A NATIONAL TRANSPORT SYSTEM FOR

Including an Investment Program for the Third Plan 1965/66-1969/70 Public Disclosure Authorized

(In three volumes) U N N-38 VOL. 2

VOLUME II

Public Disclosure Authorized SUPPORTING TECHNICAL PAPERS AND DISCUSSIONS Used as Background In Preparing the Transport Plan Public Disclosure Authorized

Report of a Mission organized by the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT at the request of THE GOVERNMENT OF NEPAL Public Disclosure Authorized

Washington, D. C. June 1965 CURRENCY EQUIVALENTS

U.S. $1 NRs 7.619 NRs 1 = U.S. $. 131Z5 TABLE CF CONTENTS

Volume II. Supporting TechnJical-lPapers and Discussions

Page No.

Chapter 4 Background and Trends in the Economy 82

A. Geographical Features and Climate 82 B. Population 83 C. National Income 83 D. Agriculture 85 Present Pattern 85 Future Potentials 86 E. Forestry 92 F. Industry 95 G. Power 96 H. Tourism 97 I. Minerals 98 J. Direction of Trade and Location of Markets 99 K. Internal and External Finance 101 Public Finance 101 External Trade and Payments 102 External Reserves and Debt Position 103

Chapter 5 A Summary of Economic Activity, Transport Needs and Transport Plans by Geographical- Engineering Areas 105

A. The Ilam Area 105 Economic Features 105 Communications 105 Objectives 107 Master Plan 107 Five-Year Plan 107 B. The Arun-Tamar Basins 108 Economic Features 108 Communications 109 Objectives 109 Master Plan 109 Five-Year Plan 110 C. The Sun Kosi Basin 110 Economic Features 110 Communications ill Objectives 111 Master Plan 111 Five-Year Plan 112 Page No.

D. The Far Eastern 112 Economic Features 112 Communications 113 Objectives 114 Master Plan 114 Five-Year Plan 115 E. The Central Network 116 Economic Features 116 Communications 118 Objectives 119 Master Plan 119 Five-Year Plan 120 F. The Eastern Terai 121 Economic Features 121 Communications 122 Objectives 123 Master Plan 123 Five-Year Plan 124 G. The Gandak Area 125 Economic Features 125 Communications 126 Master Plan 127 Five-Year Plan 128 H. The Western Terai 128 Economic Features 128 Cormmunications 130 Objectives 131 Master Plan 131 Five-Year Plan 131 I. The Piuthan-Sallyan Area 132 Economic Features 132 Communications 134 Objectives 134 Master Plan 135 Five-Year Plan 135 J. The Karnali Area 135 Economic Features 135 Communications 137 Objectives 137 Master Plan 138 Five-Year Plan 138 K. The Dandeldhura- Area 138 Economic Features 138 Communications 140 Objectives 140 Master Plan 141 Five-Year Plan 141 Page No.

L. The Far Western Terai 141 Econoriic Features 141 Communications 143 Objectives 144 Master Plan 144 Five-Year Plan 145

Chapter 6 Technical and Economic Paers in of Road Plan 146

A. Definitions 146 B. Various Types and Construction Cost of Roads to be Built in Nepal 146 General 146 Specific 147 (a) Low Terai Area 148 (b) Foothill Area 149 (c) Midd'Le Terai Area 151 (d) Valley 151 (e) Hill Area 152 C. Cost of Road Maintenance 154 Unit Cost of Road Maintenance 154 Maintenance Cost of the National Highway System during and after the Third Plan 154 D. The Kinds and Costs of Road Studies 156 Feasibility Studies 156 Engineering Design and Tender Documents 156 E. Detailed Program for Feasibility Studies and Construction Projects within the Third Plan Period 157 F. Consequences of Construction of Highways on the Total Cost of Transportation 159 Roads in the Terai 159 Roads in the Hills 161 (a) Dhankuta to the Road 161 (b) Narayanghat-Bandipur-Cheppeghat Road 162 (c) Bhairawa to 163 (d) Krishnagar-Piuthar. Road 164 G. Impact of Road Construction on the Budget and Foreign Exchange Situation 165 Consequence on the Budget 165 Consequence on the Foreign Exchange Position 166 - iv -

Page No.

Chapter 7 Proposals for Strengthlening of the Road Department 167

A. General Organization of the Proposed Road Authority 167 B. Investment Required for the Strengthening of the Road Department 173 C. Annual Operating Costs of Road. Authority 176

Chapter 8 Technical and Economic Papers in Support of the Railway Plan 177

The Birganj.-Hitaura Corridor 178 The Basic Problem 179

Chapter 9 Technical Papers in Support of the Air Tralsport Plan 188

A. Airports 188 B. Airport Design Considerations 189 C. A Master Plan for Airports 191 Bhairawa 191 Bhadrapur 192 Bharatpur 192 193 Dang 195 Dhangarhi 196 196 197 Kathmandu (Gaucher Field) 197 Nepalganj 199 Pokhara 201 Silgarhi-Doti 201 Simra 201 Tumlingtar 202 D. Navigation Aids 204 E. Mleteorology 205 F. Summary 207

Chapter 10 Details of the Strengthening of the Organization of Royal Nepal Air Lines 208

A. Organization 208 B. Flight Operations 212 Flight Staff 213 Page No.

C. RNAC Operating Costs 214 D. Aircraft Maintenance 218 E. Traffic and Sales 220 Routes 223 Scheduling 225 Reservations and Space Control 227 Fares and Charges 228 Advertising Promotion 229 F. Financial Needs and Accounting Practices 231 Financial Needs 231 Accounting Practices 235 G. Aircraft Selection 236 Chapter 4 BACKGROUND AND TRENDS IN THE ECONOMY

A. Geographical Features and Climate

1. Taking all factors into consideration it is apparent that nature has interposed some major obstacles to the provision of an adequate trans- portation network in Nepal.

2. Some of the geographical and climatic features which have impli- cations for the development of transport in Nepal are the following:

Nepal is a land-locked country, with some of the most rugged and difficult mountainous terrain in the world.

Topographically the country divides into three principal river basins: 1) the Kosi, 2) the Gandak, and 3) the Karnali. There are also a few lesser basins. Generally these basins run north and south. Crossing these basins are five main longitudinal belts: 1) the "Terai," which is low, flat, fertile land adjacent to the border of ; 2) the forested foothills ranging from the Terai to about 1,000 ft. eleva- tion; 3) the rugged Siwalik and Mahabarat mountain ranges, rising up to 10,000 ft., referred to as "the Hills" between which are some valleys, called the "Inner Terai"; 4) the mountainous area between the Mahabarat range and the which is formed by the valleys of the great Himalayan rivers and their tributaries which are often narrow with steep slopes; and 5) the main Himalayan mountain range, rising to 29,000 ft. In the Terai, due to the low slope of the land and heavy water flow during the wet season, some rivers have a tendency to shift their beds. There is wide variation in water depth during flood season.

The climate ranges from the sub-tropical in the Terai to arctic in the Himalayas. More than 80 per cent of the rainfall occurs during the monsoon season (see Table A-4). The monsoon season extends for a four-month period from June to early October and is a dominating factor from the point of view of air and road transportation. - 83 - B. Population

3. A census in 1961 estimated total population at 9.4 million (Table A-1). The population is almost entirely rural, with only 3 per cent living in urban areas (Table A-2).

4. Principal population concentrations are shown by the shaded areas on Map No. 3 which has been abstracted from information on the Indian survey maps. Some 59 per cent of the population lives in the Hills with 27 per cent of the cultivated land, 15 per cent lives in the with 2 per cent of the cultivated land, and 36 per cent lives in the Terai with 62 per cent of the cultivated land.

5. These concentrations reflect historic conditions and will change gradually with the developments in malaria eradication, industrializa- tion, and irrigation. Outside of Kathmandu itself, there are no major cities, though there are several smaller urban centers located in the Terai along the Indian border, and a few townships are beginning to emerge in the foothills and hill areas, where there is some concentration of new economic activity.

6. The 1961 census put the current rate of population growth at 1.6 per cent per annum. For the purpose of this report the rate of population growth 1965-69 is assumed to be 1.9 per cent, giving a 1970 population of 10.9 million, and a 2.2 per cent rate of growth from 1970-74 giving a 1975 population of 12.2 million (see Table A-3). These assumptions give a total growth of 1 million in the span of the Second Plan period, and 1.3 million in the subsequent five-year period. It is assumed that a large part of the 1965-69 population increase will be absorbed in the rural areas.

C. National Income

7. A very tentative official estimate placed the 1961/62 Gross Do- mestic Product (based on market prices) at NRs 3,680 million, giving a per capita income of NRs 390.4 or U.S.$51.37 (see Table B-1). The agri- cultural and forestry sectors were estimated to have contributed 63.5 per cent of the total product. Observation and comparison with neighbor- ing countries based on personal judgments indicate that even at the date of the estimate the absolute level of income may have been higher than implied by these figures. Housing standards in Nepal are generaIly better than in neighboring countries and the abject misery evident in countries with similar income levels is largely absent. It seems probable that the method of computation used, coupled with incomplete data, might have re- sulted in too low a figure for the incomes, particularly by imputing too low a value for output in the subsistence sector. - 84 -

8e There is no estimate for GNP for a more recent year. It is sig- nificant that the available indirect indicators imply some expansion in the economy during the last three years. It appears there may have been some increase in productivity in some of the older areas under cultiva- tion. New areas of development are visible in Biratnagar, the Chatra- Kosi project area, the Birganj-Hitaura corridor, the Rapti Valley, the Kathmandu Valley, and in several towns such as Janakpur, Bhairawa, Pokhara, and Nepalganj. In these developing areas there has been some expansion of industrial and agricultural output, though the full impact of recent investment is yet to come. Building construction has increased. Schooling and medical facilities have expanded. Further, the people are increasingly availing themselves of these facilities (and paying part of the cost) while at the same time paying higher taxes, and making voluntary contributions for development works.

9. There also are indications of expansion in the foreign trade and government sectors of the economy (see Tables B-2 to B-5, and B-ll to B-16). There has been a marked increase in the availability of imported textiles and other consumer goods. The actual level of exports appears substantially higher than recorded information indicates (perhaps 30 per cent or more over recorded levels) and is increasing. The Government's development expenditures, supported to a very large extent by foreign grant aid, have increased considerably. It is also significant that during this period, while national development efforts have been expanding, the reserves of the Rastra Bank have been rising as have savings deposits in commercial banks (Table B-7).

10. There are no adequate price deflators to adjust the income figures, even if reliable income estimates were available. After a period of comparative price stability, in the first months of the fiscal year 1963/64, compared with the corresponding period of 1962/63, there were marked increases in prices in many parts of the country (Tables B-9 and B-10). The largest price increases were in domestic food grains. A measure of continuing inflation can be traced to the effect of increased development expenditures, and effects of import price increases. There has, however, been a levelling off of general prices in the latter part of 1964 due to steps being taken to deal with some of the causes of the in- flationary pressure, including attempts to increase domestic food produc- tion and ease transport and distribution bottlenecks. The situation needsto be watched carefully and perhaps some monetary correctives may also have to be applied.

11. On the basis of observable evidence, there is need for a careful reappraisal of the national income estimates. This will provide a more realistic measure of present economic activity and performance upon which to base more precise projections for the future. - 85 -

D. Agriculture Present Pattern

12. Less than one-eighth of Nepal's total land area, or less than 2.0 million hectares, is under cultivation (Table C-1). A very crude estimate indicates that there is a land reserve for cultivation equalling about 8 per cent of the presently cultivated land and mainly located in the Eastern and Far Western Terai.

13. Grain is the principal crop produced in Nepal. More than 60 per cent of the cultivated land is under paddy, primarily in the Terai, and 24 per cent under maize, mainly in the Hills (Table C-2). It is estimated that wheat accounts for about 7 per cent and millet for about 6 per cent of the cultivated land. Wheat is a major crop in the Western Terai. Barley and buckwheat represent traditional crops at higher elevations. Substantial quantities of paddy and some surplus maize are sold by the cultivators in the Terai. Only small amounts of the food grain produced in the Hills are marketed.

1h. Oilseeds with an estimated area of 90,000 hectares are important as a commercial crop for the Inner Terai and to some extent for the Terai. Jute (27,000 hectares), sugar cane (7,000 hectares) and tobacco (about 2,000 hectares) are grown as cash crops in the Terai. In the Hills sugar cane is cultivated for local consumption as ghur. It is estimated that about 15,000 tons of jute are processed in Nepalese jute mills and 14,000 tons exported for processing in India. The major part of sugar cane is presently transported to Indian sugar mills located along the border. Until the completion of the Janakpur factory tobacco was sold by the cultivators to Indian factories (Table C-10).

15. Potatoes are grown in most of the regions for local consumption. On a commercial basis potatoes are cultivated in some areas of the Eastern Hills and in the Kathmandu Valley. It is estimated that about 20,000 tons are exported to India annually. Vegetables are cultivated on a larger scale for marketing in the Kathmandu Valley. In some areas of the Hills citrus fruits are produced, and about 800 tons exported to India annually. A few tea plantations exist in the easternmost part of Nepal. Many species of valuable herbs are collected in the mountain forests. Their annual export value is estimated at NRs 10 million.

16. Cattle are raised in all parts of the country (about 1.3 million in 1962). In the Terai cattle raising contributes little to agricultural production; the number of cattle kept is often excessively high in rela- tion to the fodder available. In the higher elevations where livestock raising is a main objective, more favorable fodder conditions prevail and milk production is of importance. - 86 -

17. The main livestock product is ghee (clarified butter) ranking second to food grains in the export value of agricultural products. It is estimated that about 3,000 tons of ghee are annually exported to India. A small-scale cheese-producing project has been initiated in some valleys yielding about 15 tons in 1964 out of which 40 per cent is exported to India. The only existing dairy located in Kathmandu was supplied with about 370,000 kg of milk in 1963/64 (Table C-9).

18. The sheep population of Nepal is estimated at about 1.8 million and is mainly concentrated in the mountainous regions. Sheep, wool, woolen products, goats, yak products and horses are marketed by the people of the mountains. The poultry industry on a commercial basis is at present con- fined to the Kathmandu Valley.

19. Most of the cultivated land is customarily tilled on a family basis. The average size of the family holdings in the Hills is very small ranging between 0.4 and 0.6 hectares. In the Terai the farms are larger and the size of the holdings generally increases from east to west (Table C-ll). Most of the cultivators are tenants. While tenancy appears to be pre- dominant in the Terai, the proportion of ownership in the Hills is higher. It is common practice for the tenant and the landlord to share the crop on a fifty-fifty basis.

20. In the Hills subsistence farming is predominant. In the Terai the surplus in food grains and mustard is substantial. On the whole, Nepal has at present a surplus in food grains. Production of paddy and maize was estimated at 2.9 million tons in 1961/62 (Table C-6). Including wheat and millet total food grain production is reported to be in the order of 3.2 million tons. It is assumed that approximately 2.0 million tons were available in edible form in 1961/62. Total domestic demand has been cal- culated at about 1.75 million tons. This leaves an exportable surplus of about 250,000 tons. Total export of food grain in 1960/61 was approxi- mately 175,000 tons.

21. However, there are major dislocations as to supply and demand. Periods of shortage between the harvest of the various crops occur in the Hills. At the same time substantial amounts of food grain are moved to India from the Terai. For providing the with a uniform diet it has been calculated that about 360,000 tons of food grain would have to be moved from surplus to deficit areas. Some food grains move northward from the Terai and the Hills into (Mainland China) despite shortages in the Hills. Future Potentials

22. The greatest potential for future increases in agricultural produc- tion are in the Terai and investments made in this region will yield fast- est and highest benefits. The Eastern Terai and the Western Terai ( - 87 - Zone) appear to offer the best possibilities for immediate development, and the Far Western Terai, with its difficualt problems of access is more suitable for later development.

23. Within the Terai, production increases can be achieved both by in- creasing yields of land now under cultivation and by cultivating land which is at present under low-value forests. Means for increasing the yields are irrigation, double cropping, application of improved seed and ferti- lizer. Furthermore, higher returns per land unit can be obtained by in- tensified cropping and introducing commercial crops.

24. The Agricultural Census 1960/61 shows that about one-third of the cultivated land in the Terai is irrigated in some manner (o04 million hectares). Irrigation projects constructed for permanent use exist on about 20,000 hectares and most of these are seasonal and not well main- tained, It can be assumed that Nepal will have additional irrigation facilities for about 100,000 hectares at the end of the next Five-Year Plan (Table C-16). This will result in an additional annual food grain production of about 65,ooo tons (including 15 per cent rabi crop on the irrigated area) provided efficient operation and sound maintenance of the projects can be assured. For the subsequent planning period it can be expected that it will be possible to accelerate the pace of construction of large-scale and perennial irrigation projects. A major precondition for carrying out irrigation projects is provision of transport facilities to Indian railway heads for getting the needed material to the project areas. The expected increment in agricultural produce will have either to be moved to the deficit areas in the Hills or to be exported.

25. The newly initiated wheat campaign is estimated to yield an annual increase of about 4,0oo tons at the end of the next Plan period. It is not likely to have substantial impact on transport needs since the addi- tional wheat will be consumed locaIly. Application of improved seed of food grain has shown yield increases of 20 to 25 per cent in field trials. It can be assumed that production of improved seed estimated at 300 tons at present will be tripled until the end of the next Five-Year Plan re- sulting in an additional food grain production of about 3,500 tons. A major part of this quantity is likely to be surplus which will have to be shipped.

26. Fertilizer supply is limited under the present Indian quota (plus some quantities from USSR). About 3,000 tons of ammonium sulphate equiva- lent to 600 tons pure nitrogen are shipped to Nepal. The projected area of commercial crops will require about five times of this quantity. It cannot be expected therefore that fertilizer will be available for food grain although field trials have resulted in yield increases of 20 to 25 per cent. Fertilizer application on a large scale in the Terai depends, apart from supply, on the provision of transport facilities from Indian railway heads to the cultivators. - 88 -

27. A major expansion in sugar mills is just now being completed which is increasing the country's daily crushing capacity from 200 tons to about 2,000 tons (Table C-10). Further extension by about 1,750 tons daily crushing capacity is being contemplated. This development creates urgent transport needs for moving the substantial quantities of sugar cane to the factories (about 3,700 tons per day) and the sugar to the consumer places (about 370 tons per day).

28. There are plans for expanding the jute processing capacity in Nepal. As 50 per cent of the jute produced is exported at present in unprocessed form to India the necessary jute could probably be supplied without ex- tending the area under cultivation. This shift in development is not likely to have major consequences on transport needs unless the existing potential for increasing jute production in the easternmost Terai is realized.

29. The opening of a large cigarette factory at Janakpur has created a new market for locally produced tobacco. It is estimated that a major part of the raw material needed will have to be imported from India at the initial stage of operation.

30. The Government plans to settle about 2,500 families in the Terai and Inner Terai within the next Plan period, which will result in the cul- tivation of approximately 61,500 hectares of new land, with an estimated additional food grain and mustard production of about 8,500 tons and 1,000 tons respectively.

31. In the Hill area the potentials for increasing agricultural produc- tion are much more limited. Due to the high population concentration in this region almost all land capable of cultivation is tilled. The only opportunity for increasing the cultivated land area is by cutting into standing forests, thereby aggravating erosion.

32. The most vital problem confronting the Hills is progressive de- forestation caused by overfelling due to increasing demand for cultivated land and fuel wood and by uncontrolled forest grazing because of the over- population of cattle. Devastation is aggravated by the widespread practice of forest burning and shifting cultivation. All this leads to erosion resulting in reduced yields and land losses by landslides. Thereby the food situation of the most densely populated area of Nepal becomes even more severe. This calls for proper soil conservation measures which cannot be carried out without provision of adequate transport facilities. 33. Experience proves that there is a potential for increasing yields of the main crops in the Hills. This can be accomplished by means of im- proved seed, use of minor irrigation projects, extension of double cropping and application of fertilizer. However, the means for translating these findings into widespread practice are not yet well in hand. The rough - 89 - terrain and poor transport facilities together with high transport costs restrict improved seed and fertilizer application and the movement of material for irrigation works. The inaccessibility of the region also limits agricultural extension work.

34. It can be expected that no major changes in the cropping pattern of the Hill area will take place in the near future. The increasing population pressure combined with limited possibilities of obtaining earnings outside agriculture and lack of transportation facilities, will result in a continued maximum effort to produce as much food grain as possible for subsistence. The plans of the Government to intensify agri- culture in the Hills, by extending dairying and fruit growing, will there- fore be confined to limited areas. 35. Some areas in the Hills offer favorable possibilities for extending the dairy industry. Progress has already been made in establishing the dairy enterprise in a few valleys of the Hills. The demand for dairy products on the domestic markcet and outside Nepal is high. An increase in cheese production from 15 tons at present to about 25 tons at the end of the next Five-Year Plan period is considered possible. Transport again presents a major obstacle for moving the cheese to Kathmandu and for bring- ing farm supplies into the pasture areas.

36. Physical conditions for the extension of potato cultivation, particu- larly for zeed purposes, appear also to be very favorable in some Hill areas. If adequatLe transport facilities can be provided for securing regular food grain supply at r,3asonable cost to the potato producing areas and for marketing the potatoes, a considerable expansion of potato production can be anticipated. It is estimated that the present annual export of about 20,000 tons can be increased to 25,000 tons by 1969/70.

37. There are also opportunities to grow more citrus and deciduous fruits of -iLrrovsE: quality in the Hills. The demand on the lcc>al market and in India is high. The successful development of such a soheme depends equally uporn the establishment of horticultural farms for experimentation, the production of seed stock, a sustained agricultural extension service program, and the provision of reasonably fast, low-cost transport. A rapidly inc.r.sasing fruit production is not to be expected.

38. It is asslmed that most of the increases in agricultvral production which can be achieved in the Hills will be consumed locally by the steadily growing population. Exceptions will be potatoes, fruits, cheese and ghee which will be maintained as important export products providing the people of the Hills with some income for meeting their essential needs.

39. There are several other' preconditions which apply to all of Nepal and would contribute substantially to increasing agricultural production and to improving the quality of the produce marketed. Establishing - 90 -

organized markets, combined with provision of adequate storage facilities and setting up of quality standards will result in' a) higher producer prices, giving the cultivators increased incentive; b) reducing the ex- cessively high profits of the middlemen in trade; c) decreasing the ex- traordinarily high seasonal price fluctuations; d) providing a more con- tinuous and stable supply for the domestic market; and e) taking advantage of price margins on the export market. Organization of the markets de- pends primarily on provision of transport facilities for moving large quantities of the same commodity to well-established markets and from there to consumer places. Also construction of warehouses will be facilitated by adequate transport means. In organizing the foodgrains market the position of the landlords will have to be taken into considera- tion as they presently are a principal source of the surplus which is readily available for export or sale elsewhere.

40. In particular, it is expected that establishment of an organized market for ghee, combined with setting up refineries, has great potential for yielding high and fast returns on relatively low investments. Thereby the quality of Nepalese ghee (presently very low) could be considerably improved resulting in increased foreign exchange earnings. The demand for good quality ghee in India is very high. Ghee market places require both accessibility to the Hill area and adequate communications to India.

41. Appropriate marketing procedures will assist in improving the fresh milk supply in Kathmandu Valley where most of the milk is still sold, unprocessed and diluted, directly from producer to consumer. Ex- tension of the road network in the Valley will open up new production areas, and improvement of existing roads will accelerate transport of this perishable product.

42. Relatively small investments are needed to set up an organized market for herbs, including establishment of some central collection points and extraction laboratories which have to be provided with transport fa- cilities to the export market. It is estimated that the income of the Hill people, from collecting herbs, could be raised by NRs 10 million (i.e., by 100 per cent) within a short period.

43. Establishment of agricultural processing industries is also a means for increasing output by volume and value. The needed extension of processing capacity of rice and oil mills and the modernization of the existing obsolete mills will require transport facilities both for shipping construction material and for supplying the mills with raw material.

44. Nepal is in a very favorable position inasmuch as it can dispose of almost all its surplus agricultural produce on the Indian market. Particularly the State of with its vast Calcutta market offers good possibilities for export. It is assumed that for the fore- - 91 -

seeable future any surplus quantities of paddy, rice, oilseeds and oil, potatoes, herbs, fruit, ghee, cheese and hides can be marketed in one of the adjacent Indian states at reasonable prices provided that good quality of the products can be secured. Taking into account that with the general economic development within Nepal the domestic demand will grow, no diffi- culties in marketing of the main agricultural products are to be expected.

45. Lack of adequate credit facilities presents a main obstacle to in- creasing agricultural production in Nepal. Local merchants and landlords are the only source of credit for the majority of the cultivators. Most of them are heavily indebted and have to pay exorbitant interest rates. With the establishment of the Cooperative Bank in 1963 a promising co- operative credit program has been initiated on a pilot basis. It is geared to provide the cultivators with adequate credit thereby making them independent from the traditional money-lenders and giving them in- centive to make investments for purposes which will increase agricultural production. It is intended to extend this project on the basis of super- vised farm credit. The success of this scheme will depend on the avail- ability of well-trained staff, sound administration, efficient organiza- tion and on the accessibility of the areas involved in this program.

46. Implementation of land reform has been actively started on a pilot basis in 1963 after the Agricultural Reorganization Act was enforced. Land reform under the new Land Reform Act of 1964 is planned to be extended to 16 districts and the Government apparently intends to make major efforts for carrying out this program. One of the crucial problems for implement- ing land reform in Nepal is the establishment of an efficient organization staffed with competent personnel. The efficiency of this program will also depend on the transport facilities in the areas where land reform is to be carried out.

47. The Agricultural Exrtension Service is still in its initial stage and the staff lacks experience, particularly in preparation and operation of projects which appear to be too numerous and dispersed all over the country. The efficiency of the present staff is very much restricted by lack of transport facilities. Higher benefits will be obtained from ex- tension work if Panchayat activities can be directly harnessed for this purpose.

48. It is estimated that with the expected population growth of 12.2 million in 1975 the theoretical calculated domestic food grain demand will increase from about 1.75 million tons in 1961/62 to 2.45 million tons in 1975/76, i.e., by 40 per cent. To do no more than maintain the recorded volume of exports in 1961/62 it will be necessary for food grain production in 1975/76 to increase by about 50 per cent or by 3.57 per cent annually. The Government t s target for the next Plan period is to increase food grain production by 15 per cent and production of commercial crops by 20 per cent. It is obvious that these increases cannot be obtained by small-scale - 92 -

projects, such as the present wheat campaign, or by the simple cultivation of several thousands of hectares of new land. Meeting the food require- ments of Nepal in about 10 years will require major production increases in major crops such as paddy and maize, where even a small yield increase per land unit will result in a substantial increment of total output. All efforts will be needed to enable a major technical breakthrough for in- creasing agricultural production in the future, unless the pace of Nepal's economic development is going to be reduced. Adequate transport facilities will be indispensable to enable construction of large-scale irrigation schemes, to move substantial quantities of seed and fertilizer and to facilitate an efficient extension work.

49. The Mission's assessment of the agricultural sector in Nepal is that there are substantial opportunities for growth in output. A techno- logical breakthrough appears to have been made and research and field trials give an indication of what can be done. What is called for is a more direct attack on the problems of agriculture by the planning agency and the formulation of a sectoral plan which sets the limits within which the Central Government, the Panchayats and the individual farmers can work. E. Forestry

50. About one-third of Nepal's total area is under forest, i.e., 4.6 million hectares. In spite of overfelling and poor management, this represents one of the country's most valuable resources. Being mainly government-owned it also is a major source of potential revenue. The distribution of the forests over the regions of the country is estimated to be about as follows (million hectares):

Terai and "foothills"(below 1,000 feet) 1,295 Siwaliks and lower valleys of Mahabharat range 777 (up to 4,000 feet) "Hills" (up to 8,000 feet) 2,072 Himalayan forests (8,000 to 12,000 feet) 518

Total 4

51. The forests of the Terai and "foothills" are the main source of supply of hardwood, both for domestic use and for export. This area is relatively easily accessible and transportation problems are at a minimum. The Siwaliks forests are until now of limited productive value principally because of transport difficulties in the extremely rugged terrain. In the Hill zone the remaining forests are generally restricted to small, scattered patches except in the Far Western Hills where large areas are still under valuable forests. The Himalayan forest belt, predominantly consisting of coniferous species, has a high commercial potential once it can be reached by roads. These forests are widely being destroyed by shifting cultivation and uncontrolled cutting. - 93 -

52. At present commercial felling, mainly consisting of sal wood, takes place predominantly in the Terai, Mid Inner Terai and in some parts of the "foothills." Because of lack of sawmills, the Government auctions a great portion of its timber on a stumpage basis (Table C_4). In areas where sawmills are available, the Government sells the timber on a con- tract basis. Allocations to sawmills were somewhat less than 1 million cu.ft. in 1963/64 (Table C-5). Revenues from timber sales to sawmills are estimated at about NRs 3.4 million in 1963/64. In addition, the Government is providing timber to development projects under construction. The value of these quantities in 1963/64 is estimated at NRs 5 million equivalent to about 1.0 million cu.ft. 53. Exports of forest products constitute an important source of Indian Rupees. Almost all timber sold at auctions is exported to India mostly in the form of round logs. Most of the timber sawn by mills located along the border goes directly into India. The domestic demand is generally confined to some urban areas. The sawmills of the TCN area supply the Kathmandu Valley with construction and furniture wood; reportedly 80 per cent of their output is transported into the Valley. 54. Supply of fuel wood is a crucial problem for the most densely popu- lated areas in the Hills, and is particularly serious in the Kathmandu Valley. The Government has recently organized supply and truck transport of firewood and charcoal from the TCN area to Kathmandu. The volume is rapidly increasing and amounted to about 46,ooo tons in 1963. 55. A Forest Inventory is being carried out with U.S. AID assistance, with completion scheduled for 1967/68. The results of the inventory will provide the necessary data: (i) for assessing the future possibilities for forest exploitation;

(ii) for establishing a land utilization plan on the basis of which the areas in the Terai suitable for conversion into cultivated land can be determined; and

(iii) for setting up management plans on the basis of a sustained yield principle (including planning forest roads).

56. Although supporting data about the potential for exploitation are still missing, there are indications that output of industrial timber can be increased substantially provided further encroachment of the forests is prevented and proper management carried out. At present this is im- peded by lack of transport facilities and experienced staff. - 94 - 57. Until the results of the Forest Inventory are available, a sub- stantial increase in annual output of industrial wood is not projected. However, it is contemplated, and some plans are already at an advanced stage, to extend the capacity of the processing industry for forest products. The price margin between unsawn and sawn timber is high. An increase in the export portion of sawn timber will represent a consider- able increase in export value.

58. At present only nine sawmills exist in Nepal out of which one is of major importance (Table C-5). The present capacity is inadequate. Highest priority in developing the forest industry will be given to the TCN area. The annual capacity of the Hitaura sawmill, having been ex- panded by about 300 per cent to 240,000 cu.ft. from 1963 to 1964, is planned to be finally increased to 1 million cu.ft. Establishment of three or four additional sawmill centers with a capacity in the order of 700,000 cu.ft. each and setting up plywood factories with a total ca- pacity of about 1.5 million sq.ft. are under consideration for the near future. As a target for the next 8 to 10 years it is proposed that Nepal should have 7 forest industry units covering all of the Terai, the Mid- Inner Terai and the "foothill" forests. 59. The areas of the easterrmost , the Karnali River Basin and the westernmost district of Kanchanpur, including the rich forests of the M4ahakali River Valley appear to offer good prospects for exploitation in the near future. The location of the planned processing industries is projected to be close to Indian railway heads for facili- tating the export of forest products. 60. In the Indian states adjacent to Nepal there is a good market for forest products, both for round logs and sawn timber. The demand is in- creasing. Particularly sal wood, for the production of sleepers, can be disposed of in any quantity. It is assumed that consumption on the domestic market will also grow.

61. The hauling of round logs and sawn timber in the Terai to the Indian railway heads and sawmills is still mainly by bullock carts, though trucking is being gradually introduced. In the TCN area, trucks are used for hauling the logs to the Hitaura mill on the Rapti Valley Road and transporting the sawn timber to Kathmandu and . A great portion of the firewood consumed in Kathmandu is moved by trucks over the Rajpath. However, firewood is still brought into the Kathmandu Valley by porters from distances of up to 10 to 12 miles. It is assumed that the Road will open up potential forest areas for exploitation. 62. Poor transport facilities are still a major obstacle to the ex- ploitation of the forests. Construction of suitable roads will con- tribute to extending considerably the radius of exploitation and enable improvement in forest management. However, it is not expected that the - 95 - valuable forest belt along the Himalayan range can be tapped within the next Plan period due to the technical difficulties and high costs in- volved in constructing roads to these areas.

63. Proper forest access roads will result in substantial increases in the value of standing timber in the accessible areas of the southern forest belt by lowering transport costs. East-west communications in the Terai or along the "foothills" will facilitate the movement of timber to processing industries and Indian railway heads. The Government plans to supplement the east-west roads by low-cost forest access roads in a north- south direction.

64. Very little is known so far about the possibilities of using water transport for timber. It is assumed that some of the major rivers such as the Rapti in the Far Western Terai, the Karnali and the Mahakali offer good potential for floating. However, careful investigations in this respect are needed.

65. Reforestation and afforestation of the Hill region is another matter calling for urgent solution. At present the Government's target is con- fined to the reforestation of about 1,500 acres in the Kathmandu Valley annually with quick growing species. The projected pace is much too slow to have any effect on the rapidly progressing erosion and to meet the future demand in fuel wood of the densely populated areas. Lack of ex- perienced staff, efficient organization, funds and transport facilities hamper the implementation of a large-scale reforestation program at present. Roads opening up the Hill area will greatly contribute to facilitating an efficient reforestation program. F. Industry

66. Industrial production is a small but growing segment of economic activity in Nepal. Although there are many industries in the country (Table D-1) most of these are small localized operations representing an average investment of less than NRs 100,000 each. The majority are based on the processing of agricultural products.

67. The four major instances in which there are larger units operating are in sugar mills, jute mills, woolen mill, and a cigarette factory. Output during the past three years is given in Table D-2. 68. The principal sugar factories are in Biratnagar, 200 tons/day crushing capacity; Birganj, 1,000 tons/day crushing capacity; and Bhairawa (under construction), with 750 tons/day crushing capacity. A fourth plant, with a capacity of 750 tons/day is being considered for Nepalganj.

69. There are two jute mills, both in Biratnagar, one of 36 tons/day output capacity, and the other of 16 tons/day output capacity. Both mills have tentative plans for increasing their capacity. - 96 -

70. There is one cigarette factory at Janakpur which has just started production.

71. Of thLe six larger factories listed, three are privately operated and tihree are operated by the Government. 72. There are nine operating sawmills, with five new mills plannied (Table 0-5). There are plans tio expand the capacity of the sawmill at Hitaura up to 300 per cent. There are long-range plans to increase total annual sawing capacity to 3.15 million cubic feet as compared with present capacity of about 90 million. There are also long-range plans for construction of two or more plywood factories in the Third Plan.

73. Over the whole industrial scene the larger number of enterprises are in the private rather than in the public sector. Although a large number of these are rice and oil mills, a new group of industries has come into production in recent years based on producing import-substitutes for domestic consumption. These include a textile mill, several match factor- ies, a nylon button factory, and a steel utensil factory. Others are under construction (see Table D-1). 74. A pattern of selective industrial development is taking place based on the limited capital and managerial resources available within the country. The main areas of concentration are: Biratnagar, the Birganj- Hitaura corridor, and the Kathmandu Valley. Smaller concentrations exist at Janakpur, Bhairawa and Nepalganj. With the gradual expansion in the functions of the Nepal Industrial Development Corporation, an expansion in the industrial base may be expected to occur slowly. The NIDC has hitherto been primarily screening applications and assisting existing enterprises. The number of new enterprises promoted is still small, with a concentration of investment in a few projects. The Government is exploring the possibility of promoting additional industrial enterprises, particularly cement and paper. The expectation that there would be a sizeable inflow of new private foreign capital and a repatriation of Nepalese capital invested abroad has not yet materialized, though small inflows of foreign capital have come in, primarily from India. Two pre- conditions for a further push in industrial development are availability of cheap power and trained managers and technicians. Until these pre- conditions are met, it will not be possible to force the pace of in- dustrial development. In any event, with so much else that needs to be done, it is the Mission's view that in the Government's Plan itself in- dustrial investment should be given a later priority.

