Emergency Flood Damage Rehabilitation Project

Report and Recommendation of the President to the Board of Directors

Sri Lanka Project Number: 43001 April 2009

Proposed Asian Development Fund Grant Nepal: Emergency Flood Damage Rehabilitation Project

CURRENCY EQUIVALENTS (as of 1 March 2009)

Currency Unit – Nepalese rupee/s (NRe/NRs)

NRe1.00 = $0.0122 $1.00 = NRs81.823

ABBREVIATIONS

ADB – Asian Development Bank CDO – chief district officer CNDRC – Central Natural Disaster Relief Committee CQS – consultants’ qualifications selection DADO – district agriculture development office DDRC – district disaster relief committee DOA – Department of Agriculture DOI – Department of Irrigation DOR – Department of Roads DWIDP – Department of Water Induced Disaster Prevention DWSS – Department of Water Supply and Sewerage EA – executing agency EIRR – economic internal rate of return FIRR – financial internal rate of return IA – implementing agency ICB – international competitive bidding ICS – individual consultants selection IEE – initial environmental examination IFRC – International Federation of Red Cross and Red Crescent Societies MOF – Ministry of Finance MPPW – Ministry of Physical Planning and Works NCB – national competitive bidding NGO – nongovernment organization NPMCC – National Project Management Coordination Committee NRCS – Nepal Red Cross Society PCO – project coordination office PIU – project implementation unit PSC – project steering committee SOE – statement of expenditures SPIU – subproject implementation units STW – shallow tube well UN – United Nations UNDP – United Nations Development Programme UN-HABITAT – United Nations Human Settlements Programme UNICEF – United Nations Children's Fund VDC – village development committee WFP – World Food Programme

NOTES

(i) The fiscal year (FY) of the Government and its agencies ends on 15 July. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2009 ends on 15 July 2009.

(ii) In this report, "$" refers to US dollars.

Vice-President X. Zhao, Operations Group 1 Director General K. Senga, South Asia Department (SARD) Country Director B. Hitchcock, Nepal Resident Mission, SARD

Team leader K. H. Ryu, Head, Portfolio Management Unit, SARD Team members Y. Acharya, Economics Officer, SARD N. Chand, Procurement Officer, SARD G. Gewali, Senior Project Implementation Officer, SARD S. Gyawali, Assistant Project Analyst, SARD K. Karki, Project Implementation Officer, SARD K. R. Panday, Senior Project Implementation Officer, SARD N. Sapkota, Social and Environmental Officer, SARD L. Sharma, Project Officer, SARD S. Shrestha, Senior Governance and capacity Building Officer, SARD P. Spantigati, Senior Country Program Specialist, SARD S. Subba, Gender and Social Development Advisor, SARD C. Vandenabeele, Senior Council, Office of the General Counsel

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page

GRANT AND PROJECT SUMMARY i MAP I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2 III. THE PROPOSED PROJECT 8 A. Impact and Outcome 8 B. Outputs 8 C. Special Features 9 D. Project Investment Plan 10 E. Financing Plan 10 F. Implementation Arrangements 11 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 16 A. Economic Benefits 16 B. Poverty and Social Impacts 16 C. Land Acquisition and Involuntary Resettlement 17 D. Environmental Impacts 18 E. Risks 18 V. ASSURANCES 19 VI. RECOMMENDATION 20

APPENDIXES 1. Design and Monitoring Framework 21 2. Floods and Flood Management in Nepal 23 3. Development Partners’ Cluster Activities 26 4. Agriculture 30 5. Irrigation 33 6. Water Supply and Sanitation 37 7. Roads 40 8. Detailed Cost Estimates 44 9. Project Management Structure 46 10. Implementation Schedule 47 11. Procurement Plan 48 12. Economic Analysis 58 13. Summary Poverty Reduction and Social Strategy 61

SUPPLEMENTARY APPENDIXES (available on request) A. Flood Damage and Needs Assessment Report B. Detailed Institutional Strengthening Program for Flood Preparedness C. Detailed Cost Estimates (COSTAB) D. Terms of Reference for Design and Supervision Consulting Services (Parts A to E) E. Detailed Economic Analysis F. Involuntary Resettlement Framework G. Summary Initial Environmental Examination H. Environmental Assessment and Review Procedures I. Government’s Return Strategy for Flood-Affected People in the Koshi Area J. Gender Equality and Social Inclusion Action Plan

GRANT AND PROJECT SUMMARY

Recipient Nepal

Classification Targeting classification: Geographic intervention Sector: Multisector (agricultural production and markets, irrigation, drainage and flood protection, water supply and sanitation, road transport) Theme: Economic growth (promoting macroeconomic stability), Social development (disaster risk management) Location impact: rural (high) and regional (high)

Environment Category B Assessment

Project Description The Project will rehabilitate and restore damage caused by the 2008 monsoon floods in the eastern region and far western region. It will enable people to resume their normal lives by restoring access to livelihoods and basic infrastructure. The project design is based on (i) the post-flood joint damage and needs assessment, led by the Asian Development Bank (ADB) in October–November 2008, with the participation of United Nations (UN) agencies; and (ii) the Government’s preliminary estimate of flood damage. The Government—supported by UN agencies, bilateral partners, and nongovernment organizations (NGOs)— responded effectively in the initial phase of the disaster. However, 47,000 people remain displaced in temporary accommodation, and damage to infrastructure and livelihoods has been severe. The Project has been designed in coordination with central and local governments in recovery activities to move effectively from the humanitarian relief activities of the Government, UN agencies, and NGOs to recovery and reconstruction. The Project supports increased disaster preparedness and mitigation of damage from future recurrent floods by enhancing the Government’s disaster management capacity, and improving the disaster recovery system in cooperation with the Government of India.

Rationale The devastating 2008 floods—affecting 300,000 people mainly in three districts—caused severe damage to livelihood, infrastructure, and other assets. They also disrupted economic activities, inflicting heavy losses to crops and slowing expansion in industries and services. The combined losses of the floods in both regions are estimated at $88 million. Direct losses to assets and output because of flooding amount to $30 million; indirect losses are estimated at $58 million. The floods slowed progress in poverty reduction, with the poor and the vulnerable suffering most in terms of losses to crops, livestock, property, and housing; and reduced income opportunities. ii

Impact and Outcome The objective of the Project is to restore economic activities quickly, mainly in the three districts; and to improve the livelihoods of about 300,000 people seriously affected by the 2008 floods. It will contribute to sustainable economic growth by minimizing the devastating impact of the floods and reduce future risk from similar disasters. The Project will focus on augmenting incomes and self-reliance by reviving agriculture in the affected farmland and restoring the livelihoods of affected persons, as well as rehabilitating infrastructure. The interventions were identified in consultation with the Government, NGOs, and other civil society organizations; and involve community participation. The Project includes mitigation of damage from future recurrent floods by enhancing cost-effective construction specifications of rehabilitated infrastructure, and supporting capacity building and the Government’s disaster preparedness. It has five parts.

Part A: Agriculture. Restore the livelihood of affected people through revival of agriculture by distributing seeds and compost to grow crops suitable for sandy soil, as well as basic farm equipment—supported by extension services, skills development training, and social mobilization. It will also rehabilitate fishponds and minor irrigation, distribute fingerlings, and reconstruct agriculture collection centers and marketplaces.

Part B: Irrigation. Rehabilitate damaged structures of 2 large and 25 small surface irrigation systems, including 25 head works; 127 kilometers (km) of canals; 196 canal structures such as drain syphons, aqueducts, gates, outlets, and inlets; 36 km of canal service roads; 45 culverts and small bridges; 1 medium-sized bridge; and 700 shallow tube wells.

Part C: Water Supply and Sanitation. Rehabilitate 28 gravity flow water supply systems in Kailali and Kanchanur, construct 4 small overhead water supply systems, and install 3,500 shallow tube wells in Sunsari to provide access to drinking water and sanitation facilities. A health and hygiene awareness program will be integral to part C.

Part D: Roads. Rehabilitate damaged strategic roads in the far western region, including bridge and culvert protection works and landslide stabilization works; and provide alternative access to the far-eastern region by constructing the Koshi bridge at Chatara with the objective of minimizing the damaging impact of similar potential floods in the entire eastern region of the country.

Part E: Project Management. To ensure efficient implementation and management of project activities, provide adequate staff at the project coordination office (PCO) to support project supervision and monitoring, and capacity building for preparing the strategies and actions needed to prevent and mitigate future floods in the project districts. iii

Project Investment Plan The investment cost of the Project is estimated at $32.00 million, including taxes and duties of $3.19 million.

Project Investment Plan ($ million) Item Amounta Base Costb Part A: Agriculture Part 3.86 Part B: Irrigation Part 8.77 Part C: Water Supply and Sanitation Part 4.56 Part D: Roads Part 12.10 Part E: Project Management Part 1.53 Contingencies 1.18 Total 32.00 a Includes taxes and duties of $3.19 million financed by the Government. b In January 2009 prices. Note: The bank charge will be financed from the grant resources. Source: Asian Development Bank estimates.

Financing Plan A grant of $25.60 million from ADB’s Special Funds resources will be provided to help finance the Project. The Government will provide the remaining project cost of $6.40 million equivalent.

Financing Plan Totala Share of Source ($ million) Total (%) Asian Development Bank 25.60 80.00 Government of Nepalb 6.40 20.00 Total 32.00 100.00 a In January 2009 prices. b Includes taxes and duties of $3.19 million. Source: Asian Development Bank estimates.

Period of Utilization Until 31 December 2012

Estimated Project 30 June 2012 Completion Date

Executing Agency Ministry of Physical Planning and Works (MPPW)

Implementation The implementing agency (IA) for part A will be the Department of Arrangements Agriculture (DOA); for part B, the Department of Irrigation (DOI); for part C, the Department of Water Supply and Sewerage (DWSS); and for part D, the Department of Roads (DOR).

The project steering committee (PSC), chaired by the secretary of MPPW, will provide overall guidance for project coordination and facilitate project implementation. The PSC will include

representation from the Ministry of Agriculture and Cooperatives, Ministry of Finance, Ministry of Home Affairs, Ministry of Local Development, Ministry of Water Resources, National Planning Commission, DOA, DOI, DWSS, Department of Water Induced Disaster Prevention (DWIDP), and DOR. The project coordinator will act as member secretary of the PSC. ADB may be invited by MPPW to attend PSC meetings as an observer. The PSC will meet at least six times in the first year and as and when necessary in subsequent years, but not less than once a quarter. To coordinate the planning and execution of various components across the sectors, a national project management coordination committee (NPMCC) will be established with representation from each project implementation unit (PIU). The PCO will coordinate NPMCC meetings, which will be held monthly.

Procurement Since the value of individual civil works contracts will be relatively small and they will be widely scattered in disaster-affected areas, they are not likely to attract international contractors—except for bridge construction, which requires international competitive bidding. National procurement of civil works will follow the Government’s Public Procurement Act, 2007, and Public Procurement Regulations, 2007, which are both generally acceptable to ADB; and ADB’s Guidelines for Procurement (2007, as amended from time to time). The flexibility provided in ADB’s Disaster and Emergency Assistance Policy (2004) will be used where applicable.

Consulting Services At the outset of the Project, the PCO will recruit 7 individual consultants to advance project preparatory activities. This will include 98 person-months of national consultants on an individual basis for services in project management, benefit monitoring and evaluation, procurement, financial management, social development, resettlement, and environment management. The PCO will also recruit 5 individual consultants to review the institutional aspect of flood mitigation work and draw up the strategies and actions needed to prevent and mitigate future floods. This will include 8 person-months of international consulting services of a river morphologist for 6 months and an institutional development specialist for 2 months; and 32 person- months of national consultants, including an institutional development specialist, a river engineer, and a river hydrologist.

Given the tight implementation schedule, the IAs’ uneven institutional capacity, and the need for accelerated project implementation, the Project includes four design and supervision consultant packages, one firm for each sector, with a total of 464 person-months of national consulting services. The consultants will assist the IAs with overall implementation; and ensure quality of civil works, governance, risk assessment and management, and other related areas. Consulting firms and individual consultants will be recruited in accordance with ADB’s v

Guidelines on the Use of Consultants (2007, as amended from time to time) and other arrangements satisfactory to ADB for engaging consultants. At the request of the Borrower, ADB has agreed to select the consultants on behalf of the Borrower for design and construction supervision of the project activities in each sector. Considering the urgency and need to expedite project implementation, the consultants will be engaged through the consultants' qualifications selection method as provided for under the guidelines. Subject to the Government taking responsibility for selection and engagement, the single source selection method is an acceptable selection method in the context of emergency rehabilitation.

Project Benefits and The project parts are expected to be technically feasible and cost- Beneficiaries effective, and represent a least-cost alternative with appropriate adjustment for flood resistant designs. The economic analysis indicates that the economic internal rate of return for subprojects is 24.5%. The economic benefits of the restoration activities are those accrued at the time of initial construction, but mostly lost because of flood damage. Project-financed restoration will bring infrastructure back to original productivity and efficiency. While most restoration works will aim to meet immediate emergency needs, the restoration of permanent structures will improve their ability to withstand future floods.

The project parts in four major sectors—agriculture, irrigation, water and sanitation, and roads—will contribute to reducing the vulnerability and risks of affected people, who are displaced, poor, and disadvantaged. Social mobilization activities and group organization will improve the management capacity and influence of the poor and disadvantaged in the reconstruction of damaged irrigation and water supply infrastructures, increasing their access to services.

Construction of a permanent Koshi bridge at Chatara and rehabilitation of strategic roads will contribute to transportation of goods and services to the market—creating employment opportunities for the poor. Support for income generation activities will be extended to the landless and poor farmers based on their demand.

Risks and Assumptions According to the Government’s return strategy for Koshi flood- displaced people, the Government assumes that 60% of currently affected people will return immediately with the return package, and 15% of people with high-level damage to their home and farmland will return within 6 months. These people will be provided employment opportunities from ongoing ADB projects and rehabilitation projects. However, about 25% of the people have little prospect of an immediate return to their previous area since deep siltation and deep water have prevented their land from being recovered, and some are landless people. ADB is working with the Government and other development partners to identify sustainable resettlement options for the significant percentage of displaced people.

A potential risk is that procedural delays in obtaining various government approvals will slow implementation. The Government has shown strong commitment to the Project and will arrange simplified procedures. Delays at the executing agency (EA) level will be minimized through the selection of an EA with considerable experience in implementing ADB-financed projects and familiarity with ADB procedures, implementation by an established PCO, and consultant selection by ADB. In the past, the availability of counterpart funding has been a problem in ADB projects in Nepal. The Ministry of Finance has assured that counterpart funds would be provided to IAs on a timely basis.

Governance-related issues, including corruption, constitute another risk. This is addressed by selecting all subprojects; transparent implementation and monitoring mechanisms; and specific financial controls, including regular as well as random audits. Measures will include strict construction supervision and strong consultant support, use of the Public Procurement Regulations, close monitoring by ADB staff, and random auditing of procurement and annual performance at the EA level. The PSC will be supported by monitoring and evaluation specialists from MPPW and will be supported by two external consultants who will (i) help monitor all project activities, (ii) conduct random spot checks during project implementation, and (iii) provide capacity building in key areas of monitoring and evaluation.

A fourth risk is recurrence of major disasters and related extensive damage. This is addressed by adopting cost-effective flood- resistant design standards for infrastructure rehabilitation and strengthening the capacity of DWIDP for flood preparedness and an early warning system, which are expected to reduce damage from future floods. The risk of inadequate maintenance will be addressed by the Government of Nepal in close coordination and ongoing policy dialogue with the Government of India.

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NEPAL EMERGENCY FLOOD DAMAGE 30 o 00'N REHABILITATION PROJECT 30 o 00'N FAR-WESTERN DEVELOPMENT HUMLA MID-WESTERN REGION Simikot DEVELOPMENT REGION DARCHULA Darchula PEOPLE'S REPUBLIC N MAHAKALI BAJHANG OF CHINA Gamgadhi MUGU Chainpur BAJURA BAITADI 0 20 40 60 80 100 Patan SETI Martadi Dadeldhura KARNALI Jumla Silgarhi WESTERN Kilometers Bhatkanda Mangalsen JUMLA DOLPA DADELDHURA Dipaya KALIKOT DEVELOPMENT ACHHAM DOTI Manma MUSTANG REGION Dunai Banbasa Mahendranagar DAILEKH JAJARKOT Jomson KANCHANPUR Godawari Dailekh MANANG CENTRAL Masuliya Jajarkot Babiyachour BHERI RUKUM DHAWALAGIRI Chame DEVELOPMENT Dhangadhi Kol MYAGDI KAILALI Birendranagar Beni REGION SALYAN KASKI EASTERN SURKHET RAPTI PARBAT LAMJUNG Salyan ROLPA BAGLUNG Pokhara GANDAKI DEVELOPMENT BARDIYA Sitdipati GORKHA Dhunche RASUWA Liwang Baglung REGION Besisahar BAGMATI Gulariya Patan PYUTHAN Kushma BANKE Tulsipur Pyuthan GULMI Gorkha SINDHUPALCHOK Gorahi SYANJA TANAHU Bidur Tamghas NUWAKOT Chautara Nepalganj Sandikharka Syanja Mugling DHADING Kakani Barhabise DOLAKHA Lamahi ARGHAKHANCHI PALPA Naubise Kathmandu Tansen KATHMANDU Charikot SANKHUWASABHA DANG LUMBINI TAPLEJUNG Butwal Narayangarh Thankot BHAKTAPUR Jiri SOLUKHUMBU KAPILBASTU NAWALPARASI LALITPUR Bhaktapur Phungling Meghauli NARAYANI Salleri Taulihawa RUPANDEHI Dakshinkali KABHRE RAMECHHAP Khandbari MECHI Bhairahiwa Baruwa CHITWAN Bhimpedi PALANCHOK OKHALDHUNGA Bhojpur Parasi Hetauda Ramecchap Diktel TERHATHUM Krishnanagar Sunauli Lohathar Bhimeshwar Okhaldhunga BHOJPUR Lumbini Phidim PARSA Sindhulimadi KHOTANG Basantpur Terhanthum MAKWANPUR SINDHULI Project District Pathlaiya SAGARMATHA PANCHTAR Ilam 27 o 00'N BARA JANAKPUR Dhankuta 27 o 00'N National Capital Birganj Kalaiya DHANKUTA SARLAHI Dhalkebar UDAYAPUR ILAM District Headquarters Raxaul RAUTAHAT Malangawa Gaighat Dharan KOSHI DHANUSHA SIRAHA Kakarbhitta Town/Market Center Gaur SUNSARI Maikhola I N D I A MAHOTTARI Janakpur Lahan Itahari MORANG JHAPA National Highway Siraha SAPTARI Chandragadhi Jaleswar Rajbiraj Rangeli Feeder/District Road Biratnagar River Jogbani District Boundary Zonal Boundary Regional Boundary International Boundary

09-1100 HR Boundaries are not necessarily authoritative.

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I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed grant to Nepal for the Emergency Flood Damage Rehabilitation Project.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis 1. Floods and Impact of Climate Change 2. Nepal, one of the poorest countries in Asia and the Pacific, is highly vulnerable to recurrent floods and landslides. Extreme topographical variations and unstable steep slopes combined with torrential rain during the monsoon season result in frequent floods and landslides. These disasters cause heavy loss of life and property, and damage infrastructure, thereby disrupting the social and economic development of the country.

3. In addition to these natural processes, development activities and increasing population have caused further vulnerability and destabilization of land resources. Human-induced vulnerability stems from activities such as deforestation, cultivation of marginal lands and slope, road construction in hills and mountains, and encroachment of floodplains. The water-induced disasters have been occurring more frequently in recent years. Statistics indicate that 7,300 people lost their lives in floods from 1983 to 2007.

4. Water-induced disasters in Nepal are usually triggered by extreme weather events and are often associated with heavy rainfall during the monsoon. Rainfall events exceeding 300 millimeters (mm) in a day, which disturb both slope and channel equilibrium on a region scale, occur frequently in the country. The increasing frequency of such extreme precipitation events, together with changes in snow and ice cover caused by global warming and other factors, have led to an increase in the number of water-induced disasters in the country.

2. Disaster Management 5. The Department of Water Induced Disaster Prevention (DWIDP) was established in 2000 under the Ministry of Water Resources. DWIDP is responsible for managing and mitigating water-induced disasters. The Natural Disaster Relief Act, 1982 (amended in 1989 and 1992), primarily provides the legislative framework for disaster management. However, national disaster relief regulations need to be formulated as the act does not describe the duties and responsibilities of all the disaster management agencies other than the Ministry of Home Affairs. DWIDP plans to construct infrastructure for mitigating predictable disasters in 20 districts and establish a flood warning system for the whole country by 2017. 1 The floods and flood management in Nepal are described in Appendix 2.

