Nepal: Second Tourism Infrastructure Development Project

Completion Report

Project Number: 28028 Loan Number: 1451[SF] December 2005

CURRENCY EQUIVALENTS

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

At Appraisal At Project Completion April 1996 October 2005 NRe1.00 = $0.0181 $0.0143 $1.00 = NRs55.25 NRs69.75

ABBREVIATIONS ADB – Asian Development Bank BME – benefit monitoring and evaluation CAAN – Civil Aviation Authority of Nepal DCA – Department of Civil Aviation DOT – Department of Tourism EIRR – economic internal rate of return FIRR – financial internal rate of return IA – implementing agency ICB – international competitive bidding IDC – interest during construction IRAD – Integrated Research Application and Development IS – international shopping KMTNC – King Mahendra Trust for Nature Conservation kW – kilowatt LCB – local competitive bidding MLD – Ministry of Local Development MOCTCA – Ministry of Culture, Tourism and Civil Aviation MOTCA – Ministry of Tourism and Civil Aviation MOF – Ministry of Finance NGO – nongovernment organization NTB – Nepal Tourism Board O&M – operation and maintenance PCP – public communications policy PCR – project completion report PEA – project executing agencies PEC – Pokhara Environment Committee PIU – project implementation unit PMU – project management unit PSC – project steering committee PSM – Pokhara Sub-Metropolis PVTDC – Pokahara Valley Town Development Committee RSDC – Rural Self-Reliance Development Center SARD – South Asia Department SDR – special drawing rights TA – technical assistance TD – technical division

NOTES

(i) The fiscal year (FY) of the Government ends on 15 July. (ii) In this report, “$” refers to US dollars.

Vice President L. Jin, Operations Group 1 Director General K. Senga, South Asia Department (SARD) Director H. Kim, Social Sectors Division, SARD

Team leader N. Mawilmada, Urban Development Specialist, SARD Team members R. Romasanta, Associate Operations Analyst, SARD

CONTENTS

Page

BASIC DATA ii MAP v I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 5 D. Disbursements 6 E. Project Schedule 6 F. Implementation Arrangements 7 G. Conditions and Covenants 7 H. Consultant Recruitment and Procurement 7 I. Performance of Consultants, Contractors, and Suppliers 8 J. Performance of the Borrower and the Executing Agency 8 K. Performance of the Asian Development Bank 8 III. EVALUATION OF PERFORMANCE 9 A. Relevance 9 B. Efficacy in Achievement of Purpose 9 C. Efficiency in Achievement of Outputs and Purpose 9 D. Preliminary Assessment of Sustainability 10 E. Institutional Development, Environmental, and Other Impacts 10 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 11 A. Overall Assessment 11 B. Lessons Learned 11 C. Recommendations 12 APPENDIXES 1. Project Framework 14 2. Cost Estimates and Financing Plan 17 3. Breakdown of Annual Disbursements of Asian Development Bank Funds 18 4. Implementation Schedule 19 5. Status of Compliance with Loan Covenants 20 6. Economic Analysis 29 7. Financial Analysis 35 8. Analysis of Institutional Strengthening, Environmental, and Other Impacts 40 9. Overall Project Rating 42

ii BASIC DATA

A. Loan Identification 1. Country NEPAL 2. Loan Number 1451(SF) 3. Project Title Second Tourism Infrastructure Development Project 4. Borrower Kingdom of Nepal 5. Executing Agency Ministry of Tourism and Civil Aviation 6. Amount of Loan SDR11,891 million 7. Project Completion Report Number 930

B. Loan Data 1. Appraisal – Date Started 15 January 1996 – Date Completed 28 January 1996

2. Loan Negotiations – Date Started 19 May 1996 – Date Completed 19 May 1996

3. Date of Board Approval 02 July 1996

4. Date of Loan Agreement 27 August 1996

5. Date of Loan Effectiveness – In Loan Agreement 27 November 1996 – Actual 05 December 1996 – Number of Extensions 1

6. Closing Date – In Loan Agreement 31 December 2001 – Actual 15 July 2004 – Number of Extensions 2

7. Terms of Loan – Interest Rate 1 percent per annum – Maturity (number of years) 40 years – Grace Period (number of years) 10 years

8. Terms of Relending (if any) – Interest Rate N/A – Maturity (number of years) – Grace Period (number of years) – Second-Step Borrower

9. Disbursements a. Dates

Initial Disbursement Final Disbursement Time Interval

15 April 1997 15 July 2004 87 months

Effective Date Original Closing Date Time Interval

05 December 1996 31 December 2001 60 months

iii b. Amount ($) Last Net Original Revised Amount Amount Amount Undisbursed Category Allocation Allocation Canceled Available Disbursed Balance Civil Works 5,981,550 5,348,335 (633,215) 5,348,335 7,870,715 0 Equipment 0 and 5,456,556 4,759,762 (696,794) 4,759,762 716,919 Materials Incremental 0 Administration 499,805 457,831 (41,974) 457,831 623,819 Costs Institutional 0 Development 42,323 36,865 (5,458) 36,865 0 and Strengthening Consulting 0 1,814,820 1,650,795 (164,025) 1,650,795 1,765,900 Services Service 0 564,297 493,313 (70,984) 493,313 241,373 Charge Unallocated 2,972,973 1,336,133 (1,636,840) 1,336,133 0 0 Total 17,332,324 14,083,034 (3,249,290)a 14,083,034 11,218,726 0 a Indicates amount cancelled during implementation. Total amount cancelled at loan closing was $6,113,596.

10. Local Costs (ADB Financed) - Amount ($ million) 6.74 - Percent of Local Costs 52.41 - Percent of Total Cost 38.87

C. Project Data 1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 9.73 4.48 Local Currency Cost 7.47 6.74 Total 17.20 11.22 2. Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 5.70 6.12 ADB Financed 17.20 11.22 Beneficiary Contribution 0.02 0.00 Total 22.92 17.34 IDC Costs Borrower Financed 0.56 ADB Financed 0.45 0.24 Total 1.01 0.24 ADB = Asian Development Bank, IDC = interest during construction. 3. Cost Breakdown by Project Component ($ million) Component Appraisal Estimate Actual Part A: Pokhara Environmental Improvements 5.12 5.14 Part B: Ecotourism Development 1.07 0.50 Part C: Domestic Airports Improvement 8.59 4.82 Part D: Implementation Assistance 1.86 0.53 IDC and Service Charge 0.55 0.24 Total 17.19 11.23 IDC = interest during construction.

iv 4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants Aug 1996 Aug 1997 Civil Works Contract Date of Award Sep 1996 Apr 1997 Completion of Work Dec 2001 Mar 2003a Equipment and Supplies Dates First Procurement Jul 1996b Oct 1997 Last Procurement Jun 2001b Dec 2002 Completion of Equipment Installation Mar 2003 a Actual delivery of waste treatment equipment was in 2005. b Projected dates not mentioned in the implementation schedule. Estimates were based on the commencement and completion dates of the Project as envisaged at appraisal.

5. Project Performance Report Ratings Ratings Development Implementation Implementation Period Objectives Progress From 1 Nov 1998 to 31 Dec 1998 Satisfactory Satisfactory From 1 Jan 1999 to 31 Dec 1999 Satisfactory Satisfactory From 1 Jan 2000 to 31 Dec 2000 Satisfactory Satisfactory From 1 Jan 2001 to 31 May 2001 Satisfactory Highly Satisfactory From 1 Jun 2001 to 31 Jul 2001 Satisfactory Satisfactory From 1 Aug 2001 to 31 Aug 2001 Satisfactory Highly Satisfactory From 1 Sep 2001 to 31 Dec 2001 Satisfactory Satisfactory From 1 Jan 2002 to 31 Dec 2002 Satisfactory Satisfactory From 1 Jan 2003 to 31 Jul 2003 Satisfactory Satisfactory From 1 Aug 2003 to 31 Dec 2003 Satisfactory Unsatisfactory From 1 Jan 2004 to 31 Jul 2004a Satisfactory Unsatisfactory a The project performance report was kept open until July 2004, which is the loan account closing date of the Project.

