Project Background

Nepal is a land locked country with total land area of 147,181 sq. Km. It lies on the southern slopes of Himalayas and is surrounded by the landmass of China on the north and that of India in the east, west and south. The country is divided into three distinct geographical regions stretching from east to west; the mountains in the north, the Terai plain bordering India in the south and the hills in between.

The administration in Nepal is carried out through 75 districts, 58 municipalities, and 3,912 Village Development Committees. The kingdom has a large number of diverse  ethnic groups, distributed throughout the country. The population in Nepal as of national census recently held in the year 2001 is 23,214,681. Out of which some 85% of the population live in the rural areas, with agrarian economy and the rest of about 15% (3,303,500) population live in the new emerging towns and cities. Over the past decades, Nepal has gradually been urbanizing due to the expansion of east-west and north-south national road network.

In about 10 years (1991 to 2001) time the total population in the urban area has increased from 1.69 to 3.3 million. Over the past decades the population in the urban centers along the major highways, district headquarters and market centers has been increasing rapidly mainly as a result of rural migration. Increased urbanization, unplanned development and haphazard concentration due to migration of hill population has led to critically inadequate infrastructure services and depleting environmental and poor sanitary conditions in these fast growing small towns of Nepal. The situation has also led to declining quality of life due to inadequate water supply and public health conditions of the residents, particularly low-income group of people. It is common to see in these urban areas where women folks are spending many hours for fetching water from distant sources.

Ministry of Physical Planning and Works

The Ministry of Physical Planning and Works (MPPW) is the ministerial-level institution with overall responsibility for water supply and sanitation in the country. It reviews and approves sector plans, policies, and the development budget. It supervises several sector institutions, including the Department of Water Supply and Sewerage (DWSS), Nepal Water Supply Corporation (NWSC), Rural Water Supply and Sanitation Fund Development Board (RWSSFDB). NWSC is a semiautonomous corporation responsible for water supply in major urban centers with current operations in 28 major towns. The RWSSFDB is an autonomous institution funded by the World Bank to support small rural water supply and sanitation projects. MPPW also oversees the Melamchi Water Supply Development Board, which is responsible for the Melamchi water supply project to bring water from the Melamchi River to the Kathmandu valley.

Department of Water Supply and Sewerage (DWSS):

The DWSS is the lead sector government agency for water supply and sanitation (WSS). The DWSS formed in 1972, and given responsibility for the sector that was formerly in the hands of the Department of Irrigation. Before 1972, the Department of Irrigation's mandate was to support WSS coverage for communities larger than 1,500. The Ministry of Local Development had responsibility for smaller systems. In 1987, all WSS responsibility was given to DWSS under the MPPW umbrella, transferring management of DWSS from the Ministry of Water resources.

DWSS is now the lead agency in the sector with responsibility for sector planning, coordination, technical standards, management of design and construction activities for WSS facilities, coordination of health and hygiene education, and construction of sanitation facilities. Although current policy is to facilitate WSS construction (with O&M the responsibility of Water User Groups), DWSS continues to operate and maintain a number of larger water supply systems through its Water Supply and Sanitation Division Offices. A Director General (supported by two Deputy Director Generals) heads DWSS. DWSS has 10 technical sections to carry out relevant central level activities:

1. Environmental Sanitation and Natural Disaster Management Section
2. Sewerage Management Section
3. NGO and Community Mobilization Section
4. Electro-Mechanical Repair & Maintenance Section
5. Project Design and Progress Monitoring & Evaluation Section
6. Foreign Assistance Coordination and Planning Section
7. Human Resource Development, Training and Research Section
8. Appropriate Technology Development and Rain Water Harvesting Section
9. Water Quality Improvement and Monitoring Section
10. National Information Management Section

These sections provide both national level coordination, and support to regional and division level activities. The DDGs share responsibility for oversight of activities in the five development regions with one responsible for the Eastern and Central Regions and the other responsible for the Western, Mid-Western, and Far Western Regions.