G. Power

75. Presently installed and operating capacity for electric power generation is of the order of 10,000 kw., all based on diesel generator plants. Kathmandu and Biratnagar have approximately 4,000 kw. each with - 97 - the balance generated mainly in Hitaura, Birganj and Dharan. Capacity in Kathmandu will increase by another 6,800 kw. during 1965.

76. In the coming Five-Year Plan there should be increases in power availability, principally from the following new hydroelectric projects now under construction:

Trisuli Project, 1st stage (1966/67) 12,000 kw. Panauti Project, (1965) 2,400 kw. Kosi Project, (1966) 1st stage 4,000 kw. Kosi Project, (1969) 2nd stage 6,000 kw. Gandak Project (1970) 10,000 kw.

There exist several other major areas for potential future hydroelectric power development: three locations on the Karnali, the Bagmati, and at least one additional dam on the Kosi.

77. Early and incomplete reports from the preinvestment survey of power- generating potentials in the Karnali River Basin indicate three possible sites with a total generating potential of 3,000 mw. The principal market for most of the power generated would be in India, and so much depends upon the future course of negotiations with the Indian Government. For the purpose of this report, it is assumed that the Karnali Project will not get into the heavy construction phase during the Third Plan. It is also assumed that work will not start on the second Dam until about the end of the Plan period.

H. Tourism

78. Tourism represents a small but rapidly expanding industry in Nepal. Large economic returns can be gained from comparatively modest expendi- tures.

79. At present foreign tourism is primarily confined to the Kathmandu Valley, the only area in Nepal having the necessary hotels, food supplies, roads, and international transport needed for its support. Another im- portant area of tourism is centered in Lumbini and Janakpur, which cater to religious pilgrims from India.

80. Nineteen sixty-four was a most successful year in tourism. Over 9,500 foreign tourists visited the Kathmandu Valley (Table D-3). There has been a steady increase in the number of foreign tourists and in the recorded receipts of convertible currency from them. There are no records as to the volume of tourism in Janakpur and Lumbini.

81. In the past there have been two major bottlenecks to the full de- velopment of foreign tourist travel: 1) the shortage of suitable hotel accommodations in Kathmandu, and 2) inadequate transport capacity to and - 98 -

from the outside world. The hotel problem in Kathmandu will be eased some- what as the result of the construction of two new hotels and the expansion of others (Table D-4). The principal remaining bottleneck is air trans- port, though this has been eased by the recent addition of more RNAC flights to New Delhi.

82. Despite the realistic and relatively easy-to-obtain potentials of an expanded tourist industry, there has been no systematic effort directed toward this end. There are many areas outside the Kathmandu Valley ripe for the development of tourism - Pokhara, the Mt. Everest area, and the Narayani area where big game exist. By concentrating on these three areas, plus Kathmandu Valley, large benefits could be gained from small invest- ments.

83. Apart from the provision of physical facilities, the successful and sustained development of tourism requires close liaison with the tourist industry in neighboring countries and in principal source countries. De- velopment of this potential also requires a simplification of the regula- tions governing tourist travel, plus greater autonomy and support for the Department of Tourism.

84. For the purpose of this report, the Mission assumes that tourist travel in the Kathmandu Valley will be double the present level by 1969. This is considered a conservative estimate in relation to the potential readily available. I. Minerals

85. There are many reports as to the existence of a wide range of minerals in Nepal. It is known, for example, that iron ore is available in the Kathmandu Valley, in Narayani, in the Bhojpur and those areas (to the east) and in the Bajang area (to the west). It is believed there may be deposits of oil and natural gas in the west. Deposits of copper, zinc, lead, nickel, and cobalt are known to be spread throughout Nepal. There are known deposits of limestone near Hitaura and in the lower Karnali basin.

86. Traces of feldspar and mica are also known to exist. Good quality marble is available in Godvari and Dashinkali, both in the Kathmandu Valley. Too little, however, is known concerning the extent or value of these mineral deposits to make specific provision for mineral development in the Third Plan. The only practical possibility presently in sight is in the cement industry.

87. The Transport Mission has assumed that the Bureau of Mines will continue its evaluation of known deposits of all minerals, seeking trained professional assistance as necessary. Should any deposits turn out to be commercially valuable, the Mission assumes that the basic Transport Plan - 99 - presented herewith can be suitably altered to accommodate their development without serious dislocations. It is recognized that difficulties in trans- portation may present special problems in establishing the commercial value of mineral resources. This is a problem which cannot be fully met until more is known about the extent of these mineral deposits and their uses. J. Direction of Trade and Location of Markets

88. Data on both the volume and pattern of trade in Nepal is far from satisfactory. However, some broad trends can be identified. The main flow of trade is in a north-south direction along traditional trade routes following topographical conditions. The main commodities entering the trade are agricultural commodities, including those processed in varying degrees and imported manufactured goods, salt and kerosene. The tra- ditional method of transport is by porters and pack animals in the Hills and by bullock carts in the Terai. Modern transport takes over at the three railheads on the Indian border or along the two main roads.

89. It can be assumed that at least 80 per cent of the agricultural produce is domestically consumed, the balance being exported. (The export magnitude includes unrecorded quantities.)

90. From the forests in the Terai, the foothills and the Siwalik Range forest products are exported to India. From the Terai paddy, rice, mustard, jute and jute products, small quantities of pulses, sugar cane and tobacco are exported to India. Because of lack of milling facilities in the Terai, some quantities of paddy and mustard merely move across the border for processing and are reimported into Nepal. Ghee, potatoes, oranges, herbs, hides and skins are some of the main products which move from the Hills to India. Wool, woolen products, chillies, horses, sheep, goats, and ghee are brought from the mountainous areas to the Terai and are partially exported to India. Kathmandu is an important consumer center for cheese, woolen products, sheep and goats coming from the mountains. Over 90 per cent of Nepal's imports are from India, mainly textiles, manufactured consumer goods, salt, and kerosene which are distributed to the main market centers and from there throughout the country.

91. The scale of trade with Tibet is small. The border is officially sealed and exports of food grains are officially declared illegal. De- spite these restrictions, small quantities of food grains and dairy products are transported from the Hills into Tibet and bartered for salt. It is also known that some food grains are moving from the Eastern Terai through the Hills into Tibet. Sheep and goats are also brought in from Tibet, mostly on a barter basis.

92. Very little is known about the internal trade in food grains and the information available is contradictory. Transport difficulties, high - 100 - costs of transport and lower incomes in the Hill areas, have resulted in only a small flow of food grains from surplus areas in the Terai to the Hills, other than Kathmandu. In the last two years, however, food shortages in the Hills have resulted in greater government intervention in the mar- keting of food grains and movement to the Hills. For supplying Kathmandu, the Government has been purchasing rice, both from the Far Eastern and Far Western Terai. This rice is shipped through India by rail and brought into Kathmandu by road and ropeway. There are smaller movements of food grains within the Hills from surplus to deficit areas, mainly carried by porters.

93. Market places (see Table C-15) being of special importance for agricultural products of the Hills, appear to be Baitadi in the far west, Palpa and Bandipur in the Western Hills, Hitaura and Chisapani in the Eastern Hills and Sanischari and Pashupati Nagar in the far east. Pokhara is of importance for supplying imported consumer goods to surrounding districts up to the far north. Other market centers are Bhutwal in the west, Narayan Ghat in the Rapti Valley and Dharan in the east, all of them located at the "foothills" of the Hill region and each having a large hinterland. These serve as important collection points for agricultural commodities and also are essential for supplying the people with imported consumer goods. Along the Indian border in the plain there are many im- portant market centers which are in most cases close to an Indian railway head. Some of them are not only of importance for collection and export of surplus products from the Terai, but for products brought down from the Hills as well. Mahendranagar in the far west, Dhangari, Rajapur, Nepalganj, Koilawas, Krishnagar and Bhairawa in the west, Birganj in the middle, Jankapur, , Hanumannager and Biratnagar in the east and Bhadrapur in the far east are among the larger centers.

94. Organized markets for the various products are still non-existent, and adequate credit and storage facilities for producers are still lack- ing. Some commodities, such as ghee, are sold by producers on a barter basis. Sugar cane is either delivered by the growers to Indian mill collection points or directly to the sugar mills in Nepal. In other cases middlemen of various kinds and numbers play a predominant role in the trade chain of agricultural products. Traders provide cultivators with needed credit and frequently with consumer goods. This dependence of the cultivators on the merchants results in lower prices for the producer and higher profits for the middlemen. The widespread lack of market information, coupled with the almost complete absence of grading and standardization procedures benefits the traders and hurts the producer. 95. The available information does not permit the construction of a reliable composite picture of traffic flow. All evidence suggests that the trends in the pattern of trade apparent at present will continue and perhaps become more pronounced in the next five years. Those commodities other than the food grains entering into trade will continue to be highly - 101 - diversified and will not be confined to a small number of commodities out- standingly important in terms of volume. The main areas of agricultural development will continue to be in the Terai, particularly the region lying between the eastern extremity and the Gandak Basin. Manufacturing activity will grow slowly and be confined primarily around Biratnagar, the Birganj-Hitaura corridor and Kathmandu Valley. The prospects for any major development in minerals in the immediate future appear unlikely. The main movement of petroleum products is from India into Kathmandu along the Rajpath. A new area of economic activity will be around the Gandak Project, with Bhairawa growing in importance. One of the few developments at present in sight which might alter the structure of the economy would be the Karnali Project and it is not expected that developments in this project will affect the economy during the coming five-year period.

K. Internal and External Finance

Public Finance

96. The establishment of formal budgetary procedures in Nepal is only of five years' duration. A conservative fiscal policy is being followed and there is evidence of a conscious effort toward financial discipline. This is being accomplished by means of expenditure economies, improved budgetary controls, increased collections from existing revenue sources, and the imposition of new taxes.

97. The current (or regular) budgets for 1961/62 to 196 4/ 6 5 indicate that revenue exceeded current expenditures in each of these years. (See Tables B-2 and B-4.) The revenue surpluses were as follows:

Three-Year Plan (NRS million) 196%1/62 1962/63 1963/64j 1964i65 (revised estimate)

Revenue 106.7 119.5 151.7 170.0 Expenditures 104.5 116.2 120.0 122.9 Surplus 2.2 3.3 31.7 56.1

98. It should be noted, however, that while most recurring expenditures are included in the current budget, some expenditures connected with the operation of new projects are put into the development budget. In 1963/64 and 1964/65, while revenue increases were of the order of 26 per cent and 18 per cent respectively, expenditure increases were held at 5 per cent each year. The main sources of revenue are land taxes and customs re- ceipts. A major portion of customs revenue comes from the Indian central excise taxes which are levied on articles exported to Nepal, and which are refunded by India to Nepal. To augment revenue receipts, the following - 102 -

newr taxes have been introduced in the past three years - an income tax, an urban property tax, an embarkation tax on travel abroad, a vehicle registra- tion tax, and documentary stamp duty. In 1962 the most fundamental change was wrought in the tax structure by the abolition of the Birta System under which revenue from old land grants went to the Birta holder and not to the Government. The rates on land taxes have also been raised. The regular budget supports some of the public utilities and industries operated by the Government. Public utilities have been showing small losses but with improved administration there should be increased receipts. Increased sale of power with expanding supplies, receipts from excise duties levied on local industries, and higher profits from the Rastra Bank, are expected to make increasing contributions to revenue receipts. The Mission is of the view that the economy has additional taxable capacity and, along with better tax administration, revenue receipts could be increased substantially in the coming years. A discussion of the development budget is contained in Chapter 1.

External Trade and Payments

99. The most recent date for which published statistics of the recorded external trade of Nepal are available is 1961/62 (see Tables B-11 and B-12). During the years 1957/58 to 1961/62 the value of recorded trade more than trebled. The trend is as follows (in NRs million):

Fiscal Year Imports Exports Gap

1957/58 155.4 73.3 -82.1 1958/59 223.4 117.9 -105.5 1959/60 287.5 131.7 -155.8 1960/61 393.0 209.7 -188.3 1961/62 454.1 281.7 -172.4

100. Part of the increase shown no doubt reflects improved coverage of the statistics. But the statistics remain deficient in several respects. Because of the open border with neighboring countries, particularly India, a substantial amount of the trade goes unrecorded, mainly on the export side. Further, trade in timber is not recorded in the customs registers, and there is an undervaluation of exports to avoid customs duties. There is also some smuggling across the border. Available information indicates that on balance the distortion mainly concerns exports rather than imports. It is estimated that recorded exports are understated by more than 30 per cent, and imports by less than 10 per cent.

101. An average of 95 per cent of the recorded volume of imports, in the years for which data are available, were from India and 99 per cent of ex- ports were to India. Trade diversification is a major objective of Nepal Government policy. With the opening of the Kodari road, the execution of a trade agreement with Pakistan coupled with transit rights through India, - 103 -

and the establishment of a National Trading Ltd., some diversification will take place. It is unlikely, however, that all these together would bring more than a 5-10 per cent shift in trade direction in the immediately fore- seeable future. Such change as does occur will be mainly in relation to imports through Pakistan and possibly increased trade with Tibet.

102. The major component of the import trade is manufactured products, primarily cotton textile products and food items such as sugar and salt. Food items, particularly rice, constitute the major export. The greater part of other exports are agricultural commodities from the Terai, either in raw or processed form. The natural markets for exports from Nepal lie in Northern India in the states of Uttar Pradesh, , and West Bengal. There are highly profitable markets in Tibet, but as yet this trade has not assumed significant proportions. The building of the Kodari Road could result in some of the surplus in the Terai being diverted northward.

103. There is no complete balance of payments estimate for Nepal. On the basis of the trade picture, which includes unrecorded trade, it is apparent that a trade gap may not be as unfavorable to Nepal as was thought based on the recorded figures alone. Invisible receipts are a positive contributor to the payments situation. The principal sources of receipts in the invisible account are the salaries and pensions of Gurkha soldiers, tourist income, and expenditures of foreign missions in Nepal, all of which have been increasing (see Table B-19). There are many gaps in the recorded information on invisibles, particularly in relation to receipts and pay- ments in Indian currency. Short-term capital flight from Nepal is still a negative factor. The service payment on external debt is still very small. External grant assistance permits Nepal to sustain an overall favorable balance of payments.

104. No par value for the Nepalese rupee has been established with the I.M.F. In the absence of more definitive information on the balance of payments and a clearer picture of the money supply position, it has not been possible to determine a true rate of exchange for the Nepalese rupee. It should be noted, however, that the official rate of exchange established by unilateral Nepalese action at NRs 160= Rs. 100 Indian currency, has been sustained since 1963. As of December 1963, the rate for U.S. dollars has been NRs 7.60 per $1.00 and NRs 21.30 per L sterling.

External Reserves and Debt Position

105. Foreign assets of the Nepal Rastra Bank have increased in recent years, and in July 196 4 stood at NRs 352.5 million, consisting of NRs 193.0 million in Indian rupees, NRs 136.3 million in other foreign currencies (mainly convertible) and NRs 32.2 million in gold (see Table B-20). These figures do not include small amounts of foreign exchange held by the Govern- ment, the Nepal Bank and by private individuals. The present level of re- serves of the Rastra Bank are in excess of the amount required as cover for - 104 - the note issue. Leaving an additional cushion to insulate the payments position, there is still a small margin to cover urgent development ex- penditure. Negotiations currently being conducted with the Indian Govern- ment for reimbursement of sterling payments made from 1948 to 1960 on ac- count of British Gurkha troops could result in a reduction of the Indian rupee component and an increase in the convertible currency component of these reserves.

106. Nepal's external debt is still small. The direct debt consists only of three lines of credit, from the U.K., India, and the U.S.S.R. The Government has also guaranteed credits raised in the Federal Republic of Germany and the U.S.A. by the NIDC (see Table B-23). As the greater part of these are on easy terms, the servicing of this level of debt should not present too great a difficulty. However, the capacity of the economy to service external debt even on easy terms is small and its creditworthiness in this respect should be very carefully drawn on and reserved for projects of highest priority. - 105 -

Chapter 5

A SUMMARY OF ECONOMIC ACTIVITY, TRANSPORT NEEDS AND TRANSPORT PLANS BY GEOGRAPHICAL-ENGINEERING AREAS

Note: A map showing the districts and zones used in the following description appears on the following page.

A. The Ilam Area

Economic Features

1. This area is mainly comprised of the in the . It has a population of 125,000 inhabitants.

2. Agricultural activities. Food grains, extensive potato growing, cardamon, tea, vegetables and oranges. One of the Government's pilot projects on land reform is located in the Gram Panchayat of Budhbari. While it is still too early to evaluate the program fully, in the first year of operation a 5 per cent increase in production was expected. Indian Aid Mission has plans for establishing a research station at Ilam for promoting potato cultivation. Potential for orange growing is good. Present production of tea is 22 tons annually; there are plans to in- crease it to 300 tons. Sanichare is an important market center for this region.

3. Export traffic. From 7,000 to 11,000 tons of potatoes are shipped to India annually, mainly by way of Darjeeling. Minor quantities of ghee, maize, paddy, mustard, tobacco, oranges, hides and skins are also exported to India. Opening of the area by highway may stimulate potato growing in the present potato-producing areas along the border and further to the north of Ilam, in the vicinity of Phidim, now restricted because of high transport costs. b. Industrial activities. There are small local water-powered grain mills, and a pineapple canning factory. Any significant industrial ac- tivities will be lower down in the Terai towards Jhapa, in the region adjoining the one under consideration.

Communications

5. An old road linked Ilam with Darjeeling but this road crosses very difficult mountains and is no longer jeepable. Normally most coxmmodities go to the south, by human transport.

6. The issues from the Ilam area are: /RIbulov "5t :_ > U M Lt ^ ,I.' N E P A L v _J;j/8a@eANGiv v 1itPOLITICAL AND GEOGRAPHIC DIVISIONS

z I D I \ _ DolMno . I Z p , G ° U -

.= LO.Ig _% J K ^ - R A L 5 V

JcJ~~~~~~~~~~~ V La T I I '0:^^ ago '

{ ~ ~~~~~ ~ ~~~~~~~~~~~~~~~~~SU ^/, A~T A~ D ~~~~~~~~~~~~~~~~~~~~~~~~~~ RK N & 2 roGleho D H AjU L "A G I R KATMANDU . ;

\4 K E 2)';L8-/TANAHUN'

FI 4KorT7P/ HAR _

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JUNE~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 19. ER-II2 - 107 -

- Simana Basti to the east by way of a local road to Darjeeling - Naksalbari to the southeast _ Galgalia to the south.

The possible outlets in India from this area are Darjeeling, Naksalbari and Galgalia.

Darjeeling is neither a good railway terminal nor road junction. Neither is it a big market center. Access to Darjeeling is not important except for tourism and possibly as a minor market for tea.

Naksalbari is a good station on the meter-gauge railway from Calcutta to Siliguri and is on the Indian national highway. It is a less mountainous route to India than via Simana Basti, and is closer to Ilam than Galgalia. There is no bridge across the Mechi River.

Galgalia is a station on the meter-gauge railway from Calcutta to Siliguri but has only a semi-permanent road. There is no bridge across the Mechi River. It is a little further from Ilam than Naksalbari. Th.ere is a pretty good Panchayat road from Badrapur to the north, and there are fewer rivers to be crossed than on the liam- Naksalbari route.

Objectives

7. Join this land-locked area to principal Indian market centers and to the basic Nepalese road network.

I4aster Plan

8. The linkage to Darjeeling is not considered essential for the Mas- ter Plan. Instead an Ilam-Mechi road is proposed, arriving at the Indian border in the neighborhood of Badrapur. The choice between Naksalbari or Galgalia, as an issue for Ilam, depends on the site chosen along the In- dian border for the linkage of the Nepalese network with India (see dis- cussion under Far Eastern Terai). This will provide a connection to the meter-gauge line and, 7 miles further east, to the broad-gauge line running directly into Calcutta.

Five-Year Plan

9. We are proposing a feasibility study of the Ilam-Mechi Road. This feasibility study will be combined with the feasibility study of the Biratnagar-Badrapur Road. - lo8 -

B. The Arun-Tamar Basins

Economic Features

10. This area comprises mainly the hill and mountainous area of the but extends to the Mechi zone on the east and to the Sagarmartha zone on the west. It has a population of 700,000 inhabitants, principally spread out on the top of the hills wyhich parallel these two principal rivers. Population is dense, and deforestation far advanced, resulting in serious erosion problems.

11. Agricultural activities. Most of this region is self-supporting in terms of foodgrains, with some districts (principally Dhankuta and Khandbari, Taplejtung and Terhathium), producing surplus. The district of Bhojpur is generally considered as a food grain deficit area, based on theoretical calculations, of about 19,000 tons annually. It can easily be supplied from the adjacent surplus areas if suitable transport is available.

12. Potato growing is extensive but is poorly developed because of the high cost of transporting them to market. The hill area north of Dharan has conditions favorable for seed potato growing. Dhankuta and Bhojpur districts have good potentials for orange growing - the annual quantity now marketed in Biratnagar is about 600 tons. The Department of Agricul- ture (assisted by Indian Aid) has established an orange research station at Dhankuta, but its impact on output is six to eight years away. There is some minor traffic in herbs. There is potential for cheese making in the hills of the Kosi and Mechi zones.

13. Livestock are reared all over the hill area.

14. Export traffic. Some foodgrains go across the Tibetan border for barter against salt, sheep and goats. Salt trade is very important in this region, with Tibetan salt going as far south as the Terai. About 4,000 tons of potatoes, 600 tons of oranges and 'Less than 100 tons of ghee are exported to India each year. About 8,000 goats and 3,000 hides are marketed in Biratnagar annually, principally for export to India.

15. Industrial activities. None of any significance at present. The Government, however, has plans for a herb extraction plant at Taplejung. There is a small power plant at Dharan. The Government also has plans for power development in this area and investigations are being conduct- ed on the Arun and Tamar rivers. There is potential for a cement plant at Dharan. The British army recruiting center is at Dharan and has given considerable stimulus to economic activity in the area, particu- larly to the establishment of several small service industries; thus a base for further development exists. In this connection, it should also be noted that incomes in this area are supplemented by remittances and repatriation of savings by Gurkha troops. - 109 -

Communications

16. At present there is no real motorable road in this entire area except for a jeepable track on the top of the hills from Dhankuta in the direction of Terhathum. All transportation is done by human porters following trails along the Arun valley, over the hills to Dhankuta and Dharan, and over the hills to Ilam.

17. Dharan Bazaar and Biratnagar are the principal market centers in the Terai servicing this area.

18. The two natural communication routes in this area are clearly the Arni and Tamar rivers. Along the Tamar is one of the best linkages be- tween India and Tibet. The difficu.ty is the iss-ae of the two basins to the south, for after its junct:ion with the Sun Toui, the Arun and the Tamar, the Sapt Kosi. flows in dsep, very difficult-to4o-fllow gorges to Chatra and the Terai. On the other hand, going by way of the mountains, either along the present Dharan Arun valley track or a'ong the alignment surveyed by RTO, requires a much longer mileage (25 miles in comparison with 6 miles along the Sapt Kosi). Either way, the issue of the two valleys is a spot located between Chatra and Dharan.

19. There is a STOL field at Tumlingtar which is a natural site for a commercial airport. This is about 8 to 10 miles west of Chainpur, near the Arun river. Objectives

20. Link the villages in the area to the Nepalese road network, and to principal railheads along the Indian border. Provide oommunication be- tween the heavily populated areas deep in the hills and the Terai, and also to Kathmandu. Master Plan

21. An engineering feasibility study is proposed in order to deter- mine the best alignment for joining the Terai with the Arun-Tamar basins. From the junction of Sapt Kosi, Sun Kosi, Arun and Tamar rivers, build a road along the Arun valley to Khandbari with a permanent feeder road to Bllojpur. At a later time, and according to the development of road net- works in Tibet, this road can be extended north to the border.

22. The road along the Tamar River must go at least as far as Taplejung.

23. Build a new commercial airport at Tumlingtar replacing the present STOL field, serviced by Panchayat roads and trails leading north, east, south and west. As the National Highway System progresses it will pass this airport providing additional main linkages to the north and south. - 11O - Five-Year Plan

24. Make a feasibility study of the whole network from the Terai plain to Kandbari in the Arun valley (including a feeder to Bhojpur) and to Taplejung in the Tamar valley.

C. The Sun Kosi Basin

Economic Features

25. This region comprises the major part of the Eastern Hills in the Sagarmatha and Janakpur zones and the Eastern Inner Terai extending through both of these zones. It has a population of more than 700,000 with 8 0per cent living in the northern part of the valley and along the northern tributaries of the Sun Kosi.

26. Agricultural activities. This is a densly populated region, where the pressures of population have led to serious deforestation and land erosion. Based on preliminary agricultural surveys and census of popula- tion calculations, the hill areas to the north of the Kosi River lhave a high deficit in food grains (about 35,000 tons in the districts of Iiotan, Okhaldunga and Solukhumbu and 31,000 tons in Dolakha and Ramechap). In the the effects of food grain shortages are alleviated by means of wages earmed in portering. No information is available concern- ing internal trade in the area, but it is known that rice and maize are brought in from the surplus areas of the Terai. WJheat and millet are grown throughout the basin; there is potential for relieving some of the food shortages by increased productivity of these grains. Mustard is the main cash crop in the Inner Terai.

27. The area has a potential for growing potatoes and fruits (apples, pears, peaches, walnuts and oranges) though these are not highly developed - partly due to the high cost of transportation. It will take six to eight years for the farmers in the area to get any effective fruit-growing pro- grams to the producing stage - given a sustained agricultural extension and experimental farm program.

28. Livestock is raised in the area, with ghee, hides, skins, goats and wool being the principal products. Ghee, hides and skins are sold in the Terai; goats and wool in Kathmandu. Phapla is the center of the sheep and wool-growing area.

29. Export Traffic. The amount of ghee exported to India is estimated to be less than 500 tons. Horses, yak products, and hides are exported to India by way of Hanumannagar. About 24,000 hides and skins are known to be exported. - ill -

30. Industrial Activities. There is little industry in the area other than local rice and mustard mills. There are government cheese-producing plants in Solukhumbu and Dolaldha. However, the high cost of transport to markets seriously restricts its growth. There is good potential for fu- ture development of cheese products given a good supply of quality fodder.

Communications

31. In this area the principal footpaths are:

North-South - Xhotang to Fathepur and Rajbiraj - Namchebazar, Okladhunga, and Chisapani to Sirha - Charikot, Ramechap, Sinduli, and Ghari to Lalbhitti

East-West - Dulikhel and Ramechap to Okladhunga

32. The natural route for communication in this area is the Sun Kosi valley with its northern tributaries, the Tamba Kosi, the Likhukhola and the Dudh Kosi rivers.

33. To the south there is an easy crossing of the Mahabharatlekh range to Fathepur but to the west of this crossing the range is very high and difficult to cross. In the western extremities of the region, the Sun Kosi valley provides an easy link to Kathmandu through the Rasi valley and Dulikhel. A jeepable track already exists from Dulikhel (on the Kod- ari Road) to the hydroelectric site at Panauti.

3h. There are no commercial airports in the area, but there are STOL fields at Rumjatar (Okhaldunga), (near ) and Jiri (near Those).

Objectives

35. The target is to link the basin with populated areas to the south, to principal rail heads on the Indian border, and to the Nepalese road network - in particular to Kathmandu.

Master Plan

36. Build a road along the Sun Kosi river from to Fathepur, with branches along its principal northern tributaries where they are densely populated. Specifically, these branches would be along:

The Tamba Kosi River - up to the junction with the Charnawati Khola (River) - 112 -

The Likhu Khola River - up to the junction with the Chulepu Khola The Dudh Kosi River - up to the junction with the Hongu Khola

37. Join the western portion of this Sun Kosi valley road with the Kathmandu network through Dulikhel and the Rasi valley. Join the south- ern and eastern end of this road to Fathepur, crossing the hills from Kampu Ghat to Fathepur. The two linkages to the south by way of Kathmandu and Fathepur are more than 110 miles apart. Therefore it seems necessary to open the Sun Kosi area to the south at a middle point. The best such point from a topographical standpoint seems to be the line from Sinduli Ghari to Lalbhitti, where the RTO has already surveyed a route. This middle-issue road is difficult and expensive, but must enter into the Master Plan.

Five-Year Plan

38. Make a feasibility study of the network for the whole area, includ- ing the central linkage to the south up to Ialbhitti.

D. The Far Eastern Terai

Economic Features

39. This area comprises the Terai region of the Mechi zone and the Koai zone. It has more than 450,000 inhabitants, and is the most dense- ly populated and most fertile portion of the entire Terai.

i0. Agricultural activities. With its high annual rainfall, this area has the highest rice and paddy yields in all of Nepal. According to the agricultural census, the Jhapa District alone produces about 10 percent of the total paddy production in the entire country, i.e.,about 200,000 tons, which is equivalent to 120,000 tons of rice. It is already a sur- plus area, and it is estimated that about 60,000 tons of rice are exported to India. There will be additional agricultural production with the completion of the Kosi and Chatra projects. Other food grains grown are maize and wheat. Jhapa and Biratnagar are areas included in the campaign to expand wheat production as a second crop, primarily through use of better seed. Mustard is grown to a small extent. hi. The Chatra irrigation project, now under construction, will bring irrigation to 73,000 hectares, and will bring increased productivity for rice, jute, wheat, and sugar cane. A second major irrigation project is now under consideration - the Kankai project - but it probably will not be completed for 10 to 15 years. Data concerning this project is not available. - u13 -

42. Jute is a major commercial crop in the Jhapa and Biratnagar areas, encompassing about 2b,000 hectares. About half of the crop is processed in Biratnagar and the other half exported to India for processing.

O3. Sugar cane is grown on about 700 hectares around Biratnagar. The present sugar mill needs 1,000 hectares and imports the difference from India. There are plans to quadruple the capacity of the mill which will then need b,000 hectares under cultivation - or increased imports from India. In turn, this will require improved transport facilities to get the cane to the mills.

4W. Forestry is carried on in the area with a 175,000 cu. ft. capacity sawmill at Biratnagar. There are plans to exploit the forest areas in the nearby foothills on a sustained yield basis at a rate of about 700,000 cu. ft. per year, and to establish a plywood and a paper factory at Jhapa. Both will need greatly improved transport facilities if they are to succeed.

45. Industrial activities. The Biratnagar area presently has the larg- est and most active concentration of industry in Nepal: two jute mills (one large), a sugar factory, a steel-stamping plant, a nylon button fac- tory, a machine embroidery textile mill, a machine shop, a sawmill, a match factory, a cardboard mill, some six rice mills, and a new diesel- powered electric power plant. The British Army Gurkha camp at Dharan is a major source of local employment and income. There are active plans for major expansion in all areas. Badrapur is the main milling center for the area with 21 rice mills, followed by Sanishere with 7 mills. In the Biratnagar district rice milling capacity is inadequate so that much paddy is exported to India unmilled.

Communications b6. The area is flat, and covered with bullock cart tracks. The only permanent roads are:

- the -Biratnagar-Dharan road

- the Kosi Dam road crossing the Kosi, with a linkage in India to and Jogbani, and an extension to Hanumannagar in Nepal.

Two new permanent roads, the Kosi Dam-Fathepur and Hanumannagar-Rajbiraj, are under construction by Indian Aid. The Road Department is building a new road from Rajbiraj to Kunali on the Indian border.

47. A route for the proposed East-West Highway has been surveyed, and in certain sections some clearing of the soil and earthwork has been done. The alignment starts in the neighborhood of Fathepur and goes east to Chatra, Ithari (on the Jogbani-Dharan road) and on to Sattighatta and the Indian border across the Mechi River from Naksalbari. - 114 - h8. The western portions of the present road network are well linked to the Indian network at Kunauli and Jogbani. In the eastern portion there is no good road from Biratnagar to the Indian border on the Mechi River. The Jhapa-Mechi river road is non-permanent, both in Nepal and in India. h9. From the hills the area receives traffic at three points: Fathepur, a spot between Chatra and Dharan, and the Ilam area.

50. There is a fair-weather airport at Badrapur, served by RNAC. The all-weather airport at Biratnagar is regularly served by RNAC flights to Kathmandu and Calcutta. This airport is scheduled to be replaced by a new all-weather field to be constructed by Indian Aid.

Objectives

51. (a) Facilitate east-west movement so agricultural production can be channelled through a limited number of well- equipped markets and processing centers for export to India or other parts of Nepal.

(b) Provide north-south linkages for the movement of commodities to and from the north.

(c) Provide good issues to principal railheads on the Indian border.

(d) Facilitate and improve cross-border traffic at - nagar to facilitate import and export traffic.

(e) Build a major all-weather commercial airport capable of accepting international traffic.

Master Plan

52. The proposed Master Plan is based on the fact that the only prac- tical and economical road crossings of the Kosi are either on the Kosi Barrage or on the proposed dam at or near Chatra. It also recognizes that the rich Terai Plains must be drained as well as possible by a lower Terai road, and traffic channeled to principal marketing centers.

53. The road scheme shown on Nlap 2 calls for:

- a lower Terai road from the Kosi Barrage to Badrapur passing through Biratnagar, Rangeli and Jhapa. The section between the Kosi Barrage and Biratnagar would be by way of Inarwa and Dubhi connecting with the Biratnagar-Dharan road; - 115 -

- a lincage to connect the Biratnagar-Dharan road to a suitable point for a bridge to cross the Mechi River, preferably as close as possible to Badrapur.

54. Particular attention is drawn to the fact that one possible issue of the Sun Kosi basin into India would be Kunali on the right (or west) bank of the Kosi. However, there is no good route from Kunali. to the important markets inside India, such as Calcutta. This traffic will move better and at lower cost if it can be directed to the proposed new termi- nal railway at Biratnagar.

55. Improve connections to and from the Indian railways at Jogbani by building a small connecting terminal railyway. This would cross the Nepal border and have a terminal especially designed to facilitate move- ment of freight between truck and rail, passing through Indian and Nepal customs in the process.

56. The growing industrial and agricultural importance of Biratnagar needs to be recognized by means of a better-equipped all-weather commer- cial airport. Because this is also the main base for the British Army Gurkha units, this airport should be able to accept larger planes, such as are more commonly used in international commerce, and should have appropriate customs and immigration facilities.

57. An eventual linkage from Fathepur to Chatra and Ithari is also included in the Master Plan. But this linkage is possible only after the location of and plans for the Chatra Dam have been completed and set.

Five-Year Plan

58. Opening to India of the rich Badrapur, Jhapa area necessitates a bridge over the Mechi River. This bridge must be studied from the stand- points of engineering requirements relating to the crossing and of road network linkage requirements at both ends of the bridge. The building of the Biratnagar-Jhapa-Badrapur road, which would cross this Mechi River bridge, is also urgent.

59. Also recommended in the Road Plan are:

(a) Feasibility study of the Biratnagar-Ghapa-Badrapur road, including the Mechi Bridge, combined with feasibility study of possible linkages from Ilam to the Mechi River. The cooperation of the Indian Government should be sought so as to provide direct connection to: 1) the Indian National Highway, 2) the meter-gauge line of the Indian Railways, and 3) the broad-gauge line of the Indian Rail- ways. - 116 -

(b) Engineering design and tender documents for the Biratnagar- Jhapa-Badrapur-M{echi road and the bridge over the Mechi River. This bridge will require arrangement betwfeen the Nepal and Indian Governments.

