Document of The WorldBank FOR OFFICIAL USE ONLY FILE UMP ReportNo. P-3795-NE] REPORT ANDRECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EKECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 100.6 MILLION TO THE KINGDOM OF NEPAL FOR A MARSYANGDI HYDROELECTRIC POWER PROJECT May 3, 1984 This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The World Bank
FOR OFFICIAL USE ONLY
FILE UMP
Report No. P-3795-NE]
REPORT AND RECOMMENDATION
OF THE
PRESIDENT OF THE
INTERNATIONAL DEVELOPMENT ASSOCIATION
TO THE
EKECUTIVE DIRECTORS
ON A
PROPOSED CREDIT OF SDR 100.6 MILLION
TO THE
KINGDOM OF NEPAL
FOR A
MARSYANGDI HYDROELECTRIC POWER PROJECT
May 3, 1984
This document has a restricted distribution and may be used by recipients only in the perfonnance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
t
CURRENCY EQUIVAL.ENT
NRe 1.0 = US$0.0625US$1.0 = NRs 16.0
ABBREVIATIONS AND ACRONYMS
ED - Electricity DepartmentHMG - His Majesty's GovernmentKfW - Kreditanstalt fur Wiederaufbau of the Federal
Republic of GermanyLI - Lahmeyer International
MRDB - Marsyangdi Hydroelectric Development BoardNEA - Nepal Electricity AuthorityNEC - Nepal Electricity CorporationSHDB - Small Hydroelectric Development BoardSMEC - Snowy Mountains Engineering CorporationWEC - Water and Energy Commission
Amount: SDR 100.6 million (US$107.0 million equivalent)
Terms: Standard
Terms toBeneficiary: 30 years with interest at 12 percent per annum
Project The project seeks to meet the forecasted demand forDescription: electricity in Nepal for the medium term and to
strengthen the Borrower's power sector. This would bea run-of-river hydroelectric power project, with aninstalled capacity of 69 MW, located on the MarsyangdiRiver. Major project components include diversionworks and diversion weir, headrace and tailrace tunnels,powerhouse, transmission lines, substations andequipment. The project also provides for consultingengineers, technical assistance and training. Aprimary benefit would be derived from the generationof additional electricity for industrial, commercial anddomestic consumption, and for irrigation purposes.Benefit would also be received through improvement ofthe distribution system, enhancement of maintenancecapacity and the training of manpower. Some riskrelates to possible deficient project design andconstruction, poor management and cost overruns.Appointment of a panel of experts to review design andconstruction, adequate provision for supervision inclose cooperation with the consulting engineer, andassignment of a claims advisor should help minimizethese risks.
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
Estimated Costs:-----US$ millions-----
Item Foreign Local Total
1. Preliminary Cost 2.5 2.9 5.42. Administrative Expenditure 0.5 2.7 3.23. Civil Works (Lot I) 45.0 13.6 58.64. Civil Works (Lot II) 73.7 25.0 98.75. Equipment 40.8 6.9 47.76. Substations and Local v
Distribution System 8.4 2.2 10.67. Transmission Lines 5.5 2.8 8.38. Consulting Engineer 7.5 - 7.59. Technical Assistance 4.1 - 4.1
Financing Plan:… US$ millions-----Foreign Local Total
IDA 107.0 - 107.0Saudi Fund b/ 25.0 - 25.0Kuwait Fund b/ 21.0 - 21.0KfW of the Federal Republic ofGermany b/ 69.3 5.2 74.5Government of Nepal 26.1 69.7 95.8
Staff Appraisal Report No. 4422a-NEP, of May _, 1984Report:
Rate of Return: 5.9 percent
Map: IBRD 16928R
a! Includes taxes and duties of US$15.81 million equivalentb/ Amounts are expressed in US dollar equivalents only for ease of
comparison.
INTERNATIONAL DEVELOPMENT ASSOCIATION
REPORT AND RECOMMENDATION OF THEPRESIDENT OF THE ASSOCIATION TO THE EXECUTIVE DIRECTORS
ON A PROPOSED CREDIT OF SDR 100.6 MILLIONTO THE KINGDOM OF NEPAL
FOR A MARSYANGDI HYDROELECTRIC POWER PROJECT
1. 1 submit the following report and recommendation on a proposed creditto the Kingdom of Nepal in an amount of SDR 100.6 million (US$107.0 milLionequivalent) on standard IDA terms to help finance a Marsyangdi HydroelectricPower Project. The part of the credit proceeds used for financing theMarsyangdi Hydroelectric Power Plant would be relent to the Nepal ElectricityCorporation for 30 years with interest at 12 percent per annum. Cofinaiacingarrangements have been made with the Kuwait Fund for Arab EconomicDevelopment (Kuwait Fund) for 6.0 million Kuwaiti dinars (US$21.0 millionequivalent) repayable over 25 years, including 5 years grace, at 2.5 percentinterest and 0.5 percent administrative charge per annum; the Saudi Fund forDevelopment (Saudi -ind) for 86.0 million Saudi riyals (US$25.0 millionequivalent) repayable over 25 years, including 5 years grace, at 2 percentinterest per annum; and the Kreditanstalt fur Wiederaufbau (KfW) of theFederal Republic of Germany for Deutsche Mark 186.3 million (US$74.5 millionequivalent) all on a grant basis.
PART I - THE ECONOMY 1/
2. The most recent economic report, Nepal: Recent Developments aDdSelected Issues in Trade Promotion (Report No. 4663-NEP), was distributedto the Executive Directors on October 19, 1983. The principal features andrecent performance of the economy are described below. Country data areshown in Annex I.
3. Nepal is one of the least-developed countries in the world. Percapita income is estimated at US$170 (1982) and health and educationstandards are below the average for South Asia: life expectancy at birth isonly about 45 years; infant mortality, about 148 per thousand; and adultliteracy, only 19 percent. The population, estimated to be 15.4 million(1982), grew at a rate of albout 2.6 percent per year between 1971 and 1981.About 95 percent of the population live in rural areas.
4. Population density with respect to arable land (356 per sq km) hasreached very high levels, and cultivation has been extended onto marginallands and forests. Forests have been denuded further to meet the growingdemand for fuelwood, on which Nepal depends for over 90 percent of its energyconsumption, mostly for household cooking and heating. Because of deforesta-tion and excessive grazing on the hills and mountains, with high rainfall,
1/ Substantially unchanged from Karnali Preparation Project - Phase I(Report No. P-3737-NEP), of March 1, 1984.
--2-
there is accelerated soil erosion leading to silting of rivers, downstreamflooding; and loss of agricultural productivity all along.
D Agriculture, largely rainfed, still accounts for nearly 60 percentof Nepal's GDP and 80 percent of merchandise exports, and provides the mainsource O:L livelihood to over 90 percent of the population. Crop productionaccounts for about 60 percent of agricultural output, livestock for 30pereent, and forestry for 10 percent. Paddy is t:he principal food cropOplante6 on about half of the total cropped area), followed by maize, wheat,millet and barley. Cash crops (oilseeds, jute, sugarcane and tobacco) aregrownn on about 10 percent of the cropped area. About 15 percent of totalrural incomes rise from non-agricultural activities, of which cottageindustries are one of the more important andL engage over one million peopleon a part-time basis.
6l. Apart from agricultural land, Nepal's only other importantexploitable resources are hydropower and tourist attractions. The exploita-tion of the vast hydropower resources beyond that required to satisfy thecountry's own power demand, however, will depend crucially on Nepal's abilityto enter complex financial, exploitation and export agreements with neighbor-ing cou ntries. The tourism sector, based primarily on Nepal's mountainenvirowment and its rich cultural heritage, has been dynamic, though itaccounts for only about 1 percent of GDP. Tourismn now provides about 20pezcent of the country's foreign exchange earnings. About 60 percent ofearningE from tourism are retained in Nepal.
