DFID NEPAL RURAL WATER AND SANITATION BUSINESS CASE
Intervention Summary
Title: DFID Nepal support to Rural Water Supply, Sanitation and Hygiene
What support will the UK provide?
DFID’s contribution to this intervention is £3.75m over a period of 3 years.
Why is Support required?
Nepal is unlikely to meet both its water, and sanitation and hygiene, (WASH)
MDGs. Whilst Nepal’s 2010 Millennium Development Goal self-assessment judged
progress against MDG target 7C1 (sustainable access to an improved water
source) to be on-track, 7C2 (sustainable access to an improved water source) was
judged unlikely to be met. Although 80% of the population has access to improved
water infrastructure, it is estimated that 45% of existing systems need major repair,
rehabilitation or complete reconstruction. Rural populations have very limited
access to even basic sanitation, so 14.2m people defecate in the open – almost half
of the population of Nepal, mostly in rural areas. There is wide disparity in access to
toilet facilities between rural and urban areas with only 40% of rural households
benefiting from improved sanitation.
The human impact of this situation is high. Between 10,000 and 13,000 children
under 5 die each year from preventable waterborne diseases. Cholera and typhoid
outbreaks, the alarm bell of system failure, are annual occurrences and with climate
change impacting on water sources and rainfall patterns, outbreaks are increasing.
Impacts fall disproportionately on women and girls as primary water fetchers and
carers for sick children and family members; they are also most at risk from disease
and violence associated from lack of sanitation facilities and having to walk to
remote water points.
What are the expected results?
The project will implement a total of 192 schemes which will benefit 5,200
households with 33,000 people and work with communities to build 4,160
household latrines and 20latrines in schools.
The proposed intervention would support DFID Nepal’s water and Sanitation
(WASH) results framework which seeks to deliver, by 2015:
 sustainable access to clean water for 240,000 people, of which 130,000
would be women, with over 80% of infrastructure still operational after 4
years, compared to the 55% estimated for Nepal on average;
 sustainable access to sanitation for 110,000 people, of which 60,000 would
be women;
 200 water schemes adopting disaster and climate resilient designs;
 And 195,000 people adopting and practising good hygiene behaviours.
Strategic Case
A. Context and need for a DFID intervention
A review of global evidence by DFID states “strong evidence” that effective WASH
interventions have a demonstrable impact on health outcomes, particularly reducing
“morbidity and mortality associated with diarrhoeal diseases”.i There is also good
evidence that WASH improves health more broadly, including reducing the incidence
of worms and respiratory infections and reducing under-nutrition.ii Several studies by
International Non-Governmental Organisations (INGOs) suggest that effective
WASH may also increase school attendance and empower women.iii
Improvements in sanitation and water supply in Nepal since 1990 have been
appreciable. For sanitation, the results vary according to source but show firstly that
progress has been good and that Nepal is on track to meet the sanitation target
(7C2) under the Millennium Development Goals (MDGs) and secondly that there is
still a long way to go to achieve universal access by 2017. The Joint Monitoring
Programme (JMP) data shows that access to improved sanitation has increased
from 10% in 1990 to 31% in 2010iv. The Demographic / Health Survey (DHS) for
2011, published in 2012v, suggests that the access figure in 2011 was 39.5% for
improved not shared facilities, with a further 14.9% with access to improved shared
facilities. The National Management Information Project (NMIP) survey of 2011vi
suggests that the 2011 figure is about 43%. The Joint Monitoring Programme (JMP)
results also show a significant drop in open defecation from 80% in 1990 to 49% in
2010, with the NMIP survey suggesting that the figure in 2011 is even lower at
38.4%.
Population served (%)
Source: JMP, 2012
SANITATION
Improved, not shared facility
Flush/pour flush to piped sewer system
Flush/pour flush to septic tank
Flush/pour flush to pit latrine
Ventilated Improved Pit (VIP) latrine
Pit latrine with slab
Composting toilet
Shared facility
Flush/pour flush to piped sewer system
Flush/pour flush to septic tank
Flush/pour flush to pit latrine
Ventilated Improved Pit (VIP) latrine
Pit latrine with slab
1990
2000
2010
Urban Rural Total Urban Rural Total Urban Rural Total Urban
37
7
10
42
17
20
48
27
31 58.1
18.0
35.0
2.3
0.4
2.4
0.0
28
Non-improved facility
5
Flush/pour flush notto sewer/septic tank/pit latrine
Pit latrine without slab/open pit
No facility/bush/field (open defecation)
Source: DHS, 2012
30
2
4
32
17
20
36
27
6
6
4
6
7
3
7
85
80
22
71
64
13
57
2011
Rural Total
36.7 39.5
1.3 3.5
23.9 25.4
3.4 3.3
0.6 0.6
7.3 6.7
0.2 0.2
31 29.5 12.6 14.9
8.4 1.2 2.2
18.7 7.7 9.2
1.0 1.1 1.1
0.3 0.3 0.3
1.1 2.3 2.1
6
2.1
0.4
1.7
7.9
0.2
7.7
7.2
0.3
6.9
49 10.3 42.7 38.4
Table 1 - Sanitation Coverage
Data from the NMIP survey also shows that there is considerable regional disparity
in figures for improved sanitation, ranging from 53.5% in the Western Region to
29.1% in the Far Western Region.
The data for water supply is more fragmented and less easy to interpret than that for
sanitation. It is far from clear as to whether or not Nepal is on target to achieve the
MDG target for access to water from an improved source (7C1). The JMP data
shows an increase from 76% of the population with access to an improved water
source in 1990 to 89% in 2010. The DHS survey suggests that in 2011 the level of
access is maintained at 89% but the NMIP survey by DWSS suggest that access in
2011 is only 80.4% in 2011. This discrepancy is not explained.
The regional disparity is not as significant as for sanitation with a range from 84.6%
Population served (%)
Source: JMP, 2012
WATER
Improved Source
Piped into dwelling/yard/plot
Public tap/standpipe
Tube well or borehole
Protected well
Protected spring
Rain water
Bottled water
Source: DHS, 2012
1990
2000
2010
Urban Rural Total Urban Rural Total Urban Rural Total Urban
96
74
76
94
81
83
93
88
89 93.4
43
5
8
48
8
13
53
10
18 41.0
53
69
68
46
73
70
40
78
71 12.1
33.6
3.7
0.1
0.0
2.9
2011
Rural
88.0
17.5
25.4
43.0
1.5
0.2
0.1
0.3
Total
88.5
20.6
23.6
41.7
1.8
0.2
0.0
0.6
Non-improved Source
Unprotected well
Unprotected spring
Tanker/truck/cart with drum
2
13
12
3
10
9
4
6
6
4.2
2.5
0.2
1.5
3.6
2.1
1.1
0.4
3.8
2.2
1.0
0.6
Surface water
2
13
12
3
9
8
3
6
5
2.1
8.5
7.7
0.2
0.0
0.0
Other source
Table 2 - Improved Water Supply Coverage
in the Western Region to 76.3% in the Mid-Western Region. However, these figures
are inconsistent with the functionality survey carried out by NMIP which suggest that
only about 55% of water supply schemes are in reasonable working order (needing
no more that minor repair which the community can do themselves).About 45% of
schemes are either not functioning at or need major repair which is beyond the
scope of the communities themselves. This is something that the JMP will have to
address in the 2013 Progress Report but it most likely means that Nepal will be
considered to be unlikely achieve MDG Target 7C1.
No aid agencies prioritise repair or rehabilitation, preferring to see their money go to
currently un-served communities for new water supplies to aid the attainment of the
MDG targets for water. Therefore, rehabilitation is paid for by the government of
Nepal itself and is inadequately funded, as are measures to increase the level of
operation and maintenance budgets managed by communities through Water and
Sanitation User Committees (WSUCs). The lack of sustainability of water supply
systems is therefore a major problem facing Nepal. This lack of a ‘complete
lifecycle cost’ approach also means that new infrastructure is not necessarily
designed to be easy to maintain or require low maintenance. Higher reinvestment is
therefore required and health benefits are not sustained so there are significant
financial and economic penalties associated with this lack of sustainability.
The 2011 Nepal Water, Sanitation and Hygiene (WASH)joint sector assessmentvii
recommends that Nepal should concentrate on three major objectives:
 make Nepal an open defecation-free zone;
 restore continuous water in all urban and rural areas with a particular
emphasis on maintenance and rehabilitation; and
 monitor water quality and disinfect supplies where natural sources cannot be
adequately isolated from possible contamination.
