Technical Assistance Consultant’s Report Technical Assistance 8036-REG August 2013 Regional: Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia (Nepal) Prepared by METCON Consultants Kathmandu, Nepal For the Ministry of Urban Development, Government of Nepal This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. Government of Nepal Ministry of Urban Development Asian Development Bank FINAL REPORT TA-8036 REG “Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia-Nepal” Preparation of National Tariff Guidelines for Water Supply and Wastewater Submitted by: August 2013 Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal Table of Contents Executive Summary……………………………………………………………………………..v Abbreviation……………………………………………………………………………………...x 1 Introduction .......................................................................................................... 1 1.1 General Background .................................................................................................... 1 1.2 Objective and Scope of the Study ................................................................................ 2 1.2.1 Objective ............................................................................................................... 2 1.2.2 Scope of Study ..................................................................................................... 2 1.3 Rationale for Case Study Sample Town Selection ....................................................... 4 1.4 Methodology ................................................................................................................ 4 1.5 Field Work and Information Collection.......................................................................... 6 1.6 Project Benefits, Assumptions and Risks ..................................................................... 6 2 Regulatory and Institutional Arrangements for the Urban Water Sector .......... 7 2.1 General Background .................................................................................................... 7 2.2 Legal and Regulatory Framework for the Water Sector ................................................ 8 2.3 Current Water Tariff Approval Procedures ..................................................................10 2.4 Key Issues ..................................................................................................................15 2.5 Options for Streamlining and Making the Tariff Approval Process More Efficient ........16 3 Detailed Case Studies of Pilot Town Water Utilities .......................................... 17 3.1 Kathmandu .................................................................................................................17 3.1.1 Water System ......................................................................................................17 3.1.2 Tariff Structures and Institutions...........................................................................20 3.1.3 Utility Management ..............................................................................................24 3.1.4 Financial Performance .........................................................................................31 3.1.5 Social and Poverty Assessment ...........................................................................39 3.1.6 Development of Water Tariff ................................................................................43 3.2 Bharatpur ....................................................................................................................48 3.2.1 Water System ......................................................................................................48 3.2.2 Tariff Structures and Institutions...........................................................................50 3.2.3 Utility Management ..............................................................................................52 3.2.4 Financial Performance .........................................................................................55 3.2.5 Social and Poverty Assessment ...........................................................................60 3.2.6 Development of Water Tariff ................................................................................63 3.3 Surkhet (Birendranagar)..............................................................................................65 3.3.1 Water System ......................................................................................................66 Final Report i METCON Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal 3.3.2 Tariff Structures and Institutions...........................................................................70 3.3.3 Utility Management ..............................................................................................71 3.3.4 Financial Performance .........................................................................................74 3.3.5 Social and Poverty Assessment ...........................................................................81 3.3.6 Development of Water Tariff ................................................................................83 4 Brief Case Studies Of Other Sample Town Utilities .......................................... 86 4.1 Bhaluwang ..................................................................................................................86 4.1.1 Water System ......................................................................................................86 4.1.2 Tariff Structures and Institutions...........................................................................86 4.1.3 Utility Management ..............................................................................................87 4.1.4 Financial Performance .........................................................................................88 4.1.5 Social and Poverty Assessment ...........................................................................89 4.2 Parsa ..........................................................................................................................89 4.2.1 Water System ......................................................................................................89 4.2.2 Tariff Structures and Institutions...........................................................................90 4.2.3 Utility Management ..............................................................................................91 4.2.4 Financial Performance .........................................................................................93 4.2.5 Social and Poverty Assessment ...........................................................................95 4.3 Dhulikhel .....................................................................................................................95 4.3.1 Water System ......................................................................................................95 4.3.2 Tariff Structures and Institutions...........................................................................97 4.3.3 Utility Management ..............................................................................................99 4.3.4 Financial Performance ....................................................................................... 101 4.3.5 Social and Poverty Assessment ......................................................................... 102 4.4 Biratnagar ................................................................................................................. 103 4.4.1 Water System .................................................................................................... 103 4.4.2 Tariff Structures and Institutions......................................................................... 104 4.4.3 Utility Management ............................................................................................ 105 4.4.4 Financial Performance ....................................................................................... 107 4.4.5 Social and Poverty Assessment ......................................................................... 108 4.5 Itahari........................................................................................................................ 109 4.5.1 Water System .................................................................................................... 109 4.5.2 Tariff Structures and Institutions......................................................................... 109 4.5.3 Utility Management ............................................................................................ 111 4.5.4 Financial Performance ....................................................................................... 111 4.5.5 Social and Poverty Assessment ......................................................................... 112 Final Report ii METCON Promoting Financially Sustainable Regulatory Framework for Water Tariff in South Asia- Nepal 4.6 Damak .....................................................................................................................