D. Data on Asian Development Bank Missions No. of No. of Specialization Name of Mission Date Persons Person-Days of Membersa Fact-Finding 30 Aug–15 Sep 1995 6 102 a, b, c, d Appraisal 15–28 Jan 1996 4 56 a, b, c, e Loan Inception 30 Sep–11 Oct 1996 3 36 d, e, f Loan Review 1 2–7 Apr 1997 1 6 e Loan Review 2 5–10 May 1998 1 6 e Loan Review 3 8–15 Dec 1998 1 8 b Loan Review 4 7–16 Apr 1999 1 10 b Midterm Review 24 Aug–2 Sep 1999 3 30 a, b, g Loan Review 5 27 Jul–7 Aug 2000 1 12 b Loan Review 6 19–29 Nov 2000 1 11 b Loan Review 7 15–24 Mar 2001 1 10 b, d Loan Review 8 2–11 Oct 2001 2 20 b, h Loan Review 9 28 Feb–7 Mar 2002 2 16 b, i Loan Review 10 15–19 June 2002 2 10 b, j Project Completion Reviewb 24-29 Oct 2005 4 24 b, j, k, l a a – senior financial analyst, b – urban development, c – institutional development, d – programs officer, Nepal Resident Mission, e – senior project specialist, f – senior project implementation, Nepal Resident Mission, g – assistant project analyst, h – senior sector analyst, i – private sector development, j – associate project analyst, k – international Project Completion Review consultant, l – domestic Project Completion Report consultant. b The project completion report was prepared by Mr. Nayana Mawilmada, Urban Development Specialist.

84 o 00'E NEPAL SECOND TOURISM INFRASTRUCTURE DEVELOPMENT PROJECT PART A: POKHARA ENVIRONMENTAL IMPROVEMENTS MAJOR PROJECT COMPONENTS (as completed)

S e ti R K Waste Disposal Site a iv l e i r R Road Yandi River iv e r Improvement of Road

r e Originally Proposed Waste Site Access Road iv R Construction and Improvement of Drain o m o 28 15'N la 28 15'N a h River and Creek B Lake Municipal Boundary Boundaries are not necessarily authoritative.

SOLID WASTE MANAGEMENT Throughout Municipal Area SANITATION IMPROVEMENTS Throughout Municipal Area

r S e v i

e k r d i a h y o a P R w h w g e i N H Phewa y a a th hw r ig a Lake P h rithivi H d id S Pri thiv i Hi ghw ay

Airport

S e ti R B iv i e ja r y a p u F r us R re R iv iv er e r o 28 10'N 28 o 10'N

0 1 2

Kilometers

84 o 00'E

05-6016 HR

I. PROJECT DESCRIPTION

1. The primary objective of the Second Tourism Infrastructure Development Project (the Project) was to support the Government’s strategy for promoting sustainable economic growth by improving the environment and attractiveness of tourist areas, improving access, and ensuring required human resources for the smooth operation of tourism on a sustainable basis.

2. The scope of the Project as appraised comprised: (i) improvement of the urban environment of Pokhara and protection of scenic Phewa Lake through investments in public environmental education, sanitation facilities, septage management, solid waste management, roads, and drainage; (ii) development of the Manaslu area to enable higher tourist visitation rates; (iii) upgrading the infrastructure at selected tourist-related domestic airports and enabling improved access to tourist destinations; and (iv) strengthening local government capabilities to manage urban infrastructure and services more effectively.

3. The Project aimed to play a significant role in (i) promoting broad-based tourism to improve national income and reduce regional imbalances; (ii) improving the country’s natural, cultural, and human environment; (iii) improving service quality within the tourism sector; and (iv) marketing Nepal as a popular tourist destination.1 The project framework is in Appendix 1.

4. The Project was considered substantially complete in March 2003 and the loan was closed on 31 March 2003. Airport improvement at six domestic airports was completed satisfactorily in December 2001. Ecotourism developments at Manaslu were successfully completed and early reports show that the improvements have resulted in increased tourist visits. However, major equipment procurement for the waste management component at Pokhara was not finalized until July 2004. The landfill portion of the waste disposal operations began in mid-2005, but septage collection and treatment has not been started (as of October 2005) and the upgrading of the road to the waste disposal site had not been completed. Urban road and drainage improvements in Pokhara have been completed successfully. The institutional strengthening component had minimal impact.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. Tourism plays a pivotal role in Nepal’s economy. The Government recognizes the distinct comparative advantage of tourism relative to other economic sectors and has accorded high priority to tourism development. The Government’s objective to spur tourism by rehabilitating and developing infrastructure, while protecting the environment, provided the setting for the Project. The Asian Development Bank’s (ADB’s) strategy for Nepal at appraisal recognized the significant economic role of tourism development. ADB’s operational plans for tourism at appraisal focused on (i) maintaining or improving the physical and human environment in popular tourist destinations in a sustainable manner, (ii) introducing environmentally benign tourism management practices in fragile cultural and natural environments, (iii) facilitating improved transportation services for tourists, (iv) developing infrastructure in attractive non-mountain destinations to diversify the benefits of tourism countrywide, (v) strengthening cost recovery concepts and practices to improve sectoral resource mobilization, and (vi) improving product and service standards sector-wide (footnote 1).

1 ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Nepal for the Second Tourism Infrastructure Project. Manila.

The Project was relevant at appraisal and remains so at completion. The Project was prepared under ADB technical assistance (TA).2

B. Project Outputs

1. Part A: Pokhara Environmental Improvements

6. The environmental improvements under Part A included:

(i) A public environmental education program to promote awareness among the residents of Pokhara about public hygiene and sanitation. The public awareness program was conducted over 1 year with staff from the Pokhara Sub-Metropolis (PSM) seconded to work with the consultants.

(ii) Improvements in public and private sanitation facilities. At the time of appraisal, it was estimated that 5,000 households were expected to avail of improved sanitary facilities. However, only 165 households constructed new septic tanks with loans from the municipality.

(iii) Introduction of a septage management program, including the establishment of a regular cleanout service and the sanitary disposal of septage at the waste management facility. The septage treatment facility has been completed and equipment has been procured under the loan for pumping septic tanks and transporting the septage to the disposal site. However, at the time of the Project Completion Report (PCR) Mission, collection and disposal of septage had not begun.

(iv) Introduction of a solid waste management system to provide regular household collection, recycling of waste where possible, and disposal at the waste management facility. The landfill area has been completed and equipment has been procured under the loan for collection and transport of solid waste to the disposal area. Regular collection has begun and a fee schedule has been enacted by the Sub-Metropolis. However, no fees have yet been collected (as of October 2005).

(v) Improvements to drainage through the construction of roadside drains along main roads in the town’s core area. At appraisal, 33 kilometers (km) of storm drains were to be constructed in Pokhara. More than 50 km were actually constructed. However, the design of the drains was changed at the demand of the local population from reinforced concrete pipe to a masonry section with reinforced concrete covers. This allows for easier breaking into the drain for the discharge of sanitary waste into the storm drain.

(vi) Improvements to roads including paving of the 2.7 km access road to the waste management facility. Approximately 10.5 km of urban roads (not included at appraisal) were improved, and 9.7 km of the access road to the waste disposal site (through the suburban housing area) were improved to a high standard.3

2 ADB. 1994. Technical Assistance to the Kingdom of Nepal for the Second Tourism Infrastructure Development Project. Manila. (TA 2140-NEP, for $460,000, approved 19 August 1994). 3 The road was widened from 3.5 meters (m) to 5.0 m and masonry drains were constructed along both sides of the road.

However, the final 2 km of the access road to the waste disposal site have not yet been completed.

