.ield Note Water and Sanitation Program Setting the Stage: An international partnership to help The Process of Preparing the poor gain sustained access to improved for Pro-poor Water Sector water supply and sanitation services Reforms in Kathmandu This paper is part of a research and dissemination initiative which the Water and Sanitation Program is carrying out into private sector participation and the poor in the urban water sector. Proposals to involve the private sector in water supply and sanitation sometimes raise fears that the poor will be priced out through higher tariffs and costly connection fees or overlooked because they live in hard-to-reach locations. The reality is that the private sector has the capacity and the interest to serve the poor, is willing to experiment with low-cost options and different levels of service, and with greater efficiency, can benefit all consumers. There are examples of this in many parts of the world. This series will document best practices and show how service to the poor can be addressed by the skillful design of private sector contracts; by strengthening the regulatory system and making sure it protects the interests of the poor; and by creating partnerships between civil society, local authorities and private operators. The series also analyzes lessons learnt and explores how international experiences can be adapted to various regions. Context repair programs, better billing and remuneration formula for reducing revenue collection methods, funds for the leaks in the system, and improving In 1997 His Majesty’s Government system rehabilitation, and clear the billing and collection efficiency. of Nepal (HMGN), working with the incentives to reduce leakage and The operator was to have some World Bank, began preparing for wide- improve service. investment obligations, though these reaching reform in the urban water supply would be small and mostly related to The form of contract chosen for sector. The World Bank had earlier system repair rather than expansion or private sector participation was a 10 financed an urban water project which new works, and most major investment year ‘affermage’, under which the provided management support to the would be financed by the state using a assets remain in public hands, while national water utility, Nepal Water Supply combination of loans and bilateral the operator takes on operation and Corporation (NWSC), through grant aid. management of the system. The expatriate advisors. This project had operator is remunerated by being There were concerns on the part failed to result in significant paid by the government for each of both the government and the improvements, and the water supply cubic meter of water sold (note that World Bank that, while a private operator and sanitation services operated by this is different from a lease, in which would have ample incentive to improve NWSC did not meet the standards set the operator pays a ‘rent’ to the the existing network and try to sell more by HMGN in successive five-year government for the right to run the water to customers already connected, programs and development plans. The system and charge consumers for this might not result in much government decided that a professional water). The tariffs are collected by the improvement for the large number of operator’s skill was necessary to achieve operator on the government’s behalf, poor people in Kathmandu. Little was progress in the sector, and that major and remitted to the state (after the known about the water supply and element of reform should be the operator has deducted the amount sanitation situation of the urban poor, introduction of private sector owed to him). In the contract and in fact there were conflicting opinions participation. proposed for Kathmandu, the about both the number of poor people, The Kathmandu Valley houses a affermage was enhanced by adding and the nature of their problems in rapidly growing city, referred to as financial incentives in the accessing water and sanitation services. Kathmandu, which is composed of five separate municipalities; Kathmandu, Lalitpur, Thimi, Bhaktapur and Kritipur. The population in 2001 was approximately 1.1 million, and is growing rapidly. Mounting water demand, combined with high leakage rates in the aging and poorly- maintained network, plus a poorly operated system means that few areas receive 24-hour service. In fact, many areas only have water a few hours a day, or even every other day. The utility needs to focus on leak detection and Many of the poor use traditional ‘stone spouts’ which are not part of the network, but are fed by spring sources. 2 S e t t i n g t h e S t a g e : T h e P r o c e s s o f Pr e p a r i n g f o r Pr o - p o o r Wa t e r S e c t o r Re f o r m s i n Ka t h m a n d u Initial Research on the Water and Sanitation Situation of the Urban Poor In early 2000, the World Bank Task Manager approached the Water and Sanitation Program (WSP) and .requent interruptions in requested support in examining this supply create hardship for the poor, who have no water issue. At that time, WSP had initiated a storage facilities in their small study of the urban poor of homes, and must wait hours Kathmandu in collaboration with three Health (NEWAH) and WaterAid Nepal until water is available. local NGOs, with the intention of – with WSP financial and consultant increasing the knowledge in the region support. .ieldwork was carried out in were used by the urban poor, including of water and sanitation issues in the April 2000 and covered 14 tubewells, spring-fed stone spouts, river, urban sector. WSP proposed to design communities from three of the five public standposts, both metered and the study in such a way that the results municipalities (Kathmandu, Lalitpur and unmetered NWSC connections, would be of direct use to the transaction Thimi); 140 households participated in dugwells, rain harvesting and illegal planners. the participatory research, which connections (though there were The research for the study of the involved community consultations, surprisingly few of these). Noticeably water and sanitation situation of the meetings, and social mapping to absent was any kind of water market urban poor was carried out by three provide information about their own among the poor – there were no vendors locally-based NGOs – Lumanti Support situation and that of another 831 and water was not sold by one family to Group for Shelter, Nepal Water for households in their communities. another. There were wide differences in The limitations of the study sources among different communities. included the fact that the communities Shallow tubewells were the dominant and households studied were not source for most of the 14 communities randomly selected, and a standard surveyed — almost one-third used a survey instrument was not used. Instead, private shallow tubewell and over one- the study used participatory techniques, quarter a shared tubewell. NWSC had and focused on slum and squatter only a modest presence; just 5.1 percent communities in which the NGOs were of all households surveyed in the 14 already active – however since Lumanti communities had NWSC connections. worked primarily in squatter Only 33 percent of households in the communities this resulted in a bias slum and squatter communities studied toward this type of settlement. Despite had any kind of private latrine and only these limitations, the study provided 15 percent of these were deemed by some good indicative data and raised the research team to be sanitary some issues that needed further study (that is, they achieved isolation of and analysis. The study was also very faeces). The large number of unsanitary rapid, cost effective (costing about latrines suggested a high demand for $30,000), and helped start a privacy and convenience, but less relationship between those planning the appreciation of the importance of safe transaction and the NGO community. excreta disposal. In the slum and squatter settlements It was concluded that there were studied, the situation study findings some significant issues regarding water indicated that a wide variety of sources and sanitation for the poor. Poor people S e t t i n g t h e S t a g e : T h e Pr o c e s s o f Pr e p a r i n g f o r Pr o - p o o r Wa t e r S e c t o r Re f o r m s i n Ka t h m a n d u 3 faced water stress (though this at the expansion of the network, rather than time was true for all residents of the consumption subsidies, was the urgent valley) and were not accessing NWSC priority. It was also clear that more water to any great extent. The NWSC’s research was necessary in order to stated policy of assisting the poor obtain a clearer idea of what the through subsidized consumption tariffs situation of the poor was – it was also was not actually reaching most of the necessary to build consensus on this people who needed this help, and there issue, as there were disagreements were serious inequities. .or instance, about the severity of the problem. Some the cost of a NWSC household government and utility officials were not connection in poor communities (where convinced that the poor were under- tertiary networks are missing and served, feeling that the heavily households must lay significant lengths subsidized lifeline block of the water of half-inch galvanized iron pipe to tariff and the system of public connect to the secondary mains, standposts adequately addressed the creating a web of ‘spaghetti needs of the poor; others were connections’) was found during the concerned that it was not appropriate situation study to be in the order of Rs. to try to single out the poor in a city 11,000 to 15,000 (US$160 to $210)1. such as Kathmandu where the poor It was clear from the research that many and the rich often lived side by side. of the unconnected, even if they could At the time of the completion of technically obtain a connection, could the situation study, a participatory not afford one at current prices. In workshop was held in Kathmandu to addition, under NWSC rules those present the results. This workshop, without land tenure could not have a organized by the NGOs that carried water connection at all, so squatters out the study and supported by WSP , remained unserved (even though there attracted NGOs, community members, was some indication that this rule was government officials and the press. interpreted in a flexible manner). Small group discussions were held as part of the workshop, at which participants discussed issues relating to Communicating the the proposed recruitment of a private Issues sector operator, tariff reform and other issues. This workshop helped kick off a The initial findings were process of consultation and informed incorporated into a report presented to civil society participation which was to the Private Sector Participation be a hallmark of the transaction design. Committee (PSPC), the World Bank and the transactions advisors in June 1 This is partly because the cost of a connection 2000. This report urged the PSPC to was ‘padded‘ with several significant additional costs, including the meter and meter box which address the needs of the poor in must both be purchased by the householder, contract design, and pointed out that as well as a deposit of Rs.1,000 (which was in practice never recovered by the user), and pipe costs Rs.1,600 for the first 100 feet and Poor household without Rs.16.5 per foot thereafter. The total cost of a connections often rely on shallow connection within 100 feet of the mains was, in theory, Rs.4,300. In practice, however, the groundwater supplied from connection costs were much higher in poor tubewells they have constructed areas as they tended to be further from the with their own funds. mains. A connection at 500 feet, for instance, would cost about Rs.11,000 (US$160). 