To achieve this, the assessment team recommended action in the following four
pillars, underpinned by attention to equity:
 1: enabling environment, covering policy, strategy, advocacy, coordinated
planning, dedicated finance, local ownership and political commitment.
 2: systematic capacity-building of skills at district and Village Development
Committee (VDC) level to facilitate total sanitation, including technology
transfer and behaviour change.
 3: school- and community-led total sanitation and hygiene supported by
influential leaders and mass media; house-to-house negotiation of ‘doable
actions’ to ensure full household compliance with hygiene behaviour change.
 4: sustainable, affordable, and durable hardware (with enabling
community-managed finance and private sector engagement) – all regularly
supported and supervised.
Within this context, and the recommendations of the Joint Sector Assessment, there
are three main options which are under consideration here, each of which presents,
in turn, several alternative options to DFID Nepal. The potential options being
considered as part of this business case are:
 Option 1: Invest in sector governance. This would seek to support an
improved enabling environment at central level, focusing in particular on more
effective resource allocation by Government, and also systematic capacity
development at local level (helping address Pillars 1 and 2 above).
 Option 2: Direct delivery of integrated WASH infrastructure and services
through government partners. This option would seek to support delivery of
improved school- and community-led total sanitation and hygiene and new
clean water and sanitation infrastructure through currently available
government partners and structures (helping address Pillars 3 and 4 above).
 Option 3: Direct delivery of integrated WASH infrastructure and services
through non-government partners. This option would seek to support
delivery of improved school- and community-led total sanitation and hygiene
and new clean water and sanitation infrastructure through currently available
non-government partners and structures (helping address Pillars 3 and 4
above).
Further background information on these options is in Annex A.
B. Impact and Outcome that we expect to achieve
The project will implement a total of 192 schemes which will benefit 5,200
households with 33,000 people and work with communities to build 4,160 household
latrines and 20latrines in schools. The proposed intervention would support DFID
Nepal’s water and Sanitation (WASH) results framework which seeks to deliver, by
2015:
 sustainable access to clean water for 240,000 people, of which 130,000 would
be women, with over 80% of infrastructure still operational after 4 years,
compared to the 55% estimated for Nepal on average;
 sustainable access to sanitation for 110,000 people, of which 60,000 would be
women;
 200 water schemes adopting disaster and climate resilient designs;
 And 195,000 people adopting and practising good hygiene behaviours.
Appraisal Case
A. What are the feasible options that address the need set out in the Strategic
case?
The potential options being considered as part of this business case are:
 Option 1: Invest in sector governance. This would seek to support an
improved enabling environment at central level, focusing in particular on more
effective resource allocation by Government, and also systematic capacity
development at local level (helping address Pillars 1 and 2 above).
 Option 2: Direct delivery of integrated WASH infrastructure and services
through government partners. This option would seek to support delivery of
improved school- and community-led total sanitation and hygiene and new
clean water and sanitation infrastructure through currently available
government partners and structures (helping address Pillars 3 and 4 above).
 Option 3: Direct delivery of integrated WASH infrastructure and services
through non-government partners. This option would seek to support
delivery of improved school- and community-led total sanitation and hygiene
and new clean water and sanitation infrastructure through currently available
non-government partners and structures (helping address Pillars 3 and 4
above).
Further background information on these options is in Annex A.
B. Assessing the strength of the evidence base for each feasible option
This assessment is provided throughout the supporting text below, and summarised
in the following table:
Options
Overarching
evidence
base
Option 1
Option 2
Option 3
Strength
of Rationale for Assessment
evidence
Medium/Strong See below the discussion of the evidence base
supporting WASH interventions. Although the impact on
health and labour saving of WASH programmes is
generally established, several exogeneous factors can
impact on effectiveness.
Limited
We have no existing programme of support to WASH
sector governance that would enable us to specify clearly
what efficiency gains would accrue from a programme of
support to sector governance. There are no systematic
evaluations of the inefficiencies in the sector, short of a
few indicators about the time taken to implement
schemes. That makes our assessment about efficiency
improvements in the programme that would be created
by option 1 an estimate, not rooted in a strong evidence
base.
Medium
We have some data that enables us to demonstrate
efficiency and effectiveness of delivery channels
involving Government partners, especially DWSS,
DOLIDAR / LGCDP and the Fund Board, but lack data
on overhead costs and economy.
Medium/Strong We have detailed data on GWS and NEWAH
Options
Strength
evidence
of Rationale for Assessment
performance during past projects that enables us to
evaluate efficiency, effectiveness, and economy including
overheads. Evidence from CSP is weaker.
WASH interventions have proven to have a positive health impact. The first major
meta-analysis on WASH interventions was carried out in 2005 and demonstrated
that all WASH interventions have a significant positive impact in reducing the
incidence of diarrhoea.viii
However, whilst WASH interventions clearly reduce water borne diseases such as
diarrhoea, studies cite different figures as to the magnitude of change, with variations
by country as well as by level of infrastructure installed. A more recent meta-analysis
done by the World Bank concludes that reduction in diarrhoea from improved WASH
ultimately depends not only on the existing stock of water and sanitation
infrastructure (the lower the quality, the larger the reduction in diarrhoea) but also on
the child mortality levels in the country (higher child mortality rates correlate to larger
reductions in mortality for a given improvement in infrastructure).ixGiven the relatively
high levels of child mortality in Nepal, it may be at the high end of potential
reductions in burden of disease.
A WHO study on the economics of WASH1evaluated a range of interventions, both
globally and for major regions of the world. Five different types of water supply and
sanitation improvement were modelled2. Predicted reductions in the incidence of
diarrhoeal disease were calculated based on the expected population receiving
these interventions. The costs of the interventions included estimations of the full
investment and annual running costs. The benefits of the interventions included time
savings due to easier access, gain in productive time and reduced health care costs
saved due to less illness, and prevented deaths. The results show that all water and
sanitation improvements are cost-beneficial in all developing world sub-regions. In
developing regions, the benefit-to-cost ratio was between 5 and 46, depending on
the intervention.
C. What are the Costs and Benefits of each feasible option?
This section summarises the results of the economic appraisal carried out for each
option. The full economic appraisal is in Annex C.
In the economic appraisal, each option has been assessed against the
counterfactual or ‘Do Nothing’ Scenario. Costs and benefits have been discounted
over a period of 21 years (the design life of a WASH facility), and discounted at both
3.5% and 12%.
Hutton, G, L. Haller and J. Bartram (2007). “Global Cost Benefit Analysis of Water Supply and Sanitation
Interventions.” Journal of Water and Health. World Health Organization, Geneva.
2 Achieving the water millennium development goal of reducing by half in 2015 those without improved water
supply in the year 1990; achieving the combined water supply and sanitation MDG; universal basic access to
water supply and sanitation; universal basic access plus water purification at the point-of-use; and regulated
piped water supply and sewer connection.
1
Counterfactual option: Do nothing. DFID could decide to do none of the above
options. If that decision is taken then the biggest impact would be on the delivery of
WASH services. Those communities currently reached by services provided by
NGOs would not receive assistance in the near future due to the lack of funding. At
best, the communities would get the benefits much later through government
programmes (seven to 10 years for completion of schemes as opposed to two years
by NGOs or private sector). However, under the ‘Do Nothing’, Government funds
would be scarce, and even those communities currently reached by Government
programmes would have to compete with other communities for a smaller pot of
money than would otherwise have been the case with DFID intervention. Sector
governance, cohesion and coordination are likely to continue to worsen and
negatively affect the quality and quantity of services delivered.
Incremental Costs. It is proposed to provide £3.75 million over three years. In the
economic appraisal, the main costs identified for all options are full project costs plus
community contributions.
Incremental Benefits. Health impacts of interventions in water and sanitation are
not straightforward and can be influenced by a variety of factors. This makes
estimating the costs and benefits subject to modelling and assumptions. Of the
benefits identified in the WHO study, the data on reduced productivity and health
care costs was not available for Nepal, so three main benefits, which account for
over 90% of benefits according to the WHO studyx, are explored in terms of a
reduction in costs. This disaggregated approach (by which each benefit is treated
separately and then values are added together) was selected for our economic
analysis. This uses reductions in Under 5 mortality (U5M) due to diarrhoea (as a
result of WASH interventions), reduction in lost education days for primary school
children, and time savings from water collection (as a result of water supply
interventions), and aggregates these to provide an indicative (and conservative)
valuation of benefits.
