project management structure in both the subprojects under Loan 1820–NEP. 3.2.3 Kathmandu Valley Water Services Sector Development Program (SDP) 86. The overall aim of the Sector Development Program (SDP) is to improve, on a sustainable basis, the operation of the water supply and wastewater services within the metropolitan and urban areas of the Kathmandu Valley. The Program loan supports the water sector institutional reforms to be introduced. The reforms included institutional

Appendix 2 - Sector Analysis & Lessons Learnt Page 19 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study restructuring of the NWSC and rightsizing of staff to be transferred to the government owned water utility operator (WUO), KUKL. This process included a voluntary retirement scheme (VRS) and providing related retirement assistance programs. 87. The MWSP and the SDP both tried to engage a private operator through Private Sector Participation (PSP) schemes. The World Bank twice attempted to employ PSP modalities including a lease contract model including performance based management contracts (PBMC). Unfortunately, the attempts failed in Nepal's fluid political environment which may have been considered to have too high a cost risk by competent international players. 88. Following the failure of the PBMC model it was proposed that the financing conditions relating to engagement of PBMC be waived. The alternative was to provide a capacity building and public private partnership support team (CBP) to support KUKL in its initial few years of operation. The CBP has a focus on long-term capacity building and strengthening of management and operational skills of the newly formed utility operator. 89. The scope of the Program includes: (i) implementation assistance for the three (3) entities established under the Program, namely KVWSMB, the WSTFC and the WUO (KUKL); (ii) introduction of the CBP Team; and (iii) completion of the process of computerization of the billing and accounting systems for the various branches of KUKL. 90. In continuing ADB assistance to the projects through the proposed change in scope and implementation arrangements, the funds under the SDP (Program Loan 2058) are essential to complete institutional reforms. Right-sizing of the Kathmandu Valley water utility operation by utilizing a voluntary retirement scheme (VRS) is one of the reform agenda and the funds under the SDP program loan (Loan 2058) are earmarked to finance VRS. In the absence of these funds, the reforms could not be completed and implementation of the projects could not move forward. While the policy conditions for release of the first tranche of the loan are still being complied with (the first tranche was released in December 2005), the remaining conditions for release of the second tranche were expected to be met by middle of February 2008, but were delayed. 91. The original estimated cost of the SDP Loan 2059-NEP was $15 million equivalent, of which (i) $10 million equivalent was to be funded by ADB mainly for financing the base fee of PBMC, and (ii) $5 million equivalent was to be contributed by the Government, primarily to cover the performance-based bonus payments due to the management contractor under PBMC. The replacement of PBMC model with the CBP team model, and the revised implementation arrangements for both the MWSP and SDP, have resulted in reallocation of costs. Loan 2059-NEP SDP includes the computerization of the billing and accounting systems of KUKL. This component includes geographic information system (GIS) installation and other information technology services to assist with asset management and operations. 92. Based on current political conditions in Nepal, lessons learned from attempting over- ambitious PSP schemes, and the need to strengthen management capacity of KUKL the CBP team is envisaged as a suitable mechanism for supporting KUKL. The CBP team will not only manage KUKL’s initial operations, but they will also prepare KUKL’s system and strengthen staff skills to operate and manage the Kathmandu Valley water supply and wastewater system services more efficiently and cost effectively.

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3.2.4 ADB Loan 1820 – NEP : Melamchi Water Supply Project, Subproject-2 93. The PMU for Subproject 2 was supposed to implement activities to improve water supply and wastewater facilities within the KUKL service area in the Kathmandu Valley – both immediately and in the long term when Melamchi water is delivered. However, various ADB review missions recorded that the project implementation activities under the KUKL PMU, including procurement and disbursement, were slow and ineffective. It was concluded by GON and ADB that the PMU placed under the KUKL General Manager (GM) was unworkable because the GM of a water utility such as KUKL was overwhelmed by day to day management of staff pressure, consumers’ and not have time for executing agency loan administration. Furthermore, a large externally funded project, such as Loan 1820-NEP MWSP Subproject-2 with a total budget much larger than the annual operating budget of KUKL, required a dedicated and adequately staffed project implementation unit. The implementation unit needed to be fully equipped and authorized to make prompt decisions in procurement and implementation. To address this issue, it was agreed to establish a Project Implementation Directorate (PID) under the KUKL Board of Directors separate from KUKL’s day-to-day management with its own independent financial mechanism. 94. This PID would be responsible for managing and implementing all KUKL externally assisted projects, including the on-going Loan 1820 MWSP subproject-2 and Loans 2058/59 plus the preparation of future ADB loan projects. 3.3 Investment Opportunities and Interventions 95. The Capital Investment and Asset Management Program (CIAMP) for the Kathmandu Valley prepared as part of TA 4893-NEP identified the need for an investment in the next 15 years to 2025 of nearly $700 million in water supply and a further $200 million in the wastewater system. At present, only about $300 million has been approved. 96. The CPS NEP 2010-2014 notes that ADB will continue to support the Government in (i) improving urban infrastructure including water supply and sanitation and urban transport (ii) improving access to and service level of water supply and sanitation, and (iii) institutional strengthening and capacity building to strengthen operation and management skills of local governments and WUSCs in accordance with the Government's policy. 97. This will be supported by ADB's financial and technical assistances to the Government in the urban sector through programmed new loans/grants and TAs for water supply and sanitation in Kathmandu Valley, integrated urban services improvement including water supply and sanitation in small towns and secondary towns, development of border towns, urban institutions strengthening program, as well as through ongoing projects for water supply and sanitation in Kathmandu Valley, community-based water supply, and urban environment improvement works. As a cross-cutting theme, ADB will assist the Government in mainstreaming climate change and GESI considerations into planning, design and implementation of these projects. 98. ADB will also continue to support the recently established institutional framework and operational setting as well as the provision of efficient and affordable water supply and sanitation (including wastewater) services in Kathmandu Valley. In so doing, ADB will support strengthening coordination among relevant organizations and their capacity, which is a key to achieving tangible results.

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4. Problem and Constraints Analysis A. WATER SUPPLY Problems Causes / Constraints Ongoing Government Proposed Project Proposed Actions Support Project Inputs i. Inadequate In sufficient water re- MWSP Subproject-1 to Rehabilitation and new Civil works supply pressure sources in the develop and transfer planned infrastructure and quantity Kathmandu Valley to water from Melamchi complying to the CIAMP Equipment delivered to meet demand Valley Bulk water supply system provision customers Under capacity of the CIAMP prepared through to distribute augmented system and ageing of TA4893 and endorsed by water supply developed existing critical KUKL, KVWSMB and under Loan 1820 elements (many of MPPW subproject-1 which are over 100 Loan 1820 includes Rehabilitation of years old). rehabilitation of water distribution network to High percentage of supply infrastructure to increase water pressure leakage from maximize use of water and service delivery distribution network. resources, minimize Infrastructure investment Long individual house physical losses and sized to meet 2025 service pipes causes develop new sources. demands. high pressure losses. Loan 1820 includes Support in introducing Multiple individual (limited) rehabilitation procedures and program service connections to and replacement of of replacing multiple network increases undersized pipes. service connections leakage. ii. Poor Lack of planned capital Loan 1820 includes Engagement of design Design and condition of investment engagement of design and supervision construction infrastructure Inadequate quality of and supervision consultants. supervision design and construction consultants. consultancy of capital works Loan 2059 includes Standardization of Poor workmanship and capacity building and components and supervision of pipe- asset management materials to reduce types laying and service planning and sizes of spare parts. connections Multiple un-registered consumer connections. Operational shortcomings (see below) iii. Inadequate Inadequate operational Sector policy stipulating Introduction of design- operation and budget available to cost recovery principle build-operate contract Operation and maintenance of operate the system Loan 1820 includes modality for treatment maintenance existing assets Poor operational procurement of essential plants equipment practices without asset equipment and spare management planning, parts. Procuring additional preventive Loan 2059 to provide essential non-fixed maintenance, efficiency Institutional development operational and or energy audits, and project management maintenance equipment records of operational consultancy data Loan 2059 to provide Inadequate staff training and expert capacity to operate the advice for operators and system. management staff Loan 2059 to establish business support systems on management information system, asset management and operational recording iv. Inadequate No institutionalized KUKL license includes Support provided by performance systems to regularly levels of service to be Loan 2059 monitoring and benchmark provided. management performance of water Loan 2059 includes

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Problems Causes / Constraints Ongoing Government Proposed Project Proposed Actions Support Project Inputs supply service delivery KUKL capacity building to improve service level Lack of implementation monitoring. Introduction of performance of Service Performance improvement measures Indicators such as service area coverage, service pressure and hours of delivery, revenue ratios, energy efficiency, frequency of breakdowns, timeliness of repairs, timeliness of handling of citizens’ complaints, staff per thousand connections, salary costs, tariff collection efficiencies Establishing business support system Establishing water supply asset management unit v. Lack of Unstable government Interim 3 year plan Support provided by institutional during past 10-15 years (2007-2010) provides Loan 2059 framework and goals for MDG water policy Absence of sector supply provision objectives strategy and The National Urban implementation plan Water Supply and Sanitation Sector Policy (2009) sets principles and objectives Loan 2059 supports KUKL in executing roles as asset operator of water supply system and establishing KUKL asset management unit vi. Poor Poor water pressure Loan 1820 providing Rehabilitation of Infrastructure compliance with forces customers to laboratory, quality distribution network to works legal / pump water from monitoring equipment increase water pressure regulatory network resulting in and consumables. and service delivery framework contamination of Loan 2059 providing supply. support in building Lack of urban planning source control and control and land monitoring management plan vii. Poor Insufficient Loan 1820 financing Preparation and Public customer stakeholders' demonstration schemes implementation of a awareness relations and involvement and in underserved area. Public Awareness consultants public participation in water Loan 2059 includes Campaign (PAC) awareness supply services preparation of a NGOs Customer Service EMP to include actions to Absence of public Manual with goals for mitigate problems during awareness activities in minimum levels of construction. water conservation service and support in activities and equipment institutionalizing monitoring mechanism for water supply pressure and delivery.

CIAMP = Capital Investment and Asset Management Program; KUKL = Kathmandu Upatyaka Khanepani Limited; KVWSMB = Kathmandu Valley Water Supply Management Board; MPPW = Ministry of Physical Planning and Works; MWSB = Melamchi Water Supply Board; EMP = Environment Management Plan; PAC = public awareness campaign; NGO = nongovernment organization.

Appendix 2 - Sector Analysis & Lessons Learnt Page 23 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

B. WASTEWATER Problems Causes / Constraints Ongoing Proposed Project Proposed Government Actions Support Project Inputs i. Poor or Lack of network Asset condition survey unknown knowledge of assets or (Loan 1820) condition and condition extent of Operational sewerage shortcomings (see infrastructure below) ii. Infrastructure High urban population n/a n/a capacity lagging growth and growth uncontrolled urban planning Lack of follow through Institutional support under n/a on previous Loan 2059-NEP recommendations and reports – strongly linked to unstable political context and organization capacity (see below) Wastewater system Network planning planning inadequacies masterplan under Loan 1820 MWSP subproject-2 Lack of appropriate Bagmati Action Plan Invest in new capital works Capital sized or located assets proposes new (based on above master investment for interceptors along plan). Will include major new collection Bagmati River by new interceptor and and transfer HPCIDBC transfer systems assets Absence of land Land development fee to development fee be developed and applied for new development iii. Inadequate Inadequate staffing Institutional support under n/a operation and levels and funding of Loan 2059-NEP maintenance of operational department existing assets Limited and Four new jetting Equipment inadequate sewer machines currently procurement cleaning equipment being purchased under ADB loan 1820 Ambiguous agency Institutional support under n/a responsibilities (see Loan 2059-NEP below) Poor solid waste Continuing actions Note that government has Capital collection and disposal including renewed continuing actions in this investment in especially adjacent to attempts to clean and regard. For the wastewater pilot overflow river courses maintain river courses system, conduct a pilot of screens and overflow screens and then roll out to roll out to network based network on findings of pilot scheme Inadequate flushing for Melamchi Water Significant improvements self cleansing of supply project to water supply and sewers distribution under water component of project Suboptimal Institutional support under construction standards Loan 2059-NEP for coordinated planning and construction standards Inadequate asset Asset management maintenance and introduction and record keeping improvements under Loan 2059-NEP)

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Problems Causes / Constraints Ongoing Proposed Project Proposed Government Actions Support Project Inputs iv. Ambiguous Inadequate inter- Bagmati Action Plan Improve sector and agency agency co-operation or and associated new institutional capacity responsibilities co-ordination between legislation for a including support work for multiple stakeholders coordinated the Bagmati Action Plan. responsibility in areas adjacent to river courses Absence of overall See above – network Network wastewater network master plan to be master plan to planning developed be developed Suboptimal See above construction standard (see above) v. Disposal of Inadequate treatment Bagmati Action Plan Capital investment in new / Capital untreated or plant capacity proposes increase in upgraded treatment plants. investment in inadequately capacity of First stage will be new / treated sewage Guhewwhori WWTP new/upgraded plants at upgraded to water courses under HPCIDBC Sallaghari, Guheswhori treatment and Kodku and plants rehabilitated plant at Hunumante to bring capacity to 300,000 people. Inadequate operation Human resource and maintenance of development and tariff existing wastewater reviews under Loan 2059- treatment plants NEP High frequency of long Power industry The masterplan assumes power outages investments (including that the power supply will ADB laons) be gradually improved. However, operational costs must allow for back-up power costs. Revenue stream and tariff review (under Loan 2059-NEP) Inadequate disposal of Collaboration in hand Capital septic tank septage with UN agencies investment to new septage treatment plants Lack of viable Review of on-site and Capital alternative on-site decentralized opportunities investment in systems smaller decentralisied plants Poor enforcement of n/a n/a industrial discharge regulations and absence of discharge standards for domestic wastewaters vi. Poor See above See above institutional & regulatory capacity in wastewater sector CIAMP = Capital Investment and Asset Management Program; KUKL = Kathmandu Upatyaka Khanepani Limited; KVWSMB = Kathmandu Valley Water Supply Management Board; MPPW = Ministry of Physical Planning and Works; CWWMP = Conceptual Wastewater Master Plan; WWTP = Wastewater Treatment Plant; HPCIDBC = High Powered Committee for the Integrated Development of the Bagmati Civilization.

Appendix 2 - Sector Analysis & Lessons Learnt Page 25 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Attachment 1 External Assistance to the Water Sector in Nepal

Project Name Date Amount Approved ($ million) A. ADB Loan Investment Projects Kathmandu Valley Water Services Sector Development 18 Dec 2003 Program (Program Loan) 5.00 Kathmandu Valley Water Services Sector Development 18 Dec 2003 Program (Project Loan) 10.00 Community-Based Water Supply and Sanitation Sector 30 Sep 2003 24.00 Urban and Environmental Improvement 10 Dec 2002 30.00 Melamchi Water Supply Project 21 Dec 2000 120.00 Small Towns Water Supply and Sanitation Sector 12 Sep 2000 35.00 Melamchi Water Supply (Engineering) 10 Nov 1998 5.00 Fourth Rural Water Supply and Sanitation Sector 24 Sep 1996 20.00 Kathmandu Urban Development 29 Jun 1993 12.00 Third Water Supply and Sanitation Sector 25 Jun 1992 20.00 Second Water Supply Sector 31 Jan 1989 14.40 Rural Water Supply Sector 11 Dec 1984 9.60

B. IBRD/IDA Loan Investment Projects Second Rural Water Supply and Sanitation Project - Additional 06 May 2008 27.00 Second Rural Water Supply & Sanitation Project 01 Jun 2004 25.30 Rural Water Supply and Sanitation Project 03 Sep 1996 18.30 Urban Water Supply and Sanitation Rehabilitation Project 07 May 1991 60.00 Water Supply and Sewerage Project (03) 29 Jul 1980 27.00 Water Supply and Sewerage Project (0I) - Supplement 03 May 1977 4.00 Water Supply and Sewerage Project (02) 26 Apr 1977 8.00 Water Supply and Sewerage Project 30 Apr 1974 7.80

C. Urban Water Sector Grant Assisted Projects Source Start Year Ten Towns Water Supply and Sanitation JICA 1996 51.00 Melamchi Water Supply - Feasibility Study UNDP 1995 0.85 Bhaktapur Sewerage System GTZ 1995 0.08 Central Terai Urban Project ODA 1995 5.25 Human Resource Development UNDP 1994 0.50 Leak Detection & Water Control Program Norway 1993 2.40 Swayambhunath Conservation & Development GTZ 1993 0.30 Management Support to NWSC UNDP 1992 3.40 Consumer Education UNDP 1992 0.26 Terai Water Supply Project ODA 1992 0.34 Kathmandu WSFIP (Phase 1 & 2) JICA 1992 28.00

Appendix 2 - Sector Analysis & Lessons Learnt Page 26 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Project Name Date Amount ($) Approved D. ADB Technical Assistance Kathmandu Valley Water Distribution, Sewerage and Urban 19 Jun 2009 Development Project (Supplementary) 273,000 Preparing the Secondary Towns Integrated Urban Environmental 2 Dec 2008 Improvement Project 846,000 Supporting Capacity Development for Water Services Operations and 10 Dec 2007 Public-Private Partnership in Kathmandu Valley 2,500,000 Preparing the Improved Water Quality, Sanitation, and Service Delivery 28 Sep 2007 in Emerging Towns Sector Development Program 720,000 Kathmandu Valley Water Distribution, Sewerage, and Urban 13 Dec 2006 Development 960,000 Enabling Private Sector To Undertake Poverty-Focused Water 28 Mar 2006 Distribution and Strengthening of Institutional Reforms in Kathmandu Valley 720,000 Kathmandu Valley Water Management Support Project 12 Jan 2004 (Supplementary) 100,000 Kathmandu Valley Water Management Support 11 Apr 2003 1,400,000 Community-based Water Supply and Sanitation Project 13 Mar 2002 750,000 Optimizing Water Use in Kathmandu Valley 7 Aug 2001 775,000 Urban Environment Improvement 23 Dec 1999 750,000 Small Towns Water Supply and Sanitation 20 Aug 1998 600,000 Urban Water Supply Reforms in Kathmandu Valley 16 Mar 1998 800,000 Fourth Rural Water Supply and Sanitation Sector 1 Jun 1995 171,000 Improved Resource Mobilization for Kathmandu Municipality 29 Jun 1993 300,000 Strategic Planning for the DWSS 25 Jun 1992 280,000 Kathmandu Valley Urban Development 31 Oct 1991 100,000 Third Water Supply and Sanitation 18 Apr 1991 80,000 Kathmandu Valley Urban Development Plans and Progress 29 Jun 1989 600,000 Strengthening the Department of Water Supply and Sewerage 31 Jan 1989 140,000 Second Water Supply Sector 18 May 1987 250,000 Rural Water Supply Sector 11 Dec 1984 200,000 Rural Water Supply and Sanitation 12 May 1983 150,000 Water Supply and Sanitation Sector Profile 15 Sep 1982 50,000

Appendix 2 - Sector Analysis & Lessons Learnt Page 27

TA 4893-NEP Project Feasibility Study

APPENDIX 3

Capital Investment & Asset Management Program (CIAMP) Proposed Capital Investment Plan (2010 – 2025)

A. ADB Loan 1820-NEP MWSP Subproject-2 (2009-2013) - Page 1

B. Proposed ADB Project Loan (2012-2016) – Page 8

C. Future Investments (2016-2025) – Page 12

Annex -1: Water Supply - BDS & DNI Component Selection

TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study CAPITAL INVESTMENT AND ASSET MANAGEMENT PROGRAM (CIAMP) Loan 1820-NEP: MWSP Subproject-2 (2009-2013)

S.No. Package components Estimated cost Implementation Proposed Activities / Remarks NRs. US$ (mill) Start End Existing Civil Works and Equipment Packages under Loan 1820-NEP Rehabilitation of Distribution Networks and Surface Water Intakes/Sites

D/01 DNI Demonstration Package-1: 122,174,527 1.70 2010 2011 DNI Demonstration Scheme Works in Baneshwor area Baneshwor D/02 DNI Demonstration Package-2: Kusunti, 140,400,000 1.95 2010 2011 Replacement of pipes in Khumaltar (LMC ward Nos. 13 & 14) Lalitpur (Sub-zone A-8.5 - Part 1) Area = 132Ha. Popn. (2015) = 24,700 D/02/ Immediate Works 1 103,866,039 1.44 2010 2011 • New DN 150 pipe 550m from Bhandare Intake to BP chamber 01 • New DN 250 DI pipe 2,800 m from BPC 1 at Tri Bhim Dhara • New DN 150 DI bypass pipe 4,630m from BPC to Balaju WTP • New DN500mm 200m, DN300mm 1550m Sundarijal to GK 5 • DN 350mm 550m replacement from Bagmati river to Saibhu • DN 200mm 1750m pipe Muldole intake to Tahakhel reservoir D/02/ Immediate Works 2 78,176,892 1.09 2010 2011 • New DN 200mm 3120m pipe Mahadev Khola to Bhaktapur WTP 02 • New DN 350mm 650m, DN 150mm 2130 m to Katunje reservoir • DN 200mm 1170m pipe Kuleswar Ganeshstan to NTL Teku • DN 200mm 1175m pipe Balkumari new T/W to Neuda-Chasyal • Chambers & installation of ultra-sonic & Woltman flow meters D/02/ New tube wells 44,910,247 0.62 2010 2011 Construction of new tube wells on existing sites & well fields in 03 Kathmandu. D/02/ Shifting water intakes 33,120,000 0.46 2010 2011 Rehabilitation, improvement or shifting of existing water intakes at 04 Nakhu, Boude, Bagmati dugwell and Mooldol

Appendix 3 - CIAMP investments Page 1 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study S.No. Package components Estimated cost Implementation Proposed Activities / Remarks NRs. US$ (mill) Start End D/02/ Rehabilitation of Surface Water 69,142,000 0.96 2010 2011 05 Intakes/Sites a Protection and improvement of intake 6,400,000 • Rising crest level of Alley and Bhandare intakes by 60/80 cm sites, structures and guard houses • Development of facilities for flood management • Improvement of grit and outlet chambers • Metal fencing works • Rehabilitation of guard house at Alley Boude and Bhandare • Shifting the location of Boude intake upstream b Protection and improvement of intake site 3,600,000 • Rising crest level by 60/80 cm and structures at Bhaktapur Mahadev • Development of facilities for flood management Khola • Improvement of grit and outlet chambers • Extension of existing fencing work c Protection and rehabilitation of the old 8,600,000 • Rehabilitation of the old upstream intake structure intake at Bishnumati including • Metal fencing work improvement of the site and laying of 250 • Construction of a guard house mm dia. pipe • Laying of 0.5 km of 250 mm dia. pipeline d Protection and rehabilitation of 6 intake 1,500,000 Metal fencing work around Boksidaha, Seshnarayan, Basuki, sites Devaki, Panchmane & Chhahare intake sites e Improvement of Pharping system 25,742,000 • Rehabilitation of transmission line from Satmul • Construction of 500 cu.m. capacity storage tank • Rehabilitation of old Khuibun transmission line • Rehabilitation of penstock pipe • Rehabilitation of Seshnarayan transmission line f Rehabilitation of Bagmati sump well site 4,250,000 • Construction of 4 new dug wells • Construction of pump house • Improvement of electro-mechanical works • Construction of check dam g Improvement of Manohara and Bode 19,050,000 • Cleaning of existing sump wells infiltration galley sites • Installation of backwash system • Construction of check dam • Boring of two new tube wells of bigger diameter • Construction of 4 dug wells

Appendix 3 - CIAMP investments Page 2 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study S.No. Package components Estimated cost Implementation Proposed Activities / Remarks NRs. US$ (mill) Start End D/02/ Rehabilitation/Development of Tube-wells 210,100,000 2.92 06 a Replacement of air valves, sluice valves, 6,000,000 • Replacement of 30 nos. of air valves water meters, and rehabilitation of pump • Replacement of 12 nos. of sluice valves head assemblies • Replacement of 3 nos. of non-return valves • Replacement of 50 nos. of water meters • Replacement of 50 nos. of pressure gauges • Improvement of pump head assemblies in 6 deep tube-wells. b Replacement of electric control panels 16,000,000 Replacement of electric control panels in 40 tube-wells c Improvement of cable laying, electrical 3,000,000 Improvement of wiring and electrical installations in all the tube- wiring, and electrical installations in all wells (replacement of existing wiring and power cables, main tube-wells switches and distribution switches) d Replacement of transformers 2,000,000 Replacement of 5 transformers e Supply and installation of stand-by diesel 21,600,000 Supply and installation of 15 diesel generators generators f Development of tube wells at Khokana, 161,500,000 • Drilling 15 new tube-wells to provide 16 MLD addtional supply Pharsidol, Jhaukhel, Gongabun, Katunje, • Construction of pump houses – 15 nos Manamaiju, Bagmati sump well area and • Installation of 15 pumps and electro-mechanical equipment sets Sankha Park • laying of pumping mains to link respective systems at Sainbhu, Bansbari, Mahankal Chaur and Katunje D/02/ Rehabilitation of pumping stations and 45,644,000 0.63 07A service reservoirs a Rehabilitation of Mahanakal Chaur 8,100,000 • Reinforced concrete grouting in floor and wall. reservoir. Security protection of reservoir • Construction of brickwall with new security gates at Katunje and sites Sundarighat reservoir sites b Rehabilitation of Gokarna sump-well 10,460,000 • Rehabilitation of pumps pumping station, Pharping Pump House & • Replacement of electric control panels and installations. Sheshnarayan water pumping system • Installation of transformer and improvement of electrical works c Rehabilitation of Nakhu pump house, 19,584,000 • Rehabilitation of pumps Muldol spring pumping system & • Replacement of electric control panels and installations. Charghare pumping system and site • Flood protection works d Improvement of 18 pump houses at 7,500,000 • Replacement of water distribution pumps Sipradi, Sainbhu, Sundarighat, Lokanthali, • Replacement of electric control panels and installations. Jagati,Balaju, Bode, Panipokhari, Lagan, • Installation of flow meters and pressure gauges. Pulchowk, Kalimati and Mahankalchaur

Appendix 3 - CIAMP investments Page 3 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study S.No. Package components Estimated cost Implementation Proposed Activities / Remarks NRs. US$ (mill) Start End D/02/ Rehabilitation of Water Treatment Plants 78,900,000 1.10 07B a Rehabilitation of Balaju, Bode, Mahankal 41,400,000 • Replacement of chemical pumps Chaur & Bansbari WTPs • Replacements of dosing and electro-mechanical equipment • Replacement of damaged pipes and fittings • Installation of tube settlers b Improvement of 5 small scale Water 37,500,000 • Installation of mechanical and chemical dosing equipments Treatment Plants at Jagate, Lokanthali, • Replacement of transfer pumps and equipments Ratna Park, Jwagal and Lagan • Construction of additional facilities D/02/ Cluster Removal 10,080,000 0.14 2010 2011 Removal of cluster connections in trunk mains along Sundarigal- 08 Mahankal- Chaur and Shivapuri-Bansbari D/02/ Central Laboratory refurbishment 21,176,000 0.29 2010 2011 Rehabilitation of existing Central Laboratory at Sundarighat, 10 Kirtipur Wastewater Network Rehabilitation

D/02/ Sewerage rehabilitation, Kodku and 56,880,000 0.79 2010 2011 De-sludging of Kodku and Sallighari WWTP's, security fencing 13 Sallighari WWTP's and by-pass drain WSI/ Sewer Cleaning work 30,024,000 0.42 2010 2011 01/03

Appendix 3 - CIAMP investments Page 4 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study S.No. Package components Estimated cost Implementation Proposed Activities / Remarks NRs. US$ (mill) Start End Equipment, Vehicles and Materials

D/03/ Water Meters 18,721,440 0.26 2009 2010 Supply and delivery of water revenue meters 01 D/03/ Spare pipes and fittings 34,843,032 0.48 2009 2009 Supply and delivery of Spare Pipes and Fittings 02 D/03/ Tools & equipment 28,762,560 0.40 2009 2009 Supply and delivery of Tools and Equipment 03 D/03/ Bulk Water Meters 18,880,468 0.26 2009 2010 Supply and delivery of Bulk Meters, Ultrasonic flow meters and 04 appurtenances D/03/ Leak Detection Equipment 10,954,093 0.15 2009 2009 Leak Reduction Equipment 05 D/03/ Water Tankers 13,309,098 0.18 2009 2009 Supply and delivery of Water Tankers 06 D/03/ Pumps 35,739,512 0.50 2010 2010 Immediate Dry Season Program: Urgent needed Pumping 07&8 equipment (Replacement) for tube well D/03/ Generators 4,486,140 0.06 2009 2010 Procurement of 5 Generators 400 V, approximate 100 kW 12 D/03/ Vehicles for PID 5,301,771 0.07 2009 2010 13 D/03/ Vehicles for KVWSMB 11,853,135 0.16 2010 2010 Under review 13A D/03/ Equipment for WTP inc. Civil works 6,480,000 0.09 2010 2010 Equipment for treatment plants at Sinamangal, Logan Tole, 15 Sundarighat and Shipradi water treatment plants D/03/ Disinfection and WTP equipment & civil 19,022,000 0.26 2010 2010 Disinfection, water treatment and laboratory equipment for water 16 works quality testing and process control at WTPs D/03/ Sewer Jetting Trucks 9,608,312 0.48 2010 2010 Procurement of two jetting trucks, Tractor with bush cutting, 18 loading and trailer equipment for sewer section

Appendix 3 - CIAMP investments Page 5 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Additional Civil Works and Equipment Packages under Loan 1820-NEP S.No. Package components Estimated cost Implementation Proposed Activities / Remarks NRs. US$ (mill) Start End Package A – Rehabilitation/construction of Water Treatment Re sults: Total percentage of consumers using potable water from the supply Plants and Water Quality Improvement Works system reaches 90% by the end of 2013 a Replacement of online pH, residual-Cl and 6,000,000 Replacement of 12 on-line pH, residual-Cl and turbidity meters turbidity meters (In Bansbari, Mahakalchaur and Bode water treatment plants) b Replacement / Installation of laboratory 8,000,000 Supply and replacement of laboratory equipments (Turbidity equipment in major water treatment plants meter, pH meter, conductivity meters, residual Cl-meter) c Construction of new Water Treatment 7,200,000 Construction of water treatment plant with sedimentation, filtration Plant at Sankha Park and ammonia removing facilities. d Replacement of filter at Maharajgunj WTP 4,500,000 Replacement of existing filter at Maharajgunj water treatment plant e Improvement of Sundarijal Water 15,400,000 • Rehabilitation of sedimentation, flocculation and filtration tanks Treatment Plant • Replacement of dosing and electro-mechanical equipments f Reconstruction of the Water Treatment 18,000,000 • Dismantling of existing water treatment plants Plant at Sundarighat • Re-construction of all the existing components g Water treatment facilities for tubewells at 30,000,000 Ammonia removal facilities for exisitng tubewells within existing Sipradi, Sinamangal and Koteswor sites. Total of Package A 89,100,000 1.19 2011 2013 Package B – Construction of Service Reservoirs Re sults: Water storage capacity of the system is increased by 2000 cubic meters by 2013 onwards a Replacement of Mahankal Chaur, 5,600,000 Replacement of tanks and support structures. Kuleswor and Kalanki overhead tanks b Construction of 2,000 cu.m overhead tank 70,000,000 Complete construction of 2000 cubic meters capacity overhead at Gongabun tank at Gongabun within the existing property of KVWSMB Total of Package B 75,600,000 1.01 2011 2013 Packages C – Distribution Network Improvement Works Re sults: 20% of the existing distribution network is improved and susequently including Pilot & Demonstration Projects NRW is decreased by 2013 C.1 DNI Package 1 - Alternative line from 61,250,000 0.82 2010 2011 Alternative 3.65km 500mm dia. main from Attarkhel to Mahankal Mahankal Chaur to Attarkhel Chaur and metering of 4000 private connections with chambers. C.2 DNI Package 2 - Pilot project at Kalo 175,000,000 2.33 2011 2012 Replacement of 80 to 400mm dia. Pipes in Kalo Pool locality Pool (Sub-zone A-4.2) Area = 100Ha. Popn. (2015) = 46,500

Appendix 3 - CIAMP investments Page 6 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study S.No. Package components Estimated cost Implementation Proposed Activities / Remarks NRs. US$ (mill) Start End Package D - Bulk Distribution System

a Laying of Transmission Main from 342,961,000 Supply and laying 5.22km of 1400 mm diameter transmission Sundarijal to Gokarna (Phase I) main including backfilling and surface improvement works b Laying of Transmission Main from 134,470,000 Supply and laying 1.94km of 1400 mm diameter transmission Gokarna junction to Mahanakal Chaur main including backfilling and surface improvement works reservoir (2) c Laying of service main from Mahankal 240,020,000 Supply and laying 3.34km of 1400 mm diameter pipeline Chaur 2 to Chabahil Ring Road including surface improvement works (via Mahankal Chaur I ) Total of Package D 717,451,000 9.57 2011 2013 Package E – Wastewater Network Rehabilitation Re sults: 25% of the existing sewerlines function effectively by the end of 2013

a Sewerage assets condition surveys 50,000,000 Survey and preparation of inventory of sewerage assets b Interceptor sewer overflow extension at 5,000,000 New outfall by-passing pumping station required to allow existing Sunderaghat pumping station sewer to discharge freely c Cleaning of existing sewers, interceptors 92,300,000 • Cleaning of existing sewers and Tukucha in conjuction with asset • Cleaning of interceptors condition surveys • Cleaning of Tukucha d Sewerage rehabilitation (pilot scheme) 18,000,000 Location to be determined from condtion survey Total of Package E 165,300,000 2.20 2011 2013

Loan 1820-NEP - Cost Estimate Summary Component Packages NRs. US$ (mill) % Packs Existing Planned Civil & Equipment Pack ages D/01 DNI Demonstration 262,574,527 3.65 20.8% 2 D/02 Water Supply Rehabilitation works 695,115,178 9.65 55.1% 10 S/01 Wastewater Network Rehabilitation 86,904,000 1.21 6.9% 2 D/03 Equipment, Vehicles & Materials 217,961,561 3.03 17.3% 13 Total Existing Planned Packages 1,262,555,266 17.54 100.0% 27 Additional Investments A Rehabilitation/New WTPs 89,100,000 1.19 6.9% 1 B Reconstruction / New Service Reservoirs 75,600,000 1.01 5.9% 1 C Distribution Network Improvements 236,250,000 3.15 18.4% 2 D Bulk Distribution System 717,451,000 9.57 55.9% 1 E Wastewater Network Rehabilitation 165,300,000 2.20 12.9% 1 Total Additional Packages 1,283,701,000 17.12 100.0% 6 Total Loan 1820-NEP Capital Investments 2,546,256,266 34.65 33