(c) Construction of the road under (b) above.

(d) Complete the Fathepur-Hanumannagar-Rajbiraj and the Rajbiraj-Kunali Roads.

(e) Construction of a terminal railway linking Biratnagar with the Indian Railway at Jogbani. Tnis would include design and construction of a combined rail-customs-truck terminal at Biratnagar, including an access road from the Biratnagar- Dharan highway. (f) Revision of the present plans for a new airport at Biratnagar to include provision for a 7,000 ft. paved runway capable of accepting planes up to 250,000 lbs gross weight. Actual construction in the Third Plan would be the first 5,000 ft. of the runway, staff quarters, a freight godown, and a portion of the proposed new terminal building with space for customs facilities.

The feasibility study for a junction between the Dharan road and the pro- posed issue of the Arun-Tamar road has been included in the Arun-Tamar basin program. E. The Central Network

Economic Features 60. This region comprises almost the entire and the north- ern part of the , with the districts of Chitwan and Makwanpur in the . The total population is now about 1 million. Kathmandu, the political, economic and educational heart of the country, is in this area. It is also one of the most densely populated sections, and the area of greatest food shortages. 61. Agricultural activities. Reliable data about internal trade in food grains are not available. On the basis of preliminary calculations, it is estimated that the food grains deficit in the Bagmati zone is about 83,000 tons annually (of which Kathmandu Valley accounts for 27,000 tons), the Sindhu District 24,000 tons, and the western two districts about 28,000 tons. The only recorded surplus area is in the Rapti Valley which has about 1I,000 tons beyond its needs. The only grain storage facilities are a 10,000-ton warehouse in Kathmandu and a 1,250-ton warehouse in Hitaura. It is estimated about 20,000 tons annually are brought to the Kathmandu Valley for distribution. - 117 -

62. Paddy,rmaize, wheat and millet are the main food grain crops. Millet is growm in the higher elevations and wheat in the Kathmandu Valley. The Government has plans to increase the area in the mid-Terai under wheat cultivation from 800 to 5,000 hectares. M4ustard is grown intensively in the Rapti Valley (about 13,000 hectares).

63. A major irrigation project is under way in the Rapti Valley. The first half is under construction and about 50 per cent completed; the second half will not be started for at least another five years. Comple- tion of the first half is expected to result in an annual increase in the production of paddy and mustard of about 2,500 tons.

64. The Palung Valley and adjacent areas in the Itkwranpur District (Narayani zone) are principal potato-producing areas - with production now estimated at about 2,000 tons per year. Indian Aid Mission and government horticultural stations are encouraging and promoting potato and vegetable growing in the Kathmandu Valley and Inner Terai for domestic consumption.

65. Sugar cane is grown throughout the area for home consumption. How- ever, along the Tribuwan Rajpath there is more intensive growth in order to supply ghur to the Kathmandu Valley market.

66. The Government has existing and planned orchards and orchard nurs- eries for increasing the production of temperate and sub-tropical fruits. Such programs are, however, slow to mature so no major change in the present pattern of small, scattered low-grade orchards is expected in the inimedi- ate future.

67. Milkc, cheese and ghee are also produced in the area. Demand for milk is so intense in the Kathmandu Valley that the limited supplies available are often diluted. Improved transport, plus intensification of livestock enterprise in the Kathmandu Valley with improved fodder, and use of better stock are necessary to achieve any major improvement. Cheese is produced in Langtung. There again, the demand is greatly in excess of supply - and the principal problems involved are transport and improved fodder. Ghee is an important product throughout the district and is marketed at Kathmandu, Narayanghat and Hitaura.

68. The Kathmandu Valley is a major market for forest products due to the complete deforestation of all nearby lands. About 250,000 sq. ft. of finished timber is brought into the valley each year, plus about 50,000 tons of firewood and charcoal, from the Papti Valley-Hitaura areas. In addition, firewood is brought in by porters from adjacent areas (10 to 12 miles distant). The valuable forests in the Chitwian district area are a major source of timber for processing at Hitaura, Simra and Bharatpur. These have a combined capacity of W40,000 cu. ft. 69. Industrial Activity. There are three industrial estates in this area, of which the two at Balaju and Patan in the Kathmandu Valley are in operation. The third is under construction at Hitaura which is expected to eventually develop as a major industrial area. A govern- ment leather and shoe factory has just been completed in the Kathmandu Valley, adding to the several small and medium-sized private industries already there. A complete list of industries is in Table D-1.

70. Export Traffic. The Kathmandu Valley is a principal destination for a very heavy import trade from India. Its needs range from food- stuffs to modern finished machinery and electronics. Exports to India are limited to curios and tourist momentos, about 6 tons of cheese, an unknown quantity of ghee and herbs and about 1,900 to 2,000 tons of potatoes. There is also a small production of preserved fruits, woolen carpets and fresh fruits, some of which are exported. About 2,500 tons of mustard seed are exported to India from the Rapti Valley, with some minor quantities from the Palung Valley. Upwards of 50,000 cu. ft. of rough-sawed timber are shipped to India from Hitaura, Simra and Bharatpur.

Communications

71. This area presently has the best communications network in Nepal. This network is composed of the following completed or close-to-completion major facilities:

- the Kathmandu-Hitaura road (asphalted) - the Kathmandu-Dulikhel-Kodari road (metalled) - the road from Kathmandu to Trisuli Bazaar (without pavement) - the road from Hitaura to Narayanghat (gravelled) - the roads inside the Kathmandu Valley (asphalted or metalled)

In the northern part of the area there is the large and densely populated valley of Trisuliganga which is also a natural route of communication to the Tibetan border.

72. To the south the present Tribuwan Rajpath crosses the very difficult Mahabarat-Lekh but the road is very tortuous and long. It seems desirable, both from an economic and engineering standpoint, to find a better align- ment for this road, even though this may require heavy rock blasting or even the digging of tunnels.

73. Kathmandu is also served by the new ropeway from Hitaura. This ropeway, which suffered managerial inadequacies and mechanical problems during its nine-month break-in period, is now operating quite reliably. It has the capacity for transporting over 40,000 tons of material into Kathmandu per year based on operating an eight-hour day, 200 days per year. Inasmuch as the line can be run 20 hours per day, its full capacity is over 120,000 tons. - 119 -

74. Gaucher Airport in Kathmandu is the most modern, best equipped air- port in Nepal. It is now in the process of having an entirely new 6,000 ft. runway built. Master plans have just been completed for major development of this airport - the main tourist gateway to Nepal, but the means for fin- ancing necessary terminal buildings have not yet been determined.

75. Kathmandu Valley is heavily dependent upon its transport links to the Terai for the food and materials to feed its population (including a large foreign colony) and to support its industrial and economic activity. Although these are the best in Nepal, there are definite limitations on the highway as to its capacity and utility, on the ropeway, and on the use of air. For this reason, transport is a critical factor in the future growth of the Valley.

Objectives

76. They are:

(a) to open communications facilities to the north, east, and west;

(b) to better the roads inside the Kathmandu Valley for tourism and to reduce the cost of essential commerce;

(c) to reduce as much as possible the cost of transportation into the Kathmandu Valley from the Terai and India due to the economic importance and food needs of this Valley;

(d) to provide improved facilities for international commerce and tourism at Kathmandu airport.

Master Plan

77. Under the Master Plan, it is proposed to

- Improve existing roads and bridges in the Kathinandu Valley to get a total of about 50 miles of permanentc road (excluding city streets inside the towns of Kathmandu, Patan and Baktapur and the Thankot road, the Kakani Road and the Kodari Road).

-Improve and finish the present Kathmandu-Trisuli Bazaar road.

- Build a road in the upper part of the Trisuli Ganga Valley at least as far as Dangu. This could later be extended to Rashua Gari according to the timing of the development of a linking road network in Tibet.

- Build a road in the upper part of the Likhua Khola for about 7 miles from the Kakani-Trisuli road. - 120 -

- Link Kathmandu to the west with the Trisuli Valley. That may be done from village on the Tribuwan Rajpath to Galchi Bazaar, or along the Trisuli Valley, from Trisuli Bazaar to Galchi Bazaar. Both roads lie in heavily popula- ted areas and both are included in the Master Plan. Further feasibility studies will show if and when each of them is likely to be constructed.

- Provide maintenance hangars, shops and facilities at Gaucher airport.

- Relocate and improve Gaucher airport radio facilities.

- Build necessary freight cargo buildings and customs sheds at Gaucher airport, etc.

- Design and build new passenger terminal and an administra- tion-office building at Gaucher airport.

- Provide an eventual replacement for the Tribuijan Rajpath by means of a new road starting directly to the south along the through Pharphing.

Five-Year Plan

78. (a) Indian Aid presently has plans for improving the Kathmandu- Parphing-Dashenkali road, which would be the northern end of the proposed new Kathmandu-India road. For this reason, it is strongly recommended that this road be designed and reconstruc- ted to high standards, even if this reduces the length of road which can be covered by available funds.

(b) The development of roads in the Katbmandu Valley is now under the control of a special commission. Rather than interfere with the plans and decisions of this commission, the Mission has to recommend the spending of NRs 9 million for the con- struction of roads and bridges in the Valley during the coming five years (sufficient to construct about 10 miles of good roads, partly asphalted, partly gravelled).

(c) An architectural engineering feasibility study of a Gaucher Airport Master Plan should be prepared.

(d) Work should start immediately on the construction of at least one maintenance hangar with supporting workshops and stores depot.

(e) A new administration-office building sllould be built on a site selected by the feasibility study mentioned above. This would be used as the administrative headquarters of the airport, and as an operating base by principal tenants. - 121 -

F. The Eastern Terai

Economic Features

79. This area comprises roughly the Terai region in the Sagarmatha zone, and Narayani zone. The population is 500,000 from Rajbiraj to Sirha and almost one million from Sirha to Birganj.

80. Agricultural activities. This is a densely populated fertile land, largely given to the growing of paddy in the lowlands and maize on the high lands with about 10 per cent of the cultivated area double cropped in wheat. On a preliminary basis, surplus food grain production in this area has been calculated at: Sagamartha 50,000 tons, Janakpur 32,000 tons and Narayani 24,000 tons. Due to the small area under cultivation and high population density, in the Narayani zone is calculated to be a deficit area. In general, paddy yields decrease from east to west, generally following the pattern of rainfall.

81. Irrigation projects have considerable influence on the paddy-producing potential of this area. The following irrigation schemes are in exist- ence, under construction or planned, covering over 500,000 acres:

Name Land Status Remarks Irrigated (acres)

Chandra Canal 30,000 30 years old Only a small portion operable due to poor maintenance. Jhaj 6,000 2 years old Reportedly not living up to expectations. Sirsia h,000 5 years old Used for 1,200 acres rabi crop. Poor field ditches a limiting factor. Tilawe 7,000 5 years old Used for 3,500 acres rabi crop. Poor field ditches a limiting factor. Kamala 60,000 Just started Scheduled for 50 per cent completion in 1968. Bagmati 300,000 Not started Pre-investment survey now under way. Gandak Eastern 87,000 Not started Pre-investment survey Canal completed. Hardinath 6,ooo Under const. Scheduled for completion in 1965. Manusmara 5,000 Under const. Scheduled for completion in 1965. - 122 - 82. Principal cash crops in the Terai are jute, sugar cane, tobacco and mustard - plus surplus food grains. About 3,500 tons of jute are produced on 3,000 hectares in the and shipped into India unprocessed because of transport difficulties to Birtanagar. About 48,000 tons of sugar cane are grown on 2,200 hectares in the districts of Parsa and Bara. Formerly shipped to India, this cane will now be used by the new Birganj Sugar Factory. This factory will need 6,000 hectares of high- yield crops under cultivation to meet its production quotas. Without adequate fertilizer and irrigation the potential for growing sugar cane in this area is not favorable. From 2,000 to 4,000 hectares are used for growing tobacco in the Janakpur district. Formerly shipped to India, this will now be used in the new Janakpur cigarette factory.

83. There are plans for the development of two new sawmills, one each in the Udaipur and Sindhuli districts. Each will have a capacity of 700,000 cu. ft. Their success will be highly dependent upon adequate transportation.

84. There are minor cash crops such as "gaja", a narcotic hemp, and some tropical fruits from Janakpur.

85. Export traffic. The principal item of export is food grains. Actual exports are believed to be substantially in excess of the 30,000 tons reported as being exported to India. Some food grains from this area are sent into Tibet. About 3,500 tons of raw jute are sent into India from the Saptari and districts. About 2,000 tons of mustard seed are sent into India from market places along the border. "Gaja", a narcotic hemp grown in the Eastern Terai is all illegally shipped into India where it brings a high price. Upwards of 50,000 cu. ft. of forest products are moved into India across this area, with substantial increases planned.

86. Industrial activities. This area encompasses twqo active industrial districts: the growing Birganj-Hitaura industrial corridor, and Janakpur. Industries located in the Birganj-Hitaura corridor include a new 150,000- ton capacity sugar factory, an agricultural implement factory, an iron rolling mill, Simra sawmill, plus several small cigarette, soap, match and biscuit plants. In Janakpur the main industry is the new, large cigarette factory plus two rice and oil mills.

Communications

87. In this area, the Amlekghanj-Lalbhitti-Janakpur and the Janakpur- Jaleswar roads already exist in the form of dry-weather jeepable tracks. Both are planned for construction into all-weather permanent roads. The Road Department is improving the Birganj-Kalayia road.

88. There are many bullock cart tracks. The issues to India are numer- ous (see Table E-1h). The issues most frequently used are to the Indian railway stations at Jaynagar, Raxaul and Biknathori. - 123 -

89. In this area a west-to-east highway has been suggested for construc- tion along the foothills from Lalbhitti to the neighborhlood of Fathepur. However, this is removed from the area of greatest population density and need. Although this route along the foothills is easier to construct and is therefore less costly, it will provide very little local or regional economic benefit. A route further to the south, closer to the Indian border, will serve major local needs and will provide greater and faster economic returns even though costs will be somewhat higher.

90. This area is served by two narrow-gauge (2'6") railways. One operates from Raxaul (in India) to Birganj and Amlekghanj. For many years it was part of the main channel of commerce to and from Kathmandu, but with the opening of the Tribuwan Rajpath and continued improvements to the road, rail traffic has fallen sharply. The line is in very bad physical repair. The second rail- way runs from Jaynagar in India to Janakpur, a former lumber road now hand- ling general commerce, is in somewhat better repair. There is no parallel and competing highway. A fair-weather extension of the railway from Janakpur north to Bizalpura is being rebuilt into an all-weather line, though it is not clear just what purpose it will serve.

91. There are four commercial airports in the area,all served by RiHAC:Bharat- pur, Rajbiraj,Janakpur and Simra. Rajbiraj is a fair-weather field. A completely new all-weather airport facility with a 3,300 ft. paved runw-ay and a new access road is being constructed at Janakpur by Indian Aid, with work schedu'ed for completion within the next few months. However, this runway is neither long enough, nor strong enough to accept the larger and faster planes to be operated by RNAC in the years ahead. Simra is an all-weather airport. Indian Aid has plans for some improvements to its runwrays this coming year. Bharatpur is a fair-weather airport with a minimtun of facil- ities. There are also two STOL fields: Meghauli about 25 miles from Bharatpur and adjacent to the National GamePreserve, and Kirtipur (adjacent to Kathmandu). Objectives

92. To channel cross-border traffic to India through central market place, to permit the consolidation of local food products at central market areas for milling, storage and/or shipment elsewhere. Also needed is good passage through this area for commodities from and to the Sun Kosi area and the Central Area coming from or destined to India. There is also need to channel the agricultural surplus of the area to the Birganj-Kathmandu area for transport to areas of need within Nepal. Improved facilities for the handling of tourists in the Janakpur area is a necessary prerequisite for increasing the volume of tourism.

Master Plan

93. The main north-south highway linkcages are to be the existing Hitaura- Birganj road, and a proposed road from the foothills to Lalbhitti and Janakpur. - 124-

94. A road running east to west in the heavily populated areas near the border is necessary to drain food grain productions for shipment to India (but from this point of view and due to the numerous junctions writh the Indian network, a continuous permanent road is not absolutely required). The permanent link from Amlekghanj to Lalbhitti is accepted on the pres- ently committed route along the foothills, even though this is not the most favorable route in terms of maximum economic development. On the other hand, a road lower in the Terai will meet difficulties in crossing the Kamla river. In the Birganj-Kalayia-Nalangwza-Janakpur area some perma- nent north-south roads need to be built to the Indian border; but they are outside the skeleton of the national network, so we consider these roads as local roads. 95. Finally, the Master Road Plan should include a west-to-east permanent link from the Lalbhitti-Janakpur road to the Fathepur-Rajbiraj road describad in the Far Eastern Terai section. Further study is needed to decide whether this road is better located along the foothills or in the more popu- lous areas of the lower Terai, though the Mission strongly favors the lower route nearer the Indian border.

96. Plans should be drafted for the eventual improvement of by extending the runway to 5,000 ft. and providing sufficient strength to accept planes up to 100,000 lbs. gross take-off weight. Ways should also be found for strengthening the present runmmay so it will be able to accept the larger and heavier planes to be used by RNAC in the years ahead.

97. The future potential for a commercial airport at Simra is presently viewed as limited, so no plans for further expansion or improvement are included. 98. It is expected the Rajbiraj airport will be phased out as a commercial field as all-weather roads are constructed to Biratnagar and Janakpur. Likewise Bharatpur will be phased out as roads are built from Narayangarth to Pokhara and Gurkha.

99. The Nepal-Janakpur-Jaynagar Railway should be rehabilitated between Jaynagar and Janakpur to permit its efficient and economic operation for another 7 to 10 years, or until new roads are built. Construction of a permanent Janakpur-Jaleswar road should be delayed while the railroad is operational and efficient and the money used in other areas where the need is great and no alternates exist.

Five-Year Plan

100. Complete the Simra-Lalbhitti-Janakpur road. Make a feasibility study to compare the foothill alignment and a lower Terai alignment for the Rajbiraj-Janakpur road. - 125 -

101. Rehabilitate the Jaynagar-Janakpur section of the NJJR, and make a feasibility study of the railroad's northern Bizalpura extension to see:

(a) present traffic generation potential;

(b) possibility and cost of extending the line to a site selected for a new large sawmill; and

(c) the traffic and economic prospects of using the railroad to develop export traffic to India in sand and gravel.

102. At the Janakpur airport, provision is made for the construction of a freight godowm and for essential radio and navaid equipment. An initial fund is provided for engineering studies and the start of wiork on extend- ing and strengthening the runway. G. The Gandak Area Economic Features 103. This area encompasses the Gandak zone, the more populated eastern part of the zone and the hill region of the Lumbini zone. There are two main concentrations of population: one, of 700,000 inhabit- ants, starts north of Gurkha and spreads along the line Pokhara-Nawakot- Tansen. The other, of 500,000 inhabitants, spreads out along the Kaligandaki Valley up to .

104. Agricultural activities. Agriculture and livestock are the main sources of economic activity.

105. The main staple crop in the hills is maize even though wheat is also cultivated extensively. Paddy is grown in the valleys, particularly in the Pokhara Valley. In the higher mountainous regions buckwheat and barley are important crops, but the area devoted to these crops is relatively small. A variety of other crops such as pulses, oilseeds and sugar cane (for ghur) are grown to a small extent all over the region for local consumption.

106. According to the agricultural census of 1961, approximately 80,000 tons of paddy and 220,000 tons of maize were grotwm in this area. It was also found that yields in both these crops, but particularly maize, are higher here than the average for Nepal. According to very tentative esti- mates based on hypothetical consumption patterns, this is a major deficit area in food grains. However, taking the area as a whole, in normal years there are pockets of surplus and deficit. Internal trade within the region appears to satisfy a part of the deficit need. Identifiable movements of goods are from the surplus areas of the Terai and from the mid-Inner Terai into the adjoining hill area and mountains. In 1963/64, a year of acute food shortage in this area, the Government shipped in about 900 tons of food grains, a barely marginal amount. - 126 -

107. In the north, buckwheat, maize and rice produced in adjoining districts are bartered against salt and sheep froimi Tibet. The quantities are generally small, but in an occasional year, when prices in Tibet are high, there is a tendency for increased supplies to flow into Tibet, which then aggravates the food situation in the deficit districts of this area. Ghee is an important product of the hill areas. Sheep, goats, woolen products, horses and hides are brought down from the mountains either for export to India or distribution to other areas within Nepal.

108. There is a potential for increasing agricultural productivity in this area. in the Lumbini zone, the two southern districts of the and four districts in the Gandak zone are included in the campaign for increasing wheat yields.

109. Lack of transport is a major bottleneck to increasing food grain production in this region through the use of improved seed and fertilizer. In some parts of the hills there are favorable prospects for fruit growing, primarily oranges, papaya, guava and bananas. Almonds and walnuts can be grown in the and there is a potential for apples, peaches and pears in the Dhaulagiri zone. The hills and districts of Manang and Mustang are important for collection of medicinal herbs. The Goverrnment plans to establish an extraction laboratory at Muktinath. The potential for expanding the sheep industry in the mountainous regions has not been fully explored.

110. Butwal is a major market center, both for goods passing through to India, as well as for supplying the hill area to the north with consumer goods and foodstuffs.

111. Export traffic. Principal exports to India are ghee (about 9,000 tons annually)and about 500 tons of oranges. In 1959/60 about 30,000 hides were exported to India.

112. Industrial activities. There are none. This area has been increas- ing in importance as a center for recruiting Gurkha troops. Gurkha remit- tances are a principal source of local income.

Communications

113. There are no roads in the area, possibly excepting a few miles of jeepable track in the vicinity of Pokhara. However, a major road is now under construction from the Terai to Pokhara.

114. Up to now the most heavily used footpaths are:

North-South - Butwal-Tansen (5,000 porters per day representing 100 to 150 tons per day) and Tansen-Pokhara - Biknathori-Narayanghat - Narayanghat-Bandipur - Bandipur-Pokhara and Bandipur-Gurkha - Kali Gandaki Valley - 127 -

East-WJest - Pokhara-Kathmandu through Deorali and Trisuli - Pokhara-Baglung

115. On the other hand, the main valleys are the Trisuli Ganga, the Marsyandi, the Kaligandaki. The Kaligandaki is the only means of communica- tion with the areas around Mustang and Muktinath in the northern mountains. To the south, the natural issues are to Narayanghat; but the route to Pokhara formed by the Butwal river and the Andi Khola is also good.

116. One of the busiest commercial airports in Nepal is at Pokhara, though traffic here will undoubtedly decline upon completion of the road from Butwal. However, the present runway does not have a good permanent surface, and is deteriorating rapidly. There is also a fair-weather commercial air- port at Gurkha, and a STOL strip in Jomosom, on the bank of the Kaligandaki near Muktinath.

Master Plan

117. A principal road follows the Trisuli river from its junction with the Buringandaki river to the junction of the Marsyandi river. Branch roads follow the Burigandaki up to the junction wfith the Istuc Ihola, and the Marsyandi river up to the Lamiung area. From the Narsyandi-Trisuli river junction the road should continue to the south to Narayangath. How- ever, there are problems of location, so this is made the subject of a feasibility study. Another road would follow the Kaligandaki from Ramdighat (crossing of the Butwal-Pokhara road) east up to Narayanghat and west and north at least up to Beni. According to the requirements of the Mustang area and later developments in the road network in Tibet, this road can be built up to the Tibetan border. A road must also be built from the Narsyandi Valley to Pokhara to drain this populated area.

118. The principal problem involved in the design of this overall scheme lies in selecting a means of connecting Narayanghat and Ramdighat to the network already defined.

119. The connection from the upper part of the Marsyandi river (above Bandipur) to Narayanghat could be realized either along the present Bandipur-Narayanghat trail, or along the valleys of the Plarsyandi and Trisuli.

120. The upper part of the Kaligandaki and Riribazar must be connected to Ramdighat on the Butwal-Pokhara road. Coming from the north, there are three possibilities from the junction of the Andikhola: (1) through the Andikhola Valley and crossing the narrow range of mountains which sepa- rates this valley from the lower Kali Gandaki Valley; (2) along the Kali Gandaki; or (3) along the hills up to Riribazar. - 128 -

121. For airports, the Master Plan is to improve Pokhara by providing longer, paved runways capable of accepting the larger planes recormmended for use by RNAC. Tfhis will probably require the purchase of additional land and may require re-siting the runway parallel to the present location so that the airport can be kept operational during the construction period. A freight godown is also reconnended. It is anticipated that the Gurkha airport will be gradually phased out of scheduled service by MiAC as year- round access roads are built.

Five-Year Plan

122. Under this Plan, it is proposed to

(a) Complete the Butwial-Pokhara road.

(b) Make a feasibility study of the whole road network in order to:

(i) fill in missing areas of route alignment within the Master Plan; and (ii) fix the alignments to be used and to allow the populated Panchayats in this area to begin some of the work.

(c) Construct a small staff building and a freight godown at .

(d) Acquire land to permit construction of a longer runway at the Pokhara airport. Provision is also made for shaping and smoothing the present runway, and construction of a freight godown.

(e) Some temporary improvements are provided at Gurkha airport, including improving the runway and constructing a small multi- purpose terminal building.

H. The Western Terai

Econo.nic Features

123. This area covers the Terai portion of the Lumbini zone together with the districts of Nawal, Parasi, Rupandehi and Kapilavastu. The main concentration of population is between Tribenighat and Krishnagar where there are approximately 300,000 inhabitants. The Narayani Valley is at present less crowded, but it is in an area with potential for intensive settlement.

124. This area is very significant for transport planning because there will be a substantial amount of new investment and economic activity - 129 - generated here during the Second Five-Year Plan period. Although the area is presently predominantly agricultural, an important nucleus of industrial activity is starting around Bhairawa. A sugar factory was recently established.

125. A ricultural activities. The Western Terai offers some potential for buyig new" land by converting jungle of low commercial value into cultivable land. A settlement scheme of 2,000 hectares to accommodate 900 families is already under way. Some uncontrolled settlement by people coming down from the hills is also going on. The foothills of the Terai include some valuable forests. No systematic exploitation has yet begun. When this is done and sawmilling facilities are provided, forest products will con- tribute to expanding incomes and general economic activity in this area.

126. Paddy is the main crop in this region, with only a small area under wheat as a second crop. The Agricultural Census estimated that 225,000 tons of paddy were grown in 1961. The Rupandehi,the 1Iawal and the Parasi districts are included in the wheat campaign. With the provision of irrigation and consequent double cropping, wheat production could increase gradually. According to preliminary estimates the grain surplus in the area was in the order of 61,000 tons, of which recorded exports through Bhairawa and Krish- nagar in 1959/60 were about 25,000 tons. In addition, there must have been a substantial unrecorded export into India. Information is lacking on precise movements of food grains into the hills, but observations of the movement of porters and pack animals from Butwal and Narayanghat indicates a significant flow. Government observations of porter movements at Butwal in March indicate a maximum outflow of about 800 porters or 50 tons. Tle Government has established storage facilities at Bhairawa for 1,100 tons.

127. Sugar cane is becoming increasingly important as a commercial crop in this area. About 1,000 hectares are grown in the districts of Rupandehi, Nawal and Parasi, and about 2,000 hectares in Krishnagar. The newly construc- ted sugar mill at Bhairawa will require about 3,500 hectares of cane to sus- tain full production. The annual production of the mill will be approximately 9,000 tons of sugar. A second mill is to be set up at Krishnagar with a daily crushing capacity of 1,000 tons. This will require about 1,400 hectares of sugar cane, and will have an annual production of about 12,000 tons of sugar. The conditions for expanding sugar cane production are favorable provided irrigation water and fertilizers are available.

128. Mustard is grown extensively in Nawal and Parasi, and the Government plans to increase the cultivated area by 25 per cent through double cropping. Irrigation is a necessary precondition for this.

129. This area offers favorable conditions for irrigation, with one project nearing completion and two others being planned. The Indian Aid Mission is completing the Tinao project with an irrigable area of 12,000 hectares. It is mainly designed for supplemental irrigation and is expected to increase paddy production alone by 5,500 tons or more. The Western Gandak canal is - 130 -

scheduled to be completed in the Second Five-Year Plan period and will irrigate approximately 12,400 hectares of land in the Nawal , resulting in an annual increase of 3,700 tons of paddy and 11,000 tons of sugar cane. The Banganga project for providing irrigation facilities to 5,000 hectares of land is being surveyed. Construction work on this proj- ect will start within the Second Five-Year Plan period. In addition, there is ample opportunity for tapping sub-surface water for irrigation provided a suitable source of power is available for pumping.

130. Bhairawa is the main market center both for exports to India and for distribution of consumer goods and food to the hills via Butwal. Taulihawa and Krishnagar are also market centers for agricultural produce. The latter serves as an important communication center into the adjoining area of Sallyan and Piuthan as well. Tne importance of this area will also increase with the completion of the Sunauli-Pokhara road and the fLows of commerce that will result from it.

131. Export traffic. There are major exports of paddy and rice into India, most of which go unrecorded. Some unsawn timber and sugar cane are also exported into India.

132. Industrial activities. The present industrial base consists of a sugar mill at Bhairawa a.ad small rice and oil-milling facilities. The es- tablishment of the second sugar factory at Krishnagar and some of the other industries, for which plans are being drawn up - such as the pulp factory - will expand this base significantly in the next five years. The Gandak project, when completed, will provide Nepal with about 10,000 kw of power. This power will have further consequences for both agriculture and industry in the area.

Communications

133. The area is generally flat (Narayani Valley and Terai rice fields), and has many bullock cart tracks.

134. One motorable road, in very poor condition, runs from Nautanwa in India north through Bhairawa to Butwal. Fortunately, it is now in the process of being reconstructed as a part of the new road to Pokhara. A fair-weather road was built several years ago from Bhairawa west to Taulihawa, but almost nothing remains today.

135. There are three good gateways to India: the railway stations at Nautanwa and Barhni, and the road from Tribenighat. The main points of junction with the hills are: Narayanghat, Butwal and Bagwanpur.

136. The principal recorded traffic flows in this area are: Narayanghat- Bikhnathori, Butwal-Bhairawa and Bagwanpur-Krishnagar. - 131 -

137. There is a new all-weather airport at Bhairawa which is just in the final stages of construction by the Indian Aid Mission. It has a 3,600 ft. paved runway, which has not been stressed to accept planes heavier than a DC-3, and is not long enough to accept the planes which will eventually replace the DC-3s. There is also a fair-weather airport at Bharatpur. Objectives

138. These are to

(a) drain the rich Terai fields along the Indian border from Tribenighat to Krishnagar to central market points for move- ment to India;

(b) provide improved passage for commodities to or from the hills;

(c) provide improved west to east circulation within the Terai, linking cenural market points; and

(d) link these roads to the general Nepalese road network. Master Plan

139. The Plan includes two principal elements: two north-south roads, (Nautanwa-Butwal and Krishnagar-Bagwanpur) and one west to east linkage from Narayanghat to a connection with the Krishnagar-Bag6panpur road. In the Terai itself from Tribenighat to Krishnagar, the density of population, and rich- ness of the low Terai, favors a road in the low Terai over a foothill road. But from Narayanghat to Parasi it is difficult to say which alignment is best for this linkage because of:

- The crossing of the Gandak river. A dam is planned at Tribenighat which may be used for the river crossing, similar to the Kosi Barrage.

- The crossing of the mountains in the neighborhood of Tribenighat.

Five-Year Plan

140. This includes:

(a) completion of the Sunauli-Butwal road;

(b) a feasibility study in search of the best alignment for the road from Narayranghat to the Krishnagar-Bagwanpur road; seeking in particular for the best alignment, right or left bank of the Narayani, between Narayangath and Parasi; - 132 -

(c) engineering designs for the road laid in the low Terai from Parasi to Taulihawa and construction of this road;

(d) construction of a godow¶n at the Bhairawa airport;

(e) construction of a staff quarters building at Bhairawa airport; and

(f) acquisition of land to permit future extension of runwiays at Bhairawa airport.

I. The Piuthan-Sallyan Area

Economic Features

141. This region comprises: (a) the consisting of the West- ern Inner Terai (Dang-Deokhuri district) and the Hill area of the Far Western Hills (districts of Piuthan, Sallyan, Rolpa and Rukum); (b) the easternmost district (JaJarkot) of the , also a part of the Far Wlestern Hills; (c) the easternmost district (Tibrikot) of the ; and (d) the westernmost district (Dolpo) of the Dhaulagiri zone. Little is known yet about Tibrikot and Dolpo, which are in the Himalaya Moun- tains. Information is also scarce about the Jajarkot and Rukum districts which are part of the Far Western HIills, and are not easily accessible.

142. The population of this area is approximately 700,000 with the larg- est concentration in the Piuthan area (200,000). Smaller concentrations are to be found in the Sallyan area (Sandakhola basin), in the valley to the north of Sallyan (I4arikhola, Bheri, Sanibheri), in the Dang plain, and along the Rapti Valley.

103. There are three geographical regions in the Piuthan-Sallyan area: (1) Western Inner Terai, (2) Hill Area and (3) Mountainous Area.

14. Agricultural activities. The main crop in the Western Inner Terai is paddy (approximately 32,000 hectares), the yields being lower than in the western or eastern Terai. Maize (9,000 hectares) and wheat (5,000 hectares) are grown on the uplands. The Agricultural Census indicated the paddy production in this region to be 54,000 tons and maize 32,000 tons. Esti- mates indicate that this region has a food surplus of 4l,000 tons. Records for 1959/60 show that about 1,000 tons of paddy and maize were exported to India through , the main market. Since information obtained by interviews indicated that the Western Inner Terai has a substantial food grain export, it can be assumed that either the major part of the surplus exported went unrecorded, or moved through markets other than Koilabas. It is possible that the export figures for Nepalganj include food grain grown in the Wlestern Inner Terai, or that a substantial part of the surplus moves north to the hills. - 133 -

145. The present governmient plans are to double production of wheat in the Western Inner Terai. Implementation of this scheme would depend on both new acreage and adequate seed supply.

146. Mustard cultivation ranks second in the Western Inner Terai with about 16,000 hectares under cultivation. It is estimated that about 4,500 tons are exported to India annually, although records slhow that only about 1,400 tons were exported through Koilabas in 1959/60. Some small-scale oil mills are operating in the area, but are confined to processing for local consumption.

l147. In the Hill area, maize is the most important crop. Paddy is grown mainly in the valleys. There are indications of some paddy areas of impor- tance in the . IWJheat is cultivated all over the Hills. Millet is often double-cropped with maize. Barley and buclkwheat are grown at higher elevations, mainly for local consumption.

148. The Agricultural Census has estimated that production of maize and paddy in this region was approximately 73,000 tons and 19,000 tons respect- ively. Despite this production, the Hills are estimated to have a net def- icit to the extent of 22,000 tons.

149. Oranges are grown in the districts of Sallyan, Piuthan and Rolpa but because of the lack of marketing opportunities they are sold locally for low prices. The potential for extending fruit growing on a more commercial basis is good if marketing can be improved along with storage and transport facilities.

150. Wheat, maize and millet are grown in the mountains, and some rice is cultivated at elevations of 6,500 ft. But, the most important food grain crops on the higher elevations are buckwheat and barley. In general, these food grains are produced for local consumption. It is estimated that about 10 per cent of the food grains produced are bartered against salt and sheep from Tibet. The mountainous area appears to have potential for the cultiva- tion, of deciduous fruits, such as apples, peaches, walnuts, etc. Such fruits grown at present are consumed locally since there is no possibility of marketing them due to the lack of adequate transport facilities. Potatoes are grown for self-consumption, whereas small quantities of chili are brought down to the Terai for marketing.