To calculate the number of beneficiaries, the appraisal used the data on costs of
projects and populations served by various service providers. The known cost per
beneficiary has been applied to the £3.75 million to give an equivalent population
served for that cost.
Reduction in Under 5 Mortality, with the benefits being calculated using the Years
of Lost Life (YLL) method. YLL is one component of a Disability Adjusted Life Year
(DALY - the other component calculates morbidity), and the calculation uses
discounted life expectancy to estimate years of life lost.xi Children under 5 make up
about 12% of the population. In Nepal diarrhoeal disease is stated as the cause of
25% of under-five mortality, which stands at 54/1000. The formula used is the same
used by the WHO for calculating the burden of disease, discounting years of lost life
at 3%. Using the Nepal life expectancy of 68 years, every death represents 29 years
of lost life (because of discounting, this figure is lower than life expectancy). Using a
yearly average income of $490, each life lost represents a loss of $14,210 in purely
financial terms (this calculation does not even begin to represent the value of a lost
life and all that that encompasses).WASH improvements are expected to prevent
about half of the under 5 deaths so the value of benefits will be a function of each of
the above multiplied by the number of beneficiaries served by each provider.
Reduction in lost education days, by using WHO data for days lost per child per
year due to diarrhoea and impact of WASH on diarrhoeal disease. Approximately 2530% of the population in the target areas are primary school children. It is usually
assumed that each case of diarrhoea results in 3 schools days lost, and a
conservative assessment is that each student has one case per year. It is assumed
that 50% of these cases of diarrhoea can be avoided through WASH. Education
days are typically valued at half of the average daily wage rate so the total value of
education days lost will be the product of the number above multiplied by the
population served by each provider.
Avoided loss of time for water collection, and associated increase in income
generating activities. The WHO study mentioned above shows that the main
contributor to direct economic benefits from WASH intervention is time savings
associated with better access to water and sanitation services (contributing at least
80% to overall economic benefits) followed by deaths prevented (contributing about
10%).In Nepal in the service provider working areas, women used to spend on
average between 90 minutes and four hours per day collecting water on a daily
basis. Project interventions have reduced this enormously by between 40 minutes
(under option 1) and three hours (as stated by Fund Board and GWS). Mean
household sizes vary in the project areas from 4.5 to 6 people per household. Time
per household can be calculated and valued at a minimum hourly wage rate. In order
to calculate a minimum wage, the GNI per capita for Nepal (2010) was divided by
total working hours in a year. The hourly wage was then multiplied by hours saved
per year for each project.
The benefits of increased nutrition and better cognitive abilities were not considered
due to lack of data and the difficulty of estimating them. It is clear that the national
trend is for an improvement in nutritional status (child malnutrition 37% in 2006 and
28% in 2011) but whilst it may be reasonably assumed that this improvement is
partly due to an improvement in WASH, there is no data to confirm this.
Weighting system for the three options. The economic appraisal for the three
options has taken a consistent approach to estimating the benefits associated with
the respective interventions. The types of benefits for a given “output” (e.g. a clean
water supply point) are perceived to be the same in each case. However, the options
differ with respect to the time taken for the benefits to accrue, their sustainability, and
the quality of the services provided - ultimately affecting the ability of the option to
deliver the expected health, education and time savings benefits. To reflect this, a
weighting factor for each year of the project design life is applied to the Net
Economic Benefits in each year. The weightings used are shown in Table below.
Average Sustainability/ Functionality Weighting (%) for:
Year
Option 1
Option 2
Fund Board
DWSS
Option 3
LGCDP
GWS
NEWAH
CSP
Year 1
Year 2
75
100
90
75
Year 3
75
100
90
75
Year 4
75
Year 5
75
100
80
75
40
100
80
75
Year 6
50
75
40
50
100
80
70
Year 7
50
75
40
65
100
80
70
Average Sustainability/ Functionality Weighting (%) for:
Year
Option 1
Option 2
Option 3
Year 8
65
Fund Board
75
DWSS
50
LGCDP
65
GWS
100
NEWAH
80
CSP
70
Year 9
75
70
65
65
100
80
70
Year 10
75
60
75
65
100
70
70
Year 11
75
60
75
65
100
70
60
Year 12
75
60
75
65
100
70
60
Year 13
75
60
75
65
100
70
60
Year 14
75
60
60
65
100
70
60
Year 15
75
50
55
60
80
60
60
Year 16
75
50
50
55
80
60
50
Year 17
70
50
40
50
80
60
50
Year 18
60
50
40
40
80
60
50
Year 19
50
40
40
80
60
50
Year 20
50
40
40
80
60
50
Year 21
40
40
40
80
60
50
Table 3 - Average sustainability / functionality weightings
Option 1 can lead to a reduction in financial leakages from current processes due to
greater monitoring and accountability, resulting in an increase in the number of
beneficiaries which can be served with existing budget. It would achieve quicker
completion of water supply projects due to more streamlined service delivery, and
greater effective budget from the financial leakage reductions above. Improved
functionality of water supply schemes due to improved project implementation and
monitoring would extend benefits for longer. The increased number of beneficiaries
would mean increased productivity, health or quality of life for those beneficiaries.
For option 1, benefits of sector reform and support to central and local government
are assumed to be:
 a 10% increase in effective budget allocation (and beneficiaries) due to
reduced leakages of funds;
 Projects being completed after four years instead of seven years due to
increase in effective budget and reductions in political interference. However,
whilst these benefits would be felt the medium to long term, the net benefit in
the short term would be small as it would take time for reforms to have an
impact; and
 Improved functionality of projects due to increased monitoring and support.
Options 2 and 3 would provide benefits in terms of improved productivity, health or
quality of life in the short to medium term as a result of direct implementation of
WASH services by either government (option 2) or non-government service
providers. There are several service providers currently operating in Nepal, all
delivering to different standards and in different districts. This makes a broad
comparison between sectors (i.e. public vs. private) unhelpful. Given the limited
amount of funds available for this intervention, for options 2 and 3 the appraisal has
tried to determine which organisations within government and NGO sectors would
provide the best value for money and deliver the most sustainable WASH services if
they were to be supported by DFID.
To enable direct comparison of like with like, the analysis of costs has been looked it
in two ways – including and excluding project overheads. Based on the above
assumptions and the weighting systems gave the results presented below. The
findings from using 12% discount rate (i.e. more conservative approach) are
presented:
Option 1
Sector reform and
support to central and
local government3
Options 2 and 3:
WASH Direct Service
Provider direct costs
Government
DWSS
RWSS Fund Board
LGCDP
NGO
GWS
NEWAH
CSP
Options 2 and 3:
WASH
Service
Provider direct costs
+ overheads
Government
RWSS Fund Board
NGO
GWS
NEWAH
B:C ratio 12%
discount rate
Net Present Value 12%
discount rate
Internal Rate of
Return
5.5
£15 million
37%
B:C ratio 12%
discount rate
(Net of overheads)
Net Present Value 12%
discount rate
(Net of overheads)
Internal Rate of
Return
2.1
4.2
2.6
£2.9 million
£9.1 million
£4.7 million
21.5%
45.5%
26.3%
5.2
2.2
17
£7.5 million
£2.6 million
£58 million
47.4%
24.9%
114%
B:C ratio 12%
discount rate
(Including
overheads)
Net Present Value 12%
discount rate
(Including overheads)
Internal Rate of
Return
3.5
£8.2 million
39.2%
2.9
1.8
£5.3 million
£1.7 million
29.8%
20.7%
Table 4 - NPVs and Benefit-to-Cost Ratios of different options
Analysis of Results
Option 1. The benefit-to-cost ratio for option 1 is 5.5 at a 12% discount rate,
providing a Net Present Value of about GBP 15 million. This is based on the
assumptions above and also on the assumption that the current amount of
investment in the sector is maintained in real terms into the future. This will require
either:

3It
That the development banks and bilateral donors maintain their current
support to the sector. This is far from certain as ADB have stated they are
is assumed that that current government spend achieves the same improvements as DWSS (as main
government agency) for YLL, education and time savings, since DWSS works nationwide. Incremental benefits of
option 1 are mainly affected by 10% reduction in leakages.