Appendix 3 - CIAMP investments Page 7 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study Proposed Civil Works and Equipment Packages for new ADB Loan (2012 - 2016)

S.No. Package components Cost Estimate Implementation Proposed Activities / Remarks NRs. US$ (mill) Start End Component A - Water Supply Bulk Distribution System (BDS) A.1 BDS Package 1 - Ring main from Chabahil to Balaju and mains to Banbari and Balaju a Laying of Ring Main from Chabahil to 177,193,000 Supply and complete laying of 3.98km 1200 mm diameter Narayan Gopal Chowk pipeline including surface improvement works b Laying of Ring Main from Narayan Gopal 271,421,000 Supply and complete laying of 4.32km 1400 mm diameter Chowk to Balaju pipeline including surface improvement works c Laying of feeder main from Narayan Gopal 130,974,000 Supply and laying of 1.74km 1500 mm diameter pipeline, Chowk Ring Main to Bansbari backfilling and surface improvement works (designed for future d Laying of feeder main from Ring Main to 28,379,000 Supply and laying of 0.71km 800 mm diameter pipeline, Balaju reservoir backfilling and surface improvement works BDS Package 1 Total 607,967,000 8.11 2012 2014 A.2 BDS Package 2 - Ring main from Cahahil to Gaushala and Transverse mains to Ekantakuna a Laying of Ring Main from Chabahil to 64,496,000 Supply and complete laying of 0.85km 1000 mm diameter Gaushala pipeline including surface improvement works b Laying of transversal mains from Gaushala 130,403,000 Supply and complete laying of 2.50km 1000 mm diameter to Baneswor pipeline including surface improvement works c Laying of transversal mains from 151,010,000 Supply and complete laying of 3.66km 800 mm diameter pipeline Thapathali to Tinkune including surface improvement works d Laying of transversal mains from 128,050,000 Supply and complete laying of 3.11km 600 mm diameter pipeline Thapathali to Ekantakuna including surface improvement works BDS Package 2 Total 473,959,000 6.32 2013 2015 A.3 BDS Package 3 - Ring main from Tikune to Ekantakuna and mains to Khumaltar a Laying of Ring Main from Tinkune to 182,298,000 Supply and complete laying of 7.00km 600 mm diameter Ekantakuna pipelines including surface improvement works b Laying of feeder main from Ring Main to 76,590,000 Supply and laying of 1.90km 800 mm diameter pipeline, Khumaltar reservoir backfilling and surface improvement works c Laying of transversal mains from Balaju to 54,039,000 Supply and laying of 1.76km 600 mm diameter pipelines Lainchaur including surface improvement works d Laying of transversal mains from 144,877,000 Supply and laying of 3.09km 1000 mm diameter pipelines Lainchaur to Thapathali including surface improvement works BDS Package 3 Total 457,804,000 6.10 2013 2015

Appendix 3 - CIAMP investments Page 8 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study S.No. Package Cost Estimate Implementation Proposed Activities / Remarks NRs. US$ (mill) Start End Component B - Water Supply Service Reservoirs B1 Service Reservoirs - Package 1 (Mahankal Chaur II and Arubari local service reservoir) a Construction of 30,000 cu.m Mahankal 540,000,000 Construction of 30,000 cu.m. capacity service reservoir near Chaur II service reservoir Arubari on previously acquired land b Construction of 8,000 cu.m Arubari local 144,000,000 Construction of 8,000 cu.m capacity service reservoir on service reservoir previously acquired land Service Reservoirs - Package 1 Total 684,000,000 9.12 2013 2014 B2 Service Reservoirs - Package 2 (Bansbari, Balaju and Khumaltar service reservoirs) a Construction of 10,000 cu.m capacity 180,000,000 Construction of 10,000 cu.m. capacity service reservoir on service reservoir at Bansbari previously acquired land b Construction of new service reservoirs at 216,000,000 Construction of 4,000 cu.m. capacity service reservoir on Balaju. 12,000 cu.m total capacity previously acquired land and 8,000 cu.m. to replace existing. c Construction of 8,000 cu.m. capacity 144,000,000 Construction of 8,000 cu.m capacity service reservoir on service reservoir at Khumaltar previously acquired land to serve sub-zone A-8.5 Service Reservoirs - Package 2 Total 540,000,000 7.20 2013 2015 Component C – Water Supply Distribution Network Improvement (DNI) C1 DNI Package 1 - sub-zones A-3.1 to A- 538,253,000 7.18 2013 2015 Locality = Naxal, Kamaladi, Bagbazar, Lagan. 3.3 Area = 437Ha. Popn. (2015) = 84,300 C2 DNI Package 2 - sub-zones A-4.1 & A- 307,248,000 4.10 2013 2015 Locality = Gyaneswor, Ballispatali, Maitideri, Sinamangal. 4.3 Area = 238Ha. Popn. (2015) = 69,600 C3 DNI Package 3 - sub-zone A-6.1 356,184,000 4.75 2014 2015 Locality = Naya Baneswor, Bhimsengola, Area = 264Ha. Popn. (2015) = 100,900 C4 DNI Package 4 - sub-zone A-7 283,284,000 3.78 2014 2016 Locality = Ghatte Kulo, Baber Mahal, Singh Durbar, Anamnager Area = 210Ha. Popn. (2015) = 58,200 C5 DNI Package 5 - Patan Area sub-zone 383,751,000 5.12 2014 2016 Locality = Chakapat, Kumbheswor, Saukhamul, Cyasal A-8.2 Area = 285Ha. Popn. (2015) = 72,100 C6 DNI Package 6 - Patan Area sub-zone 382,500,000 5.10 2015 2016 Locality = Manbhawan, Purnachandi, Kumaripati, Targal, A-8.3 & Sub-zone A-8.5 - Part 2 Lagankhel Area = 255Ha. Popn. (2015) = 69,300

Appendix 3 - CIAMP investments Page 9 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study S.No. Package Cost Estimate Implementation Proposed Activities / Remarks NRs. US$ (mill) Start End Component D – Wastewater System Improvements (WSI) D1 WSI Package 1 - Bhaktapur Wastewater Improvements

a Rehabilitation of Hanumanghat WWTP 1,000,000 Cleaning, removal of sludge and other repair works b Rehabilitation of Bhaktapur north collector 4,800,000 Cleaning, removal of sludge and other repair works to sewerage

c Re-construction of Bhaktapur south 38,800,000 Relaying/readjustment of southern trunk sewer lines collector d Upgrading of Sallaghari WWTP (Phase 1) 107,100,000 Turn-key contract incl. design, construction and 1 year operation. inc. septage treatment facilities Existing WWTP treatment to be upgraded using existing site WSI Package 1 - Total 151,700,000 2.02 2012 2014 D2 WSI Package 2 - Rehabilitation of 504,700,000 6.73 2012 2015 Rehabilitation of existing sewers and manholes. Details to be e x isting se w e ra ge determined from Loan 1820 location & condition survey D3 WSI Package 3 - Kodku WWTP Upgrading

a Upgrading of Kodku WWTP (Phase 1) inc. Turn-key contract incl. design, construction and 1 year operation. 211,650,000 septage treatment facilities Existing WWTP treatment to be upgraded using existing site WSI Package 3 - Total 211,650,000 2.82 2013 2015 D4 WSI Package 4 - Sewerage Network Development

a Sewer back-log works (connection to 41,900,000 Locations determined under Loan 1820 surveys. unsewered properties in sewered areas) b Expansion of collection system 205,300,000 Expansion of existing collection system for 240,000 popn. based on surveys and development plans prepared. c Development of new collector and trunk 71,200,000 Sewerage network plan to be developed under loan 1820 sewers based on Network Plan d Pilot of CSO & CDS filter chambers 1,500,000 Piloting 'combined sewer overflow' (CSO) chambers and 'continuous deflective separation' (CDS) devices WSI Package 4 - Total 319,900,000 4.27 2014 2016 D5 WSI Package 5 - Dhobighat WWTP Rehabilitation

a Upgrading of existing WWTP (Phase 1) 66,300,000 Turn-key contract incl. design, construction and 1 year operation. inc. septage treatment facilities Existing WWTP treatment to be upgraded using existing site b Rehabilitation and development of 40,000,000 Diversion of sewer lines from suitable catchment by gravity to Dhobighat gravity sewerage catchment Dhobighat WWTP WSI Package 5 - Total 106,300,000 1.42 2015 2016

Appendix 3 - CIAMP investments Page 10 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study S.No. Package Cost Estimate Implementation Proposed Activities / Remarks NRs. US$ (mill) Start End Component E – Equipment, Vehicles and Materials a Trench excavator (small) 15,000,000 For regular maintenance works

b Sewer cleaning equipment 48,000,000 Includes high pressure water jetter / sucker, winch buckets etc.

c Procurement of vehicles 80,000,000 Procurement of 15 vehicles and 25 motorbikes

d Spare pipes and fittings for repairs 50,000,000 For regular maintenance works

Total of E – Equipment and Materials 193,000,000 2.57 2012 2013

COST SUMMARY (ACTIVITIES UNDER SEPARATE LOAN) (2012-2016)

Components NRS. US$ (mill) % Packs A Water Supply Bulk Distribution System 1,539,730,000 20.530 23.7% 3 B Water Supply Service Reservoirs 1,224,000,000 16.320 18.8% 2 C Distribution Network Improvements 2,251,220,000 30.016 34.6% 6 D Wastewater System Improvements 1,294,250,000 17.257 19.9% 5 E Equipment and Materials 193,000,000 2.573 3.0% 3 Total Capital Investment 6,502,200,000 86.696 100.0% 19

Appendix 3 - CIAMP investments Page 11 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study CAPITAL INVESTMENT AND ASSETS MANAGEMENT PROGRAM (CIAMP) KUKL INVESTMENT PLAN FOR PERIOD 2016 to 2025 S.No. Project Estimated Cost Implementation Proposed Activities / Remarks KUKL Start End Component A – Water Source Development & Treatment Re sults: 100% of the consumers are get satisfaction with the service provoded by KUKL by 2025 a Construction of a WTP at Sangle and 40,000,000 2020 2021 Construction of sedimentation, flocculation, filtration tanks, Budhanilkantha installation of dosing and disinfection equipment (0.25 MLD) Total – Water Source Development 40,000,000 Component B - Bulk Distribution System Re sults: Infrastructure for the reliable supply of water to about 3 million people living in Kathmandu Metro is made ready by 2025 B.1 Transmission Mains a Laying of Transmission Main from 342,961,000 2018 2019 Supply and laying of 1400 mm diameter transmission main Sundarijal to Gokarna (Phase II) including backfilling and surface improvement works (L=5.2km) b Laying of transmission main from Gokarna 282,092,000 2019 2020 Supply and complete laying of 1200 mm diameter pipeline junction to Bansbari including surface improvement works (L=5.02km) B.2 Ring Main (Phase 2) a Laying of Ring Main from Balaju to Kalanki 221,436,000 2016 2017 Supply and complete laying of 1000 mm dia. (L=2.28km), 900mm dia. (L=1.67km) & 600mm dia. (L=1.6km) pipelines b Laying of Ring Main from Kalanki to 141,085,000 2017 2018 Supply and laying of 600 mm diameter (L=4.59km) main Ekantakuna including backfilling and surface improvement works c Laying of Ring Main from Gaushala to 178,829,000 2018 2019 Supply and complete laying of 1000 mm dia (L=2.16km) & 900 Tinkune mm dia (L=1.39km) pipelines B.3 Service Reservoir Feeder Mains a Laying of main to connect service reservoir 77,942,000 2017 2018 Supply and complete laying of 800mm diameter pipeline including at Kirtipur with the Ring Main surface improvement works (L=2.1km) b Laying of main to connect service reservoir 95,620,000 2018 2019 Supply and complete laying of 350mm diameter pipeline including at Tigeni surface improvement works (L=7.5km) B.4 Transverse Mains (Phase 2) a Laying of transversal mains from Narayan 206,432,000 2017 2018 Supply and laying of 1200 mm dia (L=3.36km) pipeline including Gopal Chowk to Lainchaur surface improvement works b Laying of transversal mains from Kalanki to 105,837,000 2018 2019 Supply and complete laying of 600 mm dia (L=3.44km) pipeline Tripureswor including surface improvement works c Laying of transversal mains from Gaushala 91,200,000 2019 2020 Supply and complete laying of 600 mm dia (L=2.96km) pipeline to Jamal including surface improvement works Total of B - Bulk Distribution System 1,743,434,000

Appendix 3 - CIAMP investments Page 12 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study S.No. Project Estimated Cost Implementation Proposed Activities / Remarks KUKL Start End Component C - Water Service Reservoirs

a Construction of 8,000 cu.m. service 144,000,000 2017 2018 Complete construction of 8000 cu.m. capacity service reservoir at reservoir at Kirtipur existing site b Construction of 4,000 cu.m. capacity 72,000,000 2019 2020 Construction of new reservoir at Tokha for the distribution to service reservoir at Gokarna northeastern zone c Construction of 2No. 2,000 cu.m. capacity 72,000,000 2020 2021 Construction of new reservoir at Sangle Khola area and service reservoir each at Sangle area and Budhanilkantha for the balanced water distribution to northern Budhanilkantha zone of the valley Total C – Water Service Reservoirs 288,000,000 Component D - Distribution Network Improvement Re sults: 100% of KUKL consumers get reliable supply of water by 2025 a Improvement of distribution network in 2,062,208,800 2016 2018 Improvement of the distribution lines in the remaining areas of the Balaju Sub-zones A-1.1 to A-1.10 Block after completion of the Pilot Project b Improvement of distribution network in 1,311,311,000 2017 2018 Laying of pipes of different diameters as per the design Bansbari Sub-zones A-2.1 to A-2.6 c Improvement of distribution network in 1,171,153,000 2017 2019 Laying of pipes of different diameters as per the design Manakal Chaur Sub-zones A-4.4 to A-4.6 d Improvement of distribution network in 1,178,037,000 2018 2019 Laying of pipes of different diameters as per the design Manakal Chaur Sub-zones A-5.1 to A-5.3 e Improvement of distribution network in 1,009,483,000 2019 2020 Laying of pipes of different diameters as per the design Patan Sub-zones A-8.1, A-8.4 & part 8.5 f Improvement of distribution network in 1,482,500,000 2018 2020 Laying of pipes of different diameters as per the design Kirtipur Sub-zones A-9.1 to A-9.9 g Improvement of distribution network in 530,472,000 2020 2021 Laying of pipes of different diameters as per the design Tigeni Sub-zone A-10 h Improvement of distribution network in 50,000,000 2019 2020 Readjustment of the existing network to provide improved water Kathmandu North Eastern Zone B supply to consumers i Improvement of distribution network in 40,000,000 2020 2021 Readjustment of the existing network to provide improved water Kathmandu Northern Zone C supply to consumers j Improvement of distribution network in 18,000,000 2022 2023 Readjustment of the existing network to provide improved water Kirtipurr Zone D supply to consumers k Improvement of distribution network in 50,000,000 2024 2025 Readjustment of the existing network to provide improved water Patan Southern Zone E supply to consumers l Improvement of distribution network in 30,000,000 2022 2023 Readjustment of the existing network to provide improved water Bhaktapur Zone F supply to consumers m Improvement of distribution network in 5,000,000 2024 2025 Readjustment of the existing network to provide improved water Pharping and Sankhu Zones G & H supply to consumers Total of D - Distribution Network 8,938,164,800

Appendix 3 - CIAMP investments Page 13 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study S.No. Project Estimated Cost Implementation Proposed Activities / Remarks KUKL Start End Component E – Wastewater Network Rehabilitation Re sults: Existing sewerage system is significantly improved by 2025 a Rehabilitation of existing sewer lines 198,300,000 2016 2020 Rehabilitation of sewerlines and manholes

Component F – Wastewater Network Development Re sults: Additional 500,000 people get access to sewerage system by 2025 a Expansion of collection system 381,000,000 2016 2025 Expansion of collection system

b Laying of new sewer line based on Network 285,000,000 2017 2025 Extension of sewer lines Plan Sewer back log work 41,900,000 2016 2025 Adjust based on networkplan and asset surveys

c Extension of Bagmati interceptor from 173,300,000 2018 2020 Includes river crossing to left bank of Bagmati and 500m tunnel Sundarighat Pumping Station to proposed east of Chovar Gorge. Total length 3.5km. new WWTP at Khokana Total of F – WW Network Development 881,200,000 Component G– Wastewater Treatment Plant Development Re sults: Pollution of valley rivers is reduced by 90% by 2025 a Expansion of Sallaghari WWTP (Phase 2) 131,300,000 2021 2023 Expansion onto acquired land adjacent to existing site

b Expansion of Khodku WWTP (Phase 2) 187,500,000 2016 2018 Expansion within existing site

b Construction of new WWTP at Khokana 1,313,000,000 2016 2018 Construction of new WWTP. Equiv. Popn. ~1.4 mill

c Upgrading Phase 2 Dhobighat WWTP 1,138,000,000 2021 2024 Upgrading WWTP at Dhobighat. Equiv. Popn. ~1.0 mill including new P/Stn at Sundarighat & transfer main d Smaller plants at Bhaktapur, Thimi, 150,000,000 2016 2022 Development of smaller plants Budhanilkantha, Kapan, Balaju, Kirtipur Total of G – WWTP Development 2,919,800,000 Component H – Dcecentralized and On-site Works Re sults: Sanitary situation of the valley is considerably improved by 2025 a Septage Treatment Plants 32,500,000 2016 2025 To be incorporated into existing WWTP where possible Total of H - Dcecentralized WWT 32,500,000

Appendix 3 - CIAMP investments Page 14 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study S.No. Project Estimated Cost Implementation Proposed Activities / Remarks KUKL Start End Component I – Social Programmes Re sults: 80% of the consumers are aware about the importance of sewerage system by 2025 a Education and awareness campaigns 30,000,000 2016 2025 Different social development activities at the local level Total of I – Social Programmes 30,000,000 J – Land Acquisition a Land acquisition for laying transmission line 400,000,000 2012 2013 Area required from Gokarna to Bansbari b Land acquisition for SR and WTP at 57,600,000 2011 2012 Area required Sangla, Budhanilkantha and Gokarna c Land acquisition for expansion of Sallaghari 250,000,000 2011 2012 Expansion of existing WWTP site (Approx. 2.5Ha.) WWTP d Land acquisition for laying trunk line to 100,000,000 2012 2014 5 m wide strips of land in a stretch of 800 m WWTP at Khokana e Land acquisition for Khokana WWTP 3,760,000,000 2012 2014 New WWTP site d/s of Chovar Gorge (Approx. 40Ha.) Total of J – Land Acquisition 4,567,600,000

SUMMARY OF KUKL CAPITAL INVESTMENT PLAN 2016 - 2025 NRS. US$ (mill) A Water Source Development & 40,000,000 0.53 Treatment B Bulk Distribution System 1,743,434,000 23.25 C Water Service Reservoirs 288,000,000 3.84 D Distribution Network Improvement 8,938,164,800 119.18 E Wastewater Network Rehabilitation 198,300,000 2.64 F Wastewater Network Development 881,200,000 11.75 G WWTP Development 2,919,800,000 38.93 H Dcecentralized and On-site Works 32,500,000 0.43 I Social Programmes 30,000,000 0.40 J Land Acquisition 4,567,600,000 60.90 Total of Capital Investment 2016-2025 19,638,998,800 $261.85

Appendix 3 - CIAMP investments Page 15

ANNEX 1

Water Supply - BDS & DNI Component Selection for Proposed Loan

TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Annex 1

Component Selection of BDS and DNI for Proposed Project

1 Designing for Water Demands in 2015 and 2025 1. By 2015, the residential population of Kathmandu Metro is projected to reach 2.7 million plus another 800,000 temporary population. The projected water supply demand by 2015 from this population would be in the region of 245 MLD. 2. By 2025, the design year for the BDS and DNI, the projected population will be in excess of 5 million with a water supply demand of over 500 MLD; twice that of 2015. 3. The challenge is to design a system that will fulfil the requirements of 2025 as well as 2015, when work on BDS and distribution network will be only be partially complete.

2 Need for Distribution Network Improvements (DNI) 4. The existing distribution network in Kathmandu Metro (Zone A) is in such a poor condition that most of the distribution network pipelines will not be able to take the pressure of additional water coming from Melamchi. If the Melamchi water is delivered without any improvement to the distribution network, the percentage of leakage and wastage is likely to exceed 60% resulting in leakage and wastage of around 150 MLD.

3 Principles of Water Distribution System 5. Before developing concepts for the improvement of water distribution network, some design and operational principles have been established. They are:  In the ultimate 2025 design scenario, the entire Kathmandu Metro Zone (Zone A) will be fed by service reservoirs at Arubari and Mahankal Chaur, Bansbari, Balaju, Kirtipur, Khumaltar, Tigeni and existing reservoirs at Pani Pokhari, Anamnagar and Min Bhawan;  the Kathmandu Metro Zone will have 10 sub-zones split into 46 service areas for water distribution,  the sub-zones will either be fed from a designated reservoir or from a single feeder main;  each sub-zone service area will have a single dedicated supply main with bulk flow meter for monitoring and management;  under no circumstance shall sub-zone service area distribution mains be directly connected with the ring main;  a number of sub-zone service areas might have to be fed by mains connected to transversal mains, but these should be limited;  where sub-zone service areas are initially supplied by transverse mains, it is expected that eventually, small reservoirs, either overhead or elevated, would be built to balance pressure and flow in such areas, and  the number of valves should be minimized to avoid operational complexity.

Appendix 3 - CIAMP investments Annex 1 - Page 1 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

4 Alternative Water Supply Scenarios for Kathmandu Metro (Zone A) 6. Five alternatives have been considered for the phased improvement of BDS and distribution network to achieve maximum benefit within limited resources. The descriptions of all the proposed alternatives are as follows: Alternative I - Construction of Transmission Main (Phase I) from Sundarijal to Chabahil at the Ring Road via Arubari and Mahankal Chaur II service reservoirs and the complete Ring Main along the Ring Road (refer Figure 1)

Figure 1: Alternative I

7. There will be no transversal mains built in this alternative. The existing distribution network will be connected with the Ring Main at several locations through large diameter distribution mains (refer Table 1 for details). Other interconnections will be made to the distribution system in order to make the effective use of existing pipelines. Table 1: Alternative I - Locations and Diameters of Interconnections S.No Location Distribution Additional work to be done Main Dia. 1 Balaju 400 mm None 2 Narayan Gopal Chowk 600 mm None 3 Chabahil 600 mm None 4 Gaushala 600 mm None 5 Tinkune 400 mm Extension of 400 mm diameter pipeline from Baneswor to replace 200 mm diameter pipeline 6 Patan Gwarko 400 mm Extension of 400 mm diameter pipeline from Tygal to Gwarko to replace 150 mm diameter pipeline 7 Satdobato 400 mm Laying of 400 mm diameter pipeline up to Lagankhel to replace 200 mm diameter pipeline 8 Ekantakuna 500 mm None 9 Kalanki 500 mm 500 mm dia pipeline from Kalanki Chowk to Soaltee Mod to replace 80 and 100 mm dia pipes 10 Sitapaila Chowk 400 mm 500 mm diameter pipeline from Sitapaila Chowk to Chhauni to replace 100 mm diameter pipeline

Appendix 3 - CIAMP investments Annex 1 - Page 2 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

8. Though this alternative is the cheapest among the five proposed, the population to be benefitted will be only about 20 to 25% of the total population in Kathmandu Metro. Also, due to the high pressures created by the ring main the percentage of leakage and wastage would be in excess of 60%. The other aspect is that it will fail to meet the principles of DNI by having multiple connections from the Ring Mains to feed the existing distribution network. This option does little to provide a better management of resources.

Alternative II - Complete construction of Transmission Main as in Alternative I, with addition of a main from Gokarna Junction to Bansbari Reservoir, complete construction of Ring Main from Narayan Gopal Chowk to Ekantakuna and Transversal Mains from Narayan Gopal Chowk to Ekantakuna, Gaushala to Jamal, Gaushala to Baneswor and Thapathli to Tinkune and complete DNI works in 12 subzones bounded by the Ring and Transversal mains excluding the pilot DNI and demonstration area. (Refer Figure 2)

9. This alternative includes a second Transmission Main from Gokarna junction to Bansbari with the 10,000 m3 capacity Bansbari Reservoir-2 at Hepali Height. Service mains from the reservoir will supply areas towards the Ring Road. In this alternative the Ring Main, with the Transversal Mains proposed, forms four closed loops. Figure 2: Alternative II

10. Twelve sub-zone service areas bounded by these loops would be included for distribution network improvements. In addition 11 other sub-zone service areas would have indirect benefit through interconnections with the existing system. The total population to be benefited, area covered and the total investment for this alternative is given in Table 2.

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Table 2: Alternative II - Benefited population, area and the cost of the construction S.N Component Population to be benefited in 2015 Area covered Cost Direct Indirect Total (Ha) (NRs) 1 Transmission Main - 853,320,000 2 Ring Main - 602,816,000 3 Transversal Main - 851,972,000 4 Feeder Main - 130,974,000 5 Service Reservoir - 864,000,000 6 DNI: A-2.3 23,396 101.61 132,093,000 A-2.4 37,004 178.97 232,661,000 A-2.5 31,202 134.44 161,328,000 A-3.1 17,485 30% of 169.78 195,247,000 A-3.2 18,167 349,044 114.76 137,712,000 A-4.1 50,301 (population 143.52 193,752,000 in other A-4.3 19,319 subzones 94.58 113,496,000 A-6.2 100,995 getting 263.84 356,184,000 A-7 58,227 indirect 209.84 283,284,000 A-8.2 72,178 benefit) 284.26 383,751,000 A-8.3 60,287 255.00 382,500,000 Demonstration 24,754 132.06 140,400,000 Area of Patan Total 513,315 104,713 618,028 2082.66 6,015,490,000

Alternative III - Transmission Main as in Alternative I, complete Ring Main from Narayan Gopal Chowk to Gaushala and Transversal Mains from Jamal to Ekantakuna, Gaushala to Jamal, Gaushala to Baneswor and Thapathli to Tinkune. Distribution network improvement works will be included for 10 sub-zone service areas. The alternative also improves the supply to the two DNI demonstration areas and Pilot area under Loan 1820 (Refer Figure 3). Figure 3: Alternative III

Appendix 3 - CIAMP investments Annex 1 - Page 4 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

11. In alternative III, the core area of Patan will be mostly covered by DNI. In Kathmandu, the coverage will however be limited, but water scarce areas like Lagan and Bhotebahal, Chhetrapati will be covered. The total benefited population, area covered and the total investment for this alternative is given in Table 3. 12. In addition, 12 others sub-zone service areas will have indirect benefit from inter- connections with the existing system, with service and transversal mains at several locations, e.g. Narayan Gopal Chowk, Pulchow and Thapathali, as deemed appropriate. Table 3: Alternative III - Benefited Population, Area and the Estimated Cost S.N Component Population to be benefited in 2015 Area covered Cost Direct Indirect Total (Ha) (NRs) 1 Transmission Main - 571,228,000 2 Ring Main - 423,987,000 3 Transversal Main - 597,132,800 4 Feeder Main - 207,564,000 5 Service Reservoir - 1,008,000,000 6 DNI: A-3.1 17,485 169.78 195,247,000 A-3.2 18,167 114.76 137,712,000 A-3.3 48,726 152.07 205,294,500 A-4.1 50,301 143.52 193,752,000 A-4.3 19,319 94.58 113,496,000 A-6.2 100,995 263.84 356,184,000 A-7 58,227 209.84 283,284,000 A-8.2 72,178 30% of 284.26 383,751,000 A-8.3 60,287 385,092 255.00 382,500,000 Demonstration 24,754 132.06 140,400,000 Area of Patan Total 470,439 115,528 585,967 1,819.71 5,199,532,300

Alternative IV - Complete Transmission Main (Phase I) as in Alternatives I and III, complete Ring Main from Balaju to Gaushala and Tinkune to Ekantakuna and Transversal Mains from Balaju to Lainchaur, Lainchaur to Ekantakuna, Gaushala to Baneswor, and Thapathli to Tinkune and complete distribution network improvement works in 10 sub-zone service areas. The supply will also be improved to the two DNI demonstration areas and Pilot area under Loan 1820 (Refer Figure 4)

13. This option covers most of the core areas of Kathmandu Metro, either directly or indirectly. In this alternative, all the potential distribution mains located at Narayan Gopal Chowk, Balaju, Gaushala, Ekantakuna and Pulchowk (refer Table 4), will be connected with the corresponding transversal and service mains (distribution mains). 14. As in Alternative III, the number of sub-zone service areas proposed for DNI is 10. However, 20 other sub-zone service areas will have indirect benefits from the improvement works in the bulk distribution system and the distribution network. For example, the existing 600 mm diameter distribution main at Bansbari will be inter-connected with the service main from Bansbari Service Reservoir to boost supply to Maharajgunj, Thamel, Pakanajol areas (Figure 3-4 sub-zone service areas A-2.2, A-2.3, A-2.4 and A-2.5). Similarly, water scarce areas in the west of Kathmandu will also have improved supply after inter-connection with the existing 400 mm diameter service main from Balaju Service Reservoir, which would be extended to boost supply in Chhauni, Dallu and Chhetrapati areas.

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Figure 4: Alternative IV

15. This Alternative is seen as the optimum for systematic expansion of the remaining components of BDS and DNI works in the remaining subzones of Kathmandu Metro to meet the requirements of 2025. 16. The total benefited population, area covered and the total investment for this alternative is given in Table 4. Table 4: Alternative IV - Benefited Population, Area and the Estimated Cost S.N Component Population to be benefited in 2015 Area covered Cost Direct Indirect Total (Ha) (NRs) 1 Transmission Main - 571,228,000 2 Ring Main - 695,408,000 3 Transversal Main - 608,379,000 4 Feeder Main - 235,943,000 5 Service Reservoir - 1,224,000,000 6 DNI: 0 A-3.1 17,485 169.78 195,247,000 A-3.2 18,167 114.76 137,712,000 A-3.3 48,726 152.07 205,294,500 A-4.1 50,301 143.52 193,752,000 A-4.3 19,319 94.58 113,496,000 A-6.2 100,995 263.84 356,184,000 A-7 58,227 209.84 283,284,000 A-8.2 72,178 30% of 284.26 383,751,000 A-8.3 60,287 840,178 255.00 382,500,000 Demonstration 24,754 132.06 140,400,000 Area of Patan Total 470,439 252,053 722,492 1819.71 5,726,578,500

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Alternative V - Complete construction of Transmission Main (Phase I) as in Alternative I and III, complete Ring Main with the exception of Kalanki to Ekantakuna and Gaushala to Tinkune sectors and Transversal Mains with the exception of Narayan Gopal Chowk to Lainchaur sector, and complete distribution network improvement works in 16 sub-zone service areas. The supply will also be improved to the two DNI demonstration areas and Pilot area under Loan 1820 (Refer Figure 5).

Figure 5: Alternative V

17. This alternative has 16 DNI sub-zone service areas. Additionally, there will be 16 other sub-zone service areas, which will have indirect benefits from service improvements (minimum one hour regular supply a day) through connections/adjustments with existing pipelines. In regard to water scarce core areas of Kathmandu and Patan, these will be covered by DNI. The population to be benefitted is higher than other options. Although this alternative benefits more consumers, the investment requirement is comparatively much higher (refer Table 5).

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Table 5: Alternative V - Benefited Population, Area and the Estimated Cost

S.N Component Population to be benefited in 2015 Area covered Cost Direct Indirect Total (Ha) (NRs) 1 Transmission Main - 571,228,000 2 Ring Main - 916,844,000 3 Transversal Main - 805,416,000 4 Feeder Main - 235,943,000 5 Service Reservoir - 1,224,000,000 6 DNI: 0 A-1.5 9,903 50.01 75,013,000 A-1.6 21,634 102.87 133,731,000 A-1.7 111,004 271.44 380,016,000 A-1.8 26,432 109.61 142,493,000 A-1.9 16,861 85.15 110,695,000 A-3.2 18,167 114.76 137,712,000 A-3.3 48,726 152.07 205,294,500 A-4.3 19,319 94.58 113,496,000 A-4.6 61,068 207.84 244,920,000 A-6.2 100,995 263.84 356,184,000 A-7 58,227 209.84 283,284,000 A-8.2 72,178 284.26 383,751,000 A-8.3 60,287 30% of 255.00 382,500,000 A-8.4 52,277 630,139 360.78 432,936,000 Patan 24,754 132.06 140,400,000 demonstration area A-9.1 63,775 201.88 242,256,000 Total 765,607 189,042 954,649 2895.99 7,518,112,500

5 Selection criteria 18. Criteria were developed to select the best alternative for immediate investment. The criterion includes technical, social, economical and financial parameters. The technical criteria includes the use of existing facilities, areas covered for service improvements, population to be benefitted, change in the unaccounted for water (UFW). Social criteria include population coverage of poor or low income groups, resettlement issues and requirement of land acquisition. The economic criteria include the utilization of assets in 2015-2016 compared to 2025 and increment in the revenues, especially if water from the MWSP Subproct-1 is delayed. In the financial analysis, the cost per population and need for additional facilities (example booster pumps) to operate the system has been considered. 19. Table 6 summarizes the technical and cost estimate details of the 5 alternatives.

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Table 6: Alternatives Comparison Details

Alternatives Components Length/Area/volume Pipe size Total cost Benefitted (mm) (Million population NRs) (2015) Transmission Main (m) 10,551 1400 Ring Main (m) 27,396 600 to1400 Transversal Main (m) 0 600 to1200 Alternative I 3,128.79 376,000 Feeder Main (m) 0 800 Reservoirs (m3) 38,000 - DNI (ha) 0 - Transmission Main 15,569 1400 Ring Main 13,450 600 to1200 Transversal Main 18,678 600 to1000 Alternative II 6,015.49 636,000 Feeder Main 1,776 1500 Reservoirs 48,000 - DNI (12 sub zones) 2082.66 80-900 Transmission Main 10,551 1400 Ring Main 9,899 600 to1000

Alternative Transversal Main 11,890 600 to1000 5,199.32 586,000 III Feeder Main 3,676 800 & 1500 Reservoirs 56,000 - DNI (10 sub-zones) 1,917.40 80 – 900 Transmission Main 10,551 1400 Ring Main 14,214 600 to1000

Alternative Transversal Main 14,390 600 to1000 5,726.58 722,000 IV Feeder Main 4,380 800 & 1500 Reservoirs 68,000 - DNI (10 sub zones) 1,917.40 80 – 900 Transmission Main 8,623 1400 Ring Main 19,258 600 to1000 Alternative Transversal Main 20,516 600 to1000 7,518.11 954,000 V Feeder Main 4,780 800 & 1500 Reservoirs 68,000 - DNI (16 sub zones) 2,993.68 80 - 900

20. Table 7 presents the weightage given to each criterion so that all the alternatives can be compared and the best one selected through a weighted ranking. The weightage is fixed by considering all the expected outputs of each and every alternative considered.