(vii) Preparation and introduction of a revised land use plan. The revised land use plan was developed by consultants in 1998. However, the plan is still being discussed and the municipality has not yet adopted it.

2. Part B: Manaslu Ecotourism Development

7. The components under Part B include:

(i) Construction of helipads at selected locations. Two helipads were constructed.

(ii) Construction of community owned and managed campsites, lodges, and kerosene depots. Five community-owned campgrounds have been developed, 5 privately-owned campgrounds have constructed toilets, 3 privately-owned lodges have been upgraded, and 7 kerosene depots have been established. Some 11 km of trail sections have been improved, 16 new wooden bridges constructed, 3 old bridges restored, and sign posts installed along the trails.

(iii) Construction of micro-hydro stations. Four micro-hydro schemes have been completed and are operational (Samagaon 33 kilowatts [kW], Lho 30 kW, Prok 23 kW, and Namrung 15 kW).

(iv) Monastery conservation. Fourteen community monasteries have received various levels of assistance under the Project.

(v) Establishment of radio communication facilities and a medical clinic. Wireless radio sets have been installed at 9 locations and 3 health posts have been upgraded (Chhekam, Philim, and Namrung). In addition, 14 drinking water supply schemes have been completed, covering 87% of the population; 14 community toilets developed; solid waste dumping pits constructed; and rubbish collection bins distributed to households at several locations

(vi) Training of local communities in tourism management and marketing. Various training and capacity building initiatives have been completed under the Project, including: (a) formation of local committees for Conservation Area Management, Forest Management, Women’s Group, Micro-Hydro Management and Tourism Management; and (b) skill development courses conducted for painting, trekking guide, stove repair and maintenance, microenterprise creation and management, lodge management and cooking, Thanka painting, and kitchen gardening.

3. Part C: Domestic Airport Upgrading

8. This part of the Project included the upgrading/improvement of six, tourism-related domestic airports at Pokhara, Jomsom, Lukla, Bharatpur, Biratnagar, and Jumla. Improvements comprised: (i) paving or repaving of runways considered unsafe or potentially unsafe; (ii) provision of navigation aids and communication facilities to improve operational safety; (iii) building and refurbishing of passenger facilities to improve passenger throughput, increase passenger comfort and dispose of passenger and other wastes; and (iv) provision of airport rescue and firefighting equipment. This component was delayed due to the late recruitment of consultants, but the actual duration of construction activities was less than estimated at

4 appraisal. At appraisal, there was provision for some navigation aids and firefighting and rescue equipment to be provided under the Project. However, the Civil Aviation Authority of Nepal (CAAN) secured separate grant aid for these items and they were therefore dropped from ADB financing. The improvements completed at each airport are summarized in Table 1.

Table 1: Domestic Airport Upgrading

Airport Improvements Biratnagar Asphalt concrete paving of runway, apron, and taxiway; grading of side strips; realignment and capacity improvement of drainage facilities; water supply improvement including a new well, leakage repair, and new overhead tanks. Lukla Runway, apron, and taxiway improvement; drainage improvements; new terminal building and control tower; chain link fencing; new staff quarters; and helipad. Bharatpur Runway, apron and taxiway improvement; drainage improvements; service roads and site development; chain link fencing; new staff quarters; and additional floor on the control tower. Pokhara Apron extensiona Jomsom Runway, apron, and taxiway improvement; grading of side strips; drainage improvements; new terminal building and control tower; chain link fencing; and river protection works. Jumla Runway, apron, and taxiway improvement; drainage improvements; renovation of terminal building and control tower; chain link fencing; and renovation of staff quarters and police house. a Under the Project, only the apron extension was included. Under the first Tourism Infrastructure Development Project, the runway and taxiway were resurfaced, the terminal building was repaired and renovated, and the access road improved.

4. Part D: Implementation Assistance and Institutional Strengthening

9. Under this component, implementation assistance was intended to provide (i) staff and cover operational costs related to the project management unit (PMU) in the Department of Tourism (DOT) and the project implementation units (PIUs) established in PSM, King Mahendra Trust for Nature Conservation (KMTNC), and Department of Civil Aviation (DCA); (ii) logistic and equipment support (initial ground surveys, office equipment and utility vehicles, capital and running costs); and (iii) 714 person-months of consulting services (45 international and 729 domestic) for project management, public environmental education program, detailed engineering design, and construction supervision. Implementation assistance was provided through the recruitment of international and domestic consultants. The consultants recruited for implementation assistance were generally satisfactory, and provided assistance as anticipated.

10. The institutional strengthening subcomponent was to provide for the following.

(i) Establishment of a technical division in PSM for (a) planning and managing operation and maintenance (O&M) of urban infrastructure, and (b) implementing the revised land use plan. The technical division has been included in the organization for the Pokhara Sub-Metropolis, but insufficient staff were recruited and assigned, and existing staff have not been adequately trained. During the public awareness campaign, two Pokhara Sub-Metropolis staff members were seconded for 1 year to the consultants carrying out the campaign.

(ii) Classroom and on-the-job training of Pokhara Sub-Metropolis staff to enable effective discharge of operational responsibilities connected with septage and solid waste management services. It is evident that there has been little, if any, training of staff to manage the waste management services. The staff assigned does not understand the operation of the septage treatment facility and could not locate the operations manual during the PCR Mission’s visit to the site. Septage collection and treatment has not yet commenced (as of October 2005).

(iii) Training of PMU staff to improve DOT’s implementation and management capabilities. There were some positive impacts on the PMU staff who gained knowledge from working with the consultants engaged to assist the PMU in contract management and accounting.

C. Project Costs

11. The actual final cost of the Project was $17.33 million compared with $22.92 million estimated at appraisal. This final cost comprised $4.48 million in foreign exchange cost (compared with $9.73 million estimated at appraisal) and $12.87 million equivalent in local currency cost (compared with $13.19 million estimated at appraisal). Appendix 2 presents a detailed comparison of the project costs at appraisal and at completion. The actual cost of civil works was $13.53 million compared with the appraisal estimate of $9.42 million. This difference is due mostly to (i) cost overruns on the three contract packages associated with the development of the Pokhara waste disposal site; and (ii) addition of urban roads upgrading, not included at appraisal.. For equipment and materials, the actual cost was $0.80 million compared with the appraisal estimate of $5.52 million. This difference is due to (i) procurement of navigation, fire, and rescue equipment for domestic airports under grant financing, thus deleted from project financing (about $4.07 million); and (ii) lower costs of equipment procured for the Manaslu ecotourism component (about $0.07 million). The actual cost of consulting services was $1.78 million compared with the appraisal estimate of $1.80 million. Interest during construction and service charge was $0.24 million compared with the appraisal estimate of $1.01 million. This reduction was primarily due to lower than expected utilization of the ADB loan, as $6.11 million was cancelled. Land acquisition costs were minimal, NRs344,900 (approximately $4,800), and no resettlement was required.

12. The financing plan envisaged at appraisal expected $17.20 million (75% of the total project cost) from ADB to finance 100% of the estimated foreign exchange expenditure and 56.6% of estimated local currency expenditures. The remaining $5.70 million of estimated local currency expenditure was to be financed by the Government and beneficiaries. The actual utilization of the ADB loan was $11.22 million, accounting for 100% of foreign exchange expenditures and 64.6% of total project costs. For the actual local currency requirement of $12.87 million, $6.12 million was financed by the Government and $6.75 million by ADB. The underutilization of the ADB loan was due primarily to less equipment purchased and lower

6 expenditure related to institutional development and strengthening. Appendix 2 provides a comparison between the appraisal and actual financing plans.

D. Disbursements

13. Of the $17.20 million of loan proceeds, $6.11 million was cancelled due to less than expected expenditure for equipment, primarily related to upgrading of the domestic airports and the ecotourism component (para. 11), and less expenditure related to institutional strengthening. Disbursement started in April 1997 and was completed in July 2004. While the loan closing date was on 31 March 2003, the loan account remained open until July 2004 to cover expenditures related to equipment purchased late in the implementation period. Appendix 3 shows the actual quarterly disbursement during the implementation period. Projected disbursements were not prepared at appraisal. Disbursements were made through direct payment, reimbursement, and commitment procedures. An imprest account and statement of expenditure facility was also used which facilitated the disbursement procedures of the Project.