6. The hydro-meteorological systems of mountain areas are very complex and are poorly understood. Nepal’s hydro-meteorological network is still poor; the existing observational network is not capable of capturing the diversity of the mountain landscape, and there are difficulties in characterizing weather because there is little long-term data. Better data collection with modeling and forecasting could eventually help reduce damage to life and property.

1 Water and Commission Secretariat. 2005. National Water Plan. Nepal. 2

7. There are more than 6,000 streams and rivers in Nepal. Most of the large rivers in Nepal have a river treaty between the Government of Nepal and the Government of India. For the Koshi River, the Koshi Project Agreement, which was signed in 1954 by the Government of Nepal and the Government of India and amended in 1966, resulted in the Government of India constructing the Koshi barrage, head works, other appurtenant works, embankment and protective works for the purpose of flood control, irrigation, generation of hydropower, and prevention of erosion. The treaty allows the Government of India to carry out surveys and maintenance works. However, the condition of the embankment has deteriorated because of annual sedimentation from watershed with rugged and high-angle slope, and poor maintenance of the embankment and protective works. To prevent potential breach of the embankment in the future, its safety needs to be assessed regularly and monitored closely.

B. Analysis of Key Problems and Opportunities 1. Impact of the 2008 Floods 8. On 18 August 2008, the Koshi River breached its embankment and shifted its course. This caused some 47,000 people to be displaced in Nepal, about 5,000 hectares (ha) of farmland to be damaged, and 14 kilometers (km) of road in different places along the East– West Highway to be badly damaged. Likewise, incessant heavy rainfall from 19 to 21 September caused floods and landslides in the districts of the far western region (including Kailali, Kanchanpur, Dadeldhura, and Doti) and in the mid-western region (including Bardiya, Banke, Dang, and Salyan districts). This disaster affected 43,500 families and physical infrastructure in the regions. The response of the Government and development partners was quick and efficient in Sunsari and Saptari as well as in the far western region. The Government continues to lead response operations through the district disaster relief committees (DDRCs), with the chief district officer (CDO) coordinating between local authorities and the line ministries. The work of the international humanitarian community in both regions is being coordinated through a cluster system formalized by DDRC.

9. On 19 October 2008, the Ministry of Finance (MOF) requested the Asian Development Bank (ADB) to lead a post-flood damage and needs assessment in the areas of roads, bridges, culverts, embankments, agriculture, irrigation, electricity, health clinics, educational institutions, water supply, drainage and sewerage systems, and housing in order to assist the Government to prepare rehabilitation works. Following the Government’s official request, ADB organized a consultation meeting with government agencies and development partners to discuss the flood damage and needs assessment mission and fielded the assessment mission from 31 October to 9 November 2008. The assessment mission produced a final report (Supplementary Appendix A).

10. Social Impacts. Some 31% of Nepal’s population still lives below the poverty line. Poverty declined from 42% to 31% from FY1996 to FY2004, but with increasing regional disparity and unequal distribution among different population, caste, and ethnic groups. Poverty levels are still high in the remote mid-western (45%) and far western regions (41%), compared with 27% in western and central regions and 29% in the eastern region. The Koshi flood- affected district Sunsari covered under the Project is in the eastern region. The other two districts are located in the far western region. In a national human poverty index ranking, Sunsari is 8th out of 75 districts, Kanchanpur is 15th, and Kailali is in 24th place.2

2 The human poverty index seeks to measure the degree of deprivation in these areas by examining five attributes of poverty: illiteracy, malnutrition among children, early death, poor health care, and poor access to safe water.

11. In Kailali and Kanchanpur, 7,000 families of the displaced were living near rivers. The most affected people were Mukta Kamaiya (freed bonded labors) and marginalized indigenous people. Shreepur, Haripur, Laukahi, and Paschim Kusaha village development committees VDCs (village development committees) of Sunsari were severely hit. Disadvantaged group mapping—based on food sufficiency, access to health and education, prevalence of vulnerable and marginalized groups—shows Shreepur VDC as the most disadvantaged followed by Haripur, Pashim Kusaha, and Laukahi.

12. It is estimated that 40% of people displaced by the Koshi flood will not be able to return home without a resettlement plan. More than 35,000 farm households have been adversely affected in the three districts, directly increasing risks in people’s long-term livelihoods. In Sunsari, people who lost houses and could not return home have become unemployed because of the heavy sand siltation in their farmland and loss of property. This situation is worst in Shreepur VDC as 80% of VDC land has been covered by sand. The flood affected both poor and nonpoor households, and farmers with both small and large land holdings. However, the poorest, landless, and marginalized were hardest hit and suffer higher threats to likely food insecurity, diseases, unemployment, loss of income, and personal security. Women, children, and the elderly have been negatively affected in terms of health, nutrition, and personal security.

13. Macroeconomic Impacts. The floods have had a devastating impact on local people, especially in the Koshi area, disrupting livelihoods and household incomes—especially of those who suffered loss of their standing crops estimated at $18.7 million and livestock estimated at $2.1 million. The floods have also had a negative impact on manufacturing and transport activities in eastern Nepal as the East–West Highway was damaged, cutting off the region from the rest of the country. However, although these impacts are quite significant from the local perspective, they are assessed moderate in the national context, reducing the Government's 7.0% gross domestic product growth target for FY2009 by 0.3 percentage points.

14. The floods will also have fiscal implications. Although the FY2009 budget has provisioned NRs2.5 billion for flood-related relief, rehabilitation, and reconstruction expenditures, it remains unfunded. Further, additional relief expenditures can be expected because of the slower-than-expected resettlement of the flood-affected people. The additional expenditure will add 0.2 percentage points to the 3.3% of gross domestic product budget deficit estimated for FY2009 budget because of the unfunded budgetary provision and the additional funds for an extended resettlement period.

15. The floods caused temporary shortage and price hikes of food and other commodities in the flood-affected areas, especially in the eastern region. However, the impact on the national inflation is expected to be minimal given the small production loss relative to national output and demand, the reasonably good summer crop harvest across the country, and supply alternatives from India. While overall inflation has been rising in recent months, it is not attributable to the floods. Inflation was already on the rise even before the floods (since July 2008) because of rising international oil and food prices. However, although international prices and India’s inflation (to which Nepal’s inflation is closely linked) have declined in recent months, Nepal’s inflation has risen on a year-on-year basis to mid-January 2009 compared to 5.8% in 2008. This is mainly due to high transportation costs and acute power shortages, causing some supply constraints, and the delayed impact of falling inflation in India. Inflation is, however, expected to subside to reach an average of 10% for FY2009, higher than the Government’s initial target of 7.5%.

16. Environmental Impacts. When the Koshi River changed its course toward the east, breaching 1.7 km of its left embankment, it deposited silt on the flood-affected area and adjoining four VDCs (Lauki, Pashim Kushaha, Madhuban, and Shreepur), covering 5,282 ha of land. In the far western region, major rivers such as the Mahakali, Shihali Nala, Dhodhara, and Banara carried sediment loads from catchments, contributing to river bank erosion, notably inside Sukhaphat Wildlife Reserve by the Mahakali River at Simla Phat and Barkaula Post. Waterlogging caused loss of vegetation on farmlands and recharged the groundwater table in varying depths.

17. The floods and landslides have drastically affected habitats of wildlife, aquatic, flora, and fauna of the Koshi Tappu Wildlife Reserve in Sunasari and Sukhaphat wildlife reserve in Kanchanpur. After the floods and landslides, displaced people (including migrants from the hilly regions) have begun encroachment in the forest for natural resources and livelihood. The estimated forest encroachment in Kailali district is about 1,000 ha.3 The poor living environment, including health, sanitation, and safety issues of the displaced people in this area, were observed.

2. Immediate Relief and Recovery 18. The Government. The response of the Government and development partners was quick and efficient in Sunsari and Saptari as well as the far western region. The DDRC in Sunsari district was already holding an emergency meeting hours before the river broke the embankment and many people living beside the embankment on 18 August 2008 had started moving out when the river entered the villages. The displaced people moved to nearby schools for safety, and several camps were built in safer areas. A total of 328 shelters were built in the Jhumka camp, followed by 245 shelters in the Lauki camp. Additional shelters were subsequently built in other places. The DDRC promptly started delivering food and nonfood items donated by the humanitarian agencies.

19. In the far western region, several temporary camps were established following the floods of 20 September 2008. Nepal Army, Nepal Police, Armed Police Force, People’s Liberation Army, and locals were widely mobilized in the rescue operations. DDRCs in Kailali and Kanchanpur districts took the lead in the relief effort. From the central level, the Central Natural Disaster Relief Committee (CNDRC) decided on 21 September 2008 to deploy two Nepal Army helicopters in the rescue operation. In the initial phase, food items were distributed by Nepal Red Cross Society (NRCS) to the displaced people living in camps and local schools.

20. The Government continues to lead response operations in Sunsari and Saptari districts through DDRCs and CDOs by coordinating between local authorities and the line ministries. On 4 September 2008, the Government declared a State of Emergency in 10 VDCs in Sunsari and 1 VDC in Saptari, making it easier for CDOs to take prompt actions as needed. At the regional level, the Saptakoshi Disaster Management Coordination Cell was established to monitor and direct the DDRCs. At the central level, CNDRC, chaired by the Ministry of Home Affairs, oversaw the response effort and prepared the return strategy plan for the Koshi flood-displaced people in December 2008 (Supplementary Appendix I).

21. DDRCs are also the lead agencies in rescue and relief operations in the far western region, supported mainly by NRCS. DDRCs distributed food items for the initial 15 days following the floods. The United Nations (UN) World Food Programme (WFP) has been

3 Livelihood DFO Report, 2008

5 providing food since then. Local governments constructed roads in certain affected areas for immediate use, and connected damaged transmission lines and telecommunication facilities.

22. On the budgetary front, the Government has earmarked NRs2 billion for rehabilitation of the Koshi flood victims. It has also decided to allocate NRs5 million for Kailali; NRs1.5 million for Achham; NRs1 million for Dadeldhura; and NRs0.5 million for Doti, Bajhang, and Bardiya. Donations from individuals and private organizations were collected through the Prime Minister’s Flood Relief Fund.

23. Government of India. The Government of India, which is responsible for maintenance of the Koshi barrage and embankment under the Koshi Project Agreement, responded by providing NRs320 million as immediate relief to flood-affected people in Saptari and Sunsari districts. In addition, the Government of India agreed to rebuild a damaged segment of the East–West Highway and rehabilitate the damaged embankment by March 2009. The Government of India mobilized a contractor to divert water flow and restore the embankment. The breached embankment is expected to be rehabilitated by the end of March 2009.

24. Development Partners. The work of the international humanitarian community in both regions is being coordinated through a cluster system formalized on 9 September 2008. Clusters have been established for health (World Health Organization [WHO]); nutrition (United Nations Children's Fund [UNICEF]); water, sanitation, and hygiene (UNICEF); food assistance (WFP); education (UNICEF and Save the Children); protection (Office of the High Commissioner for Human Rights) with a subgroup on child protection (UNICEF); camp coordination and camp management (International Organization of Migration); and emergency shelter (International Federation of Red Cross). The clusters coordinated by the United Nations Office for the Coordination of Humanitarian Affairs responded to the needs of flood-affected people as shown in Appendix 3. The World Bank funded two barges to provide temporary transport to cross the Koshi River.

25. In Sunsari and Saptari, WFP has been providing food items and will continue to do so until June 2009. In Kailali, development partners distributed 1,877 nonfood Item sets through NRCS, while 1,200 nonfood item sets were provided in Kanchanpur. WFP has been providing food items (such as rice, lentils, cooking oil, and salt) after the initial 15 days that the Government provided those materials.

26. National and local nongovernment organizations (NGOs) and NRCS are playing a critical role in the immediate response in Sunsari and Saptari districts, working closely with UN agencies. The role of NRCS has largely been to facilitate the distribution of relief materials obtained from government agencies and development partners. NRCS is also playing a critical role in the far western region, collecting and providing nonfood items. In both Kailali and Kanchanpur, affected persons expressed gratitude to NRCS for its promptness in delivering services.

27. ADB. The response of ADB to the 2008 floods was prompt. Upon the Government's request to lead the floods damage and needs assessment mission in consultation with other development partners, an assessment mission was undertaken from 31 October to 9 November 2008. The mission held an inception meeting at MOF, chaired by the secretary, which further discussed the scope of the mission, its field visit schedule, the methodology of the damage and needs assessment, and the Government’s support for the mission. The mission first visited the flood-affected Sunsari district in the eastern region and held discussions with the Sunari and Saptari CDOs, district-based sector line agencies, local NGOs, development partners, and local

6 communities. It also visited Kailali and Kanchanpur in the far western region and held discussions with CDOs, district-based sector line agencies, NGOs, and local communities. During the field visits, the mission members collected damage information and verified damages by visiting sample sites. Based on the mission’s final report, on 22 December 2008, the Government requested ADB to prepare an Emergency Flood Damage Rehabilitation Project. ADB fielded a fact-finding mission for the proposed project from 12 to 28 January 2009. In addition, ADB approved the Government’s requests for providing livestock inputs for the flood- affected people from the ongoing Community Livestock Development Project 4 and for rehabilitation of damaged local roads and community infrastructure, including school buildings and health clinics, under the ongoing Rural Reconstruction and Rehabilitation Sector Development Program and Project.5

28. Current Status. Although the Government, Government of India, development partners, UN agencies, and national and international NGOs provided an immediate response for humanitarian relief to the flood-affected people, they remain displaced. The Koshi river flow was diverted to the original river course in late January 2009, 6 months after the flood. The repair of the breached embankment is still ongoing and is expected to be completed in March 2009. The Government expects about 36,000 people to return to their homes by March 2009 and about 9,000 people to return by June 2009. However, about 15,000 landless people are waiting for the Government’s plan to resettle them. To facilitate transportation, the Government installed two ferries with limited capacity at Chatara ferry site, but they are only operational during the dry season. The affected people believe that the whole embankment remains vulnerable to be breached by similar floods in the future.

3. Financing Needs for Disaster Damage Rehabilitation 29. Preliminary estimates indicate that direct damage to assets and indirect losses in the three districts in the eastern and far western regions amount to $87.73 million. About one-third of this was direct damage and two-thirds indirect losses.

30. Damage and losses were concentrated in the transport sector ($36.9 million or 42% of the total), agriculture and livestock sector ($22.9 million or 26% of the total), and housing and settlement sector ($9.7 million or 11%). The high damage in the transport sector is due to extensive damage of about 14 km of road along the East–West Highway from a breach in the eastern embankment of the Koshi River, which contributed to high indirect losses, mainly from disruption of transportation of goods and services.

31. The financial requirement for the recovery program has been identified at $71.20 million based on the damage and needs assessment. A total of $24.01 million is required for short-term needs, and the remaining $47.19 million is needed for the medium term. The Government is already financing the short-term need of about $7.00 million ($3.52 million in transport, $2.00 million in agriculture, $0.84 million in communication, and $0.53 million in local infrastructure and others). The Government of India also committed $5.27 million for rehabilitation of the breached embankment. A shortfall of $11.74 million in short-term need requires financial support. In the medium term, the shortfall is $43.67 million and requires financial assistance as the Government provided $3.52 million for the roads sector.

4 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Nepal for the Community Livestock Development Project. Manila. 5 ADB. 2007. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Nepal for the Rural Reconstruction and Rehabilitation Sector Development Program and Project. Manila.

4. Rehabilitation Assistance Program 32. An integrated, multipronged approach for economic recovery of the affected area, and for reconstruction of destroyed physical assets, is required to ensure the protection of the most vulnerable members of society and to resume socioeconomic development in the affected regions. The Government requested ADB to prepare the medium-term recovery program for sustainable production in agriculture, and reconstruction of infrastructure with improved risk resistance capacity in roads, water supply and sanitation, and irrigation.

33. ADB Strategy. ADB has an integrated policy for managing its disaster and emergency assistance, which links the phases of the disaster management cycle, from prevention and mitigation through preparedness and recovery. The policy emphasizes not only responding after the disaster strikes, but also supporting activities that anticipate and mitigate the likely impact of disasters that might occur. However, ADB’s mandate does not allow the institution to engage in humanitarian relief as other international aid agencies, NGOs, and the UN normally assume these functions. ADB’s disaster and emergency assistance activities will be implemented within the context of working more closely with the Government to help it adopt a new approach that emphasizes preventive measures. ADB’s assistance instruments are portfolio restructuring and use of loan savings and emergency assistance projects. Based on the policy, the recovery project will also emphasize preventive measures to minimize the impact of future floods.

34. Portfolio Management and Restructuring. In formulating ADB’s flood recovery assistance project, government capacity, the possibility for loan portfolio restructuring, and potential use of loan savings under ongoing projects were carefully assessed in line with ADB’s Disaster and Emergency Assistance Policy (2004).6 The portfolio assessment was made in light of the 2008 country portfolio review,7 and in close coordination with concerned government agencies. Since 2006, ADB has placed particular emphasis on regularly identifying and canceling Asian Development Fund loan savings by examining the physical and financial progress of ongoing projects and adjusting their scope and design. Thus, the scope for identifying additional loan savings by restructuring the existing Asian Development Fund loan portfolio is limited. Nonetheless, savings identified under four projects, amounting to $5.60 million, were canceled for utilization under the Nepal country program allocation.

35. Coordination in Recovery Program. While the Government has approved several acts on good governance in recent years—including the Public Procurement Act and Regulations, 2007; Financial Procedures Rules, 2007; and Local Body Financial Administration Rules, 2007—lack of coordination, efficiency, and accountability in central and local governments was identified as a major challenge in delivering humanitarian relief and an early recovery program. The UN agencies provide all technical support to the local governments and supported the CNDRC in coordinating cluster programs.

36. Promoting local service delivery and active participation of key stakeholders could improve coordination in disaster recovery activities and deliver quick and tangible benefits. A community-driven development approach for all Koshi flood-related activities has been introduced in Sunsari district through the relief and rehabilitation program implementation unit established under the district office. The United Nations Development Programme (UNDP) supports district development committees and VDCs by providing adequate staff resources for strengthening the RRU and better coordination among service providers so that early recovery

6 ADB. 2004. Operations Manual. Section D7/BP and D7/OP: Disaster and Emergency Assistance. Available: Lotus Notes database LNADBG1. 7 Ministry of Finance, 2008, Nepal Portfolio Performance Review, Kathmandu.

8 and medium-term recovery programs can be implemented, as demonstrated by better coordination in humanitarian relief.

37. Lessons in Disaster Management and Flood Rehabilitation. Although Nepal has a National Disaster Relief Act, 1982, its regulations need to be developed to improve coordination among the agencies dealing with disaster management. UNDP plans to prepare the regulations, which will be assisted by the proposed Project. In addition, disaster preparedness and emergency management cannot solely depend on experts in these fields as the frequency of disasters is high and locations are scattered. Making the public aware of possible hazards and using their participation in an early warning system becomes very important in fighting against disasters. Public awareness programs and awareness sessions in the school curriculum need to be introduced. In addition, ADB is planning to undertake a disaster vulnerability assessment as preparation for the new country partnership strategy, which will provide recommendations for risk mitigation measures in future ADB operations.

III. THE PROPOSED PROJECT

A. Impact and Outcome 38. The objective of the Project is to restore quickly economic activities mainly in the three districts—Kailali, Kanchanpur, and Sunsari districts—and improve the livelihood of about 300,000 people seriously affected by the 2008 monsoon floods. It will contribute to sustainable economic growth by minimizing the devastating impact of the floods and reduce future risk for similar disasters. The Project will focus on augmenting incomes and self-reliance through (i) the revival of agriculture in the affected farmland and restoration of livelihoods of the affected people, and (ii) the rehabilitation of infrastructure. The Project supports capacity building and the Government’s disaster preparedness by developing a flood forecasting system and early warning system in the Koshi river area.

B. Outputs 39. The Project comprises five parts: agriculture (A), irrigation (B), water supply and sanitation (C), roads (D), and project management (E). The Project will strengthen partnerships and synergies with other development partners.

40. Part A: Agriculture. This part will help restore the livelihoods of affected people through revival of agriculture by distributing seeds and compost to grow crops suitable for sandy soil in the affected area, as well as basic farm equipment. The distribution of the agriculture inputs will be provided to farm families whose lands have limited silt deposit or have cleared high silt deposit by themselves. This will be supported by extension services, skills development training for farming on sandy soil, and social mobilization. This part will also rehabilitate fishponds and minor irrigation, distribute fingerlings, and reconstruct agriculture collection centers and market places in the affected area. Training and material support will be provided to improve the quality of soil, crop, and water management. Combined with the irrigation component, about 8,500 families comprising 42,500 people are estimated to benefit directly. Detailed project activities are in Appendix 4.