151. Herbs are collected in the mountainous areas and provide additional income.

152. Livestock production is distributed throughout all three regions of this area. Ghee, sheep, wool, woolen products, goats and horses are the main products marketed. The potential for expanding the sheep industry is under investigation. The quality of ghee could be improved by organizing markets and establishing refineries which would, in turn, provide higher prices. - 134 - 153. Export traffic. Large amounts of rice, paddy and maize are exported to India. Records show exports of only 1,000 tons but indications are that actual traffic is substantially greater. About NRs 1.2 million in animal hides are marketed in India annually. Ghee is sold in India, but brings low prices because it is unrefined and of low quality. There are small exports of food grains across the Tibet (China) border in barter against sheep and salt. 154. Industrial activities. None.

Communications 155. This area is difficult of access because it lacks a basin oriented to the south. The three big rivers, Bheri, Babai and Rapti, are mainly oriented east-west. There are no roads in the area except jeepable tracks across the mountain from Bagwanpur and Koilabas.

156. The traditional trails are:

North-South - Krishnagar-Piuthan - Koilabas-Ghorai

East-West - Sallyan-Piuthan-Gulmi-Tansen

157. A route for the proposed East-Wlest Highway has been surveyed from Baluwang to Chatra. The most effective gates to India for cormmerce are Bagwanpur, Krishnagar, Koilabas and Nepalganj.

158. There is one commercial airport at Dang, near Targaon in the West- ern Inner Terai. It is a fair-weather field with an absolute minimum of facilities. There is also a STOL field at , on the banks of the Uttar Ghanga north of Piuthan. There is reported to be a good site for a DC-3 field near Jajarkot which has not been developed.

Objectives

159. These are to: (a) provide a system for local circulation within the area; (b) have one or two good routes into the Terai with connections to India; (c) link these roads to the general Nepalese road network. - 135 - Master Plan

160. The Master Plan includes:

- A north-south road from Piuthan to Bagwanpur to drain the Piuthan area toward the Terai and India. This is a route that has already been studied by the RTO.

- A west to east linkage along the Rapti Valley; this has al- ready been studied by the East-West Highway Department.

- A road north from the Rapti Valley road to the Dang plain.

- A linkage from Koilabas on the Indian border north to the Rapti valley road.

- Phasing out of Dang airport by RNAC as good all-weather roads to Nepalganj are completed.

161. The servicing of the areas around the north of Sallyan has not been clearly determined because the geography of the area presents many problems. This is recommended as a subject for a feasibility study, which should con- sider three possible solutions:

(a) a linkage to Piuthan;

(b) a linkage south into the Dang Valley; and

(c) a linkage west to the , joining a proposed road from Nepalganj north.

Five-Year Plan

162. Under this Plan, it is proposed to:

(a) make a feasibility study of the means for servicing the Sallyan area, and the Dang plain (including studies of Koilabas-Rapti Valley and Rapti Valley-Dang plain linkages);

(b) construct a small multi-purpose terminal building and staff quarters at Dang airport, plus the provision of minimal radio facilities.

J. The Karnali Area

Economic Features

163. This region is located in the Far WIestern Hills and comprises the Hill areas of the Bheri zone (except for the Jajarkot district), the eastern part of the (excluding the Terai portion), and the Karnali zone - 136 -

(excepting the Tibrikot district). This area has a population of more than 300,000, mainly concentrated in the upper part of the Karnali valley and in the Tila Khola Valley around .

16h. Agricultural activities. ilaize and paddy are the main staple crops in the Hills, with paddy predominant in the valleys (particularly in ). Wheat is grown as a major crop, with millet frequently cultivat- ed on less fertile soils. These crops are also grown in the mountainous areas. Local paddy is cultivated almost up to 7,000 ft. At high elevations buckwheat and barley are important crops for local consumption, although the total cultivated area devoted to these crops is relatively small.

165. The Agricultural Census estimated food grain production in this area to be of the order of 31,000 tons. In general this area is assumed to be self-sufficient. It is estimated that about 10 per cent of the food grain produced here is bartered for salt and sheep from Tibet.

166. The area apparently has a good potential for fruit growing. Oranges grown in Dailekh and Surkhet districts are exported in small quantities to India through Nepalganj. Deciduous fruits are produced in Jumla, along with walnuts. Fruit growing on a more commercial basis can be developed with time and with the provision of necessary transport facilities.

167. Potatoes are grown in the Dailekh and Surkhet districts with a small surplus exported to India. There are proposals for major increases in pota- to cultivation in the Far Western Hills, but the potential for such a devel- opment has still to be investigated. Small quantities of chili are grown in the mountainous areas for marketing in the Terai and for export to India. Potatoes are grown extensively in the north of Jumla.

168. Collection of herbs presents an important source of income for residents in the Hills and the mountainous region of the Karnali area. The Government plans to set up an extraction laboratory for herbs in Jumla. The potential for increasing the export value of herbs through establishing an organized market and operating an extraction laboratory appear to be favorable.

169. Livestock products provide an additional source of income to this area. Ghee is the main product and is exported to India through Nepalganj and Radhapur. It is intended to set up a ghee refinery at Nepalganj.

170. Hides and honey brought don-m from the Hills are exported to India. The number of hides marketed at Rajapur in 1959/60 was about 10,000.

171. Sheep, wiool, woolen products and horses are shipped to the Terai for use there or for export. Improved accessibility will be one of the major prerequisites for any development of sheep farming in the area. - 137 - 172. Valuable forest reserves exist in this area, but their full potential has yet to be investigated.

173. Export traffic. There is no large export traffic. However, small quantities of potatoes. chili, hides, honey, sheep, wtool and woolen products and horses are exported to India. Ghee is a main export product sent to India via Nepalganj and Rajapur.

174. Industrial activities. There is none at present other ti-ian small rice and oil mills. However, there is major hydroelectric power potential in the Karnali. A preliminary survey indicates a potential of 3,000 mega- watts can be developed along three sites. There are deposits of limestone which could form the basis of a cement industry if the other necessary ingredients (coal or gas and gypsum) can be found. Traces of oil and natural gas have been found in this region, out have yet to be explored systematically.

Communications

175. There are no roads in this area, if one discounts a jeepable track built along the Tila Khola Valley south from Jumla. The normal trails followed by the porters are:

- Nepalganj-Surkhet-Dailekh-Jumla - Chisapani to Doti - Dailekh to Doti 176. The valleys offer good road locations in their upper reaches, but as they flow south their routes become very difficult. For example, the Karnali river from the Dailekh area to Chisapani flows in terribly steep and deep gorges with many sharp bends. Thus access to the northern portions of the area will present some unusually difficult problems. 177. The principal gatewrays to India are Nepalganj-Nepalganj Road, and Rajapur-Xauriala Ghat.

178. There are no commercial airports in this area, though there are STOL fields at Jumla, Surkhet and Tikapur. The latter is used by the Yarnali project hydrological survey teams. Objectives

179. These are to

(a) provide a system for local circulation within the area;

(b) have one or two good routes to and from the Terai with connections to India; - 138

(c) link these roads to the general Nepalese netwsork; and

(d) provide one good, centrally located commercial airport where service can be provided to and from Kathmandu, and the rest of Nepal. Master Plan

180. The Master Plan includes:

(a) a road in the upper Karnali Valley, at least as far up as Galwa;

(b) a road in the Tila Khola Valley up to Jumla; and (c) a linkage to the south.

181. The specific alignment for this southern linkage is difficult to plan at this point because it will depend on the final locations selected for iCarnali river power plants. In addition, it requires careful engineering study because the area is very difficult, and there are many locational problems.

182. Two types of solution may be considered, a priori:

(i) a Nepalganj-Surkhet-Dailekh road; (ii) a road aligned with the general direction of the river and ending at Chisapani and Rajapur, connecting with the Indian railway station at Kauriala-Ghat.

183. Over a long period some engineering feasibility studies should be made of the airport at Jumla to determine whether it can be extended and improved (at a modest cost) to accept commercial planes, or whether a more acceptable alternative site can be found. Five-Year Plan

184. No projects.

K. The Dandeldhura-Doti Area Economic Features

185. This region is located in the Far Western Hills and to the north of area 12, the Far Western Terai. It comprises the (excluding the portion in the Terai) together with the districts of Dandeldhura, Baitadi and Darchula and the western portion of Seti zone (excluding the portion in the Terai), and with the districts of Doti and Bajhang. The area is formed by the basin of the Mahakali and the Seti (a tributary of - 139 -

the Karnali). It has a population of more than 500,000, mostly distributed in a strip along the Mahakali and Chamila rivers from Dandeldhura to Doti, and in the upper Seti valley.

186. Agricultural activities. Agriculture is the mainstay of this area. Food grains are grown mainly in the Doti area. Wheat is a major crop all over the region. Paddy is of importance on the lowland (wet), but is also cultivated on upland (dry). In addition, maize and millet are grown on dry land. Bucklaheat and barley are cultivated in the mountainous regions. Food grain is almost exclusively utilized for local consumption. The Agricultural Census of 1961/62 estimated that 38,000 tons of paddy and 8,000 tons of maize were grown in this area. Data on wheat production are not available but it can be assumed that wheat output is not less than 50 per cent of maize production. Double cropping is widely practiced and wheat growJing is commonly favored by the higher winter rainifall - higher than prevails in the Eastern Hills. Available information indicates that the Hill area of this region was more or less sufficient until recently. In recent years, the food situation has become increasingly serious with demand greater than supply. On the basis of preliminary calculations the food grain deficit has been estimated as being 15,300 tons in Mahakali and 3,800 tons in the Seti zone.

187. Potatoes are grown in the Hills (particularly around Baitadi) with an unknown quantity apparently exported to India. It is assumed that there is potential for extending the area under potatoes substantially, but this would require further study.

188. Oranges are growm in the district of Baitadi and there appears to be potential for apples. Cultivators are showing interest in expanding fruit growing, so the Department of Agriculture (assisted by Indian Aid) has set up an orchard-cum-nursery near Baitadi. Effective marketing of the increased fruit produced will bring transportation problems.

189. As in other hill areas in Nepal, livestock is an important source of income for the Hill people. Ghee is the main product marketed; how- ever, the amounts exported to India through Rajapur, Trinagar, Mahendran- agar and Jhulaghet appear to be less than 300 tons each annually. If means could be provided for improving ghee quality, and organizing the market, it is probable that the quantity and value of ghee produced for export could be appreciably increased. Hides and honey are brought down in small quantities from the Hills for export to India. Sheep, wool and horses are also exported.

190. The sheep industry can be improved and extended provided the areas under question can be made more accessible.

191. The general area has valuable forest reserves. The Dandeldhura-Doti area has a good potential for forest exploitation, although final assessment - 140 - will depend on the results of the forest inventory now under way. YMost of the coniferous forests in the Hills are not yet accessible. IThen forest exploitation begins in this area there are possibilities for floating the cut timber on the Mahakali river, but this would require further investiga- tion and coordination with the program.s for sawmill development.

192. Export traffic. About 300 tons of ghee are exported to India aInually. Hides, honey, sheep, wool and horses are also brought down from the Hills in small quantities for export to India.

193. Industrial activities. None in this area.

Communications

194. There are no roads in the area. The most heavily travelled trails followed by porters are:

- Chisapani-Doti-Bajang - Bralbmadeomandi-Dandeldhura-Baitadi - Baitadi-Doti

195. The principal communications wJith India are either to the west or to the south. The western border, which is formed by the Mahakali river, presents crossing problems because there are no bridges. The Indian rail- way comes only as far north as Tanakpur. The road from Tanakpur leading north to Pithoragarhis in poor condition, though the Indian Government has plans for improving it.

196. The alternative route is to the south by way of Dhangorhi or even Rajapur.

197. There are no commercial airports in the area, and only one STOL field at Silgarhi-Doti.

Objectives

198. Tlese are to

(a) provide a system for local circulation writhin the area;

(b) provide a limited number of good access routes to India;

(c) have a good route to and from the Terai;

(d) link to the general Nepalese road network; and

(e) provide one central commercial airport where service can be provided to and from Kathmandu and the rest of Nepal. M4aster Plan

199. Dandeldhura appears to be the central point for the area in terms of population, so the Master Plan includes a road reaching from Dandeldhura to Doti, connecting with local feeder routes to the upper Seti Valley.

200. From Dandeldhura there are three possible outgoing routes:

(a) to Baitadi and then Pithoragarh;

(b) as directly as possible to the west; and

(c) southwest to 'ranakpur.

201. The route offering the greatest economic return would join Dandeidhura with Mahendranagar providing connections both to Tanakpur, and to the south and east. In the Baitadi area further studies and discussions with the Indian Government are recommended in making a choice between:

(a) a purely Nepalese road between Baitadi and Dandeldhura; and

(b) a road from Baitadi across the Ilahakali river to Pithoragarh, connecting through with the Indian road south to Tanakpur.

202. It is planned to initiate the construction of a year-round commercial airport at Silgarhi-Doti. This will involve engineering surveys and studies to (a) locate a favorable site, and (b) prepare plans for its development.

Five-Year Plan

203. There should be a feasibility study of the possibility of locating a commercial airport at or near Silgarhi-Doti.

L. The Far Western Terai

Economic Features

204. The Far Western Terai comprises the Terai portions of the Bheri zone (Banke and Bardia districts) the Seti zone () and the Mahakali (Kanchanpur district3 zone. Annual rainfall in this region is low and soils are generally dry as a result of wrhich food grain crops yield less than the average for Nepal. Shifting cultivation is widely practiced in the w7esternmost parts of the area.

205. The population density of the Terai region in Mahakali and Seti zones is low with only 200,000 inhabitants, principally due to the prevalence of malaria. These are concentrated mostly in the neighborhood of Nepalganj, Dhangarhi, and between Rajapur and Dhangarni. - 142 -

206. Acricultural activities. A great portion of the area is still under forest (e.g., IKailali district about 50 per cent). A demarcation between land suitable for cultivation and that which should remain forest land must await the outcome of the land utilization scheme now under way. However, it can be assumed that this region contains considerable reserves for cultiva- tion currently estimated at about 50,000 hectares. The Government is pre- paring two settlement schemes to be carried out in this region within the next ten years: (a) districts of Banke and Bardia with a'oout 3,400 hectares for the settlement of 1,400 families;

(b) districts of Kailali and Kanchanpur with about 4.,500 hectares for the settlement of 1,900 families. 207. The main places where agricultural products broaght down from the Hills or produced in the Terai are collected for marketing are Nepalganj, Rajapur,Dhangarhi and Mahendranagar. These serve both as export centers for agricultural commodities and impnrt centers for consumer goods from India. Mahendrarnagar is a new and flourisiing trade center with its market flow going in a western direction to India and not, as is usual in the Terai, to the south.

208. Because of its inaccessibility, very little has been done to provide this region with the irrigation facilities needed to support effective agricultural development with low rainfall. The first such project is the Dhundawa project being constructed by Indian Aid near Nepalganj with an irrigable area of 1,900 hectares and 10 per cent rabi crop.

209. Paddy is the main crop in the Far Western Terai; maize is of sec- ondary importance. Wheat as rabi crop is negligible but to some extent is grown as a major crop on the uplands. The Agricultural Census has estimated that 152,000 tons of paddy and 39,000 tons of maize were produced in 1961/62. 210. The districts of Bardia and Kailali produce more than 75 per cent of the total production in the area. 211. On the basis of purely theoretical calculations, it is estimated that the surplus production of food grains was of the order of 65,000 tons.

212. There are plans for increasing the wheat acreage in this area.

213. The Government estimates that the Far Western Terai has about 25,000 hectares under cultivation with mustard. This region is one of Nepal's major mustard-growing areas and has a good potential. Export records for 1959/60 show that more than 4,000 tons of mustard were exported to India from Nepalganj, Rajapur and Trinagar. - 3143 - 214. In the Bardia district some sugar cane is grown, but reported yields appear to be very low. This cane is exported to Indian mills. Establish- ment of a sugar mill at Nepalganj with a daily crushing capacity of 750 tons is projected. Supporting this mill would probably require a sugar cane area of about 5,000 hectares. Further investigation is necessary to ascertain the cane-growing possibilities in this area. It is evident that fertilizer will be needed for effective sugar cane cultivation.

215. Valuable and extensive forests exist in the Far Western Terai, par- ticularly in and in the lower Kamali basin. Four saw- mills with a total annual government allocation of 200,000 cu.ft. of tim- ber are operating in this region. It is proposed to increase the timber allocation by 60,000 cu.ft. in 1964/65. In addition, auction sales of standing timber are taking place because the sawing mills are not within reach of the timber stands to be felled.

216. Pending the outcome of the forest inventory now under way, there are plans for setting up two forest industry centers within the next two Plan periods, each with a final annual sawing capacity of 700,000 cu.ft. One is in the Bheri zone and the other further west. The establishment of a plywood factory with a final capacity of 825,000 sq.ft. is also being considered. 217. If and when the Karnali project develops there will be considerable economic activity in this area, particularly around Nepalganj.

218. Export traffic. Export records for 1959/60 show that about 26,000 tons of paddy and maize were exported to India. These export quantities are obviously under-stated. A survey at Dhangarhi has demonstrated that from 45 to 50 per cent of actual exports are not recorded.

219. According to government records there are four larger rice mills in the districts of Banke and Bardia with a total annual capacity of about 7,500 tons. In Kailali district about 54 small rice mills meet local requirements. 220. Industrial activities. There are no industrial activities in this area other than a few small rice and oil mills and four sawnmills.

Communications 221. The area is flat, but there are no permanent roads. The delta of the Karnali (below Chisapani) and the Babai river divides the lower part of the Terai into two. Most principal tracks and trails go north-south, to and from the Hills.

222. The gateways to India are Tanakpur, Gauriphanta (in front of Dhangarhi), Chandan Chauki, Kauriala Ghat (in front of Rajapur on the right bank of the Karnali), Katharnian Ghat (on the left bank) and Nepalganj. - 144 -

223. There are fair-weather commercial airports at Nepalganj and Dhangarhi. There is a STOL field at Solta used by Karnali survey teams.

Objectives

224. These are to

(a) provide improved circulation within the Terai, particularly east and west;

(b) provide better access to and from India to channel commerce;

(c) provide improved north-south access to and from the Hills;

(d) connect local road system to general Nepalese road network.

Master Plan

225. There is need for but one new major access road into India: from Mahendranagar across the Mahakali river to Tanakpur in India, a major Indian railways terminal.

226. In this area, with its poor connections to the east because of the -Karnali delta, we advise a west to east road generally following the foot- hills from Nepalganj or Chatra to Chisapani and 1Mahendranagar crossing the Karnali at the site finally selected for the hydroelectric dam.

227. Two north-south roads are suggested:

(a) from Dhangarhi north to the foothills road connecting with the west to east link described above; and

(b) from Nepalganj north to the foothills area. This road could form a part of the west to east road link.

If the feasibility study of the Karnali area concludes that the best issue from the northern hills is by way of Chisapani, there would be need for a third north-south road running from Chisapani south to Rajapur.

228. It is planned that Nepalganj should eventually become the major transportation center for western Nepal. As a part of this plan, provision should be made for the eventual construction here of a major airport, some- wihat similar in size and function to that proposed for Biratnagar.

229. There is also need for an evaluation of the present fair-weather air- port at Dhangarhi. Inasmuch as this airport is in need of improvement before it can be used extensively, this is a good opportunity to consider the bene- fits to be gained by moving it to a new site near Mahendranagar where it -145 - could serve both the Terai and the Hills, and where construction of all- weather runways would be easier and less costly.

230. There should also be a feasibility study of extending the Indian railways meter-gauge line from Nepalganj Road in India across the border into Nepalganj, as has been recommended for Biratnagar and Birganj.

Five-Year Plan

231. Initiate discussion with the Indian Government for the construction of a bridge across the Mahakali river on the India-Nepal border for a road connecting Mahendranagar in Nepal with Tanakpur in India. When agreement is reached, the road and bridge to be constructed during the Plan period.

232. Selecting the best site for an airport at Nepalganj, and purchase sufficient land to permit eventual construction of a major airport. On this site build a 5,000 ft. all-weather runway, a small multi-purpose ter- minal, staff quarters, and minimal radio facilities. Construct a permanent road from the site selected for long-term airport development into Nepalganj.

233. On the site selected for the Dhangarhi-Nahandranagar airport, con- struct a 5,000 ft. dirt and gravel runway plus a simple multi-purpose terminal building. 146

Chapter 6

TECHNICAL AND ECONOMIC PAPERS IN SUPPORT OF ROAD PLAN

A. Definitions

1. To avoid misunderstanding between the Nepalese, English and American terms used in connection with highway work, below is a definition giving the meaning of the words used in this chapter:

Formation - - The part of the road extended from the external side of one shoulder to the other side.

Pavement - The part of the road which is made with special materials and supports the vehicles.

In an asphalted road the pavement is formed of: sub-base, base, and black top. The black top is the part with asphalted materials; the surface is the last course on which the vehicles run.

In a gravelled or macadam road the pavement is formed of a base course, if this course is to be used, and a surface which is the course on which the vehicles run.

Foothill Area - This is a reference to the upper part of the Terai plain which is in close contact with the first hills, but not in the hilly country itself.

B. Various Types and Construction Cost o[ Roads To Be Built in Nepal

General

2. In 1963 Nepal had about 300 miles of good permanent roads. At the end of the Second Five-Year Plan it is scheduled to extend the network by another 500 miles, and Nepal hopes to maintain a construction rate of 100 miles per year in the years following the Plan. The Mission is of the view that, in embarking on such a large road-building program, the tech- niques of planning and methods of construction should be reviewed.

(a) Any major project in such a rugged terrain as in Nepal, started without proper study will result in both a waste of time and resources. Feasibility and engineering studies must always be finished before the construction work begins. - 147 -

Construction work should be in accordance with a plan and there should be no improvisation as construction proceeds. A model for project construction is the Kodari road.

(b) Locally available natural road-building materials should be used as much as possible. Where gravel is available it should be used instead of brick or macadam for the base course of as- phalted roads, as the cost of construction will be greatly reduced. Particularly in the foothills and hills, where there are numerous gravel quarries, the use of natural material must be the general rule.

(c) For the estimated foreseeable level of traffic on many of Nepal's roads during the coming five years (i.e., less than 150 vehicles per day), it is recommended that normally a gravel road should be planned. This type of road would be all-weather and, if well maintained, its surface can be as good as an asphalt surface. Both the construction and main- tenance costs are less than the costs for an asphalted road. When the traffic justifies a change, this gravel road can be black-topped.

The program of construction of gravel roads must go hand in hand with a program for strengthening the heavy equipment division of the Road Department, as the construction of this type of road requires heavy equipment such as the motor grader.

The only roads of low traffic on which we do not recommend gravelling are:

(i) the Low Terai roads which are far from good sources of gravel;

(ii) steep sections of road where heavy rainfall would erode the surface.

(d) Nepal does not use modern methods for calculating what thick- ness the road pavement should be. We recommend the use of modern methods, including laboratory soil tests. There is a tendency in the Lower Terai, for instance, to build roads with a pavement that is too thin. If such procedures are used it will lead to an increase in the thickness of the pavement, resulting in a longer life for the road. At the construction stage there will be additional expenses, but in the long run there will be compensatory savings.

Specific

3. In the following discussion the main features of each typical area - 148 .

are examined and recommendations are made as to the type of road to be con- structed, and the cost of construction. The costs have been calculated by application of rough unit costs to rough average quantities, in agreement with the Road Department in Nepal.

(a) LOW TERAI AREA

(i) Typical features. The countryside is entirely flat (general slope 4/10,000). The soil is made of silt, very find sand and clay in some places; there are no stone quarries at all; bricks are widely available. There is a dense network of rivers and canals; river floods last about three days between June and September; afterwards large areas are flooded or at least wet from June to December. The country is cultivated and heavily populated with important traffic of carts.

(ii) Types of Roads

All-weather roads. All-weather roads should have embankments with side slopes of 2/1 and a pavement three to six feet above the ground. A pavement is a necessary characteristic of an all-weather road as the natural soil is muddy in the rainy season and dusty (up to three inches of dust) at the end of the dry season. Today the all-weather roads in the Terai are asphalted; the pavement is generally made of bricks (usually for the two lower courses) and crushed stones (for the upper course), and the surface is black-topped. In the future, in some cases depending on the facilities of transport and on the distances from the Hills, there may be a gravel base instead of a brick and stone base. All-weather roads in the Terai must have bridges and culverts from the outset.

Low-cost roads. Such roads have no bridges or pave- ments. They are not motorable from April (dust) to December (wet ground), but can be used by bullock cart, except during the floods. They never have a good surface and are expensive to maintain. They cannot easily be converted for use by trucks.

(iii) Recommendations

We recommend as the typical road formation in the Terai a 34 ft. wide formation. This width is re- quired to provide not only for mechanized transport, but also lanes for bullock traffic which will continue - 149 -

to be an important means of transport in the Terai. At the first stage, one can have two bullock cart tracks and one lane (12 ft. wide) asphalted pave- ment and at a second stage two lanes (22 ft. wide) asphalted pavement.

We do not recommend the building of low-cost roads, except by the Panchayats. All highways in the Terai must have the recommended width and permanent bridges from the outset.

With regard to bridges, we recommend on the north- south roads receiving the hill traffic a two-lane bridge from the outset, but on the east-west roads only a one-lane bridge for structures exceeding 40 ft. in length. This differentiation could save approximately NRs 150,000 per mile in construction costs on the east-west roads. Consideration should be given to use of timber bridges where possible.

A saving of about NRs 50,000/km. may result from building a gravel road instead of an asphalted road. But we do not recommend this solution for we fear that the maintenance of such a road, a long way from the quarries of selected material, will never be good.

(iv) Costs

For the Plan purposes, the average estimated cost for the east-west roads is NRs 950,000/mile, and for the north-south roads NRs 600,000/mile.

(b) FOOTHILL AREA

(i) Typical features. This area is flat, but there is a general slope to the south (0.5 to 2%). The soil is made up of a mixture of sand and stone. In some places one can find good natural soil to be used as a base course. There are torrential rivers with a bed formed of stones and gravel. The floods last one to a few hours and are strong enough to transport trees; the bed is not fixed in certain places, but in general, large areas of ground are not flooded. The land is sparsely populated and often covered with forests.

(ii) Type of Road

All-weather roads. Since the ground is not flooded, the earthworks are not as important as compared with . 150 -

the roads in the Lower Terai area. The river must be crossed either by a bridge or, more generally, by causeways. The location of the crossing has to be carefully studied on aerial photos, Generally the best point is the outlet from the hills; after this point the river often diverges as in a delta. Due to the quality of the natural soil, a bituminous pavement is not necessary as far as the traffic is concerned, unless it exceeds 150 vehicles per day, depending upon materials used and dry weather losses.

Low-cost road. It is possible to have a track at a relatively low cost, wherever the soil is made of coarse materials or at least if there is a supply of coarse material along the alignment. This track should be equipped with culverts, but at the first stage the big rivers may be crossed during the dry season without major work; after the floods only surfacing by a motor grader is required. The align- ment of these tracks should be carefully studied from the beginning with a view to progressively improving them to the status of a permanent road.

(iii) Recommendations

Our recommendations concerning the foothill roads are:

Study carefully the point where the river must be crossed.

Align the road as close as possible to the base of the foothills, close to the supply of gravel and coarse material. If the road is aligned away from the foothills it will cost much more because river crossings will be more expensive and road-building materials will not be easily available in the vicinity.

Adopt a width formation of at least 30 ft. (9 meters).

Along the sections where the expected traffic is not too heavy, and providing one can use a motor grader, the construction of the road in two stages is advisable. This will result in a considerable saving in the first stage (more than NRs 200,000 per mile). The first stage of a low-cost road is explained above. The second stage is an all-weather road with bridges or causeways. " 151 . (iv) Costs

The foothill gravelled road costs about NRs 400,000 per mile. The difference in cost between a 9.60 m. and 8 m. wide road is small and it is the reason why the larger width is recommended. More than half the cost of the road is incurred in the crossing of the major rivers, even if they are crossed only by causeways.

(c) MIDDLE TERAI AREA

The all-weather roads will be generally of the same type as the Low Terai road, but the existence or proximity of gravel or stone quarries may again make it advisable to build a gravel surface. But in general in the Middle Terai it will be impossible, due to hydrological and soil conditions, to build the road in two stages. The lower Terai type of all- weather road fully bridged or with causeways must be built from the beginning.

(d) KATHMANDU VALLEY

(i) Typical features. The relief is relatively soft; the soil is variable and composed mostly of fine material, but there are some gravel quarries; brick is widely available. There is heavy traffic of cars and people.

(ii) Types of road and recommendations. Due to the impor- tance of traffic in populated neighborhoods, one must plan two-lane roads with definitive two-lane bridges and shoulders at least 12 ft. wide. The question of pavement depends on the availability of good materials along the road, and the two types of road to be recom- mended are:

A two-lane asphalted road which should have a 45 ft. wide formation (including shoulder) in populated areas and, in the country a 32 ft. formation width with sufficient right of way reserved for later use.

At the first stage, if gravel is available along the road route and the traffic less than 200 vehicles per day, a gravel road 32 ft. wide is recommended.

(iii) Costs. The cost of two lanes asphalted road in the - 152

Kathmandu Valley is NRs 900,000 per mile and the cost of a gravelled road NRs 400,000 per mile. For Plan purposes we use an average figure of NRs 600,000 per mile, assuming that both types will be built.

(e) HILL AREA

(i) Typical features. The terrain of the hill area is that of a young mountain. The valleys are sometimes large, with unflooded high areas; sometimes there are gorges with very steep slopes starting from the bed of the river which are entirely flooded during the monsoon season. The beds of the major rivers have regular or gradual slopes without cascades and are formed with boulders and very coarse gravel; the flow is generally torrential during the monsoon, and meandering during the rainy season. The flood lasts only a few hours in the small rivers, but in the major ones it may last during the entire rainy season; there is no thaw flood. The slopes of the hills are very steep in their lower part, and decrease slightly higher up. The lower and stiffer part of the hills are often more rocky than the upper part. There are many slides which are more widespread in areas where the landscape is not firm. The valleys are sometimes populated, but the most populated areas are the upper parts of the hills, where the terrain is less steep and the soil less rocky.

(ii) Types of Road and Recommendations. The diversity of the topography, hydrography and soils does not allow a recommendation that specific types of roads should be built. Only general lines can be given.

- The ridge alignment is generally impossible, due to the longitudinal slopes of the crest. The ridges are very often used as bridle paths, but these cannot be converted into roads.

- The valley alignment is good and can be used wher- ever possible. Howqever, the general cross-section of the valley and the deep tributaries sometimes hinder easy alignment.

- The alignment on the slope is expensive. The slopes are also exposed to slides. The cost of the earth- work and the risk of slides leads to the recommenda- tion that formations be built as narrow as possible, - 153 -

consistent with the traffic, and that low standards for the curves and sight distances be accepted. Because of the floods, valley roads often have to be located on the slope.

Three other considerations are important.

- When one has to lay a road from a point A to point B at a certain altitude above A, and when the road has to be developed to gain altitude, it may be advis- able to admit slopes up to 7 per cent, what the cars or trucks lose in cost per mile is counterbalanced by the decrease in mileage or the avoiding of hairpin bends.

- Up to now, the technical abilities of the contractor, or of the executing agencies building the road, did not generally allow special work such as tunnels or big excavations. In some cases, however, in the Hill area, large economies may result by the use of such techniques.

- The problems of pavements have to be checked care- fully. In the greater part of the Hills, stone and gravel are available, and as long as the volume of traffic does not exceed 120-150 vehicles per day, the cheapest solution is a gravel road. However, wher- ever the road slopes steeply, it is advisable to black-top it to reduce the rain erosion and damage by trucks.

- It is not advisable to build the roads in two stages. In some cases the Panchayats may work out a jeep track before the road is built, but for a truckable road it is better to build it from the beginning with permanent bridges and culverts and an adequate pavement.

- The routine maintenance and resurfacing work on narrow gravelled Hill roads can be dangerous, and poses prob- lems which must also be considered.

(iii) Costs. The cost of the hilly road varies to a large degree according to the location and characteristics given to the road. The right cost can only be obtained after the final design has been completed. For purposes of the present Plan we use average prices of NRs 1.2 to 1.5 million per mile in valleys and mountains, according to the difficulties, and NRs 3 million per mile in deep gorges. _ 154 -

C. Cost of Road Maintenance

Unit Cost of Road Maintenance

4. Table E-9 gives the only firm information collected about the cost of road maintenance.

5. In practice, road maintenance in Nepal has to be organized and rationalized during the Five-Year Plan period, and we prefer to keep prices which are relatively high as compared with prices in other coun- tries. Anyway, Nepal is a very difficult country as far as road mainte- nance is concerned, at least in the Hills.

6. For an asphalted road two costs have to be given: the first is the annual cost of routine maintenance, the second is thbe total cost - including the renewing of the surface. As the roads in Nepal are now new, no surface renewing has to be foreseen (except for the Eirganj- sections and Tribuwan-Rajpath). Generally we use the first price for bud- get purposes but one must take into account the second one: (a) for eco- nomic calculations and (b) for the loig-run consequence on the budget, when every year about one-tenth of the asphalted surfaces will be renewed.

7. The renewing of the surface costs about NRs 70,000 per mile for a single-lane and NRs 130,000 per mile for a double-lane road. We expect the renewing of new, well-built roads every 10 years, and thus we add to the routine cost NRs 7,000 per mile and NRs 13,000 per mile respectively.

8. Thus, the annual maintenance cost used for Plan purposes is as follows:

in thousands of NRs per mile Routine Cost Total Costf

Gravelled road in plain 5 Gravelled road in valleys and mountains 10 One-lane asphalted road in plain 5 12 Two-lane asphalted road in plain 7 20 One-lane asphalted road in mountains 10 17

These figures include the salaries of foremen and workers and the costs of materials and heavy equipment used, maintenance and renewal. The latter includes the portion of the current cost of the heavy equipment divisions in Hitaura and Kathmandu,

Maintenance Cost of the National Highway System during and after the Third Plan

9. In the table on the following page, we have tried to keep as close Maintenance of the National Highway System, 1965-1970 Tentative estimate (in thousands of NRs) Total annual maintenance Unit Cost Maintenance cost during the Five-Year Plan cost after end Mileage Total Routine 1965/66 1966/67 1967/68 1968/69 1969/70 Five-Year Plan Local Division Biratnagar Jogbani-Dharan 31 12 12 370 370 370 370 370 370 Biratnagar-Badrapur 55 12 5 - - - - - 660 Badrapur-Mechi 3 12 5 - - - - 15 36 Fathepur-Rajbiraj 27 12 12 - 160 324 32h 324 324 Rajbiraj-Kunali 7 12 12 - 428 8i 84 8L 84 Total 123 370 472 778 778 793 1,7[4 Local Division Hitaura Birganj-Amlekhganj 25 12 12 300 300 300 300 300 300 Renewal Birganj-Simra 1,000 Pavement (15 m.) Amlekhganj-Bhainse 21 17 10 170 170 170 170 170 357 Bhainse-Bimphedi 7 10 10 70 70 70 70 70 70 Lalbhitti-Janakpur 19 12 5 - - - - 95 228 Lalbhi.tti-Simra 65 12 5 - - - - 325 780 Rapti Valley Road 52 10 10 520 520 520 520 520 520 Bhainae-Daman 30 17 17 510 510 510 510 510 510 Total 219 1,570 2,570 1,570 1,570 1,990 2,765 Local Division Kathmandu Roads in the Valley 25 20 20 400 400 45o 450 500 500 (asphalted) Roads in the Valley 15 10 10 150 150 150 150 150 150 (gravelled) Tangkot-Daman 42 17 17 714 714 714 714 71L 71L Kodari Road 64 10 10 - - - 640 64o 640 Kathmandu-Trisuli 44 10 10 440 440 4440 440 4Lo Lho Total T70 i ,704 T7 2,3496 *I7 Local Division Bhairawa Sunauli-Butwal 17 12 5 - 85 85 85 204 Butwal-Pokhara 111 17 10 - _- - l,Ilo 1,887 Parasi-Taulihawa 46 12 5 - - - - - 552 Total T755 _ _9 1,195 Others Nepalganj 16 12 5 50 50 50 50 80 192 Mahendranagar 8 5 5 - - - Lo ho Total 2h 50 50 50 50 120 232 Grand Total 730 3,69L L,796 L,237 L,877 6,5L2 9,558 156 _ as possible to the exact needs of the Road Department, and we have used the routine cost for the new and high-standard roads, and the total cost for the older roads.