In addition DWSS has five Regional Monitoring and Supervision Offices in five development regions, Water Supply and Sanitation Division Offices in 43 districts and Water Supply and Sanitation Sub-Division Offices in 27 districts. The total staff of DWSS is 1798. The Regional Offices headed by Regional Director, coordinate activities between central level and division level, providing technical support as necessary and monitoring and supervising division level activities. The division offices, headed by the Division Chief and Sub-Division Chief, have engineers, overseers, water supply and sanitation technicians, woman workers, and administrative support staff. The Division and Sub-Division Offices:

• coordinate centrally funded program activities with district development committees (DDCs), municipalities, and VDCs;
• design new water supply systems;
• manage the construction process, including training for Water Users and Sanitation Committees (WUSCs) and coordinating sanitation programs;
• operate and maintain water supply systems that have not yet been transferred to WUSCs; and
• provide technical and financial support to communities to overcome major water supply system problems.

Small Towns Water Supply and Sanitaiton Sector Project (STWSSSP):

Government of Nepal has planned to implement Small Towns Water Supply and Sanitation Sector Project (STWSSSP) in order to improve health and quality of life of the people living in the small towns by constructing new and/or rehabilitating and upgrading the existing water supply systems, drainage and sanitation facilities, and providing Health and Hygiene Education (HHE) program. The STWSSSP presently under implementation with the financial assistance of the Asian Development Bank is a part of the 15-year plan for small towns water supply and sanitation development and will be implemented for a period of 6 years. The project will provide water supply, limited drainage and sanitation facilities in 40-50 towns with average populations of about 12,000 each following a demand-driven, interactive procedure that ensures full participation of the local water users' groups. The Asian Development Bank (ADB) is funding the foreign exchange cost of the project from its special fund resource as a loan to Goverment of Nepal. The project areas selected are emerging small towns that meet the basic criteria defined by the 15-Year Development Plan for Small Towns Water Supply and Sanitation Projects.

Objective of STWSSSP

The main objectives of the project are to:

• improve water supply and sanitation facilities and provide HHE program in each town;
• support community participation in the development of water supply and sanitation facilities; and
• promote community based water quality monitoring.

The project envisages a demand driven approach for the development of water supply and sanitation services to be designed and implemented in the small towns of the country. Town residents' willingness to pay for the services is considered as basic indicator of community demand. The selection of the project towns is on the basis of competitive process by examining their capacity to share a minimum of 20% of the construction cost, and repay through water tariffs, an additional 30% of the cost over 12-15 years time. The project has the following four components:

• Public Awareness Campaign (PAC) and Health and Hygiene Education (HHE) programs.
• Water Supply and Public Sanitation.
• Technical support to Water Users and Sanitation Committees (WUSCs).
• Project Implementation Assistance (PIA).

15-Year Development Plan for STWSSSP

Government of Nepal , with assistance of a variety of multilateral and bilateral donors, has made considerable effort to provide improved water supply and sanitation (WSS) services to people living in both the urban and rural areas of Nepal. Current coverage of piped water supply is estimated to be about 68% throughout the country. While the stated goal for water supply coverage in the Ninth Plan (which ends in FY 2001/2002) was 100%. The achievement is far behind the set target. Nonetheless, G/N continues to support efforts to improve the health and well being of Nepali people through numerous ongoing WSS projects. Two major multilateral donor-financed, the ADB-financed 4th Rural WSS Project and the World Bank financed Rural WSS Fund Development Board, are addressing the needs of many small and medium sized rural villages. There have been past and currently planned projects (such as the Melamchi Water Project, which is supported by a group of multilateral and bilateral donors) focussing on major metropolitan areas. However, one major group of water users that has yet to receive significant sectoral assistance is in emerging small towns.

The 15 Year Development Plan for Small Towns Water Supply and Sanitation quantifies the WSS needs of that group of water users, estimates the cost of providing the improved services that they require, and proposes an institutional framework through which those services can be provided and paid for. For purposes of this Plan, an emerging small town is defined as:

having a service area population of 3,000 - 40,000 people;
a population growth rate of at least 3%, and population density of at least 40 persons per hectare;
located on all weather road on either the East-West Highway or one of its major North-South feeder roads, or could be district headquarters;
meets certain criteria for hardship in terms of the limitations its current WSS facilities;
has such basic infrastructure as gird electricity, banking facilities, a secondary school, and a health post;
must have an average household income of at least NRs. 5,000 to insure the affordability of cost sharing for the new facilities.