E. Project Schedule

14. The loan was approved on 2 July 1996, signed 27 August 1996, and became effective on 5 December 1996. At appraisal, the Project was expected to be implemented from February 1996 to June 2001. The Project suffered delays from the outset, with slow mobilization and slow recruitment of consultants. The first consultants were not mobilized until August 1997, a delay of about 1 year, due primarily to the Implementing Agencies’ internal procedures. A graphical comparison of the actual and appraisal implementation schedule is presented in Appendix 4.

15. For Part A (Pokhara Environmental Improvements), the civil works procurement was delayed so civil works began later than anticipated at appraisal. Significant delays also ensued because of (i) less than satisfactory performance of some civil works contractors, and (ii) community protests related to the waste disposal facility and the access road to that facility. The civil works for the waste management facility and access road were expected to commence in April 1996 and be completed by the end of 1999, but work actually started in April 1997 has not been fully completed (as of October 2005). Drainage works started about 3 months later than envisaged at appraisal, progressed reasonably well, and were completed 3 months later than estimated at appraisal. Sanitation improvements began in the first quarter of 2000, 3 years late, and were completed 21 months later than estimated at appraisal. However, the number of improvements was significantly less than set out at appraisal. The environmental education and training component was late to begin and lasted less than envisaged at appraisal. Three subcomponents were not considered in the appraisal schedule: urban road improvement, Phewa Lake preservation, and implementation of the land use plan. The urban road improvement was added and, while it started later than planned, works were completed within the extended implementation period. Phewa Lake preservation works consisted mainly of fencing and was completed on a timely basis. Preparation and implementation of the revised land use plan for Pokhara commenced as planned. However, the plan is yet to be adopted and enforced by the municipality.

16. For Part B (Ecotourism Development in the Manaslu Conservation Area), works started later than envisaged at appraisal, but were completed on a timely basis and without delays.

17. For Part C (Domestic Airport Improvements), works started later than envisaged at appraisal (April 1999 vs. April 1996), however, all works were completed within the extended implementation period. While the commencement of the works was delayed, once started, the

7 works were completed on a timely basis. The implementation period was extended on two occasions due to delays encountered in Part A.

F. Implementation Arrangements

18. The Ministry of Tourism and Civil Aviation (MOTCA)4 was the main Executing Agency, with overall responsibility for implementation of the Project. The Ministry of Local Development (MLD) was designated as the Executing Agency for Part A of the Project to be carried out in Pokhara. PSM was the Implementing Agency for Part A, KMTNC for Part B, and DCA for Part C. 5 At the central level, the PMU within DOT 6 coordinated and managed all project implementation activities and reported to the Secretary of MOTCA. KMTNC and CAAN were considered effective in the implementation of their respective components. However, PSM was less effective, leading to delays, disputes, and increased costs.

G. Conditions and Covenants

19. The status of compliance with loan covenants is provided in Appendix 5. Major covenants were generally complied with, particularly those relating to counterpart funds, implementation arrangements, reporting, environmental protection, and land acquisition. However, significant issues of noncompliance did occur. Annual benefit monitoring and evaluation (BME) reports were submitted as required in Schedule 6, para. 13. CAAN failed to provide audited financial statements, thereby not complying with Section 4.06(b) of the Loan Agreement. In addition, Schedule 6 of the Loan Agreement, para. 10(f), stipulates that “The Pokhara Sub-Metropolis by 31 March 1998 shall have commenced implementation of a revised Land Use Plan”. The revised land use plan was prepared by consultants under the Project in 2000 but has not yet been implemented. In accordance with Schedule 6, para. 17 of the Loan Agreement, CAAN was to be formed to replace DCA as a fully autonomous body. While CAAN was formed on 31 December 1998, it is still not fully autonomous because asset transfer from DCA to CAAN has not been finalized. No covenants were modified, suspended, or waived.

H. Consultant Recruitment and Procurement

20. Consultants were engaged in accordance with ADB’s Guidelines on the Use of Consultants and other procedures acceptable to the ADB. At appraisal, 774 person-months (45 international and 729 domestic) of consulting inputs were envisaged. The first consultants were not engaged until August 1997, a delay of about 1 year compared with appraisal expectations.

21. Procurement was carried out in accordance with ADB’s Guidelines for Procurement and procedures acceptable to ADB. Procurement for civil works was all carried out under local competitive bidding (LCB) procedures. Procurement of collection and waste management equipment was done under international competitive bidding (ICB) procedures.

I. Performance of Consultants, Contractors, and Suppliers

22. The consultants recruited for the design and supervision of the three contracts associated with the waste treatment facility and access road were weak in design, supervision,

4 During implementation, MOTCA became the Ministry of Culture, Tourism and Civil Aviation (MOCTCA). 5 Under the Project, DCA was to be replaced by an autonomous Civil Aviation Authority of Nepal (CAAN). CAAN was officially formed 31 December 1998 and DCA ceased to exist. 6 As agreed at appraisal, DOT was replaced by the Nepal Tourism Board as an autonomous entity responsible for the coordination of all tourism sector development, including project planning, funding, and implementation.

8 and contract management, which contributed to the need for variations and led to delay. The same consultants were responsible for the urban roads improvement and demonstrated the same shortcomings, leading to frequent variations and delay. The consultants carrying out the design and supervision of the Pokhara drainage works performed satisfactory. The consultants responsible for the ecotourism component and the airport upgrading component performed satisfactorily. Individual consultants retained for assistance to the PMU performed satisfactorily.

23. The civil works contractors for Pokhara environmental improvements, associated with the landfill construction and access road, did not perform well. The contractor for construction of the septage disposal facility performed reasonably well. The contractor responsible for the landfill construction had cash flow problems, resulting in delayed completion. The contractor for the access road was problematic throughout, resulting in additional costs and delayed completion. Contractors for the airport upgrading and the Manaslu ecotourism component performed satisfactorily and completed works within their allotted contract periods, even though commencement was delayed, mostly due to late recruitment of consultants.

J. Performance of the Borrower and the Executing Agency

24. The performance of the Borrower and MOTCA as the Executing Agency was satisfactory. MOTCA was responsible for overall project coordination and monitoring. PSM, under direction from MLD, was the Implementing Agency for the Pokhara environmental improvements. PSM did not perform as well and lacked sufficient experienced staff. During the implementation of the waste treatment facility and access road, project activities were brought to a virtual standstill by the local community adjacent to these works. PSM did not deal effectively with the matter and allowed the local community to dictate an unjustified increase in the standard of the access road, resulting in delay and increased costs. The final 2 km of the access road has not yet been completed, to the detriment of the effective operation of the waste management facility. The training of PSM staff fell well below expectations, as the important Technical Division is understaffed and staff lack training and understanding of waste disposal operations, particularly septage collection and treatment activities. At appraisal, there was concern about PSM’s capacity to implement, maintain, and operate the infrastructure constructed under the Project (RRP, paras. 45–47). A much more concentrated effort should have been made to ensure that staffing levels were adequate and appropriate training was carried out. KMTNC, responsible for the implementation of the Manaslu ecotourism development, performed satisfactorily and carried out appropriate training activities. CAAN, responsible for implementation of the domestic airport improvements, has considerable implementation experience and performed satisfactorily.

K. Performance of the Asian Development Bank

25. During project implementation (from September 1996 to June 2002), ADB dispatched 12 missions, including the Inception Mission, Midterm Review Mission, and 10 Review Missions. The review missions were not particularly effective in resolving implementation issues, particularly with respect to issues surrounding community objections related to construction of the waste treatment facility and access road. ADB’s administration lacked continuity, as the Project was shifted between departments within ADB and project officers responsible for administration changed several times. ADB’s approvals of procurement documents, contract awards, disbursements, etc. were effective and timely. ADB dealt with the political issues in Pokhara reasonably well, considering they were beyond ADB’s control. Overall, ADB’s administration of the Project was considered satisfactory.