10. Some roads will only be completed at the end of the Five-Year Plan and do not appear in the maintenance cost during the Five-Year Plan period; but the last column indicates the total maintenance cost of the existing roads after the end of the Five-Year Plan. This represents the long-run impact of road maintenance on the Nepalese budget.

D. The Kinds and Costs of Road Studies

Feasibility Studies

11. There are several feasibility studies required during the Second Five-Year Plan period. It is advisable for all the studies to be done by a limited number of consulting engineers (two for instance). This would facilitate the work and be more economical. These feasibility studies are particularly applicable to large networks. For the purpose of this project, we recommend that they be limited to preliminary studies of economic feasi- bility or studies of priority ratings. The target of the technical studies also proposed is to determine the general alignment of the road and its costs. These technical studies should be based on reconnaisance and not on a systematic survey. On this basis, an average cost should be approximately NRs 3,500 per mile.

Engineering Design and Tender Documents

12. Engineering design and tender documents for roads in Nepal are expected to cost approximately:

(a) NRs 36,000 per mile in the gorges;

(b) NRs 30,000 per mile in the Hills or valley;

(c) NRs 25,000 per mile in the Terai and Foothills.

Such studies include all the surveys, designs, bill of quantities, specifi- cations and tender documents. - 157 -

E. Detailed Program for Feasibility Studies and Con- struction Projects within the Third Plan Period

Studies Construction Unit cost Total Unit cost Total Mileage per mile cost per mile cost (NRs) (NRs milion)

1. TAMAR ARUN BASIN Feasibility Studies Dharan Road to Chatra 14 Chatra to Confluence of the Kosi-Arun 6 Alternatives 40 Confluent to Taplejong 64 Confluent to Dingla 38 Bojpur Feeder 15 Alternatives 20 Total I77 3,500 690,000

2, SUN KOSI BASIN Feasibility Studies Fathepur-Kampughat 18 Alternatives 20 Linkage Sun Kosi River- Lalbhitti 50 Alternatives 50 Road along Sun Kosi, Rasi and three tributaries, valley 200 Total 33_ 3,500 1,183,000

3. ILAM AND FAR EASTERN TERAI Feasibilitv Studies Ilam to Mechi River 50 Biratnagar-Badrapur 55 Total 10_ 3,500 368,000 -

Engineering and Construction Biratnagar - Badrapur 55 25,000 1,400,000 0.95 52.0 Badrapur-Mechi River 3 25,000 75,000 0.95 2.8 Mechi Bridge 100,000 2.0 Fathepur-Kosi Dam- Hanumannagar 19 Hanumannagar-Rajbiraj 8 Total 70.6 16.2

Rajbiraj-Kunali 7 0.6 4.2 - 158 . Studies Construction Unit cost Total Unit cFst Total Mileage per mile cost per mile cost TNRs) (NRs million)

4. CENTRAL NE¶JORK Engineering and Construction Kathmandu-Dashenkali 10 0.90 9.0 Kathmandu-Balaju 2 0.6 1.2 Kodari Road 64 1.25 80.0

5. EASTERN TERAI Feasibility Studies East-west road (north and south) Fathepur Road-Lalbhitti Road 160 3,500 560,000 - -

Engineering and Construction SimraLlbh't-ti-Janakpur 84 - - - 97.7

6. GANDAK AREA Feasibility Studies Roads along the three principal valleys 196 Palangtar-Pokhara 45 Alternatives: 1. Ramdighat-Upper Kali Gandaki 30 2. Narayanghat-Bandipur 50 Total 321 3,500 1,123,000 - -

Construction Butwal-Pokhara 111 - _ 1.25 137.5

7. WESTERN TERAI Fe'asibi=litUT Studies Narayanghat-Par.asi: North 50 South 50 Alternatives- 15 -Total :TS 3,500 400,000 -

Taulihawa-Parasi 50 3,500 175,000

Engineering and Construction Sunauli-Butwal (completion)17 - _ 0.15 2.5 Taulihawa-Parasi 46 25,000 1,150,000 0.95 44i.0 - 159 -

Studies Construction Unit cost Total Unit cost Total Mileage per mile cost per mile cost (NRs) (NRs million)

8. SALLYAN-PIUTHAN AREA Feasibility Studies Koilabas-Rapti Valley 20 Rapti Valley-Dang 15 Alternative 15 Dang-Sallyan 35 Alternative 35 Piuthan-Sallyan 50 Bheri River-Sallyan 30 Terai to Piuthan 50 Total 270 3,500 875,000 _

9. FAR WESTERN TERAI Engineering and Construction Mahendran-agar-Mahakali River 8 25,000 200,000 0.4 3.2 Mahakali Bridge 100,000 2.0 Nepalganj Airport 6 25,000 150,000 0., 3.0

10. IMPROVEMENT OF OTHER ROADS AND BRIDGES Engineering and Construction 600,000 - 11.4

Note: The mileages used above are either the result of surveys, or read off large-scale maps. In the Hills, mileages have been increased according to the longitudinal profiles on the assumption that the average grade in steep sections would be 4. per cent.

F. Consequences of Construction of Highways on the Total Cost of Transportation

Roads in the Terai

13. Here the presumption is that the road would be built along the same alignment as the track it replaces and would be the same length. The cal- culation has been worked out for one mile of road. For this purpose:

E = the average cost of construction for one mile of highway. f = the annual cost of maintenance of the road. h = the cost of transport of one ton/mile along the highway by truck. j = the cost of transport of one ton/mile by human transport or bullock cart. - 16o .

T = the total annual traffic of commodities on the road which can shift from traditional transport to truck at the opening of the highway. i = the interest on capital which justifies the investment.

14. During the first year following its opening, the truck traffic will save:

T (j - h)

This sum must balance the maintenance cost and the interest on the invest- ment:

i E + f so one can write:

i = T (j - h) - f

15. Application

(a) Opening of a north-south road or an east-west road over a trail which was previously traversed on foot by porters would give a return (on the basis of cost in Table E-E1l2 and paragraphs 13 and 14 above) as follows:

North-south road: lOOi = 100 T (15 - 0.92)-10,000 = 2.35T - 1.6 600,000 1,000

East-west road: lOOi = 100 T (15 - 0.92)-10000 - 1.h8T - 1.1 95-0,00-0 1,000

(b) Opening of a north-south or an east-west road where the bullock cart is used all year round would give a return as follows:

North-south road: lOOi 100 T (4 - 0.92) - 10,000 = 0.52 T - 1.6 600,000 1,000

East-west road: lOOi v 100 T(U - 0.92) - 10,000 - 0.33 T - 1.1 950,000 1,-000

The following table sets out the results for alternative tonnages per year: _ 161 -

Tonnage per year 2,000 5,000 10,000 20,000 50,00M

a. N-S road = truck/porter 3.l1 10.2 22 45.4 116 b. N-S = truck/bullock cart 1 3.6 8.8 24. c. E-W road = truck/porter 1.8 6.3 13.7 28.5 73 d. E-W = truck/bullock cart o.6 2.2 5.5 15.4

16. The calculation in relation to b and d presumes that the bullock cart track is usable all year round. This is so only in a few north-south sections. Generally the bullock cart tracks are only dry-season tracks. In the latter case, the lack of transport at other times increases produc- tion costs. It is difficult to enter this consequence into the calculations of the return, but nevertheless it is a very important factor.

Roads in the Hills

17. In the Hills the truckable roads cannot follow exactly the alignment of porter tracks; in certain cases the pattern of traffic will change en- tirely and each network has to be the subject of separate study.

18. Therefore an average return per mile for the whole Hill area is not possible. To get some idea of the return on Hill roads, however, a few sections were taken and the following calculations relate to these sections only.

(a) Dhankuta to the Dharan Road. Looking at the map it seems possible to connect Dhankuta with the Jogbani-Dharan road with the follow- ing links: (i) from the Jogbani-Dharan road (on the Sapt Kosi) a 14-mile gravelled road; (ii) in the Sapt-Kosi gorges 6 miles and in the Tamar valley 12 miles of gravelled road; and

(iii) from the Tamar Valley to Dhankuta a mountain road of 11 miles asphalted. The construction, maintenance and transport cost would be as follows: 162

Tamar Dharan Chatra Valley Valley Road to up to Chatra Junction Mulghat Dhankuta Total

Mileage 14 6 12 11 43 Construction cost per mile (million NRs) o.4 3 1.5 1.5 Construction cost (million NRs) 5.6 18.0 18.0 16.5 58.1 Maintenance cost per mile 5,000 15,000 10,000 15,000 Maintenance cost 70,000 90,000 120,000 165,000 445,000 Transport cost per ton x mile 1 1 1 1.3 Transport cost per ton 14 6 12 14.3 46.3

At present the transport cost from Dharan to Dhankuta is 10 NC per maund, i.e. NRs 270 per ton. In the formula below:

T the total annual traffic of commodities to be carried. i = the interest on capital which justifies at its opening the construction of the road.

Thus:

46.3i 106 . T (270 - 46.3) - 445,000

100 i = 0.48 T 1,000

i.e.:

T 5,000 10,000 20,000 50,000 i 1.h% 3.8 5.6 23

At present there is a traffic of more than 20,000 tons from Dhankuta to the valley. But one must remember that the first three sections of road, proposed in the Five-Year Plan for a feasibility study, will be used not only by the Dhankuta traffic but by many other flows of traffic as well. Only a feasibility study will give the precise return, but it can be assumed that the real rate of return can be twice as high as shown above on the first three sections from Dharan Road to Mulghat.

(b) Narayanghat-Bandipur-Cheppeghat Road (proposed for a feasibility study), Assuming the road is to be built along the valley of Trisuli and Marsyandi, one can roughly take the following cost: - 163 .

Construction: 40 miles x 1,500 = NRs 60 million Maintenance: 40 x 10,000 = NRs 400,000 per year Transport by truck: 40 x 1 NRs 40 per ton

Presently the transport by porters from Narayanghat to Cheppeghat requires four days and costs 40 NC/maund, i.e., NRs 1,080 per ton. With the same notations as before, we find:

6oi 106 - T (1,080 - 4o) - 400,000

lOOi = 1.73 T - 0.7 1,000 T 2,000 5,000 10,000 20,000 50,000 i 2.7% 7.0 16.6 34 t5.7 Thus with traffic of 10,000 tons a return of 16.6. per cent would be possible. No precise traffic counts are available but tenta- tive estimates indicate a minimum movement of 10,000 tons per year. (c) Bhairawa to Pokhara (under construction), The road is now under construction from Bhairawa to Pokhara by way of Butwal; the construction, maintenance and transport costs are, or will be, as follows:

Bhairawa Butwal Bhairawa to to Butwal to Pokhara Pokhara (Total) Mileage 17 111 128 Total cost of Road (NRs million) - - 140 Maintenance cost per mile and per year (NRs) 10,000 17,000 - Maintenance cost per year (NRs mil.) 0.2 1.9 2.1 Transport cost by truck after completion NRs/ton x M. 1 1.3 - Transport cost by truck after completion NRs/ton 17 145 152 Present transport by truck and porter NRs/ton 22 900 922 Present transport by plane NRs/ton - - 1,000

Using the same notations as before, we find:

Truck replacing present transport by truck and porter: - 164 _

140 i 106 = (922 - 152) T - 2.1 106

100 i = 0.55 T - 1.5 1,000 Trucks replacing present air transport:

140 i 106 3 (1,000 - 152 T) - 2.1 106

100 i = 0.6 T - 1.5 1, 000 So we find the following table:

T = 5,000 10,000 20,000 50,000 100,000 Truck/porter 1.2% 4 9.5 26 53.5 Truck/plane 1.5 4.5 10.5 28.5 58.5

On the Tensing, Butwal, Bhairawa section, the traffic is about 40,000 tons; on the Tensing-Pokhara section we have no precise counts, but the traffic is probably more than 20,000 tons. The direct traffic, Bhairawa-Butwal by RNAC is 2,000 tons. In many instances, one can state that the return on the Bhairawa-Tensing section is 25 per cent and on the Tensing-Pokhara section at least 10 per cent.

(d) Krishnagar-Piuthan Road (proposed for a feasibility study). Using thegeneral alignment of the track presently traversed, the technical data are as follows:

North- Mountain South Road Total Terai Rd.

Mileage 10 50 60 Construction cost per mile in million NRs o.6 1.5 Construction cost million NRs 6 75 81 Maintenance cost per mile/year 10,000 15,000 Maintenance cost 100,000 750,000 850,000 Transport cost by truck per ton/mile 1 1.3 Transport cost by truck per ton 10 65 75

Presently from Krishnagar to Piuthan, the porters take four to five days and are paid NRs 50 per maund, i.e., NRs 1,350 per ton. - 165 - With the same notations as above one finds:

81 i 106 = T (1,350 - 75) - 850,000

lOOi = 1.57T - 1 1,000 i.e.:

T 2,000 5 000 10,000 20,000 50,000 i 2% 6.55 14-.7 30.5 77.5

Here 10,000 tons of traffic would yield a return of 14.7 per cent.

From these tentative samples, taken from different parts of the country, it would appear that, due to the high cost of porterage, the substitution of roads would yield a sufficiently high return to justify construction, provided a minimum level of traffic exists, say 10,000 tons.

G. Impact of Road Construction on the Budget and Foreign Exchange Situation

19. In the two following sections the consequences of construction of roads on (a) the budget and (b) the foreign exchange situation are analyzed.

20. The following symbols are used:

E = the cost of construction of one mile of highway. f = the annual cost of maintenance of one mile of highway. h ==the truck transportation cost of one ton on one mile. h' = the part of this cost h which is comprised of taxes and duties presently levied in Nepal. h" = the part of this cost h which is to be paid in foreign currency (see Table E-11). T = the tonnage carried on the road, during one year. r = the annual average rate of amortization + interest of the loan by foreign agencies.

Consequence on the Budget

21. After the opening of a road, revenue will be credited with: T x h'. There will be an expenditure of f per year to maintain the road.

22. If the road has been built, on a grant basis, the net result on revenue will be: earnings = Th' - f. 23. If the road has been built on a loan basis, the revenue earnings will be: earnings = Th' - f - r E - 166 _

2h. Using the above formula, the opening of a road on a grant basis would have the following direct effect on the budget;

Tonnage per year 2,000 5,000 10,000 20,000 50,000

Terai gravelled road -4,400 -3,500 -2,000 +1,000 +10,000

Terai asphalted road -9,400 -8,500 -7,000 -4,000 + 5,000

Hill road asphalted 14,400 -13,500 -12,000 -9,000 0

Consequence on the Foreign Exchange Position

25. To analyze the foreign exchange implication one must consider three alternative situations:

(a) The road has been built with local finance, In such a case the result is:

During the construction of the road:

fc expenses = 0.66 E

During every subsequent year, to maintain the road and service vehicles, the expenses would be:

fc expenses = T.h' + 0.5 f

(b) The road has been built with a foreign grant. During the construction of the road:

fc earnings = 0.33 E

Each year after, as in the preceding.case..

(c) The road has been built with a foreign loan.

During the construction phase the implications are the same as in the preceding case..

During each further year:

expenses = T.h' + 0.5 f + rE. - 167 -

Chapter 7 PROPOSALS FOR STRENGTHENING OF THE ROAD DEPARTMENT

A. General Organization of the Proposed Road Authority

1. The general centralized organization recommended to deal with road problems in Nepal is indicated on the Organization Chart (see following page). More details are given below.

2. The Road Advisory Commission includes representatives of the Ministry of Public Works, Ministry of Economy and Finance, Directors of the Plan, Panchayat and private societies. Its purpose is to advise about the general policy concerning the roads: classification, maintenance, develop- ment of the network and traffic flow. It only gives advice, but it can be assumed that the Ministry of Public Works, Transport and Communications will generally follow its recommendations.

3. The General Management provides supervision and action in every field relating to the administration, maintenance, improvement and con- struction of roads.

4. The Administration Department is formed of three sections, the func- tions of which are as follows:

(a) Personnel Section:

Regulations concerning persolmel; Recruiting; Files of gazetted personnel; and Training program and schools. (b) Accounting Section: Formal preparation of the Road Budget (maintenance, purchase and construction); Execution of the Road Budget; and Recording. (c) Procurement Section

5. The Planning Department is formed of two sections whose functions are as below:

(a) Traffic and Planning Section:

General specifications and instructions in matters of road construction, maintenance and economy; Road counting and records; GENERAL ORGANIZATION OF ROAD AUTHORITY

MINISTRY

------Road Advisory Commissiiony

General Admi nistration

Admnistration Department lanng mepartment Personnel Traffic and Planning Accounting Central Laboratory Procurement

MNaintenance | Heavy Equipment C D Department IntDepartnt Department

. , , _ _ I r ..~~II ~ ~~ Local Local Local Road and Construction Agency for Hitaura Kathmandu Division Division Division Bridge Design Supervision Road Mechanical Mechanical Section Section Construction Division Division

Agency for Agency for Agency fo Agency for Panchayat Project Project Project Bridges 11"A" "B" li"C"i - 169 -

Road cess; and Programming of road construction projects.

(b) Central Laboratory:

Execution of soil tests; Exploration for road materials; and Advising the Road Design Section and the local divisions on the constitution of pavements and the use of bridge or road materials.

Comments: The Central Laboratory presently being planned is expected to carry out certain soil tests and exploration for road material quarries. It is also expected to pro- vide training of Nepalese engineers and overseers in modern methods of pavement design.

It is desirable that, for their own need, the consulting engineers in charge of engineering design have their owm laboratory at a central point within their proj- ect area and maintain their own team seeking materials.

6. Maintenance Department

Coordination and programming of road maintenance; Development of local divisions; Supervision of local divisions; and Audit of the local divisions' accounts.

7. Local Division

Mlaintenance of about 300 miles of roads (including prepa- ration of' budgets and execution of work programs); Surveys and designs for minor road improvement programs; Help to Panchayats on technical matters; and Maintenance of airport runways (on a fee basis for the Department of Civil Aviation).

Comments: The so-called local division is a stable, well-staffed organization able to perform the mainte- nance or light improvements of the roads in its charge, but also able to make some survey and easy engineering studies. It is recommended that this division, as much as possible, be joined with other public works local agencies (airfield maintenance agencies, building divisions or sub-divisions, etc.) to allow for a proper and more competent administrative staff at a lower cost to each project. - 170 .

The equipment supplied to each division will vary widely according to the characteristics of the road network arid to the kind of work to be done (improvement or maintenance alone or working directly or through con- tractors). As explained below, the equipment (cars or trucks) working for the local division belongs either to the division itself or to the heavy equipment division. Routine maintenance and repairs of the local divisionts equipment is performed by the garage and mechanics of the division. Major and heavy repairs to all equipment are to be carried out by the heavy equipment division.

8. The Construction De)artment consists of two sections:

(a) Road and Bridge Design Section:

Detailed desi.gn and working drawings of specific projects; Typical designs; Sets general specifications for the Consulting Engineer's engineering design contracts; Negotiates engineering design aspects of foreign aid projects; Supervision of the Consulting Engineer's work; and Checking of the drawings and specifications for various road projects (made by CE or the divisions).

(b) Construction Supervision Section:

Coordination of road construction and improvement; Preparation of the Consulting Engineer or Foreign Aid Agree- ment (Supervision Part); Discussion of construction contract; Supervision of construction agencies; and Management of the eventual organizations created to tie the Panchayat in road construction.

Comments: The Construction Department deals with execu- tion problems; the programming of road development is not in its jurisdiction.

9. Agency for Road Construction:

Right-of-way acquisition; Solution of the problems arising during actual road construc- tion work and beyond the Consulting Engineer's responsi- bility; and Accounting; provisional and final acceptance of the work. - 171 Comments: Individual agencies for specific road construc- tion. They must be located as closely as possible to the construction site. When a Consulting Engineer is used, the staff of the agency may be smaller. In order to effectively control all operations and to make decisions beyond the Consulting Engineer's responsibilities, the agency must be directed by a well-experienced engineer.

10. Agency for Panchayat Bridges:

Locational surveys; Design of major Panchayat bridges; Purcaise ancl shipment of building inaterials; and Eventual construction of the bridge.

Comments: The agency which wrill coordinate the suspension bridge project is intended to be in Kathmandu. Surveying is carried out by its overseers, but the engineering design is made by the Road and Bridge Design Section of the Construction Department or by the Consulting Engineer.

11. Heavy Equipment Department:

Programming of the heavy equipment purchases according to the requests of the Maintenance and Construction Departments; Supervision of the heavy equipment divisions and audit; Establishment of general regulations and prices for mainte- nance and lending of heavy equipment; and Supervision of local division garages.

12. Mechanical Division (Hitaura):

Maintenance and repairs of heavy equipment belonging to the Heavy Equipment Department; Individual records files for heavy equipment; Accounts of actual expenses and calculation of the cost price of all equipment; and Major repairs on the local division equipment if they are beyond the capability of the local division.

13. Mechanical Division (Kathmandu):

Maintenance and repairs of cars and trucks belonging to the public work services in Kathmandu; and Accounting of maintenance and repair works. - 172 .

Comments about the Heavy Equipment Department and Mecha- nical Divisions: These are necessary to maintain heavy equipment and transport vehicles of all types which cannot be maintained properly at the local division level. In countries like Nepal, experience has confirmed that equip- ment such as diesel rollers or motor graders cannot be properly maintained at the level of the local division so it is proposed to give the responsibility for maintaining such heavy equipment to a well-organized, -equipped and -staffed division. Such a division already exists in Hitaura and is likely to be kept for that purpose. The ownership of larger pieces of equipment will be kept with the Heavy Equipment Department and such equipment lent to the local divisions according to request. It is lent with its own driver and invoiced to the local division using it. Such loans may sometimes be made to private parties who request them as a means of better utilizing the heavy equipment during the year.

There is another central workshop in Nepal, the Mechanical Division in Kathmandu, but this is not as well equipped as the Hitaura Division. It is proposed that this shop specialize in the maintenance of trucks and ad- ministrative cars. It could also take care of smaller re- pairs on heavy equipment working in the vicinity of Kathmandu. The Kathmandu Division must also invoice the actual cost of repairs it performs to the agency for which they are performed.

Three very important points should be considered in the running of the heavy equipment program: i. The spare parts problem: Nepal intends to cre- ate a general government store in Kathmandu, organized as a private store, and selling at the actual cost price. The general government store will be in charge of the purchase and storage of spare parts necessary to run the heavy equipment, in agreement with lists and regulations coming from the Heavy Equipment Department. This must be under the direction of a man with considerable experience (five years or more) in purchasing and storing spare parts.

ii. The financial organization: The Heavy Equip- ment Division in Katbmandu is presently para- lyzed by governmental administrative finance - 173 so

regulations. For a good performance the Heavy Equipment Division, as the general government store, must run on an accounting system pat- terned as closely as possible to those used in private industry. It is useless to have a wiorkshop if it cannot work properly and with efficiency. If private companies can be inter- ested in the management and operation of the heavy equipment workshop, this would be a good solution. However, in the Plan we assume the Mechanical Division to be a government organiza- tion.

iii. Capital replacement charge: The use fees charged for heavy equipment loaned to others must include a capital replacement charge equivalent to the normal depreciation of the equipment while in use on each assignment.

B. Investment Required for the Strengthening of the Road Department

14. The proposed organization of the Road Authority requires some invest- ment in building and equipment. Surveyed below are the needs of various sec- tions of the Road Authority.

Central Services in Kathmandu

15. The existing buildings and the buildings expected to be completed with the help of the United States AID are large enough to house the central services of the strengthened Road Authority except for the Central Laboratory, which requires the construction of a specialized building and the purchase of necessary basic equipment.

16. It is suggested that this new construction and the purchase of the basic equipment be started as soon as possible.

Mechanical Divisions in Kathmandu and Hitaura

17. The existing workshops and garages generally have sufficient space and equipment to permit proper maintenance of the existing and future heavy equipment belonging to the Road Department. However, some improvement and rebalancing of specific facilities may be necessary. Therefore, it is wise to provide some provisional credit for modernizing or improving some fixed equipment. - 174 . Local Divisions

18. At the end of the Third Plan, the Road Authority will have four local divisions, probably in Kathmandu, Hitaura, Biratnagar and Bhairawa. The Road Authority already has buildings in the first two divisions. The local division equipment (cars and trucks) can be maintained in the nearby heavy equipment division. In the Bhairawa and Biratnagar areas, however, it will be necessary to build centers to house both the offices and the garage. In Biratnagar, it is suggested that the Road Authority open its center in 1968, allowing the British Army to maintain the Jogbani-Dharan Road up to this date. In Bhairawa, new roads will have to be maintained starting by 1970, so this is suggested as the opening date.

Complementary Heavy Equipment and Vehicles;

19. An inventory of existing heavy equipment is given in Table E-15, Vol. III. in general, the total quantity of equipment is more than adequate. However, the types of equipment now on hand are generally more suitable for construction work than for maintenance. In addition, some of the equipment is in need of major overhaul, and some additional types of equipment are needed. An initial investment will be required to bring about the necessary major repairs and new purchases to create an opera- tional fleet. Thereafter, the replacement cost will be met through the regular operating budget of the Department. The only subsequent develop- ment capital required will be to enlarge the equipment and transport hold- ings as needed to meet increased work assignment.

20. During the Third Plan, approximately NRs 2.0 million will be re- quired in the first year for repair of existing equipment, and NRs 2.0 million for purchase of new equipment. During the second to fifth years of the Plan, NRs 1.7 million will be required for the expansion of hold- ings to meet the maintenance needs of the Plan presented in this report. These expenditures will all be in foreign exchange.

21. It is difficult to predict to what extent the Panchayats will ask for the use of heavy equipment during the Plan period. It is assumed that, except for the multi-tire rollers, no additional equipment will be neces- sary solely for this purpose. On the other hand, some smaller equipment such as truclks, jeeps and cars needed by the new local divisions will have to be purchased. The proposed program of investment is as follows: _ 175 - 1st 2nd 3rd 4th 5th Total Year Year Year Year Year (Expenses in thousands of Nrs)

Central Laboratory

Building 130 Furniture 20 Fixed laboratory equipment 40 M4obile equipment (two trucks and field equipment) 150

Total 340 100 240

Heavy Equipment Department

Major repairs to existing equipment. 2,000 Replacement of retired equipment 2,000 Additional equipment re- quired for expanded work assignments 1,700

Total 5,700 1,000 1,100 1,200 1,200 1,200

Additional Fixed Equipment for the Kathmandu and Hitaura Mechanical Divisions 200 -- 100 -- 100

Opening of a New Local Division (E2ssibly Biratnagar) 400

Furniture and office equipment 150 Fixed mechanical equipment 200

Total 750 -- 350 400

Opening of a Second New Local Division (possibly Bhairawa) 750 -_ -- -- 350 400

Additional M-obile Equipment (15 trucks, 10 cars and jeeps, 2 multi-tire rollers, etc.) 1,500 500 500 500 Grand Total 9,240 1,100 1,790 2,100 2,150 2,100 - 176 -

C. Annual Operating Costs of Road Authority

22. The new strengthening of the Road Department and the creation of the proposed new Road Authority is of interest to the Government in terms of its annual operating (normal) budget. For this purpose, the Mission has prepared the tentative estimate presented below. It gives an estimated operating cost of the Road Authority in the final year of this coming Plan period (1969/70).

Estimated Cost of the Road Authority in 1969/70

This covers only staff costs, and does not include any cost of actual road maintenance,road construction, heavy equip- ment repair or equipment purchase.

Central Services: General Management, Administrative Department, Planning Department, Maintenance Department, Construction Department, Heavy Equipment Department NIRs 1,300,000

Local Divisions: Hitaura, Kathmandu, Bhairawa, Biratnagar, and maintenance section in Nepalganj and Mahendranagar 1,150,000

Two agencies for road construction and agency for the suspension bridge 500,000

Total NRs 2,950,000 - 177 -

Chapter 8

TBCHNICAL AND ECONOMIC PAPERS IN SUPPORT OF THE RAILWiAY PLAN

1. Careful consideration was given to the possibilities of construct- ing netw railways in all parts of Nepal: 1) across the borders from India, 2) east and west along the Terai, 3) north and south into the Hill and Mountain areas, and 4) east and west of Kathmandu. In each case these were considered in terms of their technical feasibility, probable con- struction cost, available traffic, and potential economic benefits. In general, the findings in each case were as follows:

(a) It is technically possible to construct cross-border rail- ways to and from India in about 12 locations. These loca- tions are largely determined by the availability of railheads in India with which to connect. On the basis of traffic potential, only four crossings were considered as having suf- ficient present or probable future traffic to be worthy of further study: ,Togbani-Biratnagar, Jaynagar-Janakpur, Raxaul-Birganj, and Nepalganj Road-Nepalganj. There is a possibility that Nautanwa-Bhairawa might develop in the future, but this ijwas considered as too tenuous to be in- cluded in present plans.

(b) Construction of east-west railways along the Terai is techni- cally feasible, though costly. (An example is India's experience with east-west railwiays just south of the Nepal border.) The traffic potential available for rail movement appeared much too small to warrant any consideration of such construction. (c) Construction of north-south lines into the Hill and Mountain regions. Such lines are technically possible only in a few instances, and then only at very high cost. In all cases they cannot be constructed into the inore rugged Hill and Mountain country except at costs considered as absolutely prohibitive, even in relation to the most wildly optimistic of traffic forecasts. This stems from the necessity of keeping grades at or below 4 per cent if the line is to be operable at any practical level of costs. This results in construction costs ranging from a low of NRs 4,000,000 per mile to as high as NRs 15,000,000 per mile for a meter- gauge line. These high costs reflect the large amount of tunneling, bridging and rock cutting which would be neces- sary. The only route deemed as having sufficient potential to justify further study is the heavy traffic route from Raxaul to Hitaura. - 178 - (d) The construction of an east-west railway out of Kathmandu was considered completely impractical because of extremely high costs and low traffic potentials suitable to a railway. Further, such a line would operate under a severe economic handicap if it could not be linked at some point to an existing railway system. 2. On the basis of these preliminary findings, further study was re- stricted to the four opportunities which appeared to have greatest promise: cross-border railways at Jogbani-Biratnagar and Nepalganj, re- habilitation of the existing Nepal Jaynagar-Janakpur narrow-gauge rail- way, and construction of a new railway from Raxaul north in the Birganj- Hitaura corridor. The first three of these opportunities are discussed in Chapters II and III. The balance of this discussion will be devoted to the evaluation process in the most promising area of all - the Birganj-Hitaura corridor.

The Birganj-Hitaura Corridor

3. Considerable attention was devoted to the possibilities of con- structing a railway from Raxaul (in India) to Birganj and Amlekhganj in Nepal. In general, six separate courses of action were studied: (a) rehabilitation and continued operation of the present narrow- gauge railway;

(b) closing the narrow-gauge railway and improving the highway from Raxaul to Birganj;

(c) closing the narrow-gauge railway and constructing a new meter-gauge terminal railway from Raxaul Siding in India to North Birganj in Nepal; (d) constructing a new meter-gauge railway from Raxaul Siding to Iron Foundry (about seven miles north of North Birganj), which is intended to serve the new industries opening to the north of Birganj;

(e) constructing a new meter-gauge line from Raxaul Siding to Simra Gravel Pit (about 12.6 miles north of Birganj), essen- tially the same as (d), but extended to reach potential gravel sources; and (f) constructing a new meter-gauge line from Raxaul Siding to Hitaura. This would serve both the industries north of Birganj and the new industries opening in the Hitaura area. It would also provide a direct rail-to-ropeway transfer. - 179 - The Basic Problem

4. Most freight moving to and from India moves over the meter-gauge railway system in India to Raxaul across the border from Birganj in Nepal. The present Indian Railway terminal at Raxaul is not designed for con- venient and/or economic transfer of freight from meter-gauge railway to narrow-gauge railway, or to trucks or carts. Inbound freight often arrives in cars having mixed India and Nepal freight. The transshipment process at Raxaul Siding is expensive because of: 1) the direct cost in- volved, 2) the large loss of time, 3) the breakage and damage which occurs, and 4) the loss from theft and pilferage.

5. To this must be added the problem of two customs inspections (India and Nepal). These usually do not take place at the Raxaul railway station, but at separate roadside customs depots one-half mile from the station. Here everything must be inspected and cleared, a slowv and awk- ward procedure which adds extra cost over and beyond the customs duty itself.

6. Present traffic passing the Birganj road cess depot is now the equivalent of about 2,480 five-ton trucks per month, one way only, representing about 148,800 tons per year. Bullock carts amount to about 1,500 per month, one ton each, one way, or 18,000 tons per annum. Present railroad traffic averages 30,000 tons per year. The combined total is 196,800 tons. Of this, the estimated present potential available for railway movement is 150,000 tons per year or 500 tons per day. IWithin five years minimum potentiaL will be 175,000 to 200,000 tons per year. These estimates do not include the potential future sand and gravel traffic given in Alternatives (e) and (f) or the lumber and petroleum traffic included in Alternative (f).

Alternative (a): Rehabilitation and continued operation of' the present narrow-gauge railway.

Rehabilitation Cost: The cost of rehabilitating the present line is estimated to be NRs 7.5 million. In essence, this consists of repairing and/or rebuilding all bridges, renewing the rails and all ties, the addition of rock ballast, and the purchase of new locomotives and some equipment. Operations Expense: The railway presently operates at an annual deficit. Rehabilitation of the line will do nothing to bring in- creased traffic or revenues. It can only result in slightly lower operating costs.

Observations and Recommendation: Rehabilitation will do nothing to solve the basic weaknesses and problems of this railway. There will still be difficult and expensive transshipments at both Raxaul and Amlekhganj. Rehabilitation is not recommended. - 180 _

Alternative (b): Closing the narrow-gauge railway and improving the highway from Raxaul to Birganj.

Construction Cost: There are two possibilities for improving the existing highway: 1) widen and improve the present road, or 2) construct a new road on the alignment recommended for the new railway in Alternative (c). Improving the present highway will cost between NRs 1.o million and 1.5 million depending upon the extent of the work done. Building a new two-lane road on a new alignment would cost about NRs 2.0 million.

Observations and Recommendation: The principal benefit of these choices would be in an improved customs procedure which should reduce the cost of road transport somewhat. However, the cost of transshipment in the present inadequate terminal at Raxaul would remain, as would the problem of enroute customs inspections. It is believed this alternative would result in no significant reduc- tion in cost; it would only postpone the day when a more effec- tive solution will be necessary. Some highway improvement is possible at a very low cost if the present narrow-gauge railway were closed and removed. This offers the greatest benefit at the lowest cost.

Alternative (c): Closing the narrow-gauge rail- way and constructing a new meter-gauge terminal railway from Raxaul Siding in India to North Birganj in Nepal.

Construction Cost: Build to Indian Railway standards in a manner that will permit eventual conversion to broad gauge (5'6") at minimum cost. Sixty-pound rail on gravel ballast on a new align- ment about one-half mile west of the highway returning to the present narrow-gauge alignment at the site of the present Birganj station (see map, p. 66, Vol. I). Construction of a new freight station and godown incorporating a Nepal and an Indian customs depot, designed to facilitate fast and easy transfer of freight between railway cars and trucks and passing through customs in- spection in the process. Includes two new 40-foot bridges, three culverts to the mile.

