The Melamchi Water Supply Project is designed to divert about 170 MLD of fresh water to Kathmandu Valley Towns (Kathmandu Metropolitan City, Lalitpur Sub-Metropolis, Bhaktapur, Madhyapur and Kirtipur Municipalities) from the Melamchi River in Sindhupalchowk district. Augmenting this supply by adding about further 170 MLD each from Yangri and Larke rivers, which lie in the upstream proximity of Melamchi, is also being investigated for future

The main objectives of the Project are to alleviate the chronic water shortage in Kathmandu Valley on a sustainable, long-term basis, and to improve the health and well-being of its inhabitants particularly the Poor. The Project also seeks to develop a comprehensive institutional framework for water resource management within the valley The Project involves the transfer of water from the Melamchi Valley into Kathmandu Valley through a diversion scheme with a 26 kilometer tunnel

The Project comprises four parts; (i) infrastructure development (ii) social and environmental support (iii) institutional reforms, and (iv) project implementation support.

Infrastructure development includes the Melamchi diversion scheme, water treatment plant, bulk distribution system, distribution networks, wastewater system including sewerage and drainage system, and a shallow groundwater well-field in Manohara. Social and environmental support includes a social uplift program to miti-gate project impacts and channel benefits to beneficiaries. A resettlement action plan and an environmental management plan is being implemented to reduce and monitor any adverse social and environmental impacts. It also includes hygiene education, and public awareness programs. Institutional reforms include establishing a regulatory body, introducing a private sector lease contract, and setting up a Kathmandu Valley Water Authority for comprehensive water resource management and establishing groundwater licensing in Kathmandu Valley

The total cost of the Project is estimated at$ 464 million (revised to $317 million), including contingencies and taxes. The cost will be jointly funded by ADB as Lead donor agency, NORAD, Sida, NDF, OPEC fund, Government of Japan (JBIC and JICA) besides Government of Nepal.