Following centuries of self-imLposed isolation, efforts to develop theeconomy of Nepal began in the mid-1950s against extremely heavy odds. Thecountry had virtually no physical infrastructure, an ancient administrativesystem, and very limited educational and health services. The resource baseis relatively narrow and its development hindered by the difficult topographyand landlocked position. Against this background, Nepal's primary develop-ment objective for 20 years, between 1955 and 1975, was to build basicinfrastructure and lay the groundwork for future economic growth. Thecountry hdas made good progress in pursuit of that objective. It now has abasic road network linking many economic centers. Kathmandu and a few othertowns have basic utilities and public transport. Schools have been built foralmost half of the primary school age children and there are a number of highschools and a national university. A rudimentary hospital system, includingrural health posts, has been built. Some progress has also been made inestablizhinng the institutional framework for agricultural and industrialdevelopment, including extension and research activities, financial institu-Lions and industrial enterprises. Yet in all these areas, the country has along way to go to achieve a level of development comparable to other develop-ing countries; for example, public and private institutions in Nepal mustcontinue to expand and upgrade essential physical facilities, acquire thenecessary expertise in handling economic and financial affairs, build upadequate technical and managerial cadres, and establish merit-based systemsof parsonrnel management.
-3-
8. The Fifth Plan (1975/76-:L979/80) marked a shift in developmentobjectives, with increased emphasis being placed on acceleration of economicgrowth, employment creation, and raising the living standards of thepopulation. These objectives have been reiterated in the Sixth Plan(1980/81-1984/85). Moreover, the stated strategy of the Sixth Planappropriately (a) accords high priority to developing agriculture, small-scale industries and Nepal's abundant water resources; (b) stresses soilconservation and population control; and (c) emphasizes full utilization ofexisting infrastructure and alleviation of absorptive capacity constra:ints,including human resource development. The development strategy also callsfor increased involvement of the private sector in agriculture,manufacturing, trade, tourism, construction and transport operations.Investment expenditures, supported by growing foreign assistance, haveincreased rapidly over the last two Plans, from US$146 million (9 percent ofGDP) in 1974/75 to about US$390 imillion (15 percent of GDP' in 1981/82, andthere have been substantial shifts in the composition of spending away fromtransport to agriculture, power and social services. GDP growth, however,has barely kept up with that of population.
9. Part of the explanation for this stagnation lies in factors beyondNepal's control such as the difficult topography and the poor resource base.But factors within Nepal's control have also contributed. Severe projectimplementation problems have been encountered by Government and donors alikein most sectors of the economy, thereby lowering the rate of growth ofcapital formation. In addition, the expected returns on investments whichtook place often did not materialize largely because necessary complementaryinvestments or current spending were lacking, and because of managerialdeficiencies. A good example is the agriculture sector. In the past, insuf-ficient attention was paid to bringing water down to the farm level and thiswas compounded by inadequate support services such as extension and research,by the lack of timely supplies of improved seed, fertilizer and other inputssuch as credit, by the lack of farm-to-market roads, and by low producermargins. Future development of irrigation and agriculture would thereforeneed to emphasize complemenLtary investments, improvements in agriculturalinput supplies and adequate producer margins.
10. The shortage of funds for current spending needs to be addressed byfurther efforts at domestic resource mobilization. In recent years, Nepal'sefforts to mobilize resources have focused on tightening income tax assess-ment and collection; on discretionary measures largely in the area ofindirect taxes; and on reducing subsidies to public enterprises. While therehas been, as a result, a steady increase in revenues, the tax structureremains inelastic. Some scope exists for increasing Nepal's tax elast:icityby shifting items on the indirect tax schedules from a specific to an advalorem basis. There also seems to be scope for increasing yields from theland tax, urban property taxes and income taxes.
-4-
11. Over the past two years, several positive steps have been taken tostrengthen public sector management. These steps have included increases inthe traditionally low civil service salaries, establishment of public servicetraining facilities, simplification of budgetary procedures accompanied bystricter enforcement of expenditure accounting, and granting of more autonomyto public enterprises in matters concerning personnel and pricing policies.The implementation of these administrative reforms would have to be pursuedby high-level monitoring of important administrative issues such as appoint-ment of competent staff, job security and decision-making authority. Also,public enterprise reform needs to be pursued by measures aimed at reducingcosts and increasing efficiency. In this regard, the Government has takeninitial steps, subjecting public ernterprises to increased competition fromthe private sector through liberalization of licensing in industry, transportand small-scale hydropower generation. At the same time, in September 1983,the Government announced its intention to involve the private sector in theownership and control of public enterprises through the sale of some publicenterprise shares to private investors.
12. Because of slow economic growth, Nepal's balance of payments has beencharacterized by widening trade deficits, partly offset by surpluses frominvisibles. The current account deficit (averaging US$100 million annuallyduring 1979/80-1981/82) has traditionaally been more than matched by inflowsof official grants and concessional Loans (averaging US$128 million annuallyduring 1979/80-1981/82), leading to surpluses in the overall balance ofpayments in most years. Nevertheless, fore ign exchange reserves havedeclined from being equivalent to about one year of imports in the early1970s to six months in 1982, and four months in mid-1983.
13. To sustain and further develop its economy, Nepal must mobilizeadditional free foreign exchange through export promotion and efficientimport substitution. Improving agricultural production, rural incomes andfood distribution within the country is a major way of doing so, if only toavoid the need to import and distribute large quantities of foodgrains in thefuture. Agricultural development also remains the key to a gradual expansionof Nepal's traditional merchandise exports. In addition, development ofenergy resources is a major means to strengthening the balance of payments byreducing the need to import fuel and opening up an export potential.Recently, Nepal has legislated a wide range of fiscal and administrativeincentives for industrial investors aLnd exporters, particularly in theprivate sector. The implementation of these incentives, and the alleviationof the severe transport and transit constraints facing the country's tradesector, must constitute essential elements of a trade promotion strategy forNepal.
14. Nepal is faced with highly challenging prospects and tasks inaddressing its multiple long-term development problems. While it attemptsto mobilize domestic resources to finLance about 40-50 percent of developmentexpenditures, external assistance, at concessional terms, will continue to bea vital factor in financing investment and effecting economic growth. In the
-5-
last three years, aid commitments to Nepal have averaged about US$250 millionper year, almost entirely in the form of grants and concessional credits withgrant elements in excess of 70 percent. Aid disbursements have grown fromabout US$110 million in 1979/80 to an estimated US$175 million in 1982t83.Nearly 70 percent of total aid disbursements have come from members of theNepal Aid Group, formed in 1976 and now comprising eight DAC countries andfour multilateral agencies.
15. As of December 31, 1982, Nepal's official foreign debt outstandingwas US$297 million, of which US$251 million was due to multilateral agesncies.As virtually all loans have been concessional, debt-service payments, includ-ing payments to the IMF, have remained small in relation to exports of goodsand services. In 1982/83, debt-service payments were about US$15 million,equivalent to 7 percent of exports of goods and services. Over the mediumterm, these payments are projected to remain at less than 10 percent ofNepal's exports of goods and services.