41. Part B: Irrigation. This part will reconstruct and rehabilitate the damaged structures of 2 large and 25 small surface irrigation systems. This will involve improvement of 25 head works; 127 km of main, branch, and tertiary canals; 196 canal structures such as drains, aqueducts, gates, outlets, and inlets; 36 km of canal service roads; 45 culverts and small bridges; 1 medium-sized bridge (on canal service road); and necessary protection works for the above

9 structures. This part will also include rehabilitation of 700 shallow tube wells and a supplementary surface irrigation system, which will provide irrigation to 13,060 ha of land. Detailed project activities are in Appendix 5.

42. Part C: Water Supply and Sanitation. The expected benefits of this part are hygiene improvements in the flood-affected areas, reduced pollution of groundwater and surface water, and access to drinking water. This part will rehabilitate 28 gravity flow water supply systems in Kailali and Kanchanur, and construct 4 small overhead water supply systems and install 3,500 shallow tube wells in Sunsari to provide access to drinking water and sanitation facilities. For Sunsari district, this part is designed to complement the Government’s return package for returnees to meet needs for drinking water and sanitation facilities.8 Social mobilization for a health and hygiene education and awareness program is integral to this part. The gravity flow water supply system and small overhead water supply systems will be designed to give the disadvantaged and poor adequate access to drinking water and sanitation, and will be operated and maintained by the respective communities. Detailed project activities are in Appendix 6.

43. Part D: Roads. This part comprises rehabilitation of damaged strategic roads in the far west region, including protection works for bridge and culvert and landslide stabilization works. In the Koshi area, all damaged local roads under the responsibility of the Ministry of Local Development will be rehabilitated under the ongoing Rural Reconstruction and Rehabilitation Sector Development Project financed by ADB at a cost of $4 million. Major works in the Koshi area under the Project will focus on providing an alternative access road for strategic road networks under the responsibility of the Ministry of Physical Planning and Works (MPPW) for emergency preparedness, with the aim of minimizing the damaging effect of similar potential floods in the entire eastern region of the country. As the Department of Roads (DOR) is operating two ferries to cross the Koshi River with limited capacity, the Government requested ADB to substitute them with a permanent bridge over the Koshi River at Chatara. The permanent bridge would provide a reliable alternative transport route, linking the eastern part of the country with the western part, and preventing possible negative impacts in case of similar floods in the future. This conforms with the damage and needs assessment report and the Government’s recovery strategy. DOR assured MOF that construction of the proposed bridge would be completed within 3 years. Detailed project activities are in Appendix 7.

44. Part E: Project Management. To ensure efficient implementation and management of project activities, a new project coordination office (PCO) with adequate staff from the Executing Agency (EA) will be supported by consulting services and required logistics. Individual consultants will be engaged to support project supervision and monitoring, and capacity building for preparing the strategies and actions needed to prevent and mitigate future floods in the project districts. A capacity-building program for DWIDP will be undertaken (Supplementary Appendix B). A series of socioeconomic studies that focus on evaluation of the Project’s impact on poverty reduction will be carried out, including a benchmark study at the start of the Project, a follow-up study in the third year, and a final study at the end of project implementation.

C. Special Features 45. Improved Livelihoods of the Affected People. The Project will lead to restoration of incomes for 11,700 affected families: 7,700 families through agricultural input supports and an additional 4,000 families through reconstructed irrigation schemes. Through the rehabilitation of

8 Return package designed to support initial return of displaced people together with additional inputs from Government and other humanitarian agencies. Each household is to be provided with the return package of NRs50,000 in installments basis.

10 surface irrigation, the provision of shallow tube wells for irrigating uneven farmlands, extension services for crops suitable for sandy soils and input supply for their start-up, and the rehabilitation of fishponds, the incomes of families are expected to increase by NRs1,300 per family within 3 years. Much of the agricultural support will be geared to obtaining incomes from land that has been heavily silted and that now requires different technologies to provide farming incomes. In addition to project activities, ongoing ADB-financed projects—the Community Livestock Development Project and the Rural Reconstruction and Rehabilitation Sector Development Project—will improve the livelihoods of affected people by providing livestock for the disadvantaged group, and rehabilitating rural roads and community infrastructure in the affected areas.

46. Disaster Preparedness. As it is the ADB's first disaster rehabilitation project for Nepal, the Project will initiate activities related to disaster preparedness. The PCO under the direction of the project steering committee (PSC) will analyze lessons learned from past floods and, through a consultative process, draw up strategies and actions needed to prevent and mitigate future floods. The strategies and actions will be incorporated in a disaster preparedness action plan. ADB’s disaster vulnerability assessment for the new country partnership strategy will strengthen the capacity of the Government's disaster preparedness and early warning system. Training will be provided to staff of the flood related agencies to improve flood awareness and preparedness. Civil works envisaged under the Project will provide greater flood protection for roads, bridges, and irrigation works; and the construction of an alternative route to the East– West Highway through Chatara will provide a fail-safe east–west transport link to prepare for future floods in the Koshi River.

D. Project Investment Plan 47. The project investment cost is estimated at $32.00 million, including taxes and duties of $3.19 million financed by the Government (Table 1). Detailed cost estimates are in Appendix 8 and the details of the project investment plan are in Supplementary Appendix C.

Table 1: Project Investment Plan ($ million) Item Amounta Base Costb Part A: Agriculture 3.86 Part B: Irrigation 8.77 Part C: Water Supply and Sanitation 4.56 Part D: Roads 12.10 Part E: Project Management 1.53 Subtotal 30.82 Contingencies 1.18 Total 32.00 a Includes taxes and duties of $3.19 million financed by the Government. b In January 2009 prices. Sources: Asian Development Bank estimates.

E. Financing Plan 48. The Government has requested a grant of $25.60 million from ADB’s Special Funds resources to help finance the Project. The Government will finance the remaining project cost of

$6.40 million equivalent, including taxes and duties of $3.19 million (Table 2). Detailed cost estimates and the financing plan are in Appendix 8 and Supplementary Appendix C.

Table 2: Financing Plan Totala Source ($ million) Share of Total (%) Asian Development Bank 25.60 80.00 Government of Nepalb 6.40 20.00 Total 32.00 100.00 a In January 2009 prices. b Includes taxes and duties of $3.19 million. Source: Asian Development Bank estimates.

F. Implementation Arrangements 1. Project Management 49. The EA for the Project will be MPPW. To support the EA, a PCO will be established at MPPW and will coordinate with the IAs and the line ministries, including the National Planning Commission. It will be headed by a full-time project coordinator. The PCO will (i) prepare the overall project implementation plan and consolidated annual work plan, (ii) assist project implementation units (PIUs) in preparing estimates for annual budget and contract packaging, (iii) conduct a series of socioeconomic studies, (iv) monitor all project management activities, (v) organize monitoring and evaluation of project activities, (vi) maintain proper accounting for all project expenditures for auditing, (vii) manage and replenish the imprest account, (viii) prepare necessary progress reports and submit to the PSC and ADB, and (ix) prepare the project completion report for submission to ADB. The project coordinator will be supported by a full-time deputy project coordinator. The PCO will be properly staffed and assisted by consultants with expertise in engineering, finance, accounting, monitoring, and evaluation. The project management structure is in Appendix 9.

50. The IAs for the Project will be as follows: Department of Agriculture (DOA) for part A (agriculture); Department of Irrigation (DOI) for part B (irrigation); Department of Water Supply and Sewerage (DWSS) for part C (water supply and sanitation); and DOR for part D (roads). Each IA will be responsible in its respective sector for (i) preparation of the annual work plan, (ii) design and approval of civil works, (iii) preparation of tender documents for civil works and goods and approval of respective contracts, (iv) appointment of consultants, and (v) submission of progress reports to the EA. A separate PIU will be established in each IA and provided with adequate staff, resources, and logistical support. Each PIU will be headed by a project director. The PIU concerned will be responsible for preparation, submission, approval, implementation, and benefits monitoring and evaluation of all subprojects. In each project district, subproject implementation units (SPIUs) for each sector will be established to implement project activities in the respective districts.

51. A PSC, chaired by the Secretary of MPPW, will be established within 1 month of grant effectiveness to provide overall project coordination and facilitate project implementation. The PSC includes representatives from Ministry of Agriculture and Cooperatives, MOF, Ministry of Home Affairs, Ministry of Water Resources, Ministry of Local Development, National Planning Commission, DOA, DOI, DWSS, DWIDP, and DOR. The project coordinator will act as member secretary of the PSC. ADB may be invited by the Government to attend PSC meetings as an observer. The PSC will meet at least six times in the first year; thereafter, it will meet as and

12 when needed, but not less than three times a year. To coordinate planning and execution of various components across the sectors, a national project management coordination committee (NPMCC) will be established with representation from each PIU. The PCO will coordinate NPMCC meetings, which will be held monthly.

52. In each project district, a local project coordination committee will be established under the chief district officer to coordinate project activities. Each SPIU will participate in the meetings of the existing relief and rehabilitation program implementation unit to coordinate project activities with other flood-related activities supported by the Government and other development partners. The relief and rehabilitation program implementation unit was established under the coordination of the district office in Sunsari to coordinate all Koshi flood-related activities.

53. Good implementation arrangements for agricultural input distribution need to be in place to implement part A effectively. Although project implementation and procurement have been decentralized to district agriculture development offices (DADOs), which have demonstrated their capacity in procurement and implementation of field programs. Consultants should be mobilized in time to support DADOs in procurement of agricultural inputs and their distribution to affected families whose lands have limited silt deposit or have cleared high silt deposit by themselves. Over-procurement should be avoided, but inputs should reach farm families on time using systematic procedures. DADOs will consult closely with DDRCs and UNDP, which will provide adequate staff for strengthening local government agencies at districts, villages, and wards.

2. Implementation Period 54. As the Project is for emergency assistance, project implementation will be substantially completed in 36 months, i.e., tentatively by 30 June 2012. Because of the inability to undertake civil works during the wet season, and taking into account the country’s weakened absorptive capacity in remote areas, the project period is extended by 1 year beyond the 2-year project period generally expected under ADB’s Disaster and Emergency Assistance Policy. A 3-year project implementation period is also justified as Nepal is in a post-conflict situation. The agreed implementation schedule recognizes the critical importance of restoring key infrastructure as much as possible before the onset of the next rainy season in July 2009. The implementation schedule is in Appendix 10.

3. Procurement 55. Procurement of works, goods, and services will be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). ADB’s procedures for providing rehabilitation assistance after disasters provide for flexible interpretation of these guidelines, so that project activities can start promptly. Generally, national procurement will be the preferred mode for all civil works because of the relatively short implementation period, small size of contract packages, wide geographic spread of the project sites, and need for local awareness and community participation.

56. However, procurement of civil works contracts with estimated values greater than $1 million will be carried out in accordance with international competitive bidding procedures, and contracts with estimated values of $1 million or less will be procured in accordance with national competitive bidding procedures and generally be in accordance with the Government’s Public Procurement Regulations; Public Procurement Act; and ADB’s Procurement Guidelines. Shopping will be used for works exceeding $30,000 but no more than $100,000. All small and

13 widely dispersed civil works of up to $30,000 will be undertaken mainly by the community, following ADB's community participation guidelines.

57. ADB’s portfolio experience in Nepal indicates that national contractors have adequate capacity to undertake such contracts. ADB will review and approve all contracts with estimated values exceeding $100,000 equivalent. National competitive bidding for civil works will follow the single-stage, one-envelope procedure with post-qualification and a bidding period of 21 days. To encourage the participation of communities and local residents, especially women, and provide them with employment opportunities, small earthworks with an estimated cost of $30,000 or less may be awarded, in line with past practices for projects of a similar nature, to user groups in accordance with community participation in procurement procedures acceptable to ADB. The procurement plan of the Project is in Appendix 11.

58. All the IAs will strictly adhere to the Public Procurement Regulations’ specified time limits for evaluating and awarding contracts. Contract variations will be discouraged and be subject to prior ADB approval, except in special circumstances for particular contracts for strong technical and economic reasons to maximize social and economic benefits.

59. Given the urgency of the Project, ADB approved advance action for the procurement of goods, services, and works and the recruitment of consultants, provided the advance actions take place on or after 12 January 2009, the starting date for the project fact-finding. ADB advised the Government that approval of such advance action does not commit ADB to finance any part of the Project.

60. The Project provides for retroactive financing of immediate rehabilitation of key infrastructure and facilities, and for consulting services. ADB Management has agreed to provide retroactive financing for a maximum 30% of the total loan amount for eligible expenditures incurred not earlier than 18 August 2008 (date of disaster in Koshi river area). Retroactive financing will be approved under the following conditions: (i) procurement is undertaken in accordance with the Government’s procedures, (ii) contracts and recurrent costs are certified by the EA, and (iii) the certification is acceptable to ADB. ADB advised the Government that provision of retroactive financing does not commit ADB to finance any part of the Project.

4. Consulting Services 61. Given the tight implementation schedule, the IAs’ uneven institutional capacity, and the need for accelerated project implementation, consulting services will be required to support project implementation. At the outset of the Project, the PCO will recruit 7 individual national consultants to advance project preparatory activities for a total of 98 person-months of national consultants on an individual basis for services in project management, benefit monitoring and evaluation, procurement, financial management, social development, resettlement, and environment management. The PCO will also recruit 5 individual consultants to review the institutional aspect of flood mitigation work and draw up the strategies and actions needed to prevent and mitigate future floods, including 8 person-months of international consulting services of a river morphologist for 6 months and an institutional management and development specialist for 2 months; and 32 person-months of national consultants, including an institutional development specialist, a river engineer, and a river hydrologist. Four design and supervision consultant packages, one firm for each of sectors, are included with a total of 464 person- months of national consulting services. The procurement plan is in Appendix 11and the consultants’ terms of reference are in Supplementary Appendix D.

62. The consultant packages for design and construction supervision of the project activities in each component will be procured using the consultants’ qualifications selection method. Subject to the Government taking responsibility for selection and engagement, single source selection is an acceptable selection method in the context of emergency rehabilitation. The consultants will support the IAs with day-to-day project implementation, including (i) detailed assessment and verification of damage; (ii) preparation of assessment reports for safeguard requirements for individual subprojects; (iii) preparation of plans, detailed designs, specifications, and cost estimates; (iv) preparation of bid and contract documents; (v) evaluation of bids and contract awards; (vi) supervision of construction quality, cost and schedule control, measurement, and approval of contractors’ work and progress claims; (vii) monitoring of works to ensure quality control and transparency among contractors and communities carrying out smaller works; (viii) issuance of completion certificates; and (ix) oversight of works.

63. The IA concerned will sign all the contracts for consultants, who will be recruited in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time) and other arrangements satisfactory to ADB for the engagement of national consultants. Since the Project must be completed within 36 months, expeditious selection and fielding of the design and construction supervision consultants will be necessary. Accordingly, ADB has agreed with the Government on the consultants’ qualifications selection method for all the consulting services packages. To expedite project implementation, the Government and ADB agreed that ADB will select a consulting firm on behalf of the Government using the consultants’ qualifications selection method. Consultants’ performance will be closely monitored, with particular attention to quality of work and vigilance in the field to accelerate contract execution for timely completion, in accordance with the agreed contract period. Continuity of key consultants and senior field engineers should be strictly adhered to, in accordance with the agreed personnel schedule and work program in respective consultant contracts. To expedite the implementation of construction of Koshi Bridge at Chatara, ADB agreed to fund the design of the bridge from the ongoing Road Connectivity Sector I Project. 9

5. Anticorruption Policy 64. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the Government and Executing Agency. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the grant regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the Executing Agency and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

65. The Project incorporates several specific anticorruption measures, including (i) strict financial management with full adherence to monitoring and reporting systems; (ii) strict compliance with Public Procurement Act and Regulations of 2007, and Local Body Finance Administration Regulations of 2007; (iii) allowing third party monitoring of all subprojects; and (iv) random and independent spot checks of implementation by ADB and PCO.

9 ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Asian Development Fund Grant to the Kingdom of Nepal for the Road Connectivity Sector I Project. Manila.

6. Disbursement Arrangements 66. All disbursements will be in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). An imprest account for the Project will be established in Nepal Rastra Bank, the central bank. The ceiling for the imprest account is $2.5 million, which should not exceed estimated eligible expenditure for 6 months to be financed through the imprest account or 10% of the grant amount, whichever is lower. The statement of expenditures (SOE) procedure will be used to reimburse expenditures and liquidate advances under the imprest account. The ceiling for payment under the SOE procedure is $100,000. The EA will be responsible for managing and administering the account and SOE in accordance with ADB’s Loan Disbursement Handbook.

7. Accounting, Auditing, and Reporting 67. The EA has implemented ADB projects for more than 20 years and is implementing nine projects at present. The Project, however, includes a financial management specialist and a procurement specialist in the PCO to strengthen project implementation of the emergency assistance project and the capacity of the EA, and effectively oversee financial transactions.

68. Accounts and Audit. The EA will maintain separate records and accounts adequate to identify the goods and services financed by the loan proceeds, financing received, expenditures incurred, and use of local funds. The account will be maintained in accordance with sound accounting principles. Consolidated project accounts and related financial statements will be audited annually by the auditor general. The audited reports and related financial statements in English should provide an audit opinion on the financial operations of the imprest accounts and SOEs and be submitted to ADB not later than 9 months after the end of the fiscal year because of project implementation in remote project areas by multiple IAs.

69. Reports. While the PCO will monitor overall implementation progress, the EA will prepare brief progress statements and submit these to the PSC with a copy to ADB at the end of each quarter. In addition, each IA will submit monthly reports to the PCO in order to enable the PCO to prepare quarterly progress reports. The project performance monitoring system will be established within 3 months of grant effectiveness. Within 3 months of physical completion of the Project, the Government will provide ADB with a project completion report providing detailed evaluation of the project design, costs, performance of contractors and consultants, social and economic impacts, and other details.

8. Project Performance Monitoring and Evaluation 70. The EA will establish the project performance monitoring and evaluation system within 3 months of grant effectiveness. Baseline indicators and targets for each sector and subproject will be developed within 3 months of grant effectiveness prior to implementation for monitoring purposes. The data will be disaggregated by gender, caste, and ethnicity. The outputs will provide inputs to the Project’s quarterly progress reporting for results monitoring of the design and monitoring framework of the Project in Appendix 1.

9. Project Review 71. ADB will conduct regular reviews throughout project implementation. Given the relatively short implementation period and emergency nature of the Project, no midterm review will be conducted unless ADB and the Government deem it necessary.

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

A. Economic Benefits 72. Based on experience from similar earlier projects providing emergency assistance, the project components are expected to be technically feasible and cost-effective, and represent a least-cost alternative with appropriate adjustment for flood resistant designs. Analysis shows an economic internal rate of return (EIRR) of 16% for agriculture, 30% for irrigation, 26% for water supply and sanitation, 24% for roads, and a project EIRR of 25%. These calculations include project implementation expenses for each component and expenses to ensure proper maintenance of rehabilitated infrastructure. Project-financed restoration will bring infrastructure back to original productivity and efficiency. Benefits calculated for agriculture for damaged land areas are based on a changed use of land. While most restoration works will aim to meet immediate emergency needs, restoration of permanent structures will improve their ability to withstand future floods.

73. Through the displacement of families and lowered production on farmland, it is estimated that 4,870 persons have become unemployed—32% of the original workforce on the affected land. The civil works programs envisaged under the Project will provide work for up to 60% of the unemployed. Within 1 year of project completion, it is expected that economic production and employment will have returned to pre-flood levels. A summary of economic analysis is in Appendix 12 and detailed economic analysis is in Supplementary Appendix E.

B. Poverty and Social Impacts 74. Poverty Impact. The project design includes features that will help reduce poverty directly or indirectly. It will provide short-term employment to poor women and men in skilled and unskilled labor-intensive construction works, in rehabilitation of damaged road and irrigation infrastructures. All sectoral support will have poverty implications by rehabilitating damaged infrastructure and farmland, and improving services. The support will help people directly or indirectly to mitigate risks of likely impoverishment. A summary of the poverty reduction and social strategy in Appendix 13.

75. Social Impact. The project components in four major sectors—roads, irrigation infrastructure, agriculture, and water and sanitation—will contribute to reducing the vulnerability and risks of the affected people, displaced, poor, and disadvantaged. Social mobilization activities will be integrated, which will improve the group organization and management capacity of the poor and disadvantaged in reconstruction of damaged irrigation and water supply infrastructures, empowering them to access services. Gender and social inclusion guidelines and a detailed action plan will be developed based on the gender equality and social inclusion action plan (Supplementary Appendix J) to ensure benefits to women and marginalized groups.