III. EVALUATION OF PERFORMANCE

26. It is notable that the overall Project contained three virtually independent components, which were implemented with significantly varied degrees of success. Therefore, it is important to look at each component separately—in assessing relevance, efficacy, efficiency, sustainability, and institutional and other impacts—to extract a clearer picture of outcomes and lessons learned. Appendix 8 presents the weighted assessment of each component with respect to the above criteria.

A. Relevance

27. The rationale behind each component of the Project was sound, taking into account the priority given to tourism development, Nepal’s comparative advantage in the tourism sector, private sector development potential, and the importance of domestic air travel to tourism development and sustenance of local communities. The Project is highly relevant to the Government’s development strategy and ADB’s country operational strategy. The Government’s Ninth Plan (FY1997-FY2002) and Tenth Plan (FY2003–FY2007) accord high priority to fostering broad-based growth based on the revival in manufacturing, tourism, and exports. ADB’s country strategy aims to (i) achieve sustained poverty reduction through broad-based growth in the development of rural areas, and (ii) improve basic social services and infrastructure. At appraisal, tourism was a primary driver of Nepal’s economy, and was one of the few sectors with significant income generation potential for rural Nepal. The tourism sector is equally important today. Tourism revenue accounted for 1.5% of gross domestic product and 9.1% of total foreign exchange earnings during the Fiscal Year 2003/2004. Overall, the Project is rated relevant.

B. Efficacy in Achievement of Purpose

28. Efficacy varies across project components. The domestic airports upgrading component was highly efficacious. All of the physical outputs of this component were achieved and air traffic, passenger numbers, and cargo volumes have increased substantially (Appendix 6). The Manaslu area ecotourism development component was efficacious. All physical components were achieved, and benefits from alternative energy, environmental conservation, and improved access are being realized. However, the benefits expected from increased tourism have yet to be fully realized due to political instability. The Pokhara environmental improvement component was inefficacious. Improvements in Pokhara have not achieved the expected results and will only produce the expected benefits if (i) appropriate staffing is put in place in Pokhara, (ii) pollution of Phewa Lake is curtailed, (iii) planned sedimentation traps are constructed in the drainage system, 7 and (iv) the solid waste and septage management system is effectively implemented. Overall, the Project’s effectiveness in achieving its stated purpose is rated efficacious.

C. Efficiency in Achievement of Outputs and Purpose

29. Efficiency in achievement of outputs and purpose was also significantly varied across project components. The domestic airport upgrading component was efficient. Despite some initial delays, the airport component was completed in a timely manner, without significant cost overruns. Benefits assessed at appraisal—including cost savings in aircraft maintenance, increased passenger arrivals, and more cost-effective essential cargo transport—are being achieved. The financial internal rate of return (FIRR) of the airport upgrading component is

7 Sedimentation traps were included in the drainage system design.

10.24%, while the economic internal rate of return (EIRR) of the component is estimated to be 18.96% (Appendix 7).

30. The Pokhara environmental improvement component of the Project was inefficient. It is difficult to assign any significant benefits to this component due to (i) long delays and increased costs for the Pokhara environmental improvements, and (ii) the question whether there has been any significant improvement to the environment of Pokhara or Phewa Lake. The waste management facility is not yet fully functional (as of October 2005). The access road to the waste disposal in incomplete, and a significant length has been upgraded to an excessively high standard through the suburban area and is not considered cost-effective compared with its objective. Production of expected benefits from the Pokhara environmental improvements depends on (i) appropriate staffing of the PSM Technical Division, (ii) completion of the waste management facility and access road, (iii) implementation of a waste collection plan, (iv) implementation and enforcement of the revised land use plan, (v) enforcement of bylaws and regulations, (vi) further improvement of the drainage system by construction of additional sedimentation traps, and (vii) prevention of sanitary waste discharged into Phewa Lake via the storm drain system.

31. The Manaslu area ecotourism development component was efficient. 8 Despite initial delays, this component was completed in a timely manner. There is evidence that tourist visits to the Manaslu Conservation Area have increased and communities in the region are benefiting from improved access, enhanced communications, access to electricity, and environmental conservation due to reduced firewood usage. However, the full potential benefit to the region is not being realized because of political instability.

32. Economic and financial analyses are in Appendixes 6 and 7. Overall, the Project is rated less efficient.

D. Preliminary Assessment of Sustainability

33. The sustainability of improvements under the domestic airport upgrading and Manaslu area ecotourism development component are considered likely. The airports are generating positive financial returns and adequate funds for O&M. Manaslu area improvements were done with significant community involvement, and community engagement is likely in their upkeep. For the Pokhara component, the local authority’s capacity to manage and maintain the urban infrastructure and waste management systems is questionable. It is critical that a concentrated effort be made to recruit appropriate and experienced staff and train existing staff to manage, operate, and maintain the infrastructure provided under the Project. The concerns expressed at appraisal with regard to O&M have been confirmed by PSM’s inadequate staffing and capacity. The overall sustainability of the Project is rated marginally likely.

E. Institutional Development, Environmental, and Other Impacts

34. Institutional development was central to achieving benefits expected under the Project. For the ecotourism component, attention was paid to giving appropriate training to the local community, which will be responsible for managing and maintaining improvements made under the Project (para. 7[vi]). For the domestic airport upgrading component, the need for extensive training and capacity building was less critical since CAAN has built up its capacity through the implementation of several previous projects. However, for the Pokhara environmental improvements, institutional strengthening was essential to the success of this component.

8 Assessment of Manaslu Component based on discussions with KMTWC, Government, and review of the Government's PCR. No field visits were possible due to security concerns.

However, PSM did not assign the necessary staff or avail of the necessary training under the Project, and the PMU seems not to have focused on this issue either.

35. Positive environmental impacts were achieved in connection with the ecotourism component through development of alternative energy sources, improved water supply, and conservation. The airport upgrading component also had positive environmental impacts through the improvement of drainage around the airports, grading of side strips, and expansion of aprons and paving runways. However, for the Pokhara environmental improvement component, evidence shows that—for the most part—there have been little or no positive impacts and hence, ADB’s policy principles were not met. Raw septage is still being discharged directly into Phewa Lake and adjacent rivers, the waste management systems are only partially operative, and a relatively small number of new septic tanks have been constructed. The improved drainage in the urban area is positive, but negated by the failure to construct all the sedimentation basins, thus allowing continued deposit of sediment to the lake. Appendix 8 presents further analysis of the institutional strengthening, environmental, and other impacts. The lack of institutional development and capacity building in PSM and neglible environmental impacts in Pokhara mean that the overall rating for institutional environmental and other impacts is little.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

36. The Project is rated partly successful, based on weighting the evaluation of each component according to its total cost.9 This result is explained in paras. 26–35and presented in quantitative terms in Appendix 9. In summary, the Project is relevant to the development objectives of the Government and ADB and is considered capable of achieving a significant part of its purpose over time, including intended socioeconomic benefits. However, major shortfalls in the Pokhara environmental improvement component—such as weaknesses in terms of efficacy, efficiency, sustainability, and institutional development—prevent the Project from being classified in more successful terms.

B. Lessons Learned

37. Lessons learned as follows:

(i) Assurances of the Government and implementing agencies should be scrutinized more carefully at appraisal stage, in view of past experience during implementation of the first tourism infrastructure development project. Only realistic assurances, based on proper assessment of institutional capacity and political context, should be incorporated as covenants in the Loan Agreement.

(ii) Capability enhancement of implementing agencies should be carried out well in advance of implementing infrastructure components based on a thorough institutional assessment. Virtually all the problems in the Pokhara component of the Project were rooted in the poor capacity of the implementing agency. More emphasis should have been placed on strengthening its capacity prior to the commencement of physical works.