Acquisition of land NRs 400,000 Earthwork and ballast 700,000 Bridges and culverts 670,000 Rails, sleepers, points, crossings, spikes, etc. 900,000 New terminal and customs shed building 500,000

NRs 3,170,000 - 181 "

Operations Expense: Based on one inbound and one outbound train per aay operated by the Indian Railways under contract. Track maintenance and operation of ternminal by Nepal Government Railway.

Train operations NRs 450,000 Track maintenance 25,000 Terminal operations 100,000 Share of Indian Railway equipment pool cost (at NRs 15 per car per day) 400,000 Amortization of track and structures (3 per cent of NRs 2,000,000) 60,000 Average interest on investment (8 per cent on NRs 1,600,000) 128,000 M4anagement 25,000

NRs 1,188,000

Cost of i,1ovement via Proposed Line (including terminal cost, amor- tization and interest on investment):

150,000 tons per year at NRs 1,188,000 = NRs 7.2 per ton 200,000 tons per year at NRs l,145,000 = NRs 5.73 per ton 250,000 tons per year at NRs 1,395,000 = NRs 5.58 per ton

Cost of Alternate Service: Raxaul to North Birganj (cost,not quoted rates)

Via bullock cart from NRs 5.0 to NRs 7.0 NC per ton plus termi- nal costs Via truck from NRs 3.0 to NRs 3.6 plus terminal and customs handling and delay Via narrow-gauge railways from NRs 5.0 to MRs 7.5 per ton plus loss and damage plus terminal and customs costs.

As noted, the cost of terminal handling at Raxaul must be added to the above, and the cost of highway maintenance and operation added to the cart and truck figures.

A major cost in the present operation by cart, truck and rail is the large loss and damage which occurs during the handling pro- cess at Raxaul. In the case of coal, the loss is as much as 25 per cent. The new railway terminal at North Birganj should be specifically des gned to minimize this cost.

Alternative (d): Constructing a new meter-gauge railway from Raxaul Siding in India to Iron Foundry, about 16 kms. or 10 miles.

Traffic: The presently available traffic between Raxaul and North - 182 _.

Birganj is as estimated under Alternative (c) or 150,000 tons per year. The traffic which can move beyond North Birganj is presently estimated to be 9,000 tons for the sugar factory (600 tons of coal, 5,500 tons of limestone and 3,000 tons of fertilizer) and 500 tons of coal for the foundry. Lumber and other miscellaneous traffic would raise the total to 10,000 tons.

Construction Cost: Same as Alternative (c) from Raxaul to North Birganj. For the 11 kms. from North Birganj to Iron Foundry the line would be laid on the present right of way, using light bal- last and hO-pound rail. This line would be to meter-gauge standards and would not be reconstructed to accept eventual con- version to broad gauge.

Construction to North Birganj (Alternative (c)) NRs 3,170,000 Earthwork and ballast North Birganj-Iron Foundry (11 kms.) 250,000 Rehabilitation bridges and culverts 200,000 Rails, sleepers and fittings 506,000

Sub-total track and structures NRs 4,126,000

Two 150 hp. diesel locomotives 400,000 Equipment for fueling and light repair 140,000 Service and work cars 60,000

Sub-total equipment NRs 600,000

Total NRs 4±726.,000

Operations Expense: One round trip daily Raxaul Siding to North Birganj, and three round trips per week North Birganj to Iron Foundry. Operation south of North Birganj by Indian Railway under contract. COeration from North Birganj to Iron Foundry by Nepal Government Railway using its own crews and locomotives.

Operations Raxaul-North Birganj (from Alterna- tive (c)) NRs 1,088,000 Railwxay train operations North Birganj-Iron Foundry 220,000 Track maintenance North Birganj-Iron Foundry 100,000 Additional share of Indian Railway equipment pool cost 90,000 Amortization of added track and structures (3 per cent of NRs 700,000) 21,000 Naintenance of locomotives and service equipment 65,000 - 183 "

Amortization of locomotives and service equip- NRs ment (8 per cent of NRs 600,000) 48,000 Average interest on added investment (8 per cent of NRs 1,500,000) 120,000 Administration 25,000

NRs 1,777,000

Cost of Movement on North Birganj-Iron Foundry Portion of the Line:

10,000 tons per year at IMRs 689,000 NRs 68.9 per ton Alternative (e): Building a new meter-gauge railway from Raxaul Siding in India to Simra Gravel Pit, about 25 kms. or 15.6 miles.

Traffic: The presently available traffic between Raxaul and Iron Foundry is as estimated under Alternative (d), or 150,000 tons per year between Raxaul and North Birganj and 10,000 tons between North Birganj and Iron Foundry. The extension of a light duty line from Iron Foundry to a gravel pit near Simra would permit development of this traffic for export to India for use in road building and other construction. Sand and gravel is extremely sensitive to price, so the volume of traffic which could be realized will depend upon the delivered cost in India. The po- tential market is conservatively estimated to be in excess of 100,000 tons per year. For cost computation purposes, origi- nated traffic volume will be:

Simra Gravel Pit-Iron Foundry 100,000 tons per year Iron Foundry-North Birganj 10,000 tons per year 110,000 tons per year

Construction Cost: Same as Alternative (c) from Raxaul Siding to North Birganj. For the 20 kms. from North Birganj the line would be laid on the present right of way for about 17 kms., then deviate on a new alignment for about 3 kms. to the gravel pit. This portion of the line would be to general meter-gauge standards, using 40-pound rail with minimal ballast. This line would not be constructed to accept eventual conversion to broad- gauge.

Construction to North Birganj (Alternative (c)) NRs 3,170,000 Earthwork and ballast North Birganj-Gravel Pit (20 kms.) 500,000 Rehabilitation bridges and culverts 400,000 - 184 -

Rails, sleepers and fittings NRs 630,000 Acquisition of right of way (3 kms.) 20,000

Sub-total track and structures NRs 4,720,000

Two 4oo-600 hp. diesel locomotives NRs 1,500,000 Equipment for fueling and light repair 140,000 Service and work cars 60,000

Sub-total equipment NRs 1,700,000

Total NRs 6,h20,000

Operations Expense: One round trip daily Raxaul Siding to North Birganj operated by the Indian Railway. One round trip six days per week North Birganj to Simra Gravel Pit operated by Nepal Government Railway, using its own crews and equipment.

Operations Raxaul-North Birganj (based on Alternative (c)) NRs 1,288,000* Train operations North Birganj-Simra Gravel Pit 900,000 Track maintenance'North Birganj-Simra Gravel Pit 155,000 Maintenance of locomotives and service equipment 250,000 Additional share of Indian Railway equipment pool including 40 gravel wagons 150,000 Amortization of locomotives and service equip- ment (8 per cent of NRs 1,600,000) 128,000 Amortization of added track and structures (3 per cent of NRs 1,100,000) 33,000 Average interest on added investment (8 per cent of NRs 2,900,000) 232,000 Administration ho,ooo NRs 3,176,000

* NRs 200,000 has been added to the cost shown in Alternative (c) to cover the cost of handling the additional gravel traf- fic between Raxaul Siding and North Birganj.

Cost of Movement on NIorth Birgan,j-Simra Gravel Pit Portion of the Line:

110,000 tons per year at NRs 1,888,000 NRs 17.16 per ton

(Note that there will be a reduction in the cost of handling other freight between Raxaul Siding and North Birganj of about NRs 2.3 per ton due to the added volume moving on this portion of the line as a result of the sand and gravel traffic.) - 185 - Alternative (f): Constructing a new meter-gauge railway from Raxaul Siding in India to Hitaura, between 74 and 85 kms. or 45 to 50 miles (depend- ing upon the precise alignment selected).

Traffic: On the basis of 1963 vehicle counts for the Birganj- Hitaura highway, it is estimated that present annual traffic flows available to the proposed railway are as follows:

Birganj-Kathmandu 100,000 tons per year Birganj-Rapti Valley 12,000 tons per year Birganj-Hitaura 20,000 tons per year Amlekhganj-Hitaura 10,000 tons per year

Rail traffic:

Raxaul-Amlekhganj 10,000 tons per year - Simra Sawmill 5,000 tons per year - Sugar Plant and Iron Foundry 10,000 tons per year

Potential new traffic sources (at present traffic levels):

- Simra Gravel Pit 100,000 tons per year - Expanded Hitaura Sawmill 500,000 cu. ft. sal wood 7,500 tons per year - Petroleum products Nlotor gasoline - 1,200,000 gal.*) 1vigas - 600,000 gal.*) Diesel oils - 350,000 gal.*) 10,000 tons per year Kerosene - 500,000 gal.*) Heating oils - 40,000 gal.*) (black oils)

*present consumption rate

From this, the following is estimated to be the traffic which could actually be generated in 1969 by a Birganj-Hitaura railway assuming: (i) the existence of a petroleum tank farm at Hitaura, and (ii) expanded operation of the Hitaura sawmill.

Hitaura Traffic to the ropeway 37,000 tons/year Diverted local road traffic 10,000 tons/year Diverted Rapti Valley road traffic 5,000 tons/year Diverted Raxaul-Kathmandu Road traffic 25,000 tons/year Sawmill 7,000 tons/year Petroleun products (tank farm) 15,000 tons/year - 186

Simra Gravel Pit 100,000 tons/year Sawmill 2,500 tons/year

Sugar plant and iron foundry 15,000 tons/year

North Birganj-Raxaul local traffic 82,500 tons/year

300,000 tons/year

Construction Cost: The 5 km. portion of the line from Raxaul Siding to North Birganj is assumed to be the same as in Alternative (c), except that the terminal operation at North Birganj is made much smaller. For about 15 kms. from North Birganj the line would follow the present alignment. At or near Simra the line would start on a new alignment designed to give a better approach to,and crossing of, the mountains. The total length of the line is estimated at between 74 and 85 kms. (or 45 to 50 miles). The new line would be constructed to Indian railway standards, using gravel ballast and 60-pound rail. Through the mountains the line would be held to a maximum 2 per cent grade and maximum curvature of 7 degrees. The right of way would be engineered to permit eventual conversion to broad gauge. This construction would involve major earthwork and expensive bridges.

The following cost is for the entire line based on an 80 km. length:

Acquisition of land NRs 1,500,000 Earthwork and ballast (80 kms.) 70,000,000 Bridges and culverts 20,720,000 Rails, sleepers and fittings (80 hms.) 14,500,000 Freight station at North Birganj 100,000 Communications system 600,000 Freight terminal at Hitaura 300,000 Shop and maintenance terminal 500,000

Sub-total track and structures NRs 108,220,000

Three diesel locormotives NRs 3,500,000 Equipment for fuel and repair 300,000 Work service cars 120,000

Sub-total equipment NRs 3,920,000

Total NRs 112,140,000 - 187 .

Operations Expense: Based on the operation of one through Raxaul- Hitaura train each day, both directions, using Nepal Government Railway locomotives and crews. Also one Raxaul-Simra Gravel Pit train twice a week.

Operations NRs 1,100,000 Track maintenance 600,000 Equipment maintenance 300,000 Amortization of track investment (3 per cent of NRs 35 million) 1,050,000 Amortization of rolling stock (at 6 per cent) 235,000 Share of freight car pool costs (at NRs 15 per car day) 3,000,000 Average interest on investment (8 per cent of NRs 56 million) 4,480,000 Administration 100,000

NRs 10,865,000

Cost of Movement via Proposed Line: The 300,000 tons of traffic, listed earlier, represent 11,250,000 ton/km. When divided into the stated operating cost of NRs 10,865,000 the cost per ton moved one kilometer becomes NRs 0.97. Thus the cost of moving one ton Raxaul to Hitaura is about NRs 77.6 as compared with a highway cost of about NRs 45. This railway would not become economic (i.e., have lower costs than truck), until traffic reaches the level of about 1,000,000 tons annually. - 188 -

Chapter 9

TECEdIC.iL PAPERS IN SUPPORT OF THE AIR TRANSPORT PLAN

A. Airports

1. In considering the matter of airports for Nepal, it was decided by the Mission to draw a distinction between STOL fields and commercial air- ports. STOL fields are considered as short "katcha" runways capable of accepting only small, light planes. The location and construction of these fields is generally more closely related to Nepal's administrative needs than to its economic development. They were, therefore, viewed as being outside of the Mission's terms of reference and no specific plan- ning was done for them. Commercial airports are defined as those which meet International Civil Aviation Organization (ICAO) standards for the type of aircraft employed and which are served by regularly scheduled Royal Nepal Airlines Corporation (RNAC) flights or the flights of any other airline. These are viewed as covered by the Mission's terms of refer- ence and are the subject of this chapter.

2. A complete inventory of airports in Nepal, including a summary of their present facilities, is given in Volume III, Table F-1.

3. Airports are a necessary and complementary part of the flight service pattern to be maintained by RMAC. The airline needs airports which can handle the size and kind of planes it flies, and airports which are operable in most kinds of weather. Without this, it is diffi- cult to obtain the full economic development from air transport that would otherwise be possible.

4. The kind of airplane to be used and the local service pattern to be maintained by RNAC are discussed in detail in Chapter 10. In summary, it seems probable the line will be using turbo-prop planes having a maxi- mum gross take-off weight between 40,000 and 50,000 lbs. and requiring all-weather, surfaced runways. The airports to be served fall in three general groups: (1) Permanent airports in the long-range Master Plan, (2) interim airports which will be operational for ten to twenty years, and (3) temporary airports which will be operational five to ten years. The airports in groups two and three will become inactive as the National Highway System is completed and traffic can be channelled to the permanent airports.

5. The timing of this phasing-out process is directly related to the timing of road construction and the preservation of sufficient traffic volume and revenue at each airport to support continued operation. - 189 -

Permanent Airports Interim Airports Temporary Airports

Bhairawa Dang Bhadrapur Biratnagar Dhangarhi (or Yiahendranagar) Bharatpur Janakpur Simra (subject to review) Gurkha Kathmandu Rajbiraj Nepalganj Pokhara Silgari-Doti (proposed) Tumlingtar

6. Simra presents a special problem in terms of RNAC operations which is discussed in the route section of Chapter 10. Until the question is re- solved as to whether RNAC can serve this airport effectively and economi- cally, its future as an operating commercial airport cannot be clearly determined.

7. Dhangarhi presents another type of problem. The present airport is little more than a STOL field. Until such time as a road is con- structed providing an all-weather crossing of the Karnali river, it would be desirable to retain an airport on the west side of the river. The fact that the present airport will need extensive construction work before it can be effectively used provides an opportunity to review the question of location. It is possible more economic benefit could be ob- tained by relocating the field in Mahendranagar, which is planned as a major marketing center for the region to the west of the Karnali. This is discussed further in the review of individual airports which follows later in this chapter.

B. Airport Design Considerations

8. The design of an air ort involves a number of considerations:

Runway length - determined by the field elevation, maximum temperature, the type of plane to be accommodated, and the weight loads to be handled. In genera], sufficient land should be pur- chased to permit maximum runway and clearway length, both for safety and to allow for future extensions.

Runway strength-related to the landing impact weight of the planes used, which in tu:rn is influenced by the weight loads carried, aircraft design, and temperature. In general, perma- nently paved runways at smaller airports should be designed to accept planes up to 100,000 lbs. and at major airports 250,000 lbs. in order to allow for future growth and the use of heavier planes. - 190 -

Type of soil - determines the bearing strength of the runway founda- tion, the drainage required, and the construction design needed to achieve the runway load capacity needed.

Elevation - this affects the performance of planes using the run- way. The higher an airport is, the longer the runway must be to handle the plane and load. For example, the runway needed for a particular 40,000 lb. plane at an altitude of 1,100 ft. is 3,000 ft. long. At an altitude of 4,400 ft. the same plane needs a runway 4,000 ft. long.

Prevailing wind direction - to be most effective, a runway must point in the direc- tion of prevailing wind. Winds blowing across the run- way may affect the stability of the plane while landing or taking off. In general, large aircraft are less affected by crosswinds than small ones.

Fueling - as a general rule, it is desirable to have aircraft fuel available at all commercial airports. It is essential only where overnight stops are made. How- ever, principal airports where planes turn around for return flights or which are an intermediate stop on a long schedule, should have power fueling facilities. These can range all the way from large underground fuel delivery systems to small tank trucks which obtain their supply from barrels or some nearby town or rail terminal.

Supporting facilities - these are largely determined by the use to which the air- port is to be put. Some passenger terminal and ticket office is necessary, though it can be a minimal structure. If freight is handled, some freight storage facility is necessary which may or may not be a part of the passenger terminal. If international traffic is handled, necessary customs and immigration facilities are needed. If planes are to spend the night, tie-down facilities, and crew lay- over accommodations are needed. All airports should at least have public toilet facilities, waste disposal, and running water.

Radio equipment - every commercial airport should have point-to-point com- munications, radio navigation aids, and ViF airport control equipment as determined by the location of the airport and by traffic density. All equipment, together with associated -, 191 _

power-generating sets, must be provided in duplicate so that continuous and reliable service can be provided. A standby power generator set is necessary in locations where local electric power is used. However, it is neither practical nor econoriic in Nepal to equip small airports with navigation aids.

9. In general, the typical local terminal building should have two floors with a control tower on the third. The ground floor should con- tain space for the storage of freight, mail and baggage, a ticket sale waiting room, public toilets and space for the power-generating sets. The first floor should have offices for the Department of Civil Aviation (DCA) airport manager, for the RNAC station manager, a crew room, and a radio equipment room. A control tower should be in the third floor.

10. The entire airport should be placed on elevated land, or land slightlyr higher than the surrounding terrain, to prevent flooding and excessive water saturation. Foundation conditions and types of soil, including its weight-bearing capacity, should be carefully investigated. Grading and proper drainage facilities should be provided to prevent water accumulation under runvays, taxiways, ramps, and building foun- dations.

11. The airport shlould be linked to town by an all-weather road, otherwise it is economically useless during the monsoon. Witlhout adequate access, the airport might as well not exist.

12. Two runway design features are critical, namely (1) weight- bearing capacity, and (2) length. The two jointly influence to a significant degree the kcind of aircraft which can use the airport and the payload which can be carried. This in turn determines the profitability of an airline's operation from the airport involved. C. A Mclaster Plan for Airports

Bhairawa

13. A coinpletely new airport is being constructed by the Indian Aid Mission about three miles west of the present site. This new airport is expected to be operational within the next two to three months. It will have a 3,300 ft. by 100 ft. paved runway-, a taxiway, and ramp in front of a new termrinal building. The runway is built with a 9-inch stone foundation covered with a 6-inch metalled wearing coat consolidated to h½-9inch thickness, and topped with a 1-inch bitumen surface. 1)4. The 1.1ission was unable to obtain information as to the strength of the runway, or whether it was constructed with adequate foundation, grading and drainage to prevent soft spots during wet weather. This - 192 -

runway was apparently designed for DC-3 operations, and there is some question as to its ability to accept heavier planes, even if extended. The runway site could be extended to the east without difficulty, but extension to the west is limited by a number of ditches and the Ghagra river.

15. The Mlission recommends this airport as a permanent installation, so steps should be taken to prepare a master plan for its future devel- opment, estimated to cost about i'i?.s 100,000. This study would include determination of present runway foundation conditions and drainage, plus developing a specific plan for eventual lengthening of the runway to 5,000 ft. situated in a 7,000 ft. clearway. The permanent runway should be capable of accepting 100,000 lb. planes. The new terminal facilities appear to be adequate, though a freight godownm should be provided during the Third Plan at an estimated cost of D-Rs 40,000. There should be a readily available supply of fuel for both smaller STOL planes and larger IJAC transport planes. The long-term cost of this airport improvement plan is estimated to be NRs 3.0 million.

16. This airport presently has a single set of NDB, SSB and VHF radio equipment with a single power generator. Because this is an important airport and complete reliability is essential, duplicate equipment with automatic NDB change-over should be installed for stand-by service. This will cost NRs 40,000 installed.

Bhadrapur

17. No major improvement or newi equipment is recommended. It is ex- pected this airport wiill close in about five years following opening of the new National Highway to Biratnagar. For the interim period a tem- porary terninal including a 1,000 sq. ft. godown costing NRs 25,000 is recommended. Bharatpur

18. It is expected this airport will be operational for about ten years, or until the new Nlational IIighway from Narayangarh to Gurkha is opened. During this period the field should be raaintained and some mrinor improvements to the runway implemented to improve its operability in mildly wet weather. A small terminal including an 800 sq. ft. freight godown costing NRs 50,000 is recommended along with staff quarters costing NRs 40,000. Radio equipment consisting of duplicate NDB, and duplicate SSB point-to-noint comnunication sets are recom- mended at a cost of NRs 60,000. The SSB sets could be eliminated if arrangements could be made to use presently existing telecommunication facilities for lincage to Gaucher Field at Katlhmandu. - 193 - Biratnagar

19. This has been selected by the Uission as the location for a major, permanent airport equipped to handle large and heavy planes, to handle international traffic, to handle overnight layovers, and to permit nighat flying.

20. The Indian Aid Hiission has plans for tCe construction of a new airport. A site for this new airport has been selected several miles north of the present airport and work started. The present plans call for a smaller and lig;hter duty airport than is needed. NRs 1,637,81t0 have been made available for this project, excluding the cost of the land. This airport is insufficient for the needs of this area; con- tinuation of this project should be reviewTed in the light of this report.

21. The master plan for this airport contemplated by the IIission would incorporate the following features, and could be constructed over a seven- to ten-year period:

- A 7,000 ft. runway with strength to accept a 250,000 lb air- craft. This runway probably should be constructed in stages, with the first stage being 5,000 ft. The runjay slhould be placed in a clearway at least 8,000 ft. long.

- A terminal building incorporating passenger, customs and inrigration facilities and offices; a weather observation office, MIJAC and CAD offices, a radio equipment room, a control tower, and an auxiliary powerhouse.

- Ahlangar with a small attached workshop.

- M4echanical fueling facilities for both jet fuel and avi-gas.

- A freight wiarehouse or godonm.

- Lighting facilities for night operation.

- Fairly extensive radio and navigational aid facilities.

22. Within the Third Plan period, the land should be purchased and a 5,000 ft. rurway constructed with a foundation adequate for 250,000 lb. planes but with a flexible pavement sufficient only for a 50,000 lb. plane.

23. The estimated cost for this airport follows: 194 - Total Cost Portion in Complete Airport Third Plan (000) (000)

Acquisition of 200 acres of land (at NRs 1,600 per acre) PTRs 320 NRs 320

Preparation o?7 14aster Plan and Engineering Design 760 500

Earthw^ork of 175,000 cu. yds. i,)40J 745

Drainage work 450 375

Runway foundations 67,000 sq. yds. 3,050 1,980 at NRs 42.20

Runway pavement 5,835 2,300

Apron and taxiway pavements 1,780 975

Paving of taxiway shoulders and parking lot 345 150

Airport runway and threshold lights 1,100 -

Fire station 155 155

Radio and commxunication systems 80 80

Instrument Landing Systern 2,240 -

Access road, 0.6 miles 360 360

Terminal building and staff quarters 650 300

Hangar (131 x 131 x 28 ft.) and workshop 750 --

Freight godown 75 75

Fueling facilities. It is assumed these will be built by the fuel contractor - -

Contingencies 440 100 19,790 8,415 - 195 -

24. The long-tern investment can be reduced by the proceeds obtained from the sale of the land used for the present airport when operations are transferred to the new site.

25. Under this, it is assumed that preparation of the Master Plan and engineering design will start in September 1965 and that earth- moving in preparation for construction will start in March 1966. A 4,500 ft. runmay, together with taxiways, ramp and access road are expected to be operational by Hay 1968. In this first stage, the run- way would be constructed to a semi-finished stage adequate for interim operations. Worlk would start on the freight godown in January 1967, which would be used as a temporary terminal building pending completion of the passenger terminal in 1970. The hangar and workshop would be erected in 1970-71.

26. The airport presently has a single set of the following radio equipment: SSB, 100 watt NDB, VHF airport control, and power generator. It is in need of a duplicate stand-by set equipped with automatic change- over controls. New equipment should be added in the form of a duplicate VHF airport cmtrol, and towier meteorological instruments. The total cost is about NRs 80,000 installed. Installation of an instrument land- ing system (ILS) is recormmended in a future plan period for crew train- ing purposes.

27. This airport is intended to serve as a future alternate operating base for RITAC, and as a possible future RIAC mnaintenance base should it prove necessary or desirable to move away from Kathmandu. It is intended to handle large turbo-prop planes such as the Electra or Britannia, or short-haul jets such as the Boeing 727, BAiC 111, Douglas DC-9,F-28,etc. How- ever, this could not be done until the runway paving is extended to a full 7,000 ft. with a cleared and graded all-weather overrun of at least 600 ft. at each end. This would mace possible the movement of in larger charter planes, p:Lus the operation of longer-range inter- national charter flights for tourist groups which cannot be operated into Gaucher Field, Kathrnandu. Passengers could be transferred to Kathmandu, Bhairawa and Pokhara by sclieduled or charter rNlAC services.

28. The opening of this new airport will support tlae future growth of Biratnagar as an industrial center and in addition provide a nucleus for thie development of a tourist industry in the Dharan-Dhankuta area.

Dang

29. This is an interim airport which is expected to rermain operational only until the National Highway is completed from the Inner Terai area into Nepalganj. For this period, the present strip should be kept operational and the runway gradually improved by grading and the addition of gravel to permit operation in milder weather. The construction of a small - 196 -

terminal building irncorporating a 300 sq. ft. freight godown, passenger office and radio room at a cost of NRs 135,000 is recommended for this Plan period. Staff quarters for four DCA employees costing NRs 100,000 are also recommended. The airport should be provided with a point-to- point receiver and transrnitter (SSB) and a nondirectional radio beacon (DB) in duplicate, together with auxiliary power supply. These would cost iN'Rs 38,000.

Dhangarhi

30. For the development of the region west of the Karnali it is desirable that there be a centrally located all-weather airfield. The present airport is little more than a fair-weather grass landing strip representing a very small investment (other than land). Because there is so little investment in the present field, there is an opportunity to review the possibility of changes or relocation. One possibility would be to establish a new airport near H-Iahendranagar, where it can serve both the mountain region to the northi and the Terai to the south and east, and close Dhangarhi. The new site should be selected so as to be on high ground and the runway graded and improved to ICAO stand- ards. The runway should be of compacted gravel on dirt, and 5,000 ft. long at a cost crudely estimated at about NIRs 500,000. Sufficient land should be purchased to permit a possible 1,500 ft. extension in the future, should that prove desirable. A simple terminal building should be con- structed at a cost of about NTRs 90,000 and simaple radio facilities provided (an SSB, an NDB plus auxiliary powJer) at a cost of NRs 38,000 The acquisition cost of the new land is roughly estimated at NRs 350,000, but could be partially offset by the sale of the land presently used at Dhangarhi. Staff auarters for four DCA employees will be required at a cost of NRs 70,000.

31. The future use of this airport will be related to the construction of the National Highway to Nepalganj and to Silgarhi-Doti, and the feasibility of constructing a permanent mountain airport at Silgarhi- Doti. The long-term cost of a new airport at either site is estimated to be NRs 4.0i million.

Gurkha

32. This is a temporaryj airport whlich is expected to be phased out of service with the opening of the National Ilighlway to Narayangarh, Pokhara and Kathmandu--now estimated to be with-in five to ten years. Some work in compacting gravel into the present clay runway is recom- mended (NRs 10,000) together with the construction of a small terminal building (NRs 70,000) incorporating a freight godown, and the installa- tion of simple radio equipment (an SSB and an NDB) at NRs 38,000. - 197 Janakpur

33. The present airport is being reconstructed by the Indian Aid M-ission at a cost of about NRs 3.0 million. A 3,300 ft. paved runway is being built of layered brick (due to thle scarcity of stone) with a one-inch bitumen-wearing course. This runway was apparently de- signed solely for DC-3 aircraft and it is not clear whether it can accept heavier aircraft, even if lengthened. The runway seems to be in a low location which'may prove troublesome in wet weather. The Mission wTas unable to obtain information concerning the strength of the runway, or whether drainage has been provided to ICAO standards. For this reason, it is recommended that DAC take special precautions to observe proper maintenance procedures while seeking the necessary technical data concerning the rumnay construction.

34. In the Mission's Master Plan, Janakpur is classed as a permanent airport and therefore shou:Ld be programmed for eventual expansion and improvemert to handle PRJAC's new planes. The clearway should be ex- tended to 7,000 ft., and the runway strengthened to accept 100,000 lb. planes and lengthened to 5,000 ft. Carrying this out will require a careful engineering analysis of the present runwyay and airport, and the preparation of an engineered master plan for its long-term improve- ment. This is estimated to cost MRs 60,000.

35. Because so little is known about the engineering design of the present new runway, it is impossible to estimate the cost of the pro- posed runway extension and improvement. Therefore,a provisional amount of NRs 500,000 is allowed in the fifth year of the Plan toward this cost. The total cost of the long-range inprovement is estimated to be NRs 3.0 million. 36. There presently are no fueling facilities at this airport. IWThen it is expanded (runway lengthened) it would be desirable to have fueling facilities available. However, it is assumed these would be provided by the fuel contractor so no provision is made for them in this Plan.

37. A small freight godown shlould be provided at a cost of MIRs 50,000. 38. The airport presently has no radio equipmnent, and should be supplied with the following: two HlF point-to-point receivers and trans- mitters (SSB), two nondirectional radio beacons (NDB), two VHF air-to- ground tranceivers, and two power-generating sets. This equipment is estimated to cost MRs 125,000. Kathmandu (Gaucher Field)

39. This is the principal airport for Nepal, and its only inter- national airport. It serves the capital of the country, and is the principal gateway through which tourists come. It also is the operating base for RiAC and Royal Flight. - 198 _ 40. The airport is presently being expanded by means of a new, heavy-duty 6,600 ft. runway being constructed wiith funds from the United States AID program. A new concrete hangar apron (6X0 x 118 ft.) and a concrete terminal apron (492 x 197) are connected to both runsays by means of new taxiways. The new runway will be operational in late 1966 and will penmit the airport to accept larger modern craft, such as the Avro 748, the Foldker F-27, the Ilandley Page Herald, the Viscount, ancl the Nihon YS-11 without serious payload penaltyr. The balance of the airport is poorly planned and equipped to cope with the traffic and tlle problems that vill cor,me with the advent of new and larger planes. How- ever, tLhe Department of Civil Aviation has cormpleted a first draft master plan calling for the complete modernization of tLhe remainder of the air- port in thlree stages, wwhich are given without specific time limits, at a total cost of MR.s 67,620,13.5. 41. On the basis of the DCA Plan, the ilission recommends the following specific projects for the Third Plan:

Carried Cornpleted nor to in Second Third Pourth Total Cost Pl.an Plai Plan (600)- -- b-o- (000) -ONOT

Construction of new run- ITls 19,600 IMs 13,700 N.Rs 5,900 NRs - way, including taxiway, hangar ramp, term!iinal ramp, and mediizi intensity lighting

Extension of terminal ramp 570 - 570 - Land preparation and earth fill 180,000 cu. yds. 2,000 - 1,000 1,000 Construction of new access road and publiC parking 900 - 600 300

Construction of newJ radio transmitting and receiving stations (including land, control cable, stand-by power unit, buildings and mo-ving) 800 - 800 -

Two hangars 131 x 131 ft. 1,400 500 900 - Improvements to temporary passenger terminal 175 175 - . 199 .

Carried Completed For to in Second Third Fourth TotaJ 2.ost Plan Plan Plan (000)--- (000) (000) (000) Additional radio equipment NRs 700 NiMs 300 NRs 40oo 1'IRs - Storage and customs godowm 300 - 150 15Q

Airplane maintenance sh-iops and supply depot (excluding equipment) 350 - 350 -

New passenger terminal building 8,000 - 4,000 4,000

IWater and seweage systems 800 - 800 -

New firehouse in more suitable location 70 - 70 -

Airport local electric distribution syrstei 2,000 - 1,500 500

Engineering and contingencies 1,650 - 770 880 39,315 14X,675 17,810 6.830

42. Gaucher is presently a VFR field, but the possibilities of IFR flying probably should be ilvestigated as is suggested in the following section of this report. 43. The new passenger tenninal should be designed and constructed in tlree stages - a center section and twio wings, with the tower over the north wing. Pro-vision is made in the Plan for the construction of the center section in the fourthl and fifth years of this Plan period, 1with the thought thlat thne wings could follow imnediately in the following Plan period. In the meantine the center section could be in use.

Nepalganj

44. Ajo newz airport sites have been surveyed about 1l- miles north of the bazaar. Inasmuch as there is only a small investment in the present airport and this is still lightly populated country just beginning to enter the development phase, this is a good time to review the desira- bility of a move.

45. The IL-ssion views Hepalganj as likely to be a major industrial - 200 .

center, market place and administrative headquarters for western Nepal in 20 to 25 years. For this reason, plans should be laid and provision allowed for the construction of a major airport, somewhat sirailar to Biratnagar, on this site. However, major construction worlk need not start for ten or fifteen years. The airport site should have su,ficient land to acconmmodate an 8,600ft. landing clearway (with a 7,000 ft. paved runlay), plus a maintenance hangar, a fairly large terminal building, a freight godown, and necessary staff quarters. Preferably it should be located on high, dry ground.

46. The present airport is located six miles from town and is accessible only by way of a 2-mile track leading to a fair-weather road. A new site hlas been surveyed which is only 1½1, miles from tlhe bazaar and another site is also being considered. The IIission has not reviewled the twio sites and therefore is not in a position to judge their relative merits. hrhichever site is selected should be on high ground and withl sufficient available land for the airport expansion just discussed. For the purpose of this report, the Iission assumes that the airport will remain in its present site. Provision is made in the roads section of the Plan for the construction of an all-weather road from the bazaar to thae airport. This assumption should not, however, prejudice any plans for a possible future move.

47. For the Third Plan period it is recommended that the present landing strip be graded and compacted (with gravel if possible), and extended to 5,000 ft. at a cost of liRs 200,000. It should be designed with sufficieint drainage to permit operation in wet weather. A small terminal building, incorporating a freight godorn and control tower, should be built at a cost of IRs 80,000. Staff quarters should be pro- vided at a cost of iUR.s 60,000. The present radio equipment should be augmented by the addition of stand-by point-to-point receiver and transmitter (SSB), a 1MIF air-to-ground control set, and a diesel generator se-t. To this stand-by equipment should be added a dualled set of nondirectional radio beacons (NDB). Total radio cost NRs 70,000.

Ito. Provision should also be made for thle preparation of an engineered long-range master plan which can be used to guide the orderly develop- ment of this airport. Portion in Third Plan (000)

Earthwork, grading of runway 300 Drainage 100 Gravel and compacting runway 200 Construction of 6-mile all-weatller access road (in road plan) _ Temporary tenrinal building 80 Staff quarters 60 Radio equipment 70 Preliminary Engineerinrg and 'aster Plan 100 IRs 910 . 201 . Pokhara h9. In teras of passengers handled, this is the second most important airport in Nepal; in terms of air cargo hLiadled it is tne rnost important. It is the principal modern transport facility serving more than 500,000 people, axid is a major distribution point for the heavily populated Hill areas of Gandali and Dhaulagiri.

50. There is some question as to whether the present airport is suitable for turbo-prop aircraft because of the sloped approaches. Pending fuirther study, the Mission believes this airport is adequate for the near future, though it wTould be desirable to increase the run- way length bv 500 ft. wlhich can be done easily to the south. The field needs to be shaped, srnoothed and maintained. This is estimated to cost NRs 200,000. Because the field is on hlard, rocky soil which is firm in all weatlher, there is no immediate need to pavre the runway. The con- struction of a freight godown attached to the passenger terminal at a cost of Rls 4.O,o0o is recommended.