PART II - BANK GROUP OPERATIONS
16. Bank Group operations in Nepal began in 1969 with an IDA credit ofUS$1.7 million equivalent for a telecommunications project. Since then, 33additional credits have been approved, bringing total IDA assistance to Nepalto US$380.5 million equivalent, net of cancellations. In view of Nepal'smany development needs, this assistance has been for projects in a widevariety of sectors. Six of these sectors account for about 86 percen1: ofIDA credits by amount: irrigation/agriculture (US$170.0 million for 14projects); water supply and sewerage (US$46.8 million for three projects);power (US$51.8 million for two projects); telecommunications (US$21.7 millionfor three projects); highways (US$19.2 million for two projects); and ruraldevelopment (US$19.0 million for two projects). The proposed credit Would bethe fourth approved in FY84. No Bank loans have been made to Nepal. IFCmade its first investment in Nepal (US$3.1 million) in a hotel project inKathmandu in 1975. In addition, IFC approved a loan of US$6.2 million equiv-alent to Nepal Orind Magnesite (Private) Limited (i.e., a private company) inMarch 1982. The loan will help finance a US$24.9 million project to mine andprocess magnesite ore. Annex II contains a summary statement of IDA creditsand IFC operations as of March 31, 1984.
17. Bank Group lending to Nepal so far has been modest compared to thecountry's need for external assistance. The international community hasshown considerable interest in Nepal's economic development and, to date, ashortage of funds has not been a major bottleneck. The main constrai.nt onthe utilization of increased aid has been Nepal's limited absorptivecapacity, affecting the pace of project preparation and implementation. TheBank Group has provided assistance to the Government in project preparationthrough a Technical Assistance Credit (Cr. 659-NEP) and by acting asExecuting Agency for a number of technical assistance projects financed byUNDP. Furthermore, the present Resident Representative in Kathmandu has had
-6-
a significant impact in improving project implementation performance. As aresult, the rate of disbursements is improving: during FY82 and FY83,US$28.5 and US$37.4 million equivalent, respectively, was disbursed comparedto an annual average disbursement of about US$17 million during the previousfive fiscal years. Project completion reports 'have been prepared for fiveprojects: First Telecommunications (Cr. 166-NEP), First Highways(Cr. 223-NEP), Tourism (Cr. 291-NEP), Birganj Irrigation (Cr. 373-NEP) andSettlement Project (Cr. 505-NEP). All five projects experienced delays inimplementation, and institutional improvements wiere less than anticipated;however, all five generated acceptable rates of return.
18. The Bank Group's current lending strategy places emphasis on assist-ing the Government in its efforts to contain the high level of populationgrowth, address major constraints in the country's development of humanresources and promote agricultural development. Selected infrastructureinvestments, mostly in transport, telecommunications and power, will also beundertaken to alleviate serious development constraints. In population, aproject is being prepared by the Government and there is donor interest tocofinance various components. For the development of human resources,projects under preparation include agricultural manpower, engineeringeducation, vocational and primary and secondary education projects. Foragriculture, the basic strategy is to assist Nepal maintain overall foodgrainself-sufficiency and, where possible, promote exports of agriculturalproducts and encourage afforestation efforts. Projects under preparationwould extend the assistance provided so far by building irrigationinfrastructure mainly in the Terai to increase paddy production and helpreduce the food deficits in the Hills. Both would be accomplished throughirrigation and rural development projects which would emphasize increasedfood production and through specific Hill food projects.
PART III - THE ENERGY SECTOR
19. Principal sources of energy in Nepal are forests and rivers.Fuelvood provides for about 92 percent of the total energy needs of thecountry. Commercial sources such as coal, petroleum and electricity provideabout 6 percent of the total energy consumed; the remainder being provided bycharcoal, crop and animal waste. There are no known reserves of fossil fuelsin Nepal. The country has vast potential hydropower resources which areestimated to be around 83,000 MW, and of which only 25,000 MW have so farbeen investigated. Fast depletion of the forests has led to the realizationof an urgent necessity to develop the only alternative indigenous source ofenergy: hydropower.
20. A plan for hydroelectric power development was first prepared in 1974under Japanese technical assistance, followed by a detailed study of theGandaki river basin in 1979 under UNDP assistance. Other sites are alsobeing studied including the Karnali and Kosi basins. The Water and EnergyCommission intends to carry out detailed studies of the major rivers with
-7-
funds to be provided by donors. The studies will assist the Government inproperly ranking the various projects on a countrywide basis.
The Power Subsector
21. In Nepal, only about 5 percent of the population is served by elec-tricity and the annual per capita consumption is about 16 kWh compared. with26 kWh in Bangladesh, 164 kWh in India, and 307 kWh in China. About 97percent of the consumers registered in 1983 were residential and used 52percent of electricity whereas iindustry used 32 percent and commerce andothers 16 percent. Electrification now extends to 39 of the 75 districtheadquarters, 28 of the 29 town panchayats and 137 of the 2,905 villagepanchayats. EMG has plans to electrify 21 additional district headquarters,1 town panchayat and 241 village panchayats within next five years. TShiswould imply that by the end of this period a total of about 3.6 millionpersons would be expected to be living in towns and villages withelectricity. HMG intends to carry out this rural electrification programmainly with assistance from ADB.
22. The present firm power generating capacity in Nepal is 133 MW, ofwhich 111 MW is hydro and the rest is thermal (diesel). Total energy gener-ated in Nepal in 1983 was 292 GWh of which 279 GWh was hydro, 5 GWh diesel,and 8 GWh was generated from captive plant. In addition, 63 GWh wereimported from India. Of the five administrative regions of Nepal, theCentral region has most of the hydro and thermal stations built there becauseof the concentration of the major loads in the Kathmandu Valley. This regionalso accounted for the largest amount of sales (72 percent) of electricity in1983.
23. Difficult topography, inaccessibility to most of the mountainousareas, and consequent high cost of transmission lines have forced HMG todevelop small hydropower generating units in suitable areas. The size ofthese generating units vary from 25 kW to 500 kW. So far 11 such powerstations with a total installed capacity of 2,179 kW have been commissioned.Another 21 stations with an installed capacity of 9,750 kW are underconstruction, and 16 schemies with a potential of 1,786 kW are underinvestigation. Currently USAID is providing assistance to 1MG in developinga cost-effective methodology for collection of data on stream flow and rain-fall for the sites, improvement: in load factors, and in reduction of capitaland maintenance cost of the small hydro schemes. HMG hopes that small hydroswill play a significant role in the future power development of Nepal.
24. The grid system is presently confined to the Central region and partsof the Western region and consists of 239 km of 132 kV lines and 227 km of66 kV lines, respectively. The firm plant capacity in the grid is 130 MW, ofwhich 111 MW is hydro. The maximum demand of the grid system was 69.1 MW inFY83, compared to the total Nepal demand of 83.2 MW. The Eastern region,which had a maximum demand of 11.0 MW in FY83, does not form a part of thegrid system, and depends heavily on electricity imported from India. In
-8-
1983, 96 percent of the required electricity in the region was imported frc.MIndia. The network in this area is connected by 188 km of 33 kV and 76 T1i of11 kV lines. The other two regions, Mid Western and Far Western, had acombined demand of only 3.1 MW in 1983. This isolated network consists of85 km of 33 kV lines and 52 km of 11 kV lines connected to small hydros,diesels and supply from India. The grid system is being extended to inter-connect the Eastern region with ADB financing (completion is scheduled for1986). There are also plans to extent the grid westward under French and ADBassistance, which may be completed by 1987.
25. The losses in the distribution system are high; in 1983, theyamounted to 30.5 percent of generation. A study was conducted on. systemlosses by a consultant with ADB assistance. The study recommended varioussteps to check pilferage of electricity, to meter unmetered supply and torecalibrate old and defective meters. During negotiations, it was agreedthat these recommendations would be implemented in order to reduce systemlosses to a level of 24 percent by 1986 and 18 percent by 1991. It wasfurther agreed that the ADB-financed study would be extended under thisproject so that the Borrower could develop a comprehensive loss-reductionprogram; a copy of which would be furnished to the Association by July 15,1985 (Section 4.11, Development Credit Agreement).