9 This PCR is part of a sample of PCRs independently reviewed by the Operations Evaluation Department. The review has validated the methodology used and the rating given.

(iii) Entities intended to manage O&M for infrastructure should be established early in the project cycle, and staff trained throughout the implementation period, rather than at the very end. ADB should be more involved in ensuring the appropriate institutions are in place, and that their capacity is strengthened. For example, PSM’s Technical Division was established very late in the project cycle, and is staffed by one individual, who does not know how to operate some of the systems.

(iv) Assessment of community attitude to infrastructure, such as waste disposal, should be better assessed at appraisal. For example, a participatory process to identify a feasible waste disposal site would have prevented significant delays in the implementation of the Project.

(v) ADB should insist on enforcement of bylaws and regulations, such as penalties on illegal septage disposal and solid waste disposal. The drainage system, which was designed purely for storm water, is channeling raw sewerage into Phewa Lake, because of illegal dumping of septage.

(vi) Designs of environmentally sensitive infrastructure systems should anticipate the impacts of noncompliant behavior by the public. The drainage system in Pokhara discharges all water into Phewa lake. Although designed for storm water, many residents have directed their sewerage lines into the drains, which will, over time, cause significant contamination of the lake.

(vii) Airport expansions should have considered projected traffic forecasts, and allocated land for future expansion. In Lukla, airport traffic has increased significantly and is now congested. However, new land for expansion is difficult to acquire because of new construction around the airport.

(viii) Land acquisition needs should be addressed up front, before infrastructure construction is started. Designs should be modified if land acquisition is not likely. In Pokhara, the drainage system is generally complete. However, three sedimentation traps were not constructed because the proposed land could not be acquired. Over time, this will cause increased sedimentation in Phewa Lake.

C. Recommendations

38. The following recommendations are made:

1. Project Related

(i) PSM should urgently strengthen its Technical Division, and appoint more staff to manage the improved infrastructure systems. The Government should ensure adequate budget for this purpose.

(ii) PSM should train its staff in O&M of the solid waste and septage management facilities.

(iii) Fines for illegal dumping of septage into the newly constructed storm water drainage system should be strictly enforced by PSM.

(iv) Collection of solid waste management fees should begin immediately. The fee structure for solid waste management should be simplified significantly. Currently, there are over 25 categories of fees, which makes collection and tracking difficult.

(v) The private sector operators of septage collection services should be allowed to dump septage into the new septage management facility. Significant fines should be put in place and enforced, to curtail dumping of collected septage in the nearby rivers.

(vi) The entire septage collection and management system could be contracted out to private operators. If systems remain idle for much longer, they will become inoperable. PSM should aggressively pursue this option.

(vii) The solid waste collection and management system could also be managed under a private sector contract. PSM should aggressively pursue this option.

(viii) PSM should consider revising the land use plan developed by project consultants, if it is not acceptable. A modified plan, which is acceptable to both PSM and the local community, should be developed and adopted.

(ix) CAAN should ensure that the newly constructed civil works, especially the drainage around the airports, are properly maintained. Field observations showed that some drains were beginning to get clogged with debris.

2. Future Monitoring.

(i) Water quality of Phewa Lake should be monitored. Significant contamination because of septage disposal should be detected and remedied.

(ii) Staffing levels of PSM’s Technical Division should be monitored, along with the financial performance of the overall waste management facility.

3. Timing of the Project Performance Audit Report

39. The positive impacts of the ecotourism component and airport upgrading component are evident, even though the waste management systems are not fully functional. It is suggested that the project performance audit report may be carried out in mid-2007.

14 Appendix 1

PROJECT FRAMEWORK

Design Summary Appraisal Targets Project Achievements Monitoring Key Issues and Mechanisms Recommendations Goal To encourage the • Improved and • Marginal improvement for Government • Pollution of Phewa growth of tourism in sustainable urban the population of Benefit Lake not improved Nepal through environment for 146,000 Pokhara. Higher level of Monitoring and due to sanitary improvements in people in Pokhara and improvement for Manaslu Evaluation waste discharge infrastructure and the 6,500 in Manaslu Report into lake environment • 165 new septic tanks • Improved sanitation constructed, urban systems for about 5,000 drainage and urban Tourism statistics households and roads improved published by the businesses, including Government about 2,000 low-income households

Purpose Improve the urban • Increased numbers of • Some evidence to Tourism statistics • Deteriorated environment in tourists support increased published by the security situation Pokhara and number of visitors Government has had adverse Manaslu, upgrade • Longer stays by tourists • Some evidence supports impact selected tourist- longer length of stays CAAN Annual related domestic • More spending by Report airports, and tourists strengthen local government capabilities

Outputs

1. Pokhara Environmental Improvements • Public • Public awareness • Public awareness Government • Benefit monitoring environment program program carried out Benefit, and evaluation education Monitoring and shows awareness • Sanitation • Improved sanitation • 165 new septic tanks Evaluation program only improvement facilities at 5,000 constructed Report marginally locations, including new successful septic tanks • Effective and • Solid waste • Town-wide solid waste • Town-wide collection in Loan Review lasting operation management collection and disposal at place Missions depends on landfill adequate number • Septage • Regular septage • Regular collection not yet PMU progress of trained staff management collection in place reports and • Land use plan and • Revised land use plan to • Revised land use plan communications urban planning be implemented by not yet implemented March 1998 • Drainage • 33 km to be constructed • 51 km actually improvement constructed • Road • Road improvements, • 9.7 km of access road improvement including 2.7 km access upgraded in suburban road to waste disposal area, but final 2 km to site access the waste disposal site not completed

• Urban road • Not included at appraisal • Approximately 10 km

improvement urban road improvement

• Improvements (primarily

Appendix 1 15

Design Summary Appraisal Targets Project Achievements Monitoring Key Issues and Mechanisms Recommendations • Phewa Lake • Not included at appraisal fencing) completed Technical Division preservation established in Pokhara, but 2. Manaslu understaffed with Ecotourism inexperienced staff Development • Training/capacit • Training and capacity • 50 local committees KMTNC Annual y building building to enhance the formed, 7 skill Reports ability of local population development training to provide improved courses organized, and tourism services and 5 exposure tours for maintenance representatives and residents of project area • 2 helipads constructed, • Access and • Develop trails, heliport, trails improved, bridges communication and improved constructed/restored, and communication facilities wireless radio sets installed • 10 schools received • Access to • Improve infrastructure infrastructure schooling and access to education improvement, conservation classes held at 2 schools, sports equipment for 1 school and adult literacy classes held • 14 community • Cultural • Support local culture monasteries received preservation through conservation/ assistance from the preservation of selected Project monasteries • 4 micro-hydro stations • Alternative • Develop kerosene depots completed and energy and micro-hydro stations 7 kerosene depots established • Improvements 3. Domestic Airport • Airport improvements satisfactorily carried out Improvement including runway, taxiway under the Project, except CAAN Annual (Biratnagar, and apron resurfacing, navigation aids and Reports Bharatpur, navigation aids, fire/rescue equipment, Jomsom, Lukla, fire/rescue equipment, which was obtained Loan Review Jumla, terminal/control tower through separate grant Missions Pokhara) construction/improvemen financing t, side strip grading, road IRAD reports improvements, water supply, and fencing

Government 4. Institutional • This activity was intended • For Pokhara municipality, Benefit, Strengthening to provide the necessary it is evident that the Monitoring and training and improve staffing is inadequate and Evaluation capacity to enable the capability remains weak. Report project implementing For Manaslu

agencies to manage and Conservation Area, Loan Review maintain infrastructure staffing and capability Missions provided under the appears adequate. Project Project management unit (PMU) staff remaining in the Ministry of Culture, Tourism and Civil Aviation (MOCTCA) have increased capability

16 Appendix 1

Design Summary Appraisal Targets Project Achievements Monitoring Key Issues and Mechanisms Recommendations Inputs Resources and Schedule Resources and Schedule

13.53 million Civil Works $9.42 million Apr 1997–Oct 2005 Project Progress Under civil works, Apr 1996–Mar 2002 Reports cost increases on access road and $0.80 million Government urban road Equipment and $5.52 million Apr 1997–Mar 2004 Benefit, component added. Materials Apr 1996–Mar 2002 Monitoring and However, the access Evaluation road to the waste Report treatment facility not $1.78 million complete. Consulting Services $1.80 million Jan 1996–Dec 2002 Loan Review Jan 1996–May 2001 Missions For airport upgrading, $0.98 million navigation and Incremental $0.83 million Jan 1996–Dec 2002 firefighting/rescue Administration Jan 1996–Dec 2001 equipment financed through separate grant aid.