51. For radio, tlhe only need is for dualization of present equipment so as to provide all-weather reliability at a cost of NRs 75,000.

Silgarhi-Doti

52. The construction of a newi commercial airport at this general location is proposed in the Master Plan. However, no construction is planned during the Third Plan period. It is recommended that there be an engineering feasibility study concerning the possibility of such an airport. This study would consider alternate locations in the vicinity of the present STOL field. The objective is to find a site where a regular and reasonably reliable commercial servlice would be possible. It is estiinated this feasibility study will cost about MRs 65,000 and should be undertaken in the fourth or fifth year of the Plan.

Simra

53. There is some doubt in the Mlission ts mind as to the future role for this airport as a commercial operation. It has been classed as an interim airport until these doubts can be resolved.

54. Although Simra handles a large volume of traffic (16,160 passengers and 100,081 lbs. of cargo during the year ended June 30, 196h), PVI,AC provides this service at less than cost. It is reconunended elsewhere in this report (Chapter 10) that PJ'LAC adjust its passenger fares and cargo charges for this run to recovrer full costs plus a margin of profit. If, after these charges are raised, traffic remains at or near present levels there will be justification for continuing this airport as long as the traffic remains. On the other hand, if traffic drops sharply, it probably should be dropped as a commercial airport. - 202 -

55. In addition to operating as an airport, Simra is presently used as a major reporting point for planes enroute to and from Kathnmandu, and must continue to be so. For the continued effective operation of this reporting station the following equipmient is necessary in this Plan period: one VHFf air-ground transnmitter-receiver ald one SSB point- to-point transceiver. All this equipment slhould have automatic coupling to the present equipment. Thlis is estimated to cost NiRs 25,000. The new equipment will be dualled with existing equipment to make this a 24- hour, fully operational station.

56. The Indian Aid Mission presently has under construction an east-west grass 3,300 ft. air strip at a cost of NRs 200,000 plus a new terminal, a freight godown, and staff quarters at a cost of NRs 40,000.

Tumlingtar

57. A new conmercial airport is proposed in eastern Nepal near the present STOL strip about two miles north of the junction of the Arun and Sabhaya Rivers. Here there is a plateauL about 100 ft. above the level of the Arun River with clear approaches from the north and south (see map on following page).

58. The area suggested for the new airport is somewlhat ligher than the present STOL strip. A land area approximiately 8,000 ft. long and 400 ft. wide should be selected and rough-graded in this Plan period. On this site a runway hi,000 ft. by 100 ft. should be placed. The site should be carefully drained, and the runway constructed of compacted dirt and river gravel. At a later date the runway could be extended and paved. Additional land should be purchaased for a terminal building, a freight godoTim, staff' quarters,and to provide temporary hotel quarters for passengers awaiting planes.

59. The airport should be equipped with dual sets cf point-to-point transmitter-receivers, IDB nondirectional radio beacon, VHF airport control, and suitable diese:L generator sets. The cost is estimated at NRs 125,000.

60. The detailed plan is outlined below:

Total Third Plan Cost Portion (000) (000)

Acquisition of 670 acres of land NRs - NRs 670 Earthwork and rough grading 1,000 800 Preparation of runway site (including drains) 1,000 750 Runway, taxiway and apron pavement 2,725 - Terminal building, including control tower 200 100 SITEi OF PROPOSED TUINGTAR AIRPORT

Map 9

a So 2000 to 300 ' Mete,- X ;Y'vUJun196 204 -

Total Third Plan Cost Portion (0_00 ()0

Freight godown NRs 100 NRs 50 Staff quarters 80 40 Radio and NTavigational equipment 125 125 Engineering design and contingencies 600 200 IRs 6,480 NRs 2n735

D. Navigation Aids 61. With thae introduction of new turbo-prop planes into regularly scheduled service by RIqAC during the Third Plan period, there will be mounting pressure for improvred and expanded navigational aid facilities in order to make possible more reliable all-weathier flying and, thereby, greater plane utilization.

62. Some of the individual airport navaid installations have been in- cluded in the preceding discussion of individual airports. The raost im- portant immediate consideration is that all permlanent airports be equipped with autormatically coupled clual installations of VHF airport control, and nondirectional radio beacons. This arrangement is necessary for reliable 24-hour operation, so there is stand-by unit irmmediately available when one unit fails.

63. Consideration should also be given to the eventual installation of a three-or four-channel VHF air traffic control 1,000 watt transmitting- receiving station located on a high mountain somewlhere near Kathmandu which could reach into all principal air traffic routes in Nepal. This station would be automatically controlled and remotely operated from the Gauchar Control Towier in Kathmandu. It would permnit imnmediate contact with any plane in fli'lit over Nepal and would facilitate many service improvements and operating economies. However, its installation will be very expensive because it must be placed on a site accessible by motor vehicle--which may entail the construction and maintenance of a mountain access road. It is recommended, however, that this be made the subject of an engineering feasibility study during the plan period at a cost of NRs 42,000. One possible location is Ht. Phulchauci south of Kathmandu.

64. Wihile other enroute electronic facilities may be desirable, the generally low density of air traffic, the mountainous terrain, and the lack of funds indicate a need for caution and prudence. Some delay can be justified until the internal air transport system more fully emerges and RNAC hlas selected its new type of plane. - 205 -

65. There is some division of opinion over the matter of night opera- tions at Kathmandu. At the present it is not a pressing subject because there is no particular need. However, when RNAC changes over to the operation of modern turbo-prop aircraft, there will be growing pressure to permit nighttime operation in order to increase daily plane utiliza- tion. Because air navigation problems in the Kathmandu Valley are difficult and there are many complexities involved, it is recommended that possible IFR operation at Kathmandu also be the subject of an engi- neering feasibility study at a cost of NRs 40,000.

66. For both of these studies, their utility and value will be strongly influenced by the care with which the terms of reference are prepared and submitted, and by the care and thoroughness with which background material is assembled and prepared for use by the consulting engineers. Both should be submitted several weeks before the consulting engineers leave to come to Nepal.

67. The increasing use of radio navigational aids carries with it the problem of providing for adequate and skilled maintenance. For this pur- pose there is recommended the construction of a radio repair shop at Gauchar field in Kathmandu. This shop, with necessary tools and equip- ment will cost NRs 368,000.

E. Meteorology

68. Meteorological services for air navigation uses are almost non- existent in Nepal. There are no organized weather forecasting facilities, and such weather service as does exist is limited to spot reports. With the installation of radio equipment at airports as recommended by the Mission, some weather reporting will become possible. Several organiza- tions now have weather stations scattered throughout the country. Some of these are simple rain gauges; others measure all aspects of weather. However, these stations report to different places. For example, the Indian operated stations report to Delhi, while the Karnali stations re- port to the United Nations. Under the present system there is no way of getting reports from different stations to a common point for use in aviation.

69. In 1965, a meteorological expert will be undertaking a survey of Nepal's meteorological needs, together with staffing, training and equip- ment requirements. The United Kingdom has offered to give advanced degree training to one outstanding young Nepalese who is now attending the ICAO's Bangkok Civil Aviation Training Center on a forecaster's course. It is hoped that meteorological training for additional personnel could be ar- ranged through the United Nations. The expenses of such training should be charged to the budget of the Ministry of Transport and Communication. - 206 .

70. The World Bank Mission recommends organization of weather observa- tions in such a manner as to get greater benefit from it than has been possible up to the present time. All stations should report to a central meteorological center to be established at Gaucher Airport in Kathmandu. This center should make arrangements with the Civil Aviation Department, RNAC, and the Posts and Telegraph Department for collecting aeronautical weather information.

71. During the Second Five-Year Plan, the feasibility of installing the following should be studied:

1. Storm-warning radar to be set up on Mt. Phulchauki, south of Kathmandu.

2. Installing remote weather recording instruments.

3. Establishing weather offices with modern weather instruments.

4. Setting up of a telefax machine at Kathmandu meteorological center to prepare prognostic charts quickly as data become available.

72. Any improvements in meteorological reporting should enable RNIAC to plan flights in a more precise manner, reduce present reserve fuel margins, and provide a more dependable service.

73. The meteorology center proposed by the Mission should be operated as a section of the Mission-recommended Department of Civil Aviation. Its operational expenses should be paid by the Ministry of Public Works, Transport and Communication. In order to meet its needs for the purchase of capital equipment, a sum of NRs 100,000 is provided in the Third Plan. - 207 ^

F. Summary

74. The individual airport construction, navigation aids, and meteo- rological service programs outlined on the previous pages for the Third Plan are summarized in the following table, in thousands of NRs:

Airport Radio and Third Plan Construc- Communica- First Second Third Fourth Fifth tion tion Total Year Year Year Year Year Program System (000) t000) (000) (000) (000) (000) (000) (000)

Bhadrapur 25 - 25 25 - - - -

Bhairawa 140 40 180 40 50 50 40 -

Bharatpur 90 60 150 60 60 30 - _

Biratnagar 8,335 80 8,415 1,605 1,605 1,605 1,800 1,800

Dang 235 38 273 - 135 38 100 -

Dhangari 1,010 38 1,048 - 350 340 288 70

Gurka 80 38 118 40 38 40 - -

Janakpur 610 125 735 30 95 60 50 500

Kathmandu 17,010 800 17,810 6,000 3,000 3,000 2,810 3,000

Nepalganj 840 70 910 300 200 160 150 100

Pokhara 240 75 315 60 75 60 60 60

Silgarhi-Doti 65 - 65 - - - 30 35

Simra - 25 25 25 - - - -

Tumlingtar 2,610 125 2,735 670 520 500 500 545

Total Airports 31,290 1,514 32,804 8,855 6,128 5,883 5,828 6,110

Navigation Aids - 450 450 123 123 122 42 40 1Program

Meteorolo-ical - - 100 - 25 25 25 25 SOrvi8cs TOTALJ 31.;290 b 963 33,354 8,978 6,276 6,0i9 5,8 6,175 ." 208 "

Chapter 10

DETAILS FOR STRENGTHENING OF THE ORGANIZATION OF ROYAL NEPAL AIR LINES

1. The Royal Nepal Airlines Corporation (RNAC) is a nominally independ- ent airline operation which is whlolly ownmed by the Government of Nepal. It was formed in 1958, and from that time fonr.ard it has played a major role in the economic development and administrative integration of the country. In so doing, it has been faced with many and severe difficulties: insufficient and inadequate airports, a lack of the simplest repair facil- ities needed to maintain its planes, a shortage of skilled pilots, difficult environmental operating conditions (the world's highest and most difficult mountainous area), a shortage of skiLled management, a shortage of working capital, etc. The list of problems and difficulties is alrnost endless. However, in spite of these, RNAC has survived and grown. In the last few years RNAC has had the very substantial advantage of a manage.nent team which is both imaginative and energetic and which is trying to cope with the manifold problems confronting it. The Mission believes that the accomplishments of the new management team has developed invaluable experience which, given encouragement and opportunity coupled with skilled outside help, is capable of carrying out the changes in organization and operation needed to meet the problems of becoming a fully commercial operation and changing over to high utility aircraft.

2. RNAC possesses both the capability and the opportunity of continu- ing its influential role in Nepal's development, while yielding a return on present and future capital investments. However, realization of this opportunity will require modifications of present and past RNAC practices and operations plus the addition of some new investment. The recomrenda- tiorson the following pages are prepared for this specific purpose. A. Organization

3. RNAC was originally organized in 1958 as a public corporation wfith 51 per cent of its capital shares owned by the Government and 49 per cent by private investors. At this time it operated 398 route-miles with one DC-3. On October 12, 1959 the affairs of the Corporation were taken over by the Government, and it was operated in effect as a government agency. Three additional planes were acquired and route mileage was expanded. In 1963, by enactment of the Royal Nepal Airline Corporaticn Act, the RINAC became a semi-autonomous unit. A new management team was brought in, four additional DC-3's and two helicopters were acquired, and the company's expansion continued in a more systematic manner. The growth of operations is shown by the data in Tables F-2 and F-8 in Volume III. - 209 -.

4. The affairs of the Corporation are managed by a board of nine directors. Five board members are high-ranking officials in the Ministries of Finance, Economic Planring, Foreign Affairs, and Public Works. The remaining four include the Governor of the Rastra Bank, the Administrator of the RNAC (who is also the chief executive officer of the Corporation), and two private businessmen. The members of the Board meet in formal sessions, also in ad hoc informal sessions and individually with the Administrator. The Administrator is appointed by the Board and is responsible for the day- to-day operations of the airline. There is a good informal working relationship between the board members and the RNP.C managernent team which, under the joint leadership of the present Chairman and Administrator, iLs built an improved operation and has contributed to the creation of an effec- tive organization wThich could become the nucleus of an efficient airline.

5. The present organization is simple and direct, and meets the RNAC's current needs with reasonable effectiveness, considering the present early stage in its development.

Chairman Board of Directors

Administrator

Administrative Manager

I ~ ~I I I I I I Operations l4orks Traffic Stores Chief Public Rela- Personnel Ianager Manager Manager Manager Accountant tions Manager Manager

6. The managerial and operational problems encountered are similar to those generally found in air transport services just beginning the complex process of growth and development.

7. The RNAC is now at a point where it must regroup its resources and review its managerial organization carefully if it is to enter, and pass through, the next development phase successfully.

8. The changeover to jet-prop operations will place new demands on management, requiring adjustment to different techniques of operations and maintenance. The Mission has prepared the following suggestions in order to facilitate such a change as well as to improve the present performance - 210 -- of the airline; they could be used as guides in planning for the future:

(a) The organization should be rearranged to delegate greater responsibility and authority to the chief executive officer (presently called the Administrator). The board of directors should confine its interest to matters of advance planning and basic policy, leaving all matters of day-to-day operaticn with the Administrator and his operating organization.

(b) The title "Administrator" should be changed to one more closely corresponding to a title similar to those used by most of the world's airlines. Inter-airline agreements and negotiations will be greatly facilitated by having a chief executive with a more readily recognized title. One suggestion is the title "Mt1anaging Director." This would also impart a feeling of importance and esprit de corps to the organization. In this new role, the Managing Director wJould be responsible for management and operation planning, general administration of the overall organization, net financial results, relations with the Government, and negotiations with other airlines and out- side agencies.

(c) The number of people reporting to the ilanaging Director would be reduced from seven as at present to three by creating three new positions which together would be responsible for the day- to-day operation of the airline:

Assistant Director - Operations to assume full responsibility for operation and maintenance of the planes. His supervision would also include stores, communication, crew training and record keeping.

Assistant Director - Sales and Traffic to take full responsibility for and authority over the day-to-day generation of traffic and revenues. Tourism, publicity, surface transportation, and econoric research would also be within his jurisdiction.

Assistant Director - Finance and Personnel to wield full responsibility for and authority over all matters relat- ing to accounting controls, money management and personnel.

A chart of this new organization would look somewhat as follows: - 211 "

Board of Directors

MIanaging Director

Assistant Director Assistant Director Assistant Director Operations Finance and Personnel Sales and Traffic

- Operations planning - Treasury - Traffic - Flight operations - Accounts - Sales - Crew training and - Audit - Schedules supervision - Cash Disbursements - Space control - Controls - Revenue - Publicity - Maintenance and - Purchasing - Research overhaul - Statistics - Surface transport - Communications - Personnel - Tourism - Stores - Records

(d) There should be clear lines of authority established for each position with no overlapping or overriding from one position to another.

(e) Because of the particularly difficult problems of discipline arising fran the mixed nationalities of the pilots and maintenance crews, it is desirable that the new Assistant Director - Operations be an experienced manager and supervisor w.ho can deal with this problem impartially. With the intro- duction of new and very expensive planes, it is important there be an improvement in discipline within the operating organization.

9. The Mission is aware that paper organization schemes are not meaning- ful unless staffed with competent people. It recommends, therefore, tihat particular attention be given to the upgrading and further training of RNAC personnel. It is envisaged that such a training program would include:

(a) Short visits by RNAC executives and department heads to air- lines of siimlar size in other countries for the purpose of observing first hand different methods and techniques.

(b) Courses in business management and airline operating practices conducted for RNAC personnel by specialists invited to Nepal by RNAC. - 212 -

(c) On-the-job training in Nepal under the tutelage and supervision of foreign teclmicians and instructors.

(d) Encouragement of visits to Nepal and RNAC by senior officers and tecimicians of other airlines.

(e) On-the-job training of RNAC staff abroad eith European and American specialized local service carriers for periods of nine months to one year.

(f) Use of existing one- and two-year formal educational courses offered abroad.

10. It is essential that RNAC embark on these training programs at the earliest opportunity. Their cost is small, especially when compared with the waste wihich can result from inefficient managemnent of expensive new planes. RNAC has made a start in this direction by the request that the Government arrange foutr training programs: administration (Australia); cost accounting (Canada); traffic and sales (Australia); flight operations and maintenance (Pakistan). It is hoped these will include at least six months of on-the-job training in small airline operations similar to RNAC. Some very important areas remain which have not been covered: continued flight instruction and supervision, instrument flying, operations program- ing, space control, commurnications, and scheduling. The MIission has provided NRS 2.5 million in the Third Plan as a contribution toward the cost of these programs. This should be matched by NRs 200,000 per year from RNAC's regular operating budget.

B. Flight Operations

11. The Royal Nepal Airlines has a wide range of operations, ranging from regularly scheduled domestic and international flights to a large number of non-scheduled services within Nepal. In 1963, the number of passengers generated by non-scheduled flights amounted to 26,146 or 30 per cent of the total numb>er of passengers carried. During the same year 77 per cent of the freight, or 3,266,763 lbs.out of a total of 4,243,866 lbs. was carried on non-scheduled flights.

12. Because of weather conditions there is a marked variation in the seasonal PNAC schedules (§ee Tables F-4 and F-5 in Vol. III). A cal- culation of flight hours_V based on these tables slows that the rainy season or summer schedlles contained 89.5 flight hours per week and dry season or winter schedules had 128.0 flight hours per week. l/The block-to-block hours are considered in this report as being the same as the flight hours under the assumption that actual flight hours are usually longer than theoretically calcnlated hours and therefore approximately equal to the block hours. - 213 -

13. To operate its regular and non-scheduled services the RNAC has eight DC-3's (Table F-6). The total time flown per week on scheduled service in January 1965 amounted to only 16 hours per plane. Even after making allowances for non-scheduled services, this is a low utilization of air- craft as compared with other airlines which make extensive use of DC-3's. lIany of the wjorld airlines average around 25 hours per week of DC-3 operations; in the United States such airlines average 35 flight hours per week.

14. The RNAC's aircraft utilization has declined as additional DC-3's have been added to the fleet. During the first six months of 1964 the flight hours of the RNAC fleet totalled 3,336 hours, flown by six planes. This gives a weekly average of 21 hours per plane in contrast to 16 hours flown at the beginning of 1965 (for details see Table F-8).

15. This low utilization is in part attributable to maintenance and other airplane servicing problems which keep aircraft on the ground. It is also influenced by the fact that flight operations are restricted by poor communications between airports, and are limited to daylight hours because of the absence of night landing facilities and adequate navigation equip- ment in the aircraft for night flying.

Flight Staff

16. At the beginning of 1965, the RNAC had eleven captains and eight co- pilots for its fleet of eight planes. The flight officers appear to be well trained and experienced in operations, particularly in the difficult local flying conditions. However, many of the pilots have risen too fast and lack the discipline typical of the experienced pilot, and the close supervision which is essential for a successful airline operation. Because of the shortage of co-pilots, a number of flights are flown with two captains---a situation which will be remediedlyhen the seventeen pilots, now being trained abroad return to Nepal.-

17. The RNAC does not have enough trained captains of Nepalese national- ity. Of the eleven captains, five are from Nepal, one from Australia, three from India, and two from the Philippines. All of the co-pilots are Nepalese. This heterogeneous nature of the flight crew coupled with a lack of flight supervision and unclear authority within the organization has created disciplinary and personnel problems. Although the background of the flight personnel and the difficulties of flight conditions in Nepal make it difficult to solve the discipline problem simply, the injection of a new spirit of efficiency and clear lines of authority could improve the esprit de corps markedly. Some captains have been known to refuse to fly

- The countries in which the training is taking place are as follows: (a) United Kingdom - two; (b) India - three; (c) Pakistan - twelve. " 214 -

scheduled flights as well as previously unscheduled charter flights. Others insist upon unreasonably high fuel reserves which increase operating costs and reduce payload capacity. These problems are common to other airlines, but to a much lesser degree.

18. On the basis of simple arithmetic from the plane hours flown and the pilots available, the average number of hours each of the eleven captains should fly is about 60-65 por month. Some captains claim that they fly 90-110 hours per month. If this is true and is common practice it indicates some captains are laying off for long periods. Also considering the base flight time is fixed at 65 hours, any hours in excess of this result in overtime pay at rates 50 per cent higher than regular pay rates, which makes this practice both unwise and expensive. Under the present conditions overtime can exist only through an uneven schedulinr of the crews or lack- of adherence by flight personnel to their assigued sciledules. The Mission recommends that RNAC should have one man concentrating on crew scheduling with a means for enforcing discipline with respect to reporting sick,or short-notice refusal to accept acknowledged flight programs.

19. The need to acquire more planes and more modern aircraft is discussed elsewhlere in this report. As a part of this program, however, steps should be taken to train flight crews in the operation of new air- craft. To save expenses and to prevent the disruption of revenue- carning flights, thiz trainzP, sho.-id be done in Nepal undor the guidance of instructors provided by the plane manufacturer. Prior to the commence- ment of training, a local operational manual should be prepared to standardize flight procedures.

20. Since most of the 1NAC flights are operated on a visual basis, the instrument flying skills of some pilots may need improvement to maximize the use of the improved communication and navigation systems which the Mission recommends should be installed (Chapter 9). This w-ould assist in improving performance under poor weather conditions. The terrminals at Calcutta, Dacca and Delhi are presently equipped with devices which enable the plane to operate in all weather conditions except very dense fog or strong winds. It is suggested that a similar system be installed at Biratnagar during the Fourth Plan period for use in training Nepalese pilots and field personnel (see Chapter 9).

C. RNAC Operating Costs

21. Airline accounting practices frequently differ somewhat from those usually regarded as industrial and commercial practices and from one country to another. Unfortunately, there is no standard or agreed m,ethod in use by all airlines, since governments in different parts of the world insist that the airlines under their jurisdiction use methods they have evolved. Many of the world's airlines, however, report to * 215 -

ICAO according to a standardized forriat prescribed by this organization, even though they may use different systems for their own internal use. In order to get some idea of RNAC costs for purposes of comparison, the Mission rearranged the RNAC accounts along the lines prescribed by ICAO.

22. Airline operating costs are divided into three parts: (1) direct cash costs; (2) direct non-cash costs; and (3) indirect costs. Direct cash costs are those generally attributable to keeping the airplane in the air. These direct costs are listed by ICAO as follows (using TCAO account identification numbers):

(5.0) Flight operations: (5.1) Flight crew salaries and expenses (5.2) Aircraft fuel and oil (5.3) Aircraft insurance (5.4) Aircraft rentals (5.5) Other flight expenses

(6.0) Maintenance and overhaul

Direct non-cash costs are depreciation and amortization. They inclide:

(7.0) Depreciation and amortization: (7.1) Normal depreciation of flight equipment (7.3) Extra depreciation

Indirect costs are the expenses necessary to prepare the plane, pre&engers and cargo for flight. They include:

(8.0) Station and other ground expenses: (8.1) Land:ing and departure fees (8.2) Other ground expenses (9.0) Passenger serrices and passenger insurance

(10.0) Ticketing, sales and promotion

(11.0) General and adrinistrative expenses

(12.0) Interest paid

23. In spite of the improvements in RIAC accounting practices during 1964, it is not yet possible to categorize its costs in keeping with this general system. For example, all salaries and wages, whether paid to flight captains, ticket agents or managers, are now lumped together as one item. The Mission has tried to reolaseify the various cost items as shown in the following table. The individual line items shown in this - 216 -

ROYAL NEPAL AIRLINES CORPORATION RECGOISTRTJCTED PROFIT-AND-LOSS STATEMEN7T FOR THE FISCAL YEARS 1962/63 AND 1963/64

1962/632/ 1 9 63 / 6 4g./ (12 mos. ending (12 mos. ending Item July 15, 1963) July 15, 196L) 1. Scheduled services: (NRs) (NRs) 1.1 Passenger 6,245,880 1.2 Excess baggage 474,594 1.3 Cargo (freight) 1,745,732 1.4 Hail 20,667 2. Charters 695,865 3. Incidental revenues 19,442 2O,00C 4. TCOAL OPERATING REVENUES 6,,823,671 9,202,738 5. Flight Operations: 5.1 Flight crew salaries and expenses 1,252,605 1,459,100 5.2 Aircraft fuel and oil 2,714,375 3,940,000 5.3 Aircraft insurance 191,096 240,000 5.4 Rental of flight equipment 8,000 - 5.5 Other flight expense - - 6. Maintenance and overhaul 857,508 1,393,000 7. Depreciation and amortization: 7.1 Normal depreciation of flight equipment 257,697 400,0002/ 7.2 Normal depreciation of other equipment 84,170 100,00 / 7.3 Extra depreciation 150,247 - 8. Station and other ground expenses: 8.1 Landing and departure fees 170,671 210,000 8.2 Other expense 353,629 403,000 9. Passenger services and passenger insurance 172,009 387,000 10. Ticketing, sales, promotion 423,935 603,000 11. General and administrative expenses 239,661 287,0000 12. Other expenses including training 92,391 i0O,6OCA/ 13. TCTAL OPERATING EXPENSEa 6,967,994 9,522,100 14,. OPERATING PROFIT OR LOS', (144,323) (319,362) 15. Retirement of property and equipment - 16. Interest paid 17,000 17. Reserves 18. Other non-operating expenses 21sO43 _- 19. TOTAL NON-OPERATING EXPENSES 213,043 17,000 20. WCON-OPERATING INS ONE3/ 1733.979 - 21, PRCFIT OR LOSS BEFORE INCOME TAXES (183,387) (336,362)

/ The audited figures reclassified and reconstructed to make them comparable to ICAO format. 2/ Computed from fragmentary data. / Includes interest from the banks NRs 582.54 and depreciation recovery from crashed aircraft NRs 173,396.32. / Guess based on 1962/63. Source: RNAC Records. - 217 -

profit and loss table are approximations although the revenue and expenses totals are correct.

24. Any analysis of RNAC operating costs is complicated by the lack of reliable figures for revenle miles flown. Fortunately, however, it is possible to calculate the revenlue miles flown within acceptable limits, by multiplying the revenue plane hours flown by elapsed speeds (average speed) per hour. The elapsed speed is computed from an analysis of flight times between stations, inter-station distance, schedule frequencies, and known DC-3 cruising speed. On this approximate basis, the various items of cost per plane houir can be estimated. These are compared with similar data for DC-3 operations on Lake Central Airlines (LCA) in the United States for the 1963/64 fiscal year in the following table:

DC-3 OPERILTfIG COSTS PER PLANE HOUR

RNAC LCA (HRs) (NRs) Pilots and co-pilots NRs 246 NRs 283 Aircraft Afel and oil 663 123 Insurance 40 8 Maintenance and overhaul 235 170 Depreciation 84 27

Total direct costs NRs 1,268 NRs 616

25. On this basis RNAC flight operation costs are twice as high as those of the U.S. carrier. While such a direct comparison between a U.S. carrier and the RNAC may be thought unfair or irrelevant, the existence of such a wide gap in flight operation costs does give some measure of the potential savings which might be realized by means of improved RNAC operational efficiency. Since RNAC's flight pay, and other salaries and wages, are less than those prevailing in the United States, these high costs are difficult to understand fully. While low utilization of air- craft, accompanied by very high fuel costs and short distances between stations,are a factor, these alone are not enough to explain the differ- ence. The cost of plane maintenance, which accounts for about 10 per cent of the difference, wiLL be discussed later in this chapter. Improve- ments in airport facilities, communications and maintenance practices, together with better crew discipline and utilization, in time could reduce the operating costs per mile flown by increasing the number of plane miles flown per day. Increases in average hop lengths through improved schedul- ing would also prove helpful. Running aginst these cost-reducing factors is the fact that DC-3 operating costs are rising almost everywrhere in the world. To some extent, therefore, the RNAC will have to constantly run faster merely to stand still as long as it keeps its present fleet. One - 218 of the basic reasons for the general rise in DC-3 maintenance costs is the increasinig price of the spare parts. The large quantities of parts available from military surplus stock piles accumulated during World War II have been depleted, and now replacement parts must be manufactured new at costs many times higher than recently prevailing prices.

26. To show the magnitude of DC-3 operation cost increase that may be expected in the years ahead, a study prepared for Lake Central Airlines in 1964 is summarized here: ESTIMATED I)IRECT OPERATI2G COSTS PER HOUR AND PER MILE FOR 1965-1969 ON LAKE CENTRAL AIRLINE ROIJTES IF OPERATIONS CONTDtUJE WT1H D)C-3 (in U.S. dollars)

Costs per Costs per Year Plane Hour Plane Mile

1965 $ 95.1l 0.67 1966 97.24 .69 1967 99.45 .71 1968 101.75 .72 1969 1041.3 .74

Source: Lake Central Airlines Booklet "Lake Central Introduces the Nord-262" prepared M4arch 20, 1964.

27. The Mission recommends that RNAC undertake a critical analysis of the probable future costs of its RNAC's DC-3 operations at an early date, using the services of an outside consultant. It also recommends that fuel costs be studied to determine whether significant reductions can be obtained through a change in hop length, operating methods, fueling, or purchasing practices. These are, how.ever, only temporary measures. Sooner or later RNAC *ill have to face the problem of equipping its fleet with new aircraft that have lower operating costs per aircraft mile as well as per seat mile flown. Some of the factors involved in such a selection are discussed later in this chapter. D. Aircraft Maintenance

28. The maintenance department of the Royal Nepal Airlines is located at Kathmandu. It has no hangar and only limited shop and store space so that engines and parts often must be stored out-of-doors. Repairs to the aircraft are carried out in the open, with the result that during the rains this leads to hardships to the staff and to low productivity. - 219 29. The maintenance department is equipped to do only routine line maintenance. The overhaul of airframes is carried out in India, while engines are overhauled in both India and Pakistan. The expense of air- plane overhaul is very high. It costs NRs 24,000 just to ferry a DC-3 from Kathmandu to Bombay and back. A 12-month check charge is NRs 43,200 and a 24-month check charge NRs 75,200. If the plane is being overhauled for the first time in Bombay, there is an additional charge of NRs 16,000 for a 12-month check and NqRs 48,ooo for a 24W.month check.

30. Because Kathmandu is removed from the main streams of world commerce, RN-IC runs into especially difficult p.roblems in obtaining necessary repair parts quickly and economically. It relies heavily on ad hoc trading and purchasing arrangements in India. Although these systems do work, they often entail unavoidable delays and expense. On the other hand, for RNAC to attempt to maintain its oim supply of spare parts would necessitate high inventory costs (a serious problem due to RNAC's shortage of working capital) in addition to finding a suitable place to keep them. As was discussed earlier, some DC-3 parts are becoming increasingly expensive and difficult to obtain. Without a well-equipped machine shop staffed by skilled rmachinists, neither can RNAC undertake to manufacture its own repair parts such as is done by other DC-3 fleet operators, such as Finnair.

31. With a fleet of eight DC-3's, the Mission is of the opinion that it should not be too difficult to schedule continuous maintenance at Kathmandu, doing major overhaul work during the monsoon season when flying schedules are reduced. This, however, will require an initial investment in equip- ment, structures and training. The Mission recommends that the maintenance question is one that should be given the highest priority by the RNfAC. Building up a maintenance capability is basic before sophisticated, modern aircraft are introduced.

32. Doing all the maintenance and overhaul at Kathmandu, except for major engine overhauls, would save possibly as much as NRs 120,000-150,000 in foreign exchange per year by reduced overhaul costs. It should also enable RNAC to provide more reliable service and to use its aircraft for more revenue-earning hours than has been possible thus far.

33. One problem involved in establishing a maintenance base is that RNAC itself does not own enough planes to make a well-equipped and-staffed base economically attractive. On the othier hand, if the maintenance base could operate on some pooled arrangement whereby it handled RNAC, Royal Flight, and the private planes of various other agencies operating in Nepal, together with odd jobs for IAC and PIA, such an operation would be both practical and economic. There are several alternative arrangements where- by RNAC could undertake to establish a pooled maintenance base:

(a) RNAC operate it als an integral part of its organization, charging all others for wiork performed. - 220 -

(b) RNAC form a separate maintenance corporation to do this work. The oimership could be all RNAC, or could be shared with others.

(c) RNAC could encourage others (preferably skilled outsiders) to open an independently financed and operated maintenance base, with all RNAC work done under long-term contract.

(d) The Nepal Government and/or the Nepal Industrial Develop- nent Corporation could join with outside parties in financ- ing and establishing an independent facility.

34. Regardless of which system is used, the principal problem will be finding the experienced managers and supervisors to run the shop, plus the trained and licensed mechanics to staff it. Gaining effective control over costs (which is a major objective) requires a skilled and experienced maintenance manager of the kind seldom found in the country today. Because of this, plus the need for competent and experienced mechanics, RNAC and the Government may find it necessary to find some means whereby skilled foreigners can be attracted to this work for a five- to-ten-year period while Nepalese nationals are being educated and trained to take over. This kind of work requires a skill, sophistication and discipline which is not learned quickly, even in highly developed nations.

35. Provision is made in the airport section of the Plan for the construction of two hangars plus maintenance shops and a supply depot at Gaucher Field in Kathmandu to provide the pihysical facilities needed for such a maintenance program. It is essential that this facility be constructed as early in the Plan as possible.

36. Purchasing the necessary equipment, tools and instruments to make this shop operational for DC-3 repairs is estimated to cost NRs 1,500,000, most of which must be in convertible foreign exchange. The additional tools and instruments required as the result of any new planes purchased by RNAC (or any other operator using this pooled facility) will add to this sum.

37. The Mission understands that RNAC and the Government have begun the planning process for a centralized maintenance base, and that specific plans are now in the formative process.

E. Traffic and Sales

38. The growth of RIAC since 1959 is impressive. The number of passengers carried increased37.4 per cent between 1959 and 1960, 6.2 per cent between 1960 and 1961, 16.3 per cent between 1961 and 1962 and 11.1 per cent between 1962 and 1963. The volume of cargo (freight plus excess baggage) increased 36.3 per cent between 1962 and 1963 and probably - 221 - showed a further increase between 1963 and 1964 although final figures are not yet available to substantiate this.

RNAC TRAFFIC BY CALENDAR YEARS

Year Passengers Cargo in lbs. 1959 40,969 1960 63,515 1961 67,449 - 1962 78,465 4,384,382 1963 87,425 5,973,547

39. In the fiscal year of 1963/64, approximately 67.9 per cent of the revenues came from passengers, 2h.1 per cent from freight and excess baggage, 7.8 per cent from charter and 0.2 per cent from mail. The mail figures are unusually low as compared with other airlines in developing countries. For example, the Nigerian Airways in 1960/61 earned about 10 per cent of its revenues from mail.!/ In 1963, about 8.7 per cent of the revenues of Aerolineas Argentinas, and 5.7 per cent of the revenues of LAN-Chile were received from carrying mail.,Z/ The low mail revenues are but a further reflection of Nepal's low level of economic development, and are also an indication of the low rates paid to RNAC by the Postal Department.

40. The most heavily travelled segments of RNAC during the 12 months ending June 1964 were as follows:

Passenger Miles between Passenger Segment (both directions) Numbers Stations Miles

Kathmandu-Simra 16,060 38 610,280 Kathmandu-Pokhara 13,055 78 1,018,290 Kathmandu-Biratnagar 7,899 128 1,011,072 Pokhara-Bhairawa 7,194 52 374,088 Kathmandu-Patna 6,647 127 844,169 41. Although the growth of RNAC between 1959 and 1963 amounts to 113 per cent, or an average of 16.5 per cent per annum measured in terms of passenger numbers, it should be noted that the RNAC began its operations in a transportation vacuum. On the basis of recent annual volume increases, existing schedules, and without new equipment, at some point within the next five years the annual rate of growth probably will slow

V Stanford Research Institute. The Economic Coordination of Transport Development in Nigeria, Feb. 1961, p. 243.

