Here is Hisila Yami's response: Unhappy with Severn Trent Yami unperturbed by ADB threat Kantipur Report KATHMANDU, May 10 - Dissatisfied with a cabinet decision taken by the previous government to appoint the UK's Severn Trent Water International (STWI) as Kathmandu Valley's water utility manager, Minister for Physical Planning and Construction Hisila Yami said Wednesday that the matter would be reviewed and alternatives explored. Yami is unperturbed by a threat issued by the Asian Development Bank (ADB) Tuesday to terminate its loan commitment to the Melamchi project in the event the government does not appoint STWI by May 15. "The next cabinet meeting will decide on this (whether STWI gets appointed)," said Yami, who postponed award of the contract Tuesday. The previous government in a cabinet decision approved the contract award to STWI for a six-year period for a total fee of US $ 8.5 million, fulfilling a major condition set by ADB for release of funds. ADB's ultimatum On Tuesday, the ministry issued a notice to Kathmandu Upatyeka Khanepani Ltd (KUKL), a water utility operator constituted by the previous government, directing it not to sign STWI's contract letter, as the matter was under review. Following this, ADB's Melamchi Mission chief Keiichi Tamaki wrote to KUKL officials stating that if the contract is not awarded to STWI by May 15, ADB would terminate its loan number 1820, worth US $ 120 million, committed to the project. ADB is the largest donor to the project whose cost was restructured last year from US $ 464 million to US $ 350 million. Yami's reservations Yami said she took the decision to postpone the contract award and to discuss the matter once again at a cabinet meeting, owing to two concerns. "Firstly, I am concerned by (the background of) the contractor," she said. Severn Trent Water, a sister concern of UK firm Severn Trent and which also owns STWI, was fined 42 million pounds in the UK for providing false accounting information that led to the UK's water regulator, Ofwat, agreeing to let the company charge consumers high prices. Meanwhile, STWI earned disrepute in Guyana for non-delivery of promised improvements in water quality and quantity. "And secondly, I have reservations about privatization. These things can be done through public-private partnership," said Yami. When asked whether a delay in contract award can be afforded at a time when the project's principal donor has issued an ultimatum, Yami said, "We have seen even the constituent assembly election postponed. These things happen." According to Melamchi project officials, this is the ninth time the deadline for award of the management contract has been extended. STWI, which hired three water management experts in April 2006 for taking up the Kathmandu job, has also told the ministry that it won't remain interested if the contract is not awarded by May 15. ADB’s condition and concerns Appointment of a private management contractor is a condition set by ADB for releasing its fund. According to a consultant at Melamchi project, ADB set the condition in view of the fact that there was no improvement in the water supply situation in Kathmandu Valley from 1990 to 1999, despite US $ 100 million worth of aid, loan and technical support injected for the purpose during that period. "That proved that loan, aid and technical support would not improve the utility's delivery. Therefore, expertise had to be injected," said the consultant. "Thus the necessity of a management contractor." The funding commitment originally meant to expire in March 2007, the project's original deadline, was later extended to June-end 2007 as the project was delayed. Tamaki was scheduled to request the ADB board in Manila, Philippines, in June to extend the funding commitment till 2013, according to the consultant. "However, without appointment of a private management contractor, there will be no ground to persuade extension of the funding commitment," he added. Funds spent so far According to project sources, over Rs 4 billion has been spent on the project so far in over six years since commencement of construction in 2001. However, very little has been used from the ADB loan, which is mainly meant to fund construction of the project's costliest component, the 26.5-km diversion tunnel from Melamchi Valley to Sundarijal in Kathmandu, and for improvement of the bulk distribution system in Kathmandu Valley where leakage stands at 40 percent, going by Nepal Water Supply Corporation's estimate. The Melamchi project is designed to supply 170 million liters of water to the Valley daily from the Melamchi River in Sindhupalchowk district. The project has future prospects of doubling the volume of supply, with water from the Larke and Yangri Rivers. Posted on: 2007-05-09 21:13:08 (Server Time)