focussing on new small towns and the World Bank has not decided whether to
continue support beyond 2012. AusAID have yet to make a decision on
funding beyond 2012 and FINNIDA are also far from certain that they will
renew support beyond current projects.
Or the Government to increase its funding for the sector.
The largest benefit-to-cost ratios for government suppliers are delivered by Fund
Board and for Non-government by CSP. This is primarily due to the fact that they
deliver the largest time savings.
The ratios are nearly all lower than the range quoted in the WHO report above (of 546) and the 6:1 suggested for South Asia in the WHO Global cost-benefit
assessment of 2004 (see Error! Reference source not found. below) xii but not all
of the benefits have been included (including improved productivity and alleviation of
health care costs) and the difficult terrain and relatively low number of beneficiaries
per scheme in typical Nepal schemes mean higher per-capita costs of construction.
In the case of CSP the average per-capita costs suggested by the financial data are
only 15-30% of the per capita costs for other service providers (with benefits
equalling or outweighing the benefits for the other service providers) 4.
Option 2 - Government Agencies. Under option 2, Government agencies are:
 DWSS – government agency under MPPW responsible for water supply and
sanitation in villages >1,500 in size. Analysis is based on average figures
supplied through DWSS.
 Rural Water Supply and Sanitation Fund Board (Fund Board) originally
supported by DFID among others but now solely supported by the World
Bank. The Fund Board contracts local NGOs and businesses to build water
supply systems and work with the selected communities on WASH. Analysis
is based on a detailed data set provided by the Fund Board for the GWS
Evaluation earlier in 2012.
 Local government with the support of DoLIDAR through the Local
Government Community Development Programme. Data is based on macro
data of project expenditure and reported number of beneficiaries, although it
is understood that detailed data should be available right up from the village
level on every project funded by LGCDP. The project funding matrix in each
village refers to the nature of the project, cost and number of beneficiaries
(disaggregated by gender, socially disadvantaged groups etc).
For government schemes, data on projects is limited. No data disaggregated by
scheme was made available from LGCDP, although apparently it is available. The
per capita costs for LGCDP are incredibly low and without any greater detail on
project costs it is not possible to treat them with any great level of confidence.
Overhead costs for DWSS are covered from different government budgets so are
non-existent whereas the Fund Board needs to include overheads and their rate is
about 25%. The analysis, therefore, is based on construction costs, net of
overheads. The impact of including overheads is analysed. Both government
4
There are some concerns about the level of detail and reliability of the LGCDP and CSP data.
Allocation of WASH resources through LGCDP and CSP has been excluded as an option from this
appraisal, since the community-led nature of LGCDP and CSP resource allocation means that
earmarking DFID funding to WASH objectives is not possible. Attribution of costs to specific WASH
outcomes is also problematic.
schemes for which there is data suggest an average of eight households per tap
stand.
The Table below shows the benefit-to-cost ratios for potential service providers
under option 2, and provides additional information on the different features
explaining much of the difference in the benefit-to-cost ratios.
As mentioned above, WHO found that 80% of the benefits from WASH come from
time saved collecting water. Therefore, the Fund Board’s benefit-to-cost ratios are
higher than those DWSS because the time savings claimed by the former are so
much greater. The delay in DWSS implementation and delivery of project benefits,
and suggestions that sustainability of schemes is less assured, also means that the
benefit-to-cost ratio is reduced since by the time schemes start to work, more time
has gone by and therefore benefits are discounted for longer.
Based on the economic appraisal, the Fund Board would be the only one that would
provide enough evidence per se and deliver sufficient economic benefits to warrant
selection.
Fund Board
DWSS
LGCDP *
2
7
5
71,429
117,188
1,300,000
8
8
15
740
-
378
180 minutes
/HH/day
80 minutes
/HH/day
40 minutes
/HH/day
17%
5%
5%
Not known
Often none
No known
Per head construction costs (GBP)
32.40
38.46
2.72
Mobilising DDC/VDC contributions
No
Some top up for
sanitation
subsidy
Not known
B:C ratio 12% discount rate (No
overheads)
4.2
2.1
2.6
B:C ratio 12% discount rate (with
overheads)
3.5
-
-
Years to implement
Beneficiaries
(for 3.75 million GBP)
Number of HH/tap stand
Size of project villages
Time saved
% community capital costs5
Community O&M costs
* where data is not available for LGCDP, assumptions have been made based on performance relative to DWSS (the closest
service provider type) and considering the type of water supply systems provided (e.g. time saved is 50% of DWSS as DWSS
does only piped water supply system rehabilitation (or new) whilst LGCDP does many point water supply systems in the Terai).
Option 3 - Non-government agencies. Under option 3, the non-government agencies
are:
 The Rural Water and Sanitation Programme of the Gurkha Welfare Scheme
(GWS), previously supported by DFID Nepal. Analysis is based on a detailed
data set provided by GWS for the GWS Evaluation earlier in 2012.
 NEWAH, a Nepalese NGO previously supported by DFID and currently
supported by AusAID and WaterAid. Analysis is based on a detailed data set
provided by NEWAH for the GWS Evaluation earlier in 2012.
5
Included in the economic analysis

Community Support Programme (CSP) which provides funds to communities
through CBOs, NGOs and other intermediaries to improve infrastructure and
build capacity of CBOs. Analysis is based on average figures supplied by
CSP.
These service providers have different approaches, implementation modalities and
financing arrangements so the appraisal has sought to, as much as possible,
compare like with like.
As with option 2, the economic appraisal considers the returns on investment for
each service provider but as NGOs often have their own areas and criteria for
schemes, this section also looks at the socio-economic context in which each service
provider is operating and some of the key features of the each of the service
providers which give some comparative advantages to some over others.
Data on projects is more detailed for non-government schemes than for government
schemes although detailed information on overhead costs is only available for two of
the service providers which provided data to DFID consultants carrying out the
Evaluation of GWS’ Rural Water Supply and Sanitation Project. This shows that
overhead costs for GWS are about 48% (assuming that all GWS staff costs are
included as overhead costs rather than under construction costs), with NEWAH
overheads running at about 25%. CSP overhead costs are sunk elsewhere within the
project budget. The analysis considers construction costs (both of the service
provider and the community) and then looks at the impact of including overheads.
The size of the villages served by GWS is much smaller than those by NEWAH or
CSP and the standard of service is much higher at 2 households per tap stand on
average versus to six on average for NEWAH and 8-10 for CSP. The fixed costs
represent a much greater proportion of costs for smaller villages and the higher level
of service means greater incremental costs.
The benefits are exactly the same as for option 2 - accounting for reduction in under
5 mortality and lost education days and avoided loss of time for water collection.
Rather like the environmental risks and benefits, funding through NGOs potentially
means more opportunity for DFID to influence for best practice in the use of its
funding than funding through government.
The Table below shows the benefit-to-cost ratios and some of the different features
of each of the service providers which explain much of the difference in the benefitto-cost ratios.
Years to implement
Beneficiaries (for 3.75 million GBP)
Number of HH/tap stand
Size of project villages
Time saved
% community capital costs
GWS
NEWAH
CSP
2
2
2
33,000
49,261
336,700
2
6
8-10
210
470
620
175 minutes
/HH/day
80 minutes
/HH/day
150 minutes
/HH/day
14%
24%
15%
40 NPR/HH
/month (4%
capital cost/yr)
1.1% capital
cost/year
2% capital
cost/year
47.30
30.79
8.91
Mobilising DDC/VDC contributions
No
Yes - reward for
ODF
No
B:C ratio 12% discount rate (No
overheads)
5.2
2.2
17
B:C ratio 12% discount rate (with
overheads)
2.9
1.8
-
Community O&M costs **
Per-capita construction costs (GBP)
The main factor influencing the benefit-to-cost ratios is time savings.
Sensitivity Analysis
For option 1, sensitivity analysis has looked (at 12% discount rate in all cases) at the
impact on the benefit-to-cost ratios of the following, separately and in combination:
- a 5% increase in effective population served (rather than 10%)due to DFID
support for sector reform
- only 50% of the assumed functionality improvements being achieved
The benefit-to-cost ratios and NPVs fall significantly if financial leakage and
functionality improvements decline.