2/ ICAO Digest of Statistics, No. 107, January 1965. - 222

to an average gra-th rate of about 8 per cent a year. This figure, which is a guess based on anticipated increases in the population and incomes of the areas served and the growth of tourist business, is similar to the general air traffic growth trend anticipated in many of the other parts of the world. However, given aggressive service development and skillful promotion of tourism, larger increases will be possible in the next few years.

42. RIAC traffic exhibits some random peculiarities. First, it is seasonal to an unustual degree. The figures showing monthly traffic totals reflect only to a limited extent the highly volatile nature of traffic on certain routes. For example, betwJeen Pokhara and Bharatpur a total of 1,737 passengers were carried in April 1964 on an origin-destination basis, whereas the total traffic for the 12-month period wJas 3,697. Likewise, freight and excess baggage carried from Bhairawa to Pokhara varied from 1,120 lbs. in July 1963 to 959,833 in December 1963. Although some details of traffic variations were compiled by the World Bank Mission, a complete and systematic analysis of liAC traffic -wias not undertaken.

43. Secondly, the airline is faced uith serious directional imbalances. For example, in June 1Q64, while 802,565 lbs. of freight and excess baggage moved north from Bhairawa to Pokhara, only 1,715 lbs. moved south from Pokhara to Bhairawa. These conditions make it difficult to handle all the traffic on regularly scheduled flights, and necessitate the operation of charter flights that are difficult to anticipate and schedule.

44. Thirdly, much of the freight consists of variable and unpredictable amounts of excess baggage carried by passengers. This is prac-tical for both RNAC and the customer since the freight and excess cargo rates are the same and the customer can supervise the shipments by being present at both ends of the trip. It also relieves PHAC of having to store and handle the shipments at each end of the run.

45. During the 12 months ending June 30, 1964, RRAC performed about 608,365 passenger-ton miles (calculated at 180 lbs. per passenger) 242,715 ton miles of freight and excess baggage, or a total of 851,080 ton miles on aircraft which had a carrying capacity of 1,517,924 ton miles. This gives a load factor of 56 per cent, a good performance figure as compared with most of the United States DC-3s' operations which average 40-45 per cent.

46. The successful conversion of RLNAC to a commercial airline will rest heavily upon its ability to stimulate and generate both traffic and revenues. In the past, these were matters of minor concern. In the future,they will be of major importance. The principal tools which can be used for this work consist of: (a) routes, such as providing services to places previously inaccessible; (b) scheduling, including the provision of more services,and more attractive services; (cc reservations and space control, which is vital to the effective promotion of tourist traffic; (d) fares, including lower - 223 "

charges designed to attract additional traffic to fill space otheniise empty plus a review of the adequacy of charges (such as mail) to be certain that services are not being sold at less than cost; (e) adver- tising and promotion, which runs the entire gamut from posters to news- paper and magazine advertisements, to publishing and distributing sales- oriented timetables.

47. Actual achievement of the average 8 per cent annual rate of growrth estimated earlier plus finding the passengers to fill the increased carrying capacity resulting from the purchase of new aircraft, will require some major changes in past RMAC policy plus the development of new managerial talent and skills. The change in the internal organi- zation of BFAC previously suggested is a major step in this direction. In addition, the Mission has prepared a group of suggestions intended to assist RNIAC in indentifying what steps and measures will be most effec- tive in the near future.

Routes

48. The present domestic routes served by RNAC are showm on HIap 7 which appears on Page 74 of Volume I. International routes are also operated between: Kathmandu, Biratnagar, and Calcutta (three round trips per week), Kathmandu and Dacca (one round trip per week), Kathmandu and New Delhi (four round trips per week).

49. The 1lission believes, and quite strongly, that RNAC should remain primarily a local carrier, concentrating on its domestic operations and limiting its international services to routes to nearby cities where connections can be made to the major international airlines. It would be economic suicide for RNAC to attempt an entry into the already over- crowded main international routes. For this reason, the Mission is opposed to proposals for extending RNAC services to Bangkok, Singapore, or Hong Kong. However, it does believe that the opening of a new route from Kathmandu to Karachi can be justified, as discussed below.

50. Most of the major airlines linking southeast Asia with Japan, the Near East, Europe and the Western Hemisphere pass through Karachi, New Delhi, or Calcutta. The Mission believes too much reliance is being placed on the use of the gateway at New Delhi,which is awkward and inconvenient (due to the necessity of a change of airports), plus not being available to marDr airlines and flights which by-pass New Delhi completely. By serving Karachi, RNAC can achieve two objectives: (1) improved access to European and American traffic; (2) access to the extensive maintenance facilities of Pakistan International Airlines at Karachi. Further, with proper coordination of the Karachi-Kathmandu, and Kathmandu-Dacca services RNAC may be able to participate more effec. tivoly in the round*.the-world tourist traffic flowing botween the Mlediterranean and Hong Kong. A similar coordination of services between New Delhi-Kathmandu and Kathmandu-Calcutta will open a second opportunity. - 224 -

51. In the field of domestic services, the Mission is recommending the extension of service to Tumlingtar in the Eastern Hills, and to Silgarhi-Doti in the Far W4estern Hills. Provision is made in the Plan for the construction of a new commercial airport at Tumlingtar which should be operational near the end of the Third Plan period. This is a logical entry into a heavily populated area. By extending a daily Kathmandu flight north from Biratnagar it will be possible to serve both north-south and east-west traffic needs. There are problems concerning airport location which must be solved at Silgarhi-Doti before actual construction can start. Provision is made in the Third Plan for the necessary feasibility and engineering studies in anticipation of actual construction during the Fourth Plan. Thus this operation is a little further removed.

52. In the discussion on airports (Chapter 9) a question is raised concerning the desirability of moving the present Dhangarhi airport to Mahendranagar. It is thought that an airport at this newi location would serve more needs (i.e., it would be more accessible to the Hill areas as well as to the Terai). Inasmuch as this is an area just enter- ing the early stages of development, now is an appropriate time to review the advantages and disadvantages of such a move.

53. Over a long span of time, it is desirable that RNAC extend more services into the Hill and Mountain areas. At the present time this is hampered by the lack of suitable airports. However, it is recommended that RNAC undertake a biweekly airmail service between Kathmandu and remote points presently accessible only on foot or by way of STOL strips. This service would be provided by a small plane capable of landing on available STOL strips and would serve Jiri, Jumla, Lukla, Rumjatar (or ), Silgarhi-Doti, Surkhet, and Tumlingtar. This mail plane might also carry passengers and other essential cargo to the extent of its capacity. Wihen not operating on its mail route, this same plane would be available for charter services to various STOL fields, and for governmental administrative use.

54. There presently are plans for operating a charter DC-3 service between Kathmandu and Meghauli, on the Narayani River adjacent to the National Game Preserve. This airport is about 25 miles southwest of the , though the only communication between the two is by means of a fair-weather track. The charter service is designed to serve the hotel being built close to the field. The Mission sees no problems or difficulties with this charter service, though it can foresee a potential danger of RNAC being trapped into performing this service on a regularly scheduled basis at its own expense. This would put the air- line into the uneconomic position of trying to maintain service out of two closely adjacent airports. Even though the services are different, the economics of such a situation are not good. _ 225 - Scheduling

55. Scheduling is a complex science which combines two essential parts of the airline's operation: aircraft utilization (and thereby operating costs), and the nature of the service offered to the public (and thereby sales and revenues).

56. At the present time all domestic flights are based on Kathmandu, with all planes originating there in the morning and returming at night. In many ways this is necessary because Gaucher Field is the only airport properly equipped for servicing the planes and having adequate overnight facilities for the accommodation of the crew.

57. At the present time RNAC's scheduled services suffer from three defects:

(a) Very short average stage lengths (i.e., distance between stops). The cost of servicing a plane and its load, preparing it for departure, and getting it into the air and up to cruising altitude is high, and it is the same regardless of the length of the trip. Thus schedule patterns with El high proportion of short stage lengths are excessively expensive to operate.

(b) The inability of RNAC to provide high standards of on- time performance. There are many factors involved: weather conditions, lack of communication, hand loading and unloading of planes, hand pumping of fuel, poor air- port support facilities, and a lack of interest on the part of station and flight personnel in adhering to schedule.

(c) There is a lack of coordination between various fliglts so that it is necessary to spend the night in Katlumanidu when travelling from Janakpur to Bhairawa, or from Pokhara to New Delhi, etc. While the amount of through traffic of this nature is presently very small, it represents an area of future potential.

58. The completion rate of schedules (i.e., the number of planned schedules actually operated) is high and comparable to the best-managed DC-3 operations anywhere in the world. The Mission made a study of actual operations in October 1964 and found that out of 124 flights scheduled 117 were completed, giving a completion factor of 95 per cent. This was a period of mixed weather, including a late monsoon season which lingered well past the middle of the month. - 226

59. In planning its future schedules RNAC should consider developing a plan which will produce longer average stage lengths. This can be done by means of skip-stops. With new planes, particular efforts should be made to keep stage lengths as long as possible. The effect of different stage lengths on cost is illustrated by the following calculation based on Lake Central Airline's experience with its larger DC-3 substitute planes:

Stage length (length of hop) 80 miles 140 miles

Tota)l flight time 28 minutes 46 minutes hverage flight speed 171 m.p.h. 183 m.p.h. Fuel used (in IJ.S. gallons) 64.9 95.5

Flying operations costs per plane mile: (in NRs) (in NRs) Crew .964 .898 Fuel .803 .671 Insurance .328 .314

Total per plane mile 2.095 1.883

Costs per plane mile: Maintenance 1.153 1.080 Depreciation 1.219 1.139 Interest on investment .263 .241 Total per plane mile 4.730 4.343

Cost per seat mile .182 .167

60. Another of the high cost items in RNAC's scheduling practice is the "overnighting" of aircraft and crew at New Delhi and Calcutta. There presently is little justification for this practice other than keeping the crew happy, since they enjoy spending an evening outside of Kathmandu at the Company's expense. The argument that a DC-3 is unable to negotiate a round trip in one day has little validity in light of the fact that it is done frequently on special and charter flights. However, with the advent of new high-performance planes and the need to get more use from each plane every day, this practice can be viewed in a different light providing it is handled in such a way as to actually increase the daily flight time (for example, schedule departure's from Kathmandu for New Delhi and Calcutta at about 5 p.m. with after-dark arrivals).

61. The Mission also believes RNAC should gradually increase its Kathmandu-New Delhi and Kathmandu-Calcutta flight frequencies until they are operating on a daily basis. DC-3 operations should be stepped up as rapidly as possible in order to prepare for the advent of a new, faster, high-capacity plane based on the use of turbo-prop aircraft. With one " 227 -

new turbo-prop plane it would be possible to operate a complete round trip New Delhi-Kathmandu-Calcutta (or Dacca)-Kathmandui-New Delhi in a single day. Given tight scheduling and good crew discipline, an additional mid-day trip could be added between Kathmandu and Pokhara or Simra.

62. A detailed analysis of the present traffic patterns indicates that only a small portion of Nepal's transport2tion needs has been tapped by air transport operations up to the present time. Even keeping in mind the fact that the construction of all-weather highways will ultimately tend to divert low-value cargo from the airplanes to trucks, and short- haul air travel to autos and busses, the overall growth potential for both passenger and cargo traffic is favorable. Realization of this potential, however,will be slow unless positive measures are taken to move RNAC into the areas where it can operate effectively and well.

Reservations and Space Control

63. This is a seemingly minor operation which has a major effect upon revenues and traffic. The present reservation and space control system is haphazard and erratic, though recently some steps have been tacen aimed at improvement. An effective system consists of two principal ingredients: (a) a central control station having up-to-date and reliable records as to flight plans, space availability, space sold or assigned, and space available and unsold; (b) a fast and reliable communications network whereby requests for space, informaticn on sales, space availabil- ity and specific reservations can be transmitted to and from the reserva- tion center rapidly. At the present time RI\AC has neither. As a result mary foreign tourists wishing to visit Nepal are discouraged by the inability of the foreign airlines to get information of any kind on RNAC reservations.

64. A somewhat improved reservation system has been instituted at Kathmandu with the benefit of some technical assistance from BOAC. As such, it represents a maejor improvement over past practices, but it still is in need of further attention. First, it should be given to a genuinely trained and experienced person to manage and operate (it usually takes from three to five years for major airlines using technically skilled people from developed countries to teach them how to design and manage a reservation system). Second, the operation should be in a room by itself, but directly accessible by telephone or teletype from all sales offices. Third, it must be closely linked to the operations planning section of the Flight Operations Department so it can be abreast of changes in equipment, schedules, flight plans, etc.

65. The second vital part of the system is a communications network. This presents serious problems to RNAC, though steps are being taken to bring about some improvements. More effective use can be made of local telephones within Kathmandu,, It is also highly desirable that a tele- - 228 -

type be placed in the R1NAC communications center which is directly connected to the national telecommunications system for purposes of communlication with Dacca, Calcutta, New Delhi, Simra, and perhaps Biratnagar, Bhairawa and Pokhara. Also, arrangements shotild be made to use existing telecommunica- tions facilities for communication with Rajbiraj, Janakpur, Bharatpur, arnd Nepalganj for reservations purposes. It is preferable to keep existing point-to-point radio sets for operating use and not to clutter them with reservation messages.

66. It is essential that the new RNAC reservations center have a firm and reliable communications link with the international airlines serving Dacca, Calcutta, and New Delhi.

Fares and Charges

67. RNAC has conducted :its operations at a loss practically since its inception. On the basis of the fragmentary data available, these losses were estimated at NRs 183,387 in 1962/63 and NRs 336,362 in 1963/64. If RNAC is to operate successfully as a commercial carrier, it must assume some additional financial expense (principally interest on borrowed capital) and, with the purchase of new aircraft, higher interest and depreciation expenses. One means for overcoming these losses is by means of making adjustments to the rates charged for the various services offered. Since increases in rates may resuJ.t in reduced traffic, rates should be increased only in those cases where they are substantially below costs, and where there is not intensive competition.

68. The Mission has made a preliminary study of the rates presently be- ing charged versus cost of operation for different segments of RIqAC's operation. It found that on some of thle more heavily used sectors the rates charged are lower than operation expenses involved. For example, the passenger fare between Kathmandu and Simra is NRs 32.00, whereas the cost of flying a passenger on a DC-3 with an average 60 per cent load factor is NRs 47.72, with 70 per cent load factor is NRs 40.90, and with 80 per cent load factor is NRs 35.79. This means even at the exceptionally high and unrealistic average load factor of 80 per cent RIAC is still losing NRs 3.79 per passenger. Similar discrepancies were found in the rates between Bharatpur and Pokhara, Pokhara and Gurkha, Rajbiraj and Biratnagar, Dang and Nepalganj. It is significant that in all cases these are very short stage lengths. There undoubtedly are others. The Mission recommends, therefore, that the RNAC undertake a critical examination of all its domestic passenger rates with a view to making appropriate revisions so as to maximize the utilization and passenger revenue potential of the planes.

69. In general, rates should be based on not more than a 50 per cent to 60 per cent load factor - using a higher value results in an artificial condition which will seldom be met in actual operations. In sectors where heavy direction imbalances are common, the factor used should be less than 50 per cent. - 229 _

70. Rates per pound for freiglht and excess baggage, which are the same, are based on passenger fares and therefore are subject to thie same weakness on specific runs. During the 12 mont ! ending June 30, 1964, RNAC had an overall load factor of 56 per cent.- The revenue per ton mile from freight and excess baggage was NRs 12.10 based on an average freight charge of NRs 0.0055 per pound mile. On this basis, the revenue per hour flying with freight only was NRs 1,731.95 whereas the cost of flying, including both direct and indirect charges, was NIRs 1,603.40 per hour, thereby giving a profit of NRs 128.55 per hour flying. The use of special rates and discounts below the published rates substantially reduces the potential profit from cargo flying. These practices should be re-examined closely. The rates charged for air mail services also should be critically examined.

71. In a "stripped all-cargo configuration" a DC-3 should carry at least 2.7 tons. At a load factor of 50 per cent all cargo operations should bring a revenue of NRs 1,740 per flight hour with expenses being NRs 1,603,thus yielding a profit of NRs 137 per flight hour. However, this does not allow for the larger fuel load required on flights to New Delhi, Calcutta, and D)acca. On this basis, full load charters to Kathmandu fron Calcutta (3.2 hours) or to Delhi (3.8 hours) or to Dacca (3.4 hours) at rates in keeping with these averages but adjusted for extra fuel load may be justified in order to expedite the movement of high-value freight movements, even though the plane may have to leave Nepal empty. A reduced cargo rate for fresh fruit and vegetable exports from Nepal to India and Pakistan is a possibility for utilizing the return trip one-way charter movements. The Mission recommends the RNAC make a detailed investigation of "all-cargo" opportunities, and its methods of computing charges.

72. The rates charged for air mail, cargo and passengers in STOL planes should reflect the higher ton mile cost of this service. Advertising Promotion

73. One of the major interests of RNAC is generating an increased flow of international tourist traffic as a means of generating foreign exchange. Doing this will require extensive and skillful advertising and promotion - especially if it is to be accomplished without spending huge sums, which neither RHiAC nor Nepal can afford. In addition to the normal promotional methods used by airlines everywhere, there are a few special opportunities open to RNAC worthy of more careful exploitation.

_7-This was calculated in the following manner: (a) (Passenger ton miles + excess baggage ton miles + freight ton miles + mail ton miles) = Revenue ton miles. (b) (Hours floi*m x speed per hour x theoretical payload) = Possible revenue ton miles. (c) Revenue ton miles + possible revenue ton miles. - 230 -

74. Opening a t-cket office in New Delhi and Calcutta which is equipped and staffed to deal with foreign tourists is a rmust. This can be accomplished at reascrable expense by renting space in an existing office of one of the larger international airlines. However, this office must be staffed with people skilled in reading timetables (few if any RiAC sales agents can read an international guide correctly), and in answering travel inquiries. They must also be multi-lingual. It would be effective to have them dressed in native Nepalese costumes. 75. The Hiraalaya Mountains with their peaks of Anapurna, Dhaulagiri, Everest, Himal Chuli, Kanchenjunga, and Viakalu have become increasingly world famous as a result of recent international climbing expeditions. In a casual survey of 132 tourists, the average tourist considered the mountains a better-known attraction than the historical temples and other relics. Scheduled flights to the mountains (such as are now operated on a charter basis) could be operated on ascheduled basis and advertised in airline guides and timetables all over the world. We believe they could become popular, and with proper rates would be verY profitable. 76. Package tours have proved popular with the public as a means for promoting travel to such places as Spain, Florida, Greece, and Puerto Rico. The Mission recommends that the RNAC should consider issuing "package"1 tours which would cover all the basic expenses of the tourists to Nepal. In other words, the ticket would pay the air transportation fare, hotel bills, land transportation, guide fees, meals, siglhtseeing fligiht to the mountains, etc. It is probable that a number of inter- national carriers and travel agents may be interested in such a scheme and, together with RNAC, could offer a joint fare covering all travel expenses from an American or European city to Nepal. Advertising and sales activity necessary for the success of a package ticket would be undertakCen by the international oarriers who could benefit from t1le long haul involved for the passenger. However, establishing and oper- ating such tours is a highly specialized and complex business which must be approached and managed with extreme care. Care in pricing is essential to prevent large losses or severe over-pricing and loss of customers. Guarantees of performance are vital. A successful operation will generate large amounts of foreign exchange in addition to building traffic and revenues. 77. Along the same line as package tours is the possibility of inter- line freight agreements between RNAC and international carriers, ENiC and Indian railways and local truck operators, whereby shipments via two or more modes of transport could be combined on a single shipping docu- ment. The carrier originating the cargo could handle it on a through bill of lading and remit to the other carriers their portion of the through tariff. This method not only saves the shipper time but also reduces his insurance premiums and may generate additional freight for RNAC that would normally be carried by other means or not carried at all. - 231 - F. Financial Needs and Accounting Practices Financial Needs 73. The Mission was at a disadvantage in analyzing RNAC financial resources and results of operation because the most recent profit and loss statement and balance sheet available were those dated JAly 15, 1963. On the basis of these, plus additional fragmentary data, the report on the following page was reconstructed using a forrnat more in keeping With international airline practices.

79. This reconstructed profit-and-loss statement shows that RNAC had losses in both 1962/63 and 1963/64. The losses in each year were small, and are less than the amounts charged to depreciation in both years. However, the losses approximately doubled from NRs 183,000 in 1962/63 to NRs 336,000 in 1963/64. The implications of this trend should be examined carefully.

80. The balance sheet of July 15, 1963 shows total current assets of the Corporation as NRs 6`399,409 against which there were current liabilities of NRs 2,103,069, reserves and deposits of NRs 299,874, and a debt to the Governrmient of 3,871,504, leaving a net worth of NRs 12h,963. Because of the losses in the fiscal year 1963/6h the true net worth of RNAC is probably negative at the present time.

81. The Corporation is in need of additional working capital to finance day-to-day operations; to purchase necessary mainterance equipment, tools and instruments; and to finance the acquisition of new aircraft together with its necessary supporting ground equipment and spare parts. In order to present a more favorable picture of creditworthiness in advance of seeking possible outside sources of finance, the Mission recomnends that RNAC and the Government take steps to clean up the balance sheet by tidying up a number of loose ends which are being carried forward from year to year:

(a) The Government's subscription to RNAC capital was set at 1 million shares of no par value stock. No cash payments for these shares were ever made to RNAC. The Mission recormmends that a value of NRs 25 should be fixed for each share and that the Government pay NRs 25.0 million to RNAC as a capital contribution to enable it to function as a wholly independent operation. The capital contribution should be regard- ed as an equity investment entitled to receive dividends when the earnings so permit.

(b) The Government loan shown on the balance sheet represents aircraft donated to the Nepal Government by the U.S. Government which were in turn handed over to the RNIAC without payment. In effect this is not a "loan" in that - 232 -

BALANCE SHEET OF RNAC FOR THE FISCAL YEARS ENDING IN JULY 1962 AND JULY 1963

July 15, 1962 July 15, 1963 ASSETS (Nrs) (Nrs) Current Assets: Cash in various offices 55,825.97 21,589.01 Cash in the banks 442,154l54 602,902021 Deposits, letters of credit 107,663.99 258,150.05 Advances 7931227Q51 l,604,4900 65 Due from customers 1,626,68o.39 1,560,742.40 Spares, stores, stationery 602,639.95 7679973.05 Total 3,628,192.35 4,815,847.37 Property: Building 71,098.12 145,446.45 Furniture and fixtures 92,B847.77 107,872 55 Office equipment 4o,310.33 58,884.25 Technical books 4,136.13 59720.18 Vehicles 95,797.85 117,198.85 Aircraft 32363,659.78 1,927,260o20 Aero engines 318,743 26 368,223 96 Total 3,986 593024 22730,606.44 Depreciation 2so62,634.98 1,297,044.27 Net 1,923,956.26 1,433,562I21 Deferred expenses 1809000.00 1509000.00

TOTAL ASSETS 5,732,150.61 6,399,409.58

LIABILITIES Current Liabilities: Accounts payable 1,164,896.56 1,861,665.29 Taxes 13,904.44 22,567,27 Other current liabilities 90,696.00 218,836.16 Total 1,2693497.00 2,103,068072 Reserves and deposits: Doubtful accounts 80,000.00 100,000,00 Taxes 6o,ooo.oo 60,000.00 Expenses 440,000.00 110',OO0,O General reserve - 27,374.08 Security deposits 12 800.00 2,5oo.0O Total 192 800.00 299,874.08 HMG loans: 3,871,503.63 3,871,503o63 Net Worth:

Capital - - Earned surplus 398,349.98 124,963015 Total 398,3_499 1 el3 TOTAL LIABILITIES 5,732,150.61 6,399,409.58

Source: RNAC Records - 233 - RNAC is not obliged to repay it or to pay interest to ,114G. Therefore, the Mission believes that it should be struck from the balance sheet as a loan and re- entered as "paid-in-surplus" (capital surplus). Since the Government receives various benefits from RNAC for which it does not pay in full, these can be regarded as a return on the original Government contribution.

By way of illustration, a pr forma balance sheet reflecting these recommended changes would appear somewhat as follows:

Actual Pro forma July 15, 1963 July 15, 1963 (NRs '000) (NRs '000)

ASSETS

Current assets: Cash 624.5 25,624.5 Deposits, advances 1,862.6 1,862.6 Other current assets 2,328.7 2,329.7 Total 4,815.8 29,815.3 Property less depreciation 1,h33.6 1,433.6 Deferred expenses 150.0 150.0

TOTAL ASSETS 6,399.4 31,399.4

LIABILITIES AND NET WORTH

Current liabilities 2,103.1 2,103.1 Reserves and deposits 299.9 299.9 HMG loan 3,871.5 _ Net worth: Capital - paid in - 25,000.0 Paid-in-surplus - 3,871.5 Earned surplus 124.9 124.9 TOTAL 6,399.4 31,399.4

(c) The amounts due from customers should be reviewed to remove any long overdue accounts which are in fact un- collectable. These should be charged off to a "loss from bad debts" account. - 234 -

82. RNAC's capital requirements during the Third Plan period are estimated as follows:

Construction of a new central office building in Kathmandu, with ground floor booking and sales office NRs 2,500,000

Construction of local in-town booking office with staff quarters at Bhairawa (NRs 118,000), Biratnagar (NRs 118,000), Birganj (NRs 150,000), Janakpur (NRs 100,000), Pokhara (MlRs 152,000), and Nepalganj (MTRs 147,000) 785,000

Motor Transport 2 Passenger coaches for Kathmandu (NRs 500,000), 2 Crew VU Microbusses (NRs 30,000), 8 VW "1500" cars for staff use (NRs 80,000), 1 Passenger coach for Biratnagar (NRs 250,000) 860,000

Office equipment, Kathmiandu, airports, and new booking offices 200,000

Workshop equipment, tools and instruments 6,200,000

Ground-handling equipment for DC-3 350,000

Additional working capital 500,000

Total before purchase of new planes NRs 11,395,000

New planes, including spare parts, ground and maintenance equipment (this includes one turbo-prop STOL plane for airmail and charter work) 35,000,000

Equipment introduction cost 1,500,000

Training of pilots, maintenance crews, etc. 2,500,000

Airplane selection expense 250,000 Total cost of new planes NRs 39,250,000

TOTAL CAPITAL REQUIENENIS NRs 50,645,000 - 235 -

Some of this need will be met by means of the Government's capital con- tribution of NRs 25 million, leaving a balance of NRs 25,565,ooo to be raised from other sources. Most of the total expense will be in foreign exchange.

Accounting Practices

83. The management has accomplished the first task of instituting a system for recording financial data equal to or better than the accounting practices of many small airlines elsewhere in the world. The second step is to set up books of costs and revenues in such a manmer as to allocate costs between various departments and operations. This has not yet been done, and is essential in order to establish cost control, provide essential information for rate policy decisions, and for budget preparation.

8h. Establishment of a detailed budget, which is a new concept to most local service airlines of the world, makes it possible for the department heads to anticipate their own needs, and to guide their day-to-day operations to fit a general plan. It is a necessary pre- lude to being given additional authority. The existing practice of having each official spending time to get approval from the Administrator for each expenditure is eliminated for items that are in the budget and considered routine work. Budgeting is of particular value in managing the purchase of spare parts in order to prevent delays in acquisition which restlt in the grounding of aircraft.

85. RNIAC accounting and stock record data-keeping needs improvement. The supply of some spare parts was found to be adequate, but in other cases stocks were grossly inadequate or completely lacking. Proper record-keeping and budgetary procedures can help to prevent overstock- ing - a tendency common to many airlines. This practice not only ties down capital but can result in serious inventory losses if aircraft changes are made, as, for example, when RNAC terminates DC-3 operation in favor of a more modern aircraft. It also helps prevent understock- ing and the inevitable I;eeping of planes out of revenue service wlich follows.

86. Accounting workc could be expedited through the mechanization of the RNAC's record-keeping system. Such equipment not only gives the management data on "previous monthly" basis early and is, therefore, useful in making decisions as to routes to operate, tariffs to be charged, etc., but also can indicate when revenue losses are growing quickly or particular costs rising rapidly. Preparatory steps should be taken during the 1965-69 period to initiate the mechanization of the RIAC's accounting procedures early in the Fourth Plan period. The present and contemplated rate of growth of the airline wmuld justify such an action. The planning necessary for such an innovation will require expert help, - 236 - training, and several years of time. The Mission reconLmends, therefore, the engagement of the services of a specialized expert to help the RNAC to organize modern airline accounting practices and to plan the purchase of equipment to meet the present and the near future needs of data recording. G. Aircraft Selection

87. The DC-3 (Dakota) is the backbone of short-haul carrier operation throughout the world. It :Ls a simple aircraft, which is both rugged and easy to maintain. The fact that it is small, durable, easy to fly, uses short rniways, and is relatively inexpensive made it an ideal plane for RNAC pioneering operations. However, there are now many problems associ- ated with continued operations of DC-3's, as was discussed earlier in this chapter, making it desirable to give serious consideration to fleet replace- ment during the Third Plan.

88. It is nowi generally accepted that a majority of the airlines presently operating fleets of DC-3's will convert to newer types of planes during the next five years. By so doing, these airlines will be seeking lower and more stable seat-mile costs, and a more attractive plane capable of generating increased revenues. Those airlines which accomplish this conversion within the near future will obtain a higher price for their DC-3's in the secondhand market, while those who shift last may not be able to dispose of their planes.

89. This immediately raises the question as to how RNAC and the Govern- ment of Nepal should go about selecting the right kind of plane for use as a DC-3 replacement.

90. The selection of "tho right planoe" for a particular operation is a very complex undertaking, not to be taken liglhtly because the consequences of a poor choice or an inept choice can be exceedingly costly. Because of this, it is recommended that RNAC retain the services of a consultant skilled in this work to assist in the selection process. 91. Although the actual selection of an aircraft is based on detailed and systematic studies which go beyond the assignment of this Mission, there are certain general procedures which apply everywhere and can be roughly outlined here:

(a) Aircraft size. This is both an economic question (smaller planes cost 'Less to fly but larger planes have a lower cost per seat mi:Le and per ton mile) and a practical operatiocrquestion (can the aircraft land and take off with full load on ava:ilable airports). - 237 -

(b) Aircraft operatingcharacteristics. This includes a wide range of subjects, including maxirriuri cruising speed (the higher the better), maximum rate of climb (very important in mountain areas), maneuverability in rough or turbulent air (an important safety consideration in Nepal where turbulence is common in the mountains), cruising altitude, capabilities on rough and unpaved airfields, landing speed, etc.

(c) Airframe maintenance. Nepal does not have highly sophisti- cated maintenance facilities and therefore needs a plane wh1ich is mechanically as simple as possible and is easy to maintain and repair. For this reason, a plane which is rugged and needs less frequent repair is preferable to one that is fragile and requires frequent maintenance. There is also the question of availability of spare parts.

(d) Engine maintenance. Nepal has no facilities for major engine overhauls and it would be economically unwise to attempt to provide them. Therefore it is important that there be engine maintenance facilities which are nearby and readily accessible.

(e) Revenue generating capacity. A plane which can carry one or two extra passengers or extra weight in freight is preferable to one that can't. And in Nepal where both passengers and freight are important it is preferable to have a plane which can handle either or both, as the circumstances warrant.

(f) Operating cost. This is a combination of fuel consumption, airframe and engine maintenance frequency and costs, special equipment costs, and crew requirements.

92. Final decision is based on a careful evaluation of these factors, plus many other technical details not mentioned. There is no one plane which is perfect on all counts; the object is to find the plane which will provide RNAC with the lowzest cost, safest and most reliable aircraft capable of generating increased traffic and revenues under its particular environmental and operating conditions.

93. The Mission's investigations suggest that six aircraft meet a majority of these criteria and therefore could be considered as possible candidates for RNAC fleet operatians, and are listed below. The DC-3 and the Twin Pioneer have been added to this list solely for purposes of comparison. - 238 - Wing Plane Horse- Max.Take- Pay Cruising Passenger Span Lengtla power off wgt. Load Speed Capacity (feet) (feet) (Shp.) (lbs.) (lbs.) (S. miles) (Mo.Seats) Twin Pioneer 3 76 45 1,280 14,600 4,538 134 16 DC-3 95 64 2,400 25,300 5,236 170 24-28 Nord-262 72 63 1,972 22,700 5,910 226 26-27 Avro 748-(2) 98 67 3,820 43,500 9,700 262 4O-44 F-27 (200) 95 77 3,820 43,500 8,150 288 h0-48 AN-24 92 80 4,200 46,200 12,540 295 44 YS-ll 105 86 5,320 50,265 11,905 307 52-60

94. The HIission recommends that the actual selection as to type and make of plane be made by inviting international tenders in which each manufacturer is required to state in writing the capabilities of his craft, and its price. The kcey to this procedure is the preparation of the invitations to tender which must state quite specifically what information is to be contained in the tenders. Preparation of the invitations should be done in consultation with a consultant experienced in this work.

95. A preliminary screening can be made on the basis of these tenders, perhaps narrowring the fielcd to two or three possible suppliers. Final selec- tion can then be made on thle basis of further technical analvsis and negotia- tions. 96. Some studies of this type have already been made for RNAC by some of the producers of aircraft listed above. Unfortunately, however, a close examination of these studies by the Mission discloses that the manufacturers did not have access to all the basic data necessary for such studies. Further, many of the assumptions as to fuel costs, airport characteristics, various RNAC unit costs, and even inter-station distances are substantially different from the facts. 97. As an essential part of its selection process, RNJAC should form a two- man team to learn something of the experiences of others dealing with the transition from DC-3's to new turbo-prop planes. One man of the tean should be concerned with revenues, traffic and expenses; the other with operations and maintenance problems. They should visit Pakistan International Airlines and Indian Airlines which have recently converted from DC-3's to Fokker F-27's. The point would be to learn what (a) special problems or difficulties were encountered, (b) special features they like about their new planes, and (c) features or aspects they do not like and/or have proven troublesome. A similar visit to Air Ceylon and Thai Ainrays which have recently converted to Avro 748's is also recommended, and for the same reasons. Altllough these airlines do not operate in identical terrain, their experience will provide additional information which will be most useful in the selection process. - 239 -

98. There is also the question as to how many planes should be purchased, and when. It is tlle Mission's view that INAC should purchase all one kind of plane aimed at having a uniform fleet, and that these planes should be purchased during the next five years. The question of how many planes should be purchased is related both to the size of the plane finally selected (i.e., its payload capacity), and the service pattern which is to be maintained. In general, the Mission believes RNAC initially should restrict its purchases to the number of planes required for regularly scheduled services only, retaining some of its DC-3's to provide special and charter services. The economics of RNAC purchasing a new plane for standby or charter service are marginal at best, so it is deemed better to defer this added investment until the Corporation is on more firm financial ground.

99. There remains the problem of providing a smaller aircraft to use for private and government charter work. In general, this plane must meet ICAO standards (i.e., be twin-engined and capable of operation on a single engine) and able to land and take off from STOL strips with a reasonable payload (1,200 to 1,500 lbs. at maximum). This plane would be used for small charter parties, to carry government officials and mail to or from local STOL strips. The selection process would be essentially the same as for the larger planes, though only one smaller plane will be required. On the surface, it appears that a new turbo-prop plane shouild be considered for this service. The Mission has., therefore, allowed for funds for such a plane in its budget for new equipment.