26. Inadequate maintenance of the existing hydropower generating unitsand delay in their repair have been causing serious problems in Nepal. Onehydropower station (Trisuli) was reconmaended for closure by the manufacturersto facilitate urgent repair and maintenance. HMG is now aware of theseproblems and has directed the concerned agencies to acquire essential spareparts and maintenance equipment. The Borrower would submit to theAssociation by March 31, 1985, a proposal for establishing a plant main-tenance program for rehabilitating existing hydroelectric power plants inNepal (Section 4.03(b), Development Credit Agreement).
27. In spite of the underutilization of hydro-generating stations due tooperational problems and absence of an interconnecting grid system for thewhole of the country, total electricity sales in Nepal grew at an averageannual rate of 18.2 percent during 1971-78, and 11.7 percent during 1976-83.From 1978 onwards, load shedding was introduced and growth rates were there-fore affected. A load forecast was prepared in 1981 by the Water and EnergyCommission (WEC) based on estimated sales required for each major category ofload in each region (industry, domestic, commercial, etc.) and reviewedduring appraisal of the proposed project and updated. The forecast indicatesan increase in demand by an average of 12.8 percent per annum up to 1992.This would imply a total demand of 198 MW and 868 GWh for the integratedsystem in FY92.
Institutional Aspects
28. Electricity planning and development in Nepal are the responsibilityof the Ministry of Water Resources. Electricity development programs are
-9-
integrated into the five-year plans through the Planning Commission. HMGcreated WEC in 1976 withirL the Ministry of Water Resources to investigate andprepare plans for development of water and energy resources. However, powersector planning is in its early stages in Nepal and has been limited duringthe past years to the preparation of demand forecasts and to the identifica-tion and ranking of potential hydropower projects. Preparation of a long-term power expansion program is planned as a next step.
29. There are two principle authorities involved in the management of thepower sector in Nepal:
(a) Electricity Depart:ment (ED) of the Ministry of Water Resources; and
(b) Nepal Electricity Corporation (NEC).
30. The ED, under a Chief Engineer, is responsible for investigating,engineering, constructing and commissioning new power facilities which uponcompletion are turned over to NEC for operation. However, the constructionof major power projects like Kulekhani and the proposed MarsyangdiHydroelectric Power Project, is managed by separate development boards whichare chaired by the Minister of Water Resources. Another agency, SmallHydropower Development Board (SHDB), constructs and manages small hydropowergenerating units.
31. NEC is a government-ownied corporation responsible for generation,transmission, and distribution of electricity throughout most of the country.It is the largest entity in the power sector. NEC also takes care of routineminor distribution expansions, extends supply to new customers and is respon-sible for metering, billing and collections.
32. Currently, the Government is carrying out, with the assistancte ofconsultants, an institutional study financed by ADB. Phase I of the studyhas been completed. Based on its conclusions, ADB and 1MG signed a miemoran-dum of understanding in November 1982 to form a single entity called theNepal Electricity Authority (NEA), incorporating ED, NEC and the developmentboards. This decision, when implemented (April 30, 1985), would improveconsiderably the management and coordination of the sector (para 41).
Past Bank Experience in the Sector
33. The first Bank Group operation in the Nepal power sector was a creditof US$26.0 million approved in 1976 for the Kulekhani Hydroelectric Project(Cr. 600-NEP), followed by a supplemental credit in 1979 of US$14.8 maillion(Cr. 600-1-NEP). Project cost estimates during the 1974 appraisal amountedto US$68.0 million; however, they were subsequently revised to the uLtimateamount of US$120.8 million due to cost overruns caused mainly by designchanges arising from geological investigations subsequent to appraisal.Cofinancing was provided by OECF-Japan (US$20.3 million equivalent), UNDP(US$6.1 million equivalent), OPEC Fund (US$3.3 million equivalent), ]Kuwait
-10-
Fund (US$24.9 million equivalent), and EEC (US$3.0 million equivalent), withthe Government covering US$22.4 million. Kulekhani represented by far thelargest civil works ever undertaken in a single project in Nepal, and withthe participation of an unprecedented number of donors (five). It alsointroduced for the first time two donors (OECF-Japan and Kuwait Fund) whohave since remained important sources of development assistance to thecountry. Moreover, it offered Nepalese officials and engineers an oppor-tunity for practical experience with major civil works related to ahydropower scheme. The Association also approved in March 1984 a credit ofUS$11.0 million equivalent (SDR 10.2 million) to finance the feasibilitystudies of the Karnali (Chisapani) Multipurpose Project, which has a poten-tial generating capacity of about 3,600 MW, and th(e prefeasibility study of a dsmaller hydropower project upstream of Chisapani.
Bank Lending Goals and Strategy
34. IDA's strategy for power development in Nepal is designed to achievethe following objectives:
(a) assist HMG in the supply of power required for industrialand agricultural development as well as for domestic use;
(b) pursue, in cooperation with HMG and other Lenders, thenecessary sectoral reorganization and improved efficiencyin sector management and operations; and
(c) help upgrade local technical and managerial. capabilitiesthrough technical assistance and on-the-job and formal training.
PART IV - THE PROJECT
Project Origin
35. A team of experts from China first identified the present projectsite on the Marsyangdi River in 1966. The proposal included a run-of-riverproject with a power generating capacity of 40 MW, which was subsequentlymodified by ED to 36 MW with a shorter head. After considering estimates ofload demands by 1991 and comparing many other programs, involving alternativehydropower sites and thermal options, the Water and Energy Commission (WEC)selected this project in 1980 to be the next undertaken by Nepal. Thefeasibility study of the proposed project was prepared in 1979 by LahmeyerInternational (LI) of the Federal Republic of Germany in partnership with anAustralian firm, Snowy Mountain Engineering Corporation (SMEC). LI/SMEC alsoprovided the detailed engineering and lprepared the tender documents, withfunds for both provided by Germany. Ilt was decided to locate the projectabout 140 km downstream of the mouth of the Marsyan,gdi River (a tributary ofthe Trisuli River which drains the Gandaki basin and flows ultimately intoIndia). Because the project is a run-of-river scheme, it will not alter thedaily volume of water flow to India and, therefore, the Association is satis-
-11-
fied that the project would not adversely affect the interests of India. TheGovernment of India has not raised any objections to the proposed project.
36. Negotiations for the proposed credit were held in Washington, D.C.during April 4-13, 1984. The Kingdom of Nepal was represented by a delega-tion led by Mr. K.D. Adhikary, Secretary, Ministry of Finance. StaffAppraisal Report, No. 4422a-NEP, dated is being distributedseparately. Annex III to this report contains supplementary data relating tothe project.
Project Obiectives
37. The objectives are: (a) to meet the forecasted demand for elec-tricity in Nepal up to fiscal year 1993; and (b) to strengthen the powersector in Nepal.
Project Description
38. The project would divert through a run-of-river scheme the waters ofthe Marsyangdi River for the purpose of generating power. It is estimatedthat it would produce about 462 GWh of energy annually, and would have thefollowing components: (a) diversion works and diversion weir, with a flush-ing structure, a settling basin, and an intake structure for the headracetunnel; (b) a concrete-lined, circular headrace tunnel, plus a surge tank, asteel-lined pressure shaft, and three tailrace tunnels; (c) a semi-underground a power station; (d) provision of various hydraulic steel struc-tures and electrical and mechanical equipment for the power station as wellas (i) an outdoor 132 kV substation at Marsyangdi, (ii) extension cf theexisting 132 kV substation at Bharatpur, (iii) upgrading to 132 kV the exist-ing substation at Balaju, and (iv) extension of the local distribut:ion systemin Kathmandu, including transmission line from Balaju to Lainchaur;, (e) two132 kV transmission lines from Marsyangdi to Balaju (90 km) and to Bharatpur(40 km); and (f) training programs and facilities, technical assistance,consulting engineering, and institution building.