The Plan begins with a summary of relevant demographic information about estimated growth rates in the emerging small towns of Nepal, and explains the need for the Plan. There is a brief overview of Water Supply and Sanitation (WSS) sectoral issues, followed by a discussion of national policies that apply to urban WSS development. Thereafter, a precise definition of emerging small towns is given (as mentioned above). This definition is applied to a long list of more than 200 candidate towns and about 30 additional towns are expected to fall within the category during the period. Site selection criteria are specified that will be used to choose individual towns for project assistance as sectoral financing becomes available.

The technical aspects of water supply, sanitation, and drainage are described as they apply to small towns. The concept of service are as it applies to coverage (and ultimately to project cost) is discussed. Levels of service (e.g. community taps, house connections) are described. Since hand pumps are already commercially available in most areas of Nepal where they can easily be used, it is recommended that only piped water systems be supported with project funds. In fact, where customers can afford it, they nearly always prefer the convenience of piped water supplies with house connections. The types of private and public sanitation facilities that will be financed with project assistance are described. The need for a community based education program to encourage better sanitation and hygiene practices is stressed. This will help to maximize the significant benefits of improved community health and consequent productivity.

The cost of each of the major project and program components are calculated, based on the long list of small towns, the current state of their WSS facilities, and an estimate of the extent of improved WSS services required. Water and sanitation systems cost are based on current per capita costs for gravity water systems (in the hills towns) and pumped tubewell systems (primarily in the Terai). The overall estimated program cost for 209 towns with an average population of just over 10,000 people each was calculated to be about NRs. 12.132 billion (US$ 177.11 million). This amount includes the cost of WSS construction, as well as the cost of required support services for project management, community and institutional training, technical assistance, logistics (building, equipment and vehicles), benefit monitoring and evaluation, and water quality monitoring.

Clearly, this is an amount well beyond the financial resources currently available to Government. Extensive, broad-based financial support will certainly be required from both multilateral and bilateral donors to achieve the goals and objectives of this ambitious but necessary program. In addition, reflecting the new government policy on cost sharing the development cost for urban infrastructure, significant resources would be mobilized from, beneficiary communities to co-finance this program.

In particular, beneficiaries will contribute some percentage of upfront co-financing of the total WSS construction cost, and will also pay back some additional cost of the total construction through water tariffs over the first fifteen years after completion of construction. These tariffs will cover O & M, repair, system expansion, and debt servicing.

The recommended institutional framework through which the planning and implementation of this plan would take place is described. The community would be the owner of the new or rehabilitated facilities based upon their upfront co-financing, complemented by their repayment over time of a significant portion of the construction loan. The design of the improved WSS facilities would be demand responsive, meaning that people would get the level of WSS services they want and are willing to pay for. The community itself, represented by the WUSC or the WSS Section (in the case of a Municipality), will be responsible for long-term operation and maintenance.

Given the broad scope and cost of the program, NGOs and the private sector would play significant roles is assisting DWSS and the participating towns in project planning and implementation. This will help DWSS to focus on its role as program facilitator rather than implementator.

Salient Features of the Project

(a)	Project Title :	Small Towns Water Supply and Sanitation Sector Project
		[Loan No. LOI/L 1755-NEP (SF)]
(b)	Funding Agency :	Asian Development Bank
	Borrower :	Ministry of Finance, Government of Nepal
	Executing Agency :	The Ministry of Physical Planning and Works (MPPW)
	Implementing Agency :	Department of Water Supply and Sewerage (DWSS)
	Project Management :	Project Management Office (PMO) under DWSS
		Town Development Fund (TDF),
		Local Government,
		Water Users and Sanitation Committee (WUSC)
(c)	Project Area :	About 40-50 new emerging small towns all over Nepal
(d)	Scope :
	Improves water supply and sanitation conditions in 40-50 new small towns with average population of about 12,000 each and about 0.6 million people will be benefited from the project. The overall benefit is the improvement of health and quality of life of the people by constructing water supply, sanitation and drainage facilities. The project requires the beneficiaries to make contribution in cash or kind to cover partial project cost (about 20% during implementation and 30% loan payback in 12-15 years period after commission). The institutional capacity of the WUSCs will be developed with the support of technical and financial training. The project also promotes community based water quality monitoring and establishes Operation and Maintenance (O & M) system within the WUSCs. Major four components envisaged in the project are: