Privatization or no, NWSC badly needs reforms

Privatization or no, NWSC badly needs reforms
eKantipur.com, 16-May-07
BY BIKASH SANGRAULA

It's over with Severn Trent if the deadline of May 15 set by the firm to the Ministry of Physical Planning and Works for award of Kathmandu Valley's water supply management contract means anything.

Minister Yami, who halted the contract award to "review" the previous government's decision to award it to the firm, is busy with damage mitigation. The Asian Development Bank (ADB) had backed the deadline by outlining the possible unfolding of events in case of non-award of the contract - a gradual withdrawal by the bank from Melamchi project.

Sources at Kathmandu Upatyeka Khanepani Ltd (KUKL), a water utility operator formed by the previous government, which was supposed to hire Severn Trent, say that in all likelihood KUKL will now be managing the Valley's water supply system on its own.

But how well equipped is KUKL to reform a public utility which has the unenviable reputation of being an over-staffed political recruitment center, with 40 percent leakage, and arrears more than annual revenue?

Nepal Water Supply Corporation (NWSC), which is ceding rights to manage Kathmandu Valley's water supply to KUKL, has total arrears of over Rs 810 million, of which Kathmandu Valley contributes Rs 690 million. NWSC's annual revenue is approximately Rs 720 million, including from towns and cities outside the Valley. Even out of this, 20 percent is invariably added to arrears every year, going by the trend of several decades.

"We still don't have records of many taps that have continued to receive free water supply since before 1974, when the Valley's water supply was overseen by Khanepani Goswara," said one highly placed NWSC official. "And many arrear accounts that feature in our list might not exist anymore. The taps might have been dismantled. We don't know."

Collecting arrears has been problematic. Disconnecting supply of something as essential as water only invites public outcry, which almost always has to be settled "politically", meaning partial or no payment at all. "In recent years, the supply scenario has been so poor that our staff get beaten up for asking payment of backdated bills," the official said.

Officials admit that the corporation is overstaffed. "There are too many non-productive administrative posts," said an official. "On the other hand, there is real dearth of technical manpower." Currently, there are some 2,252 employees at the corporation.

Another area of concern is that the leakage figure of 40 percent is a guesstimate at best. Granting that leakages from the century-old distribution system is not worse, then actual supply in the Valley during dry season is only 60 million liters daily (MLD), 40 percent less than the generation of 100 MLD. The Valley's demand, on the other hand, is 250 MLD.

"It is true that the utility badly needs an overhaul," said NWSC Deputy General Manager Madan Shanker Shrestha. "The problem is that every promise of infrastructure overhaul comes with tied conditions of prior institutional overhaul. And the latter too gets stuck at some stage."

In 33 years since the establishment of Water Supply and Sewerage Board, which later graduated to the status of corporation, millions of dollars have been spent, not to overhaul the system, reduce leakage and arrears and rightsize the utility, but to increase water availability. Some 93 million dollars were spent in grant, loan and technical assistance from 1990 to 1999 alone.

If ADB stays with the project, some 83 million dollars will be spent in the Kathmandu Valley component of the project, which includes distribution system improvement. But who will spend this fund? KUKL is owned by the government (30 percent), municipalities (50 percent), NCC and FNCCI (15 percent) and employees (5 percent). What we can reasonably expect from them is a tricky question.