ADB breaks its silence, says it is not possible to carry on with Melamchi

The Asian Development Bank (ADB) has said that it would not be possible to carry on with project activities, after its current funding commitment on the multi-million dollar Melamchi Water Supply Project (MWSP) expires on June 30.

Referring to the decision by the Minister for Works and Physical Planning Hisila Yami not to award the management contract of valley's water distribution system to Severn Trent Water International, the ADB has issued a statement, on Tuesday, saying that "the inability of the Government to authorise the signing of the duly negotiated management contract at this very late stage creates considerable uncertainty on the way forward."

The ADB has said it wishes to encourage the Government to press ahead with implementation of the institutional reforms started under the MWSP and Kathmandu Valley Water Services Sector Development Program.

"A key provision of the loan agreement signed between the Government of Nepal (Government) and ADB on 24 January 2001 was that the restructuring of the Nepal Water Supply Corporation and award of a private sector management contract for delivery of water services under competitive procedures must be completed prior to initiation of civil works contracting for the construction of the diversion tunnel from Melamchi Valley to Kathmandu. This provision of the loan agreement recognised that the chronic water shortages affecting Kathmandu are caused not only by a lack of supply infrastructure and bulk water resources, but also by the poor management of water services" the ADB says in its statement.

The ADB says that signing of the private management contract was the very last stage of a long process to achieve the agreed institutional reform for efficient utilization of Melamchi's water. "This long process, which has required six years of effort, cannot be completed now that the water utility operator is unable to obtain approval from the Government to sign the duly negotiated contract and the final bid validity has been withdrawn on 15 May 2007 (after nine extensions made since March 2006)," it says.

The ADB has added that the MWSP would have brought significant development benefits to the people while providing a long-term solution to the water scarcity problems in Kathmandu Valley.

"ADB has also made strenuous efforts and shown maximum flexibility to sustain the Project at several critical times when it has been at risk over the past six years. However, the inability of the Government to authorize the signing of the duly negotiated management contract at this very late stage creates considerable uncertainty on the way forward. As it stands now, it would not be possible to carry on with project activities, with the Project due to close on 30 June 2007," the statement adds.

The agreement to award the foreign company the contract to manage valley's water distribution was a precondition for the ADB to invest in the US$ 340 million project. The ADB is the leading donor of the project and has agreed to provide loan of US$ 140 million for the purpose. However, senior Maoist leader and Minister for Works and Physical Planning Hisila Yami refused to honour the agreement (approved by previous cabinet led by the incumbent Prime Minister GP Koirala) to award contract to Severn Trent claiming it had bad track record elsewhere.

The Melamchi project aims to bring in 170 million liters a day (MLD) water to the Kathmandu valley. The valley has been suffering from acute shortage of drinking water – while its demands have shot up to 240 MLD, the supplies have stagnated at 90 MLD.

nepalnews.com sd May 22 07