April 26, 2007
Mr. Gopal Siwakoti 'Chintan'
Water & Energy Users' Federation Nepal (WAFED's),
Mr. Benedict Southworth,
World Development Movement (WDM),

Dear Messrs. Siwakoti and Southworth:
We refer to Water and Energy Users' Federation-Nepal's (WAFED's) letter to WDM dated 28 February 2007, and WDM's letter and protest leaflet dated 15 March 2007.

We, the seven Board members for the new Kathmandu Upatyaka Khanepani Limited (KUKL), would like to clarify the misunderstandings that you seem to have, and present our views on the water services reform program for Kathmandu Valley in Nepal, in particular the performance-based management contract (PBMC) that is now ready for signing to bring in Severn Trent Water International (STWI) as the Management Contractor (MC).

We fully agree with you on the people's right aspect of water supply mentioned in the letters referred to above. The issue is, however, that the "guaranteed" service has not been delivered under the previous arrangements. Government had made several efforts to improve institutional management of NWSC for effective management of water supply services with the support World Bank since 1990 but did not succeed. Water Supply situation in Kathmandu Valley is worsening and supply reaching to consumers for only one hour and less than an hour in alternate days. Leakage is worsening every year due to deterioration of century old pipelines and mismanagement of the system. Lack of clean water availability coupled with deteriorated system and weak institutional management have resulted to public suffering and adverse health impact. We are in the view that the issue is not about "will" but instead about basic institutional arrangements. Hence, new, more conducive institutional arrangements have been carefully designed for KUKL by using lessons learned from the past failures in effective management. Indeed, NWSC officials will be transferred to the new KUKL where they will be have the opportunity to exhibit their skills and perform with autonomy from political and undue interference".

We fail to understand why involvement of the private sector is a violation of the right. From the letters and leaflet referred to above, we understand that you make your arguments based on the dichotomy between the use of PSP and the conventional public management. Interestingly enough, critics who argue fiercely against PSP schemes for management and operations do not seem to mind PSP schemes for capital investments, which are normally known as civil works contracts. There are no fundamental differences

between the two types of PSP schemes - one dealing with management and operations, and the other dealing with capital investments. The fact is that, under the market economy, involvement of the private sector is always necessary. What's more important than such a futile rhetorical dichotomy we believe is the issue of governance, or proper checks and balances.

The proposed reform program intends to achieve decentralization supported by a professional PSP scheme under proper governance arrangements. The shareholding structure of KUKL is carefully designed as follows: Government 30%; Municipalities 50%; business community 15%; and trust representing employees 5%. Kathmandu and Lalitpur municipalities have already been promoters/ shareholders of KUKL, and nominated one colleague each for the KUKL Board. The other three municipalities in Kathmandu Valley are considering becoming shareholders of KUKL, soon. This will ensure proper representation, or "democratic control".

In order to properly supervise the MC and guide the new water utility operator company in a commercially sustainable manner, the Board members for KUKL, are entrusted to make no-nonsense professional decisions, shielded from any political interventions. Sufficient safeguarding provisions are properly put in place to protect the interest of the Government as well as the water utility customers in Kathmandu Valley. Please note that, under the proposed PSP scheme, the asset ownership, ultimate responsibility for service provision, policy formulation and tariff determination all rest with the Government.

KUKL also has a clear corporate mandate to serve the poor better. There have been a number of consultation sessions between the Government and NGOs interested in the water services for the poor. As a result, a grant- funded program for community tapstand rehabilitation and installation, which intends to benefit the poor, is already ongoing ahead of the start of KUKL's operations.

We, therefore, take the following grossly misleading statements in WAFED's letter to WDM dated 28 February 2007 (para 3) very seriously: "The claim that it is a "management contract" and "not a privatisation" as being made by the misguided Nepali government upon the pressure of the ADB and similar claim being made by the STWI is wrong and inaccurate. The reasons are that the whole authority and assets of the publicly-owned NWSC will ultimately be transferred to a private company from which STWI will profit the most, and the so called Kathmandu Valley Water Company (KVWC) will have no real authority to exercise over the quality of private management of water supply by STWI and/or for ensuring an easy access to such water supply by the people, particularly the poor, as a human right." KUKL board members have taken this as a completely misleading statement. There are: (i) robust mechanism of checks and balances to ensure people's right aspect of water supply; and (ii) proper control by the public stakeholders including the government, municipalities, customers and utility workers as are elaborated above. We also would like to comment on another bewildering statement in the same letter (para 6, item b)): "allow concerned civil society, consumer groups and general public to debate on the pros and cons of the privatisation of water supply system in Nepal in general, and in Kathmandu in particular, and let them explore the available alternatives

to public management of Kathmandu drinking water supply in line with the Comprehensive Peace Agreement (CPA) and the new constitutional provision as mentioned above for the right to health, including water;"

We have to point out the fact that several meetings, debate, discussions and interactions were held with the civil societies, NGOs and consumer groups during the preparation of new institutional arrangements. A public hearing held on 18 January 2007 in Kathmandu for that very purpose was disrupted by the violence instigated by the WAFEDs group including Mr. Siwakoti himself. We firmly believe that the proposed water services reform program, in particular the involvement of MC, is essential for making significant improvements to the long-mismanaged water services in Kathmandu Valley.

We look forward to hearing from you.
Best regards, Birendra Man Shakya
Chairman,
Kathmandu Upatyaka Khanepani Limited (KUKL)