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Table 7: Weightage and Range for Markings Parameter Issues/Weightage Range % of use of the 90-100 60-89 30-59 39-20 <20 None existing facilities - (10) Weightage 10 8 6 4 2 0 Service area >3000 2000- 1500- 1000- <1000 undefined covered (ha) – 10 3000 2000 1500 Weightage 10 8 6 4 2 0 Population (Lakh) - >10 8-10 6-8 4-6 2-4 <2 Technical (10) (50) Weightage 10 8 6 4 2 0 Change in UFW >20 15-20 10-15 5-10 2-5 No (%) - (10) change Weightage 10 8 6 4 2 0 Service level 8 hr 4 hr 2 hr 1 hr < 1 hr Every improvements supply supply supply supply supply alternative (with Melamchi) - day (10) Weightage 10 8 6 4 2 0 Socio-economic profile: Population of poor >25 20-25 15-20 10-15 5-10 <5 covered (in 1000) – (5) Weightage 5 4 3 2 1 0 Social (15) Resettlement None Negligible Low Moderate High Very high issue – (5) Weightage 5 4 3 2 1 0 Requirement of Not <½ 1-3 3-5 5-10 >10 land acquisition required (ha) – (5) Weightage 5 4 3 2 1 0 Utilization of 100 80-99 60-79 40-59 20-39 <20 assets in 2016 compared with design year (2025) (%) – (10) Weightage 10 8 6 4 2 0 Economical (20) Increased revenue >10 8-10 6-8 4-6 2-4 <2 at the end of 2016 (% increased compared to present collection – (10) Weightage 10 8 6 4 2 0 Construction cost Highest Second Third Second Lowest - (10) Highest Highest lowest Financial Weightage 2 4 6 8 10 (15) Need of additional Need No need - - - - component – (5) Weightage 5 2 - - - -

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21. Based on the criteria made and weightage given, all the five alternatives have been compared by giving corresponding scores (refer Table 8). Table 8: Comparison between Alternatives of BDS and DNI for adoption in 2015 S.No Subject Alternative Alternative Alternative Alternative Alternative 1 2 3 4 5 1 TECHNICAL CRITERIA a Command centers 20 16 16 12 12 b Service area (Ha) 0 8 6 6 8 c Population (beneficiaries) 2 6 4 6 8 d UFW% change 0 4 4 4 4 Level of service e 2 4 4 6 6 improvements Total of Technical 24 38 34 34 38 Criteria 2 SOCIAL CRITERIA a Socio-economic profile 2 6 6 8 8 Population of poor 0 1 1 2 2 Resettlement issue 5 4 3 3 1 b Cost of land acquisition 5 5 5 5 5 Total of social criteria 12 16 15 18 16 3 ECONOMIC CRITERIA Utilization of proposed assets in 2016 in a 10 4 4 8 6 compare with the design level (2025) Revenue increment by b 2016 based on service 2 4 4 10 8 level Total of economic 12 8 8 18 14 criteria 4 FINANCIAL CRITERIA a Cost 10 4 8 6 2 Specific O & M cost b difference between 5 5 5 5 5 alternatives Total of financial criteria 15 9 13 11 7 Total score 63 71 70 81 75 Ranking V III IV I II 22. In giving markings for some of the factors like population of poor, increment in revenue, utilization of assets, the following principles have been adopted:  Population of poor Population living in slums and squatters’ settlements are considered poor. Alternatives IV and V in this regard cover more such areas.  Increment in revenue Revenue increment is not proportionate to population coverage. It depends on the types of consumers.  Utilization of assets Assets built in 2015 as part of BDS and DNI, should be also good for utilization in 2025 with few additions or adjustments in the system.

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6 Selected Alternative 23. After completion of the technical and benefit analysis, Alternative IV was found to be the most advantageous and selected for further hydraulic analysis. Using the 2025 hydraulic design model1 for the complete Kathmandu Metro Zone A, the pipeline configuration for alternative IV was analyzed to check pipe diameters and flow velocities for the 2015 bulk supply and water supply demands scenario. The hydraulic analysis of the Alternative IV is presented in Attachment 1 along with hydraulic analysis of full BDS in 2025. 24. Existing major pipelines will be used wherever possible provided they are in good condition and of adequate capacity. The same principle is also applied to property service connections.

1 EPA Net 2.0

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Attachment 1

KATHMANDU VALLEY WATER SUPPLY AND WASTE WATER SYSTEM IMPROVEMENT HYDRAULIC MODELLING OF KATHMANDU METRO (ZONE A) (Alternative - IV : 2015) (Page 1 of 2)

PIPESNodes Length FlowElevations Diameter RoughnessResidual Head (m) H. G. L. (m) Velocity Link Remarks ID From To (m) LPS From To (mm) Coefficient From To From To m/s Status (Notes) M-1A Tank-M2 MHC 1,643.86 1,478.61 1369 1340 1,400.00 0.1 1.00 29.30 1370.00 1369.30 0.96 Open M-1B MHC N-5 800.00 1,037.11 1340 1330 1400 0.1 29.30 39.12 1369.30 1369.12 0.67 Open R-1 N-5 N-4 984.26 993.79 1330 1310 1200 0.1 39.12 58.70 1369.12 1368.70 0.88 Open R-2 N-4 N-3 369.60 993.79 1310 1320 1200 0.1 58.70 48.54 1368.70 1368.54 0.88 Open Description of Tanks R-3 N-3 N-2 689.92 993.79 1320 1340 1200 0.1 48.54 28.24 1368.54 1368.24 0.88 Open Tank-M2 at Mahankal Chaur R-4 N-2 N-1 839.25 993.79 1340 1325 1200 0.1 28.24 42.87 1368.24 1367.87 0.88 Open Tank - B2 at Hepali Danda B-1 Tank-B2 N-1 1,602.30 725.49 1367 1325 1500 0.1 1.00 42.87 1368.00 1367.87 0.41 Open ABT - Tank at Arubari R-5 N-1 N-26 1,623.86 1,593.48 1325 1300 1400 0.1 42.87 67.07 1367.87 1367.07 1.04 Open MCT - Tank at Mahankal Chaur R-6 N-26 N-25 1,756.35 1,593.48 1300 1300 1200 0.1 67.07 65.19 1367.07 1365.19 1.41 Open BST - Tank at Bansbari BJT - Tank at Balaju R-7 N-25 N-24 934.84 826.78 1300 1300 1000 0.1 65.19 64.48 1365.19 1364.48 1.05 Open KRT - Tank at Kirtipur T-6A N-24 N-24A 140.03 826.78 1300 1300 900 0.1 64.48 64.30 1364.48 1364.30 1.30 Open KHT - Tank at Khumaltar T-6B N-24A N-24B 87.56 826.78 1300 1300 900 0.1 64.30 64.18 1364.30 1364.18 1.30 Open TGT - Tank at Tigeni T-6C N-24B N-27 1,529.25 726.78 1300 1320 900 0.1 64.18 42.64 1364.18 1362.64 1.14 Open PPT - Tank at Pani Pokhari T-2 N-27 N-28 928.04 726.78 1320 1317 1000 0.1 42.64 45.09 1362.64 1362.09 0.93 Open ANT - Tank at Anam Nagar T-3A N-28 N-28A 6,647.20 726.78 1317 1312 900 0.1 45.09 43.38 1362.09 1355.38 1.14 Open MBT - Tank at Min Bhawan T-3B N-28A N-29 1,000.00 661.28 1312 1302 900 0.1 43.38 52.54 1355.38 1354.54 1.04 Open T-4 N-29 N-30 496.75 661.28 1302 1300 900 0.1 52.54 54.12 1354.54 1354.12 1.04 Open T-5A N-30 N-30B 255.95 315.43 1300 1300 900 0.1 54.12 54.07 1354.12 1354.07 0.50 Open T-5B N-30B N-30C 850.00 207.83 1300 1315 800 0.1 54.07 38.92 1354.07 1353.92 0.41 Open T-5C N-30C N-16 2,000.00 150.73 1315 1290 800 0.1 38.92 63.74 1353.92 1353.74 0.30 Open R-16 N-16 N-15 671.93 150.73 1290 1310 600 0.1 63.74 43.48 1353.74 1353.48 0.53 Open R-17 N-15 N-14 1,057.06 150.73 1310 1330 600 0.1 43.48 23.07 1353.48 1353.07 0.53 Open F-6 N-14 KHT 2,500.00 232.00 1330 1350 600 0.1 23.07 0.89 1353.07 1350.89 0.82 Open Equivalent pipe (750 = 600+450) T-7 N-6 N-28 2,964.91 0.00 1320 1317 600 0.1 49.12 45.09 1369.12 1362.09 0.00 Closed T-8A N-20 N-20A 2,105.19 0.00 1300 1301 600 0.1 51.51 46.71 1351.51 1347.71 0.00 Closed T-8B N-20A N-20B 127.53 0.00 1301 1301 600 0.1 46.71 46.71 1347.71 1347.71 0.00 Open T-8C N-29 N-20B 1,208.08 0.00 1302 1301 600 0.1 52.54 46.71 1354.54 1347.71 0.00 Closed

Appendix 3 - CIAMP investments Annex 1 - Page 13 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

HYDRAULIC MODELLING OF KATHMANDU METRO (ZONE A) (Alternative - IV : 2015) (Page 2 of 2)

PIPESNodes Length FlowElevations Diameter RoughnessResidual Head (m) VelocityH. G. L. Link (m) Remarks ID From To (m) LPS From To (mm) Coefficient From To From To m/s Status (Notes) F-1 Tank-M2 ABT 1,000.00 254.70 1369 1362 600 0.1 1.00 6.96 1370.00 1368.96 0.90 Open F-2 MHC MCT 100.00 441.50 1340 1340 450 0.1 29.30 28.00 1369.30 1368.00 2.78 Open F-3 Tank-B2 BST 600.00 297.70 1367 1364 750 0.1 1.00 3.73 1368.00 1367.72 0.67 Open F-4 N-25 BJT 800.00 766.70 1300 1356 750 0.1 65.19 6.94 1365.19 1362.94 1.74 Open F-5 N-18 KRT 2,000.00 0.00 1280 1342 600 0.1 72.62 10.62 1352.62 1352.62 0.00 Closed F-7 N-12 TGT 3,900.00 0.00 1295 1325 350 0.1 58.31 28.31 1353.31 1353.31 0.00 Open T-1A N-1 N-1A 1,100.00 125.80 1325 1340 600 0.1 42.87 27.57 1367.87 1367.57 0.44 Open Existing Pipe Line T-1B N-1A N-1B 660.24 125.80 1340 1328 400 0.1 27.57 38.20 1367.57 1366.20 1.00 Open Existing Pipe Line F-8 N-1B PPT 100.00 125.80 1328 1328 350 0.1 38.20 37.79 1366.20 1365.79 1.31 Open T-1C N-1B N-27 1,599.27 0.00 1328 1320 1200 0.1 38.20 42.64 1366.20 1362.64 0.00 Closed T-9A N-30 N-30A 502.66 345.85 1300 1297 800 0.1 54.12 56.90 1354.12 1353.90 0.69 Open F-9 N-30A ANT 1,196.61 86.80 1297 1340 350 0.1 56.90 11.50 1353.90 1351.50 0.90 Open T-9B N-30A N-31 1,959.84 259.05 1297 1295 800 0.1 56.90 58.40 1353.90 1353.40 0.52 Open T-10A N-31 N-32 92.49 302.37 1295 1293 800 0.1 58.40 60.36 1353.40 1353.36 0.60 Open F-10 N-32 MBT 300.00 221.10 1293 1340 350 0.1 60.36 9.72 1353.36 1349.72 2.30 Open R-26 N-5 N-6 1,089.47 43.32 1330 1320 1200 0.1 39.12 49.12 1369.12 1369.12 0.04 Open T-11A N-6 N-6A 750.00 43.32 1320 1316 500 0.1 49.12 53.05 1369.12 1369.05 0.22 Open Existing Pipe Line T-11B N-6A N-31 1,750.00 43.32 1316 1295 200 0.1 53.05 58.40 1369.05 1353.40 1.38 Open Existing Pipe Line T-10B N-32 N-11 1,107.51 81.27 1293 1290 800 0.1 60.36 63.33 1353.36 1353.33 0.16 Open R-25 N-6 N-7 852.35 0.00 1320 1310 1000 0.1 49.12 55.96 1369.12 1365.96 0.00 Closed R-24 N-7 N-8 710.27 0.00 1310 1315 1000 0.1 55.96 47.81 1365.96 1362.81 0.00 Closed R-23 N-8 N-9 601.57 0.00 1315 1295 1000 0.1 47.81 64.65 1362.81 1359.65 0.00 Closed R-22 N-9 N-10 482.33 0.00 1295 1295 900 0.1 64.65 61.49 1359.65 1356.49 0.00 Closed R-21 N-10 N-11 905.12 0.00 1295 1290 900 0.1 61.49 63.33 1356.49 1353.33 0.00 Closed R-20 N-11 N-12 1,119.22 81.27 1290 1295 900 0.1 63.33 58.31 1353.33 1353.31 0.13 Open R-19 N-12 N-13 1,640.00 81.27 1295 1330 750 0.1 58.31 23.25 1353.31 1353.25 0.18 Open R-18 N-13 N-14 1,441.12 81.27 1330 1330 600 0.1 23.25 23.07 1353.25 1353.07 0.29 Open R-8 N-24 N-23 1,126.14 0.00 1300 1300 1000 0.1 64.48 61.24 1364.48 1361.23 0.00 Closed R-9 N-23 N-22 1,153.14 0.00 1300 1325 1000 0.1 61.24 32.99 1361.23 1357.99 0.00 Closed R-10 N-22 N-21 1,166.36 0.00 1325 1310 900 0.1 32.99 44.75 1357.99 1354.75 0.00 Closed R-11 N-21 N-20 1,598.53 0.00 1310 1300 900 0.1 44.75 51.51 1354.75 1351.51 0.00 Closed R-12 N-19 N-20 608.91 0.00 1300 1300 750 0.1 52.07 51.51 1352.07 1351.51 0.00 Closed R-13 N-19 N-18 1,017.37 0.00 1300 1280 600 0.1 52.07 72.62 1352.07 1352.62 0.00 Closed R-14 N-17 N-18 765.00 0.00 1280 1280 600 0.1 73.18 72.62 1353.18 1352.62 0.00 Closed R-15 N-16 N-17 2,196.14 0.00 1290 1280 600 0.1 63.74 73.18 1353.74 1353.18 0.00 Closed D-1 N-24B N-24C 1,200.00 100.00 1300 1300 300 0.1 64.18 57.31 1364.18 1357.31 1.41 Open D-2A N-28A N-20C 1,200.00 65.50 1312 1300 250 0.1 43.38 47.71 1355.38 1347.71 1.33 Open Appendix 3 - CIAMP investments Annex 1 - Page 14 D-2B N-20B N-20C 600.00 0.00 1301 1300 200 0.1 46.71 47.71 1347.71 1347.71 0.00 Open D-3 N-30B N-30D 2,500.00 107.60 1300 1300 350 0.1 54.07 46.51 1354.07 1346.51 1.12 Open D-4 N-30C N-30E 750.00 57.10 1315 1314 300 0.1 38.92 38.45 1353.92 1352.45 0.81 Open R-8 N-24 N-23 1,126.14 0.00 1300 1300 1000 0.1 64.48 61.24 1364.48 1361.23 0.00 Closed R-8 N-24 N-23 1,126.14 0.00 1300 1300 1000 0.1 64.48 61.24 1364.48 1361.23 0.00 Closed TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

KATHMANDU VALLEY WATER SUPPLY AND WASTE WATER SYSTEM IMPROVEMENT HYDRAULIC MODELLING OF KATHMANDU METRO (ZONE A) (Alternative - IV : 2025) (Page 1 of 2)

PIPESNodes Length FlowElevations Diameter RoughnessResidual Head (m) H. G. L. (m) Velocity Link Remarks ID From To (m) LPS From To (mm) Coefficient From To From To m/s Status (Notes) M-1A Tank-M2 MHC 1,643.86 2,631.30 1369 1340 1,400.00 0.1 1.00 27.87 1370.00 1367.86 1.71 Open M-1B MHC N-5 800.00 1,812.40 1340 1330 1400 0.1 27.87 37.36 1367.86 1367.36 1.18 Open R-26 N-5 N-6 1,089.47 1,462.26 1330 1320 1200 0.1 37.36 46.37 1367.36 1366.37 1.29 Open R-25 N-6 N-7 852.35 574.96 1320 1310 1000 0.1 46.37 56.04 1366.37 1366.04 0.73 Open R-24 N-7 N-8 710.27 574.96 1310 1315 1000 0.1 56.04 50.77 1366.04 1365.77 0.73 Open R-23 N-8 N-9 601.57 574.96 1315 1295 1000 0.1 50.77 70.55 1365.77 1365.55 0.73 Open R-22 N-9 N-10 482.33 574.96 1295 1295 900 0.1 70.55 70.24 1365.55 1365.24 0.90 Open R-21 N-10 N-11 905.12 574.96 1295 1290 900 0.1 70.24 74.65 1365.24 1364.65 0.90 Open R-20 N-11 N-12 1,119.22 487.18 1290 1295 900 0.1 74.65 69.13 1364.65 1364.13 0.77 Open R-19 N-12 N-13 1,640.00 384.08 1295 1330 750 0.1 69.13 32.91 1364.13 1362.91 0.87 Open R-18 N-13 N-14 1,441.12 384.08 1330 1330 600 0.1 32.91 29.61 1362.91 1359.61 1.36 Open F-6 N-14 KHT 2,500.00 574.90 1330 1350 750 0.1 29.61 5.58 1359.61 1355.58 1.30 Open Equivalent pipe (750 = 600+450) T-1A N-1 N-1A 1,100.00 1,002.14 1325 1340 1200 0.1 42.18 26.70 1367.18 1366.70 0.89 Open T-1B N-1A N-1B 660.24 1,002.14 1340 1328 1200 0.1 26.70 38.41 1366.70 1366.41 0.89 Open Description of Tanks F-8 N-1B PPT 100.00 208.10 1328 1328 350 0.1 38.41 37.33 1366.41 1365.33 2.16 Open Tank-M2 at Mahankal Chaur T-1C N-1B N-27 1,599.27 794.04 1328 1320 1200 0.1 38.41 45.96 1366.41 1365.96 0.70 Open Tank - B2 at Hepali Danda T-2 N-27 N-28 928.04 345.89 1320 1317 1000 0.1 45.96 48.82 1365.96 1365.82 0.44 Open ABT - Tank at Arubari T-3A N-28 N-28A 6,647.20 447.53 1317 1312 900 0.1 48.82 51.17 1365.82 1363.17 0.70 Open MCT - Tank at Mahankal Chaur T-3B N-28A N-29 1,000.00 361.93 1312 1302 900 0.1 51.17 60.90 1363.17 1362.90 0.57 Open BST - Tank at Bansbari T-4 N-29 N-30 496.75 365.84 1302 1300 900 0.1 60.90 62.76 1362.90 1362.76 0.58 Open BJT - Tank at Balaju T-5A N-30 N-30B 255.95 676.28 1300 1300 900 0.1 62.76 62.54 1362.76 1362.54 1.06 Open KRT - Tank at Kirtipur T-5B N-30B N-30C 850.00 568.68 1300 1315 800 0.1 62.54 46.57 1362.54 1361.57 1.13 Open KHT - Tank at Khumaltar T-5C N-30C N-16 2,000.00 354.08 1315 1290 800 0.1 46.57 70.65 1361.57 1360.65 0.70 Open TGT - Tank at Tigeni PPT - Tank at Pani Pokhari R-16 N-16 N-15 671.93 190.82 1290 1310 600 0.1 70.65 50.24 1360.65 1360.24 0.67 Open ANT - Tank at Anam Nagar R-17 N-15 N-14 1,057.06 190.82 1310 1330 600 0.1 50.24 29.61 1360.24 1359.61 0.67 Open MBT - Tank at Min Bhawan R-1 N-5 N-4 984.26 350.14 1330 1310 1200 0.1 37.36 57.30 1367.36 1367.30 0.31 Open R-2 N-4 N-3 369.60 350.14 1310 1320 1200 0.1 57.30 47.28 1367.30 1367.28 0.31 Open R-3 N-3 N-2 689.92 350.14 1320 1340 1200 0.1 47.28 27.24 1367.28 1367.24 0.31 Open R-4 N-2 N-1 839.25 350.14 1340 1325 1200 0.1 27.24 42.18 1367.24 1367.18 0.31 Open

Appendix 3 - CIAMP investments Annex 1 - Page 15 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

HYDRAULIC MODELLING OF KATHMANDU METRO (ZONE A) (Alternative - IV : 2025) (Page 2 of 2)

PIPESNodes Length FlowElevations Diameter RoughnessResidual Head (m) H. G. L. (m) Velocity Link Remarks ID From To (m) LPS From To (mm) Coefficient From To From To m/s Status (Notes) B-1 Tank-B2 N-1 1,602.30 1,939.00 1367 1325 1500 0.1 1.00 42.18 1368.00 1367.18 1.10 Open R-5 N-1 N-26 1,623.86 1,287.00 1325 1300 1400 0.1 42.18 66.65 1367.18 1366.65 0.84 Open R-6 N-26 N-25 1,756.35 1,287.00 1300 1300 1200 0.1 66.65 65.40 1366.65 1365.40 1.14 Open F-4 N-25 BJT 800.00 1,013.00 1300 1356 750 0.1 65.40 5.54 1365.40 1361.54 2.29 Open R-7 N-25 N-24 934.84 274.00 1300 1300 1000 0.1 65.40 65.32 1365.40 1365.32 0.35 Open R-8 N-24 N-23 1,126.14 522.15 1300 1300 1000 0.1 65.32 64.96 1365.32 1364.96 0.66 Open R-9 N-23 N-22 1,153.14 522.15 1300 1325 1000 0.1 64.96 39.59 1364.96 1364.59 0.66 Open R-10 N-22 N-21 1,166.36 522.15 1325 1310 900 0.1 39.59 53.97 1364.59 1363.97 0.82 Open R-11 N-21 N-20 1,598.53 522.15 1310 1300 900 0.1 53.97 63.11 1363.97 1363.11 0.82 Open R-12 N-20 N-19 608.91 450.94 1300 1300 750 0.1 63.11 62.50 1363.11 1362.50 1.02 Open R-13 N-19 N-18 1,017.37 450.94 1300 1280 600 0.1 62.50 79.32 1362.50 1359.32 1.59 Open F-5 N-18 KRT 2,000.00 614.20 1280 1342 600 0.1 79.32 5.95 1359.32 1347.95 2.17 Open R-15 N-16 N-17 2,196.14 163.26 1290 1280 600 0.1 70.65 79.66 1360.65 1359.66 0.58 Open R-14 N-17 N-18 765.00 163.26 1280 1280 600 0.1 79.66 79.32 1359.66 1359.32 0.58 Open T-6C N-27 N-24B 1,529.25 448.14 1320 1300 900 0.1 45.96 65.35 1365.96 1365.35 0.70 Open T-6B N-24B N-24A 87.56 248.14 1300 1300 900 0.1 65.35 65.33 1365.35 1365.33 0.39 Open T-6A N-24A N-24 140.03 248.14 1300 1300 900 0.1 65.33 65.32 1365.33 1365.32 0.39 Open T-7 N-6 N-28 2,964.91 101.64 1320 1317 600 0.1 46.37 48.82 1366.37 1365.82 0.36 Open T-8A N-20 N-20A 2,105.19 71.21 1300 1301 600 0.1 63.11 61.91 1363.11 1362.91 0.25 Open T-8B N-20A N-20B 127.53 71.21 1301 1301 600 0.1 61.91 61.90 1362.91 1362.90 0.25 Open T-8C N-20B N-29 1,208.08 3.91 1301 1302 600 0.1 61.90 60.90 1362.90 1362.90 0.01 Open F-1 Tank-M2 ABT 1,000.00 536.10 1369 1362 600 0.1 1.00 3.64 1370.00 1365.64 1.90 Open F-2 MHC MCT 100.00 818.90 1340 1340 450 0.1 27.87 23.51 1367.86 1363.51 5.15 Open F-3 Tank-B2 BST 600.00 682.60 1367 1364 750 0.1 1.00 2.65 1368.00 1366.65 1.55 Open F-7 N-12 TGT 3,900.00 103.10 1295 1325 350 0.1 69.13 28.27 1364.13 1353.27 1.07 Open F-9 N-30A ANT 1,196.61 182.60 1297 1340 350 0.1 65.94 12.92 1362.94 1352.92 1.90 Open T-10A N-31 N-32 92.49 292.62 1295 1293 800 0.1 69.64 71.61 1364.64 1364.61 0.58 Open F-10 N-32 MBT 300.00 380.40 1293 1340 350 0.1 71.61 14.08 1364.61 1354.08 3.95 Open T-10B N-11 N-32 1,107.51 87.78 1290 1293 800 0.1 74.65 71.61 1364.65 1364.61 0.17 Open T-11A N-6 N-6A 750.00 785.66 1320 1316 1000 0.1 46.37 49.85 1366.37 1365.85 1.00 Open T-11B N-6A N-31 1,750.00 785.66 1316 1295 1000 0.1 49.85 69.64 1365.85 1364.64 1.00 Open T-9B N-31 N-30A 1,959.84 493.04 1295 1297 800 0.1 69.64 65.94 1364.64 1362.94 0.98 Open T-9A N-30A N-30 502.66 310.44 1297 1300 800 0.1 65.94 62.76 1362.94 1362.76 0.62 Open D-1 N-24B N-24C 1,200.00 200.00 1300 1300 300 0.1 65.35 38.96 1365.35 1338.96 2.83 Open D-2A N-28A N-20C 1,200.00 85.60 1312 1300 250 0.1 51.17 50.31 1363.17 1350.31 1.74 Open D-2B N-20B N-20C 600.00 67.30 1301 1300 200 0.1 61.90 50.31 1362.90 1350.31 2.14 Open AppendixD-3 3 N-30B- CIAMP N-30Dinvestments 2,500.00 107.60 1300 1300 350 0.1 62.54 54.99 1362.54 1354.99 1.12 Open Annex 1 - Page 16 D-4 N-30C N-30E 750.00 214.60 1315 1314 300 0.1 46.57 28.64 1361.57 1342.64 3.04 Open

TA 4893-NEP Project Feasibility Study

APPENDIX 4

Financial Management Assessment TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Financial Management Assessment (FMA) The following sections are in two parts. The first covers KUKL management and operations. The second relates to the KUKL Project Implementation Directorate (PID); the project Implementing Agency (IA). 1. KUKL Financial Management Assessment 1.1 Introduction and Objective 1. The Financial Management Assessment (FMA) was performed with the objective of identifying key constraints, and proposes recommendations for the improvement in financial management of KUKL. The assessment presents the background and existing situation and identifies underlying constraints in the financial management procedures within KUKL. The assessment also shows the salient features of resource management including the overall budget framework, revenue mobilization, expenditure plan framework and debt management. 2. Financial management systems include the policies and practices regarding financial planning, accounting, reporting, auditing, funding, organization, and personnel of KUKL, as an implementing agency. The specific objective is to assess the ADB fund flow arrangement of PID and in particular:  To review KUKL financial performance and whether it can maintain financial management systems that can provide timely and reliable information suitable for monitoring projects.  To seek if KUKL is reliable and complete on effective control environment, internal control systems and proper recording and safeguarding of assets and resources.  To examine and identify shortfalls and strength of the organizational and possible actions to be taken for strengthening. 3. This study seeks to review recent efforts to improve financial management in KUKL and evaluate progress achieved so far during the handover of authority from NWSC to KUKL and make practical recommendations for improving fiscal management under the ADB guidelines of financial management. 1.2 Accounting Policies and Procedures 4. The assessment found that KUKL has prepared, designed, developed, and operated within the framework of the financial policies, strategies, and systems prescribed by government institutions and International Standard. 5. The financial statements have been prepared under the historical cost convention on accrual concept, unless otherwise stated, and are in accordance with Nepal Accounting Standard as applicable under the prevalent laws of Nepal. The accounting policies are applied consistently by the company. 6. The financial transactions have been recorded properly including expenditure, disbursement categories and the project will be using entity accounting system. Normally all transactions are correctly made and adequately explained in preparation and approval of transactions. The chart of accounts reports the disbursement of the project activities in adequate detail.

Appendix 4 - FMA Page 1 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

7. It is observed that the general ledger and subsidiary ledger are reconciled and balanced. The financial information and supporting documents are retained on a permanent basis for authorized personnel to access easily for financial management purposes. All the information relating with the accounting system of various transactions is separated for easy access. The accounting policies and procedures applicable within the KUKL are summarized in the following: Fixed Assets and Depreciation 8. Fixed assets are stated at cost less accumulated depreciation and inclusive of all expenses up to the construction / commissioning of assets. The depreciation amount is deducted based on value method expected within its useful life as per the decision of the management committee at different percentages for different items. However, depreciation has not been considered for the year of installation. 9. For assets on lease all significant risk and rewards of ownership are effectively retained by the lesser. Expenditures incurred for the renovation and improvement of leased assets on an operating lease shall be funded by the leaser and will be treated as expenditure on behalf of the leaser. Retirement Benefits 10. For the provision of retirement benefits, such as, Provident Fund, Gratuity, and Leave Encashment periodic contributions of provident fund are charged to revenue, Gratuity and Leave Encashment are accounted for on accrual basis. Inventories 11. The statement of the Inventories are kept and valued at cost on an average weighted basis. Revenue Recognition 12. Revenue is recognized to the extent that it is probable that the economic benefits will flow to the company and the revenue associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable net of rebate. The following criteria are used to identify the revenue. Sale of Water 13. The sale of water by the KUKL through the water distribution system to consumers is accounted as revenue and is stated at net of rebate and discount. Sewerage service 14. If the sewerage service is rendered then the tariff amount received from the sewerage is accounted as revenue. Others 15. Other income received on cash basis is considered as revenue except debt service charge which can be accounted as accrual basis. Debtor and Other Receivable 16. Sundry debtors are stated as revenue at book value after adjusting provisions for bad and doubtful debts.

Appendix 4 - FMA Page 2 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

17. Dues from KVWSMB are stated as revenue at book value. Cash and Cash Equipments 18. Other cash and cash equipments are defined as cash on hand, demand deposit and short term highly liquid investment readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purpose of cash flow statements cash equipments consists of cash on hand, checks in hand, cash in transit and deposit in banks. Foreign Currency Transaction 19. Foreign currency transaction is accounted for at exchange rates prevailing on the date of the transactions taking place. All exchange differences in respect of foreign currency transactions are dealt with in the income statement and herein referred as revenue except those relating to acquisition of fixed assets, which are adjusted in the cost of the assets. 1.3 Fund-Flow Arrangement 20. Loan disbursement is a key element in the project cycle. The disbursement procedures and fund-flow mechanisms must be suitable for the particular project. Disbursement procedures and fund flow mechanism is an imprest accounting fund system. In the imprest fund system, ADB advances the disbursement from the loan account for deposit to be used exclusively for ADB’s share of eligible expenditures. 21. The Fund flow mechanism at the PID in KUKL has been assessed. Prior to the transfer of responsibility from the PMU to the PID the fund flow from MoF through KVWSMB was not satisfactory with funds not being transferred timely. The receipts were delayed due to the number of stages of the fund flow mechanism. These included from MoF to Financial Controller General to KVWSMB; to KUKL and then to PMU. Also, the newly established KUKL was not experienced in the management and disbursement of funds from ADB. PID has now taken responsibility for disbursement of ADB funds. The imprest account has been established in NRB and is to be operated by authorized personnel, such as, Project Director and Senior Accountant of PID. 1.4 Financial Regulations 22. A sound accounting system is underpinned by financial regulations. These are usually designed to define the objectives of financial accounting and responsibilities within the financial management system. KUKL has followed the GoN Financial Administration Regulation 2064 which include the following:  Duty, responsibility and right of the Chief Executive, Chief Accountant,  Rule and regulation on procurement of goods and services  Payment regulations  National and International tender  For KUKL deposits it is acceptable to open more than one bank account as per the requirement.  Rule and regulation on Budget preparation and time schedule 1.5 Budgeting System 23. The budget is prepared three months before the completion of the fiscal year with an actual financial statement of the past nine months and an estimated statement for the ongoing three months and annual budget for the forthcoming fiscal year. The budget

Appendix 4 - FMA Page 3 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study includes physical and financial targets. The budget is prepared for all significant activities in detail to provide meaningful tools that can be monitored easily. The budget is prepared in detail with proposed revenue, expenditure, balance sheet, profit / loss statement, cash flow etc presenting last year’s actual financial figures; and proposed budget for forthcoming fiscal year in different columns which may be referred for comparison. 24. There is no mechanism to compare the budget with actual expenditure but the budget includes the statement of actual expenditure of past and expected expenditure in the forthcoming fiscal year which may be referred for comparison. The finance department is responsible to prepare and present the budget to the managing committee for approval by the KUKL board. The budget is prepared in detail collecting information from each KUKL branch office. It is determined that the plan and budget of KUKL are based on realistic and valid assumptions and developed by professional and an experienced accountant. Normally KUKL’s budget includes the following standard formats in detail.  Balance Sheet (Comparative)  Profit and loss account  Cash flow projection  Comparative revenue and expenditure  Capital investment  Detail expenses – item wise  Income statement in detail  Expenditure statement in detail  Income as per number of connections  Branch wise income and expenditure 1.6 Bank Account and Payment 25. There is a strict regulation on payment and procurement system which is described in detail in Financial Administration Regulation - 2064. Payment can only be made through the bank account with the signature of the branch manager and accountant in different branches of KUKL. It is required to process invoice procedures before payment such as; (i) copies of purchasing orders and receiving reports to be obtained from the issuing department; (ii) comparison invoice quantities, prices and terms, with those indicated on the purchase orders and with records of goods actual received; (iii) comparisons of invoice quantities with those indicated on the receiving reports; and (iv) checking the accuracy of calculation. All the invoices are reviewed and approved with clearly marked account code assignment and stamped as PAID. The payrolls are checked and authorized regularly. 26. The KUKL has adequately maintained up to date cash book, receipts, and payment records. The records are kept timely of deposit and receipts at each collecting centre. The bank and cash reconciliation are done on a monthly basis. The receipt and payment of bank account is approved by the Managing Director. 27. All the assets are registered to protect from fraud and abuse. All the fixed assets and stocks are kept up to date and reconciled with a control account. The physical inventory record of fixed assets and stocks are done once in a year. The assets and stocks are only partially insured under the insurance policy.