76. Agriculture support will be provided to the poor and affected farmers free of cost for up to 2 years so that they will be able to restore farm work and income. Irrigation measures will be taken to cope with the immediate need for restoring the land and to support livelihoods by providing shallow tube wells, which will benefit the poor and marginal farmers. Rehabilitation of farmer-managed irrigation facilities and large irrigation schemes will help regain long-term sustainability of the agriculture production, providing benefits to all users.

77. Water supply and sanitation activities will rehabilitate damaged schemes by improving quality, and extend the services to the poor and marginalized groups. Access to drinking water and sanitation will help women and poor households save time for other economic activities and

17 reduce their work burden. In all four affected VDCs in Sunsari, a water supply service will be provided through a phased approach, which will complement the Government’s return package. Social mobilization will be integrated in the component to ensure social inclusion in user committees in terms of gender, caste, ethnicity, and other disadvantaged groups.

78. Construction of a permanent bridge on the Koshi River and rehabilitation of strategic roads will contribute to transportation of goods and services to the market, creating employment opportunities for the poor.

79. Employment Generation. Rehabilitation of the highway and rural roads will contribute to smooth transportation of goods and services to the market and facilitate economic activities, creating employment opportunities for the poor. Support for income-generation activities will be extended to the landless and poor farmers based on their demand.

C. Land Acquisition and Involuntary Resettlement 80. The Project involves rehabilitation and improvement of infrastructure such as roads, irrigation, water supply, and other small agricultural infrastructure. While most rehabilitation works are expected to be limited within their existing corridor of impacts, some may require additional land and/or involve resettlement impacts. The improvement of roads, additional structures for protection of roads/bridges, realignment of roads and irrigation canals, and construction of overhead water supply reservoirs may need additional land and cause resettlement impacts.

81. A resettlement framework has been prepared, providing policy and procedures to screen, assess, and plan for land acquisition and resettlement aspects of project components in compliance with ADB’s Involuntary Resettlement Policy (1995). An involuntary resettlement framework is in Supplementary Appendix F. The resettlement framework includes an entitlement matrix covering all potential losses, and provides compensation at replacement cost and rehabilitation support for affected people. If project components involve any land acquisition and resettlement impacts, a resettlement plan will be prepared based on the detailed design of the project infrastructure during implementation. The resettlement plans will be developed in consultation with affected people, publicly disclosed to affected people, submitted for ADB’s approval, and posted on the websites of ADB and the EA. The resettlement plans will outline detailed arrangements for their implementation, monitoring, evaluation, and grievance redress. The compensation for land acquisition and resettlement will be completed before award of the civil works contracts, while other rehabilitation and income-generation activities may continue during project construction. The EA will provide semiannual progress reports to ADB on the implementation of the resettlement framework/resettlement plan(s), which will also be posted on the EA and ADB websites.

82. The IAs will assign a senior government official as a resettlement officer and recruit a resettlement consultant to assist in overall coordination, planning, and monitoring of resettlement aspects under their respective sectors. The design consultants will include necessary social and land survey staff for social assessment and preparation of resettlement plans, as appropriate. The IAs assisted by the consultant will screen, assess, plan, implement, and monitor any resettlement impacts of project activities in accordance with ADB’s Involuntary Resettlement Policy and the resettlement framework for the Project. The IAs will review and endorse relevant resettlement plans and reports before their submission to ADB for approval. The EA and IAs will ensure timely availability of budget for land compensation and resettlement activities.

D. Environmental Impacts 83. The Project involves rehabilitation and reconstruction works, whose scope requires only initial environmental examination (IEE). Although the Project will construct a bridge 330 meters long at an estimated cost of $7.0 million, the Project is classified category B in accordance with ADB’s Environment Policy (2002) and the existing laws of the Government, including the Environmental Protection Act, 1997, and Environmental Protection Rules, 1997. The Project’s environmental assessment and review procedure and a summary IEE will identify the degree of likely impacts and describe possible mitigation measures. The field visits verify that the Project conforms with the above criteria. The Government endorsed the summary IEE and resettlement framework, and uploaded them to their website for public disclosure. Sample IEE for new construction of a 330-meter long bridge at Chatara is under preparation.

84. All subprojects will be required to complete and satisfy an environmental assessment screening checklist during formulation, and will have to satisfy IEE requirements. Recommended mitigation measures will be incorporated into the subproject design and work assignment (such as the bill of quantities, specifications, and contract document).

85. Apart from minor impacts, the Project is expected to have several environmental benefits, including limiting land erosion and failure of embankments along damaged infrastructure, reducing health risks by rehabilitating damaged water supply and sanitation facilities, cleaning drainage systems, and reconstruction of damaged irrigation facilities to bolster both the irrigation and agriculture sectors. The EA is familiar with the environmental guidelines and procedures of ADB and the Government. Summary IEE and environmental assessment and review procedures are in Supplementary Appendixes G and H to guide subproject implementation and to ensure compliance with ADB’s Environment Policy and the Government’s environmental requirements.

E. Risks 86. According to the Government’s return strategy plan for Koshi flood-displaced people, the Government assumes that 60% of currently affected people will return immediately with the return package and 15% will return within 6 months because of high-level damage to their home and farmlands. These people will be provided with employment opportunities from ongoing ADB projects and rehabilitation projects. However, about 25% of the people have little prospect of an immediate return to their previous area since deep siltation and deep water have prevented their land from being recovered, and some are landless people. ADB is working with the Government and other development partners to identify sustainable resettlement options for the significant percentage of displaced people.

87. A potential risk is that procedural delays in obtaining government approvals will slow implementation. The Government has shown strong commitment to the Project and will arrange simplified procedures. Delays at the EA level will be minimized through the selection of an EA with considerable experience in implementing ADB-financed projects and familiarity with ADB procedures, implementation by an established PCO, and consultant selection by ADB. In the past, the availability of counterpart funding has been a problem in ADB projects in Nepal. MOF assured that counterpart funds would be provided to IAs on a timely basis.

88. Governance-related issues, including corruption, constitute another risk. This is addressed through selecting all subprojects, transparent implementation and monitoring mechanisms, and specific financial controls including regular as well as random audits.

Measures will include strict construction supervision and strong consultant support, use of the project performance report, close monitoring by ADB staff, and random procurement and annual performance auditing at the EA level. The PSC will be supported by monitoring and evaluation specialists from MPPW as well as four national consultants (a project team leader, monitoring and evaluation specialist, a procurement specialist, and a financial management specialist), who will (i) help monitor all project activities, (ii) conduct random spot checks during project implementation, and (iii) provide capacity building in key areas of monitoring and evaluation.

89. A fourth risk is recurrence of major disasters and related extensive damage. This is addressed by adopting cost-effective flood-resistant design standards, including capacity building, which are expected to reduce damage from future floods. In addition, DWIDP will build its capacity under the Project by establishing a flood forecasting system and an early warning system for the Koshi River, in close coordination with UNDP, which plans to support the early warning system in the field to take necessary actions at the field to prevent any breach of the embankment. The risk of inadequate maintenance is addressed by close monitoring and ongoing policy dialogue with the Government.

V. ASSURANCES

90. In addition to the standard assurances, the Government and MPPW have given the following assurances, which will be incorporated in the legal documents:

(i) Project steering committee. Within 1 month of grant effectiveness, the Government will establish a PSC to monitor project implementation and oversee all project governance-related matters. Within 1 month of grant effectiveness, MPPW will have established a PCO, headed by a full-time project coordinator. (ii) Simplified procedures. Cabinet will approve simplified and fast track procedures for goods, services, and civil works, in line with the provisions on emergency projects in its Public Procurement Act and Regulations of 2007, and acceptable to ADB. (iii) Delegation of financial powers. The Government will ensure that delegated financial powers, in particular those under the financial procedures rules of 2007, are followed under the Project. (iv) Timely completion of preparatory activities for Koshi bridge. The Government will ensure that river survey works be completed by 15 April 2009, and the contract be awarded by 31 October 2009 in order to complete the construction of Koshi bridge at Chatara within the project period. (v) Counterpart funds. The Government will allocate and release, on a timely basis, adequate counterpart funds from its budget for each fiscal year during project implementation. (vi) Operation and maintenance. The Government will ensure that all facilities rehabilitated or constructed under the Project will be properly operated and maintained by the relevant IAs in accordance with sound practices. (vii) Beneficiary participation. All IAs will actively seek beneficiary participation in the design and implementation of all rehabilitation works carried out under the Project. (viii) Within 1 year of grant effectiveness, the Cabinet will approve a flood disaster preparedness action plan, and DWIDP will provide training on flood awareness and preparedness. (ix) Anticorruption. The following measures will be taken: (a) strict financial management with full adherence to monitoring and reporting systems; (b) strict

compliance with the Government’s Public Procurement Act and Regulations and Local Body Financial Administration Regulations; (c) allowing third party monitoring of all subprojects; and (d) random independent spot checks of implementation by ADB and PCO. (x) Environment. The subprojects will be implemented in compliance with the Government’s environmental protection laws and regulations, ADB’s Environment Policy, and the summary IEE for the Project. In the event of discrepancy between the Government’s law and regulations and the ADB’s policy, ADB’s policy will prevail. The Government’s environmental clearance, if required, will be obtained prior to commencing any civil works. (xi) Resettlement. The Government will ensure that, to the extent possible, subprojects will not require land acquisition or involuntary resettlement. In the event that land acquisition or involuntary resettlement is required for any subproject, the Government will prepare a resettlement plan in accordance with the Government’s applicable laws and regulations, ADB’s Involuntary Resettlement Policy, ADB’s Handbook on Resettlement,10 and the resettlement framework agreed for the Project. In case of discrepancy between the Government’s law and regulations and ADB’s policy, ADB’s policy will prevail. (xii) Gender and social inclusion. The Government will ensure that all IAs will implement the gender action plan for the Project. Within 3 months of grant effectiveness, gender and social inclusion guidelines will be approved to ensure benefits accrue equitably to women and marginalized groups. All surveys and assessments to be prepared under the Project will employ data disaggregated by gender, caste, and ethnicity. Monitoring and reporting will address the services provided to these groups and will provide data in disaggregated form. (xiii) Core labor standard. The Government will ensure that civil works contractors comply with all applicable labor laws, do not employ child labor for construction and maintenance activities, and provide appropriate facilities in construction campsites. The Government requires contractors not to differentiate wages between men and women for work of equal value. A specific clause will be included in bidding documents, and compliance will be strictly monitored during project implementation. (xiv) Indigenous people. The Government will ensure that subprojects will not affect vulnerable population groups, such as indigenous people. In the event of their involvement in any of the subprojects, the Government will take necessary actions required in accordance with the Government’s applicable laws and regulations, and ADB’s Policy on Indigenous Peoples (1998).

VI. RECOMMENDATION

91. I am satisfied that the proposed grant would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommends that the Board approve the grant not exceeding $25,600,000 to Nepal from ADB’s Special Funds resources for the Emergency Flood Damage Rehabilitation Project, on such terms and conditions that are substantially in accordance with those set forth in the draft Grant Agreement presented to the Board.

Haruhiko Kuroda 3 April 2009 President

10 ADB. 1998. Handbook on Resettlement: A Guide to Good Practice. Manila.

Appendix 1 21

DESIGN AND MONITORING FRAMEWORK

Design Performance Targets and Data Sources and Summary Indicators a Reporting Mechanisms Assumptions and Risks Impact Sustained growth of District level gross (i) National economic data economic activities by domestic product growth is and indicators minimizing the devastating restored to pre-flood level (ii) District statistics and impact of the 2008 1 year after project data, surveys monsoon floods mainly in completion the three flood-affected districts Outcome Assumptions Quickly restored economic (i) Agriculture productivity (i) Project progress reports (i) Complementary post-flood activities mainly in the three restored on 7,940 ha, (ii) Project review missions recovery assistance provided districts and improved including 2,500 ha of (iii) Surveys and (ii) Strong government livelihoods of about severely damaged land socioeconomic survey commitment to provide flood 300,000 flood-affected and 1,518 ha through as part of project recovery funds and counterpart people provision of 700 shallow completion report funds tube wells (iii) Adequate government (ii) Total income of flood- provision of annual affected people restored maintenance funds to the pre-flood level of (iv) Adoption of anticorruption NRs1,246 million measures (iii)Rehabilitated infrastructure adopts Risk appropriate flood- (i) Future floods may occurred resistant design during the project period standard (iv)Capacity of flood preparedness improved

Outputs Assumptions 1. Agriculture livelihoods (i) Agriculture revived by (i) Project progress reports (i) Timely recruitment of NGOs of affected people in distributing agriculture (ii) Audit reports (ii) Timely assignment of 22 village development inputs for damaged (iii) Project review missions counterpart staff committee areas restored farmland of 7,940 ha by (iv) Surveys June 2012

(ii) Some 2,840 families provided with technical and in-kind assistance to farm silted and riverbed land by June 2012

(iii) 52 fishponds, 70 on- farm watercourses, 22 agriculture collection centers, 19 markets centers, and 10 agriculture service centers rehabilitated

2. Damaged irrigation Irrigation structures of (i) Project progress reports Assumptions facilities reconstructed and 2 large and 25 small (ii) Audit reports (i) Timely awards of civil works rehabilitated surface irrigation schemes (iii) Project review missions contracts covering 11,540 ha (iv) Surveys (ii) Satisfactory performance by rehabilitated by June 2011 national contractors

22 Appendix 1

Design Performance Targets and Data Sources and Summary Indicators a Reporting Mechanisms Assumptions and Risks

3. Access to drinking 28 gravity flow water supply (i) Project progress reports Assumptions water and sanitation of the systems in the far western (ii) Audit reports (i) Timely awards of civil works flood-affected people region rehabilitated by June (iii) Project review missions contracts improved 2011, 4 small overhead (iv) Surveys (ii) Satisfactory performance by water supply systems national contractors constructed by June 2012, and 3,500 shallow tube wells installed by June 2010 in Sunsari district for 22,000 households

4. Strategic road network About 50 km of strategic (i) Customs data Assumptions rehabilitated and improved roads in the far western (ii) Project progress reports (i) Timely import of essential region rehabilitated by June goods and services required 2011, and a bridge on the for flood and cyclone related Koshi River constructed by recovery and rehabilitation June 2012 at Chatara to (ii) Timely recruitment of substitute the present low consultants capacity ferries and provide better access during similar floods in the future

5. Project management (i) Effective and efficient (i) Project progress reports Assumptions system operational project implementation (ii) Audit reports (i) Timely recruitment of NGOs through timely recruited (iii) Project review missions and consultants consulting services by (ii) Close coordination between June 2009 and the project coordination office procurement of goods and the Department of Water and civil works by Induced Disaster Prevention October 2009

(ii) Strengthened capacity (i) Flood forecasting system of flood preparedness for Koshi River of the Government by (ii) Early warning system for June 2012 Koshi River

Activities with Milestones Inputs 1.1 Rehabilitate agriculture in 7,940 ha farmland by June 2012 by providing ADB agricultural inputs, materials and equipment in order to grow cash crops in the International consultants and highly affected areas and cultivate cereals in partly affected areas national consultants input, and 1.2 Train 7,730 families by June 2012 for reclaiming soil fertilities Asian Development Bank grant of 2.1 Rehabilitate 27 surface irrigation systems by June 2011 $25.60 million 2.2 Install 700 shallow tube wells for supplementary irrigation by June 2012 3.1 Rehabilitate 28 gravity flow water supply systems by June 2012 Government 3.2 Install 3,500 shallow tube wells to provide access drinking water by June 2012 Counterpart funding and in-kind 3.3 Construct four small overhead water supply systems by June 2012 contribution equal to $6.40 million, 4.1 Rehabilitate damaged 50 Kms of strategic roads in the far west by June 2011 and all relevant reports, documents, 4.2 Construct a Koshi bridge at Chatara by June 2012 and information made available as needed ha= hectares, NGO= nongovernment organization.

Appendix 2 23

FLOODS AND FLOOD MANAGEMENT IN NEPAL

A. Floods in Nepal

1. There are more than 6,000 streams and rivers in Nepal, which flow mostly from the north toward the south, generally with high velocity because of high river gradient. Most of the large rivers are snow-fed, originating in the snow-covered Himalayan range. As the topography of the country is steep and high-angle slope, very high intensity of rainfall during monsoon season causes floods and landslides, which are the most destructive types of disasters in Nepal. Three- quarters of the total land area of Nepal is hilly and many villages are situated on or adjacent to the unstable hill slopes. Landslides in the hills add enormous sediment to streams and rivers, and cause floods downstream. Each year, such disasters cause the loss of human lives and immense damage to agricultural land, crops, human settlements, and other physical property.

2. Floods are usually triggered by extreme weather events associated with heavy rainfall during the monsoon. Rainfalls events exceeding 300 millimeters (mm) within a 24-hour period, which disturb both slope and channel equilibrium on a regional scale, occur frequently in the country. The increasing frequency of such extreme precipitation events, together with changes in snow and ice cover caused by global warming and other factors, have led to an increase in the number of natural disasters in the country.

3. Increasing settlements along riverbanks (encroaching the rivers) and valleys have aggravated flood hazards in recent years. From 1983 to 2007, 7,300 people were reported killed and 630,500 families were affected by floods and landslides. According to a report of the Department of Water Induced Disaster Prevention (DWIDP), floods contribute about 34% of total deaths and 75% of total affected families of all kinds of natural disasters in the country.1 Therefore, priority should be given to reducing the effect of floods.

4. Poor understanding of flood causes and a scarcity of relevant hydro-meteorological data have perpetuated uncertainties in dealing with natural hazards. It is necessary to fill these gaps, and develop methods and techniques for flood management. These methods and techniques should be simple and affordable if they are to be effective.

5. Floods can be accurately predicted, which can eventually help reduce damage to life and property. The hydro-meteorological systems of mountain areas are very complex and are poorly understood. The hydro-meteorological network is still poor; the existing observational network is not capable of capturing the diversity of the mountain landscape, and there are difficulties in the generalization of weather and climate as there is little or no long-term data.

B. Flood Management in Nepal

6. Before the Natural Disaster Relief Act, 1982, there was no well-structured disaster policy in Nepal. Prior to 1982, relief and rescue work was carried out as social work. The act was formulated in 1982, and amended in 1989 and 1992.

7. As the act does not describe the functions and duties of all district disaster management related agencies, there have been cooperation, coordination, and mutual understanding problems among the flood related agencies. Disaster victims do not receive immediate, efficient, and effective rescue and relief services. Delayed relief works often bring very serious and

1 DWIDP. 2008. Disaster Review. Kathmandu.

24 Appendix 2 unpleasant results, and duplication of efforts has been experienced, mainly because of the absence of dialogue and mutual understanding among agencies. In addition, some disaster related agencies try to shift their responsibilities to others, as the act does not provide clear-cut job descriptions. Immediate formulation of natural disaster relief regulations is necessary to give clear-cut job descriptions of all disaster related agencies.

8. According to the Natural Disaster Relief Act, the Central Natural Disaster Relief Committee (CNDRC) has been constituted under the leadership of the home minister to formulate and implement policies and programs relating to natural disaster relief work, and to undertake other necessary measures. The CNDRC prepares specific norms of relief assistance to be given to disaster victims of the affected area in cash and/or in kind. Although there is a relief and treatment subcommittee, supply shelter and rehabilitation subcommittee, regional disaster relief committees, DDRCs, and local disaster relief committee, only the CNDRC and DDRC are active.

9. The CNDRC may establish the relief and treatment subcommittee and supply shelter and rehabilitation subcommittee, which provide advice and suggestions to the CNDRC; help to execute CNDRC policies and directives; and operate rescue, relief, and rehabilitation work effectively during very serious natural disasters.

10. The Ninth Plan (1998–2002) underlines the need to strengthen disaster management capacity. It envisages attempting to prevent, mitigate, and reduce natural disasters through more advanced geological, hydrological, and meteorological technology. Hazard mapping, vulnerability assessment, risk analysis, and an early warning system have to be developed; and a well-trained and efficient labor should be made available. The plan suggests that the policies and plan emphasize the importance and need for national and/or international assistance.

11. Responding to the request of the United Nations, Nepal has constituted a high-level National Committee for the International Decade for Natural Disaster Reduction, chaired by the home minister and represented by high-level dignitaries from government and nongovernment organizations (NGOs). The National Action Plan prepared under the direction of the committee includes activities on disaster preparedness, response, mitigation, rehabilitation, and reconstruction programs; and specifies the responsibilities of various disaster actors with a specified time frame. The plan guides disaster reduction tasks by formulating special actions and mobilizing the available resources in the given period.

