- The Himalayan mountain range is one of the world’s largest sources of fresh water, and Nepal, situated at the foothills of the Himalayas, is endowed with ample water resources. In spite of this water abundance, drinking water supply in many parts of the country is inadequate, particularly in the capital, Kathmandu Valley. For a long time now, Kathmandu residents have been struggling with an increasing urban water shortage. In 2000, as a part of the urban water sector reform program, the Government of Nepal (GoN) entered into a loan agreement with the Asian Development Bank (ADB) to construct the multi-million dollar Melamchi Water Supply Project. This Project provides a sound case study to understand urban water policy challenges in Nepal. This much-hyped project has been mired in controversy ever since its inception and subsequent loan-agreement. The development of the project was halted due to numerous controversies ranging from charges of social injustice to environmental concerns, and the project deadline has been revised more than three times. This paper analyzes how differences in beliefs and values lead to the formation of conflicting coalitions that stand firm to protect their core beliefs. By applying the Advocacy Coalition Framework, this paper then examines how coalitions interact, negotiate, reorganize, and adapt to changing policy conditions, to survive and to advance the policy-making process.