Appendix 2 17

COST ESTIMATES AND FINANCING PLAN ($ million)

Table A2.1: Project Costs

Appraisal Actual Foreign Local Foreign Local Category Exchange Currency Total Exchange Currency Total A. Base Cost 1. Landa 0.00 0.22 0.22 0.00 0.00 0.00 2. Civil Works 1.76 7.66 9.42 2.48 11.05 13.53 3. Equipment and Materials 5.26 0.26 5.52 0.70 0.11 0.80 4. Consulting Services 0.84 0.96 1.80 0.81 0.97 1.78 5. Incremental Administration 0.02 0.81 0.83 0.25 0.73 0.98 Subtotal (A) 7.88 9.91 17.79 4.24 12.87 17.10 B. Contingencies 1. Physical 0.62 0.78 1.40 0.00 0.00 0.00 2. Price 0.67 2.05 2.72 0.00 0.00 0.00 Subtotal (B) 1.29 2.83 4.12 0.00 0.00 0.00

Total Base Cost 9.17 12.74 21.91 4.24 12.87 17.10

C. Interest and Other Charges 0.56 0.45 1.01 0.24 0.00 0.24

Total Project Cost 9.73 13.19 22.92 4.48 12.87 17.34 a Actual land acquisition costs NRs344,900. Total costs based on MOTCA accounts and exchange rate of NRs71.02 per $. $6.114 million form the ADB loan was cancelled. Source: Loan Finance Information System.

Table A2.2 Financing Plan

Appraisal Actual Foreign Local Foreign Local Exchange Currency Total Exchange Currency Total

Asian Development Bank 9.73 7.47 17.20 4.48 6.74 11.22

Government and Beneficiaries 0.00 5.70 5.70 0.00 6.12 6.12

Total 9.73 13.17 22.90 4.48 12.86 17.34 Source: Asian Development Bank loan financial information system.

18 Appendix 3

BREAKDOWN OF ANNUAL DISBURSEMENTS OF ASIAN DEVELOPMENT BANK FUNDS ($’000)

Year Quarter Amount Cumulative

1997 I 0.00 0.00 II 0.48 0.48 III 0.000 0.48 IV 0.06 0.54

1998 I 0.000 0.54 II 0.08 0.62 III 0.15 0.77 IV 0.14 0.91

1999 I 0.19 1.10 II 0.01 1.11 III 0.47 1.58 IV 0.35 1.94

2000 I 0.21 2.15 II 1.14 3.30 III 0.68 3.97 IV 1.42 5.40

2001 I 0.24 5.63 II 0.92 6.55 III 1.07 7.62 IV 0.30 7.93

2002 I 0.99 8.91 II 0.04 8.95 III 0.27 9.22 IV 0.74 9.96

2003 I 0.21 10.17 II 0.46 10.63 III 0.00 10.63 IV 0.29 10.92

2004 I 0.12 11.03 II 0.12 11.15 III 0.07 11.22

Total 11.22 Source: Asian Development Bank loan financial information system.

1996 1997 19981999 20002001 2002 2003 2004 I IV IV II IMPLEMENTATION SCHEDULE

II III I II III IV I II III I II III IV I III IV I II III IV I II III IV I II III IV I II III IV . Pokhara EnvironmentalA Improvements 1. Environmental Education and Staff Training

2. Sanitation Improvements

3. Waste Management Facility and Access Road (including septage and solid waste management) a 4. Drainage Improvements 6. Phewa Lake Preservation a 7. Land Use Plan a 5. Urban Road Improvement B . Ecotourism Development 1. Community Capacity Building

2. Helipad/Airstrip

3. Lodge Development

4. Radio Telephones

5. Micro-Hydel Stations

6. Buddhist School

7. Monastery Conservation

C Domestic Airport Upgrading Appendix 4 19 Appendix 4 1. Biratnagar Airport

2. Pokhara Airport

3. Bharatpur Airport

4. Lukla Airport

I = 5.Jumlafirst quarter, Airport II = second quarter, III = third quarter, IV = fourth quarter.

6. Jomsom Airport

D Implementation Assistance and Institutional Strengthening

Appraisal Actual 20 Appendix 5

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Reference in Status of Compliance Loan Agreement Project Executing Agencies 1. MOTCA, the line ministry responsible for the tourism Loan Agreement Complied with. sector, shall be the principal Project Executing Agency Schedule 6, para. 1 (hereinafter called PEA) and shall be responsible for overall technical supervision and execution of the Project.

2. The Borrower’s Ministry of Local Development Loan Agreement Complied with. (MLD), in its capacity as the line ministry responsible Schedule 6, para. 2 for municipalities, shall be the Executing Agency for Part A of the Project, which shall be carried out in Pokhara.

Project Implementing Agencies 3. The Project Implementing Agencies for Parts A, B Loan Agreement Complied with. and C of the Project shall be Pokhara Sub-Metropolis, Schedule 6, para. 3 KMTNC and DCA, respectively.

4. Each of the Project Implementing Agencies shall be Loan Agreement Complied with. responsible for their respective Project Parts’ Schedule 6, para. 4 engineering design, contract documents, prequalification, bidding and award of contracts, construction supervision, recruitment of design and supervision consultants, monitoring and reporting activities, accounting, and liaison with DOT. Pokhara Sub-Metropolis and KMTNC shall also be involved in community liaison, training programs and matters relating to the disbursement and recovery of concessional loans. Pokhara Sub-Metropolis shall liaise with PVTDC and Kaski District Development Committee as required during Project implementation. KMTNC shall coordinate, where appropriate, with nongovernmental organizations (hereinafter called NGOs), including the Rural Self-Reliance Development Center (hereinafter called RSDC), an NGO doing similar work in the Gorkha district under the auspices of the Gorkha Development Project.

5. A high-level Project Steering Committee (hereinafter Loan Agreement Complied with. called PSC) established under the ongoing Bank- Schedule 6, para. 5 financed Tourism Infrastructure Project shall continue under the Project and shall be chaired by the Secretary, MOTCA. The membership of PSC shall be revised to reflect the Project’s components and shall comprise senior representatives from MOF, Ministry of Agriculture, Pokhara Sub-Metropolis, MLD, DCA and KMTNC. Other representatives may be invited on a needs basis. PSC shall provide policy guidance and review the implementation of the Action Plan. PSC shall meet as often as necessary, but at least every 6 months. PSC shall ensure that the semiannual work programs of KMTNC are approved only after it is satisfied that there is no overlap between the proposed program and that of RSDC or any other NGO or agency.

Appendix 5 21

Covenant Reference in Status of Compliance Loan Agreement Project Management Unit 6. At the central level, the PMU within DOT shall Loan Agreement Complied with. coordinate and manage all activities required for the Schedule 6, para. 6 implementation and management of the Project, including consulting services, and shall report to the Secretary, MOTCA through the Director General, DOT. The PMU, with the assistance of the Project manager, shall liaise with the Bank on all matters of Project implementation. The PMU shall be appropriately strengthened to meet the needs of the Project and provided with staff, and logistic and equipment support. The PMU shall include expertise in urban management services, accounting, economics, statistics, and community development.