4 S e t t i n g t h e S t a g e : T h e P r o c e s s o f Pr e p a r i n g f o r Pr o - p o o r Wa t e r S e c t o r Re f o r m s i n Ka t h m a n d u .urther Research positive incentive to provide connections The WTP study confirmed many to the poor, and undertake community- of the findings of the earlier study of .unds were made available level planning to determine the types of the 14 communities, in particular through a combination of funding service to provide. However, information showing that 29 percent of the residents sources (the Water and Sanitation was lacking on what poor people actually of the city were unconnected to the Program, a Norwegian Trust .und – wanted and would pay for. network, and that 63 percent of these executed by the World Bank – specifically The willingness-to-pay study was unconnected households were poor. set up to assist in project preparation in undertaken between March and June Overall, only 51 percent of poor Kathmandu, and the Project Preparation 2001, overlapping and coordinated households had a NWSC connection2. .und for the World Bank project) for two with the institutional study. The basic Of the poor households in the sample more studies to be carried out. The first objective of this study was to determine without a water connection, 88 percent was a willingness-to-pay study to examine how much the people of Kathmandu relied on a combination of public household characteristics, the were willing to pay for improved water sources such as stone taps, public affordability of water connections and supply. However the survey instrument wells, rainwater, ponds and streams. tariffs, and the levels of service was designed to collect a great deal of households wanted and were willing to additional information including Consultations pay for. The second was an institutional household characteristics, water source study to look at the way the operator Continue use, environmental priorities and would interact with the poor and how support for private sector participation At the same time that the research the regulator, NGOs, community-based It soon became apparent that it would was continuing, the process of organizations and users themselves be very difficult to create a sample consultation with civil society was also would be involved. consisting solely of poor households, ongoing. Several of the civil society Phase one of the study of the so the decision was made to survey organizations concerned about the Institutional Interface to Serve the Urban households across all socio-economic planned reform of the urban water Poor was initiated in early 2001, with a categories in all five Kathmandu sector in Kathmandu organized a budget of about $35,000, and a scope municipalities. The willingness-to-pay meeting on March 13, 2001, and of work that included looking at the study thus created a very valuable invited the PSPC and WSP to attend relationship between the operator and dataset of relevance to the transaction and make presentations. At this meeting the poor consumers. A report entitled as a whole, not just the issue of service a list of issues of concern to the NGOs Private Sector Participation in the Water to the poor. present was developed, and a decision Supply and Sanitation in the was taken to form a coalition — The The study, costing about Kathmandu Valley: Advice on the NGO .orum on Kathmandu Water US$120,000 including sampling, data nature of the institutional interface Supply and Sanitation — and to seek collection, data entry, data analysis and between the operator and low income further information and capacity report writing, used a rigorous sampling consumers was submitted by the building in order to define their position method to randomly select 1,500 consultants in March 2001. The WSP households, each of whom participated on the proposed lease contract. The used the proposals in this report, plus in a one hour in-person interview. formation of this coalition was a key suggestions from a number of other Approximately 34 percent of the sample, event in determining the success of sources, to prepare a draft report or 520 households, were categorized future consultations. entitled Kathmandu Valley Water Supply and Sanitation: Proposals for as poor using a multi-faceted definition The NGO .orum immediately Service to the Poor, submitted to the of poverty, and this subset of the data became very active, and between PSPC in May 2001. This report was used to shed light on the situation March 2001 and April 2002 it held proposed that the operator be given a of the poor. more than 15 meetings, including 2 This is higher than the number found in the earlier situation study, which focused on squatter settlements, where many households are legally barred from having legal connections. The two studies together show that there are wide variations in connection rates between localities in the same urban area. S e t t i n g t h e S t a g e : T h e Pr o c e s s o f Pr e p a r i n g f o r Pr o - p o o r Wa t e r S e c t o r Re f o r m s i n Ka t h m a n d u 5 several with members of the PSPC Box 1 and other stakeholders such as the World Bank, the Asian Development Proposals for serving the poor in the context of private Bank and municipalities. The .orum, sector participation using financial support provided by the ■ Use poverty mapping to identify high-priority geographical areas in which British NGO WaterAid, hired a part- there are large numbers of unconnected poor, and use this as the basis time research assistant. The .orum for targeting assistance for the poor such as improvements in tertiary provided comments on the willingness- networks, new connections, and new or rehabilitated standposts. to-pay study, the institutional report, ■ Make general provisions, such as improving the tertiary network and drafts of the Request for Proposals (R.P) restructuring connection charges, to make private and shared water to be sent out to bidders, and prepared connections more affordable and accessible to the poor. a summary (translated into Nepali) of ■ Set as a long-term goal full connectivity of all households through private the planned reforms for NGOs and connections. communities. ■ Provide a system of metered, managed standposts until funds are available to connect all the poor through subsidized private connections. Proposals for Service ■ Require the operator to prepare an annual plan for improving service to to the Poor are the poor and disbursing the funds earmarked for this purpose. Developed ■ Require the operator to carry out community level, participatory planning in priority neighborhoods to determine the type and mix of services. In early 2002 the PSPC ■ Ensure entry to the market for small scale independent providers. commissioned the second phase of the ■ When evaluating proposals, ensure that the operator’s proposed service institutional study, with a budget of to the poor includes administrative arrangements such as frequent billing, $25,000. The scope of work included decentralized service centers, easy fault reporting, and payment for preparing a draft report on service to connection charges in installments. the poor reflecting all the feedback and ■ Avoid consumption subsidies in the tariff, and introduce a flat volumetric comment up to that point, holding a tariff for private connections. multi-stakeholder workshop in Kathmandu, preparing sections of the ■ Establish a bulk, discounted tariff for standposts and water vendors. bidding documents relating to the poor, ■ Make the regulatory process more transparent by requiring the regulator and advising the PSPC on capacity to hold public hearings and publish the management/lease contract. building needs. ■ Build the capacity of the regulator to interpret the contract and legislation In April 2002 a report on the in a way that benefits the poor, including the way small-scale independent institutional issues, with proposals for providers and shallow tubewells are regulated. serving the poor and more specifically, ■ Ensure the concerns of the poor are brought to the attention of the suggestions for text for the R.P and regulator by establishing a forum of advocates for the poor which provides private operator ’s contract, was regular advice to the regulator, appointing dedicated staff within the presented to the PSPC. The contents regulatory body to deal with issues relating to the poor, and having the were also shared with civil society and regulator commission an independent audit every three years of the other stakeholders through a operator’s performance with respect to service to the poor. workshop held in Kathmandu. ■ Develop a program of on-site sanitation and hygiene promotion, funded .eedback from this consultation from government and donor sources, separate from the lease contract. influenced the development of a final ■ Develop suitable designs for on-site sanitation options for the poor in set of proposals submitted to the PSPC Kathmandu. in June 2002. ■ Design a program of NGO and local government capacity building as The proposals are summarized in part of urban water sector reform, and provide funding. Box 1. 6 S e t t i n g t h e S t a g e : T h e P r o c e s s o f Pr e p a r i n g f o r Pr o - p o o r Wa t e r S e c t o r Re f o r m s i n Ka t h m a n d u At the time that the proposals were .orum with its own identity meant introduction of the private sector drafted, two years after the process of that consultation was greatly and the improvement of the water addressing the needs of the poor in the facilitated, as this created single and sanitation utility, took seriously context of the water sector reform had point of contact for other its mandate of addressing the needs begun, there was a well-informed group stakeholders – the NGO .orum of the poor, and maintained a of stakeholders in Kathmandu who had convened meetings, distributed focus on this issue throughout. taken an important role in developing documents, prepared joint 4. Money: There were adequate funds them, and were ready to discuss them statements, and decided on to carry out the research in a in a constructive atmosphere. These membership (which was deliberately rigorous and thorough way, and to stakeholders had at their disposal high kept very open). hold meetings and consultations. quality data, concrete advice, and a 2. Commitment by Government: It should be noted that the NGO good understanding of the issues at The Private Sector Participation .orum also had funds made stake – including the trade-offs between Committee, with the support of available to it, through an improving the situation of the poor and the donor organizations and international NGO, which they used improving the water supply and development banks involved, was to hire a part-time staff member sanitation system overall, the nature of committed to designing the reform and to pay for photocopying and the proposed contract, the role and so that the poor were better served, meeting expenses, and that this was limitations of the private operator, and decisive in ensuring the .orum’s the responsibilities of the government. effectiveness. Many local NGOs There is now clear potential for would not be able to engage in the the transaction in Kathmandu to be review of documents needed for beneficial to the poor, and for participation in consultations government and civil society to work without assistance. together. 5. Time: Though at the beginning the timeframe was very tight, later delays Conclusion: Elements in the transaction created an of Success opportunity for the research, consultation and development of There are a number of reasons that this very desirable situation came Low pressure in the network about, which can be summarized as means that standposts must be follows: built below ground level. 