Implementation
39. The project would be implemented by the Marsyangdi HydroelectricDevelopment Board (MHDB) which was set up by HMG in December 1981. The Boardis headed by the Minister of Water Resources and consists of seven othermembers representing the concerned ministries. The Project Manager is theMember-Secretary of the Board. The organizational structure of the Boardincludes five divisions/sections: (a) evaluation and planning; (b) civilworks; (c) electromechanical; (d) accounts; and (e) administration, storesand procurement. The joint venture LI/SMEC would be the consulting engineerfor construction supervision. The project is expected to be comp]eted byJune 30, 1989.
-12-
Beneficiary
40. Upon completion, the project would be transferred to the NepalElectricity Authority (NEA), a new statutory corporation to be set up afterthe reorganization of the power sector, currently in process. NEA would takeover the operations of NEC, ED, and the development boards in respect of theconstruction and operation of power projects. The transfer of the MarsyangdiHydroelectric Power Plant would be made at a date not later than six monthsafter its commissioning. IDA funds used in financing these components ofthe project would be transferred to NEA as debt to be repaid to theGovernment within 30 years at 12 percent interest per annum. This interestrate was proposed in consideration of the projected inflation rate (between 7and 9 percent) and the current interest on government loans (between 11 and15 percent) for investment purposes. The foreign exchange risk would beborne by the Borrower.
41. The responsibilities of NEA would include planning, construction,operation and maintenance, billing and collection, and customer service(Section 4.14(a), Development Credit Agreement). Consultants financed by ADBare currently involved in assisting EHMG design the internal organization andoperation system of NEA. A summary outline of NEA shows four functionalunits: (a) generation and transmission; (b) distribution and customerservice; (c) rural electrification; and (d) planning, evaluation and finance.The management board of NEA would consist of about 11 members incLuding apart-time chairman supported by a full-time vice chairman. NEA would becomeoperational by April 30, 1985 (Section 4.14(a), Development Credit:Agreement). In order for NEA to self-finance a pcrtion of its capitalinvestment after covering operation expenses and debt service, it has beenagreed that NEA would not declare any dividends before the completion of theMarsyangdi project, and thereafter, on]Ly after making adequate provisions forinternal funding.
Cost and Financing Plan
42. The total project cost has been estimated at US$323.3 millionequivalent, including taxes and duties of US$15.81 million equivalent, with aforeign exchange cost of US$248.4 million (about 77 percent). The costestimates are based on mid-1984 prices and have been prepared by the consult-ing engineer after detailed investigation. These have been reviewed furtherby a panel of experts. The total cost includes, over base cost, 13.8 percentfor physical contingencies, and 16.4 percent for price contingencies. Theprice contingencies for foreign costs are estimated at 7.7 percent in 1984;7.2 percent, 1985; 6.5 percent, 1986; and 6.0 percent, 1987 and thereafter.For local costs, these are estimated at 9.0 percent: in 1984; 8.0 percent, 4
1985; 7.0 percent, 1986, and 6.0 percent, 1987 and thereafter.
43. Project cofinancing arrangements on a parallel basis are being final-ized by the Government. These were discussed in a meeting of cofillancers inParis in October 1983 and at negotiations. The IDA credit of US$107.0 mil-
-13-
lion equivalent would cover about 33 percent of the total cost including
taxes and duties, and about 43 percent of the foreign exchange cost. TheSaudi Fund would contribute Saudi riyals 86.0 million (US$25.0 millionequivalent); the Kuwait Fund, Kuwaiti dinars 6.0 million (US$21.0 millionequivalent); and KfW, Deutsche Mark 186.3 million (US$74.5 millionequivalent). Out of the remaining US$95.8 million, EMG is seeking to financeunder a separate arrangetment with external sources8 including ADB, the trans-mission lines (about US$10.5 million), plus secure additional funding to meet
the total cost of one of the t:wo civil works packages (Lot I; para 45). HMGwould be responsible for any remaining amounts. The effectiveness of theKuwait Fund, Saudi Fund and KfW financing agreements as well as the securingby the Borrower of any additional financing required to meet the tol:al costof Lot I would be a condition of effectiveness of the IDA credit (Section6.01, Development Credit Agreement).
Procurement
44. The following table shows the procurement arrangements:
Procurement Method(US$ million) Total
Project Element ICB LCB Other A! NA Cost
Preliminary Works(including LandAcquisition) - 5.33 0.40 0.22 b/ 5.95Administrative Expenditure - - - 3.81 3.81Civil Works, Lot I 74.77 - - 3.96 b/ 78.73Civil Works, Lot II 129.24 - - 6.84 b/ 136.08
323.31/a Tied procurement and consulting services.Lb Local duties and taxes payable by HMG.|c Figures in parentheses show amounts financed by the IDA credit.
45. Preliminary works consisting of offices, residences, water supply and
electricity at the project site (US$5.7 million) are already being executedwith the funds provided by HMG. This includes US$0.4 million which is the
-14-
estimated compensation cost for land acquisition. Administrative expenditureconsists of the salary and other incidental expenses of staff of MEDB andwould be financed by HMG. Civil works have been split into two lots. Thecosts of Lot I, consisting of the diversion weir, flushing structure, intakestructure, diversion works and site installation is estimated at US$74.8million, out of which about US$60.5 million represents the foreign cost. TheSaudi Fund and Kuwait Fund would cofinance about US$45.0 million of the costof Lot I. Cofinancing for the remainting portion wrould be arranged by 1MG(Section 6.01(d), Development Credit Agreement).
46. IDA will finance the foreign cost of Lot II estimated at US$101.2million, consisting mainly of the headrace tunnel and pressure shaft. Thetotal cost of Lot II is US$129.2 million. The coD,tract would be awarded onthe basis of ICB in accordance with the Association-'s procurement guidelines.The foreign and local cost of equipment (hydraulic steel structures, mechani-cal equipment and electrical equipment) is estimated at US$56.6 million, ofwhich the foreign portion is US$51.4 million. All of the foreign portion andpart of local cost, amounting to US$54.6 million, would be financed by KfW.KfW would also finance the total cost of the substations and localdistribution, which is estimated at US$12.6 million. The contracts will beawarded after inviting bids from suppliers within the Federal Republic ofGermany. HMG is arranging funds from external sou:rces, including ADB, forthe transmission lines, estimated at a total cost of US$10.5 million. Thefees of the consulting engineer, amounting to US$9.3 million, will be sharedby KfW (US$7.3 million), IDA (US$1.0 million), the Saudi Fund (US$0.5million) and the Kuwait Fund (US$0.5 million). The components of technicalassistance consisting of the panel of experts fees (IJS$1.3 million), the costof the catchment management plan (US$0.3 million), a power sector trainingprogram (US$3.2 million), and supervision of a loss reduction program (US$0.1million) will be financed by IDA in accordance withL IDA guidelines.
47. The bidders for civil works financed under IDA assistance aLre in theprocess of being prequalified. A price preference of 7.5 percent will begiven to local contractors. The design and technical specifications to beincorporated in the bidding documents have been prepared by the consultingengineer and reviewed by the panel of experts. It is estimated that thebidding documents for civil works will be ready for issue by June 1984.