Option 1
(10% increase
in population
served and
100% of
assumed
improvements
in functionality)
(5% increase in
population
served and
100% of
assumed
improvements
in functionality)
(10% increase
in population
served and 50%
of assumed
improvements
in functionality)
B:C ratio
NPV £m
5.5
15.1
4.2
10.8
2.4
4.53
(5% increase
in population
served and
50% of
assumed
improvements
in
functionality)
1.2
0.56
For options 2 and 3, the sensitivity analysis net of overheads has looked at the
impact on the benefit-to-cost ratios for the difference service providers of different
combinations of:
- a 25% reduction in YLL due to improved WASH (as opposed to 50%
reduction in the analysis above)
- a 50% reduction in the time savings quoted by the service providers
Although benefit-to-cost ratios change there is no change in the ranking of the
service providers. However, some of the service provider benefit-to-cost ratios get
close to unity, especially those for DWSS and NEWAH.
WASH Service
Provider(including
overheads at 12%
discount rate)
25% reduction in
YLL
and full reported
time savings
BCR NPV
IRR
£m
50% reduction in
YLL
and 50% reported
time savings
BCR NPV
IRR
£m
25% reduction in
YLL
and 50% reported
time savings
BCR NPV
IRR
£m
DWSS
RWSS Fund Board
LGCDP *
GWS
NEWAH
CSP *
1.8
3.2
1.8
2.6
1.6
15.7
1.77
7.07
1.7
4.6
0.78
52.7
18.9%
36.4%
19.4%
27.9%
17.8%
108%
1.36
2.1
2.1
1.65
1.18
10
-53.3
2.7
3
1
-0.7
32.1
14.5%
24.3%
22.4%
18.3%
12.9%
80.5%
1.07
1.8
1.4
1.44
0.9
8.6
-1.19
1.6
-0.49
0.25
-1.6
26.8
11.4%
20.8%
14.8%
15.9%
9.4%
72.4%
* Many WASH interventions are small scale, as reflected in per capita costs, so WASH benefits have been
assumed to be one-fifth of the benefits of other service providers (10% reduction in child mortality, 5% for
sensitivity analysis and time savings 50% of DWSS).In the case of CSP, the WASH benefits have been kept the
same as for other service providers (50% reduction in child mortality due to WASH, 25% for sensitivity analysis
and full reported time savings).The impact on benefit-to-cost ratio is clear to see.
Further sensitivity analysis around the performance of NEWAH and GWS under
more pessimistic assumptions shows that a) with 30% of the time saving and health
benefits materialising (compared to the base case scenario) NPVs would turn
negative. GWS would still have a BCR of 1, and would perform relatively better;
b)under the most pessimistic assumption that only 20% of expected benefits would
materialise, the GWS BCR would still be close to unity.
Sensitivity of GWS and NEWAH(including
overheads @12% discount rate)
GWS
NEWAH
30% reduction in
YLL
and 30% reported
time
BCR
NPV
IRR
£m
1
-1.3
10.4%
0.78
-2.4
6.1%
20% reduction in
YLL
and 20% reported
time
BCR
NPV
IRR
£m
0.7
-2.5
5.5%
0.5
-3.3
1.8%
Generally, there are some concerns about the level of detail and reliability of the
LGCDP and CSP data. Data regarding these two projects are reported mainly for
information purposes. Allocation of WASH resources through CSP has been
excluded as an option from this appraisal, since the community-led nature of LGCDP
and CSP resource allocation means that earmarking DFID funding to WASH
objectives is not possible. Attribution of costs to specific WASH outcomes is also
problematic. In addition, DFID support to CSP is due to end; CSP is also facing
absorption issues, bringing into question whether they would be able to allocate
significant additional funding.
Based on the economic appraisal only, option 1 shows the highest NPVs. However,
this option is highly uncertain as it requires institutional change to take place and
translate into the intended delivery change (see Institutional Appraisal below). When
sensitivity analysis is carried out, option 1 performs worse than other options under
several scenarios (see comparison with GWS, for example). RWSS Fund Board and
GWS are able to deliver positive and relatively higher net benefits in the range of
£10m, with Benefit Cost ratios in the range of 5 (meaning that for £1 spent, benefits
would be worth £5, on average). However, the Fund Board faces an uncertain future,
with its founder and major funder, the World Bank, currently uncertain about whether
to continue investment in WASH in Nepal.
Sensitivity analysis shows that under different scenarios, GWS performs relatively
well and would be the preferred option, with NEWAH a close second.
Summary of Institutional and Social Appraisal
A full institutional and social appraisal is given in Annex B, summarised here.
Investment in option 1 is not judged to be an effective mechanism to reach the poor
and excluded with water and sanitation facilities for the following reasons:
 Structures established following the Joint Sector Review to enhance
coordination are not functioning well;
 Significant fragmentation at the local level, partially due to multiplicity of actors
investing in WASH at local level, but also from a lack of capacity in
accountability mechanisms and informal politicisation of local bodies,
exacerbated by the absence of local elections;
 The World Bank study Comparative Assessment of Implementation
Modalities, which would inform development partners how to proceed, is not
complete until the end of 2012;
 Significant uncertainties are created by the proposed state restructuring
process, meaning that significant investment in governance mechanisms
under the current state structure risk being lost following future devolution and
federalism;
 Significant and difficult reform of the community responsiveness of much
government funding is needed;
 There is little coordination between the three significant government water
suppliers (DWSS, FB and DoLIDAR) despite the presence of an MoU
between all three parties; and
 Corruption risk is judged to be high.
Investment in option 2 is considered to have the following advantages:
 Government has good coverage at national and local level;
 There is a credible public sector plan for WASH; and
 Opportunities for capacity development of Government of Nepal systems for
investing in WASH.
And disadvantages:
 Poor coordination amongst not only the development partners working in the
sector, but also the government agencies charged with WASH delivery;
 Inconsistent approach to the allocation of subsidies means rising
disillusionment amongst communities with the allocation of government
funding;
 Apparent under-allocation to small communities (15% of funding is reserved
for around 30% of the population, resident in villages with a population below
1,000);
 With the exception of the Fund Board, severe underinvestment in sanitation
and hygiene (in other words, in reality, investment in WASH through
government would deliver W, and the SH would need to be funded through
NGOs);
 Limited accountability and transparency: monitoring of project impacts would
be hard;
 Politicised allocation processes and lack of an effective rationing mechanism
means that schemes take a long time to complete (this is implicitly captured in
the economic appraisal); and
 Corruption risk is judged to be high.
The only government delivery mechanism that, based on an institutional and social
appraisal, would reliably deliver efficient and timely implementation of pro-poor
WASH is the semi-autonomous Fund Board. (The poverty and need focus of the
Fund Board is partially addressed in the institutional and social appraisal of Option 3,
next, with some evidence that it is targeting the poor and those with the greatest
capacity to benefit from WASH). However, the Fund Board faces an uncertain future,
with its founder and major funder, the World Bank, currently uncertain about whether
to continue investment in WASH in Nepal.
Under option 3, two out of the three service delivery options are considered to have
strong institutional mechanisms, to be at low risk from corruption, and to offer a high
degree of assurance that DFID would be able to measure the impact of its
investment, due to good M&E systems. To assess the relative focus of GWS on
poverty and need, an analysis of past district focus is provided in Annex B. In
conclusion:
 Access to sanitation is higher in GWS districts than non-GWS districts, and
access to water about the same, although less in NEWAH districts.
 Functionality of schemes is better in GWS districts than non-GWS districts
although technicians and tools are less in number. As GWS schemes are a
small proportion of total schemes, this means that GWS is operating in areas
that already have higher levels of functionality.
 Fewer WSUCsare registered with VDCs/DDCs in GWS districts.
 Hunger and nutrition indicators are approximately 30% better in GWS districts
than non-GWS districts.
 Human Poverty Indicators are one level better in GWS districts than nonGWS districts.
 Population density and number of people per water scheme are much lower in
GWS districts than non-GWS districts.
 The proportion of people in the poorest quintile is slightly higher in GWS
districts than non-GWS districts.
Overall, the data suggests that NEWAH works in more difficult and challenging
districts than GWS. This is not surprising given that GWS’s main criteria until
recently was the presence of an ex-serving Ghurka to act as a sponsor whilst
NEWAH had a more pro-poor focus. It should be noted that GWS in its Phase 5
proposal is moving to poorer districts like Rukum and Rolpa and the criteria for
selection of communities to benefit are broader than before.