Appendix 4 - FMA Page 4 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

1.7 Reporting and Monitoring in Accounting System 28. The reporting of financial statements in the accounting system is adopted as per Nepal Accounting Standard under the rule and regulation of the Government. The reporting system includes a number of steps from item wise account keeping to outcome of the overall balance sheet. The financial statement is also prepared for the implementing unit. The financial statements are prepared, usually quarterly, or more often if required by the management committee. The report is used by the management committee for decision making and suggestions for revision. 29. The KUKL reporting system of financial information has not yet been linked to project physical progress because no projects have yet commenced implementation, although there is no system in place to gather and compile the physical data. Equally, there is no provision to check and reduce the risk that the physical data will not synchronize with the financial data. The financial report is prepared quarterly in the year and found timely for management decision. 30. Due to the operation period of only one and half years, no financial management reporting responsibilities have been established that specify the nature of reporting, such as, what is to be prepared?; What is it to contain?; and How to be used?. The financial management report is submitted to the Managing Director and forwarded to the management committee. The management committee approves the financial management report. Normally the financial report is not compared with the actual expenditure with the proposed budget and program allocations for further financial utility. But, the budget is prepared in detail with proposed revenue, expenditure, balance sheet, profit / loss, cash flow etc. presenting last year’s actual financial figures; and proposed budget in different columns which could be helpful for comparison. 31. There is no provision or facility for automating the accounting software program to prepare financial reports but the finance department have been preparing financial statement spreadsheets. None of the accounting staff has financial or accounting training on automated accounting software. 1.8 Safeguard over assets 32. It is observed that the safeguard over assets is satisfactory, all the physical equipment and material, fixed assets and stocks are registered and reconciled with the control account. The physical inventories of fixed assets and stocks are conducted annually. However, the fixed assets and stocks are found only partially insured. 1.9 Others and Implementing Entities 33. KUKL has established controls and procedures for flow of funds, financial information, accountability, and audits in relation to the KUKL branch offices. It is timely and accurate in transferring information between the different branch offices. 1.10 Accounting Information Systems 34. The financial management in KUKL has not been fully computerized. However, most of the financial staff have computer facilities and are using Microsoft Word and Excel (Spreadsheet). The necessary financial statements can be produced by the financial personnel but in spreadsheets and Word. None has basic computer skills in financial accounting package programs or automated accounting programs. Data and information are kept safe and confidential by the financial personnel as well as by financial management.

Appendix 4 - FMA Page 5 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

35. To ensure accountability for project implementation funds, it is observed that KUKL has implemented an adequate accounting and internal control system for recording and reporting other related financial transactions. Specifically, accounting information systems should be simple to operate. KUKL have adequate internal checks and controls; is able to balance financial data frequently and to report project financial results at intervals and within the quarterly time frame in the year. KUKL is also capable of providing records of project receipts and expenditures generally from the date of first transactions. 1.11 Auditing 36. Auditing is one of the critical areas identified in the KUKL Financial Accountability Assessment (FAA) for transparent accountability. Although in actual functioning, its effectiveness continues to be constrained by the internal political environment. The present review concluded that the accounting system is transparent in auditing standards with timely disclosure of audit reports and follow up actions. Similarly, the diagnostic study reviewed the institutional capacity, and revenue and expenditure account management as satisfactory. Internal Auditing System 37. The organizational chart of KUKL on financial management shows a strong Audit Committee with three members above the General Manager; that is aligned to the Board of Directors. The KUKL internal audit section has three accounts staff under the Deputy General Manager. Normally auditing is done twice in a year of all the transactions and revenues and balance sheet of KUKL. The auditor is of level 8, an accountant of level 7 and an assistant accountant of level 5. All have completed Bachelor degrees in Business Management. The internal auditing report is submitted by Internal Audit Division to the General Manager. Normally internal audit findings will be discussed in the committee meeting and directed to solve any problems. It is assured that the internal controls (Audit Committee) exist and are monitored regularly and it is expected to be efficient and responsive to forthcoming projects. The inclusion of an audit program in the project in its work program is yet to be established. It is observed that the internal control mechanisms are satisfactory. External Auditing 38. The financial statement of KUKL is audited by a government license holder external independent Auditor once in a year. The External Auditor is nominated by the Annual General Meeting of the shareholders of KUKL. In 2007/08, the external Auditor B. K. Agrawal and Company was nominated, however, it is yet to nominate an external Auditor for the fiscal year 2008/09. Due to the delay of auditor’s report, the financial statement of the current fiscal year has not been disclosed. It is already specified that the external auditor should report within six months by the end of fiscal year. 39. Auditing is conducted based on International Standard. There are no major accountability issues and there were no suggestions or recommendations prior to the audit report last year. There is no provision for auditing by supreme audit institution or independent government entity. 1.12 Staffing 40. Finance and accounts in KUKL can be categorized as the Audit Committee with three board members, Internal Audit Section with three accounting staff members. Finance Managing Division includes the Finance Manager and Deputy Finance Manager. Finance

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Department includes six accounting staff, an administrator and a computer operator. Figure 1-1 indicates the existing organizational structure of the accounting division, there were altogether 16 accounts staff and two administrators and a computer operator. 41. The present accounting staff situation is not adequate to manage all accounting and financing tasks. However, the existing accounting staff are well qualified and experienced. But none of the accounting staff has had any training in ADB procedures. All the accounting staff are permanent positions. There is no provision for contract arrangements for finance and accounting staff. 42. Detail terms of reference are prepared for all the individual staff of the Financial Accounting division stating their duties, responsibilities, and rights. No accounting staff has been transferred during the establishment of the Office. The training policy for the finance and accounting section is yet to be formulated. 43. The proposed organizational structure Figure 1-2 shows the Managing Director (MD) as the highest level under the KUKL Board. A Vice General Manager (VGM) has also been proposed instead of the present Financial Manager. There will be a separate Internal Audit Department under the VGM with a powerful auditing authority. Under the Administration / Finance Department there will be Finance Division which will hold a Central Account section with 5 account officers of level 6 to 9; Budget and Fund Section with 4 account officers from level 6 to 8, Revenue and Monitoring section with 5 account officers from level 6 to 8 and a Project Account and Expenditure section with 7 account officers from level 6 to 8. All together there will be 21 accounting and financial staff in the central office, if approved. 1.13 Training Policy 44. The Human Resource Development Unit has proposed training for (i) Meter Readers and (ii) Revenue record keepers under ADB assistance. The training is pending. HRD also proposes providing training to accounts officers and managers for operating the accounting system required by ADB. There is no formal proposal for officer level training of accounting staff on computer based automated accounting package program guided by ADB procedure.

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Figure 1-1: KUKL Existing Financial Management Organizational Structure Audit Committee Board of Directors Project Steering Committee Ind Board Member - Coordinator7 Members Board Member - Coordinator Ind Board Member - Member Board Member - Member Board Member - Member Board Member - Member General Manager (GM) Company Secretary - Secretary Deputy GM * Internal Audit Internal Auditor (Acct.) (L-8) -1 Section Officer (Acct.) (L-7) -1 Senior Assistant (Acct.) (L-5) -1

Financial Manager * Adminstration and Finance Division Deputy FM Sr. Assistant (Adm.) (L-5) -1

Finance Department

Manager (L-10) - 1 Sr. Assistant (Adm.) (5) Deputy Manager (Acc) (9)

Assistant Manager (Acc) (L-8) - 1 Section Officer (Acc) (L-7) - 2 Sr. Assistant (Adm.) (L-5) - 1 Sr. Assistant (Acc.) (L-5) - 2

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Figure 1-2: KUKL Proposed Financial Management Organizational Structure Board of Directors 7 Members

Managing Director

Vice General Manager

Internal Audit Internal Auditor (Acct.) (L-8) -1 Section Officer (Acct.) (L-7) -1 Administration & Finance Department

Administration & Finance Division Legal Divisiom

Central Account Budget & Finance Revenue Monitoring Project Account & HH Expenditure Manager (L-9) - 2 Asstt. Manager (L-8) - 2 Asstt. Manager (L-8) - 2 Asstt. Manager (L-8) - 1 Accountant Officers ( 7 - 6 ) (3) Accountant Officers ( 7 - 6 ) (6)

Accountant Officers ( 8 - 6 ) (4) Accountant Officers ( 7 - 6 ) (4)

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1.14 Strengths and Constraints 45. The overall strengths and constraints of the financial and procurement activities in KUKL, the implementing agency, can be summarized as follows: Major Strengths: • Highly qualified and experienced financial and accounting staff in the financial accounting section. The staff are adequately capable to handle the financial accounting system. • Efficient and timely completion of accounts and reporting. All the transaction documents and financial accounts including up-to-date cash book, and recording receipts and payment are kept in proper and secure manner so as to incorporate work smoothly. • The accounting system is on an accrual basis rather than cash basis. • There is an internal auditing and control section to audit and check the accounting and procurement procedures. • The accounting system is as per the international standard that is consistent with the ADB’s guidelines. • The written policies and documents covering financial management and related administrative activities are as per rules and regulations of GoN. Major Constraints: • Accounting and financial staff are not trained in the use of automated accounting computer programs. No accounting and procurement training is presently proposed on automated computer program according to ADB procedures • The financial accounting and reporting and record keeping management system are not fully computerized. No automated computerized system is used to safeguard the financial accounting and other related data and information. • Most of the accounting staff have no computer facility and insufficient logistic facilities, such as, photocopier, internet, networking, printers etc. 1.15 FMA Recommendations 46. The financial management assessment of KUKL determined that all personnel were qualified as per requirement but none had relevant training in computer financial management software programs. It is essential to provide appropriate training for key financial personnel. 47. Most staff had a computer but all of them were using simple spreadsheets (excel) to prepare financial statements. An appropriate financial automated package program (financial model software) should be installed. All staff to be provided training so that reports can be produced as required. The computer network system is very poor with only a few computers having internet facility. A full network system to be provided as soon as possible within the accounting, financial and procurement division with internet facility. 48. Present staff numbers is inadequate to implement and manage the project. An increase in number of financial and accounting staff is required. Training on finance and accounting system as per ADB procedure to be provided.

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1.16 KUKL Finances

1.16.1 Background 49. Kathmandu Upatyaka Khanipani Limited (KUKL) was established under the Company’s Act of Nepal on 24 December 2006 (09 Poush 2063) as a Public Private Partnership (PPP) model. The current shareholders of KUKL are the Government of Nepal (GON), Municipalities within the Kathmandu Valley (Kathmandu Metropolis and Lalitpur Sub- metropolis), Federation of Nepalese Chamber of Commerce and Industries (FNCCI) / Nepal Chamber of Commerce (NCC) and the Employees Trust. The Company is licensed and monitored by Kathmandu Valley Water Supply Management Board (KVWSMB) and commenced its operation on 13 February 2008. KUKL has completed only two years of operation. The agreement signed between KUKL and KVWSMB grants KUKL responsible for operating and providing water supply and sanitation services within the Kathmandu Valley for a period of thirty years.

1.16.2 Capital Account 50. KVWSMB handed over all properties and current assets as well as fund and liability from Nepal Water Supply Corporation (NWSC) to KUKL as per the decision of the council of ministers on September 30, 2007. Table 1-1 indicates the fixed assets and current assets are the equivalent to NRs.3898.24 million; and fund and liability equivalent to NRs.4547.83 million. The “Memorandum of Association” states that the capital structure of the company has an authorized capital equal to NRs.450 million and issue capital equal to NRs.440 million. Among the issues capital of 4.0 million shares each valued at NRs.100 is allotted as preference shares. The paid up capital amount will be NRs.25.5 million in terms of equity shares. Out of the 4.0 million shares, 3.0 million shares are to be owned by the company itself authorized as per the handover of assets. The rest are to be issued as per requirement under the Company’s Act. Table 1-1: KUKL Balance Sheet at Hand Over from NWSC (February 2008)

S. No. Particular Amount in Million NRs A Fixed Asset and Current Assets a. Fixed Assets Fixed Assets 2,173,224,201.00 Capital WIP 344,554,890.52 Total Fixed Assets 2,517,779,091.52 b. Current Assets Inventory 150,664,146.46 Receivable 898,028,274.21 Advances and Deposits 36,769,750.03 Life Insurance fund Account 16,019,708.72 Cash and Bank Balance 278,976,691.93 Total Current Assets 1,380,458,571.35 Total Fixed and Current Assets (a+b) 3,898,237,662.87 B Less Obligation c Long Term Debt 1,101,852,063.97 d Current Liabilities, Sundry Creditors and Provisions 1,319,702,803.04 Obligation Debt and Other Liabilities (c+d) 2,421,554,867.01

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S. No. Particular Amount in Million NRs C Net Worth Value (A + B) 6,319,792,529.88 D Represented By Fund and Liabilities Corporation's Fund 1,710,556,538.27 Less Profit and Loss Accounts (649,596,825.10) Net Corporations Fund 1,060,959,713.17 Capital Reserve Fund 415,723,082.69 Total Share Grant and Capital Fund 1,476,682,795.86 E Fund and Liabilities without PL Balance Corporation's Fund 1,710,556,538.27 Capital Reserve Funds 415,723,082.69 Obligation Debt and Other Liabilities 2,421,554,867.01 4,547,834,487.97

1.16.3 Revenue and Expenditure 51. Present financial status of KUKL is good in terms of revenue and expenditure with the gross profit margin of 87.4 million rupees and operating profit of NRs.48.3 million. However, Table 1-2 has an extract from the balance sheet of profit and loss account including the depreciation, doubtful debt, differed tax assets, and income tax shows that the net loss of company is NRs.26.4 million. The company’s loss is due to vast amount of doubtful debt equivalent to NRs.60.5 million transferred to profit-loss account. The annual operating profit of NRs.48.3 million is the indication of future prosperity of KUKL. Presently the revenue from water supply is about one third of the actual potential due to suppressed water supply. Table 1-2: KUKL Profit & Loss Account (July 2008)

Particulars Detail from Schedule 2008

Water & Sewerage Billing 11 191,602,502 Less Cost of Sales 12 104,365,932 Gross Profit 87,236,570

Other Income 13 19,549,085 Selling Expenses 14 12,444,530 Administrative Expenses 15 46,018,068 Total 58,462,598 Operating Profit 48,323,057 Transferred to Balance Sheet Depreciation 1,600,758 Provision for Doubtful Debt 60,510,683 Deferred Tax – Assets (957,949) Pre operating Expenses 325,000 Income Tax Provision 13,253,234 Total 74,731,725 Profit (Loss) Account (26,408,669)

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1.16.4 Share Capital 52. The share capital is distributed under four headings; authorized capital, issued capital, paid up capital and employees trust. The authorized capital of NRs.450 million is divided into 0.5 million ordinary shares and preference as 4.0 million shares at denomination of NRs.100. Similarly, the issued capital amount of NRs.440 million is divided into 0.4 million ordinary shares and preference as 4.5 million shares at denomination of NRs.100. The allotment of 255 thousand shares of paid up capital is provided as ordinary shares and 150 thousand shares is allotted to Employees Trust. 53. The commitment of Promoter share holders such as Ministry of Physical Planning and Works, Kathmandu Municipality, Lalitpur Municipality, Federation of Nepalese Chambers of Industry and Commerce, Nepal Chambers of commerce, Bhaktapur Chambers of Industry and Commerce, Lalitpur Chambers of Industry and commerce have agreed to accept 90,000, 90000, 30,000, 27,000, 9000, 4500, 4500 shares, respectively. Out of the agreed promoter shares Bhaktapur Chambers of Industry and Commerce, Nepal Chamber of Commerce and Lalitpur Chambers of commerce and Industry have not paid the full amount due against their shares.

1.16.5 Tariff Structure 54. The tariff structure had continued since 2004 until December 2009. This was despite the Water Supply Tariff Fixation Commission’s (WSTFC) proposed new tariff structure which was to be executed from January 2009. Water tariff has been increased to allow the government to award the tunnel construction contract for the Melamchi Water Supply Project, as tariff rise was a precondition for funding of the project by Asian Development Bank. KUKL has prepared a future proposal for tariff revision based on inflation. 55. Table 1-3 illustrates the different tariff rates are set for metered and non-metered at volumetric and non volumetric charges, respectively. However, the same tariff rates are set for households, commercial and industrial sector irrespective of metered or non metered and volumetric or non volumetric at different consumption limits. It would be reasonable that the tariff rate for the commercial and industrial sector could be higher than that for the domestic connection. However, water is considered as an economic good but the tariff should be set at its full cost that includes O&M costs, repayment of loan, capital investment, cross subsidy. Table 1-3: KUKL Existing & Proposed Tariff Structure (effective December 2009)

Metered Consumers Non-Metered Minimum Tariff Volume NRs/m3 Consumers Minimum Additional Additional 3 3 Connection Volume per m per m Size charged Previous Applied Previous Applied Previous Applied (inches) (Litres) NRs NRs NRs NRs NRs NRs ½ “ 10,000 50 55 15 17.50 360 432 ¾ ” 27,000 810 1,053 30 39.00 1,944 2,535 1” 56,000 1,680 2,184 30 39.00 4,032 5,265 1 ½ “ 155,000 4,650 6,045 30 39.00 11,160 14,508 2” 320,000 9,600 12,480 30 39.00 23,040 29,952 3” 881,000 26,430 34,359 30 39.00 63,432 82,485 4” 1,810,000 54,300 70,590 30 39.00 130,320 169,416

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56. The present tariff structure might be considered anti-poor. From Table 1-4 it appears that the consumer that uses the public tap needs to pay higher tariff per cubic meter of water than the private tap stand holder. Until 2005 the tariff for public standposts was free up to 10m3 but in 2006 a rate for public tap was introduced. Similarly, the tariff rate for the unmetered standposts has increased from NRs 990 to 1188 per month which records 20% increase. However, the approved tariff structure states that such tariff would be paid by Government until the users community group is set up and paid by the community. Table 1-4: Tariff Rate of Public Tap stands and Private Tap stands

Limit 2005 2006 2007 Public 1000 Litre Free NRs 16.50 NRs 16.00 10,000 Litre Free NRs 66.50 NRs 161.00

57. Table 1-5 indicates the rate change for water tankers that has been flatly increased by nearly about 31% in all tanker capacity size. Table 1-5: Tariff Rate of Tankers

Tanker Size in liters Present Rate (NRs) Proposed Rate NRs 5,000 850 1110 6,000 970 1270 8,000 1.21 1580 9,000 1.33 1740 10,000 1,450 1895

58. The cost of production and distribution of water is increasing annually. Although leakage has reduced in recent years to curb the financial burden; the loss is still estimated to be over 40%. The percentage leakage of water supply remains one of the main losses of revenue. Although, revenue is greater than expenditure in term of operating expenses, for sustaining the KUKL in the long run; it has to raise the unpaid bill amount from consumers. 59. The major obstacle to poor households getting a water supply connection is the connection charge, which currently ranges from NRs.10,000 - NRs.18,000 depending on the distance from the main pipeline. The connection charge is often much higher than the household income and has to be paid in advance. 60. The problem of poor income cannot be solved by increasing the tariff because in the present context there is insufficient supply of water to satisfy demand. Households are forced to conserve water so the consumption of water reduces although most service connections are either un-metered or with broken meters the householder has to pay even if no water is received. 61. A sewerage tariff is charged as a 50% surcharge to the water bill wherever the sewerage system is available. However, tentative estimate of sewerage system coverage is only about 70% of the water supply system within the 5 municipal areas. 62. The proportionate operating expenditure of sewerage and water supply is approximately 1:14 in the year 2008. Similarly, proportionate income of sewerage and water bill is approximately 1:5. However, in the budget for the fiscal year July 2009, sewerage expenditure is proposed to be increased by 500%; the actual financial statement of which is yet to be finalized and disclosed by KUKL.

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2. Project Implementation Directorate (PID) 2.1 Introduction and Objective 63. Financial management systems include the policies and practices regarding financial planning, programming, accounting, reporting, auditing, funding, organization, and personnel of a project or of an EA. The outcome of the financial management assessment (FMA) performed in PID may be termed as satisfactory. The completed PID FMA questionnaire is provided in Attachment 1. The assessment was conducted with the objective of identifying key constraints and strengths and recommending any improvements in financial management of PID deemed necessary. The assessment presents the background and existing situation and review underlying constraints in financial management procedure within the PID. 64. The assessment emphasizes the policies and practices regarding financial plan, accounting, reporting, auditing, funding, organization, and personnel of PID as an executing agency and to assess the fund flow arrangement of PID funded by ADB and in particular:

To determine whether institutional capacity, in terms of financial management, justifies loan approval and review whether it can maintain financial management systems that can provide timely and reliable information suitable for monitoring projects.

To identify the PID’s financial management development needs - both project related and long term – for developing a reliable and effective control environment, internal control systems and proper recording and safeguarding of assets and resources.

To confirm that the financial management system is sustainable.

To examine and identify shortfalls and strength of the organizational and possible actions to be taken for strengthening. 65. The study reviews recent efforts to improve financial management in PID and evaluate progress achieved so far since the transfer of PMU to PID and make recommendations for improving fiscal management based on ADB guidelines. 2.2 Accounting Policies and Procedures 66. The original Project Management Unit (PMU) changed into the PID in April 2009. The accounting system is prepared, designed, developed, and operated within the framework of the financial policies, strategies, and systems according to Nepal Accounting Standards with refinements to meet International Standards as per ADB format. 67. The PID accounting policies are acceptable including standards of financial reporting and general accounting practices, which are consistent with accepted national and international standards and practices 68. The transaction of financial accounts ensure the correctness of the accounts and that they are adequately explained. The funds are utilized accurately according to the agreement. All the financial accounting functions are appropriately segregated before receipt and payment. 2.2.1 Fund-Flow Arrangement 69. The disbursement procedures and fund-flow mechanisms must be suitable for the particular project. Disbursement procedures and fund flow mechanism is an imprest

Appendix 4 - FMA Page 15 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study accounting fund system. In the imprest fund system, ADB advances the disbursement from the loan account for deposit to be used exclusively for ADB’s share of eligible expenditures. 70. The fund flow arrangement of the ADB is through GoN, MoF Financial Controller General to KVWSMB and on to PID. The Fund flow mechanism was considered complicated and time consuming as the fund is not directly transferred through the MoF but though KVWSMB because the loan contract agreement is between ADB and KVWSMB. The imprest account has been established in NRB and is to be operated by authorized personnel, such as, Project Director and Senior Accountant. The fund is reimbursed by ADB. 2.2.2 Budgeting System 71. A budget is prepared for all significant activities in detail to provide meaningful tools for easily monitoring. There is no mechanism to compare the budget with actual expenditure but the budget includes the statement of actual expenditure of past and expected expenditure in the forthcoming fiscal year. The PID Finance Section is responsible for preparing and presenting the budget to the Project Director for approval. 72. The budget prepared is realistic, based on valid assumptions by the experienced financial officers. Any changes in the budget require the approval of the Project Director. 2.2.3 Reporting and Monitoring in Accounting System 73. The reporting of financial statements in the accounting system is as per National Accounting Standard under the rule and regulation of the GoN. The reporting system includes financial statements including implementing unit and the statement for the overall balance sheet. 74. The financial management report is prepared on a monthly basis and submitted to the Project Director. The financial reporting is competent to compare with the actual physical progress, although not yet tested. The financial reports compare the actual expenditure with the budget allocation. 75. No automated accounting software program exists in PID for preparing financial reports. However, the finance section has been effectively preparing financial statements in spreadsheets. None of the accounting staff has financial or accounting training on automated accounting software. 2.2.4 Accounting Information Systems 76. The financial management in PID has not been fully computerized. However, all the financial staff have computer facilities and are using Microsoft Word and Excel (Spreadsheet) for preparing the necessary financial statements. Only a senior financial officer has basic skills and knowledge in financial accounting package programs or automated accounting programs based on National Accounting Standard of GoN. 77. The data and information of all the accounting systems are kept safe and confidential by the financial personnel. PID has no internal controls section to check the accounting system. However, the accounting information is efficiently managed. 2.2.5 Auditing 78. PID is producing a monthly financial statement including the budgeting, financial planning data, record keeping and cost accounting. Auditing is one of the critical areas identified in the PID Financial Accountability Assessment (FAA) for transparent accountability. The present review verified the transparency in auditing standards, and

Appendix 4 - FMA Page 16 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study timely disclosure of audit reports and follow up actions. Similarly, the diagnostic study reviewed the institutional capacity, and revenue and expenditure account management as satisfactory. 79. It is assessed that accounting and auditing arrangements had acceptable standards and practices as per the requirement by ADB loan and project agreements including relevant financial management and audit system. 80. There is no internal auditing section in PID and no formal auditing is conducted internally. The financial statement of PID is audited by Auditor General of GoN annually based on the National Accounting Standard. 2.3 Finance and Accounting Staff 81. There are two sections for Financial Administration and Procurement in the PID under the management division. The Finance Administration section has three accounts staff, including a senior finance officer, finance officer and assistant account. The Procurement section has two staff, a senior and junior procurement officer. 82. The present accounting staff is adequate to manage accounting and finance procurement tasks. The procurement and financial staff are well qualified and experienced and trained in ADB procedures but have no formal accounting training on basic computer skills. 83. Detail terms of reference are prepared for all the individual staff of the Financial and Procurement sections stating their duties, responsibilities, and rights. Staff are transferred generally after two years. The training policy for the finance and accounting section is yet to be prepared. 2.3.1 Training Policy 84. There are no proposals for financial accounting and procurement training on computerized accounting systems or automated accounting programs. The training policy for the accounting and procurement staffs is yet to be prepared. 2.4 Reporting and Monitoring 85. The financial and procurement reports of PID are prepared according to the accounting standard of GoN, which is consistent to International Standard. The reporting of the financial statement is on a monthly basis. The report provides information on the financial statement as well as physical progress. Safeguard over assets The system exists to protect from fraud, waste and abuse with records kept periodically for physical inventories of fixed assets and stocks. An insurance policy is adopted only for construction contracts and there is no insurance on official equipment and machinery. The safeguard section exists under the management division of PID with three technical staff including a Civil Engineer, Legal Officer and Social Development Officer. 2.5 Overall strengths and constraints 86. The overall strengths and constraints of the financial and procurement activities in the PID can be summarized as follows:

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Major Strengths:

Highly qualified and experienced financial and procurement staff in the financial accounting and procurement sections are adequate to handle the financial accounting system. All trained in ADB procedures.

All the transaction documents and financial accounts including up to date cash book, and recording receipts and payment are kept in proper and secure manner so as to incorporate work smoothly.

The accounting system is as per the Nepal accounting standard by GoN that is consistent with the International standard accounting system.

The written policies and documents covering financial management and related administrative activities exist as per rules and regulations of GoN. Major Constraints:

Procurement and financial staff are not trained with automated accounting and procurement program on computers according to ADB procedures and no training yet proposed.

The accounting system is on the basis of cash rather than accrual basis.

There is no internal auditing and control section to audit and check the accounting and procurement procedures.

The financial management and procurement system are not fully computerized. No automated computerized system is used to safeguard the financial and procurement data and information.

Financial staff need to prepare financial statement information in two different formats as per the rule and regulation of GoN and for ADB format separately.

Fund flow mechanism is lengthy. Instead of transferring from MoF to PID it is transferred from MoF to PID via KVWSMB. 87. Efficient and timely completion of procurement of goods and works from bidding to contract award is still to be assessed.

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Attachment 1 Financial Management Assessment Questionnaire

Topic Response Remarks 1. Implementing Agency 1.1 What is the entity’s legal status / registration? Yes; Registered Registered in Registrar Office, GoN under company act. 1.2 Has the entity implemented an externally- No It has completed only financed project in the past (if so, please provide one and half year of details)? establishment 1.3 What are the statutory reporting requirements for The entity required to the entity? report to KUKL Board 1.4 Is the governing body for the project Yes It is independent but independent? indirectly interfere by G 1.5 Is the organizational structure (OS) appropriate No; Change needed Training required & Need for the needs of the project? in financial staffs to change in OS of financial staffs 2. Funds Flow Arrangements 2.1 Describe (proposed) project funds flow Yes; KUKL fund flow, Fund flow on ADB’s arrangements, including a chart and explanation fund. from MoF to MoPP of the flow of funds from ADB, government and to Kathmandu Valley other financiers. Board to KUKL 2.2 Are the (proposed) arrangements to transfer the (PID) Not yet implemented the proceeds of the loan (from the government / project Finance Ministry) to the entity satisfactory? 2.3 What have been the major problems in the past (PID) do in receipt of funds by the entity? 2.4 In which bank will the Imprest Account be NRB NRB, Thapathali, KTM opened? 2.5 Does the (proposed) project implementing unit (PID) PID is authorized to (PIU) have experience in the management of management & disbursements from ADB? disbursement of ADB funds 2.7 Does the entity have/need a capacity to manage (PID) PID is authorized to foreign exchange risks? manage foreign exchange risks 2.8 How are the counterpart funds accessed? (PID) The counterpart fund is accessed by keeping the foreign currency as imprest account in NRB 2.9 How are payments made from the counterpart (PID) As per contract funds? agreement 2.10 If part of the project is implemented by (PID) Not yet ascertained communities or NGOs, does the PIU have the necessary reporting and monitoring features built into its systems to track the use of project proceeds by such agencies?

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Topic Response Remarks 2.11 Are the beneficiaries required to contribute to No; No contribution from the project costs? If beneficiaries have an option to beneficiaries solicited in contribute in kind (in the form of labor), are kind or cash yet. proper guidelines formulated to record and value the labor contribution? 3. Staffing 3.1 What is the (proposed) organizational structure Yes; Attached an existing and of the accounting department? Attach an a proposed organization organization chart. chart 3.2 Identify the (proposed) accounts staff, including Not yet proposed new job title, responsibilities, educational background OS for financial and and professional experience. Attach job accounting staffs descriptions and CVs of key accounting staff. 3.3 Is the project finance and accounting function No Need to manage existing staffed adequately? staffs & hire new accounting staffs 3.4 Is the finance and accounts staff adequately Yes Qualified and qualified and experienced? experienced but no formal training on accounts as per ADB 3.5 Is the project accounts and finance staff trained No No one is trained in ADB in ADB procedures? procedure. ADB procedure training is solicited 3.6 What is the duration of the contract with the No No contract staffs finance and accounts staff? 3.7 Indicate key positions not contracted yet, and the No No position for short estimated date of appointment. term contract 3.10 Does the project have written position Yes; With Hard copy It is in process to make descriptions that clearly define duties, hard copy of description responsibilities, lines of supervision, and limits of of jobs. WSSC was authority for all of the officers, managers, and under the GoN hence all staff? responsibilities based on GoN rules and regulation. 3.11 At what frequency are personnel transferred? No Normally no Account personnel was transferred. All the account staffs are permanent 3.12 What is training policy for the finance and Not yet detailed Staffs required modern accounting staff? training policy. accounting training on Presently Training to computer package be held for Meter program as per the Reader, Revenue ADB’s requirement Record Keeper & middle level Finance Officers and Branch Managers

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Topic Response Remarks 4. Accounting Policies and Procedures 4.1 Does the entity have an accounting system that Yes Exists accounting allows for the proper recording of project system with recording, financial transactions, including the allocation of expenditure, expenditures in accordance with the respective disbursement & source components, disbursement categories, and of fund. sources of funds? Will the project use the entity accounting system? 4.2 Are controls in place concerning the preparation Yes Reviewed by auditing and approval of transactions, ensuring that all section and approved by transactions are correctly made and adequately the KUKL Board explained? 4.3 Is the chart of accounts adequate to properly Yes Accountant will report account for and report on project activities and every month to the disbursement categories? Finance manager (FM) 4.4 Are cost allocations to the various funding Yes In accordance with the sources made accurately and in accordance with established agreements established agreements? 4.5 Are the General Ledger and subsidiary ledgers Yes Accountant will report to reconciled and in balance? the FM every month about the general ledger and subsidiary ledger reconciled. 4.6 Are all accounting and supporting documents Yes All the accounting retained on a permanent basis in a defined documents are kept in system that allows authorized users easy organized file system as access? permanent basis. It has already commenced to establish the computerized automated system for easy acces Segregation of Duties 4.7 Are the following functional responsibilities Yes Different personnel performed by different units or persons: (i) Accountant is authorization to execute a transaction; (ii) responsible to perform recording of the transaction; and (iii) custody of different task assets involved in the transaction? 4.8 Are the functions of ordering, receiving, Yes; Rightly Branch Accountant is accounting for, and paying for goods and segregated responsible for services appropriately segregate? appropriately segregated and submitted to Head Office 4.9 Are bank reconciliations prepared by someone Yes Sub Accountant is other than those who make or approve responsible to payments? reconciliation and approved by Branch Manager Budgeting System 4.10 Do budgets include physical and financial Yes Sample budget is targets? attached

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Topic Response Remarks 4.11 Are budgets prepared for all significant activities Yes Detailed information is in sufficient detail to provide a meaningful tool available a copy of which with which to monitor subsequent performance? is attached 4.12 Are actual expenditures compared to the budget No Budget is prepared but with reasonable frequency, and explanations there is no practice of required for significant variations from the explanation on the budget? variation 4.13 Are approvals for variations from the budget Yes; KUKL Board FM prepares and required in advance or after the fact? submits the report to the KUKL Board for approval 4.14 Who is responsible for preparation and approval Yes; KUKL Board FM prepares and of budgets? submits the report to the KUKL Board for approval 4.15 Are procedures in place to plan project activities, Yes Accountant or Branch collect information from the units in charge of the Manager (BM) will different components, and prepare the budgets? prepare the budget and sent to Head Office 4.16 Are the project plans and budgets of project Yes The plans and budgets activities realistic, based on valid assumptions, are prepared by and developed by knowledgeable individuals? experienced individuals based on the realistic assumptions

Payments 4.17 Do invoice-processing procedures provide for: (i) Yes; All procedures The Accountants are Copies of purchase orders and receiving reports responsible for invoice to be obtained directly from issuing processing procedures departments? (ii) Comparison of invoice for each activities by quantities, prices and terms, with those indicated personnel Accountant on the purchase order and with records of goods differently. As per the actually received? (iii) Comparison of invoice authorization the BM is quantities with those indicated on the receiving responsible to perform reports? (iv) Checking the accuracy of the task . Head Office calculations? will review and perform the task. 4.18 Are all invoices stamped PAID, dated, reviewed Yes All invoices are kept with and approved, and clearly marked for account account code of code assignment? assignment that will be utilized by internal/external Auditor 4.19 Do controls exist for the preparation of the Yes BM is authorized for payroll and are changes to the payroll properly branch offices authorized? Policies And Procedures 4.20 What is the basis of accounting (e.g., cash, Accrual accrual)? 4.21 What accounting standards are followed? National Accounting National Accounting Standard Standard is followed that is consistent with the IAS

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Topic Response Remarks 4.22 Does the project have an adequate policies and Yes Financial Act, GoN, 2065 procedures manual to guide activities and ensure staff accountability? 4.23 Is the accounting policy and procedure manual Yes Updated 2065 updated for the project activities? 4.24 Do procedures exist to ensure that only Yes; KUKL Board Only KUKL Board is authorized persons can alter or establish a new authorized accounting principle, policy or procedure to be used by the entity? 4.25 Are there written policies and procedures Yes Financial Act, GoN, 2065 covering all routine financial management and related administrative activities? 4.26 Do policies and procedures clearly define conflict Yes Financial Act, GoN, 2065 of interest and related party transactions (real and apparent) and provide safeguards to protect the organization from them? 4.27 Are manuals distributed to appropriate No personnel? Cash and Bank 4.28 Indicate names and positions of authorized Presently Managing signatories in the bank accounts. Director & Finance Manager in centre & Account Officer in Branch 4.29 Does the organization maintain an adequate, up- Yes Updated the records to-date cashbook, recording receipts and every six months payments? 4.30 Do controls exist for the collection, timely deposit Yes Internal auditor section and recording of receipts at each collection checks and controls the location? transaction every six month 4.31 Are bank and cash reconciled on a monthly Yes Accountant is basis? responsible to reconcile every month 4.32 Are all unusual items on the bank reconciliation Yes; Managing reviewed and approved by a responsible official? Director 4.33 Are all receipts deposited on a timely basis? Yes Safeguard over Assets 4.34 Is there a system of adequate safeguards to Yes; Assets Partly only fixed asset protect assets from fraud, waste and abuse? Registered has been registered. 4.35 Are subsidiary records of fixed assets and stocks Yes Updated every year kept up to date and reconciled with control accounts? 4.36 Are there periodic physical inventories of fixed Yes; Annually The inventories of fixed assets and stocks? assets and stocks are updated annually.