12. Media involvement is helping to raise public awareness in cooperation with various government agencies and NGOs. Each year, public awareness programs are launched on the radio and television. During the hazardous season, distribution of posters and pamphlets, as well as media alerts, raise public awareness significantly.

13. Different government agencies and development partners—including Japan International Cooperation Agency, Water Induced Disaster Prevention Technical Centre, United Nations Development Programme, United States Agency for International Development, and Asian Disaster Preparedness Center—are involved in conducting workshops, seminars, and training programs on disaster management. Such activities have contributed significantly to raise public awareness and labor development.

14. In addition, the Department of Mines and Geology is preparing a landslide inventory. The Water Induced Disaster Prevention Technical Centre is carrying out thematic studies on landslides and monitoring of landslides. The Department of Soil Conservation is doing protection works in different districts. The Department of Roads is carrying out bioengineering

Appendix 2 25 works in cooperation with Tribhuvan University to stabilize the slope and road cut sides. The Department of Hydrology and Meteorology and the International Centre for Integrated Mountain Development are preparing a map of flood-prone areas. The International Centre for Integrated Mountain Development also conducts research and training activities on natural hazards. The Department of Hydrology and Meteorology is involved in generating data on earthquakes and weather forecasts in Nepal. Tribhuvan University established a Mountain Risk Engineering Unit for training purposes.

C. Flood Management in the Project Areas

15. Disaster risks in the flood-affected areas are high, as they are vulnerable to annual floods during the wet season. The damaged left embankment of the Koshi River needs to be rehabilitated as soon as possible so that the Government’s recovery program can be more effective in the immediate humanitarian relief program, and the Government’s short-term recovery program in flood-affected areas can be initiated.

16. To reduce disaster risks in flood-affected areas, the Government proposed additional river training works in Kailali, Kanchanpur, and Sunsari districts. However, a feasibility study of proposed river training works needs to be undertaken to improve the risk management of the proposed works and to prioritize the proposed river training works.

17. As the Government needs to study flood risk in the Koshi River, it is recommended that a study team—comprising a river morphologist, river engineer, and international river legal advisor—be mobilized to prepare a disaster risk management plan in close coordination with the technical team of the Government of India in order to respond to any future floods (a similar effort is being made in Bihar State, India).

18. The far western region is also vulnerable to annual floods as heavy rainfall brings landslides, which cause floods in the mountains. This is mainly a localized phenomenon, but the resulting flash floods can be quite devastating when they descend the mountains. Excessive rainfall is the primary cause of flooding, but even concentrated and heavy rainfall in the watershed during the wet season would not cause such severe flooding if the resulting surface runoff could flow away downstream without hindrance. In the far western region, a combination of natural factors, including the silting up of river channels and river wandering, require civil works to provide quick drainage of the relatively large runoff. Therefore, it is recommended to prepare a flood action plan for each district to prevent future flood damage and landslides.

19. To overcome future floods efficiently and effectively, bilateral water treaties need to be reviewed by the governments of Nepal and India to improve the management and maintenance of barrages and embankments in the bilateral rivers; and to clarify the responsibilities of both governments in maintenance of river works. As the embankments in Nepal’s rivers are vulnerable to floods, it is necessary to establish a safety monitoring mechanism in each embankment in the bilateral rivers and to allocate suitable budgets to DWIDP and the Ministry of Water Resources in order to improve bilateral coordination in disaster management with the Government of India.

26 Appendix 3

DEVELOPMENT PARTNERS' CLUSTER ACTIVITIES

Cluster Achievements in 2008 Priorities for 2009 1. Health 1,400 health personnel received training to Provide and pre-position essential provide emergency health response emergency medicines, equipment, and Mobilized pre-positioned medicine for emergency health kits response Intensify the disease surveillance and Excellent coordination with UN agencies, reporting system partners, and Ministry of Health and Population UN agencies and NGOs, in support of the Strengthen the capacity of peripheral level Government, increased the access of vulnerable health staff and vulnerable communities by populations to reproductive health. In particular, providing training and capacity building to agencies delivered 74 mobile reproductive health upgrade emergency preparedness and camps to remote areas procured and distributed 3 response, and pre-position key medical sets of reproductive health kits that were used to and reproductive health kits treat 60,000 flood-affected people in Sunsari and Saptari for 3 months provided surgical Ensure health sector coordination between interventions to 1,530 patients, the majority of humanitarian and development partners whom were women suffering from third-degree during disaster response and recovery uterine prolapse operations, including strengthening referral services 2. Nutrition Ministry of Health approval of emergency nutrition Implementation of preparedness activities policy, including piloting community-based for emergencies, including lessons management of acute malnutrition; learned from the floods implementation under way Effective nutrition response for Koshi flood- Implementing the community-based affected people through collaboration of the food management of acute malnutrition pilot and nutrition cluster project and resource mobilization for increased outreach and national coverage Survey results (from December 2008 in Sunsari Multi-micronutrient supplementation in and Saptari internally displaced people’s camps) food-deficient areas show that global acute malnutrition among children aged 6–59 months is 10.4% for Saptari and 11.2% for Sunsari—below national rates. Severe acute malnutrition prevalence was 2.2% for Saptari and 2.3% for Sunsari—equal to the national prevalence. This shows that emergency nutrition intervention in the camps was effective in preventing a deterioration of nutritional status among the target groups

A joint statement was formulated in the immediate aftermath of the Koshi floods by the Ministry of Health, World Health Organization, and UNICEF based on the International Code of Marketing of Breast-milk Substitutes and related government policies and Nepalese law, to protect breastfeeding among the affected population in the emergency areas

Appendix 3 27

Cluster Achievements in 2008 Priorities for 2009 3. Food Security More than 1 million people, affected by high food Volatility in global food prices is likely to prices and longer-term consequences of conflict, continue for the foreseeable future, with an received food assistance through food-for-asset upward shift to higher (real) prices in the creation activities medium term. Coupled with some of the worst malnutrition rates in the world, In addition, 230,000 drought-affected people in vulnerability to natural disasters and the mid-western and far western Nepal received food longer-term effects of conflict, food assistance, and 44,000 households received insecurity is a critical issue to be addressed cereal and vegetable seeds and technical in Nepal assistance to support improved agriculture production techniques The priorities for food security are to address high food price crisis through Under two emergency responses to floods in the quick-impact, food-for-assets activities that Terai, 270,000 people received relief food will meet the immediate food needs and assistance, including (i) a one-time package for create assets to improve household food temporarily displaced families in the western security in the medium to longer term Terai; and (ii) 4 months of emergency food rations activities to intensify agriculture production, as well as livestock support (i.e., veterinarian storage, and market linkages through an inputs and fodder) to populations displaced by the investment in agriculture and other inputs, Koshi flood and technical support household and community-based disaster preparedness to WFP is providing food to more than 100,000 reduce the impact of possible future natural Bhutanese refugees in seven camps. Although or artificial disasters voluntary, third-country resettlement is under way, refugees will continue to be dependent on WFP A limited amount of relief food assistance food assistance during their stay in the camps and recovery programs (agriculture, livestock, and livelihood support) for people displaced by the Koshi floods

The overall amount requested 2009 appeal under the food security is $46 million for 3.1 million beneficiaries (545,800 households) 4. Water Training in emergency water treatment and hand To control the annual outbreaks of acute Supply and washing with soap for 3,500 volunteers from 172 gastroenteritis, mainly occurring in the Hygiene VDCs and 2 municipalities (81,500 households) hills and mountains, train local volunteers, located in 12 flood-prone districts of the Terai promote the use of household water Completed repair work on 85 piped water supply treatment methods and hand washing schemes damaged in the 2007 floods, benefitting with soap, and provide chlorination tablets 19,700 families in all VDCs identified by the Early Disease Control Department as vulnerable to No major outbreak of water and sanitation-related acute gastroenteritis disease in any camp established for Koshi flood- affected people as a result of the rapid response As a disaster recovery and response in providing water supply, toilet, bathing, and solid exercise, identify and train local NGOs waste management facilities and public health and volunteers from districts and VDCs in and hygiene promotion and hygiene supplies the Terai in water supply, sanitation, and hygiene disaster response—including the installation of emergency facilities (water supply, toilets, and bathing and solid waste management facilities), and public health/hygiene promotion

28 Appendix 3

Cluster Achievements in 2008 Priorities for 2009 Strengthen the capacity of the water supply, sanitation, and hygiene cluster for disaster response by organizing training for personnel of NGO and government partners 5. Education Emergency preparedness training conducted in Continuation of preparedness capacity collaboration with the Ministry of Education in building, focusing at district levels and three regions contributed to a better flood including a wider range of scenarios (bird response flu, landslide, earthquake)

After floods, an immediate needs assessment was Finding solutions for the structural conducted and responded by cluster members challenges in emergencies, such as Effective and proactive cluster functioning at the salaries for temporary teachers and field level textbook availability

Continuing strengthening the cluster capacity 6. Protection Active monitoring of protection issues in the Strengthen the capacity of national actors Ministry of Water Resources and the far western to deliver protection during emergencies region and eastern region during floods, and the at central, district, and community levels, support the watch group members gave to including gender-based violence authorities prevention, monitoring, and reporting, and service delivery for survivors Training government officials, such as police, army, and Armed Police Force on protection Monitor and record human rights issues concerns (including violence, threats and intimidation, caste and gender Women development officer at district level led discrimination as well as sexual and the protection cluster in close consultation with the gender-based violence) in and around UN agencies and NGOs camps and resettlement areas—in coordination with key national human Under local government leadership (women rights partners, including the National development offices), psychosocial support was Human Rights Commission provided to 236 children in Saptari and Sunsari districts, 64 missing and separated cases were Advocate for the approval of Involuntary reintegrated with their families, watch groups were Displaced People procedural directives, formed and mobilized to address protection issues and assist government authorities to of women and children, and distribution of implement Nepal’s Involuntary Displaced nonfood items People policy through the dissemination of the procedural directives; support The emergency mine risk education network— training for government officials and civil composed of 409 government, Red Cross, and society, at village, district, or regional NGO focal points—has the capacity to deploy levels, including specific training on the prevention activities in 68 affected districts in a gender aspects of the directives; and timely manner ensure the protection of all internally displaced people in line with the national policy

Enhance response mechanism to provide essential services to children and youth in need of special protection, including psychosocial services and other

Appendix 3 29

Cluster Achievements in 2008 Priorities for 2009 necessary assistance under the leadership of the women development officer

Procure and pre-position child protection kits and related emergency supplies for seasonal flooding and landslides 7. Shelter Successful draft of the contingency plan on Set up the permanent shelter cluster to emergency shelter under the lead of the enable comprehensive coordination, with Department of Urban Development and Building defined roles and responsibilities for the Construction, with the support of IFRC and UN- emergency and recovery phases HABITAT and the acceptance of the plan by the (including mobilizing required resources) Ministry of Home Affairs Increase awareness-raising on the cluster The National Society for Earthquake Technology- coordination system, including roles and Nepal used the contigency plan as a reference to responsibilities, with the responsible prepare the shelter response strategy for a major government agency, Department of Urban earthquake in Kathmandu Valley) Development and Building Construction.

Successful coordination of the emergency shelter Support drafting the shelter response response for the Koshi River flood operation, with strategy initiated by the National Society the Government, IFRC and NRC, and an for Earthquake Technology-Nepal, with increased standard for the provision of emergency the support of UNDP, UN-HABITAT, IFRC shelters in camps and mobilize resources for shelter projects As a result of the above, improved relations between the country’s shelter stakeholders (and smooth transition of shelter cluster coordination responsibilities from emergency to early recovery from IFRC to UN-HABITAT) 8. Camp Coordinated the re-verification and registration of Monitor activities in current affected areas Coordination affected populations related to the Koshi flood by existing emergency responses and Camp with the Government and NRCS Management Develop contingency plans for inevitable Distributed winter clothes for all people in affected emergency responses in the future, areas of the Koshi flood emergency, with NRCS including but not limited to flood response, and Oxfam earthquake response, and other camp coordination and camp management Coordinated with the Government, INGO, and activation areas local partners toward the implementation of Sphere standards and camp management Continuation of expanded trainings and standards for sites associated with the Koshi flood simulation exercises for government emergency, including similar training in the actors and local players affected sites IFRC = International Federation of Red Cross and Red Crescent Societies, INGO = international nongovernment organization, NGO = nongovernment organization, NRCS = Nepal Red Cross Society, UN = United Nations, UNICEF = United Nations Children’s Fund, UN-HABITAT = United Nations Human Settlements Programme, VDC = village development committee, WFP = World Food Programme.

30 Appendix 4

AGRICULTURE

A. Damage and Impact

1. On 18 August 2008, a massive flood on the Koshi River breached about 1.7 kilometers (km) of its east embankment, which resulted in inundation of many village development committees (VDCs), with major damage to agricultural land and standing crops. On 3 September 2008, farming land and standing crops were damaged by floods—mainly by the Dodha River in Kanchanpur district and by the Mohana River in Kailali district. In Sunsari, major damage and losses occurred in four VDCs were located along the east embankment.1 However, in Kailali and Kanchanpur, damages and losses were scattered throughout several VDCs, with high magnitude in 7 VDCs in Kanchanpur and 11 VDCs in Kailali.2

2. The damage assessment indicated that the floods damaged 25,870 hectares (ha) of agricultural land and standing crops in different magnitudes in the three districts (5,282 ha in Sunsari; 10,215 ha in Kailali; and 10,375 ha in Kanchanpur) owned by 35,151 farm families (5,320 in Sunsari; 17,059 in Kailali; and 12,772 in Kanchanpur). Out of the total affected agricultural land, 3,590 ha is heavily damaged (2,590 ha in Sunsari alone), and can only be reclaimed in the medium term by cleaning sand or recovering land productivity through cultivation of suitable crops, technology, and irrigation. The floods have damaged 123,706 metric tons (t) of standing crops (20,158 t in Sunsari; 41,159 t in Kailali; and 60,847 t in Kanchanpur). Major crops damaged were paddy (80,783 t); vegetable (9,374 t); sugarcane (23,985 t); fruits (5,215 t); pulses (999 t); others3 (3,350 t); and fish (100,000 kilograms)—worth about $19.6 million equivalent. The floods have seriously affected the livelihoods of about 32,500 farm families, requiring medium- and long-term measures to revive agriculture and restore their livelihoods. Agriculture infrastructure (such as agriculture product collection and market centers, micro-irrigation systems, fishponds, and agriculture service centers) were also damaged.

B. Project Scope

3. The agriculture component will restore the livelihoods of affected people from 22 VDCs in the project districts by supporting them to grow cash crops such as vegetables, watermelon, peanuts, parwar (pointed gourd), sunflower, jute, and arahar (pulse) in the highly affected areas; and cultivate cereals (paddy, wheat, and maize) and vegetables in partly affected areas. Seeds, saplings, compost, and pesticides will be provided to affected farm families by organizing them into groups; and training will be provided to reclaim soil fertility so that livelihoods are restored. The reestablishment of fruit orchards (such as banana, mango, and pineapple) and rehabilitation of fishponds, agriculture products collection and marketing centers, and agriculture service centers will be carried out. Other activities such as fingerlings and beehives (with bee) will be provided to interested farm families to support their livelihoods. Basic equipment will be provided to undertake agricultural programs. Management services and consulting inputs will be available to implement this component.

4. This component will support rehabilitation of agriculture in 7,940 ha of farmland (3,688 ha in Sunsari; 2,264 ha in Kailali; and 1,988 ha in Kanchanpur), covering 7,730 farm families (3,280 families in Sunsari; 2,640 families in Kailali; and 1,810 families in Kanchanpur), and restoration of livelihoods of about 45,600 people (19,680 in Sunsari; 14,520 in Kailali; and

1 The four VDCs heavily damaged by the Koshi floods are Shreepur, Hariput, Paschim Kusaha, and Laukahi. 2 In Kailali, the most affected VDCs are Hasuliya, Dansingpur, Lalbojhi, Ratanpur, Pawera, Khailad, Basauti, Gadariya, Narayanpur, and Fulbari. The most affected VDCs in Kanchanpur district include Shankarpur, Laxmipur, Chadani, Krishnapur, Dekhatbhuli, Raikawar-Bichawa, and Shreepur. 3 Other crops include maize, oilseed, jute, and fish.

Appendix 4 31 11,400 in Kanchanpur). The beneficiaries will comprise 45% women and 25% dalit4 and janajati5 communities.

C. Project and Community Selection

5. Project beneficiaries will be the flood-affected farm families. For support under this component, the farm families will be selected based on their demand and preparedness to restore their livelihood through revival of agriculture. Specific criteria will include that farm families (i) are formally returned to their original areas from camps, (ii) have land where cultivation of suitable cereal or cash crops is possible, (iii) are willing to cultivate suitable crops through project support, (iv) are prepared to be members of farmer groups formed in respective settlements, and (v) are committed to continue agriculture after the Project is completed. The most affected people requiring immediate support will be given high priority. Cohesive groups will be formed through social mobilization, taking into account their preference to grow crops suitable for their lands. Out of the targeted 7,940 farm families, 25% is expected to be covered in 2009, 50% in 2010, and the remaining 25% in 2011.

D. Cost Estimates and Financing Plan

6. The total cost for implementation of this component is estimated at $3.87 million equivalent, comprising $1.71 million in foreign exchange costs and $2.16 million in local currency costs (Table A4.1). This includes local taxes, customs, duties, and physical contingencies.

Table A4.1: Cost Estimates ($ million)

Item Foreign Exchange Local Currency Total Cost Agriculture Inputs 1.53 1.52 3.05

Civil Works 0.10 0.10 0.20

Consultants 0.00 0.39 0.39

Materials and Equipment 0.02 0.00 0.02

Training and Workshop 0.06 0.06 0.12

Others 0.00 0.09 0.09

Total 1.71 2.16 3.87 Source: Asian Development Bank estimates.

7. The Asian Development Bank (ADB) will provide financing of $3.25 million for this component of the Project to finance 100% of the total foreign exchange cost of $1.71 million, and $1.54 million of the local currency cost. The Government will finance $0.62 million, the remainder of the local currency cost, from its own resources (Table A4.2).

4 The National Dalit Commission defines Dalit as those communities who, by virtue of caste based discrimination and so called untouchability, are most backward in the social, economic, educational, political, and religious spheres, and are deprived of human dignity and social justice. The population of dalit is 13% of the total population of the country (Census 2001). 5 Janajatis are indigenous ethnic groups who have own cultural and linguistic identities other than the mainstream language and culture. According to National Foundation for Development of Indigenous Nationalities there are 59 indigenous ethnic groups who make 37% of total population of the country (Census 2001).

32 Appendix 4

Table A4.2: Financing Plan ($ million)

Source Foreign Local Currency Total Cost Percent Exchange Asian Development 1.71 1.54 3.25 84.00 Bank

Government 0.00 0.62 0.62 16.00

Total 1.71 2.16 3.87 100.00 Source: Asian Development Bank estimates.

E. Implementation Arrangement

8. Project Management. The Department of Agriculture (DOA) under the Ministry of Agriculture and Cooperatives will be the implementing agency (IA) for this component. DOA will implement through its district agriculture development offices (DADOs). DADO chiefs will be responsible for planning and implementation, under the guidance of the district agriculture development committee and coordinated by the local development officer of the respective district development committees. From among existing DADO staff, DOA will assign an agronomist, a horticulturist and fisheries specialist, an account officer, and three junior technicians. At the center, DOA will establish a project implementation unit (PIU) headed by a deputy director general and supported by a senior agriculture officer, an account officer, and an administrative staff. The PIU will be responsible for consolidation of physical and financial information received from the field, circulation of physical progress reports to the project coordination office and ADB, and submission of withdrawal applications to PCO for reimbursement of eligible expenditures.

9. Procurement. Procurement will be in accordance with the procurement plan as described in Appendix 11.

10. Implementation Schedule. The Project will be implemented over 24 months including two implementation seasons for summer, winter, and spring crops—both seasonal and off- seasonal vegetables. It is expected to be completed by July 2011. The IA will submit work programs to the project coordination office covering 1 year. Start-up activities should include identification of affected communities, formation of groups through social mobilization, and finalization of the program and budget for 2009. The implementation plan is in Appendix 10.

11. Consulting Services. Two teams of consultants—comprising an agronomist, an agriculture engineer, and a social (community facilitator) will assist implementation of this component in Sunsari, Kailali, and Kanchanpur. The social mobilizer will also assist in the selection of communities and programs to ensure that the most affected people receive high priority for support and restoration of their livelihoods. Detailed terms of reference for consultants are in Supplementary Appendix D.