Based on the institutional and social appraisal discussion above, we rank investment
options as follows, in increasing order of delivery risk:
 NEWAH, for its combination of significant pro-poor focus, quality of
institutions, and confidence that we would be able to clearly demonstrate
WASH impact with an investment of DFID resources.
 GWS, closely tied with NEWAH for its quality of institutions, and confidence
that we would be able to clearly demonstrate WASH impact with an
investment of DFID resources, but downgraded because of the fact that it
does not explicitly target poverty.
 DOLIDAR, noted for its pro-poor focus, but significantly downgraded due to its
poor allocation mechanisms, lack of investment in sanitation and hygiene,




inability to clearly demonstrate results, and broader lack of sector coordination
affecting government service delivery.
DWSS, downgraded due to its poor allocation mechanisms, lack of
investment in sanitation and hygiene, inability to clearly demonstrate results,
and broader lack of sector coordination affecting government service delivery.
Fund Board, comparable to NEWAH in terms of the strength of its institutions
and ability to report results, but facing an uncertain future due to uncertainty
about whether the World Bank will continue to fund it.
Option 1, support to WASH sector governance.
LGCDP and CSP are excluded since it is impossible to earmark funding for
sectors through these programmes: allocations are based on demands made
by the community.
We have ruled out the possibility of support to multiple options, even though there is
a clear need for sector governance to be improved in order to pave the way for future
support through national systems. We judge that since the level of funding being
allocated for WASH through this programme is relatively low, that the transaction
costs of selecting multiple options would be disproportionately high. And Option 1
scores badly on our ability to confidently measure results – measuring efficiency
improvements and attributing them to DFID funding would be difficult. Other DFID
Nepal programmes address some of the problems identified as a hindrance to sector
governance, most importantly, support for PFM reform at national and local level;
and support through LGCDP to improve local governance.
Summary of Environmental appraisal
In the table below the likely impact on / from climate change and environment is
categorised as: C - low risk / opportunity
Option
1
2
3
Climate change and environment risks
and impacts, Category (A, B, C, D)
C
C
C
Climate change and environment
opportunities, Category (A, B, C, D)
C
C
C
The full climate and environment appraisal for each of the options can be found in
Annex D. However a brief summary of the reasoning behind the ratings assigned:
Option 1. Any high level support to the water sector is more likely to focus on
process (how) and organisational reform (who) rather than any change to the
services delivered (what) and so any direct climate or environmental risks would be
likely to remain unchanged. However providing high level support could enable the
climate and environmental aspects to be included in high level policy discussions
and integrated into national strategies and protocols that should inform
implementation. In addition, greater efficiency in resource use may reduce impact on
climate and environment.
Options 2 and 3. Community-led total sanitation and hygiene will help reduce the
environmental disease burden by about 10% in the communities in which the
interventions are carried outxiii. However, any target beneficiary population under a
DFID implementation project given the levels of funding envisaged will represent a
relatively small opportunity at a national level, as will any environmental risks such
as those from increased use of soap and the risk of surfactant pollution and use of
timber from unsustainable sources in latrine construction for the current 50% of
households without. The potential to establish interest and involvement in wider
environmental management exists and solid waste management in association with
sanitation is a distinct possibility in work with the Department of Local Infrastructure
Development and Agricultural Roads which works under the Ministry of Labour and
DoLIDAR. There is the possibility of stimulating environmental innovation through
sanitation marketing, with various environmental and social benefits (e.g.
consideration of eco-latrines where treated waste can be re-used as agricultural
inputs or fuel or small-scale anaerobic digesters for bio-fuels). Current development
in these areas suggests, however, that the opportunities are limited in Nepal.
Options 2 and 3 could help towards more sustainable management of community
water resources. There are some key associated environmental risks (e.g. effects on
water supply from climate change/variability and from earthquakes), but so long as
these are accounted for in design and implementation and there is sufficient care
taken in monitoring then this option presents a low risk nationally.
Summary of Conflict Appraisal
Full conflict appraisal is available in Annex E. Key conflict risks include the
following;i. lack of transparency and participation in selection of target districts and
communities, locations of infrastructure within communities, and choice of
contractors, labourers and programme staff ;ii. misuse - or perceived misuse - of
programme funds; iii. implementation delays and/or poor quality of workmanship,
and; iv. undermining of citizen/state relationship by excluding state from
implementation modality, or by poor performance of a state implementation modality.
Option 1 is unlikely to yield significant (or measurable) changes to community level
experience of public services. While this means it would carry few risks of
exacerbating community and citizen/state tensions, it would equally fail to capitalise
on the peace building opportunities that a well implemented community focussed
programme could achieve.
Option 2 has the greatest potential to improve citizen/state confidence. However,
the reality of state capacity and policy in this sector, its inertia and its vulnerability to
political manipulation all point to a significant risk of this option exacerbating tensions
in all of the risk categories outlined above. With the modest level of programme
funding available it is unlikely that DFID would be able to sufficiently impact on state
capacity and processes to change this dynamic.
Option 3 carries the greatest potential to manage the identified conflict risks and
maximise peace building opportunities, and is therefore considered the preferred
option. The potential partners all have a proven track record of managing these risks,
and in particular of including marginalised groups effectively in all aspects of
programme implementation and oversight. The one weakness of this option relates
to the fourth identified conflict risk; i.e. working around the state may reinforce public
perceptions of state incapacity. But on balance this weakness is considered to be
outweighed by the conflict mitigation and peace building potential of option
3.Moreover, while the fourth conflict risk cannot be wholly mitigated, it can be
reduced by ensuring close and public collaboration with the relevant state authorities
.Including them where appropriate in programme decision-making processes and
M&E is just one of many approaches which could be adopted to achieve this.
D. What measures can be used to assess VFM?
The economic appraisal used NPVs and BCRs indicators to assess the VFM of the
different options. In addition, sensitivity analysis was carried out to test how results
would change when assumptions are changed.
In the future, monitoring of costs (and in particular overhead costs) will be used to
monitor VFM of the selected option. Any comprehensive intervention needs to
consider improvements to water supply, sanitation and hygiene behaviour as
sustaining these improvements into the longer term.
The economic analysis above has compared the direct costs (of construction and
community motivation and support) for each service provider. The impact of
overheads on benefit-to-cost ratios has also been examined. For GWS, all staff
salaries have been included as overhead costs to enable direct comparison with
other service providers. Staff costs are high (over 30% of total direct costs) and to
include these in construction costs would make the construction costs prohibitive
when compared to other service providers.
Facet
GWS
Experience
Continuous
1989
Capacity
Permanent office staff supported
through long term sources
(through
GWT).Direct
implementation of projects.
Permanent staff support by WaterAid
and other donors. Main project work
(50% staff) supported by AusAID.
NEWAH works through local NGOs,
though in Mid and Far West NEWAH is
working through VDCs and DDCs.
Scale
GWS number of projects (and
populations
served)
usually
significantly higher than what can
be achieved by NEWAH.1,400
schemes serving nearly 275,000
to date. Geographical extent (39
districts in wider).
NEWAH does high quality work but at
smaller scale than GWS. Currently
delivering 58 schemes for water
supply. Since 1989, NEWAH has been
leader in sanitation (pioneered CLTS in
Nepal) and helped 1.2 million get
access to minimum WASH services.
Cost
and Per capita cost of interventions is
quality
of highest in Nepal but quality of
construction
construction and standard of
service (1-2 households per tap
stand) is exceptional and should
certainly enhance functionality
and sustainability.
Per capita costs are less than 50% of
GWS but their some problems with
quality of construction have been
reported and higher number of
households per tap stand (six on
average) means that functionality and
sustainability not as assured as under
GWS.
WASH
NEWAH
engagement
since Continuous engagement since 1992
Good at sanitation and hygiene Sector leaders for CLTS and
but need to think more widely innovation with local government. They
across VDC rather than particular are now working with VDCs and DDCs
wards and need to review on
project
implementation
and
promotion methods.
reporting.
Community
engagement
Gurkha
representation
has Traditionally strong and linked to local
traditionally ensured ownership government.
and good management but new
areas of work mean that this will
not be a strong so will need to
work on this area.
Poverty focus
Working in areas that are above Work in the most difficult
average by Nepal standards, but depressed areas on the whole.
still low by global standards.
Monitoring
GWS systems are very strong for Community Monitoring System is
reporting and quarterly contact comprehensive and provides much
with GWS pensioners enables data.
frequent reporting of problems.
