An economic reappraisal of the Melamchi water supply project - Kathmandu, Nepal

Abstract

This paper examines whether the benefits of the Melamchi water supply project in Nepal are likely to exceed its costs, assuming that high-quality municipal water services can be delivered to households and firms in the urbanized part of the Kathmandu Valley. Monte Carlo simulations are used to explore the sensitivity of the net present value and economic internal rate of return calculations to a wide range of assumptions and input parameters. We find that extreme assumptions are not required to generate large differences in economic feasibility; quite plausible differences in the values of some key parameters can lead to large differences in the economic attractiveness of the project. The results reveal that the three most important influences on net present value and economic internal rate of return are: (i) the discount rate and discounting procedure; (ii) the magnitude of monthly benefits for households connected to the new water system; and (iii) the annual growth rate in monthly benefits of connected households after the project comes on line. Our contribution lies in illustrating, with an actual case study in a developing country, the degree to which cost-benefit calculations of large infrastructure projects are influenced by key economic modeling assumptions and input parameters.

Coping with unreliable public water supplies: Averting expenditures by households in Kathmandu, Nepal

“…Water is contaminated with high concentrations of nitrogen‐ammonia and fecal coliform: approximately 70 to 80% of the tap water samples tested between 1988 and 1992 showed high concentration of fecal coliform during the wet season. Halwai [2000], Tiwari [2000], SILT‐DRC [1999], and Whittington et al [2004] present additional details on the poor state of the water supply situation in the Valley.…”

Coping with poor water supplies: empirical evidence from Kathmandu, Nepal

“…Because of an old and poorly maintained distribution system, the service is not efficient (Whittington et al 2004;Pattanayak et al 2005).…”

“…Kathmandu valley, the only metropolitan and capital city, is the center of the sociological and economic activities of deteriorated, and poorly maintained infrastructure, the water supply is neither reliable nor safe (Whittington et al 2004). Much of the water, approximately 40%, which is produced is lost before it reaches the consumers (Whittington et al 2002).…”

“…Unsafe drinking water threatens the health of people and is one of the most serious challenges for developing countries. Rapid urbanization and growth have made developing cities unable to meet the increased demand and the situation is worsened by an ever increasing population (McConnell & Rosado 2000;Whittington et al 2004;Pattanayak et al 2005). One of the major problems that most of the developing cities face is to provide enough good quality drinking water.…”

The economic value of water in metropolitan areas of the United States

“…The Melamchi Water Supply Project is expected to raise US$18 million initially and 1% of future revenue for the exporting basin (Pant et al, 2008). However, other studies illustrate the uncertainty in these economic projections (Whittington et al, 2004).…”