Appendix 5 33 IRRIGATION

A. Damage and Impact

1. On 18 August 2008, the Koshi River breached its left embankment, which led to inundation and severe flooding in four village development committees (VDCs): Haripur, Laukahi, , Paschim Kusaha, and Shreepur.1 About 90% of the river discharge flew through the breached embankment and damaged standing crops, farmlands, irrigation facilities, and other infrastructure. It was estimated that 5,280 hectares (ha) of farmland were severely damaged, affecting the livelihoods of 3,280 farm families. The national highway was also damaged at several places, interrupting the daily life of people from the Eastern Development Region.

2. Excessive rainfall of 240–300 millimeters (mm) per day during 19–20 September 2008, with an occurrence frequency of 50-year, caused floods in Kailali and Kanchanpur districts that damaged irrigation facilities and related infrastructure in both districts. The estimated cost to damaged irrigation facilities in 11,542 ha of the three districts is $12.7 million, which has ceased irrigation facility on farmland, and affected 8,931 farm families and 57,788 people. The total loss of agricultural income caused by the absence of irrigation was estimated at about $16.6 million.

B. Project Scope

3. This irrigation part will rehabilitate the damaged 27 surface irrigation systems, including their head works, main and branch canals and village channels, canal structures such as drain siphons and outlets, canal service roads and small bridges, and protection works for key canal structures. Rehabilitation of the irrigation systems will restore irrigation facilities to 11,542 ha of farmland. To revive agriculture quickly in viable areas and supplement surface irrigation after their rehabilitation, 700 shallow tube wells (STWs) will be installed and the operation and maintenance cost will be provided for a year. The total cost estimated for this component is $9.18 million ($7.66 million for rehabilitation of surface irrigation and $1.52 million for installation of STWs). Details on surface irrigation systems for rehabilitation and the area to be irrigated are in Table A5.1.

4. The Project will finance the rehabilitation of 25 head works; 127 kilometers (km) of main, branch, and tertiary canals; 196 canal structures such as drain siphon, aqueduct, gates, outlets, and inlets; 36 km of canal service roads; 45 culverts and small bridges; and 1 medium-sized bridge (on canal service road). It will also undertake necessary protection works for the above structures. Consultant inputs will be provided to ensure quality of rehabilitation work, and social mobilization services will be available to secure the involvement of target groups during implementation for their ownership to the rehabilitated infrastructure.

5. For immediate revival of agriculture in feasible areas, and to supplement surface irrigation after their rehabilitation, 700 STWs will be installed in Sunsari district under this component. The STW program will cover 1,518 ha of farmland and benefit 1,650 families and 9,406 people. The Project will finance procurement of diesel pump sets or electric motors, installation of STWs, procurement of flexible plastic pipe, land leveling, and operation and maintenance costs for a year. Consulting inputs will be provided to complete installation of targeted STWs, and social mobilization services will be available to mobilize farmers and organize them into groups, as the project strategy will be to provide STWs for groups.

1 Village development committees are subdistricts.

34 Appendix 5

Table A5.1: Irrigation Projects for Rehabilitation and Area to be Irrigated

District Project Name Area to be Irrigated (ha) Sunsari Haripur Irrigation Project 600 Galpariya Irrigation Project 180 Paschim Kusaha Irrigation Project 400 Jharuwa Khola Irrigation Project 100 Sunsari-Morang Irrigation Project 3,500 Subtotal 4,780 Kailali Gauri Irrigation Project 600 Tedi Irrigation Project 100 Patharaiya Irrigation Project 300 Khurkhuriya Irrigation Project 195 Bhajani Irrigation Project 175 Mohana Irrigation Project 1,200 Bhagauli Irrigation Project 200 Sonaha Ajaraili Irrigation Project 30 Munuwa Irrigation Project 23 Bhursa Irrigation Project 24 Patreni Irrigation Project 24 Subtotal 2,871 Kanchanpur Kalapani Irrigation Project 300 Maleriya Nala Irrigation Project 40 Rateula Irrigation Project 70 Siddhanath Irrigation Project 38 Bagun Irrigation Project 120 Brahmadev Irrigation Project 120 Baijanath Irrigation Project 12 Upper Jahari Irrigation Project 40 Bachhela Irrigation Project 130 Baluwa Nala Irrigation Project 42 Mahakali Irrigation Project 2,979 Subtotal 3,891 Total 11,542 Source: Asian Development Bank estimates.

C. Selection of Surface Irrigation Systems

6. The irrigation systems listed in Table A5.1 were selected in consultation with the respective irrigation development divisions under the Department of Irrigation (DOI), and randomly verified by the affected farm families. The scope of rehabilitation works in these systems was also identified, and their costs were estimated accordingly. Random audits and checks will be undertaken by project coordination office and Asian Development Bank (ADB) review missions to ensure compliance with proper utilization of funds on selected irrigation systems and agreed implementation arrangements, and that intended farm families benefit.

D. Selection for Shallow Tube Well Irrigation

7. Project beneficiaries will be flood-affected farm families who intend to start growing suitable crops immediately and need irrigation. Specific criteria will include that the farm families (i) are formally returned to their original areas from camps; (ii) have lands that are suitable to grow crops once irrigation is available; (iii) are willing to be members of STW irrigation groups formed in their settlements (STWs will be provided to groups of 5–10 farmer families with 2.5 ha of land); (iv) are members of the STW groups, which will be trained in operation and

Appendix 5 35 maintainance of STWs properly, although operation and maintenance costs will be provided by the Project for 1 year; and (v) are members of the groups, which are committed to operate and maintain STWs after 1 year. Social mobilization services will be available to form cohesive groups. ADB will review the detailed selection criteria and implementation plan. Out of the targeted 1,500 STWs, 40% will be installed in 2009, 40% in 2010, and the remaining 20% in 2011.

E. Cost Estimates and Financing Plan

8. The total cost of rehabilitating irrigation systems and installing and operating STWs is estimated at $9.18 million equivalent, comprising $4.55 million in foreign exchange costs and $4.63 million equivalent in local currency costs (Table A5.2). The total cost includes local taxes, customs, duties, and physical contingencies.

Table A5.2: Cost Estimates ($ million)

Item Foreign Exchange Local Currency Total Cost

Civil Works 3.96 3.96 7.92

Consultants 0.00 0.31 0.31

Training and Workshop 0.15 0.14 0.29

STW and O&M 0.44 0.13 0.57

Project Implementation 0.00 0.09 0.09

Total 4.55 4.63 9.18 STW = Shallow Tube Wells, O&M = Operation and Maintenance Source: Asian Development Bank estimates.

9. ADB will provide financing of $7.30 million for this part of the Project to finance 100% of the total foreign exchange cost of $4.55 million, and $2.75 million of the total local currency costs. The Government will finance $1.88 million, the remainder of the local currency costs, from its own resources (Table A5.3).

Table A5.3: Financing Plan ($ million)

Source Foreign Exchange Local Currency Total Cost Percent Asian Development 4.55 2.75 7.30 80.00 Bank

Government 0.00 1.88 1.88 20.00

Total 4.55 4.63 9.18 100.00 Source: Asian Development Bank estimates.

36 Appendix 5

F. Implementation Arrangements

10. Project Management. DOI, under the Ministry of Water Resources, will be the Implementing Agency of the irrigation part of the Project. DOI will rehabilitate surface irrigation through its irrigation development divisions and STWs via Biratnagar Groundwater Branch Office (GBO). Chiefs of the irrigation development divisions and GBO will be responsible for planning and implementation, in coordination with local development officers of the district development committees. DOI will assign two design engineers, two civil engineers, an account officer, and four sub-engineers to rehabilitate the surface irrigation projects. DOI will assign one each hydrogeologist, civil engineer, account officer, sub-engineer, and association organizer to implement the STW program. At the center, DOI will establish a project implementation unit (PIU) headed by a deputy director general; coordinated by a senior divisional engineer; and supported by a civil engineer, an account officer, and an administrative staff member. The PIU will be responsible for consolidation of physical and financial information received from the field; circulate physical progress reports to the project coordination office under the Executing Agency, Ministry of Physical Planning and Works, and ADB; and submit withdrawal applications to ADB for reimbursement of eligible expenditures.

11. Procurement. Procurement will be carried out in accordance with the procurement plan in Appendix 11.

12. Implementation Schedule. The Project will be implemented in 24 months, including two construction seasons, and is expected to be completed by July 2011. Irrigation development divisions and GBO are preparing a work plan for annual programs, which will include (i) final verification of damage and need for rehabilitation; (ii) preparation of detailed designs, cost estimates, and tender documents; and (iii) communities on suitable sites interested in reviving agriculture quickly through STW irrigation. The implementation plan is in Appendix 10.

13. Consulting Services. Two teams of consultants, comprising a design engineer and a civil engineer, will assist rehabilitation of surface irrigation in Sunsari, Kailali, and Kanchanpur; and a hydrogeologist and social mobilizer (community facilitator) will assist implementation of the STW program. These consultants will also assist in the selection of community groups and programs to ensure that the most affected people receive high priority for support and restore their livelihoods. Detailed terms of reference for the consultants are in Supplementary Appendix D.

Appendix 6 37 WATER SUPPLY AND SANITATION

A. Damage and Impact

1. The 2008 far western floods damaged 28 gravity flow water supply systems in Kailali and Kanchanpur. The major structures of the gravity flow water facilities—including intakes (both streams and springs near the river), transmission pipeline of various sizes and lengths, and river crossings—have been washed away by the floods. Currently, about 94,000 people fetch water from the nearest available river, irrigation system, and hand pumps. In Sunsari district, 3,900 shallow tube wells, serving about 22,000 people, were under water and most of them were covered by sand. Flood-affected people are displaced in the following four areas: (i) formal camps, (ii) spontaneous settlements, (iii) host families, and (iv) earlier residence. Returnees to their previous area and residents of spontaneous settlements are the most vulnerable in terms of access to drinking water and sanitation facilities.

B. Project Activities

1. Water Supply Scheme

2. The Project will rehabilitate 28 gravity flow water supply systems in Kailali and Kanchanpur; construct 4 small overhead water supply systems; and install 3,500 shallow tube wells in Sunsari to provide access to drinking water and sanitation facilities for the flood-affected people. The gravity flow water supply systems and small overhead water supply systems will be designed to give the disadvantaged and poor adequate access to drinking water and sanitation, and will be operated and maintained by the respective communities.

2. Sanitation

3. This activity will cover a health and hygiene education awareness program and support the construction of household latrines for returnees in Sunsari district. In Kailali and Kanchanpur districts, the Project will focus on promoting hygiene and sanitation behavioral change through an integrated community and school-based program. Revolving funds will be available to encourage rapid and significant expansion of latrine use and proper hand washing in project- assisted communities. The health and hygiene education awareness program, with a community-led modality, will be implemented for 6 months for each district.

3. Community Mobilization

4. The Project envisages the active participation of communities to ensure equitable access to benefits, and long-term sustainability of water supply and sanitation facilities. In accordance with the Government’s strategy, project beneficiaries (users) and water supply and sanitation communities are responsible for operation and maintenance of facilities. This activity will (i) form water users and sanitation communities (WUSC) or strengthen existing WUSCs; (ii) organize an orientation program; (iii) ensure optimum use of locally available resources, including labor and skills; and (iv) establish effective operation and maintenance mechanisms. It will be conducted by Social facilitators (community facilitators).

4. Project Implementation Unit

5. The project implementation unit (PIU) established in the Department of Water Supply and Sewerage (DWSS) will be provided with consulting services, equipment, and operational cost support. The Divisional Office of DWSS will be provided with consulting services,

38 Appendix 6 motorcycles, equipment, and operational cost support to manage and assist communities in the implementation of water supply schemes.

C. Cost Estimates and Financing Plan

6. The total cost of the water supply and sanitation part is estimated at $4.76 million equivalent, comprising $2.42 million in foreign exchange costs and $2.34 million equivalent in local currency costs (Table A6.1). The total cost includes local taxes, customs, duties, and recurrent costs for the PIU at DWSS and the PIUs at district level.

Table A6.1: Cost Estimates ($ million)

Foreign Exchange Local Currency Item Cost Cost Total Costa 1. Water Supply a. Gravity flow Scheme 1.18 0.98 2.16 b. Over head Schemes 0.56 0.43 0.99 c. Hand Pumps 0.34 0.17 0.51 Subtotal (A) 2.08 1.58 3.66

2. Sanitation a. Health and Hygiene Education 0.00 0.08 0.08 b. Toilets 0.34 0.26 0.60 Subtotal (B) 0.34 0.34 0.68

3. Community Mobilization 0.00 0.16 0.16

4. Project Implementation Unit a. Consultant 0.00 0.18 0.18 b. Recurrent Cost 0.00 0.08 0.08 Subtotal (D) 0.00 0.26 0.26

Total 2.42 2.34 4.76 a Including contingency. Source: Asian Development Bank estimates.

7. The Asian Development Bank will provide $3.81 million equivalent for the water supply and sanitation part to finance $2.42 million of the foreign exchange cost (100% of the total foreign exchange cost) and $1.39 million equivalent of the local currency cost (59% of the total local currency cost). The Government will finance the remainder ($0.95 million equivalent of the local currency cost) from its own resources as shown in Table A6.2.

Table A6.2: Financing Plan ($ million)

Foreign Exchange Local Currency Source Cost Cost Total Cost Asian Development Bank 2.42 1.39 3.81 Government 0.00 0.95 0.95

Total 2.42 2.34 4.76 Source: Asian Development Bank estimates.

Appendix 6 39

D. Implementation Arrangements

8. Project Management. The Ministry of Physical Planning and Works will be the Executing Agency, and will discharge its duties for the water supply and sanitation part through DWSS. A PIU, headed by the deputy director general, will be set up. The Water Supply and Sanitation Division Office of DWSS in each district office will facilitate the selected communities in implementing the selected water supply and sanitation facilities. The chief of the Water Supply and Sanitation Division Office will be the project manager, and the office will have 7 full- time staff (one engineer, two sub-engineers, one account officer, and three support staff) to facilitate implementation of the Project. It is important that the communities take a lead role to ensure the sustainable operation and maintenance of rehabilitated or constructed water supply and sanitation facilities.

9. Procurement. Procurement will be carried out in accordance with the procurement plan in Appendix 11.

10. Implementation Schedule. The Project will be implemented over 24 months, including two construction seasons, and physical completion is expected by 30 June 2011.

11. Consulting Services. Consulting services will be required to provide necessary and adequate technical inputs to ensure timely implementation of activities under this part of the Project. The terms of reference for project consultants are in Supplementary Appendix D.

12. Monitoring. In view of the large number shallow tube wells and construction of the household latrines for returnees in Sunsari district, a number of measures will be taken to ensure that monitoring of project activities is adequate to verify that the quality and quantity of works are satisfactory, and that fiscal management of allocated funds is sound. A water and sanitation committee will be established for each village development committee. The returnees will have access to information about the design of the shallow tube wells and latrines. At least one social mobilizer (community facilitator) per two subprojects under activity C and health motivators will be provided to inform beneficiaries about the water supply and sanitation part. After installation of each shallow tube well, the installer has to sign the quality assurance certification and the recipient will certify receipt of the services. Water quality will be confirmed by the water quality laboratory of the Water Supply and Sanitation Division Office in Sunsari.

40 Appendix 7

ROADS

A. Damage and Impact

1. The 2008 floods caused extensive damage to the road network, both in the Koshi area in the east and in far western Nepal. In the east, the East–West Highway and some feeder roads (including bridges and culverts) were severely damaged. Similarly, incessant rainfall and floods caused widespread damage to the Strategic Road Network in the far west, including embankment failures, damage to approaches and bridge protection works, landslides, rockslides and debris flow in the East–West Highway, Mahakali Highway, Seti Highway, and Silgadi-Sanfe Roads. Although the Department of Roads (DOR) has managed to open the roads in the far west, major landslides are yet to be removed and rehabilitation of damaged roads and retaining structures needs to be carried out. Eastern Nepal remains cut off from the rest of the country; the only means of transport are by air or via a long detour through India at more than double the normal transportation cost. There has been a significant negative impact on the economy of the entire eastern region following the Koshi floods. Considering the relatively low discharge in the river on the day the Koshi embankment was breached causing widespread damage, the embankment remains vulnerable to further breaches.

2. Based on the information available from DOR, the direct damage and indirect losses in the road sector due to the 2008 floods in the Koshi river area and the far western region are estimated to be more than $36.00 million.

B. Project Scope

3. The road part of the Project comprises reconstruction and rehabilitation of damaged strategic roads in the far west, and replacement of existing ferries by a permanent bridge over the Koshi River at Chatara. Rehabilitation of flood-damaged feeder and local roads in the Koshi area, which are under the responsibility of the Ministry of Local Development, will be carried out under the ongoing Rural Reconstruction and Rehabilitation Sector Development Program 1 funded by the Asian Development Bank (ADB) at an estimated cost of $4 million. The roads part of the Project will cover rehabilitation of damaged infrastructure and, where technically feasible and justified, the design of rehabilitation works will focus on preventive and mitigating measures to minimize the damaging effect of similar floods in the future. This conforms with the flood damage and needs assessment report prepared by ADB and the Government’s recovery strategy.

C. Project Activities

4. Reconstruction and rehabilitation works are based on government priority and the severity of damages caused by the floods, both in the east and far western Nepal. The following selection criteria have been used to select the project components:

(i) The project will reconstruct and rehabilitate damaged or vulnerable roads, bridges, culverts, and retaining structures that are under the responsibility of DOR. (ii) Priority was given to roads and structures that will reduce the future vulnerability of the infrastructure and preparedness for possible flood damage in the future.

1 ADB. 2007. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Nepal for the Rural Reconstruction and Rehabilitation Sector Development Program and Project. Manila.

Appendix 7 41 (iii) The number of project schemes has been minimized to the extent possible.

D. Cost Estimates and Financing Plan

5. The cost estimates for the roads component are in Table A7.1. The cost of medium-term reconstruction and rehabilitation works, including 4.4% physical contingencies, amounts to about $12.65 million equivalent.2 Table A7.1: Cost Estimates ($ million)

No. Item Estimated Amount A. Civil Works

1. Bridge at Chatara 7.05

2. Feeder Roads Kanchanpur District a. Road works 0.25

b. Bridge protection works 0.51

3. Feeder Roads Kailali District

a. Road works 0.23

b. Bridge protection works 0.48

4. Silgadi-Sanfe Road (far-west)

a. Landslide stabilization 0.64

5. Mahakali Highway (far-west)

a. Landslide stabilization 1.27

6. East–West Highway (far-west)

a. Road works 0.30

b. Bridge protection works 0.32

Subtotal (A) 11.05

B. Consulting Services 0.90

C. Recurrent Costs 0.14

Subtotal 12.09

Physical Contingencies 0.56

Total 12.65 Source: Asian Development Bank estimates.

6. The cost estimates include consulting services ($0.90 million) and recurrent costs ($0.14 million) of the project implementation unit (PIU). The foreign exchange component of the grant

2 The Government has allocated NRs300 million for the Koshi area and another NRs210 million for the far west for the implementation of immediate and short-term measures to rehabilitate the road network, and has requested ADB to finance the medium-term rehabilitation works to be completed by June 2012.

42 Appendix 7 amounts to $5.81 million. The local currency cost of $6.84 million includes local taxes and duties and PIU recurrent costs. The cost of consulting services of $0.90 million includes remuneration, out-of-pocket expenses, office equipment, vehicles, office supplies, and facilities for design and construction supervision. The summary of cost estimates is in Table A7.2.

Table A7.2: Summary of Cost Estimates ($ million)

Item Foreign Exchange Local Currency Total Cost Civil works 5.81 5.80 11.61 Consultants Services 0.00 0.90 0.90 Recurrent Costs 0.00 0.14 0.14 Total 5.81 6.84 12.65 Source: Asian Development Bank estimates.

7. ADB will finance all of the foreign exchange cost of $5.81 million and the local currency cost of $4.33 million equivalent for a total of $10.14 million. The Government will finance the remaining local currency cost of $2.51 million equivalent, which includes taxes and duties. The financing plan is in Table A7.3.

Table A7.3: Financing Plan ($ million)

Foreign Local Total Percent Item Exchange Currency Cost Financing Asian Development Bank 5.81 4.33 10.14 80.2 Government 0.00 2.51 2.51 19.8 Total 5.81 6.84 12.65 100.0 Source: Asian Development Bank estimates.

E. Implementation Arrangements

8. Project Management. The Ministry of Physical Planning and Works will be the Executing Agency for the Project and DOR will be the Implementing Agency. The ADB project directorate, established in 1987, and fully functional under previous projects, will serve as the PIU for overall project coordination, monitoring, and implementation. The PIU will be supported by sufficient technical and administrative staff. On-site project office will be established in the Koshi area, headed by a full-time project manager supported by adequate support staff. Division chiefs of respective division road offices will be designated project managers for the roadworks in the far west. Project managers will be responsible for day-to-day implementation and will report to the project director in the PIU.