Disbursement
48. The proposed IDA credit would finance 100 percent of the foreignexchange cost of the civil works Lot II, and 100 percent of the foreignexchange cost of the panel of experts, training, catchment management plan,and supervision of system loss reduction program ancl about 11 percent (withthe Saudi Fund, Kuwait Fund, and KfW sharing the remaining percentage) of thecost of the consulting engineer. The disbursement would be completed over asix-year period.
-15-
Training
49. The project provides for training to upgrade staff for the operal:ionand maintenance of the power system in Nepal. This would be provided througha training center which would be established under the project. IDA wou:Ldprovide the foreign exchange cost of the center (US$3.2 million equivalent).Although the training program would be designed mainly for technicians, therewould be scope for training financial and commercial staff as well as provid-ing refresher courses for engineers. An action plan for staffing and operat-ing the training center involving the appointment of a training coordinat:orand the retention of training consultants has been agreed with HMG(Section 3.05, Development Credit Agreement).
Tariffs
50. Compared to the estimated long-run marginal cost of supply(NRs 2.50/kWh), the present tariff (averaging NRs 0.81/kWh or US$0.052/kWh)has been underpricing the service. Increases in the tariff levels andrestructuring of the tariff schedules, taking into account the marginal costwithin consumer categories (aud their willingness and ability to pay), areneeded to achieve appropriate financial targets.
51. The earnings covenant under Kulekhani I Project (Cr. 600-NEP asamended) approved in December 1975 stipulated that the revenues of NEC besufficient to earn an annual rate of return of 6 percent by 1983 on averagenet fixed assets in operation. Due, inter alia, to delay in the implementa-tion of the project, NEC has not been able to date to achieve this rate ofreturn, even though HMO implemented a tariff increase of 56 percent in August1983 which raised the average tariff from NRs 0.52/kWh to the current averageof NRs 0.81/kWh. Under the proposed project the Borrower would take allaction necessary, including increasing NEC's current tariffs, to provide NECwith revenue sufficient to produce an annual rate of return on the value ofNEC's average net fixed assets in operation of not less than 5 percent byfiscal year 1985; 5.4 percent, FY86; and 6 percent, FY87 and thereafter(Section 4.06(a), Development Credit Agreement). The Borrower would alsoreview annually NEC's tariffs and, as necessary, revise them to ensure theagreed rate of return. Moreover, the Government will increase tariffs by anaverage of 65 percent by not later than November 30, 1984.
Government Arrears
52. Outstanding payments from government departments and agencies onelectricity bills due to NEC amounted to about NRs 12.8 million at the endof FY83. HMG has confirmed payment to NEC of NRs 4.4 million against totaloutstanding electricity bills to HMG departments and agencies. HMG has a:Lsodeposited NRs 3.8 million into an electricity arrears settlement account forstreet lighting. A determination of the amount owed for street lightingwould be made by July 15, 1984. The amount so determined, which may be morethan NRs 3.8 million, would be paid by August 15, 1984. The Borrower would
-16-
furnish to the Association by March 31, 1985, a proposal of methods andprocedures to be implemented to ensure the timely payment of future elec-tricity bills by all government departments and agencies (Section 4.10(a),Development Credit Agreement).
Benefits and Justification
53. According to current estimates, demand for electricity is expected togrow at a rate of about 13 percent per annum resulting in a system demand of160 MW by FY89. Compared to this demand, capacity presently installed andunder construction would be 142 MW by that time. Unless additional gener-ating capacity is created, it would seriously affect development of trade andindustry, irrigation, as well as service to domestic consumers. Industrialdemand for electricity is estimated to grow at an annual rate of about 16percent; demands for domestic and commercial consumption are estimated togrow at average annual rates of 6 and 15 percent, respectively. In addition,from a small base, demand for electricity to operate all the ongoing andprospective irrigation projects is estimated to grow at a rate of more than30 percent per annum
54. The additional power generation from the proposed project would help,Nepal to realize the potential from past, as well as prospective,investments. It would avoid investments in thermal power generation andexploit one of the country's major indigenous sources of energy. The heavycost of imported fuel for thermal generation could cause a severe strain onthe country's balance-of-payments.
55. This project is in line with the objectives of Nepal to meet a partof its energy demand over the next years through the construction ofhydropower generating stations. The project would also further Nepal'sefforts to train its engineers and technical staff to handle the constructionand management of hydropower plants in the future.
56. The project is the least--cost solution based on the consideration offour alternative programs for power development consisting of a mix of hydroprojects, coal-fired thermal, low-speed diesel and gas turbines to meet asystem demand of 391 MW by 2000. Various options of the proposed projectvarying the installed capacity (from 50 to 101) MW) have also been examined.The proposed project remains the most economically designed option. On thebasis of the proposed tariff, an internal rate of return for the project hasbeen estimated at 5.9 percent. Ak sensitivity analysis on the basis ofincreasing benefits by 10 percent raises the rate of return to 6.4 percent.A similar analysis by decreasing benefits by 10 percent or by deferring theproject by one year shows a rate of return of around 5.5 percent. The trueeconomic rate of return would be significantly higher if all benefits couldbe quantified such as willingness to pay of all types of consumers andincreased system reliability.
-17-
Risks
57. The risks involved in the execution of the project relate to possibledeficiencies in design and construction, poor project management, inadequatesupply of essential items, and cost overruns. The appointment of a panel ofexperts to review design and construction, the supervision of claims, theappropriate provision of physical contingencies, and the adequate staffing ofMHDB with close assistance from the consulting engineer would help prevent orcertainly minimize these risks. Steps would also be taken by the contractorsand suppliers to insure physical works and equipment against physical hazardsand other risks during handling and construction.
PART V - LEGAL INSTRUMENTS AND AUTHORITY
58. The draft Development Credit Agreement between the Kingdom of Nepaland the Association, and the Recommendation of the Comittee provided for inArticle V, Section ltd) of the Articles of Agreement are being distributed tothe Executive Directors separately. Special conditions of the project arelisted in Section III of Annex III.
59. I am satisfied that the proposed Credit would comply with theArticles of Agreement of the Association.
PART VI - RECOMMENDATION
60. I recommend that the Executive Directors approve the proposed Credit.
A. W. ClausenPresident
By Ernest Stern
AttachmentsMay 3, 1984Washington, D.C.
*18-ANNEX IPa2e 1 of 5
T A B L . IA
NEPAL - SOCIAL INDICATORS DATA SHEETNEPAL REFERENCE GROUPS (WEIGHTED AVERAGES) /a
MOST (MOST RECENT ESTIMATE) lb
lb_ lb RECENT /b LOW INCOME MIDDLE INCOME19601-1 1970- ESTIMATE- ASIA L PAClFIC ASIA & PACIFIC
ARA (THOUSAD SQ. CH)TOTAL 140.8 140.8 140.8AGRICULTURAL 35.3 36.8 41.2
/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among theindicators depends on availability of datta and is not uniform.
/b Unless otherwise noted, 'Data for 1960" refer to any year between 1959 and 1961; "Data for 1970" between 1969 and1971; and data for "Most Recent Estimate' between 1979 and 1981.
/c Estimated annual growth rate for 1972-79 is 2.6%; /d 1978; /e 1977; /f Government program only; /g 1976; /h 1975;/1 Personnel in government services only; /L 1963.