Value for money will be determined by costs against outputs delivered. The key
outputs and their indicators will be as follows:
 Total costs and costs per head for interventions in
 WASH

Water supply

Sanitation








Hygiene behaviour

each village (including and excluding overheads)
Number of households per tap stand
Community contribution to capital costs
Community O&M budgets – size and % paid
WSMC in place and meeting
Proportion of senior positions taken by women
Secondary: Number of project villages declared
ODF
Secondary: Proportion of households using sanitary
latrines
Percentage of population showing improved hygiene
behaviour – hand-washing (soap), water storage,
hygienic latrine
and
E. Summary VFM Statement for the preferred option
Appraisal Summary
Based on a basic ranking of options using critical success criteria, weighted
according to relative importance, the following overall ranking is achieved:
Option 3
Option 3
Option 2
GWS
NEWAH
Fund Board
1
2
3, but excluded
Option 3
Option 1
CSP
Support to sector
governance
DWSS
LGCDP / DOLIDAR
4, but excluded
5
Option 2
Option 2
6, but excluded
7, but excluded
The full CSC analysis is shown over the page.
The table below summarises the ranking of each option within each section of the
appraisal case.
Option
1
2
3
6
Sector
Governance
DWSS
LGCDP
/
DOLIDAR
RWSS Fund
Board
GWS
NEWAH
CSP
Environmental
Ranking
1=
Economic
Ranking6
2
Conflict
Ranking
7
Institutional and
Social Ranking
6
1=
1=
6
5
4=
4=
4
3
1=
3
4=
5
1=
1=
1=
4
7
1
1=
1=
1=
2
1
Not ranked
Excludes overheads in order to compare; overhead data not available for DWSS, LGCDP or CSP.
Assessment of Options using Critical Success Criteria
CSC>>
Modelled
VFM
Institutional & Social
Integrity (incl pro-poor
focus, management of
corruption risk)
Likelihood of
demonstrating impact
(incl quality of results
reporting)
Weight (out of 5) >>
4
4
5
2
5
3
1
5
47
5
No
3
1
3
5
41
6
LGCDP /
DOLIDAR
3
1
2
5
36
7
Fund Board
4
3
4
5
58
3
NEWAH
2
4
5
5
59
2
Yes - not enough data
to model VFM fully
Yes - LGCDP funds
cannot be earmarked
to WASH; not enough
data to model VFM
fully
Yes - Fund Board
future is uncertain
No
GWS
CSP
4
5
5
4
5
2
5
5
71
56
1
4
Option
Option
1
Option
2
Option
3
Sub-option
Support to
sector
governance
DWSS
Demonstrating low Total Ranking
negative
environmental
impact
Deal breaker?
No
Yes - not enough data
to model VFM fully;
CSP funds cannot be
earmarked to WASH
Commercial Case
Indirect procurement
A. Why is the proposed funding mechanism/form of arrangement the right one for
this intervention, with this development partner?
DFID Nepal has allocated £4.75m for WASH during the current Operational Plan (OP). Of
this, £1m was spent in year one of the OP 2011/12 which is the last year of the Rural Water
and Sanitation phase 4 (RWSP).The remaining £3.75mwill be spent through a new
intervention in WASH over 3 years from June 2012.
The amount directly allocated to the WASH sector is quite small compared to other sectors.
DFID has received a proposal for the fifth phase of the Rural Water and Sanitation Project
from the Gurkha Welfare Scheme, the implementing unit of Gurkha Welfare Trust (GWT) a
UK charity organisation. The GWT will co-fund the project and has approached DFID to
provide funds as it has done before, funding four previous phases to a value of over £15m
which has benefitted 273,000 people in over 39 districts of Nepal.
The funds will be channelled to the GWS using an accountable grant, the GWS has been
successfully implementing water and sanitation projects to remote hill communities with
small number of households, who are unable to get basic services from other providers in a
short time and for the small population size.
An assessment of the proposal and its objectives, outcomes and outputs match with DFID’s
objectives on WASH. The project with an investment of £3.75m will help to benefit 33,000
and will help DFID achieve its results on access to water, improved sanitation and hygiene
behaviours
B. Value for money through procurement
The GWS RWSP phase 5 is ready for implementation in June 2012. The GWS partnership
with DFID is since 1989, over four phases of the project. A recent Independent evaluation
was carried out to assess the cost effectiveness of the project before the finalisation of the
fifth phase. Some recommendations to be taken into consideration to improve its
effectiveness and efficiency have been made, these are now included in the proposal.
The project will be implemented using indirect procurement through a non-government
organisation the GWS, working directly with the community thus limiting the exposure of
fraud and risk to DFID investment and being directly accountable to DFID for the delivery
and financial management of DFID funds.
Overall project costs are £5.175m of which DFID’s contribution is £3.75m. Direct project
costs are 80% of the budget, with 20% spent on overheads such as staff salaries, operating
costs etc, similar to other NGOs.
Financial Case
A. What are the costs, how are they profiled and how will you ensure accurate
forecasting?
The project will be jointly funded by DFID and the Gurkha Welfare Trust (GWT) a UK
Charity. DFID funds will be channelled to the implementing partner the Gurkha Welfare
Scheme (GWS), the operational unit of the GWT, through an accountable grant agreement.
The proposed Phase V of the Rural Water and Sanitation Project has been allocated with a
budget of £3.75m from DFID and £1.42m from GWT. The total project cost is £5.17m over
three years, to implement a total of 192 water and sanitation schemes benefitting over
33,000 people from remote hill areas.
This intervention is the next and fifth phase of the Rural Water and Sanitation Project. The
proposed fifth phase will start in June 2012 and will finish in May 2015.
The overall DFID budget is £3.75m over three years. The annual spend profile is as follows;
2012 : £1.25m
2013 : £1.25m
2014: £1.25m
B. How will it be funded: capital/programme/admin?
The implementation costs will be funded through programme capital and resource funds.
The spilt between the programme capital budget and resource budget is £3m capital and
£0.75m programme resource budget. The capital costs constitutes direct project costs
which includes costs of constructing water schemes, materials, labour and staff costs
involved in construction activity. The water supply schemes created through the projects
are assets created for the community and handed over to the community as soon as they
are operational.
C. How will funds be paid out?
DFID will have an accountable grant agreement with the GWT through which funds will be
channelled to the GWS. The GWS has only two sources of funding the GWT and DFID
and does not hold large reserves to cover operational costs for the project. To address this
issue DFID will seek treasury approval to pay GWS in advance for up to three months. In
order to receive this advance payment approval GWS/GWT will be required to, when
returning their signed Accountable Grant Letter, request that they be paid in advance and
explain why an advance payment in necessary.
On approval of the request and justification for advance, payment will be made quarterly
on receipt of a signed request for release of funds. The subsequent quarters will include a
financial statement of the spend against the advance and a forecast of expenditure for the
following quarter. An annual audit report will be submitted to DFID at the end of the
financial year of GWS.
In the event an approval for an advance is not received then payment will be made on a
reimbursable basis.
D. What is the assessment of financial risk and fraud?
The assessment of financial risk and fraud is low. GWS has been a trusted partner for
DFID since 1989, DFID has funded four phases of the GWS and is now preparing for
approval to fund the fifth phase. The fourth phase will finish in June 2012, by when a total
of 1,398 schemes (1,132 new and 266 repaired) will have been implemented, benefiting
40,441 households with 273,192 people in 39 districts of Nepal. Additionally 345 school
latrines will have been built and hygiene-sanitation education delivered in those schools.
The total funding for these durations from DFID and GWT was £15.5m and £3m
respectively.
The GWS follows a robust system in terms of its financial controls, including a very tight
control over its procurement systems. Proper division of responsibility is followed and
delegated chain of approval levels is established. Staff are well trained in accounting,
procurement and monitoring of project expenses and value for money aspects. The GWS
implemented Rural Water and Sanitation Project was assessed by the ICAI team on their
last visit in September 2011, an examination of their processes and robust systems gave
full assurances to the team.
A third party questionnaire (self-assessment) of the organisations systems has been
provided, these will be discussed with the project manager and accounting staff in detail to
further improve efficiency and effectiveness.
E. How will expenditure be monitored, reported, and accounted for?
GWS will provide quarterly financial statements to DFID in support of requests for funding.
An annual audit is conducted by GWT with a copy of the audit report submitted to DFID
annual basis..