9. Consulting services will be required to provide inputs for the design and construction supervision of the project components, and will assist the PIU and project managers to ensure timely implementation of the construction activities. The terms of reference for the consulting services are in Supplementary Appendix D.

10. Procurement. Procurement will be carried out in accordance with the procurement plan in Appendix 11.

Appendix 7 43 11. Consulting Services. Since the Project must be completed within 36 months, expeditious selection and fielding of design and supervision consultants, and timely commencement of construction activities, are critical milestones for the roads component. The Government believes that procurement of consultants may be delayed if it is performed following government rules and regulations. Therefore, ADB has agreed with the Government’s request to start the design of the proposed bridge at Chatara immediately, using funds from the ongoing Road Connectivity Sector I Project; and the Ministry of Physical Planning and Works assured ADB that the design consultants will be mobilized immediately.3 ADB has also agreed with the Government to select two design and construction supervision consultants on behalf of the Government, using the consultants’ qualification selection method. Some individual consultants will be recruited on a needs basis.

12. Implementation Schedule. The roads part will be implemented over a period of 36 months and will be completed by 30 June 2012. Most of the roadworks will be completed by December 2011.

3 ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Asian Development Fund Grant to the Kingdom of Nepal for the Road Connectivity Sector I Project. Manila.

44 Appendix 8

DETAILED COST ESTIMATES

Table A8.1: Detailed Cost Estimates by Expenditure Categorya ($ million)

% of Foreign Local Total Total Item Exchange Currency Costb Base Cost A. Investment Costs 1. Agriculture 1.70 2.16 3.86 12.5 2. Irrigation 4.34 4.43 8.77 28.4 3. Water Supply and Sanitation 2.31 2.25 4.56 14.8 4. Roads 5.53 6.57 12.10 39.3 5. Project Management 0.50 1.03 1.53 5.0 Total Base Cost 14.38 16.44 30.82 100.0 Physical Contingencies 0.61 0.57 1.18 Total 14.99 17.01 32.00 a In January 2009 prices. b Includes taxes and duties, estimated at $3.19 million, financed by the Government. Source: Asian Development Bank estimates.

Appendix 8 45

Table A8.2: Detailed Cost Estimates by Expenditure Category and Financiera ($ million)

ADB Governmentb Amount % of Cost Amount % of Cost Item Cost Category Category A. Investment Costs 1. Agriculture 3.87 3.25 83.9 0.62 16.1 2. Irrigation 9.18 7.30 79.5 1.88 20.5 3. Water Supply and Sanitation 4.76 3.81 80.0 0.95 20.0 4. Roads 12.66 10.15 80.2 2.51 19.8 5. Project Management 1.53 1.09 71.5 0.44 28.5 Total 32.00 25.60 80.0 6.40 20.0 ADB = Asian Development Bank. a Includes taxes and duties, financed by the Government, and contingencies. b Taxes and duties financed by the Government included with $3.19 million. Source: Asian Development Bank estimates.

46 Appendix 9

PROJECT MANAGEMENT STRUCTURE

MLD NPC MOF MOA MPPW MOWR MOH (EA)

PSC

DOA DOR PCO DWSS DOI DWIDP (IA) (IA) (IA) (IA)I

PIU PIU NPMCC PIU PIU Agriculture Roads Water Supply and Sanitation Irrigation

Sunsari Kailali Kanchanpur Chatara Kanchanpur Baitadi Doti Sunsari Kailali Kanchanpur Sunsari Sunsari Sunsari Kailali Mahakali DADO DADO DADO Bridge Division Division Division Division Division Division Morang Morang Ground Kanchanpur Irrigation SPIU SPIU SPIU SPIU SPIU Irrigation SPIU SPIU SPIU SPIU SPIU Irrigation Irrigation Water SPIU Project SPIU Division Field SPIU SPIU Office SPIU

LDOs

LPCC

EA = executing agency, DADO = district agriculture development office, DOA = Department of Agriculture, DOI = Department of Irrigation, DOR = Department of Roads, ,DWIDP = Department of Water Induced Disaster Prevention, DWSS = Department of Water Supply and Sewerage, IA = implementing agency, LDO = local development officer, LPCC = local project coordination committee, MOA = Ministry of Agriculture and Cooperatives, MOF = Ministry of Finance, MOH = Ministry of Home, MLD = M inistry of Local Development, MPPW = Ministry of Physical Planning and Works, MOWR = Ministry of Water Resources, NPC = National Planning Commission, NPMCC = National Project Management Coordination Committee, PIU= project implementation unit, PSC = project steering committee, SPIU = subproject implementation units. Source: Asian Development Bank estimates.

Appendix 10 47

48 Appendix 11

PROCUREMENT PLAN

Basic Data (Agriculture)

Project Name Emergency Flood Damage Rehabilitation Project Project Number 43001 Grant Amount $3.87 million Executing Agency Ministry of Physical Planning and Works Implementing Agency Department of Agriculture Date of First Procurement Plan (grant approval date) Period covered by this Procurement Plan 18 months from date of grant effectiveness

A. Process Thresholds, Review, and 18-Month Procurement Plan

1. Project Procurement Thresholds

1. Except as the Asian Development Bank (ADB) may otherwise agree, the following process thresholds shall apply to procurement of goods and works.

Procurement of Goods and Works Method Threshold ICB for Works From $1,000,000 to $10,000,000 ICB for Goods From $500,000 to $1,000,000 NCB for Works Beneath that stated for ICB, Works NCB for Goods Beneath that stated for ICB, Goods Shopping for Works Below $100,000 Shopping for Goods Below $100,000 Community Participation Below $30,000 Force Account Below $10,000 ICB = international competitive bidding, NCB = national competitive bidding.

2. ADB Prior or Post Review

2. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the Project.

Procurement Method Prior or Post Comments Procurement of Goods and Works NCB for Goods Prior Shopping for Works Post Shopping for Goods Post Community Participation Post Force Account Post Recruitment of Consulting Firms Consultants Qualifications’ Selection Prior Single Source Selection Prior Recruitment of Individual Consultants Individual Consultants Selection Prior NCB = national competitive bidding.

Appendix 11 49 3. Consulting Services Contracts Estimated to Cost More than $100,000

3. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

Advertisement International General Contract value Procurement Date or National Description ($) Method (quarter/year) Assignment Comments Consulting 385,000 CQS/ICS Q1 2009 National CQS = consultants’ qualifications selection, ICS = individual consultants selection, Q = quarter.

4. Goods and Works Contracts Estimated to Cost Less than $1 Million

4. The following table groups smaller value works for which procurement activity is either ongoing or expected to commence within the next 18 months.

Value of General Contracts Number of Comments Description ($) Contracts Procurement Method Civil Works 213,000 Multiple Shopping/ Community/Force Account Agricultural 3,046,000 Multiple NCB/Shopping Inputs NCB = national competitive bidding.

B. Project Procurement Plan

1. Indicative List of Packages Required under the Project

5. The following tables provide an indicative list of all procurement (goods, works, and consulting services) over the life of the Project.

Estimated Estimated Domestic General Value Number of Procurement Preference Description ($ million) Contracts Method Applicable Comments Goods 3.046 Multiple NCB/Shopping No Works 0.213 Multiple Shopping/Community/ No Force Account

General Estimated Estimated Description Value Number of Type of ($) Contracts Recruitment Method Proposal Comments Consulting 385,000 Multiple (i) CQS (1) Biodata Proposal only Services Technical for CQS Proposal (ii) ICS (3) CV evaluation

CQS = consultants’ qualifications selection, ICS = individual consultants selection, NCB = national competitive bidding.

50 Appendix 11

Basic Data (Irrigation)

Project Name Emergency Flood Damage Rehabilitation Project Project Number 43001 Grant Amount $9.18 million Executing Agency Ministry of Physical Planning and Works Implementing Agency Department of Irrigation Date of First Procurement Plan (grant approval date) Period Covered by this Procurement Plan 18 months from date of grant effectiveness

A. Process Thresholds, Review, and 18-Month Procurement Plan

1. Project Procurement Thresholds

6. Except as ADB may otherwise agree, the following process thresholds shall apply to procurement of goods and works.

2. ADB Prior or Post Review

7. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the Project.

Procurement Method Prior or Post Comments Procurement of Goods and Works NCB Works Prior NCB Goods Prior Shopping for Works Post Shopping for Goods Post Community Participation Post Force Account Post Recruitment of Consulting Firms Consultants Qualifications Selection Prior Single Source Selection Prior Recruitment of Individual Consultants Individual Consultants Selection Prior NCB = national competitive bidding.

Appendix 11 51

3. Consulting Services Contracts Estimated to Cost More than $100,000

8. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

Advertisement International General Contract value Procurement Date or National Description ($) method (quarter/year) Assignment Comments Consulting 307,000 CQS/ICS Q1 2009 National CQS = consultants’ qualifications selection, ICS = individual consultants selection, Q = quarter.

4. Goods and Works Contracts Estimated to Cost Less than $1 Million

9. The following table groups smaller value works for which procurement activity is either ongoing or expected to commence within the next 18 months.

Value of General Contracts Number of Procurement Description ($ million) Contracts Method Comments Civil Works 7.918 Multiple NCB (16)/ Shopping (13)/ Community/Force Account Materials, 0.795 Multiple NCB/Shopping Equipment, and Vehicles NCB = national competitive bidding.

B. Project Procurement Plan

1. Indicative List of Packages Required under the Project

10. The following tables provide an indicative list of all procurement (goods, works, and consulting services) over the life of the Project.

Estimated Estimated Domestic General Value Number of Procurement Preference Comments Description ($ million) Contracts Method Applicable Goods 0.795 Multiple NCB/Shopping No Works 7.918 Multiple NCB (16)/ No Shopping (13)/ Community/Force Account

General Estimated Estimated Description Value Number of Recruitment Type of ($) Contracts Method Proposal Comments Consulting 307,000 Multiple (i) CQS (1) Biodata Proposal only Services Technical for CQS Proposal (ii) ICS(3) CV evaluation

CQS = consultants’ qualifications selection, ICS = individual consultants selection, NCB = national competitive bidding.

52 Appendix 11

Basic Data (Water Supply and Sanitation)

Project Name Emergency Flood Damage Rehabilitation Project Project Number 43001 Grant Amount $4.76 million Executing Agency Ministry of Physical Planning and Works Implementing Agency Department of Water Supply and Sewerage Date of First Procurement Plan (grant approval date) Period Covered by this Procurement Plan 18 months from date of grant effectiveness

A. Process Thresholds, Review, and 18-Month Procurement Plan

1. Project Procurement Thresholds

11. Except as ADB may otherwise agree, the following process thresholds shall apply to procurement of goods and works.

Procurement of Goods and Works Method Threshold ICB for Works From $1,000,000 to $10,000,000 ICB for Goods From $500,000 to $1,000,000 NCB for Works Beneath that stated for ICB, Works NCB for Goods Beneath that stated for ICB, Goods Shopping for Works Below $100,000 Shopping for Goods Below $100,000 Community participation Below $30,000 ICB = international competitive bidding, NCB = national competitive bidding.

2. ADB Prior or Post Review

12. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the Project.

Procurement Method Prior or Post Comments Procurement of Goods and Works NCB Works Prior NCB Goods Prior Shopping for Works Post Shopping for Goods Post Community participation Post Recruitment of Consulting Firms Consultants Qualifications Selection Prior Single Source Selection Prior Recruitment of Individual Consultants Individual Consultants Selection Prior NCB = national competitive bidding.

Appendix 11 53 3. Consulting Services Contracts Estimated to Cost More than $100,000

13. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

Advertisement International General Contract value Procurement Date or National Description ($) method (quarter/year) Assignment Comments Consulting 428,000 CQS/ICS Q1 2009 National CQS = consultants’ qualifications selection, ICS = individual consultants selection, Q = quarter.

4. Goods and Works Contracts Estimated to Cost Less than $1 Million

14. The following table groups smaller value works for which procurement activity is either ongoing or expected to commence within the next 18 months.

General Value of Contracts Number of Procurement Description ($ million) Contracts Method Comments Civil Works 2.76 Multiple NCB/Shopping/ Community Materials, 1.48 Multiple NCB/Shopping Equipment, and Vehicles NCB = national competitive bidding.

B. Project Procurement Plan

1. Indicative List of Packages Required under the Project

15. The following tables provide an indicative list of all procurement (goods, works, and consulting services) over the life of the Project.

Estimated Estimated Domestic General Value Number of Procurement Preference Description ($ million) Contracts Method Applicable Comments Goods 1.48 Multiple NCB/Shopping No Works 2.76 Multiple NCB (25)/ No Shopping(26)/ Community

General Estimated Estimated Description Value Number of Recruitment Type of ($) Contracts Method Proposal Comments Consulting 428,000 Multiple (i) CQS (1) Biodata Proposal only Services Technical for CQS Proposal (ii) ICS (3) CV evaluation CQS = consultants’ qualifications selection, ICS = individual consultants selection, NCB = national competitive bidding.

54 Appendix 11

Basic Data (Roads)

Project Name Emergency Flood Damage Rehabilitation Project Project Number 43001 Grant Amount $12.66 million Executing Agency Ministry of Physical Planning and Works Implementing Agency Department of Roads Date of First Procurement Plan (grant approval date) Period Covered by this Procurement Plan 18 months from date of grant effectiveness

A. Process Thresholds, Review, and 18-Month Procurement Plan

1. Project Procurement Thresholds

16. Except as ADB may otherwise agree, the following process thresholds shall apply to procurement of goods and works.

Procurement of Goods and Works Method Threshold ICB for Works From $1,000,000 to $10,000,000 ICB for Goods From $500,000 to $1,000,000 NCB for Works Beneath that stated for ICB, Works NCB for Goods Beneath that stated for ICB, Goods Shopping for Works Below $100,000 Shopping for Goods Below $100,000 ICB = international competitive bidding, NCB = national competitive bidding.

2. ADB Prior or Post Review

17. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the Project.

Procurement Method Prior or Post Comments Procurement of Works ICB Works Prior NCB Works Prior

Consultants Qualification Selection (CQS) Prior Single Source Selection Prior Recruitment of Individual Consultants Individual Consultants Selection (ICS) Prior ICB = international competitive bidding, NCB = national competitive bidding.

3. Works Contracts Estimated to Cost More than $1 Million

18. The following table lists works contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

Contract Prequalification of Advertisement General Value Procurement Bidders Date Description ($ million) Method (Yes/No) (quarter/year) Comments Civil Works 7.40 ICB No Q1 2009 ICB = international competitive bidding, Q = quarter.

Appendix 11 55 4. Consulting Services Contracts Estimated to Cost More than $100,000

19. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

Advertisement International General Contract value Procurement Date or National Description ($ million) Method (quarter/year) Assignment Comments Consulting 0.902 CQS/ICS Q1 2009 National CQS = consultants’ qualifications selection, ICS = individual consultants selection, Q = quarter.

5. Works Contracts Estimated to Cost Less than $1 Million

20. The following table groups smaller value works for which procurement activity is either ongoing or expected to commence within the next 18 months.

Value of General Contracts Number of Description ($ million) Contracts Procurement Method Comments Civil Works 4.21 5 NCB (5) NCB = national competitive bidding.

B. Project Procurement Plan

1. Indicative List of Packages Required under the Project

21. The following tables provide an indicative list of all procurement (works and consulting services) over the life of the Project.

Estimated Estimated Domestic General Value Number of Procurement Preference Description ($ million) Contracts Method Applicable Comments Works 11.61 6 ICB (1)/ For ICB only NCB (5)

General Estimated Estimated Description Value Number of Recruitment Type of ($ million) Contracts Method Proposal Comments Consulting 0.902 Multiple (i) CQS (2) Biodata Proposal only Services Technical for CQS Proposal (ii) ICS (3) CV evaluation CQS = consultants’ qualifications selection, ICB = international competitive bidding, ICS = individual consultants selection, NCB = national competitive bidding.

56 Appendix 11

Basic Data (Project Management)

Project Name Emergency Flood Damage Rehabilitation Project Project Number 43001 Grant Amount $1.53 million Executing Agency Ministry of Physical Planning and Works Date of First Procurement Plan (grant approval date) Period Covered by this Procurement Plan 18 months from date of grant effectiveness

A. Process Thresholds, Review, and 18-Month Procurement Plan

1. Project Procurement Thresholds

22. Except as ADB may otherwise agree, the following process thresholds shall apply to procurement of goods and works.

Procurement of Goods and Works Method Threshold ICB for Works From $1,000,000 to $10,000,000 ICB for Goods From $500,000 to $1,000,000 NCB for Works Beneath that stated for ICB, Works NCB for Goods Beneath that stated for ICB, Goods Shopping for Works Below $100,000 Shopping for Goods Below $100,000 Community participation Below $30,000 ICB = international competitive bidding, NCB = national competitive bidding.

2. ADB Prior or Post Review

23. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the Project.

Procurement Method Prior or Post Comments Procurement of Goods NCB Goods Prior Shopping for Goods Prior Recruitment of Individual Consultants Individual Consultants Selection Prior Single Source Selection Prior NCB = national competitive bidding.

3. Consulting Services Contracts Estimated to Cost More than $100,000

24. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

Contract Advertisement International or General Value Procurement Date National Description ($) Method (quarter/year) Assignment Comments Consulting 729,000 ICS Q2 2009 National/International ICS = individual consultants selection.

Appendix 11 57

4. Goods Contracts Estimated to Cost Less than $1 Million

25. The following table groups smaller value works for which procurement activity is either ongoing or expected to commence within the next 18 months.

General Value of Contracts Number of Procurement Description ($) Contracts Method Comments Vehicles and 198,000 Multiple NCB/Shopping Equipment NCB = national competitive bidding.

B. Project Procurement Plan

1. Indicative List of Packages Required under the Project

26. The following tables provide an indicative list of all procurement (goods and consulting services) over the life of the Project.

Estimated Estimated Domestic General Value Number of Procurement Preference Description ($) Contracts Method Applicable Comments Goods 198,000 Multiple NCB/Shopping No

General Estimated Estimated Description Value Number of Recruitment Type of ($) Contracts Method Proposal Comments Consulting 729,000 12 ICS (12) No proposal Biodata Services Technical Proposal CQS = consultants’ qualifications selection, ICS = individual consultants selection, NCB = national competitive bidding.

58 Appendix 12

ECONOMIC ANALYSIS

A. Economic Benefits

1. An economic analysis was carried out for each component and for the Project as a whole. The costs of the project coordination office were allocated to each component based on their total expenditures. The conversion of financial to economic pricing took into account international pricing for tradable goods and taxes and duties in accordance with Nepalese tariffs. Shadow wage rates were estimated for agricultural and skilled workers. Conversion factors used for previous Asian Development bank (ADB) projects involving agriculture and roads were applied to this Project.1

2. In summary, the overall financial internal rate of return (FIRR) for the Project, based on a 20-year life, is estimated at 20.42% and the economic internal rate of return (EIRR) is 24.56%. A 1-year delay in implementation, the major risk, reduces the FIRR to 19.2% and the EIRR to 23.3%. The Table SAE.3 in Supplementary Appendix 3 provides more detail on the sensitivity of investments to risk and uncertainty. Overall, the EIRR is robust against a range of project- specific variations. The EIRR of the Chatara bridge is a special case and its justification rests on strategic issues as much as economic issues. The sections below discuss economic benefits for each of the components.

1. Irrigation

3. The Irrigation Department shows an irrigation command area of 27,471 hectares (ha) in the proposed project area. Of this total, the irrigation system covering 10,283 ha has been damaged. In the financial and economic analysis, it is assumed that even land in the undamaged command area (17,188 ha) has a loss of production of 10% because the whole command area is affected. Within the damaged area, it is assumed that 20% (2,057 ha) has access to alternative water supplies through the use of pumps, and is able to grow winter and wet season crops although at reduced production levels, while the remaining 8,226 ha has no access to water and only grows a non-irrigated paddy crop in the wet season.

4. The analysis assumes a cropping intensity of 1.80 that is based on combined statistics for the eastern and far western Terai districts.2 It assumes that the paddy area is equal to the irrigated area, cereals equal 55% of the irrigated area, and cash crops take up 25% of area. To simplify calculations, wheat is the proxy for cereals (maize, millet, and barley) and oilseed and potatoes are the proxy for cash crops that also include sugarcane and jute.