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Topic Response Remarks 4.37 Are assets sufficiently covered by insurance Yes; Partial Fixed assets are covered policies? with insurance Other Offices and Implementing Entities 4.38 Are there any other regional offices or executing No entities participating in implementation? 4.39 Has the project established controls and No Sample procedures for flow of funds, financial information, accountability, and audits in relation to the other offices or entities? 4.40 Does information among the different Yes Information among all offices/implementing agencies flow in an branch offices accurate and timely fashion? 4.41 Are periodic reconciliations performed among Yes Information among all the different offices/implementing agencies? branch offices Other 4.42 Has the project advised employees, beneficiaries No and other recipients to whom to report if they suspect fraud, waste or misuse of project resources or property? 5. Internal Audit 5.1 Is there a internal audit department in the entity? Yes Audit is performed every six months 5.2 What are the qualifications and experience of Yes MBA-1,Diploma-4, Asst audit department staff? Officer-1 5.3 To whom does the internal auditor report? Managing director Internal audit section reports to the Audit Committee (AC). AC study the report and sent to the KUKL Board for revision and approval 5.4 Will the internal audit department include the Yet to be ascertained project in its work program? 5.5 Are actions taken on the internal audit findings? Yes Internal audit section reports to the Audit Committee (AC). AC study the report and sent to the KUKL Board for revision and approval 6. External Audit 6.1 Is the entity financial statement audited regularly Yes; B.K. Agrawal Registered auditor. by an independent auditor? Who is the auditor? and Co, Auditor is nominated for fiscal year 2009/10. 6.2 Are there any delays in audit of the entity? When Detailed result – Audit report is delayed are the audit reports issued? Normally six months for previous fiscal year. from end of the fiscal Audit report is expected year to complete timely for the FY 2009/10

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Topic Response Remarks 6.3 Is the audit of the entity conducted according to Yes Normally the audit of the the International Standards on Auditing? entity is conducted National Standard consistent with the IAS 6.4 Were there any major accountability issues No KUKL is running at 2nd brought out in the audit report of the past three year and no formal audit years? report is submitted hence there is no any accountable issues 6.5 Will the entity auditor audit the project accounts Annual General To be appointed by AGM or will another auditor be appointed to audit the Meeting project financial statements? 6.6 Are there any recommendations made by the No auditors in prior audit reports or management letters that have not yet been implemented? 6.7 Is the project subject to any kind of audit from an No independent governmental entity (e.g., the supreme audit institution) in addition to the external audit? 6.8 Has the project prepared acceptable terms of (PID) reference for an annual project audit? 7. Reporting and Monitoring 7.1 Are financial statements prepared for the entity? National Accounting NAS consistent with the In accordance with which accounting standards? Standard IAS 7.2 Are financial statements prepared for the Yes The financial statement implementing unit? report is prepared on monthly basis by the Branch office submitted to Head office (HO). 7.3 What is the frequency of preparation of financial Quarterly; Yes The financial statement statements? Are the reports prepared in a timely report is prepared on fashion so as to useful to management for monthly basis by the decision making? Branch office submitted to Head office (HO). HO prepares the report quarterly. Branch office submits to Finance Department and to MD. 7.4 Does the reporting system need to be adapted to Recently established yet report on the project components? to report project component 7.5 Does the reporting system have the capacity to No link the financial information with the project's physical progress? If separate systems are used to gather and compile physical data, what controls are in place to reduce the risk that the physical data may not synchronize with the financial data?

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Topic Response Remarks 7.6 Does the project have established financial No management reporting responsibilities that specify what reports are to be prepared, what they are to contain, and how they are to be used? 7.7 Are financial management reports used by Yes The financial management? management report is prepared annually for presenting in AGM 7.8 Do the financial reports compare actual No expenditures with budgeted and programmed allocations? 7.9 Are financial reports prepared directly by the No automated Manually prepared on automated accounting system or are they accounting system; Excel spreadshet prepared by spreadsheets or some other Only in Excel means? Spreadsheet 8. Information Systems 8.1 Is the financial management system Yet to be Excel Spreadsheet not computerized? computerized fully computerized 8.2 Can the system produce the necessary project No Manual exercise for financial reports? financial report 8.3 Is the staff adequately trained to maintain the No system? 8.4 Does the management organization and Yes No staff is trained on the processing system safeguard the confidentiality, computerized accounting integrity and availability of the data? system TA 4893-NEP May 2010

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TA 4893-NEP Project Feasibility Study

APPENDIX 5

Outline Terms of Reference for Consultant Services

1. Design and Supervision Consultants (DSC) (page 1)

2. Community Awareness and Participation Consultants (CAPC) (page15)

3. Benefit Monitoring and Evaluation Consultants (BMEC) (page 18)

TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Outline Terms of Reference for Consultant Services

1. DESIGN AND CONSTRUCTION SUPERVISION CONSULTANTS

A BACKGROUND 1. Kathmandu Valley is currently suffering from chronic water shortages with inefficient service delivery and severely polluted rivers. To improve the present conditions of water supply and wastewater services in Kathmandu Valley, the Government of Nepal (GoN), with the assistance of several development partners, has embarked on a two-pronged improvement strategy that includes capital investments for system infrastructure improvement and institutional reforms. In order to assist GoN, Asian Development Bank (ADB) has provided three loans covering both infrastructure investment and institutional reforms, namely Loan 1820-NEP: Melamchi Water Supply Project1 and Loans 2058/2059- NEP: Kathmandu Valley Water Services Sector Development Program2. In order to meet the increasing service demands on the water supply and wastewater systems in the Kathmandu Valley and to consolidate and build on the success of previous investments, ADB is providing further financial assistance to improve the water sector infrastructure. 2. GoN has managed to achieve substantial progress in institutional reforms in the water services sector of Kathmandu Valley, including the separation of asset ownership from management, establishment of an independent regulatory commission for regulating the water tariffs, and setting up an autonomous water operator company under the Company Act. Three key entities, namely: (i) the Kathmandu Valley Water Supply Management Board (KVWSMB), asset owner of water and wastewater systems within the Kathmandu Valley; (ii) the Water Supply Tariff Fixation Commission (WSTFC) responsible for the economic regulation of the sector; and (iii) the Kathmandu Upatyaka Khanepani Limited (KUKL) in charge of operating the assets under lease and license from KVWSMB, have been established. Relevant laws3 have been amended and enacted to allow the implementation of these institutional reforms. 3. KUKL has been set up with a Public Private Partnership (PPP) model under the Companies Act, where 15% of its share ownership lies with the private sector representatives and the remaining is shared between the municipalities, who have the majority share ownership, the government and the employees trust. KVWSMB is a public statutory entity, which as the asset owner is also responsible for developing and overseeing service policies, and providing license to KUKL for the operation and management of service system in Kathmandu Valley. All the three entities have been established and are currently fully functional.

1 Loan 1820-NEP(SF): Melamchi Water Supply Project (MWSP), for $120 million, approved on 28 November 2000. infrastructure development, social and environmental support, institutional reform, project implementation support, co-financing with JBIC, JICA, NDF, OFID. Major change in scope and implementation arrangements to the project mainly to (i) split the project into two subprojects, (ii) re-allocate the cost reflecting funding gap, and (iii) extension of loan closing date to 2013, was approved on 7 February 2008. 2 Loans 2058/2059-NEP(SF): Kathmandu Valley Water Services Sector Development Program (SDP), for $5 million and $10 million, respectively, approved on 18 December 2003, institutional reforms for water services sector in Nepal. Major change in scope and implementation arrangements to the project, mainly to change the modality of management support to KUKL, was approved on 7 February 2008. 3 The Water Supply Management Board Act, the Water Supply Tariff Fixation Commission Act and the Amendment to the (existing) Nepal Water Supply Corporation Act.

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4. KUKL has entered into a 30 year lease agreement for the assets and is operating the water services system in the Kathmandu Valley under a License since 13 February 2008. It has fully taken over the operations of Kathmandu Valley’s water and wastewater services from the previous public water utility operator Nepal Water Supply Corporation (NWSC). 5. The existing water supply system in Kathmandu Valley broadly consists of seven sub-systems. Each sub-system is fed by a number of surface- and ground water sources. Yields of these sources are seasonal with a maximum during the wet season (July-October) and a minimum during the dry season (February - June). Apart from these surface sources, groundwater 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 groundwater level. The current piped water supply demand in Kathmandu Valley, including unaccounted-for water, is estimated to be over 200 million liters per day (MLD). However, the combined production capacity of the groundwater and surface water sources in the dry season is about 100 MLD and even in the wet season, the production capacity only reaches 150 MLD. 6. Under these water shortage conditions, KUKL has applied a rationing system whereby water is allowed to flow to different sections of the metropolitan/urban area in rotation. The control system developed by KUKL is complex to implement as it requires KUKL staff to operate some 1000 valves in the system. The result is an inequitable distribution of water, particularly as the areas close to the water sources are very difficult to isolate. While some parts of the city have an abundance of water and enjoy 24-hour supply, a large share of the population only receives water for a few hours every 2-5 days and even then, the pressure is low and the quality is poor. As most areas receive intermittent supply with low pressure, use of pumps to suck water and bypassing of water meters are believed to be quite common techniques used by the consumers. Water quality at the consumers’ end is far less than desired and it is a common practice to treat or boil water before drinking or cooking. While the basic cost of piped water in Kathmandu may be cheap, the indirect costs associated with its use are unreasonably high. In a survey conducted in year 2000, it was found that 86% of households use secondary sources of water such as shallow wells or private tanker supplies (costing in excess of $5.00/1,000 liters) just to meet their basic needs. 7. Currently KUKL operates about 160,400 consumer connections ranging in size from ½” to 4”. Out of this, 142,992 are metered connections, 16,213 un-metered connections and 1196 are public stand-posts. However it is believed that a large number of meters are not in working condition. Almost 99% of the customer connections are of ½” size. These connections are served by a distribution network of about 1240 Km in total length, comprising of pipes ranging from 50 mm to 800 mm diameter. Out of this, about 256 Km or about 22% are of 200 mm and larger diameter, while the smaller diameter pipes - ranging in size from 50 to 80 mm - constitute about 639 Km or 54.8% of the network. Most of the smaller diameter pipes are of Galvanized Iron (GI) and constitute about 464 Km or 40.2%, and the remaining pipes are of Ductile Iron (281 Km or 24.1%), Cast Iron (344 Km or 29.5%), HDPE (56 Km or 4.8%), PVC (13.7 Km or 1.2%) and Steel (2.7 Km or 0.23%). 8. In order to provide management support to KUKL a capacity-building and public- private partnership support team (the CBP team) will be engaged by KUKL by mid 2010, who will focus on long-term capacity building and strengthening of KUKL’s management and operational resources. The CBP team, reporting to the General Manager of KUKL will be

Appendix 5 - Consulting Services TORs Page 2 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study fully responsible for management of service operation and preparation of a Capital investment and asset management program (CIAMP). The project shall be managed by the Project Implementation Directorate (PID) headed by a project director. The project director, who reports directly to KUKL board, shall have full authority for implementation of the project. 9. GoN, through support from various development partners, has been trying to implement a water supply distribution network improvement program in Kathmandu valley for many years. In 1992-99, a detailed design of water supply system and distribution network was undertaken for rehabilitation and improvement under the Urban Water Supply and Sanitation Rehabilitation Project with financing support from the World Bank. Although tendering was undertaken, the rehabilitation and improvement works were not implemented. 10. In 1999-2000, MWSDB carried out detailed design of the bulk distribution system (BDS) for supplying water from the Melamchi River to the distribution network in Kathmandu Valley. The detailed design included design of bulk distribution pipelines from proposed water treatment plant near Sundarijal to several service reservoirs proposed to be located around Kathmandu Valley. Land acquisition for reservoirs in Mahankal Chour, Bansbari and six other locations including the 5.2 km long transmission line from Water Treatment Plant to Gokarna junction was completed by MWSDB, and subsequently transferred to KVWSMB. 11. In 2002-04, a study was undertaken by the Japanese Bank for International Corporation, JBIC, under Special Assistance for Project Implementation (SAPI) to develop a basic strategy for improving and rehabilitating the existing distribution network in Kathmandu Valley and review the BDS design earlier carried out by MWSDB. The SAPI study report recommended a strategy for phased development of water treatment plants and the BDS and to develop a conceptual plan for the rehabilitation and improvement of the water supply distribution network and wastewater system in Kathmandu Valley. 12. In 2006 and 2007, MWSDB engaged TATA Consulting Services to carry out detailed design and prepare tender documents for a demonstration scheme at Minbhawan and Baneshwor (Ward no. 34 and 10), Kathmandu covering an area of about 111 hectares (the Demonstration Scheme). The civil contract for this Demonstration Scheme works package was awarded in December 2009 under Loan 1820-NEP Subproject-2,. 13. In 2005, a JICA assisted study prepared an updated comprehensive digital map of water supply distribution network in Kathmandu Valley. Based on this CAD based digital map, a GIS database of water supply network was prepared in 2008. In 2009, Kathmandu Valley Town Development Committee, under the Ministry of Physical Planning and Works prepared a detailed digital land use map of municipalities of Kathmandu Valley based on the aerial photo taken in late 2006 to early 2007. 14. In 2009, ADB engaged consultants under PPTA 4893-NEP: Kathmandu Valley Water Supply and Wastewater System Improvement. The PPTA finalized the configuration of bulk distribution system (BDS) and distribution network improvement (DNI) and prepared a Conceptual Wastewater Master Plan for wastewater system improvements (WSI). The configuration of BDS, distribution network improvements and wastewater improvements prepared by the PPTA form the basis for detailed design for this consultant services package. 15. GoN has commenced implementing water sector infrastructure development under Loan1820-NEP: Melamchi Water Supply Project (MWSP) with the assistance of ADB and

Appendix 5 - Consulting Services TORs Page 3 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study other partners. The MWSP is in two distinct subprojects, 1 and 2. Of the two sub-projects, Melamchi Water Supply Development Board (MWSDB) is implementing sub-project 1. This will initially divert about 170 MLD water from Melamchi River through a 26.5 Km long tunnel and treat it at the proposed water treatment plant near Sundarijal, near Kathmandu. The infrastructure development under Loan 1820-NEP MWSP subproject-2 and this Project loan include the phased construction of the BDS and DNI to distribute the water from MWSP-1 and WSI to collect and treat the resultant wastewater. The implementing agency for the proposed capital investment works for the water supply and wastewater systems, within Kathmandu Valley, is the Water Utility Operator, KUKL. 16. KUKL is currently implementing a number of urgent works under the Immediate Improvement Program with funding from these two loans, Loan 1820-NEP Subproject 2 and Loan 2059-NEP, to increase the availability of water and to achieve a more equitable distribution. The detailed design and supervision of these works are being carried out by other design and supervision consultants, separately engaged by KUKL.

B OBJECTIVE OF THE CONSULTANT SERVICES 17. The objectives of the proposed consultant services for design and construction supervision is to conduct the detailed design and construction supervision of the distribution Bulk Distribution System (BDS) 4 , network improvement (DNI) and wastewater system improvement (WSI) on behalf of the PID of KUKL and to provide project management support. The Design and Supervision Consultants (DSC) will also review and update detailed designs including technical specifications and contract documents prepared by the DSC under Loan 1820-NEP for the first year packages of this Project loan.

C SCOPE OF SERVICES 18. The DSC reporting to the KUKL PID shall work under the overall guidance and direction of the PID Project Director. The Consultants shall also assist PID in project administration and management. Project Management Support 19. The DSC consultant shall support PID in project management throughout the life of the project (in all three parts as detailed below) by conducting the following activities. The payment for project management support shall be made on time input basis. i) Financial accounting and project accounting report ii) Performance monitoring: ensuring compliance with loan covenants/ safeguard requirements during implementation; iii) Inter-utility management coordination; iv) Assisting PID in preparing reports for submission to KUKL, MPPW, KVWSMB, ADB and other agencies as required Part 1: Detail Design. 20. The DSC shall deliver the following design outputs within an agreed timeframe. They will be paid a fixed sum of money for delivering these outputs.

4 Preliminary design of BDS has been carried out. The Consultants will update and finalize the detailed design based on the configurations indicated in reports prepared by TA 4893-NEP.

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(a) Detailed design, including drawings, cost estimate, etc, and tender documents for the BDS (bulk mains and service reservoirs) based on the configuration prepared under TA 4893-NEP; (b) Detailed design, including drawings, cost estimate, etc, for distribution network improvements (DNI) in selected service areas including preparation of cost estimates, specifications and tender documents; (c) Prepare/update detailed design of rehabilitation and expansion of domestic wastewater collection network in selected areas based on the wastewater network development plan prepared under Loan 1820-NEP; (d) Prepare detail designs, drawings, cost estimates and contract tender documents for wastewater treatment plant upgrading, including septage treatment facilities; (e) Identify equipment and material requirements for improving operation and maintenance of water supply and wastewater assets, prepare cost estimates and contract tender documents. 21. Associated design tasks shall include: (a) Review of CIAMP and Project Feasibility Study reports on the configuration of water supply BDS and DNI systems (including service reservoirs) prepared by TA 4893 NEP. (b) Review the Conceptual Wastewater Master Plan prepared by TA 4893 NEP. (c) Review water supply design criteria prepared under TA 4893-NEP including key aspects such as population projections, water demand, minimum and maximum pressures, friction coefficients, maximum flow velocity, location of air valves and washouts, maximum length of house connections, minimum pipe cover, pipe materials and bedding etc. The Consultant shall review current fire-fighting arrangement and make recommendations on the provision of hydrants. (d) Review the detailed hydraulic analysis of water supply distribution network within the service area of KUKL for a design period up to 2025. The consultant shall update preliminary cost estimate of distribution network improvement works for all parts of service area in Kathmandu Valley5. The consultant shall work with nominated KUKL staff in the operation of hydraulic model. (e) Undertake verification of existing distribution mains within the project area in conjunction with KUKL staff and collect available data on pipe age, material, type of joints and condition through non-intrusive inspection. (f) The Consultant shall collect available information on services (including, electricity, telecommunications, sewerage, drainage, etc.) and include them on the layout drawings to be prepared. In preparing the system layout, due consideration will be given to other existing and proposed municipal services with particular attention being paid to the space requirements for future wastewater network expansion, if not already existing.

5 Preliminary design and cost estimates of the distribution network in Kathmandu Valley have been prepared by TA 4893-NEP as part of the Capital Investment and Asset Management Plan (CIAMP).

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(g) Update topographical base maps showing details of existing infrastructure (water supply, sewer/drains, electricity cables, telephone cables, etc) on GIS platform, i.e., showing all of the above mentioned details in different layers6 within the urban areas of KUKL’s service area covered by the detailed digital land use map to international best practice standards. The base maps are required to be updated subsequently with as-built drawings for areas where the BDS, DNI and WSI works have been implemented and monitored by the DSC; (h) To the extent possible, maximum use will be made of the existing water supply distribution and wastewater networks. Where existing main pipelines are to be used, provision shall be included in the tender documents for testing of the water supply mains or cleaning of sewers, together with provisional quantities for rehabilitation and/or replacement. (i) The water supply system designs shall include all associated works including house connections, gate valves, air valves, washouts, hydrants, chambers, thrust blocks, pressure reducing valves, bulk supply and consumer meters, etc. The Consultant will prepare structural drawings, including bar-bending schedules as appropriate. (j) Review the Wastewater Asset Condition Survey and Report, to be prepared under Loan 1820-NEP. This shall include computerized records of location, size, depth, gradient of piped assets and appurtenances linked to a GIS system with their condition to assist in identification of a prioritized remediation program. (k) Review the Wastewater Network Development Plan to be prepared under Loan 1820-NEP which is intended to be the guiding technical document to ensure a consistent and logical approach to future sewer network development. (l) Prepare detailed designs for wastewater network rehabilitation and expansion based on the Asset Condition Survey and Wastewater Network Development Plan for selected areas including cost estimates, drawings, contract packaging, and tender documents. (m) Review the functional designs prepared under Loan 1820-NEP to upgrade existing wastewater treatment plants (WWTPs) including septage treatment facilities at Sallaghari, Kodku and Dhobighat. Assess the condition of existing Waste Water Treatment Plant (WWTP) at Hanumanghat and prepare package for improvement in coordination with Bagmati Action Plan (BAP). Undertake an environmental baseline water quality survey of WWTP receiving water courses. Prepare wastewater treatment process designs, sludge / septage management plans, drawings, specifications, cost estimates and contract tender documents; (n) Prepare tender documents including instructions to tenderers, tender forms, conditions of contract, technical specifications, schedules, bills of quantities and drawings, specifications, etc. for the procurement of materials and the construction of the works mentioned above and assist KUKL in procurement process;

6 A GIS database of water supply network has already been prepared in 2008 based on a CAD based updated comprehensive digital map of distribution network in Kathmandu Valley developed through JICA support. Also, Kathmandu Valley Town Development Committee, under MPPW has prepared a detailed digital land use map of municipalities of Kathmandu Valley based on the aerial photo taken in late 2006 to early 2007.

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(o) Conduct necessary topographical and geotechnical surveys for the design of the water supply and wastewater improvements and updating base maps. (p) Identify any further land acquisition requirement and costs that may be required and provide all information required in relation to right-of-way access as well as the relocation of existing utilities, if required, and other obstructions at the proposed work sites. (q) Update the existing social and environmental safeguards documents for MWSP Subproject-2 (i.e. Management Plan for Temporary Business Impacts during Pipeline Construction and Environmental Management Plan), including business surveys for temporary disruption compensation due to full-road closures based on completion of the above detailed design activities. (r) In compliance with the Environmental Management Plan (EMP) develop a strategy to overcome the difficulties of construction/traffic management in narrow city streets and also prepare detailed plans for detour of traffic during excavation for pipe laying. Propose and implement mechanism for coordination among all stakeholders such as traffic police, roads department, user committees, etc, for smooth construction execution. Particular attention will given to working near buildings and structures of cultural significance and in heritage zones involving close coordination with the Department of Archaeology and UNESCO. (s) As part of the EMP prepare a project focused Occupational Health and Safety Plan (OHS) to be adopted by PID, DSC and contractors on project work sites. (t) Provide awareness training on OHS, environmental impacts and mitigation measures to KUKL / PID and contractors; (u) Coordinate and direct community awareness and sensitization activities, through the Community Awareness and Participation Consultant (CAPC), NGOs and community workers, to communicate with the general public to generate support for implementation of the proposed water supply and wastewater improvements to ensure coordination and minimization of disruption of services to the public; (v) Prepare a detailed implementation schedule and work plan for all DSC activities covering all stages of the implementation process from field survey and investigations to acceptance of finished work. 22. All detailed design reports will include technical specifications, engineering drawings, final bill of quantities and should also contain the life cycle cost analysis. The bid documents should be prepared in full conformity with ADB’s procurement guidelines and procedures. 23. While preparing the detailed design, the DSC should consider and incorporate a long-term unaccounted for water control for KUKL as well as sustainability of assets and build-in all necessary arrangements/ systems in the design and construction of the distribution systems designed under the scope of this contract. Part 2: Procurement 24. The DSC will assist the PID in the entire procurement process including invitation for bids/EOIs, opening of bids/proposals, evaluation of bids/proposals, prequalification or short listing of firms/contractors (where appropriate), and award of contract. The DSC shall be

Appendix 5 - Consulting Services TORs Page 7 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study paid for this service on time input basis. It is expected that the following contract packages shall be managed by the DSC: i. Bulk Distribution System (BDS) (Ring, transversal and feeder mains) – 3 packages. ii. Water Supply Service Reservoirs – 2 packages iii. Distribution Network Improvements (DNI) – 6 packages iv. Wastewater System Improvements (WSI) – 5 packages. v. Equipment and Materials – 3 packages. Part 3: Construction Supervision 25. The consultant shall assist KUKL in carrying out contract management activities and construction supervision of all the contract packages defined above (and others as the determined during detail design). The DSC shall ensure that all works and equipment installation are completed in accordance with the prescribed specifications under a sound quality assurance system. The supervision tasks will include but not be limited to the following; (a) check the line level, layout of the construction to ensure conformity with the detail design and specifications, (b) assess the adequacy of all inputs such as material and labor provided by the contractor and the construction methods proposed by the contractor and ensure that they are satisfactory with particular reference to the technical requirements, agreed project implementation schedule and environmental and other compliance requirements as well as health and safety aspects of the workers and the general public, (c) prepare simplified checklists for quality assurance and control of works for the use of field staff, train all personnel in PID and KUKL branches in their usage, and ensure that they are being used properly by monitoring and record keeping, (d) propose and present for approval any change in the plans that may be deemed necessary indicating any effect the change may have on the works contract and prepare all change/ variation orders, (e) supervise construction of project components, monitor construction and quality control methods, (f) certify that quality of works as well as materials conform to the specifications and detail design / construction drawings, (g) furnish all revisions and detailed drawings as necessary during the continuance of the contract, (h) attend third party inspections as necessary, (i) assist in preparing planned maintenance procedure, (j) check installation, tests and commissioning, (k) prepare measurement for works completed and in progress and verify bills for payment to the contractors / suppliers by PID,

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(l) provide certification on the quality of the works accomplished and on their conformity to specifications and drawings, (m) ensure that works are constructed to the prescribed quality in accordance with specifications of the tender documents and quality assurance system, (n) prepare as-built drawings of the completed works, (o) assist the PID in the resolution of contractual issues including review, evaluation and confirmation of contract variation orders as required, (p) assist the PID with overall contract management, (q) prepare a Quality Assurance and Control Manual for all works implemented under the Project and train the appropriate KUKL PID personnel as well as representatives from the KUKL branches and head office in its use. Copies to be provided to KUKL PID and all relevant branches in KUKL, (r) assist PID in implementing the social and environmental safeguards requirements pursuant to the EMP with particular regard to: a) temporary road closures and traffic management plan; b) compensation for temporary disruption of businesses; c) OHS and site safety; d) protection of cultural and heritage sensitive buildings and structures. (s) monitor compliance with all safeguards requirements of the project and prepare monthly and annual environmental and social compliance reports for all works in accordance with the EMP and RAP for the project, (t) identify training requirements, provide on-the-job training for KUKL staff on new procedures introduced as well as ADB procurement procedures where required, (u) prepare monthly and quarterly monitoring reports for KUKL PID for submission to various authorities including ADB, as per the prescribed requirements of the concerned authorities, and (v) Assist PID to set up a project performance monitoring system (PPMS) and carry out all necessary tasks identified by the project performance monitoring system for the project. 26. The DSC will also assist PID with the Management Plan for Temporary Business Impacts during Pipeline Construction and the Community Awareness and Participation Program. This will include the following tasks: (a) Assist and advise the PID in the coordination and monitoring of the community awareness and participation programs developed and managed by the Community Awareness and Participation Consultant (CAPC). The CAPC will also be involved in the Management Plan for Temporary Business Impacts during Pipeline Construction. The CAPC will be engaged to coordinate and provide transparency in the setting and ensuring distribution of compensation payments to affected persons for temporary business disruption or other agreed project related damages or grievances; (b) Assist and advise the PID to manage and co-ordinate the implementation of environmental public health and water optimization awareness programs with special reference to women;

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(c) Provide continuous guidance on suitable mechanisms for participatory interaction and training of local government and CBOs; (d) Monitor performance and impact of community participation, where necessary suggest adjustments in the program and mechanisms employed; review field reports and advise PID on action required; and (e) Prepare annual reports on performance and impact of community participation and awareness activities.

D STAFFING 27. The estimated personnel requirement for design and construction supervision for the scope of works as outlined above is indicated in Table-1. The basic professional requirement for individual DSC staff is indicated in Table-2.

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Table 1: Staffing Requirement Person-Months Key Personnel Design Procurement Supervision DLP Total A.1 International 1 Team Leader / Water Supply 9 2 24 1 36 Expert 2 Water Distribution Specialist 6 0 4 10 3 Wastewater Network Specialist 6 0 4 0 10 4 Wastewater Treatment Process 6 0 2 0 8 Expert 5 Procurement Specialist 2 4 0 0 6 6 Construction Management 0 0 11 1 12 Specialist 7 Quality Assurance and Control 2 0 4 0 6 Specialist 8 Hydraulic Network Modeler 6 0 0 0 6 Total for A.1 International Experts 37 6 49 2 94 A.2 National 1 Deputy Team Leader / Water 18 5 36 1 60 Supply Engineer 2 Water Supply Engineer 18 6 36 0 60 3 Wastewater Engineer 18 5 36 1 60 4 Water Supply Engineer / 36 0 46 2 84 Quantity Surveyor x 2 5 Procurement Specialist 12 8 4 0 24 6 Electro-Mechanical Engineer 8 2 8 0 18 7 Civil/Structure Engineer 12 0 12 0 24 8 Social Development Expert 5 0 42 1 48 9 Environmental Expert 5 0 42 1 48 10 Construction & Utility 4 0 20 0 24 Coordination Expert 11 Quality Assurance and Control 4 0 20 0 24 Specialist 12 Construction Supervision 0 0 196 4 200 Engineers x 4 13 Financial Management Expert 9 2 24 1 36 14 Performance Evaluation and 2 0 15 1 18 Monitoring Expert 15 Hydraulic Network Modeler 16 0 0 0 16 16 CAD Operators x 4 72 0 48 0 120 Total A.2 for National Professionals 239 28 585 12 864 Grand Total for Professionals 276 34 634 14 940 Notes: a) The above professional staffing requirement is indicative only. The DSC bidder may propose changes / reallocation in the above staffing requirement for and among each of the three phases if deemed necessary with appropriate justifications. b) In addition to above professional staff, the consultant’s financial bid should also indicate accounting and administration / office support staff requirements.

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Table – 2: Basic Professional Requirements of Personnel

Designation Basic Requirements Key Personnel Team Leader cum Graduate Civil Engineer (preferably post graduate) with at least 15 years Water Supply Specialist experience including at least 10 years’ experience in design and construction supervision or project management of large water sector project(s). Should have specific experience of managing as team leader of minimum two large water sector projects costing more than US$ 10 million. Experience of externally funded projects (ADB or World Bank) in capacity of Team Leader/ Construction Manager would be advantageous. Dy. Team Leader/Water Graduate Civil Engineer (preferably post graduate) with at least 15 years Supply Engineer experience including at least 10 years’ experience in water supply field with specific experience in design and construction supervision and quality assurance programs in the water retaining structures, water supply pipelines and equipment installation. Should have experience of working as a team leader/ deputy team leader in a large water supply project. Previous experience in externally funded projects would be advantageous. Water Supply Graduate Engineer (post graduate preferred) with at least 15 years Distribution Network experience including at least 10 years experience in design of water Specialist supply and sewerage distribution network for large urban areas. Experience of externally funded projects (ADB or World Bank) would be advantageous. Hydraulic Network Graduate Engineer with at least 10 years experience including 8 years Modeler experience in modeling (4 years for national consultant) especially the hydraulic modeling of water supply network of large urban areas. Wastewater Engineer Graduate Engineer (post graduate preferred) with at least 15 years experience including at least 5 years experience in design, construction management, supervision and quality assurance programs of large sewerage projects. Specific training and experience in sewerage network management and waste water treatment related works shall be desirable. Experience of Externally funded projects (ADB or World Bank) would be advantageous. Wastewater Treatment Graduate Engineer (post graduate preferred) with at least 10 years Process Expert experience including at least 5 years experience in process design and or construction of wastewater treatment plants. Experience in rehabilitation and upgrading of existing wastewater treatment plants would be advantageous. Experience of externally funded projects (ADB or World Bank) would be preferred Procurement Specialist Graduate engineer (post graduate preferred) with at least 10 years experience with minimum 5 year experience in procurement process under multi-lateral donor funding and familiar with ADB procedures with regards to procurement on the basis of international bidding, national bidding and shopping procedures. Construction Graduate Engineer (post graduate preferred) with at least 10 years Management Specialist experience in construction management, supervision and quality assurance programs of large water supply projects, pipe lines, water treatment plants, intake structures and pumping stations. Should have experience of construction of large water supply projects and other civil works. Previous experience in externally funded projects (ADB or World Bank) would be advantageous.