May 1983
-20- ANNEX I
DEFfINITIONS OF SOCIAL INDICATORS Page 3 of 5Notes: Although the date ac feo fra entrees geerity judgd teNs a"the.t.l... n re ir ftI should aist be totd chat they osy ttbe i.t rt-io.lly
desarb St oder Iu f _egottode, indit-ae trea,cd c~raterfei. t-raf sjo dif bre yuet- cocdtetries.I. t.j., f~
Thn e etrgcp r 1 e eae cntr.. y gr..rp of she e-bject.. coutry aod Cl totygru ih s-echat higher -o-rae luts staecosr ge_p f hsujc otr' ecp o High Itee- Il nnt"grouy ster "riddle Incm oc Adrico cod Middle at is chose hecaus of a eeeoeelaaaf ftte) otereere ropdt h aSi ra.a..e poui t aghord arithsettc seats for -h letso td shon noly abet _ajoity of she e tasrle is
snetelsed n eeitttogunyrage n nee todictor to - tthgee Ths erge rfoy oflf Penpttng the name1 of ne- td Lea r _t a_ie shfeety nreestee grte.lt -g
i9i sdloodeo.foiatcydrrrnte'e:eIdPpuutoIdaiedb fasero prciont e Itioa sioeo arciuo ceue Pepearl orA- asl -- atle etA"~ i fsIhc grauae torsos aso-.,gane :Jrses, peties tose and
tro,19198and int dc.b a.Iti fes ore ptysaola_.. tstob.Itsm s teasid lng peinlpll ttsdia
.r..y.egy .ca ..d Ilgle, petrleu, nausa gae ood hdro- e1ei0a aselfeen iot-s,edle t. at fe upten-eaaina190 Ty, o 19f data.t ceb.At osin Inlulde -AnpioeL. alenea hospItals. ad tss
Mhoslt n dea r oa1hpti sod sdisa end hocer lcyseee
tota PER roIAtlo et-tar(Soueoo - do of dopie iiti196-1a .Ifyf, acEi ifI -dtslnry, ir Acetbl bed 1~- ft nenher of dmIsIos orpiather1dote,I, feo.. hcsphidtasIdiduldkodUby the- ounbee) nt,J. bode.e.ff
as 0eennor_r III dAl,. by7,adi6 at.Aeaefe ofA hosehol tee_a-n pee_ha od)i-toal nrheL, asd radceSPoculattue Projettleon ~~~~- A Ittshl - oussttagtpu SodioldoaRo mtto skate l.ivin qertr
hnr.Th eatre o fsrih I_yroe ls hotsihree eFelso-tcctied artsId sue.. deln. nfetlit .oe c o.coelnlod otfei detect..to ti-sotrie beP (ee eeofdoe l Itc)-sa.ubnnerrl
T cooPieloti-n ofidrsti- en -etlr trns o pfrJjocit1960 1 o97e0,e otl ubn and1981 at- den TtI logs rIsecIfeydi-.g
'Ipt"aco P teIP riloe nte ai fth ejce chaactr- rhsryech-nfo-ag tppuato-I top-p- nomdr bldec ad6l
fsrnlllycatecc Id,ooeot-lee ..... t.lse Ithu77orsa edollineentlsc sayd esedlI ees
popolaLo cte il beilt rechd Scodotuenld- ttl sl n Treat-lis.-Cmetda shoes; sosssdry-
Pe n _h.f _ _-ycrpcootocfe q. r kiloy'h sense. fIO hearsoft- pennidro. derrl,otatoel_ taty her trlocg q_ I Isrnseefeegtotal area idfo SIC,' and fSISIduto. _ poptt_a usualyIf ofI -b 11. to1) yearshg ofag;p- resodiue-ees r
d-pluloh.t; h p- . tl,l~ i i-A-, 1III an 991 dna.PuII-teachr cat2in - meisry and feon1ar -GIs.tel cede e entaile f Is
poae p.p..t.. foe 9f..... .SCi, rod 197-Aly.Z t .. .respondin lnIs,1 g.. . '.I -l..I . Ii
popolainet or iMO-bOti_be-IS, e andiS I-fi ah -e pIcena. f oaleyi p-hA1a -Itoae 1yar e vrtradeS-ei Sthe p.per thnsa- Ij - y- 2000 ln birtIhs pee I th ad- of- rId-h ?.edftdfh ~Ih fpi-
hertoea r irdclol peidib e I epretsIreethg-peiihadokcere Seestbooat ropodas-eo - Al tpe dfreeier fee. rdIy
tybl.II.lD,-edecttereis- tnecle n f it pear. If pn regiscaisedel
sl asie I'l ee97 ic 198e age. Vru_p.teardea lotouluccu (un.thosan If oe.i.tino) -V hes th aeregptoo nei SlItIO It - e14 y.-t .- kic,-'dully AeItea ..nteres.t net ppr~dftdsproia
PIPdroo foo Prdc o prlp u 6-1111-ldtufpralzabinct Ccohtelpr.ar. e ree prggenra nes.h i-tOseosdere.dnontuipeudocelot otilfoodeosaodotle . -t--ugtlna fcl desodedni"airi-t perutietfercIsf ek
64 tscra d ufslo)shctreiibi ,d cntinI y -s eg.tlyhtesi durne h pIfr lootodlryIg tudeelocto net nme ncolt soiAol tea are encluded). aAggrlgepr prudoctiun-ofdetch-country-it sohtleunitI.
based on canlocaf orerugo penducec pctceos ightoli; d.d bi-Ib, 197t7,hcotI1981
PPee -capit supply of teIes-t (ce te1o -ofcfi-enegco) IfCsp ted Oco - Itliab r Perjhooot-frnmoIclepres slde re
q'uantit ies I use So fpet I Prcesing -an luse -e isebonIos ,b .Iteslei oCeet selbrteespretg fstllbefres uIirenene e.rr 19t50st0d byPAbsd uc0-1 phcnlgca edsfr oe egtoioele rt) -t abo focce cc. fgsed ,frsr, as n
ugsan sc datibi nn f_ opla inn ad..h piotcgi percen ~fo aenoc- blettiiceeI ao lceisitg oetatos,mnfetr
oar ,-p,If od e d i.df jet :nu ply f fedt is e-e aa-about. Rdticipati-s Saeperost os,sl,odfml AapsettyppaIn oniI'otll ce u allyceti-es eth g-be by TIgc pnIde fo itoo c 190es 1-1 teeaecmoe ntti sale sod pI sale eerfrI
p9ulerpoen. focc Egasco fh nelpoeo hu Info AI, t 91doe he atei hosed on ieIpars ItIpatIf sdc..ntstai d se ie hn.hseo 75.. - grssoI itl rtenco.-drterflcin -e-tetntrotoeof thfpo-Ietio,y ar beg timebl treed.
thrdf el rodSuny 191-b I IfE end i9A ldau fsco i.. g-tono t.. erntt .Sno ypoetncludeii n Ahndeed
date, I~~~~~~~~~~~TVi _i--TcnIphrth- dTvt.i I td.ttCh.ild orei-A .. sactU tare t(e thounand) -,,onuI d h per .th.uled c"I'cncgepllan mosI (er "In cshso hnd - beceind byTV bs
ud btrtd 196f ifI an-d- 1961 d-sa . .tehocidit nA inerrteln censt--rII le-osuthen. h -,lI
uccootaulocte nater sochatthat free pene--dboeol, a .p-ig, e IIurTel e=rlasot- puchr-yinoe re E hc ncrly-tird of-neag perlcaita
ftnhossehtnengyohetethcranobsacs otre etatsrcaaocoleA ItcPoetytee-ol) oet t-rshnas.t-clrol. ocean- r-pciabe dcccnu.. ini httehotnf codorl-Prstof...to uhs o tslsh e eslc
nebsnothhonooddtnbertspoddopnpctni teerathe day in fth t....g tIs fe- y ks 'ea_ter ed. de .... 2d,lgZ d"9t
Money and Quasi Money 4,512 5,285 6,308 7,459 8,780Bank Credit to Government 1,176 1,362 1,357 2,132 3,185Bank Credit to Public Enterprises 436 501 668 618 981Bank Credit to Private Sector 1,976 2,547 3,231 3,363 3,717
Money and Quasi Money as % of GDP 20.3 22.6 21.7 22.9 24.2General Price Index (1974/75 = 100) 116.6 125.5 148.0 159.7 180.5
Annual Percentage Changes in:General Price Index 10.0 7.6 17.9 7.9 13.0Bank Credit to Government 21.8 15.8 -0.4 57.1 49.4Bank Credit to Public Enterprises 24.3 14.9 33.3 -7.5 58.7Bank Credit to Private Sector 24.3 28.9 26.9 4.1 10.5
Note: All conversions to US dollars in this table are at the average exchange rate prevailingduring the period covered.
a/ World Development Report 1983.b/ Total labor force; unemployed are allocated to sector of their normal occupation.cl Includes mining, manufacturing, construction and utilities.