5. Crop incomes are based on production outputs ranging from 50% to 100% of production. The financial income is NRs364.0 million without the Project and NRs576.0 million with the Project by the third year—an annual increase of NRs211.0 million. On an economic basis, the net annual benefit from the Project is NRs275.0 million. This higher benefit is due to the economic farm gate price for paddy being NRs15.8 per kilogram compared to NRs12.0 per kilogram market price. The FIRR for the Project from irrigation rehabilitation is 14.8% and the EIRR is 30.0%. A delay in implementation of 1 year lowers the EIRR to 23.0%. This delay is considered unlikely.

1 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Nepal for the Community Groundwater Irrigation Sector Project. Manila; ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Nepal for the Connecticity Sector I Project. Manila. 2 Agri-Business Promotion and Statistics Division, Ministry of Agriculture and Cooperatives. 2007. Statistical Information on Nepalese Agriculture 2006/07. Kathmandu.

Appendix 12 59

2. Agriculture

6. Full information concerning a complete classification of land according to potential use and the number of farm families affected and willing to return is still being collected. The analysis is based on total mapped areas less the area of 490 ha totally damaged. Indicative revenues and expenditures for the proposed fishponds, orchards, and cash crops for affected land areas have been assessed. To avoid an overlap in benefits from irrigation, the benefits from agriculture in this analysis focus on damaged land that is not immediately amenable to surface irrigation and, in many cases, requires a changed use of land supplemented by the availability of shallow tube wells (STWs).

7. The projected benefits from the Project are estimated on a conservative basis. The STW operating costs are derived from the ADB Community Groundwater Irrigation Sector Project, as are the revenues and other operating costs for vegetables. Family labor is included in costs. Total labor creation from the targeted area of 3,590 ha is estimated at 1,871 person-years per annum. It is assumed that only one crop is grown each year. Until more data are available, only vegetable crops have been included in the analysis. The FIRR for the component is 14.1% and the EIRR is 16.16%.

3. Water Supply and Sanitation

8. Water supply and sanitation comprises overhead and gravity water supply systems in all three districts plus hand pumps and reconstructed toilets in Sunsari, for a total direct cost of NRs314.07 million. The number of households and population indicate a total savings of more than 100,000 hours per day. This is converted to economically active workdays, assuming each household has 1.5 active workers and 70% of the hand-carried water is carried by an adult before the Project. The value of workdays gained is NRs290.7 million per annum at a daily wage rate of NRs185. Operational costs for the new investments are calculated at NRs26.2 million per annum, leaving a net annual gain of NRs264.5 million.

9. The FIRR for the water supply and sanitation investment is 27.77% and the EIRR is 26.32%. The component benefits 18,856 households (103,700 persons). Water supply and sanitation construction utilizes 294,925 person-days of work, equivalent to 1,134 person-years of work and wage incomes amounting to NRs54.56 million.

4. Roads

10. In the far west, five road systems are proposed for rehabilitation; three require road and bridge repairs and two require reconstruction following the removal of landslides. The total cost is NRs315 million. Benefits from repairs are calculated as being (i) a saving in vehicle costs of NRs0.239 million per day (NRs2.462 million without the Project and NRs2,223 million with the Project); (ii) a saving of 13,940 passenger hours per day; and (iii) a saving of not requiring three earthmoving machines on standby at each of three mega-landslide locations. These savings are calculated on a full-year basis.

11. The Project provides for the construction of a 350-meter bridge at Chatara crossing the Koshi River to allow east–west traffic to proceed even when the main East–West Highway is impassable. The cost of this is estimated at $7.4 million. There are four types of savings are made when people use the bridge when the East–West Highway is impassable: (i) the saving in ferry costs at the Chatara crossing, (ii) the savings in foot traffic costs and time, (iii) the saving in vehicle costs, and (iv) the saving in vehicle passenger hours. The savings in ferry costs are NRs12.29 million per 180 days or NRs0.07 million per day. The savings in foot traffic costs are NRs0.04 million per day. The savings in vehicle costs and time are based on distances shown

60 Appendix 12 in Table SAE.2 in the Supplementary Appendix E. The saving in vehicle costs is NRs2.773 million per day when the East–West road is impassable. The saving would be greater if the roads on both sides of the Chatara bridge were bitumen sealed—a further NRs0.909 million per day (but this is not envisaged under the Project). Construction of the Chatara bridge would save 34,894 passenger hours per day during future floods. This saving amounts to NRs0.538 million per day, assuming two-thirds of passengers are economically active.

12. Operation and maintenance costs of 5% of cost per annum are included. A residual value of the bridge of 50% of cost after 20 years is included. Had the bridge been in place prior to the 2008 flood, the 180 days damage aversion would have saved $7.6 million in costs. Based on 42 days of use each year, the FIRR of the bridge is 13.8% and the EIRR 12.9%. The rate of return from the bridge investment is highly dependent on the frequency and duration of future flooding.

13. In the far west, the annual saving in vehicle costs amounts to NRs86.22 million. The benefit from saved passenger time, assuming two-thirds of passengers are economically active and have a daily wage rate of NRs200, amounts to NRs83.64 million. The saving from not needing three earthmoving machines on standby is NRs3.6 million, assuming a capital cost of NRs6 million per machine and operating costs (including depreciation, repairs, and operations) of 20% per annum. The total benefit amounts to NRs173.46 million and the associated FIRR is 41.5% including operation and maintenance of 5% per annum. The EIRR is 40.20%.

B. Income and Employment

14. In agriculture and irrigation, a total of 35,150 farm families were affected by flood damage and 22,100 families require rehabilitation of their water supply and sanitation services. Many of the latter group have also incurred losses caused by irrigation and agricultural damage, and are included in the first total. Of the 35,150 families, 19,950 families have no land damage but are affected by a reduced supply of irrigation water; 11,570 families require rehabilitation of their surface irrigation facilities; 2,840 families have had their land badly damaged and have no immediate source of revenue; and 790 families have completely lost their land. Before the disaster, the income per family (including wages for farm labor) was an average of NRs47,759 (including NRs22,854 in wages and NRs25,905 net farm income). Following the disaster, the family income is estimated at an average NRs35,350 for the 19,950 families and NRs13,305 for the 11,570 families. The two remaining family groups with a total 3,630 families have zero farm income because their land is severely damaged or irreparably lost. In aggregate, the annual labor surplus (net income plus wages) will drop from NRs1,261 million before the disaster to NRs693 million after the disaster—equal to a loss of NRs568 million ($7.2 million) in the year following the disaster. This is in addition to the loss of crops during the flood.

15. Before the disaster, farm labor amounted to 15,160 persons in full-time employment. This declined to 10,290 persons with the disaster, creating unemployment equal to 4,870 persons—32% of the original workforce. It is estimated that project works could create 9,200 person-years of employment over two and a half years, and it is suggested that not less than 60% of this should be allocated to flood-affected persons. On an annual basis, this would provide work for 2,200 persons—about 45% of the unemployed. This would amount to NRs86 million per annum but leave an annual income deficit of NRs482 million in the first year.

16. Family incomes are expected to rise to NRs964 million in the second year. The addition of project works of NRs86 million would raise total income to NRs1,050 million—still a deficit of NRs211 million compared to before the disaster. In the third year, total family income is expected to be NRs1,200 million, and by the fourth year it is projected to reach NRs1,246 million. At this point all families, apart from those that lost their land, would be restored to pre-disaster income levels.

Appendix 13 61 SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Country/Project Title: Nepal/Emergency Flood Damage Rehabilitation Project

South Asia Regional Department/ Lending/Financing Department/ Project grant Nepal Resident Mission Modality: Division:

I. POVERTY ANALYSIS AND STRATEGY

A. Links to the National Poverty Reduction Strategy and Country Partnership Strategy.

Poverty in Nepal is evident as 31% of its population lives below the poverty line. Poverty incidence declined from 42% to 31% according to the National Living Standard Survey from FY1996 to FY2004.a Disparity in income poverty has actually widen. The reduction in poverty was disproportionately distributed across regions and in different caste, ethnic, and marginalized groups. The survey data showed a strong correlation between poverty incidence and people regionally and socially excluded. The poverty incidence varies across geographical regions; rural and urban locations; and identity (gender, caste, and ethnicity). Poverty is higher in rural areas, mid-western (45%), and far western (41%) regions; and among socially excluded groups (Dalits, Janajatis, and Muslims). Poverty incidence is 46% in dalits, 44% in hill indigenous people, and 46% in religious minority Muslims.

The Koshi river flood inundated 4 village development committees (VDCs) of Sunsari district, located in the eastern region of the country. Shreepur, Haripur, Paschim Kusaha, and Laukahi VDCs of Sunsari were severely hit—causing heavy damage and displacing thousands. The flood damaged highways, farmlands, schools, irrigation schemes, water supply and sewerage, and other infrastructure; and displaced 47,000 people with huge loss of houses, standing crops, and livestock. The Government has assumed that the number of internally displaced people can reach up to 60,000 who will be in dire need of support. In addition, 40% of the displaced will not be able to return home without a long-term resettlement plan. Disadvantaged group mapping—based on food sufficiency, access to health and education, and prevalence of vulnerable and marginalized groups—shows Shreepur VDC as the most disadvantaged followed by Haripur, Pashim Kusaha, and Laukahi. Damages in Shreepur and Haripur VDCs are more extensive than in the other two VDCs. The flood in Kailali and Kanchanpur districts located in the far western region also affected nearly 43,500 people and heavily damaged water supply systems, irrigation canals, school buildings, and part of the highway. The damage is scattered in many of the VDCs. In these two districts, some 7,000 people living near the rivers were displaced—mostly Mukta Kamaiya (freed bonded labors) and marginalized indigenous people. In three districts, more than 35,000 farm households have been adversely affected, directly increasing risks in people’s long-term livelihoods. In the human poverty index, Sunsari is 8th out of 75 districts, Kanchanpur is 15th, and Kailali is in 24th place.b However, there could be adverse flood impacts in the districts if timely rehabilitation measures are not taken.

Support in the rehabilitation of damaged infrastructure will be critical to restoring the normal life and activities of the affected people. This emergency project—covering road, irrigation, agriculture, and water supply and sanitation—will contribute in reducing the vulnerability and risks of the affected people, displaced, poor, and disadvantaged. All sectoral support will have poverty implications through rehabilitation of the damaged infrastructure and reclamation of farmland as a means of livelihood, and improvement of the services that will have direct impact on affected people’s lives. The support will mitigate risks of likely impoverishment The Project will assist and complement the Government’s return strategy plan for Koshi-displaced people.

The project design includes features that will help reduce poverty directly or indirectly. It will provide short-term employment to poor women and men in skilled and unskilled labor-intensive construction works in the rehabilitation of damaged road and irrigation infrastructure. Social mobilization activities will be integrated, which will improve the group organization and management capacity of the poor and disadvantaged in the reconstruction of damaged irrigation and water supply infrastructure—empowering them to access services. Rehabilitation of highways and rural roads will contribute to smooth transportation of goods and services to market, and ease economic activities—creating employment opportunities for the poor. Agriculture support will be provided to the poor and affected farmers, integrated with irrigation measures, free of cost for a 1-year cropping cycle so that they will be able to restore farm work and generate an income.

62 Appendix 13

Support for income-generation activities will be extended to the landless and poor farmers based on their demand. Irrigation measures will be taken to cope with the immediate need for restoring the land, and to support livelihoods by providing shallow tube wells which will benefit the poor and marginal farmers. Rehabilitation of farmer-managed irrigation canals, including large schemes, will help regain the long-term sustainability of agriculture production—providing benefits to all users. Water sector inputs will rehabilitate the damaged schemes by improving the quality and services—extending the services to the poor and marginalized groups, with sanitation and hygiene integral to the process. Access to drinking water and sanitation will help women and poor households save time for other economic activities and reduce their work burden. In all four affected VDCs in Sunsari, service will be provided through a phased approach that will complement the Government’s home return package. In Sunsari VDCs, shallow tube wells will be installed to provide immediate access to drinking water. In Kailali and Kanchanpur, gravity-fed damaged schemes will be rehabilitated, supporting the construction of household latrines. Social mobilization will be integrated to ensure social inclusion in user committees in terms of gender, caste, ethnicity, and other disadvantaged groups; and for effective and sustainable management of the rehabilitated schemes.

All sectoral components will have poverty implications via support for the rehabilitation of major infrastructure directly related to people’s livelihoods and living conditions. The Project will assist the Government to implement its flood relief and rehabilitation program to respond to the flood impacts through medium-term support. It will be in line with National Poverty Reduction Strategy in terms of overall long-term poverty impacts.

B. Poverty Analysis Targeting Classification: Geographic intervention

1. Key Issues

The impact of the Koshi flood was hardest for the displaced people who need long-term support. The people who want to return home might face deprivation in the absence of immediate needs such as basic services, food, water, and livelihoods. Heavy damage to some farmland in Koshi-affected VDCs require a long-term restoration program to bring the land back to its normal productivity. Until then, displaced people from those areas require a long-term livelihoods program for their living. In all three districts, the poorest, women, children, and marginalized groups were badly affected. They suffered more after the flood in terms of food access, health services, and personal security; and their situation could worsen if rehabilitation support is not provided on time. Among the affected, the landless, Mukta Kamaiya, and other indigenous and minority groups will suffer long- term impacts in terms of livelihood, housing, health, and food security. Hundreds of families are still living in the emergency camps in Sunsari and are not able to return without a proper return package. The Government has announced a return package of NRs50,000 to each Koshi-displaced family but the returnees need other support to restore livelihoods.

2. Design Features

The project design includes features to help reduce poverty directly or indirectly. It will (i) provide short-term employment to poor women and men in skilled and unskilled labor-intensive construction works; (ii) contribute to smooth transportation of goods and services to market, improving the access of the poor to services; (iii) improve the participation of the poor and marginalized in user committees of rehabilitated infrastructure supported through social mobilization; and (iv) provide an integrated agriculture and irrigation support package for a 1-year cropping cycle, free for all affected people for livelihood improvements.

C. Poverty Impact Analysis for Policy-Based Lending Not applicable

II. SOCIAL ANALYSIS AND STRATEGY A. Findings of Social Analysis The Koshi flood impact was severe for the affected people, especially the poor, as many required immediate shelter, food, water, and health services. The floods in the far western districts also affected the poor, landless, and marginalized who require short- and long-term rehabilitation support. With the help of United Nations (UN) agencies and nongovernment organizations (NGOs), the Government provided emergency relief support to the displaced with shelter, food, drinking water, and health clinics. In December 2008, the Government announced a return strategy plan for displaced people. It has assumed that about 60% of Koshi displaced people can return home. The remaining 40% has a high level of damage to their houses and farmlands, so their return may be delayed. Some 25% of the displaced people do not have recoverable land, and some are landless and require a long-term resettlement plan. In Kailali and Kanchanpur, displaced Mukta Kamaiya and other marginalized communities need resettlement support. The displaced people need a government resettlement support and return package that will assist them to rehabilitate houses, farmlands, and basic infrastructure. Employment is a high priority for the poor and those not able to return home soon. Health impacts of the flood also require urgent attention, especially for pregnant and lactating women, children, the elderly, and the poorest.

Appendix 13 63

B. Consultation and Participation 1. Provide a summary of the consultation and participation process during project preparation.

The flood damage and needs assessment and the design of the Project involved consultations at different levels with key stakeholders, including central government officials, district offices, flood-affected people, and local political and community leaders. The consultations were conducted jointly with the Government and UN agencies providing relief support to the affected and displaced people. All the executing and implementing agencies were consulted. The findings of the assessment were shared with UN partners to identify the areas of support. Based on the Government’s proposals in different sectors, a field assessment was carried out and consultations were conducted with district stakeholders to verify the proposed activities with requirements on the ground. After field verification, ADB and the Government agreed on the areas to be supported by the Project. The priorities were set jointly and the project components were identified and discussed with all major stakeholders during the assessment and fact-finding mission. The Government prioritized infrastructure rehabilitation, mainly roads (rural and highways), bridges, culverts, water and sanitation, recovery of irrigation schemes, and damaged farmland. Implementation arrangements for project implementation were also discussed during the fact-finding mission to ensure effective service delivery and minimize administrative problems. Mechanisms to ensure the participation of the poor and women were emphasized to integrate their needs in all project components. Social mobilization has been recognized as an essential element in the water and agriculture components.

2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring? Information sharing Consultation Collaborative decision making Empowerment

3. Was a C&P plan prepared? Yes No

If a C&P plan was prepared, describe key features and resources provided to implement the plan (including budget, consultant input, etc.). If no, explain why.

As the Project is for emergency assistance, the project duration will be 36 months. Because of the inability to undertake civil works during the wet season, the project period was extended 12 months beyond the 2-year project period generally expected under the Asian Development Bank’s (ADB’s) Disaster and Emergency Assistance Policy (2004). The agreed implementation schedule recognizes the critical importance of restoring key infrastructure as much as possible before the onset of the next rainy season in July 2010. The Ministry of Physical Planning and Works will be the main executing agency, supported by a project coordination office. Project implementation units will be established in the key implementing agencies—Department of Agriculture, Department of Irrigation, Department of Water Supply and Sewerage, and Department of Roads. Consultants with expertise in project management, financial management, monitoring and evaluation, environment, resettlement, and social development will be hired to support the project coordination office and project implementation units. The planning, implementation, and monitoring processes will ensure the participation of all stakeholders, including the local development agencies, NGOs, affected people, and relevant organizations. The concerns of women, the poorest, and disadvantaged caste and ethnic groups will be well integrated through participatory consultative approaches. A project steering committee—chaired by the secretary of the Ministry of Physical Planning and Works, and including the line ministries—will be established to provide overall project coordination and facilitate project implementation. The total cost to be supported by ADB for the Project is $25.6 million.

C. Gender and Development 1. Key Issues Strategy to maximize impacts on women: The Project will have positive impacts on women. The rehabilitation of damaged water supply schemes will greatly support women by reducing their work burden. A hygiene and sanitation program, integrated with a water component, will help raise women’s awareness of cleanliness and use of latrines, which will have direct impact on family health. Short-term employment created during rehabilitation of damaged infrastructure will provide employment to women and increase their access to income sources. Women will be encouraged to play an active role in decision making through their participation in water user committees, farmer groups, and committees formed for operation and maintenance of the rehabilitated infrastructure. Women will receive equal wages to those of men for equal work performed in construction works. Agriculture activities will support women with training and knowledge related to farm activities. Free agriculture inputs will help women to access productive resources, which this will be a particularly large support for poor female-headed households to restore their incomes.

2. Key Actions. Measures included in the design to promote gender equality and women’s empowerment—access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process: Gender plan Other actions/measures No action/measure Women’s participation and representation in decision making will be ensured in user committees of the water supply and sanitation, agriculture, and irrigation programs. Gender issues will be analyzed in each component while developing the plans and during implementation to ensure equal benefit to women from the project services and resources. Data disaggregated by gender, caste, and ethnicity will be collected and reported. Through community mobilization activities, women and disadvantaged groups will be actively involved in works that directly benefit them in terms of employment and income generation. They will participate actively in user groups and committees to obtain equal benefits from project resources.

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III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS Significant/ Limited/ Plan or Other Measures Issue No Impact Strategy to Address Issue Included in Design Involuntary Limited Most of the rehabilitation works are expected to Full Plan Resettlement be limited within their existing corridor of Short Plan impacts; some of them may require additional Resettlement land and/or involve resettlement impacts. For Framework any land acquisition and resettlement impacts, a No Action resettlement plan will be prepared following the guidelines provided in the resettlement framework (Supplementary Appendix F). Indigenous Peoples Limited Indigenous people living in the project areas will Plan positive impact benefit from the improved infrastructure and Other Action essential inputs. Any potential adverse effects on Indigenous indigenous people, if identified, will be Peoples Framework addressed during planning and implementation No Action of the Project through the resettlement plan. The Project will ensure the participation of identified indigenous people in planning, implementation, and monitoring of the Project to ensure that they benefit from the infrastructure rehabilitation. Labor Limited The Project will create short-term employment Plan Employment Positive impact opportunities in infrastructure construction and Other Action opportunities maintenance for poor unskilled and skilled No Action Labor retrenchment laborers. It will benefit both women and men. It Core labor standards will also help reduce unemployment caused by the floods. Affordability No impact The Project will help to improve connectivity and Action provide better access to basic infrastructure, No Action restoring people’s normal economic activities. Other Risks and/or Limited As vulnerability and risks still exist, a flood Vulnerabilities positive imapct preparedness plan will be prepared under the Plan HIV/AIDS project activities. Other Action Human trafficking No Action Others (Natural Calamities-flood) IV. MONITORING AND EVALUATION

Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? x Yes No

______a Central Bureau of Statistics. 2004. Nepal Living Standards Survey 2003/04. Kathmandu. b United Nations Development Programme. 2004. Nepal Human Development Report 2004. Kathmandu.