The GWS RWSP annual audit is conducted by an external auditor in July each year. In
addition to this, HQ GWS Account Cell conducts quarterly internal audits. HQ GWS uses
the PS Financials Accounting Software that has a direct link with GWT (UK), all of which
help to maintain the precise and transparent accounting of the budget.
Also, timely project field account auditing and monitoring of expenditure are carried out
during the field visit of head of departments and the duty trekker.
Management Case
A. What are the Management Arrangements for implementing the intervention?
Oversight
DFID Nepal will manage the Rural Water and Sanitation project. The Service
Delivery Team Leader/Health Adviser will be responsible for overall technical
oversight and the Programme Manager will be responsible for the overall
management of the project.
Management
The GWS is the implementing partner and will be responsible for the delivery of the
project and its outputs. GWS will manage the funds and ensure proper accounting
and safeguard of the funds and management of risk to the delivery of the project.
Funds will be channelled to the GWS through an accountable grant agreement. The
GWS will directly manage directly the procurement and construction of schemes and
will work directly with the communities, there will be no other parties involved. The
GWS will ensure all schemes created under the project are included and registered
with the VDC and DDC at local levels and discussed and cleared through the annual
planning process at the central government level through the British Gurkhas
Welfare coordination Committee meetings. Ownership of project will be formally
assumed by the community, once the individual schemes have been commissioned.
Operational responsibility of the completed projects will be undertaken by Water and
Sanitation Management Committees (WSMC) established by the project within the
recipient communities.
The project will manage and update regularly the asset register of items purchased
under DFID funds, these are subject to annual spot checks and will be
disposed/transferred as per DFID procedures at the end of the project.
B. What are the risks and how these will be managed?
There are relatively few significant risks relating to implementation. As such, the
probability of failure to achieve the expected outputs is considered to be low. The
following are assessed to be the key risks:

Inflation exceeding current projections or devaluation in exchange rate of
Sterling Pound (£), which may entail a need to reduce the number of
schemes and beneficiaries. This can be mitigated through an assessment of
cost effectiveness and impact of inflation on the costs of materials and labour
at annual reviews. The project will make recommendations on cost saving
methods and approaches to deliver within existing costs.

Improved hygiene and sanitation practices could be threatened by epidemic,
drought or natural disaster. This can be managed through regular monitoring,
coordination and cross team working with the Disaster Relief Team and the
Health Team within DFID.

The security situation might worsen disrupting the development works. GWS
has prudent contingencies in place to deal with these possibilities. GWS has
thought of scenario plan for various security situations as follows.
In addition, the following risks have been identified for the preferred option at
appraisal stage and the most recent evaluation of the implementing partner, and
these – and the steps we will take to manage them – are identified below.
Category
VFM
Institutional
and Social
Risk
High overheads (48%
compared to NEWAH
25%).
GWS continues to target
communities which already
have improved WASH or
health outcomes, reducing
net benefits on health and
labour cost savings.
GWS average community
size served falls, causing
per-capita costs to rise.
Economies of scale limited
due to small size of RWSP.
Scheme cost-effectiveness
undermined by insufficient
attention to sustainability.
Insufficient participation of
women in user groups.
Insufficiently pro-poor
approach.
Water and Sanitation User
Committees do not function
well in GWS districts,
making GWS schemes less
inclusive.
GWS moves away from
supporting districts with
higher numbers of people
living in poverty since it
does not target poverty
Management of Risk
We will ask GWS to make a commitment to
reduce overheads in their Phase V proposal.
We have asked GWS to introduce a needsbased approach to scheme selection,
targeting poverty and need, in their Phase 5
proposal. In early drafts of the proposal the
criteria for selection of communities to benefit
are broader than before.
We will ask GWS to monitor average size of
communities served.
Seek other sources of funding to ensure
stability and continuity of the RWSP.
Implement improved M&E system including
standardised data collection forms and use
the database of schemes to monitor functional
status of schemes, short-term management
decisions and more strategic questioning of
the data, and share with local authorities in
each district.
Review policy and community agreements so
that village O&M funds are used as a
contribution to major maintenance.
GWS has been asked to ensure active
participation of women in scheme user
groups.
Define “the neediest”, and develop and apply
scheme selection criteria including poverty.
Review methodology for analysing
representation of excluded groups so that it
takes into account the proportion of excluded
in the overall population served by the
Programme for monitoring and reporting
purposes.
GWS to promote activation of WSUCs.
GWS already works in districts with a higher
proportion of people in the lowest income
quintile than other providers. In its Phase 5
proposal poorer districts like Rukum and
Rolpa are identified and the criteria for
Category
Risk
directly.
GWS does not respond to
requests to implement
public tap stands, in order
to make schemes more
pro-poor.
GWS moves away from
supporting districts with
higher numbers of people
living in poverty since it
does not target poverty
directly.
Environment
Insufficient attention paid to
DRR.
Insufficient attention paid to
climate change risk.
Conflict
Working around the state
may reinforce public
perceptions of state
incapacity.
Misuse of funds makes
communities sceptical of
service providers in
general.
Management of Risk
selection of communities to benefit are
broader than before.
We have asked GWS to implement public tap
stands so not doing so will be seen as nondelivery of an accountable grant contract.
GWS already works in districts with a higher
proportion of people in the lowest income
quintile than other providers. In its Phase 5
proposal poorer districts like Rukum and
Rolpa are identified and the criteria for
selection of communities to benefit are
broader than before.
Introduce disaster-resilience approach to new
scheme build: conduct small research project
to determine why some systems and
structures suffered damage in the September
16th earthquake, and others did not. Use
findings to modify design and construction of
new projects, provided the proposed changes
are shown to be cost-effective compared with
a “do nothing” approach.
Promote sustainable management of
community water resources.
Monitor source yields for 2 years after project
completion and encourage WSMCs to
continue to monitor and report yields
indefinitely to the VDC and DDC, as well as to
GWS.
Establish formal relationships with VDCs and
DDCs in districts in which it undertakes
projects; participate in WASH sector meetings
of these authorities to coordinate activities and
share experience.
Ensure that projects are included in both the
VDC and DDC annual workplans. WSMC
Chairperson should participate in ward and
VDC Council meetings to make formal
submission of the projects
Introduce and make tripartite agreement
between RWSP, WSMC and VDC for each
completed project, binding for VDC to follow
up and monitor the completed schemes,
consistent with the LSGA (1999) formalisation
of VDC responsibility for monitoring and
providing minor support. Such agreements
should be developed retrospectively for
previous projects as far as possible.
Ensure systems in place to ensure no misuse
of programme funds. GWS has responded
well in the past (to ICAI) on their fiduciary risk
management processes.
Ensure transparency and participation in
Category
Risk
Other
Effectiveness undermined
by not implementing
community-led total
sanitation.
GWS innovation does not
benefit the national sector.
Management of Risk
selection of target districts and communities,
locations of infrastructure within communities,
and choice of contractors, labourers and
programme staff.
Participate in national level fora, including
Sector Stakeholder Group and National Water
Supply
and
Sanitation
Coordination
Committee, to share the experience of the
RWSP and to learn from the experience of
others.
Work with other like-minded organisations to
use experience for advocacy on the
challenges the RWSS sector is trying address
in meeting the needs of rural communities for
affordable and sustainable water and
sanitation services.
C. What conditions apply(for financial aid only)?
None, this is not a financial aid intervention.
D. How will progress and results be monitored, measured and evaluated?
GWS will routinely submits bi-annual progress reports to DFID in standard format.
The RWSP will adapt the new log-framework for a more responsive and easy
monitoring by DFID. GWS is responsible for collecting data for indicators at output
level. The data will be presented at the end of each GWS financial year (June/July
and considered at annual reviews by the DFID project team.
A timely mid-term ‘review, annual reviews and a project completion report will be
carried out during the life of the project. External evaluations will be carried out by
DFID.
Logframe
Quest No 3570519 of logframe for this intervention.
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Sanitation and Hygiene Portfolio Review, March 2012, DFID
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iiiHow
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v
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Management Information Project (NMIP), DWSS, March 2011. Nationwide Coverage and
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ix
Hutton, G. and L. Haller (2004). “Evaluation of the Costs and Benefits of Water and Sanitation
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x
xiPruss-Ustun,
A., et al (2003). "Assessing the environmental burden of disease at national and local
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xiiHutton,
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