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Designation Basic Requirements Construction & Utility Graduate Engineer (post graduate preferred) with at least 10 years Coordination Expert experience in construction management, supervision and quality assurance programs of large water sector projects in congested urban areas. Should have experience in the location of underground utility services, coordinating construction works with utility agencies and organizing traffic management in cooperation with traffic police. Previous experience in externally funded projects (ADB or World Bank) would be advantageous. Quality Assurance and Graduate engineer (post graduate preferred) with at least 10 years Control Specialist experience in quality assurance and control of development projects. The experience in the field of water supply projects will be preferred. Water Supply Engineer Graduate Engineer (post graduate preferred) with at least 15 years experience including at least 10 years experience in design, construction management, supervision and quality assurance programs of large water supply projects, pipe lines, water treatment plants, intake structures and pumping stations. Specific experience of rehabilitation of water supply facilities and leak detection techniques, consumer & bulk water metering would be preferred. Experience of Externally funded projects (ADB or World Bank) would be advantageous. Electro-Mechanical Graduate engineer (post graduate preferred) with at least 10 years Engineer experience in the field of mechanical/electrical/instrumentation engineering, including experience in water supply and power system projects. Specific experience in design and installation of electro- mechanical equipments in deep tube wells and booster pumps is required. Experience of Externally funded projects (ADB or World Bank) shall be preferred. Civil/Structural Post graduate structural engineer with at least 10 years experience in the Engineer field of structural engineering, including detailed design, engineering & preparation of detailed project reports for different nature of structures. Familiarity with structural design computer programs and experience in design of water retaining structures, bridges, retaining walls and other civil structures will be preferred. Social Development Post Graduate in Social Sciences with at least 10 years experience in the Specialist monitoring of the environmental parameters and mitigating measures. Should have experience in implementing social safe guard policies (resettlement and environment) and community based projects. Experience in similar water supply development projects and particularly on Externally funded projects (ADB and World Bank) will be advantageous. Environment Expert Post Graduate in Environmental Sciences / Engineering with at least 10 years experience with knowledge of EIA studies and monitoring of the environmental parameters and mitigating measures. Experience of Externally funded projects (ADB or World Bank) will be preferred. Water Supply Graduate Engineer (Civil) with at least 3 year experience in design of Engineer/Quantity water supply works and or preparing bill of quantities and cost estimate Surveyor and bid documents. Construction Graduate Engineer (Civil) with at least 3 year experience in construction Supervision Engineers supervision of works and quality assurance program. The construction supervision experience in the field of water supply is preferred. CAD Operators Qualified technicians with at least 3 years’ experience as CAD operators. Operator with experience of exchanging data between modeling software and CAD is advantageous.

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E. DELIVERABLES 28. The DSC consultants’ period of engagement shall be for a period of 60 months starting from January 2012. The Team Leader shall be responsible for overall management of design and construction supervision, delivery of required outputs and consolidation of all required reports and deliverables under the contract. The planning and deployment of manpower shall be arranged such that the person-months allocations among design, procurement management and construction supervision parts shall be optimum. It must also be ensured that the mobilization of consultants’ resources, including manpower, during the supervision of works will fully match with the implementation schedule of the construction contractor so that there will be no unnecessary cost overruns during the supervision phase.

F. REPORTING 29. All reports shall be submitted in hard copy (5 copies) and electronic form in a format suitable for use by the recipients, which include KUKL, MPPW, KVWSMB, ADB and other agencies as required and advised by the PID. Progress meetings will be held, at minimum every 2 weeks, with KUKL to review progress and resolve implementation issues. 30. The following constitute a minimum reporting requirement under the contract. KUKL may request the DSC for further reports as and when required.

1. Reports 2. Timeline 3. Description 1. Inception report 2 months after Detailed work plan and schedule mobilization Preliminary assessment of each of the outputs required and action plan on them, including review of existing information and system 2. Monthly 5th day of every Progress on delivery of each of the outputs progress reports month Key issues and constraints Updated project schedule Any changes in scope or personnel etc 3. Interim report for Halfway through Preliminary design report each of the design the each output Preliminary cost estimates outputs delivery date Issues and constraints 4. Quarterly Within 2 weeks of (i) physical and financial progress and forecast; progress report end of each (ii) resources utilization status and plan; (iii) social & quarter-year after environmental monitoring report and safeguards mobilization. compliance status; (iv) other loan covenants compliance status; (v) PPMS-updated status of achievements of milestones, outputs and outcomes. 5. Annual progress Before end of Summary of reporting requirement of 4 above for all report 13th, 25th, 37th and aspects of KUKL PID’s works and activities under 49th month after Project loan including accounting and financial mobilization. summary 6. Draft final 1 month prior to Draft final reports including drawings, bidding reports for each of output delivery documents. the design outputs date 7. Final report on On the specified Detailed final report for output, including engineering each of the design delivery date specifications, drawings, BOQ, cost estimates, etc and outputs full tender documents 8. Final report Within the 63th  Summary of all completion reports on all of the design month after and contracts prepared and or managed by the DSC mobilization. and summary of annual progress reports and PPMS;  Updated base maps with as built drawings incorporated.

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2. COMMUNITY AWARENESS AND PARTICIPATION CONSULTANTS

Overview 1. A domestic Community Awareness and Participation Consultant (CAPC) firm will be recruited to facilitate community awareness and participation programs (CAPP) on project related issues. Duties will be in three interrelated sections of: (a) Community awareness and peoples participation in project activities; (b) Health and Hygiene Education; and (c) Facilitating Public Disruption due to Construction related activities.

Scope of Services 2. The CAPC shall work within the overall ambit of the KUKL PID under the direction of the Project Director. It shall liaise intensively with the DSC and the KUKL PID Social and Environmental Safeguards Unit. Amongst other things, the CAPC will undertake the following specific tasks:

A. Community Awareness and Peoples Participation 3. Approaches for stakeholder awareness and participation will involve preparation of information materials and media campaigns. The Information, Education and Communication (IEC) materials will be developed using mass-media techniques. Design of the system and delivery of the messages will be the responsibility of the professional public relations company. The activities will include: (a) Inventory and review recent and current community-based development initiatives in Kathmandu Valley; organizations involved, mechanisms used, and successes achieved; (b) The CAPC will closely consult with the PID Social and Environmental Safeguards Unit and the DSC social and environmental safeguard specialists and work with local communities while preparing materials for public awareness campaigns. Education and awareness materials likely to include posters, billboards, leaflets, stickers and streamers for community display as well as newspaper advertisements and television features, videos and radio spots / messages of about 30 second duration; (c) Plan and deliver initial briefing, training and orientation of PID and DSC in community awareness and participation programs; (d) Development and promotion of a Project Policy Agenda; (e) Preparation of IEC materials, advertisement clippings, maintaining the project Website, etc.; (f) Plan and organize regular training events, including workshops and seminars for the duration of the Project; (g) Create awareness among stakeholders regarding long-term benefits and short- term inconveniences of the Project in order to gain full support of the beneficiaries for the Project;

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(h) Transfer of information about the Project, such as, information on the location of KUKL PID project site offices and names of relevant officers, temporary road closures and traffic diversion routes to target groups; (i) Create awareness among beneficiaries regarding their responsibilities, including issues such as water use conservation and health care facilities and their optimal use for achieving the goal of the Project; (j) The CAPC will ensure that the CAPP implementation is fully coordinated with scheduled construction activities; and (k) Conduct regular public consultations / focus group discussions, with particular attention to women and vulnerable groups, to monitor community sensitization to the CAPP. Provide feedback to the PID and DSC with a view to adjusting the CAPP and/or work program based on the impact of the campaign and concerns raised by the beneficiaries. B. Health and Hygiene Education (a) Review IEC material prepared by other agencies in the health sector and assess its possibility to be properly utilized. Co-ordination will be ensured with agencies like WHO, UNICEF, Health department and health and education units of VDCs/Municipalities and others. (b) Prepare a plan for Health and Hygiene Education, especially focusing on women and children in order that the benefits of improved services are properly realized by the citizens. (c) Effectively carry out the Health and Hygiene Education plan in collaboration with KUKL, Municipalities and other important stakeholders of the subproject. (d) Co-ordinate with Community Awareness and People’s participation; Capacity Building activities as related to Health and Hygiene Education. (e) Create awareness regarding preventive care to avoid any health related hazards and the dangers of construction sites with a special focus towards women and schools relating to children and deep excavations; C. Public Disruption due to Construction Works 4. Public Disruption due to Construction related activities will involve providing advice to communities on what to do in the event of project related construction site problems and the grievance redress mechanism. The CAPC will assist in the preparation and monitoring of the Management Plan for Temporary Business Impacts during Pipeline laying and other construction works. Activities will: (a) Provide an awareness campaign on the scope of the Project, including environmental and social issues, such as, temporary disruption to businesses and compensation entitlements, plus the need for water optimization and conservation, through various media means; (b) Support PID and DSC in identifying and enlisting the Affected Persons (APs). Organize regular individual and/or joint meetings of APs with KUKL and DSC; provide complete information to APs about project activities (documents translated in the local language and to be given to APs), benefits accruing to the citizens as a result of the proposed subproject; and help them understand their

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important role in the subproject implementation. Participatory methods should be used to organize these meetings, especially for involving the vulnerable sections of APs. (c) Assist PID and DSC to coordinate and provide transparency in the setting and ensuring distribution of compensation payments to affected persons for temporary business disruption or other agreed project related damages or grievances; (d) Ensure that the APs are given full entitlements due to them according to the entitlement matrix. Support the APs, in collaboration with the relevant authorities, in cases of relocation and rehabilitation, including counseling. Staffing 5. The qualifications and experience requirements of key personnel are given below. CAPC Staff Qualifications, Experience and Person-months

Specialist Desired requirements Person- Months

1 Public Awareness A Graduate in Sociology or related field with at least 10 48 Expert / Team Leader years experience in media campaigns, PRA techniques, community mobilization, social development work, especially in the field of water and sanitation. Experience of working on programs for the poor and disadvantaged groups in externally funded projects is also desirable. 2 Community A Graduate in Education or related field with at least 7 36 Mobilization Expert years of experience in PRA techniques, participatory cum Training teaching-learning methods, especially for adults on health, Coordinator hygiene, sanitation, solid waste management and community development work. 3 Social Safeguards / A graduate in engineering or social discipline with at least 36 Resettlement 10 years experience in developing and implementing resettlement plans especially in externally funded projects. 4 Sanitation / Public A Graduate in Public Health with at least 7 years 12 Health Expert experience in health and hygiene education and community development work. 5 Community workers Intermediate level education with 3-5 years experience in 120 organizing community level meetings, social mobilization, gender issues, implementation of programs for the poor.

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3. BENEFIT MONITORING AND EVALUATION CONSULTANTS

Overview 1. Benefit Monitoring and Evaluation (BME) refers to the activities by which beneficial impact of the Project can be assessed. To ensure that Project facilities are managed efficiently and that the benefits reach the target groups, a BME program is included under the Project. The program will monitor the delivery of services anticipated and measure benefits as they accrue. The BME comprises (i) the preparation and analysis of benchmark information; and (ii) benefit monitoring studies to evaluate the benefits of a completed Project. To achieve a correct assessment of the benefits in terms of health, economical and social benefits resulting from the Project, the BME should be carried out by the KUKL PID after completion of the Project at intervals of one year for consecutive five years. However, as the BME under the financial provisions in the Project is required to be carried out within the ADB loan closing date, which follows immediately after the physical completion of the project, benefits from some of the project components like water supply and wastewater improvements, which will be commissioned in stages / area-wise cannot be assessed fully before the loan closing date. 2. Accordingly the BME will be carried out at three stages: (i) a base line data in the first year of the Project; (ii) the data collected at mid term after optimization of existing water supply system; and (iii) the final data collected after commissioning of water supply and wastewater improvements in main areas of the cities. The survey shall be carried out on a random well representative sample of 2% households to determine the changes in key social indicators over time, including health and welfare plus economic and physical conditions of the beneficiaries. In order to undertake the survey, local NGO/CBOs shall be employed who will first establish indicators for Project monitoring in consultation with the PID and DSC. Data collected should be gender disaggregated. 3. The BME has the objective of identifying and evaluating the broad macroeconomic, socioeconomic and environmental impact of the Project and to ensure that project facilities are managed efficiently and the benefits of the Project reach the target groups. For this purpose, a domestic BME consulting firm will be recruited by the PID. The consultants will liaise closely with the PID and DSC to measure the benefit resulting from the Project and to facilitate the PID to quickly and decisively correct any problems or issues arising from the feedback provided.

Tasks of the Benefit Monitoring and Evaluation Consultants (BMEC) The BMEC will undertake, amongst other things, the following specific tasks: (a) Undertake baseline surveys of all indicators, including social, environmental, water supply and wastewater service related issues, within first year of the Project; (b) Continuously monitor and update the indicators. Surveys will be undertaken at three stages during the Project: (a) baseline survey in the first year of the project to understand the initial conditions; (b) at the mid-term after completion of Loan 1820-NEP Subproject-2, optimization of existing water supply system; and (c) after commissioning of all components under the Project;

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(c) Based on the findings, will provide an independent monitoring and feedback mechanism to the PID and ADB to ensure that the primary objectives of the Project are being met, or recommend ways to modify the Project design and implementation to meet the primary objectives of the Project; and (d) Support local NGOs and community organizations in carrying out monitoring, quality control and reporting to bring transparency to the various construction activities, resettlement and compensation, gender action plan and environmental management plan (EMP) under the Project. (e) An environmental consultant will be hired once a year for the duration of the Project to monitor whether the Environmental Management Plan (EMP) of the Project has been effectively implemented.

Indicative Personnel Requirements for BMEC

Positions Person-Months Team Leader/ Social Development Specialist 18 BME Specialist 24 Community Evaluators 24 Environmental Impact Monitoring Specialist 4 Total 70

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APPENDIX 6

Procurement Capacity Assessment and Procurement Plan

TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

EA Capacity Assessment : General Procurement Environment Assessment

1. Is there a procurement law? Yes; High The answer to this is a simple yes or no, i.e. is there a single law governing procurement which is representative of best practice or is procurement governed through various laws, decrees etc.? Assess this as either “High” or “Low” 2. Are the laws and regulations clear and concise? Yes, Low If there is no single law check “high”, and similarly if the law is complex and difficult to follow check “average”. If the law is easy to follow check “low”. 3. What does the law (or regulations applicable to procurement) cover? Low If there is a single law, “low” will apply when the law covers drafting and use of standard bidding documents evaluation, contracting, through to the management of contracts including payment, warranty and defects liability periods. The less the procurement process is covered the higher the risk. If there is no single law, check “high” 4. Does the law cover the procurement of consulting services? Yes, Low If consulting services are not covered or there is no law the risk is high, if they are covered the risk is low. 5. Does the law differentiate between processes for consulting services and Yes, Low Goods/Works? If there is no law, or it applies the same processes to consulting services as for goods and works check high. If there is some differentiation but the processes are similar, check average. If consulting services are dealt with separately check low 6. Does the law require advertisement of all procurement opportunities Yes, Low Low risk will be represented through advertisement all above $25,000, average above all above $100,000, high by no advertisement or advertisement at a higher threshold than $100,000. 7. Are contract awards advertised? Yes, Low The same thresholds as stated at A6 should be applied 8. Are there restrictions on goods works and services on the basis of origin? Average If procurement is limited to solely national origin check high, if there are restrictions or a national preference scheme, average. If None low 9. Does the law or relevant legislation and regulations provide acceptable provision for Low the participation of state owned enterprises? Only if the SOE is legally and financially autonomous and not a dependent agency of the purchaser low, other than this high 10. Are there restrictions on the nationality of bidders and consulting firms invited? Average If procurement is limited to solely national firms and individuals check high, if there are restrictions or a national preference scheme, average. If None low 11. Are foreign bidders and consultants forced to offer through or with local partners? Low If yes, high, in certain circumstances average, never, low 12. Is there a domestic preference scheme? Only for If there is across the board high, if applicable in limited circumstances, average, if ICB. none, low. Average 13. Is there a national standard mandated for use for quality control purposes? Yes; Low No, or Yes with direct, accessible international equivalents low, yes without international equivalents high 14. Are any agencies exempt from the law? No, Low Such as the security forces, if yes high, also high of any types of goods are exempt from parts of the law such as medicines, text books or any other commodity 15. Is the default method for procurement open competition? Yes, Low Either yes or no and low or high 16. Is open procurement easily avoided? Cabinet If the procurement law allows avoidance of open procurement above the national decision threshold on the basis of circumstances that are not in response to natural disasters, can only

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i.e. simple urgency, check high, if open procurement can be avoided by senior avoid open management decision average. If avoidance requires approval of an oversight agency, procureme low nt, Low 17. Do the rules and regulations require pre-qualification? Low Only for complex contracts, low, no contracts average, all contracts high. 18. Do the rules and regulations require registration? Yes; High If yes, high, if only for specialist goods such as medicines average. If no registration low. 19. Are there systematic procurement process audits? Average Yes, low. Only financial audits average, none, high 20. Is there a national procurement manual or guide? Low A single procurement manual or guide, low, manual exists but out of date/not in wide use average, none high 21. Do the laws and regulations mandate the use of standard documents? Low Documents for goods, works and consultants services low, just for 2 of the three average, only one or none high 22. Have these standard bidding document’s been approved for use on ADB Average projects? Yes low, some but not all average, no high, 23. Do the regulations require the collection of nationwide statistics on No; High procurement? Yes and statistics collected low, yes but data not collected or used average, no high 24. Is consolidated historical procurement data available to the public? No; High Yes low, too much or too little, average, no high 25. Do the procurement laws and regulations contain provisions for dealing with Yes; Low misconduct? Such as fraud and corrupt practices – the procurement law or regulations may include or cross refer to anti-corruption legislation. Yes low, no high 26. Is fraud and corruption in procurement regarded as a criminal act? Yes; Low The penalties should include penal servitude (prison) yes low, no high. 27. Have there been prosecutions for fraud and corruption? Average If there have been successful prosecutions for fraud and corruption, low, if prosecutions seem to focus solely on low grade junior staff average, none high 28. Is there an alternative disputes resolution process independent of government Low and courts? If there is an arbitration law and independent process low, if the standard contracts use ICC or similar dispute resolution average, if arbitration is through the courts or can be overturned by courts high 29. Does the law allow for sovereign immunity to the EA for claims against it? Low If plaintiffs can sue the government for contractual non-performance low, if they cannot high 30. Do the regulations allow for black listing (disbarment) of firms and individuals if Low they do? If there is no black listing process or the process is transparent and equitable and undertaken by an independent oversight agency low. If there is a process and it is administered by a single line agency such as finance average, if it is administered by the executing agency high. 31. Which body oversees procurement? PPMO Independent body reporting to the elected body low, single body reporting to the reports to cabinet average, no body or reports to a single state agency such as the Prime the Prime Minister or Finance Minister high. Minister’s Office. Average 32. What powers does the oversight body have? PPMO can If the body can impose administrative sanctions on an EA and its staff and overturn overturn

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contact awards including ministerial decisions low, if the body only can impose contract sanctions through the head of the EA, average, if the body can only recommend awards. action high Low 33. Is there a nationwide procurement training plan? Average If procurement training is assessed and planned for nationwide low, if this is delegated to line agencies average, if there is no strategy or plan high. 34. Is there a procurement accreditation or professionalization program? High An externally recognized program low, a government sponsored program average, none, high 35. Are major projects identified within an agencies appropriation or budget? Low Yes low, no but a system in place for the ring-fencing of project funds average, neither low 36. Is the procurement cycle tied to an annual budgeting cycle? i.e. can procurement Advance activity only commence once a budget is approved? Action Can No a medium expenditure framework is in place low, activity may start up to but Take Place. excluding contract award average, yes tied to annual budget high 37. Once an appropriation or budget is approved will funds be placed with the EA or Yes. Low can the EA draw them down at will? Yes low, no - additional controls imposed high (such as cash release system) 38. Can an EA draw directly from a loan or imprest account or will it spend budgeted Yes. Low funds with the borrower claiming reimbursement? Draws directly low, from budgeted funds high 39. When an EA is implementing a project using funds from the national budget has a Low delay in funding significantly delayed procurement? No or not applicable low, yes high

Executing Agency Capacity Assessment Questionnaire

Part A. General Agency Resource Assessment Response A.1. Is there a procurement department? Yes A.2. What procurement does it undertake? All goods, Civil works and consultancy services etc. A.3. Are the staff provided with written job descriptions? Yes A.4. How many years experience does the head of the More than 10 Year procurement unit have in a direct procurement role? A.5. How many staff in the procurement department are: i. Full Time? 3 Nos ii. Part Time? 4 Nos iii. Seconded? - A.6. At what level does the department report (to the head of Deputy agency, deputy etc.)? A.7. Do the staff that will be involved with the procurement have Yes English language skills sufficient to undertake international procurement? A.8. Is the number and qualifications of the staff sufficient to Yes; Sufficient undertake the additional procurement that will be required under the proposed project? A.9. Does the unit have adequate facilities such as PCs, internet Yes connections, photocopy facilities, printers etc. to undertake the expected procurement? A.10. Is there a procurement training program? No; Conducted by ADB in Sept, 2009

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Part B. Agency Procurement Processes, Goods and Works B.1. Has the agency undertaken foreign assisted procurement of Yes; ADB. Loan 1820-NEP goods or works recently (last 12 months, or last 36 months)? MWSP Subproject-2 (If yes funded by whom and name of the Project) B.2. If the above is yes, what where the major challenges? Bid evaluation procedure of goods were the major challenges B.3. Is there a procurement process manual for goods and Yes; Manual works? B.4. If there is a manual is it up to date and does it cover foreign Yes, As per the GoN updated assisted procurement? time to time. B.5. Is there a systematic process to identify procurement Procurement Plan is developed requirements (1 year or more) for approval.. B.6. Who drafts the specifications? Consultant/ Standard Bidding documents B.7. Who approves the specification? PD/ADB B.8. Are there standard bidding documents in use and have they Yes been approved for use on ADB funded projects? B.9. Who drafts the bidding documents? Consultant B.10. Who manages the sale of the document? Procurement Section B.11. Are all queries from bidders replied to in writing? Yes B.12. Is there a minimum period for preparation of bids and if yes Yes – 15 Days how long? B.13. Does the bidding document state the date and time of Yes, all procedures are opening and how close is it to the deadline for submission? according to the specified by GN B.14. Is the opening public? Yes B.15. Can late bids be accepted? No B.16. Can bids be rejected at bid opening? No B.17. Are minutes taken? Yes B.18. Who may have a copy of the minutes? Bid opening committee; members B.19. Are the minutes free of charge? Yes B.20. Who undertakes the evaluation (individual(s), permanent Permanent bid evaluation committee, ad-hoc committee)? committee B.21. What are the qualifications of the evaluators in respect to Senior Civil Engineer – 3; procurement and the goods and works under evaluation? Financial Officer – 1; Invitee Mechanical Engineer – 1 (from Consultant); DPD as a team leader B.22. Is the decision of the evaluators final or is the evaluation Subject to additional approvals subject to additional approvals? (BEC recommend to PD) B.23. Using at least three real examples how long between the a. KUKL/DNI/01 Demo – 30 issue of the invitation for bids and contact effectiveness? July: Contract Agreement 27 Nov - 4 months b. KUKL/DNI/02/01 – 13 April: Agreement 4 Dec – 7 months c. KUKL/DNI/02/01 – 13 April: Agreement 1 Dec – 7 months B.24. Are there processes in place for the collection and clearance Yes of cargo through ports of entry? B.25. Are there established goods receiving procedures? Yes B.26. Are all goods received recorded as assets or inventory in a Similar

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register or similar? B.27. Is the agency/procurement department familiar with letters of Yes; Average credit? B.28. Does the procurement department register and track Yes; Starting warranty and latent defects liability periods? Part C. Agency Procurement Processes, Consulting Services C.1. Has the agency undertaken foreign assisted procurement of Yes (Last 12 months) consulting services recently (last 12 months, or last 36 months)? C.2. If the above is yes what where the major challenges? No major challenges C.3. Is there a procurement process manual for consulting services Yes procurement? C.4. Is the manual up to date and does it cover foreign assisted Yes projects? C.5. Who identifies the need for consulting services requirements? GoN, ADB, KUKL Board and PID C.6. Who drafts the ToR? Consultants C.7. Do the ToR followed a standard format such as background, Yes tasks, inputs, objectives and outputs? C.8. Who prepares the request for proposals? PID C.9. Are assignments advertised and expressions of interest Yes called for? C.10. Is a consultants’ selection committee formed with appropriate Yes; BEC work as CSC individuals in terms of procurement and technical expertise? C.11. What criteria is used to evaluate EOIs? Approved set criteria used to evaluate EOIs C.12. Historically what is the most common method used (QCBS, QCBS and CQS QBS etc.) C.13. Do firms have to pay for the proposal document? No C.14. Does the evaluative criteria follow a pre-determined structure Yes and is it detailed in the RFP? C.15. Are pre-proposal visits and meetings arranged? Yes C.16. Are minutes prepared and circulated after pre-proposal Yes; Procurement Section meetings? C.17. To who are minutes distributed? Procurement section C.18. Are all queries from consultants answered to in writing? Yes C.19. Are the financial and technical proposals in separate Yes envelopes? C.20. Are proposal securities required? Yes C.21. Are technical proposals opened in public? Yes C.22. Do the financial proposals remain sealed until technical Yes evaluation is completed? C.23. Are minutes of technical opening distributed? Yes C.24. Who determines the final technical ranking and how? CSC determine by evaluation criteria C.25. Are the technical scores published and sent to all firms? Yes C.26. Is the financial proposal opening public? Yes C.27. Are there minutes taken and distributed of financial proposal Yes opening? C.28. How is the financial evaluation completed? By Comparative charts C.29. Are face to face contract negotiations held? Yes C.30. How long after financial evaluation is the selected firm to Within 15 days

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negotiate? C.31. What is the usual basis for negotiation? Technical basis C.32. Are minutes of negotiation taken and signed? Yes C.33. How long after negotiations until the contract is signed? Within a month C.34. Are advance payments made? Yes C.35. Is there an evaluation system for measuring the outputs of Yes consultants? Part D. Process Oversight and Control D.1. Is there a standard statement of ethics and are those involved Yes in procurement required to formally commit to it? D.2. Are those involved with procurement required to declare any Yes potential conflict of interest and remove themselves from the procurement process? D.3. Is the commencement of procurement dependent on external No approvals (formal or de-facto) outside of the budgeting process? D.4. Who approves procurement transactions and do they have Yes; PD procurement experience and qualifications? D.5. Which of the following actions require approval outside of the procurement unit or a permanent evaluation committee and who grants the approval? a) Bidding document, invitation to pre-qualify or request for PD proposal b) Advertisement of an invitation for bids, pre-qualification or call PD for expressions of interest c) Evaluation reports PD d) Notice of award PD e) Invitation to consultants to negotiate PD f) Contracts PD D.6. Is contractual performance systematically monitored and Yes reported upon? D.7. Does the agency monitor and track its contractual payment Yes obligations? D.8. On average how long is it between receiving a firm’s invoice Usually 15 days and making payment? D.9. What is the standard period for payment included in 28 Days contracts? D.10. When payment is made late are the beneficiaries paid Yes interest? D.11. Are payments authorized by the same individuals Yes empowered to approve invitation documents, evaluations and contracts? D.12. Is there a written auditable trail of procurement decisions NA attributable to individuals and committees? D.13. Are procurement decisions and disputes supported by Yes written narratives such as minutes of evaluation, minutes of negotiation, notices of default/withheld payment? D.14. Is there a formal non-judicial mechanism for dealing with Yes complaints? D.15. Is a complaints resolution mechanism described in national Yes procurement documents?

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Part E. Records Keeping E.1. Is there a referencing system for procurement files? Yes E.2. Are original contracts secured in a fire and theft proof Yes location? E.3. Are copies of bids or proposals retained with the evaluation? Yes E.4. Are copies of the original advertisements retained with the Yes pre-contract papers? E.5. Is there a single contract file with a copy of the contract and Yes all subsequent contractual correspondence? E.6. Are copies of invoices included with contract papers? No E.7. For what period are records kept? At least 7 years

Procurement Capacity Assessment Report and Recommendations Expected Procurement Under the Loan 1820 MWSP Subproject-2 the procurement being carried out and planned by PID is for goods, works and services using both National Competitive Bidding (NCB) and International Competitive Bidding (ICB). In consideration of the size and complexity of the packages, under the proposed loan works and goods will be procured using ICB methods. The process will be supported by DSC Consultants conversant with ICB procurement proceedings. Although most of the procurement packages are the usual supply and installation works, there will be some complexity involved in wastewater treatment plant turn-key contracts which include design, build and maintain components. Assessment of the National Environment Although the government has promulgated the Public Procurement Act (2007) and Public Procurement Regulations, both generally acceptable to ADB, the major problem includes lack of clear and consistent guidelines, between national and donor practices and guidelines. Major weaknesses in the financial management system are found the deficiencies in the planning, budgeting and expenditure management process. As a result there is no close relationship between the budgeting, planning and implementation. The e- bidding system is yet to be applied and the work performance of procurement bidding is weak in terms of access of procedures through the internet. All the procurement officer and accounting officer are provided computers and Internet facilities but the utility is very weak in the process of e-bidding. General Agency Resource Assessment. The general resources of the PID in terms of human resource and other physical resources are found to be adequate to handle the project. A shortfall is found in the technical computerized system for procurement as well as for accounting. Another shortfall is that although all the financial and procurement staff are experienced they lack a modern automated computerized system and require appropriate training in ADB finance reporting procedures. The financial administration section and procurement sections is capable to handle the task, the section have senior financial officer and senior procurement officer, account officer and procurement officer; and an assistant accountant. It is observed that accounting and procurement staff are to be increased although the present staff are capable of handling the project’s procurement and accounting system. Agency Procurement Processes: Goods and Works The procurement of goods and works have been performed systematically, under the rules and regulation of the government of Nepal (GoN). The major weakness assessed in the process of procurement of goods and works was found to be that there was no clearly defined specification for the goods being procured thus making bid evaluation process very difficult. Hence bid evaluation of goods has faced major challenges. There is a need for

Appendix 6 - Procurement Assessment and Plan Page 7 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study better control in design and preparation of bid documents and further trainings on procurement. Agency Procurement Processes: Consulting Services The PID has adequate experience in procuring consulting services using QCBS and CQS methods and the procurement of services is found to be appropriate and acceptable to GoN and ADB. PID has already awarded one contract using the CQS method and is in the process of evaluating and awarding another contract using QCBS method. Process Control and Oversight Public Procurement Monitoring Office (PPMO) under the office of the Prime Minister and Council of Ministers is the national procurement agency and is mandated to recommend reforms in procurement policy or law, developing and issuing technical guidelines and manuals on procurement, standard bidding documents and providing training to implementing agencies. ADB has been closely working with the PPMO in strengthening its operational and functional capacity. Records Keeping and Audit Because the PID was only established in 2009, it cannot be assessed regarding the retention of documents as prescribed by ADB. But, it is usual practice that the original evaluation and agreement signed documents are kept for at least 7 years after project completion along with the bid invitation, winning bid or proposal, and contract administration documents. Summary Assessment and Recommendations The overall capacity of the PID for procurement processes is found to be satisfactory. The particular strengths may be summarized as (a) all the staff in procurement and finance section are well experienced and versed with the procurement and financial processes, which has been amply demonstrated by the recent evaluation and awards of contracts – both NCB and ICB. The particular weakness may be summarized as: (a) No advanced computerized training system is operated and no one is trained with computerized systems as per the ADB requirement. (b) Bid evaluation procedure of goods is complex because specifications of goods are not always properly defined. It is recommended to set up a dynamic website with information on the PID procurement plan, recent awards, notices for procurement etc. In addition, it is necessary to work towards the implementation of an E-bidding system for all bidding processes to avoid collusion and sometimes violence associated with manual bidding process. It is also recommended to provide training for procurement staff to activate the procedure smoothly by implementing e-bidding system. It is also recommended to provide procurement training based on the ADB needs to improve capacity of the staff for the procurement system and e- bidding procedures.

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Specific Recommendations, Project Implementation

Capacity Constraint Recommended Action Responsibility and comment Although most staff are well Necessary training either through Request ADB to arrange versed with PPMO and ADB PPMO or directly by ADB is for such trainings either procurement procedures, not all required. Consultants familiar with through the PPMO or concerned are fully conversant these procurement processes directly. with the procurement need to be recruited to assist the requirements and new PPMO PID.

regulations and guidelines Web site and other IT based Develop an interactive and PID to initiate solutions not available dynamic website for Project development of website information dissemination and and E-bidding process in providing a platform for E-bidding consultation with PPMO by recruiting IT Consultants. and ADB. General Recommendations, EA Capacity If web based approach for Project Hiring of an IT professional at the PID to make an information dissemination and E- PID along with necessary assessment of the bidding is to be developed, the hardware (servers etc.) to host the requirements – human necessary in-house IT person and web and its content with and hardware – and related equipment is not available. necessary security would be request Government for required. recruitment of staff and ADB for hardware and training support. General Recommendations, Procurement Environment Effective implementation of ADB Support KUKL PID in Need to provide timely Procurement Guidelines and implementation of ADB training to PID staff with Government Regulations. Guidelines. the support of ADB.

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PROCUREMENT PLAN

Basic Data

Project Name: Kathmandu Valley Water Supply and Wastewater System Improvement Country: Nepal Executing Agency: Government of Nepal, Ministry of Physical Planning & Works Loan Amount: ${amount} Loan (Grant) Number: Date of First Procurement Plan {loan approval Date of this Procurement Plan: March 2010 date}:

A. Process Thresholds, Review and 18-Month Procurement Plan

1. Project Procurement Thresholds

1. Except as the Asian Development Bank (ADB) may otherwise agree, the following process thresholds shall apply to procurement of goods and works.

Procurement of Goods and Works Method Threshold

International Competitive Bidding (ICB) for Works1 Above $1,000,000 International Competitive Bidding for Goods1 Above $500,000 National Competitive Bidding (NCB) for Works1 Beneath that stated for ICB, Works National Competitive Bidding for Goods1 Beneath that stated for ICB, Goods Shopping for Works Below $100,000 Shopping for Goods Below $100,000

2. ADB Prior or Post Review

2. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the project.