.. not available
-22-
AŽNNEX IPage 5 of 5
TRADE PAYMENTS AND CAPITAL FLOWS
BALANCE OF PAYMENTS MERCHANDISE EXPORTS 1981182 b/
From October 1975 From March 20, 1978 From September 19, 1981 From December 17, 1982Through October 1975 to March 20, 1978 to Se tember 18, 1981 to December 16. 1982 to May 31. 1983US$1.00 NRs 10.56 US$1.00 = NRs 12.5 USN.O = NRs 12.00 US$1.00 = NRs 13.2 US$1.00 = NRs 14.3
NR 1.00 us$ 0.095 NR 1.00 = US$ 0.08 NR 1.00 = uS$ 0.083 NR 1.00 = uS$ 0.076 NR 1.00 = uS$ 0.070
a/ Estimateb/ Customs basis.c/ Payments basis.d/ Ratio of Debt Service to Exports of Goods and Services.e! Since June 1, 1983, the Nepal Rastra Bank announces the exchange rate daily,
based on a trade-weighted basket, with the US dollar as the interventioncurrency. The rate shown here is the mid-rate on the date indicated.
not applicablenot available
South Asia Programs DepartmentApril 9, 1984
- 23 - ANNEX IIPage 1 of 2
STATUS OF BANK GROUI? OPERATIONS IN NEPAL
A. STATEENT OF IDA CREDITS (as of March 31, 1984) /a
US$ million(net of canceLlations)
No. Year Borrower Purpose IDA UndiLsbursed
Eight credits fully disbursed 71.3470 1974 Kingdom of Nepal Wiater Supply and Sewerage 11.8 1.3617 1976 Kingdom of Nepal Rural Development 8.0 0.2659 1976 Kingdom of Nepal Technical Assistance 3.0 (.1704 1977 Kingdom of Nepal Second Water Supply & Sewerage 8.0 2.3705 1977 Kingdom of Nepal Industirial Dev. Corporation 4.0 0.8730 1977 Kingdom of Nepal Second Highway 17.0 2.5772 1978 Kingdom of Nepal Techn:ical Education 5.7 2.5799 1978 Kingdom of Nepal Telecommunications III 14.5 5.3812 1978 Kingdom of Nepal Irrigation (Sunsari-Morang) 30.0 17.1856 1978 Kingdom of Nepal Irrigation (Narayani Zone) 14.0 6.8939 1979 Kingdom of Nepal Second Rural Development 11.0 9.71008 1980 Kingdom of Nepal Community Forestry 17.0 15.81055 1980 Kingdom of Nepal Irrigation (Mahakali) 16.0 14.31059 1980 Kingdom of Nepal Third Water Supply & Sewerage 27.0 1,7.11062Ia 1980 Kingdom of Nepal Grain Storage 6.2 4.61093/Le 1981 Kingdom of Nepal Irrig.ation (Babai) 3.5 0.51100/c 1981 Kingdom of Nepal Agricultural Extension & Res. 17.5 13.0il0Ic 1981 Kingdom of Nepal Hill Food Production 8.0 5.71191Lc 1982 Kingdom of Nepal Cottage & Small Industries 6.5 5.21198/c 1982 Kingdom of Nepal Second Education 14.3 12.41260/c 1982 Kingdom of Nepal Petroleum Exploration Promotion 9.2 6.41316/c 1983 Kingdom of Nepal Irrigation VII-Bhairawa-Lumbini 16.0 15.11339/c 1983 Kingdom of Nepal Cash Crop Development Project 6.0 5.91379/c 1983 Kingdom of Nepal Second Technical Assistance
Project 6.0 5.91400Lc 1983 Kingdom of Nepal Second Forestry Project 18.0 7.714524d 1984 Kingdom of Nepal Karnali Preparation Project
(Phiase I) 11.0 11L.0Total, 380.5 194.2of which has been repaid 0.3
Total now outstanding /b 380.2Total now held by IDA 380.2Total Undisbursed 194.2
La No Bank loans have been made to Nepal.r /b Prior to exchange adjustments.
ic IDA 6th Replenishment Credits, principal amounts shown in U.S. dollarequivalent at date of negotiations, as shown in President Reports, andDisbursed amounts shown in US dollar equivalent at the rate of exchangefor the SDR on March 31, 1984.
/d Not yet effective.
-2 4 -ANNEX IIPage 2 of 2
B. STATEMENT OF IFC INVESTMENT (as of March 31, 1984)
Amount ($ millions)Year Obligor Type of Business Loan Equity Total
1975 Soaltee Hotel (Pvt) Ltd. Hotel 2.7 0.4 3.1.
1982 Nepal Orind Magnesite Mine and process 5.6 - 5.6(Private) Limited magnesite ore 8.3 0.4 8.7
Total commitments now held by IFC 7.9 0.4 8.3
-25--
ANNEX IIIPage 1 of 2
NEPAL
MARSYANGDI HYDROELECTRIC POWER PROJECT
Supplementarv Data Sheet
Section I: Timetable of Key Events
(a) Time taken to prepare the project: Four years
(b) The agency whtch has prepared Ministry of Water Resourcesthe project: with assistance from Lahmeyer
International (Federal Republicof Germany) and Snowy MountainEngineering Corporation (Australia).
(c) Date of first mission toconsider the project: February 1980
(d) Date of departure of the appraisal October 1982mission:
(e) Date of completion of negotiations: April 1.3, 1984
(f) Planned date of effectiveness: October 1984
Section II: Special IDA Implementation Action
None
Section III: Special Conditions
(a) Borrower to submit to the Association by July 1I, 1985, a programfor achieving a reduction in electricity losses (para 25).
(b) Borrower to furnish to t:he Association by March 31, 1985 a proposalfor a plant maintenance program (para 26).
r (c) Borrower to restrict declaration of dividends and to establish anAenable the Nepal Electricity Authority to begin operations byApril 30, 1985 (para 41).
(d) The effectiveness of the financing agreements of the co-financiers aswell as the securing by the Borrower of any additional financingrequired for Lot I (para 43; condition of effectiveness).
-26-
ANNEX IIIPage 2 of 2
(e) Carrying out of action plan for staffing and operating the trainingcenter (para 49).
(f) Borrower to take all necessary action, including tariff increase, toachieve the agreed rates of return (para 51).
(g) Borrower to develop and implement proposal of methods and proceduresto ensure timely payment of future electricity bills by all governmentdepartments and agencies (para 52).
{R. r-, ̂ ~~~~~~~~~~~~~~~~~N E P A L
,? ~~~~~-) ( ~~~~~~~- ~MARSYANGDI HYDROELECTRIC POWER PROJECT
-30'
PRSETI PROEC Co' '
UNDER EING30'-
,<</ / t<-> 2 >'< g (\ ~~~~~~~~~~ ~~C H I N A 0 M iajor hydro power stations
