Water supply projects in small towns have long been in the shadow of higher-profile development agendas and interventions in water supply and sanitation services (WSS), and in general have had a poor sustainability record. But their place in the sun may well be coming.

Spending on WSS is set to rise sharply to meet the sixth Sustainable Development Goal on water and sanitation for all by 2030. And the important role small towns play in linking rural and urban economies is gaining recognition as a driver of development and rural transformation.

A recent impact evaluation of an ADB-supported project for water supply services in small towns in Nepal provides compelling evidence for the viability of a promising model for the sector, whereby costs are shared between communities and the government. There is clear potential for replication and scaling up. Findings and lessons from the evaluation are worthy of a wider airing among practitioners, especially those working on WSS and small-town projects, as they fill significant knowledge gaps.

The Small Towns Water Supply and Sanitation Sector Project was carried out in 29 towns in Nepal from 2000 to 2009. It was the first time the model to formalize the principle of cost-sharing water-supply services in small towns was used in Nepal, which typically relies on government funds for WSS infrastructure investments. A similar cost-shared model has been used for ADB-supported water supply projects in rural settings of Indonesia and the Philippines, but their development impact has not been evaluated.

Capital costs for the built infrastructure in Nepal were split 50:50 between communities and the government. Households in project towns made their contribution through a minimum cash contribution of 5%; an in-kind contribution, such as labor, of up to 15%; and the balance through a 30% loan from the town development fund, a government fund to alleviate urban poverty.

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Getting the evaluation methodology right was vital for being able to accurately assess how the project improved household welfare. The evaluation used a mix of data sources and methods to find a convergence of results to determine the project’s impact for delivering water services using a cost-sharing approach and its impact on household welfare. The absence of baseline data was a methodological challenge. This was tackled by using advanced econometric methods to estimate differences in project outcomes for the delivery of water services and household welfare.

A quasi-experimental design was used to carefully match project and comparison towns and households on observable characteristics, and quantitative and qualitative data sources were analyzed to attribute outcomes to the project. Here, 10 project towns were matched on geospatial characteristics with 10 non-project comparison towns that didn’t use this approach. Interviews were conducted with WSS providers and 2,510 households participated in a structured survey, split between project and comparison towns.

Interviews with water service providers and a structured household survey in project and comparison towns showed the cost-shared model provided better availability, quality, and continuity of water supply, and quicker repairs.

For example, households in project towns reported 12 hours water supply daily compared with 7.5 hours in comparison towns. Similarly, 72% of households in project towns reported that major disruptions to supply were fixed in 2 days, compared with only 26% in non-project towns. This was achieved by technical, administrative, and financial training for WSS providers in project towns, and improved WSS infrastructure.

Progressive tariff increases were part of project design to cover operation and maintenance costs, debt service, and to ensure long-term financial sustainability. Adoption of technology by WSS providers in project towns contributed to improving their operational efficiency. Nine out of ten project towns had computerized billing systems, while only 1 non-project town had such a system. Revenues generated by project town WSS providers were greater than operational costs, with reported operational ratios of 0.73, compared with 1.57 in comparison towns, thereby enhancing their financial sustainability.

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The evaluation shows that a community participation approach strengthened a sense of ownership in WSS schemes, resulting in consumers reporting leaks to providers and thereby conserving water on a greater scale than consumers in the non-project comparison towns used in the evaluation.

These improvements, coupled with transparent financial reporting on water schemes, created a virtuous cycle that made it possible for communities to accept progressive tariffs because of the better services they experienced. The ability to raise tariffs, a sticky issue in the sector, in turn enabled service providers to improve operation and maintenance (a big sustainability factor) and expand the service area.

The project—which also had a sanitation and hygiene awareness component—resulted in better health outcomes in project towns, particularly a lower incidence of diarrhea than in comparison towns. Other benefits included an increase in women’s leisure time due to the reduced burden of water collection – women in project towns had nearly 3 more hours of leisure time per week than those in non-project towns. Women are disproportionately affected by poor water services, because it forces them to spend more time fetching water and caring for those who fall ill from contaminated water.

That the Government of Nepal has adopted the cost-sharing approach for its own small-town water supply program testifies to the project’s success. Initial concerns that poorer households were not adequately provided for were addressed in the design of later project phases.

The evaluation findings and lessons from this project provide a strong argument for governments and their development partners to further test the cost-shared, community-managed model for WSS in small towns in other countries with a similar context. Indeed, these findings show this could become the default model for provision of financially sustainable WSS services in small towns across Asia and the Pacific. Find out more in this video.