Procurement Method Prior or Post Comments Procurement of Goods and Works ICB Works Prior ICB Goods Prior NCB Works NCB Goods Shopping for Works Shopping for Goods List other methods of procurement

Recruitment of Consulting Firms Quality- and Cost-Based Selection (QCBS) Prior Quality-Based Selection (QBS) Prior Other selection methods: Consultants Qualifications Prior (CQS), Least-Cost Selection (LCS), Fixed Budget (FBS), and Single Source (SSS)

Recruitment of Individual Consultants Individual Consultants Prior

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3. Goods and Works Contracts Estimated to Cost More Than $1 Million 3. The following table lists goods and works contracts for which procurement activity is either ongoing or expected to commence within the next 18 months {Note: Loan not expected to be negotiated until late 2011. Following lists include all proposed contract packages, inclusive of price contingences}.

Contract Procurement Prequalification Advertisement General Description Value Method of Bidders (y/n) Date (quarter/year) Comments Water Supply Components BDS -1: Ring Main from 9.18 ICB Works No 3/11 Item rate Chabahil to Balaju BDS-2: Ring and Transverse 7.15 ICB Works No 1/12 Item rate Mains. Cabahil to Gaushala and Ekantakuna BDS-3: Ring main from Tikune 6.91 ICB Works No 3/12 Item rate to Ekantakuna SR-1: Service reservoirs at 10.32 ICB Works No 1/12 Item rate Mahankalchaur-2 & Arubari SR-2: Service reservoirs at 8.15 ICB Works No 3/12 Item rate Bansbari, Balaju & Khumaltar DNI-1:Subzones A3.1 to A3.3 8.12 ICB Works No 4/12 Item rate DNI-2:Subzones A4.1 to A4.3 4.64 ICB Works No 1/13 Item rate DNI-3:Subzones A6.1 5.38 ICB Works No 2/13 Item rate DNI-4:Subzones A7 4.28 ICB Works No 3/13 Item rate DNI-5:Subzones A8.2 5.79 ICB Works No 4/13 Item rate DNI-6:Subzones A8.3 5.77 ICB Works No 1/14 Item rate Wastewater Components WSI-1: Bhaktapur Wastewater 2.29 ICB Works No 3/11 Turn-key & Improvements Item rate WSI-2: Sewerage 7.62 ICB Works No 4/11 Item rate Rehabilitation WSI-3: Kodku WWTP 3.19 ICB Works No 2/12 Turn-key Upgrading WSI-4: Sewerage Network 4.83 ICB Works No 2/13 Item rate Development WSI-5: WSI Package 5 - 1.60 ICB Works No 3/14 Turn-key & Dhobighat WWTP Upgrading Item rate Equipment and Materials E-2: Vehicles 1.21 ICB Goods Yes 3/11 Item rate

4. Consulting Services Contracts Estimated to Cost More Than $100,000 4. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months, including price contingency. Advertisement International or Contract Recruitment Date National General Description Value Method (quarter/year) Assignment Comments Design and Supervision 5.97 QCBS 1/11 International & Cost ratio 80:20 Consultants National Community Awareness & 0.68 QCBS 1/12 National Cost ratio 80:20 Participation Consultants Benefit Monitoring and 0.17 QCBS 1/12 National Cost ratio 80:20 Evaluation Consultants

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5. Goods and Works Contracts Estimated to Cost Less than $1 Million and Consulting Services Contracts Less than $100,000 5. The following table groups smaller-value goods, works and consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months. Procurement / General Value of Contracts Number of Recruitment Description (cumulative) Contracts Method1 Comments E-1: Maintenance 0.95 1 ICB Goods Item rate Equipment E-3: Materials & 0.75 1 ICB Goods Item rate Spare parts

B. Indicative List of Packages Required Under the Project 6. The following table provides an indicative list of all procurement (goods, works and consulting services) over the life of the project. Contracts financed by the Borrower and others should also be indicated, with an appropriate notation in the comments section.

Estimated Domestic General Estimated Value Number of Procurement Preference Description (cumulative) Contracts Method Applicable1 Comments

Goods 2.91 3 ICB Goods No

Works 95.22 16 ICB Works No

Estimated General Estimated Value Number of Recruitment Description (cumulative) Contracts Method2 Type of Proposal3 Comments

Consulting 6.82 3 QCBS International and Cost ratio Services National 80:20

1 See Procurement Guidelines, Appendix 2 2 Indicate recruitment method and whether it is for international or national assignment. 3 See PAI 2.02G: full, simplified or biodata proposal

C. National Competitive Bidding Note: As a result of the Public Procurement Act 2007 the NCB Section is currently under review. 1. General 7. The procedures to be followed for national competitive bidding shall be those set forth in Financial Administration Rules, 1999 with the clarifications and modifications described in the following paragraphs required for compliance with the provisions of the ADB Procurement Guidelines. 2. Prequalification (i) Normally, post-qualification shall be used unless prequalification is explicitly provided for in the loan agreement/procurement plan. Irrespective of whether post qualification or prequalification is used, eligible bidders (both national and foreign) shall be allowed to participate.

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(ii) Qualification criteria (in case pre-qualifications were not carried out) shall be stated in the bidding documents, and if a registration process is required, a foreign firm declared as the lowest evaluated bidder shall be given a reasonable opportunity of registering, without let or hindrance;

3. Bidding Period

8. The minimum bidding period is twenty-eight (28) prior to the deadline for the submission of bids.

4. Bidding Documents (i) The bidding documents provided with the government’s Procurement Manual shall be used to the extent possible. The first draft English language version of the procurement documents shall be submitted for ADB review and approval, regardless of the estimated contract amount, in accordance with agreed review procedures (post and prior review). The ADB-approved procurement documents will then be used as a model for all procurement financed by ADB for the project, and need not be subjected to further review unless specified in the procurement plan. (ii) Bid documents shall be made available, by mail, in person or, electronically, to all who are willing to pay the required fee;

5. Preferences 9. No domestic preference shall be given for domestic bidders and for domestically manufactured goods.

6. Advertising 10. Invitations to bid shall be advertised in at least one widely circulated national daily newspaper or freely accessible, nationally-known website allowing a minimum of twenty- eight (28) days for the preparation and submission of bids. Bidding of NCB contracts estimated at $500,000 or more for goods and related services or $1,000,000 or more for civil works shall be advertised on ADB’s website via the posting of the Procurement Plan.

7. Performance Security and Bid Security (i) If required, bidders/contractors shall provide bid/performance security as indicated in the bidding/contract documents; (ii) A bidder’s bid security shall apply only to a specific bid, and a contractor’s performance security shall apply only to the specific contract under which it was furnished; 8. 9. Bid Submission 11. There shall not be any restrictions on the means of delivery of the bids.

9. Bid Opening and Bid Evaluation (i) Bids shall be opened in public in one place, immediately after the deadline for

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submission of bids: (ii) Evaluation of bids shall be made in strict adherence to the criteria disclosed in the bidding documents, in a format and specified period agreed with ADB; (iii) Foreign bidders shall not be precluded from bidding. (iv) No firm, regardless of its class of registration, shall be denied the participation in bidding for reasons unrelated to its capability and resources to successfully perform the contract, nor shall it be disqualified for such reasons; (v) Contracts shall be awarded to the lowest evaluated bidder whose offer has been determined to be the lowest evaluated bid and is substantially responsive to the Bidding document, and who meets the qualifying criteria set out in the bidding documents; (vi) Post-bidding negotiations shall not be allowed with the lowest evaluated bidders or any other bidders; (vii) Bids shall not be rejected merely on the basis of a comparison with an official estimate without the prior concurrence of ADB: (viii) Split award or lottery in award of contracts shall not be carried out. When two or more bidders quote the same lowest price, an investigation shall be made to determine any evidence of collusion, following which: (A) if collusion is determined, the parties involved shall be disqualified and the award shall then be made to the next lowest evaluated and qualified bidder; and (B) if no evidence of collusion can be confirmed, then fresh bids shall be invited after receiving the concurrence of ADB; (ix) Extension of bid validity shall not be allowed without the prior concurrence of ADB;) (x) Bids shall not be invited on the basis of percentage premium or discount over the estimated cost; and 10. Rejection of All Bids and Rebidding (i) Contracts shall not be awarded on the basis of nationally negotiated rates; (ii) Bids shall not be rejected and re-bidding shall not be carried out without the prior concurrence of ADB.

11. Participation of Government-Owned Enterprises 12. Government-owned enterprises in Nepal shall be eligible to participate only if they can establish that they are legally and financially autonomous, operate under commercial law, and are not a dependent agency of the procuring entity, or the Project Executing Agency or the Project Implementing Agency.

12. ADB Member Country Restrictions 13. Bidders must be nationals of member countries of ADB, and offered goods, works, and services must be produced in and supplied from member countries of ADB.

Appendix 6 - Procurement Assessment and Plan Page 14

TA 4893-NEP Project Feasibility Study

APPENDIX 7

Financial and Economic Analysis

TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Financial and Economic Analysis

1. Introduction 1. Financial analysis is conducted on the basis of the consideration of market values. The financial analysis is performed to seek the feasibility of the project. Financial analysis is conducted for the water supply and wastewater components to determine appropriate tariffs and forecast the financial performance. 2. Economic analysis of Water Supply and Wastewater Improvement components will represent the cost and benefit to the society in terms of opportunity cost. All cost streams and benefit streams are changed to represent economic values. The basic assumptions of conversion factors such as foreign currency, standard conversion factor, opportunity cost of capital, weighted average cost of capital and traded on non-traded components at border price etc are considered as normal standard. Adjusting the estimated cost of all components to reflect the economic value performs the economic analysis considering the basic guideline for economic analysis and projects ADB, 2005. The economic evaluation is performed to seek the feasibility of the project in national perspective.

2. Assumptions 3. The financial analysis estimates the rate of return in terms of financial values whereas economic analysis measures the effect of project on the social benefit in national perspective. The financial analysis is based on the prevailing market price and inflation rate. However, numerous assumptions are considered in economic analysis so as to bring better allocation of resource to reflect the real economic value. For the present analysis the following general assumptions have been adopted.  All costs and revenues are expressed in 2009 prices  The construction period of the project is for 5 years from 2012 to 2016 covering all identified interventions proposed by the project.  The costs and benefit streams considered as constant after the design period  Financial / Economic analysis is evaluated on cash flow stream for 35 years after the investment period of 5 years.  The economic opportunity cost of capital is considered at 12% 4. The following assumptions have been made with regards to costs.  All costs, in particular imported tradable inputs, are included net of duties and taxes. This includes VAT which is payable at 13% on all purchases.  Capital costs include price and physical contingencies. The international inflation rate is considered at 2.5% based on the IMF estimates the inflation rate of major countries Australia New Zealand, UK and EU. (Economy Watch 2009).  Domestic inflation rate is considered at 5.5% based on the consumer price index of non-food and services in Kathmandu Valley at five years average. (Economic Survey, Ministry of Finance, GoN, 2009).  Exchange rate of NRs. 75.0 per US$ 1.00 has been employed when converting foreign costs to local currency equivalent.

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 The shadow exchange rate or standard conversion factor (SCF) of 0.90 has been applied to non-tradable inputs to convert them into economic cost.  The Shadow Wage Rate Conversion Factor (SWRF) 0.7 has been used for local labor to convert economic value.  The foreign component includes transfer payments of 1%; hence the conversion factor to change from financial cost to economic cost is 99%.

3. Methodology and Consideration of Data 5. The financial and economic analysis was performed in two basic lending conditions. Scenario (i): the loan condition of ADB lending to GON at a subsidized interest rate, which is based on an interest rate of 1% for the grace period of 8 years and interest rate at 1.5% for annuity payment by 24 years. Three different analyses for Water Supply, Wastewater and combined Water Supply and Wastewater were performed. Scenario (ii): the On-Lend loan condition of GoN/KVWSMB to KUKL, which is based on 50% of the investment as grant and 50% as loan at an interest rate of 9.0% for the grace period of 5 years and for the annuity payment by 25 years. Only the combined Water Supply and Wastewater analysis was conducted to seek out the tentative performance based on the existing information without segregating Water supply and Wastewater. This analysis is to provide a rough assessment of the feasibility of the investment to indicate whether present tariffs would need to be increased in future years beyond the rate of annual inflation. This analysis did not taken into account overall financial liabilities of KUKL, such as, license fees, cost of water from MWSDB or financial costs of future investments required to meet 2025 service demands, which are yet to be ascertained and are beyond the scope of present study. In addition, financial information such as terms of lending other than above mentioned interest rate and terms of condition, share of private investors, share of KUKL and consumer contribution are also yet to be ascertained. 6. The investment cost (capital cost) and annual cost (operation and maintenance cost) are divided into two components foreign cost and local cost to derive the economic cost. For deriving at the physical and price contingencies the foreign and local costs are also divided into manpower, material, tools and equipment. Manpower is also divided into skilled and unskilled in case of local cost. Financial costs of local components include local labor, material and locally produced items; these items have been adjusted to reflect the economic value by a standard conversion factor. 7. The analysis of the project has been prepared with a cash flow stream projection for 20 years period after the construction period of five years. Economic benefits of the project are considered for the analysis are as follows a. Resource cost saving in terms of time saving (non-incremental water) o Time saved to collect water by the households due to hardship access of water supply is valued at rate of shadow wage rate (unskilled labor) which is considered as intangible benefit to the society and hence considered as economic benefit. b. Incremental and non-incremental benefit accruing to water o Surplus Demand – Incremental Sale: The surplus demand due to the access of water supply project (assumed supply minus present consumption level) is

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valued at the rate of average willingness to pay of the households and is also considered as economic benefit. c. Valuation of non-revenue water that is consumed by the people. 8. Lost water consumed by community: The loss of water is estimated to be 40% of the total water supply but in actual practice the loss of water is assumed to be utilized by the households as non revenue water that is valued at the weightage average tariff of incremental and non incremental water which is also considered as economic benefit. It is assumed that at least 25% of the loss of water is utilized by people. Table 1: Economic Benefits

Non Incremental benefit Time Saving per Shadow Price of Benefit per day minutes 42 Labor NRs.175 day NRs.15.31 Incremental Benefit Incremental HH Size 6.70 Average WTP Benefit per water litres 30.6 per cum 20.32 day 4.50 Non Revenue Water Assumed 25% Weighted Average Water loss per Benefit Benefit Price (WTP &Value (cum)1.00 NRs/cum 2.94 time) 11.76 9. As per DNI pilot area survey, the cost incurred by households for septic tank cleaning is about NRs.1023 per year per household without the project situation. It is assumed that the 50% of the expenditure and 25% of the total household at least be avoided the cost which is considered for the economic analysis of sewerage improvement system. This assumption is quite low in comparison to the report on Improved Water Quality, Sanitation and Service Delivery In Emerging Towns Sector Development Program, Nepal 2008, ADB which has mentioned that at least overall cost to the sanitation will reduced by 35%. 10. The health expenses due to unhygienic water supply and poor sewerage and sanitation system has been estimated at NRs.1651 per household per year based on the DNI pilot area survey. It is assumed that at least 50% of the expenditure of households will be reduced with the implementation of water supply and sewerage sanitation project this is termed as economic cost and is considered for the economic analysis of the sewerage system improvement sub project. Chlorination of water for treatment yields a 37% reduction in diarrheal incidence (Journal of Water and Health, WHO, 2007, pp – 484). The above assumption may be justified because chlorination water reduces diarrheal incidence only by 37% but improvement of sewerage and sanitation and clean, hygiene water supply will reduce the number of other health risks including diarrheal incidence.

4. Water Demand 11. Water demand was derived from the current population within the planned service area, population growth, current and future domestic water consumption level assumptions, and a provision for non-domestic water consumption. The permanent population is forecast to increase from the present 2.1 million in 2010 to 2.7 million in 2015, 3.2 million in 2020 and 3.9 million by 2025. Out of the total the proportion of population to be served by the water supply network is forecast to increase from the present 70% to 77%, 87% and 96% in 2015, 2020 and 2025 respectively. The water demand is based on the population forecast; percentage of population served and assumed supply rate of water. The supply rate is expected to increase by a minimum 35 lpcd in existing condition to 70 lpcd in average for proposed water demand. However, demand is also a function of price, household income availability and accessibility of water supply but accurate estimates of the impact of these

Appendix 7 -Finance Economic Analysis Page 3 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study factors require extensive analysis of historical data, which is not the objective this study. The average water supply rate and water demand forecast is derived as the sum of the 8 different sample locations of Kathmandu Valley. The household size is estimated at 6.7 as the weighted average. The total water demand is estimated at 192.4 million liters per day in the year 2010 to 686.8 million liters per day in the year 2025. (See Attachment Table A-1 )

5. IRR 12. The Internal Rate of Return (IRR) is the major tool to measure the viability of the project. IRR is the rate of benefit incurred during the project period. FIRR is benefit incurred on a project where all costs and benefit schemes are measured in financial prices. Financial analysis was conducted on a ‘with and without-project’ basis by estimating costs and incremental revenues over a 35 year period including 5 years construction period. The financial analysis is conducted with the discounted rate of weighted average cost of capital WACC to derive a financial internal rate of return (FIRR) to evaluate the financial viability of the components. EIRR is that discount rate which when applied to the stream of incremental benefits and costs as reflected in the net cash flow of the project produces a zero NPV. For a project to be acceptable the EIRR should be greater than the economic opportunity cost of capital. FIRR should be greater than the financial opportunity cost of capital or weighted average cost of capital (WACC). For the financial analysis WACC is estimated at 3.5%. Table 2: Weighted Average Cost of Capital (WACC) 13. The weighted average cost is estimated using the domestic interest rate and domestic inflation rate. Other norms are considered from the ADB estimates of WACC as per the guidelines and on the basic of norms used in the various reports. However, the estimation of WACC will not reflect comparative analysis to the actual on lend situation because the share of private, domestic loan and share of beneficiaries are yet to be ascertained. The result of the estimation is as follows

ADB loan Foreign Domestic Government Total Grant Loans Funds Amount 5,949 0.00 0.00 2,313 8,262 Weighting 72.00% 0.00% 0.00% 28.00% 100.00% Nominal Cost 6.70% 1.00% 9.00% 10.00% Tax Rate 13.00% 0.00% 0.00% 0.00% Tax - Adjusted Nominal Cost 5.83% 1.00% 9.00% 10.00% Inflation rate 2.50% 0.00% 5.70% 5.70% Real Cost 3.25% 1.00% 9.00% 4.07% Real Test 3.25% 1.00% 9.00% 4.07% Weighted Component of WACC 2.34% 0.00% 0.00% 1.14% 3.5% Real WACC 3.5% 14. The FIRR in a base case scenario is estimated at 13.6%, 9.5%, 11.0% and 13.9% for Water Supply, Wastewater, Combined and On-lend condition respectively which are higher than the WACC. The NPV of net benefit is also positive in both cases. The results indicate that both components generate sufficient revenue to recover costs. 15. The economic analysis results provide the EIRR at 36.9%, 33.8%, 26.2% and 26.9% for the cases of Water Supply, wastewater, combined and on-lend condition respectively. The EIRR is higher than the Economic Opportunity Cost of Capital (EOCC) which signifies

Appendix 7 -Finance Economic Analysis Page 4 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study that the project is economically viable. Analysis details of FIRR and EIRR are provided in Attachment Tables A-2 to 9

6. Affordability 16. In the case of ADB lending to GoN, the tariff rate is within the affordability even for lifeline consumer households who need to pay only 1.1% of the monthly income. The lower income and average income households need to pay below 1% of the monthly income. The average cost of water for low income and average income households are NRs 7.01, and 8.75 per m3 for combined Water Supply and Wastewater; and On-lend condition respectively. The average cost of water for lifeline consumer of stand post tap is NRs 4.32 per m3, stand posts are assumed to be utilized by 15 household. Table 3: Affordability & Average Tariff

Income per Average Rs/HH per % of HH Rs. /cum month NRS Cum/month. month Income (Average) Lifeline 5000 10.00 70.12 1.40% 7.01 Low Income 10000 10.19 74.36 0.74% 7.30 Ave. Income 30000 21.81 333.48 1.11% 15.29 Stand Post 9.17 594 4.32

7. Willingness to Pay 17. The willingness to pay for water supply and sanitation has been evaluated based on the DNI pilot area household survey that 52% of the households are willing to pay about NRs.150 and 18% of the households are willing to pay more than NRs.450. All other households are willing to pay between NRs.150 to 450. The existing tariff structure is within the range of willingness to pay. Overall average willing to pay for water supply and wastewater facilities is estimated at NRs.250. Table 4: Willingness to Pay % of HH 52.4% 12.6% 6.8% 9.4% 18.8% 100.0% Avg per month NRs 150 225 300 400 450 Avg WTP per HH NRs 78.53 28.27 20.42 37.70 84.82 249.74

8. FIRR & Sensitivity Analysis 18. The results of the FIRR calculation and sensitivity analysis of the components as shown below are higher than the WACC of 3.5%. The results are due to the fact that the projected water tariff level is higher than the AIFC (full cost coverage) of the components.

Outcome Results Water Wastewater Combined On-Lend Supply Situation 10% increase in Costs 12.8% 7.7% 7.6% 12.7% 10% decrease in Benefits 12.7% 7.6% 8.6% 12.6% 10% increase in costs & 10% decrease 11.5% 6.6% 7.6% 11.5% in Benefits

9. Financial Performance 19. The Cash Flow of the Water Supply subproject shows that gross margin incurred net benefit from the year 2012 which reveals that the operating expenses are covered by revenue. The cash flow is positive even after debt service. The capital cost is recovered

Appendix 7 -Finance Economic Analysis Page 5 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study most in the year 2025. Hence the financial performance can be considered as outstanding and financially acceptable. See Attachment Table A-10. 20. The financial projections for the wastewater component indicate that it is projected to earn positive net income for the forecast period except up to the year 2012. The cash flow after debt service is positive after 2012. The cumulative cash flow is also negative up to the year 2012. However full capital cost is recovered in the year 2026 during the forecast period. From the financial point of view the subproject can be considered as outstanding and financially acceptable. See Attachment Table A-11. A combined water supply and wastewater analysis for cash flow is provided in Table A-12. 21. The cost recovery analysis is performed for the on-lend situation only. However, the tax structure is yet to be ascertained for KUKL, but for the cost recovery analysis overall tax rate is assumed at 30% on gross income from the water sale plus wastewater charge. By executing the above tariff rate the level of retained profits will be in surplus after the year 2025. The positive cumulative cash flow after the year 2025 deducting the tax at 30% on gross income and repayment of debt service including interest. Attachment Table A-13 ) 22. With the proposed tariff rate the total capital cost recovery will be retained in the 22th year, in the year 2033, after deducting tax, which is 10 years ahead of tenure of the annuity payment of loan including interest rate.

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Attachment

Table A-1: Water Demand Forecast

Year Description 2,010 2,015 2,020 2,025 Total Population 2,135 2,713 3,242 3,963 Percentage of Population Served 67% 77% 87% 96% Population Served 1,428 2,083 2,808 3,788 Domestic Demand Temporary population 696 848 980 1,155 Percentage of temporary population served 30% 40% 50% 60% Temporary population served 209 339 490 693 Fully Plumbed 0.05 0.06 0.06 0.07 Population Served 664 1,170 1,743 2,592 Percapita Supply (lpcd) 0 0 0 0 Average Daily Demand 64,561 125,157 202,887 337,750 Yard Connection (%) 42% 34% 32% 29% Population Served 596 698 889 1,105 Percapita Supply (lpcd) 0 0 0 0 Average Daily Demand 25,304 35,108 46,658 71,799 Temporary population served (%) 20% 25% 30% 40% Average Daily Demand 1,878 4,598 8,159 19,411 Stand Post 99.61 99.62 99.64 Population Served 167 215 176 91 Percapita Supply (lpcd) 45 45 45 45 Average Daily Demand 7,535 9,658 7,918 4,092 Temporary population served ( %) 80% 75% 70% 60% Average Daily Demand 7,513 11,452 15,436 18,717 Revenue Domestic Demand 106,792 185,973 281,058 451,770 Non-Domestic Demand Percentage of Domestic Demand 13.0% 14.9% 16.4% 19.1% Average Daily Demand 13,835 27,790 46,196 86,454 Total Demand (Liters) 115,448 204,475 313,206 515,137 Leakage and Wastage of total Demand 40% 35% 30% 25% Average Daily Wastage 76,965 110,102 132,574 171,712 Total Daily Demand (Liters) 192,414 314,577 445,779 686,849 Total Daily Demand (MLD) 192.41 314.56 445.79 686.85

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Table A-2: FIRR and FNPV Estimation (Water Supply Component) (NRs. millions)

Capital O&M, Others Total Revenues Net Year Expenditure O &M Interest Costs Tariffs Cash flow Initial Payment 2012 208 20 17 245 140 -105 2013 1218 21 43 1282 197 -1085 2014 2241 22 43 2306 263 -2043 2015 1661 23 44 1728 337 -1391 2016 597 24 44 665 398 -267 2017 0 26 45 71 465 394 2018 0 27 45 72 539 467 2019 0 29 45 74 621 547 2020 0 30 69 99 710 611 2021 0 32 66 98 818 720 2022 0 33 64 97 937 840 2023 0 35 62 97 1069 972 2024 0 37 59 96 1216 1120 2025 0 39 56 95 1378 1283 2026 0 41 54 95 1378 1283 2027 0 44 51 95 1378 1283 2028 0 46 49 95 1378 1283 2029 0 49 46 95 1378 1283 2030 0 51 43 94 1378 1284 2031 0 51 40 91 1378 1287 2032 0 51 38 89 1378 1289 2033 0 51 35 86 1378 1292 2034 0 51 32 83 1378 1295 2035 0 51 29 80 1378 1298 2036 0 51 26 77 1378 1301 2037 0 51 23 74 1378 1304 2038 0 51 20 71 1378 1307 2039 0 51 16 67 1378 1311 2040 0 51 13 64 1378 1314 2041 0 51 10 61 1378 1317 2042 0 51 7 58 1378 1320 2043 0 51 3 54 1378 1324 2044 0 51 0 51 1378 1327 2045 0 51 0 51 1378 1327 2046 0 51 0 51 1378 1327 NPV 5392 818 844 7053 20885 8465 FIRR 13.6%

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Table A-3: EIRR and ENPV Estimation (Water Supply Component) (NRs. millions)

Capital Economic Benefits Net O Time Cash Year Expenditure &M Interest Total value Incremental Unaccounted Total flow Initial Payment Costs Saved Benefit 2012 166 18 0 184 -184 2013 970 19 15 1004 -1004 2014 1785 20 39 1844 -1844 2015 1323 22 39 1384 1218 237 58 1513 129 2016 475 23 40 538 1287 261 61 1609 1071 2017 0 24 40 64 1370 288 64 1722 1658 2018 0 26 41 67 1452 317 67 1836 1769 2019 0 27 41 68 1556 349 69 1974 1906 2020 0 29 41 70 1663 384 75 2122 2052 2021 0 30 62 92 1751 426 80 2257 2165 2022 0 32 59 91 1862 471 86 2419 2328 2023 0 33 58 91 1973 522 91 2586 2495 2024 0 35 56 91 2118 578 97 2793 2702 2025 0 37 53 90 2256 640 108 3004 2914 2026 0 40 50 90 2256 640 108 3004 2914 2027 0 41 49 90 2256 640 108 3004 2914 2028 0 44 46 90 2256 640 108 3004 2914 2029 0 46 44 90 2256 640 108 3004 2914 2030 0 46 41 87 2256 640 108 3004 2917 2031 0 46 39 85 2256 640 108 3004 2919 2032 0 46 36 82 2256 640 108 3004 2922 2033 0 46 34 80 2256 640 108 3004 2924 2034 0 46 32 78 2256 640 108 3004 2926 2035 0 46 29 75 2256 640 108 3004 2929 2036 0 46 26 72 2256 640 108 3004 2932 2037 0 46 23 69 2256 640 108 3004 2935 2038 0 46 21 67 2256 640 108 3004 2937 2039 0 46 18 64 2256 640 108 3004 2940 2040 0 46 14 60 2256 640 108 3004 2944 2041 0 46 12 58 2256 640 108 3004 2946 2042 0 46 9 55 2256 640 108 3004 2949 2043 0 46 6 52 2256 640 108 3004 2952 2044 0 46 3 49 2256 640 108 3004 2955 2045 0 46 0 46 2256 640 108 3004 2958 2046 0 46 0 46 2256 640 108 3004 2958 NPV 3302 230 288 3820 14227 3551 666 18445 9309 EIRR 36.9%

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Table A-4: FIRR and FNPV Estimation (Wastewater Component) (NRs million) O&M, Capital Others Total Revenues Net Year Expenditure O &M Interest Costs Cash flow Initial Payment 2012 140 14 5 159 0 -159 2013 374 15 14 402 0 -402 2014 461 15 17 494 0 -494 2015 394 16 18 428 201 -227 2016 215 17 18 250 231 -19 2017 0 18 18 36 265 229 2018 0 19 18 37 302 264 2019 0 20 19 39 342 304 2020 0 21 19 40 387 347 2021 0 22 18 41 441 400 2022 0 24 18 41 500 459 2023 0 25 17 42 566 524 2024 0 26 16 43 639 597 2025 0 28 16 43 720 677 2026 0 29 15 44 720 676 2027 0 31 14 45 720 675 2028 0 32 13 46 720 674 2029 0 34 13 47 720 673 2030 0 36 12 48 720 672 2031 0 38 11 49 720 671 2032 0 40 10 51 720 670 2033 0 42 10 52 720 668 2034 0 42 9 51 720 669 2035 0 42 8 50 720 670 2036 0 42 7 50 720 671 2037 0 42 6 49 720 672 2038 0 42 5 48 720 672 2039 0 42 5 47 720 673 2040 0 42 4 46 720 674 2041 0 42 3 45 720 675 2042 0 42 2 44 720 676 2043 0 42 1 43 720 677 2044 0 42 0 42 720 678 2045 0 42 0 42 720 678 2046 0 42 0 42 720 678 NPV 1426 568 251 2245 9830 7585 3.5% WACC 20.3%

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Table A-5: EIRR and ENPV Estimation (Wastewater Component) (NRs. million)

Capital Economic Benefits Net Cash Year Expen O &M Interest Total Heath Sewerage Wastewater Total flow Cost Initial Payment Costs Benefit Saved 2012 112 13 0 125 0 -125 2013 298 14 5 317 0 -317 2014 368 14 13 395 0 -395 2015 314 15 15 344 265 22 94 381 37 2016 171 16 16 203 278 23 99 400 197 2017 0 17 16 33 292 24 104 420 387 2018 0 18 16 34 307 25 108 440 406 2019 0 19 16 35 322 26 112 460 425 2020 0 20 17 37 338 27 122 487 450 2021 0 22 17 39 355 28 130 513 474 2022 0 23 16 39 373 29 139 541 502 2023 0 23 16 39 392 30 148 570 531 2024 0 25 15 40 412 32 158 602 562 2025 0 26 14 40 433 34 176 643 603 2026 0 28 14 42 455 36 176 667 625 2027 0 29 14 43 478 38 176 692 649 2028 0 31 13 44 502 40 176 718 674 2029 0 32 12 44 527 42 176 745 701 2030 0 34 12 46 553 44 176 773 727 2031 0 34 11 45 581 46 176 803 758 2032 0 34 10 44 610 48 176 834 790 2033 0 34 9 43 641 50 176 867 824 2034 0 34 9 43 673 53 176 902 859 2035 0 34 8 42 707 56 176 939 897 2036 0 34 7 41 742 59 176 977 936 2037 0 34 6 40 779 62 176 1017 977 2038 0 34 5 39 818 65 176 1059 1020 2039 0 34 5 39 859 68 176 1103 1064 2040 0 34 5 39 902 71 176 1149 1110 2041 0 34 4 38 947 75 176 1198 1160 2042 0 34 3 37 994 79 176 1249 1212 2043 0 34 2 36 1044 83 176 1303 1267 2044 0 34 1 35 1096 87 176 1359 1324 2045 0 34 0 34 1151 91 176 1418 1384 2046 0 34 0 34 1209 96 176 1481 1447 NPV 896 164 96 1155 3313 265 1083 3317 2162 12.0% EOCC EIRR 30.8%

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Table A-6: FIRR and FNPV Estimation (Combined Water Supply & Wastewater)

Capital O&M, Others Total Revenues Net Year Expenditure O &M Interest Costs Cash flow Initial Payment 2012 615 35 23 673 0 -673 2013 1734 36 70 1840 0 -1840 2014 2788 38 88 2914 0 -2914 2015 2074 39 90 2203 530 -1673 2016 850 40 91 981 621 -360 2017 0 41 92 133 721 588 2018 0 42 94 136 830 694 2019 0 44 95 139 951 812 2020 0 45 97 142 1084 942 2021 0 46 93 139 1244 1105 2022 0 48 90 138 1421 1283 2023 0 49 86 135 1618 1483 2024 0 49 83 132 1835 1703 2025 0 49 79 128 2077 1949 2026 0 49 76 125 2077 1952 2027 0 49 72 121 2077 1956 2028 0 49 68 117 2077 1960 2029 0 49 64 113 2077 1964 2030 0 49 61 110 2077 1967 2031 0 49 57 106 2077 1971 2032 0 49 53 102 2077 1975 2033 0 49 49 98 2077 1979 2034 0 49 45 94 2077 1983 2035 0 49 40 89 2077 1988 2036 0 49 36 85 2077 1992 2037 0 49 32 81 2077 1996 2038 0 49 28 77 2077 2000 2039 0 49 23 72 2077 2005 2040 0 49 19 68 2077 2009 2041 0 49 14 63 2077 2014 2042 0 49 9 58 2077 2019 2043 0 49 5 54 2077 2023 2044 0 49 0 49 2077 2028 2045 0 49 0 49 2077 2028 2046 0 49 0 49 2077 2028 NPV 7251 907 1272 9429 27983 18554 3.5% WACC 13.3%

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Table A-7: EIRR and ENPV Estimation (Combined Water Supply & Wastewater)

Capital Economic Benefits Net O Cash Year Exp &M Interest Total Heath Cost Waste Time Increm UFW Total flow