1. Civil Society Engagement: There was a group of interested and and played its part by proposals to be carried out in a committed NGOs who were willing commissioning studies, channeling systematic manner. The process to put significant time and resources funds, collaborating with the took two years, and it is hard to into participating in consultations, consultants, and debating various imagine how it could have taken and in many cases were willing to options. At the same time, the PSPC much less – an important lesson put aside their skepticism of, or made clear what issues were open for others planning private sector outright opposition to, private sector to debate and consultation, and participation. participation in order to do so. They which (such as the basic decision 6. Expertise: The process drew on the were also willing to listen and learn, to engage with the private sector) expertise of international and local and to admit what they did not were not. consultants from a variety of know about water sector reform and 3. Commitment by The World backgrounds: contingent valuation private sector participation, and to Bank: The World Bank team, methodology, statistics, civil society, request help in understanding the representing the financial agency engineering, slum upgrading, issues. The creation of an NGO taking the key role in the institutional design, etc. The support S e t t i n g t h e S t a g e : T h e Pr o c e s s o f Pr e p a r i n g f o r Pr o - p o o r Wa t e r S e c t o r Re f o r m s i n Ka t h m a n d u 7 of the Water and Sanitation find private operators willing to take on Program in sourcing these the risks associated with the affermage consultants, many of them leaders contract form. In addition, there have Water and Sanitation Program Water Supply and Sanitation Division in their fields, and writing terms of been disagreements between financiers World Bank reference for them based on an and donors as to the water supply and 1818 H Street, N.W. understanding of the issues was very sanitation investment priorities. This may Washington, D.C. 20433 important. mean that the reform which actually takes Tel: +1 (202) 473-9785 7. Coordination: There was excellent place in Kathmandu will differ from what .ax: +1 (202) 522-3313, 522-3228 coordination between the was planned at the time this process of E-mail: info@wsp.org Website: http://www.wsp.org consultants working on the issues addressing the needs of the poor began. relating to the poor, and the other A missing element from the process is consultants (technical, institutional) still that of public consultation, and the working on issues relating to the development of a wide-reaching reform as a whole. This manifested communications strategy which will References itself in joint meetings, sharing of explain the issues surrounding water Brocklehurst, Clarissa, Urban Water and Sanitation data and lively debate. sector reform to ordinary citizens. Reform in the Kathmandu Valley: Recommendations for Serving the Poor, Report to However, the learning about the Private Sector Participation Committee, May 2002 End Note poor, the capacity building of Lumanti Support Group for Shelter, WaterAid Nepal, NEWAH, WSP , The Water Supply and Sanitation stakeholders, the establishment of civil Situation of the Urban Poor in the Kathmandu Valley: Since its initiation, various problems society consultation and the Results of a Research Study, July 2000 have plagued the transaction. At the time Research Triangle Institute, Willingness to Pay for development of consensus on the issues Improved Water Supply in the Kathmandu Valley, of writing, it appears that the affermage of importance will be valuable Nepal .inal Report, August 2001 contract initially proposed is unlikely to regardless of what the future holds in Whittington, Dale, Pattanayak, Subhrendu K., Yang, Jui-Chen, and Kumar, Bal K.C Do Households Want go ahead in Kathmandu. Nepal has Kathmandu, and provide one of the first Privatized Municipal Water Services? Evidence from suffered security problems and political models of pro-poor transaction design Kathmandu, Nepal Economy and Environment Program for Southeast Asia (EEPSEA) Online, instability, and it has proved difficult to in the urban water and sanitation sector. .ebruary 2002 available from EEPSEA Online website http://www.eepsea.org/publications/ specialp2/Whittington.doc World Bank, Project Concept Document for Kathmandu Water Supply and Sanitation, October Building a successful process – lessons for other transactions 2000 ■ Start early. Gathering information and starting a process of consultation This .ield Note was prepared by Clarissa Brocklehurst Thanks are due to Jan Janssens for his support in the is always valuable, even if it is not clear what shape reform will take. preparation of this case study. ■ Determine the major issues relating to service to the urban poor through All pictures provided by WaterAid, Nepal rapid assessment, review of secondary data and consultation, in partnership with civil society organizations and other actors. September 2002 ■ Build consensus that serving the poor is an important issue which needs The Water and Sanitation Program is an special attention – ensure that all stakeholders ‘buy in’. international partnership to help the poor gain sustained access to ■ Engage with advocates of the poor in a transparent manner; share reports, improved water supply and sanitation respond to requests for information, hold workshops and meetings. services. The Program’s main ■ Ensure that invalidated assumptions regarding the lives of the poor are funding partners are the Governments of Australia, Belgium, Canada, Denmark, not used as the basis for making decisions. Germany, Italy, Japan, Luxembourg, ■ Commission-rigorous research using qualified practitioners; examine the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom; water use practices, household characteristics, willingness-to-pay, the United Nations Development Programme, obstacles to obtaining service, and institutional aspects. and The World Bank. ■ Develop proposals for serving the poor through an iterative process of Created by consultation and debate involving all stakeholders. Roots Advertising Services Pvt. Ltd. Printed by Thomson Press