Initial Payment Costs Benefit Save Water Saved Benefit 2012 490 32 522 -522 2013 1381 33 21 1435 -1435 2014 2221 34 63 2317 -2317 2015 1652 36 80 1767 265 22 136 1218 237 63 1518 -249 2016 677 37 81 795 278 23 144 1279 249 63 1591 796 2017 0 38 82 120 292 24 151 1343 261 65 1670 1550 2018 0 39 83 122 307 25 157 1410 275 68 1753 1630 2019 0 40 84 125 322 27 163 1480 288 71 1840 1715 2020 0 42 86 127 338 28 177 1555 303 77 1934 1807 2021 0 43 87 130 355 29 189 1632 318 82 2032 1902 2022 0 44 84 128 373 31 201 1714 334 87 2135 2007 2023 0 44 81 125 392 33 215 1800 350 93 2243 2118 2024 0 44 78 122 411 34 229 1890 368 100 2357 2235 2025 0 44 75 119 432 36 255 1984 386 111 2481 2362 2026 0 44 71 115 453 38 255 2083 406 111 2600 2484 2027 0 44 68 112 476 40 255 2187 426 111 2724 2612 2028 0 44 65 109 500 41 255 2297 447 111 2855 2746 2029 0 44 61 105 525 44 255 2412 470 111 2992 2886 2030 0 44 58 102 551 46 255 2532 493 111 3136 3034 2031 0 44 55 99 578 48 255 2659 518 111 3287 3189 2032 0 44 51 95 607 50 255 2792 544 111 3446 3351 2033 0 44 47 91 638 53 255 2931 571 111 3613 3521 2034 0 44 44 88 670 56 255 3078 599 111 3788 3700 2035 0 44 40 84 703 58 255 3232 629 111 3972 3888 2036 0 44 36 80 738 61 255 3393 661 111 4165 4084 2037 0 44 33 77 775 64 255 3563 694 111 4367 4291 2038 0 44 29 73 814 68 255 3741 728 111 4580 4508 2039 0 44 25 69 855 71 255 3928 765 111 4804 4735 2040 0 44 21 65 897 74 255 4125 803 111 5038 4974 2041 0 44 17 61 942 78 255 4331 843 111 5285 5224 2042 0 44 13 57 989 82 255 4547 885 111 5543 5487 2043 0 44 8 53 1039 86 255 4775 930 111 5815 5763 2044 0 44 4 48 1091 91 255 5013 976 111 6100 6052 2045 0 44 0 44 1145 95 255 5264 1025 111 6400 6356 2046 0 44 0 44 1203 100 255 5527 1076 111 6714 6670 NPV 4553 315 485 5353 3306 274 1571 15194 2958 686 13408 8055 12.0% EOCC EIRR 26.1%

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Table A-8: FIRR and FNPV Estimation (On-lend condition)

Capital O&M, Others Total Revenues Net Year Expenditure O &M Interest Costs Cash flow Initial Payment 2010 2011 2012 615 35 209 860 -860 2013 1734 36 541 2311 -2311 2014 2788 38 590 3415 -3415 2015 2074 39 643 2755 518 -2237 2016 850 40 701 1590 608 -983 2017 0 41 764 805 706 -99 2018 0 42 755 797 814 17 2019 0 44 745 789 933 145 2020 0 45 734 779 1287 508 2021 0 46 723 769 1468 699 2022 0 48 710 757 1669 912 2023 0 49 696 745 1892 1147 2024 0 49 681 730 2139 1409 2025 0 49 664 713 2834 2120 2026 0 49 646 695 2834 2138 2027 0 49 627 676 2834 2158 2028 0 49 605 654 2834 2179 2029 0 49 582 631 2834 2203 2030 0 49 557 606 2834 2228 2031 0 49 529 578 2834 2256 2032 0 49 499 548 2834 2286 2033 0 49 466 515 2834 2319 2034 0 49 430 479 2834 2354 2035 0 49 391 440 2834 2394 2036 0 49 349 398 2834 2436 2037 0 49 302 351 2834 2482 2038 0 49 252 301 2834 2533 2039 0 49 197 246 2834 2588 2040 0 49 137 186 2834 2648 2041 0 49 71 120 2834 2714 2042 0 49 0 49 2834 2785 2043 0 49 0 -29 2834 2863 2044 0 49 0 49 2834 2785 2045 0 49 0 49 2834 2785 2046 0 49 0 49 2834 2785 NPV 7255 908 10317 18480 40190 17794 3.5% WACC 10.1%

Appendix 7 -Finance Economic Analysis Page 14 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Table A-9: EIRR and ENPV Estimation (On-lend condition) Capital Economic BenefitsNet Year Expenditure O &M Interest Total Heath Sewerage Waste Water Time value Incremental Unaccounted Total Cash flow Initial Payment Costs Benefit Cost Saved Saved Benefit 2012 490 32 0 522 0-522 2013 1381 32 131 1544 0 -1544 2014 2221 34 338 2593 0 -2593 2015 1652 36 369 2057 265 22 136 1218 237 63 1941 -116 2016 677 37 401 1115 278 23 144 1279 249 63 2036 921 2017 0 38 438 476 292 24 151 1343 261 65 2136 1660 2018 0 40 477 517 307 25 157 1410 274 68 2241 1724 2019 0 41 472 513 322 26 163 1481 288 71 2351 1838 2020 0 41 465 506 338 27 177 1555 302 77 2476 1970 2021 0 43 459 502 355 28 189 1633 317 82 2604 2102 2022 0 44 452 496 373 29 201 1715 333 87 2738 2242 2023 0 44 444 488 392 30 215 1801 350 93 2881 2393 2024 0 44 435 479 412 32 229 1891 368 100 3032 2553 2025 0 44 426 470 433 34 255 1986 386 111 3205 2735 2026 0 44 415 459 455 36 255 2085 405 111 3347 2888 2027 0 44 404 448 478 38 255 2189 425 111 3496 3048 2028 0 44 392 436 502 40 255 2298 446 111 3652 3216 2029 0 44 378 422 527 42 255 2413 468 111 3816 3394 2030 0 44 364 408 553 44 255 2534 491 111 3988 3580 2031 0 44 348 392 581 46 255 2661 516 111 4170 3778 2032 0 44 331 375 610 48 255 2794 542 111 4360 3985 2033 0 44 312 356 641 50 255 2934 569 111 4560 4204 2034 0 44 292 336 673 53 255 3081 597 111 4770 4434 2035 0 44 269 313 707 56 255 3235 627 111 4991 4678 Appendix 7 2036-Finance 0Economic 44 Analysis 245 289 742 59 255 3397 658 111 5222 4933 Page 15 2037 0 44 218 262 779 62 255 3567 691 111 5465 5203 2038 0 44 189 233 818 65 255 3745 726 111 5720 5487 2039 0 44 158 202 859 68 255 3932 762 111 5987 5785 2040 0 44 123 167 902 71 255 4129 800 111 6268 6101 2041 0 44 86 130 947 75 255 4335 840 111 6563 6433 2042 0 44 45 89 994 79 255 4552 882 111 6873 6784 2043 0 44 0 44 1044 83 255 4780 926 111 7199 7155 2044 0 44 0 44 1096 87 255 5019 972 111 7540 7496 2045 0 44 0 44 1151 91 255 5270 1021 111 7899 7855 2046 0 44 0 44 1209 96 255 5534 1072 111 8277 8233 NPV 4553 316 2654 7523 3313 265 1571 15203 2952 686 17075 9553 12.0% EOCC EIRR 26.9% TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Table A-10: Cash Flow for Water Supply Cash Flow for Water Supply All cost and revenues are in Rs millions in 2009 prices. YEAR 2,010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 Revenues Water sales

Rs million :

Full plumbing 369 421 481 549 605 666 734 808 890 986 1,092 1,209 1,338 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 Yard tap 66 72 77 84 89 95 101 108 116 128 141 156 173 192 192 192 192 192 192 192 192 192 192 192 192 192 192 192 192 192 192 192 192 192 192 Public Tap Stand 66666666666666666666666666666666666 Total 442 499 565 639 700 767 841 923 1,012 1,120 1,239 1,371 1,518 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680 Existing Revenue 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 Incremental Revenue 140 197 263 337 398 465 539 621 710 818 937 1,069 1,216 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378 1,378

O&M & Other O& M ` 21222324262729303233353739414446495151515151515151515151515151515151

Total 20 21 22 23 24 26 27 29 30 32 33 35 37 39 41 44 46 49 51 51 51 51 51 51 51 52 53 54 55 56 57 58 59 60 61 Gross Margin 120 177 241 314 374 440 512 592 680 786 903 1,034 1,178 1,339 1,337 1,335 1,332 1,330 1,327 1,327 1,327 1,327 1,327 1,327 1,327 1,326 1,325 1,324 1,323 1,322 1,321 1,320 1,319 1,318 1,317 Interest 0 0 1743434444454545696664625956545149464340383532292623201613107 3 0 0 0 Principal + Interest 4,592 0 0 0 0 0 0 0 0 0 0 160 163 165 168 170 173 175 178 181 183 186 189 192 195 198 201 204 207 210 213 216 219 223 226 0 0 0 Repayment of Loan 24 0 0 0 0 0 0 0 0 0 0 229 229 229 229 229 229 229 229 229 229 229 229 229 229 229 229 229 229 229 229 229 229 229 229 0 0 0 Total Interest 0 0 17 43 43 44 44 45 45 45 69 66 64 62 59 56 54 51 49 46 43 40 38 35 32 29 26 23 20 16 13 10 7 3 0 0 0 Summary of cash Flow Cash Flow after Debt Service 120 177 241 314 374 440 512 592 451 556 674 804 949 1,110 1,108 1,105 1,103 1,100 1,098 1,098 1,098 1,098 1,098 1,098 1,098 1,097 1,096 1,095 1,094 1,093 1,092 1,091 1,319 1,318 1,317 Capital replacement/expansion 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 2 3 4 5 6 7 8 9 10 Annual cash Flow 120 177 241 314 374 440 512 592 451 556 674 804 949 1,110 1,108 1,105 1,103 1,100 1,098 1,098 1,098 1,098 1,098 1,098 1,098 1,096 1,094 1,092 1,090 1,088 1,086 1,084 1,311 1,309 1,307 Cumulative Cash Flow 120 297 538 851 1,225 1,665 2,178 2,770 3,220 3,777 4,451 5,255 6,204 7,314 8,422 9,527 10,630 11,730 12,828 13,925 15,023 16,121 17,218 18,316 19,414 20,509 21,603 22,694 23,784 24,872 25,957 27,041 28,352 29,661 30,968

Appendix 7 -Finance Economic Analysis Page 16 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Table A-11: Cash Flow (Wastewater Component)

Simplified Cash flow All cost and revenues are in Rs millions in 2009 prices. YEAR 2,010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 Revenues Rs million : Revenues Water sales Full plumbing 184 210 240 274 302 332 366 403 444 492 545 603 668 740 740 740 740 740 740 740 740 740 740 740 740 740 740 740 740 740 740 740 740 740 740 Yard tap 33 36 38 41 44 47 50 54 57 63 70 77 86 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 Existing Revenue 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 115 Incremental Revenue 103 131 164 201 231 265 302 342 387 441 500 566 639 720 720 720 720 720 720 720 720 720 720 720 720 720 720 720 720 720 720 720 720 720 720

O&M & Other O&M 14 15 15 16 17 18 19 20 21 22 24 25 26 28 29 31 32 34 36 38 40 42 42 42 42 42 42 42 42 42 42 42 42 42 42

Total 14 15 15 16 17 18 19 20 21 22 24 25 26 28 29 31 32 34 36 38 40 42 42 42 42 42 42 42 42 42 42 42 42 42 42 Gross Margin 89 117 148 185 214 247 283 322 366 418 477 541 613 693 691 689 688 686 684 682 680 678 678 678 678 678 678 678 678 678 678 678 678 678 678 Debt Servicing Interest 1.50%1.0% 51417181818181919181817161615141313121110109 8 7 6 5 5 4 3 2 1 0 0 0 Principal + Interest 1,268 0.000 0.000 0 0 0 0 0 0 0 0 44 45 46 46 47 48 48 49 50 51 51 52 53 54 55 55 56 57 58 59 60 61 61 62 0 0 0 Repayment of Loan 24 0.000 0.000 0 0 0 0 0 0 0 0 63 63 63 63 63 63 63 63 63 63 63 63 63 63 63 63 63 63 63 63 63 63 63 63 0 0 0 Total Interest 0.010 0.000 5 14 17 18 18 18 18 19 19 18 18 17 16 16 15 14 13 13 12 11 10 10 9 8 7 6 5 5 4 3 2 1 0 0 0 Summary of cash Flow Cash Flow after Debt Service 89 117 148 185 214 247 283 322 302 355 413 478 550 629 628 626 624 623 621 619 617 614 614 614 614 614 614 614 614 614 614 614 678 678 678 Capital replacement/expansion 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 2 3 4 5 6 7 8 9 10 Annual cash Flow 89 117 148 185 214 247 283 322 302 355 413 478 550 629 628 626 624 623 621 619 617 614 614 614 614 613 612 611 610 609 608 607 670 669 668 Cumulative Cash Flow 89 205 354 539 753 1000 1283 1605 1908 2263 2676 3154 3703 4333 4960 5587 6211 6834 7454 8073 8690 9304 9919 10533 11148 11761 12374 12985 13596 14205 14814 15421 16091 16760 17428

Appendix 7 -Finance Economic Analysis Page 17 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Table A-12: Cash Flow for Combined Water Supply and Wastewater

All cost and revenues are in Rs millions in 2009prices. YEAR 2,010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 Revenues Water sales Rs million : Full plumbing 407 465 531 606 667 735 809 891 982 1087 1204 1333 1476 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 1635 Yard tap 97 105 113 122 130 139 148 158 169 186 206 228 253 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280 Public Tap Stand 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 Total Revenue 510 576 650 734 803 880 963 1056 1157 1280 1416 1567 1735 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 1921 Existing Revenue 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 Incremental Revenue 94 159 233 317 387 463 547 639 740 863 999 1151 1318 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504

O&M & Other O&M 35 36 38 39 40 41 42 44 45 46 48 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 Total 35 36 38 39 40 41 42 44 45 46 48 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 Gross Margin 58 122 195 279 347 422 504 595 695 817 952 1102 1269 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455 Debt Servicing Interest 1.50% 1.0% 23 70 88 90 91 92 94 95 97 93 90 86 83 79 76 72 68 64 61 57 53 49 45 40 36 32 28 23 19 14 9 5 0 0 0 Principal + Interest 6,448 0.000 0.000 0 0 0 0 0 0 0 0 225 229 232 235 239 243 246 250 254 257 261 265 269 273 277 282 286 290 294 299 303 308 312 317 0 0 0 Repayment of Loan 24 0.000 0.000 0 0 0 0 0 0 0 0 322 322 322 322 322 322 322 322 322 322 322 322 322 322 322 322 322 322 322 322 322 322 322 322 0 0 0 Total Interest 0.010 0.000 23 70 88 90 91 92 94 95 97 93 90 86 83 79 76 72 68 64 61 57 53 49 45 40 36 32 28 23 19 14 9 5 0 0 0 Summary of cash Flow Cash Flow after Debt Service 58 122 195 279 347 422 504 595 373 495 630 780 947 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1455 1455 1455 Capital replacement/expansion 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 2 3 4 5 6 7 8 9 10 Annual cash Flow 58 122 195 279 347 422 504 595 373 495 630 780 947 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1134 1133 1132 1131 1130 1129 1128 1127 1447 1446 1445 Cumulative Cash Flow 58 181 376 654 1001 1423 1928 2523 2896 3391 4021 4801 5748 6882 8015 9149 10282 11416 12550 13683 14817 15950 17084 18217 19351 20484 21615 22746 23875 25004 26132 27258 28706 30152 31598

Appendix 7 -Finance Economic Analysis Page 18 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Table A-13: Cash Flow for On-lend Condition

All cost and revenues are in Rs millions in 2010 prices. YEAR 2,010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 Water sales Rs million : Full plumbing 549 626 715 938 1034 1138 1254 1381 1750 1938 2146 2376 2631 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 3353 Yard tap 99 107 115 143 152 163 173 185 227 251 277 307 340 435 435 435 435 435 435 435 435 435 435 435 435 435 435 435 435 435 435 435 435 435 435 Public Tap Stand 99999999999999999999999999999999999 Water Supply and Waste Water 656 741 838 1090 1195 1309 1436 1575 1985 2197 2432 2692 2980 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 3796 Existing Revenue 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 417 Incremental Revenue 239 324 422 673 778 893 1019 1158 1569 1780 2015 2275 2563 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379 3379

O&M; Other Expenses Operation & Maintenance 35 36 38 39 40 41 42 44 45 46 48 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49

Total 35 36 38 39 40 41 42 44 45 46 48 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 49 Gross Margin 204 288 384 634 738 852 977 1114 1524 1734 1967 2226 2514 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 3330 Debt Servicing Interest 9.00% 9.0% 145 376 410 446 487 530 524 517 510 502 493 483 473 461 449 435 420 404 387 368 347 324 299 272 242 210 175 137 95 50 0 -54 0 0 0 Principal + Interest 5,894 0.000 0.000 0 0 0 0 0 70 76 83 90 98 107 117 127 139 151 165 180 196 213 233 253 276 301 328 358 390 425 463 505 550 600 654 0 0 0 Repayment of Loan 25.0 0.000 0.000 0 0 0 0 0 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 0 0 0 Total Interest 0.090 0.000 145 376 410 446 487 530 524 517 510 502 493 483 473 461 449 435 420 404 387 368 347 324 299 272 242 210 175 137 95 50 0 -54 0 0 0 Summary of cash Flow Cash Flow after Debt Service 204 288 384 634 738 252 377 514 924 1134 1367 1626 1914 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 3330 3330 3330 Taxes 30% 197 222 251 327 358 393 431 472 596 659 729 807 894 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 1139 Annual cash Flow 7 66 133 307 380 -141 -54 42 328 475 638 818 1020 1591 1591 1591 1591 1591 1591 1591 1591 1591 1591 1591 1591 1591 1591 1591 1591 1591 1591 1591 2191 2191 2191 Cumulative Cash Flow 7 73 205 513 892 751 697 739 1067 1542 2180 2998 4018 5610 7201 8793 10384 11975 13567 15158 16749 18341 19932 21524 23115 24706 26298 27889 29480 31072 32663 34255 36446 38637 40829

Appendix 7 -Finance Economic Analysis Page 19 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Table A-14: Estimates of Contingency – Water Supply

Base Cost 2012 2013 2014 2015 2016 Cost % International International Consultants 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Materials 2,700.07 53.8% 129.91 431.14 943.41 874.21 321.39 Tools & Equipment 100.72 2.0% 4.85 16.08 35.19 32.61 11.99 Others 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Sub-Total 2,800.79 55.9% 134.76 447.23 978.61 906.82 333.38 Domestic Skilled 481.65 9.6% 9.04 144.48 212.53 93.24 22.37 Unskilled 373.26 7.4% 17.96 59.60 130.42 120.85 44.43 Materials 1,157.96 23.1% 20.38 353.83 515.19 218.14 50.42 Tools & Equipment 201.06 4.0% 0.00 77.24 99.91 23.29 0.62 Sub-Total 2,213.93 44.1% 47.38 635.15 958.05 455.52 117.83

Total 5,014.72 100.0% 182.14 1,082.38 1,936.66 1,362.33 451.21 66.86 2.43 14.43 25.82 18.16 6.02 Physical Contigency Base Cost 2012 2013 2014 2015 2016 Cost % International International Consultants 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Materials 3.30 46.5% 0.09 0.40 1.09 1.21 0.52 Tools & Equipment 0.12 1.7% 0.00 0.01 0.04 0.05 0.02 Others 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Sub-Total 3.42 48.2% 0.09 0.41 1.13 1.25 0.54 Domestic Skilled 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Unskilled 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Materials 3.15 44.4% 0.03 0.78 1.42 0.72 0.19 Tools & Equipment 0.52 7.4% 0.00 0.17 0.28 0.08 0.00 Land Acquisition & Others 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Sub-Total 3.67 51.8% 0.03 0.95 1.69 0.80 0.20

Total 7.09 100.0% 0.13 1.36 2.82 2.05 0.73 Price Contigency Base Cost 2012 2013 2014 2015 2016 Cost % International International Consultants 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Materials 350.81 54.7% 9.27 41.49 114.82 129.18 56.06 Tools & Equipment 13.09 2.0% 0.35 1.55 4.28 4.82 2.09 Others 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Sub-Total 363.90 56.7% 9.61 43.04 119.10 134.00 58.15 Domestic Skilled 146.81 22.9% 1.58 34.51 65.24 35.32 10.17 Unskilled 123.38 19.2% 3.13 14.23 40.03 45.78 20.20 Materials 6.30 1.0% 0.07 1.56 2.84 1.44 0.39 Tools & Equipment 1.05 0.2% 0.00 0.34 0.55 0.15 0.00 Land Acquisition & Others 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Sub-Total 277.54 43.3% 4.77 50.64 108.66 82.70 30.76 Total 641.44 100.0% 14.39 93.68 227.76 216.70 88.92

Appendix 7 -Finance Economic Analysis Page 20 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Table A-15: Estimates of Contingency – Wastewater System Improvements Base Cost 2012 2013 2014 2015 2016 International Cost % International Consultants 2.249 0.2% 0.28 0.657 0.469 0.344 0.499 Materials 0 0.0% 0 0 0 0 0 Tools & Equipment 120.661 9.0% 43.414 37.156 22.628 9.269 8.194 Others 0.15 0.0% 0 0 0.045 0.06 0.045 Sub-Total 123.06 9.2% 43.694 37.813 23.142 9.673 8.738 Domestic Skilled Labour 156.449 11.7% 11.691 39.089 47.288 39.341 19.04 Unskilled Labour 128.004 9.6% 9.565 31.982 38.69 32.189 15.578 Materials 890.655 66.7% 64.29 216.577 270.032 225.255 114.501 Tools & Equipment 36.374 2.7% 2.654 8.907 11.013 9.179 4.621 Sub-Total 1211.482 90.8% 88.2 296.555 367.023 305.964 153.74

Total 1334.542 100.0% 131.894 334.368 390.165 315.637 162.478 Physical Contigency Base Cost 2012 2013 2014 2015 2016 Cost % International International Consultants 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Materials 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Tools & Equipment 6.19 48.1% 1.00 1.73 1.60 0.88 0.99 Others 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Sub-Total 6.19 48.1% 1.00 1.73 1.60 0.88 0.99 Domestic Skilled Labour 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Unskilled Labour 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Materials 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Tools & Equipment 6.68 51.9% 0.15 1.01 1.92 2.19 1.42 Land Acquisition & Others 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Sub-Total 6.68 51.9% 0.15 1.01 1.92 2.19 1.42 Total 12.88 100.0% 1.14 2.74 3.52 3.07 2.41 Price Contigency Base Cost 2012 2013 2014 2015 2016 Cost % International International Consultants 0.07 0.0% 0.00 0.01 0.01 0.01 0.03 Materials 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Tools & Equipment 2.66 1.2% 0.43 0.75 0.69 0.38 0.42 Others 0.02 0.0% 0.00 0.00 0.00 0.01 0.01 Sub-Total 2.75 1.2% 0.44 0.76 0.70 0.40 0.45 Domestic Skilled Labour 28.54 12.7% 0.64 4.42 8.24 9.40 5.84 Unskilled Labour 23.35 10.4% 0.53 3.61 6.74 7.69 4.78 Materials 164.01 72.8% 3.54 24.48 47.05 53.80 35.15 Tools & Equipment 6.68 3.0% 0.15 1.01 1.92 2.19 1.42 Land Acquisition & Others 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Sub-Total 222.58 98.8% 4.85 33.52 63.95 73.07 47.19

Total 225.33 100.0% 5.29 34.28 64.66 73.47 47.64

Appendix 7 -Finance Economic Analysis Page 21 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Table A-16: Estimates of Contingency – Combined Water Supply and Wastewater

Base Cost 2012 2013 2014 2015 2016 Cost % International International Consultants 2.2 0.1% 0.3 0.7 0.5 0.3 0.5 Materials 2,700.1 92.4% 129.9 431.1 943.4 874.2 321.4 Tools & Equipment 221.4 7.6% 48.3 53.2 57.8 41.9 20.2 Sub-Total 2,923.70 41.0% 178.453 485.038 1,001.703 916.430 342.074 Domestic Skilled 638.1 18.6% 20.7 183.6 259.8 132.6 41.4 Unskilled 501.3 14.6% 27.5 91.6 169.1 153.0 60.0 Materials 2,048.6 59.8% 84.7 570.4 785.2 443.4 164.9 Tools & Equipment 237.4 6.9% 2.7 86.1 110.9 32.5 5.2 Sub-Total 3,425.41 48.1% 135.58 931.71 1,325.07 761.48 271.57 Design & Consulting Services International Consultants 128.25 28.4% 55.15 39.76 20.52 7.70 5.13 Local consultats 205.80 45.5% 41.16 41.16 41.16 41.16 41.16 Office & Other Costs (O&M,CAP) 117.89 26.1% 34.19 30.65 23.58 16.50 12.97 Sub-Total 451.94 6.3% 130.49 111.57 85.26 65.36 59.26 Project Operation Costs Administration PID 69.29 1.0% 13.86 13.86 13.86 13.86 13.86 Social & Environment 61.50 0.9% 12.30 12.30 12.30 12.30 12.30 Equipment and Material (O&M) 192.75 2.7% 115.65 38.55 38.55 0.00 0.00 Sub-Total 323.54 4.5% 141.81 64.71 64.71 26.16 26.16 Total 7,124.58 100% 586.33 1,593.02 2,476.74 1,769.42 699.06 Physical ContigencyBase Cost 2012 2013 2014 2015 2016 International Cost % International Consultants 0.00 0.0% 0.0 0.0 0.0 0.0 0.0 Materials 3.30 12.1% 0.1 0.4 1.1 1.2 0.5 Tools & Equipment 6.32 23.3% 1.0 1.7 1.6 0.9 1.0 Sub-Total 9.61 35.4% 1.09 2.14 2.72 2.13 1.52 Domestic Skilled 0.00 0.0% 0.0 0.0 0.0 0.0 0.0 Unskilled 0.00 0.0% 0.0 0.0 0.0 0.0 0.0 Materials 3.15 11.6% 0.0 0.8 1.4 0.7 0.2 Tools & Equipment 7.21 26.6% 0.1 1.2 2.2 2.3 1.4 Land Acquisition & Others 0.00 0.0% 0.0 0.0 0.0 0.0 0.0 Sub-Total 10.35 38.1% 0.18 1.96 3.61 2.99 1.62 Design & Consulting Services International Consultants 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Local consultats 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Office & Other Costs (O&M,CAP) 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Sub-Total 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Project Operation Costs Administration PID 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Social & Environment 0.00 0.0% 0.00 0.00 0.00 0.00 0.00 Equipment and Material (O&M) 7.18 0.0% 2.66 1.79 2.72 0.00 0.00 Sub-Total 7.18 26.4% 2.66 1.79 2.72 0.00 0.00 Total 27.14 73.6% 3.93 5.89 9.06 5.12 3.14 Price ContigencyBase Cost 2012 2013 2014 2015 2016 Cost % International International Consultants 0.07 0.00 0.00 0.01 0.01 0.01 0.03 Materials 350.81 0.39 9.27 41.49 114.82 129.18 56.06 Tools & Equipment 15.75 0.02 0.78 2.29 4.97 5.19 2.51 Sub-Total 366.63 40.3% 10.05 43.80 119.80 134.39 58.60 Domestic Skilled 175.35 19.3% 2.22 38.92 73.48 44.72 16.01 Unskilled 146.73 16.1% 3.66 17.85 46.77 53.47 24.98 Materials 170.31 18.7% 3.60 26.04 49.89 55.24 35.54 Tools & Equipment 7.73 0.9% 0.15 1.35 2.47 2.35 1.42 Sub-Total 500.13 55.0% 9.62 84.16 172.61 155.78 77.96 Design & Consulting Services International Consultants 2.55 0.0% 0.55 0.80 0.62 0.31 0.26 Local consultats 6.26 0.0% 0.41 0.83 1.25 1.67 2.10 Office & Other Costs (O&M,CAP) 3.00 0.0% 0.34 0.62 0.71 0.67 0.66 Sub-Total 11.81 0.0% 1.30 2.24 2.58 2.65 3.02 Project Operation Costs Administration PID 12.31 0.0% 0.76 1.57 2.41 3.31 4.25 Social & Environment 10.92 0.0% 0.68 1.39 2.14 2.94 3.78 Equipment and Tools (O&M) 7.18 0.0% 2.66 1.79 2.72 0.00 0.00 Sub-Total 30.40 0.0% 4.10 4.75 7.28 6.25 8.03 Total 908.97 95.4% 25.08 134.95 302.27 299.06 147.60 Total 936.11 29.01 140.84 311.33 304.19 150.74

Appendix 7 -Finance Economic Analysis Page 22 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Table A-17: Distribution of Net Economic Benefits and Poverty Impact Analysis Water Supply (NRs. million) Present Present less Distribution of Project Benefits Valves Valves Financial Utility Economy Labour Consumers Total Total Benefits 4937.0 11008.0 6071.0 6071.0 6071.0 Costs Capital Costs Foreign materials 2127.4 1914.7 -212.7 212.7 212.7 Local materials 465.9 419.3 -46.6 46.6 46.6 Local materials - Unskilled labour 465.9 326.1 -139.8 139.8 Skilled Labour 427.4 384.6 -42.7 42.7 42.7 Unskilled Labour 333.5 300.1 -33.3 33.3 33.3

Total 3820.0 18445.0 14625.0 Operating Costs Manpower 137.6 96.3 -41.3 41.3 41.3 Power (Electricity or Fuel) 25.22 22.7 -2.5 2.5 2.5 Maintenace & parts 57.3 51.6 -5.7 5.7 5.7 Overhead & Other 9.2 8.3 -0.9 0.9 0.9

Total 229.3 178.8 -50.4

Total Costs 4728.0 3771.0 -957.0

Net Benefits 209.0 7237.0 7028.0 209.0 209.0

Gains/Losses 209.0 264.6 261.0 6071.0 6805.6 % 30% 60% 3.9% 6.7% Poverty Impact Ratio Value 79.4 156.6 236.8 472.7 Proportion of poor in project area 3.9%

Appendix 7 -Finance Economic Analysis Page 23 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Table A-18: Distribution of Net Economic Benefits and Poverty Impact Analysis Wastewater (NRs. million) Present Present less Distribution of Project Benefits Valves Valves Financial Utility Economy Labour Consumers Total Total Benefits 1003.0 2880.0 1877.0 1877.0 1877.0 Costs Capital Costs Foreign materials 109.6 98.7 -11.0 11.0 11.0 Local materials 372.4 335.2 -37.2 37.2 37.2 Local materials - Unskilled labour 372.4 260.7 -111.7 111.7 Skilled Labour 164.3 147.8 -16.4 16.4 16.4 Unskilled Labour 134.4 121.0 -13.4 13.4 13.4

Total 1155.0 3665.0 2510.0 Operating Costs Manpower 98.1 68.7 -29.4 29.4 29.4 Power (Electricity or Fuel) 17.99 16.2 -1.8 1.8 1.8 Maintenace & parts 40.9 36.8 -4.1 4.1 4.1 Overhead & Other 6.6 5.9 -0.7 0.7 0.7

Total 163.5 127.6 -36.0

Total Costs 1405.0 1127.0 -278.0

Net Benefits -402.0 1753.0 2155.0 -402.0 -402.0

Gains/Losses -402.0 33.9 191.8 1877.0 1700.8 % 30% 60% 3.9% 9.2% Poverty Impact Ratio Value 10.2 115.1 73.2 198.5 Proportion of poor in project area 3.9%

Appendix 7 -Finance Economic Analysis Page 24 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Table A-19: Distribution of Net Economic Benefits and Poverty Impact Analysis Combined Water Supply and Wastewater (NRs. million) l Present c less Distribution of Project Benefits Present Valves Financial Utility Economy Labour ConsumerTotal Total Benefits 4937.0 11008.0 6071.0 6071.0 6071.0 Costs Capital Costs Foreign materials 2981.7 2683.6 -298.2 298.2 298.2 Local materials 652.9 587.7 -65.3 65.3 65.3 Local materials - Unskilled labour 652.9 457.1 -195.9 195.9 Skilled Labour 599.0 539.1 -59.9 59.9 59.9 Unskilled Labour 467.4 420.7 -46.7 46.7 46.7

Total 5354.0 13437.0 8083.0 Operating Costs Manpower 137.6 96.3 -41.3 41.3 41.3 Power (Electricity or Fuel) 25.22 22.7 -2.5 2.5 2.5 Maintenace & parts 57.3 51.6 -5.7 5.7 5.7 Overhead & Other 9.2 8.3 -0.9 0.9 0.9

Total 229.3 178.8 -50.4

Total Costs 4728.0 3771.0 -957.0

Net Benefits 209.0 7237.0 7028.0 209.0 209.0

Gains/Losses 209.0 367.2 349.2 6071.0 6996.4 % 30% 60% 3.9% 7.9% Poverty Impact Ratio Value 110.2 209.5 236.8 556.5 Proportion of poor in project area 3.9%

Appendix 7 -Finance Economic Analysis Page 25 TA 4893 –NEP: Kathmandu Valley Water Supply & Wastewater System Improvement Project Feasibility Study

Table A-20: Distribution of Net Economic Benefits and Poverty Impact Analysis On-Lend Situation (NRs. million)

Present Present less Distribution of Project Benefits Valves Valves Financial Utility Economy Labour Consumers Total Total Benefits 4937.0 11008.0 6071.0 6071.0 6071.0

Costs Capital Costs Foreign materials 4208.9 3788.0 -420.9 420.9 420.9 Local materials 912.2 821.0 -91.2 91.2 91.2 Local materials - Unskilled labour 912.2 638.5 -273.7 273.7 Skilled Labour 836.8 753.1 -83.7 83.7 83.7 Unskilled Labour 652.9 587.6 -65.3 65.3 65.3

Total 7523.0 17075.0 9552.0 Operating Costs Manpower 137.6 96.3 -41.3 41.3 41.3 Power (Electricity or Fuel) 25.22 22.7 -2.5 2.5 2.5 Maintenace & parts 57.3 51.6 -5.7 5.7 5.7 Overhead & Other 9.2 8.3 -0.9 0.9 0.9

Total 229.3 178.9 -50.4 Total Costs 4728.0 3771.0 -957.0

Net Benefits 209.0 7237.0 7028.0 209.0 209.0

Gains/Losses 209.0 513.7 471.5 6071.0 7265.2

Poverty Impact Ratio % 30% 60% 3.9% 9.6% Value 154.1 282.9 236.8 673.8 Proportion of poor in project area 3.9%

Appendix 7 -Finance Economic Analysis Page 26