7. The PMU shall establish and maintain accounts and Loan Agreement Complied with. records to facilitate the identification of income and Schedule 6, para. 7 expenditures related to the Project.

Project Implementing Units 8. Suitably staffed and equipped PIUs shall be Loan Agreement Complied with. established within Pokhara Sub-Metropolis, KMTNC, Schedule 6, para. 8 and DCA to implement the relevant components and subcomponents of the Project. The PIUs shall be headed by managers at senior levels.

Pokhara Environment Committee 9. PEC shall be established as an advisory committee Loan Agreement Complied with. to ensure that the sanitation facilities improvement Schedule 6, para. 9 Provided loans to subcomponent under Part A of the Project is 165 households of about satisfactorily implemented. PEC shall comprise three NRs8.4 million, of which members each from Board of Pokhara Sub-Metropolis NRs4.0 million has been and the general public in addition to the Member- repaid to date. Secretary of PVTDC and the manager, PSM-PIU. PEC shall be responsible for screening applications for loans for sanitation improvements, disbursement and recovery of loan funds and coordination and monitoring of the implementation of Part A (ii) of the Project. PEC and the public environmental education program shall ensure that the community is involved in the implementation of Part A of the Project.

Institutional, Policy and Financial Action Plan 10. By 30 September 1997, DCA shall have revised the Loan Agreement Complied with delay. civil aviation charges, as outlined in the Action Plan, Schedule 6, para. 10 New civil aviation charges and developed guidelines for improved airport (a) are in effect. management practices.

11. By 31 July 1997, the Borrower shall have Loan Agreement Complied with delay. (a) declared the Manaslu region in the northern part of Schedule 6, para. 10 Manaslu Region in Gorkha district a conservation area, and (b) notified (b) Gorkha District declared and levied an entry fee for tourists entering the as Conservation Area in Manaslu area. November 1999.

22 Appendix 5

Covenant Reference in Status of Compliance Loan Agreement 12. By 31 July 1997, MOTCA shall have established a Loan Agreement Complied with delay. planning and project management division in DOT to Schedule 6, para. 10 undertake sector-wide perspective planning and the (c) organization of Project management. The division shall be re-established in Nepal Tourism Board when it is established.

13. By 30 September 1997, MOTCA shall have Loan Agreement Complied with delay. developed guidelines, procedures and terms of Schedule 6, para. 10 reference for the Nepal Tourism Board, and shall have (d) established the Nepal Tourism Board after consultation with the Bank.

14. By 31 October 1997, MOTCA shall have developed Loan Agreement Complied with delay and introduced standards and products and services in Schedule 6, para. 10 the tourism sector. (e)

15. By 31 March 1998, Pokhara Sub-Metropolis shall Loan Agreement Not complied with. have commenced implementation of the revised Land Schedule 6, para. 10 Land Use Plan developed Use Plan. (f) but not implemented.

16. By 30 June 1999, Pokhara Sub-Metropolis shall Loan Agreement Not complied with. have developed a scheme acceptable to the Borrower Schedule 6, para. 10 and the Bank, to fully recover the costs of providing (g) septage and solid waste management services in Pokhara. The scheme shall become effective simultaneously with the commencement of the provision of the septage and solid waste management services.

Operations and Maintenance 17. Pokhara Sub-Metropolis shall be responsible for Loan Agreement Not complied with. implementing the solid waste and septage Schedule 6, para. 11 management programs. It shall also be responsible for (a) drainage maintenance along roads other than national highways within its jurisdiction. The PSM-TD shall be established to organize and manage maintenance of urban infrastructure within Pokhara. PM-TD shall be responsible for organizing Pokhara Sub-Metropolis’ maintenance functions, developing maintenance plans and budgets, overseeing maintenance work, and monitoring quality. PM-TD shall also be responsible for updating and enforcing the Land Use Plan.

18. KMTNC, with the assistance of consultants referred Loan Agreement Complied with. to in Schedule 5, shall undertake the education and Schedule 6, para. 11 training of host communities in a variety of disciplines (b) including campsite operation, kerosene depot operations, cooking skills, horticulture and forestry management and tourism and conservation awareness under Part B of the Project.

19. By 31 December 1996, DCA shall adopt improved Loan Agreement Complied with delay. airport management practices and shall develop Schedule 6, para. 11 detailed guidelines for improved operations and (c) management of domestic airports and implement them in conjunction with the Project.

Appendix 5 23

Covenant Reference in Status of Compliance Loan Agreement Environmental Considerations 20. The environmental benefits of the Project shall be Loan Agreement Partly complied with. enhanced and sustained through the active Schedule 6, para. 12 Realization and involvement of local communities. The PMU shall sustainability of disseminate information on the Project, including the environmental benefits in initial environmental examination carried for each Pokhara at risk due to Project component, and shall consult with community inadequate action by user groups to ensure that their views are taken into PSM (paras. 28, 30, 33, account. and 35 in the main text)

Benefit Monitoring and Evaluation 21. The Borrower shall cause a comprehensive BME Loan Agreement Complied with. exercise to be undertaken for each component of the Schedule 6, para. 13 Project to ensure that the Project facilities are managed efficiently and the benefits maximized. The PMU shall develop the BME system with assistance from the Project management consultants. The PMU shall submit a detailed implementation plan for preparing benchmark information and for monitoring benefits for the Bank’s review and concurrence within 6 months after the Effective Date. Annual reports shall be furnished to the Bank through the PMU throughout the Project implementation.

22. DOT shall be responsible for carrying out the BME Loan Agreement Not complied with. activities, including the establishment of benchmarks Schedule 6, para. 14 Survey reports not through initial baseline physical and socioeconomic submitted. surveys, data collection and analysis. The surveys shall be repeated at intervals to determine changes in key indicators relating to tourist traffic, length of stay, expenditures, health, welfare, social, economic and physical conditions.

Nepal Tourism Board (NTB) and Civil Aviation Authority of Nepal (CAAN) 23. The Borrower shall ensure that the Nepal Tourism Loan Agreement Complied with. Board will be established, in terms of the Tourism Schedule 6, para. 15 Policy, to replace DOT. The Borrower shall consult with the Bank with respect to the draft rules and regulations of the Nepal Tourism Board prior to its enactment. The Nepal Tourism Board shall comprise representatives of the Borrower and the private sector and shall be an autonomous organization responsible for the coordination of all tourism sector development, including project planning, funding and implementation.

24. The Borrower shall ensure that CAAN will be Loan Agreement Complied with. established, in terms of the Tourism Policy, to replace Schedule 6, para. 16 CAAN operational since DCA. The Borrower shall consult with the Bank with December 1998. respect to the draft rules and regulations of CAAN prior to its enactment.

25. After the establishment of the Nepal Tourism Board Loan Agreement Partly complied with. and CAAN, the responsibilities of DOT and DCA under Schedule 6, para. 17 Transfer of the Project shall be transferred to the Nepal Tourism responsibilities of DOT

24 Appendix 5

Covenant Reference in Status of Compliance Loan Agreement Board and CAAN, respectively. Prior to the assumption and DCA completed. of DOT’s and DCA’s responsibilities under the Project CAAN Project Agreement by the Nepal Tourism Board and CAAN, respectively, signed while the Nepal the Bank shall enter into the Nepal Tourism Board Tourism Board Project. Project Agreement and CAAN Project Agreement with Agreement not signed the Nepal Tourism Board and CAAN, respectively, because of which agreements shall set forth the responsibilities of disagreements between the Nepal Tourism Board and CAAN under the Project. NTB and MOTCA responsibilities.

26. In the event that the Bank notifies the Borrower in Loan Agreement Complied with. writing that the respective project agreements in the Schedule 6, para. 18 paragraph above shall not be required by the Bank, then the responsibilities of the Nepal Tourism Board and CAAN shall be as assumed by them as successor organizations of DOT and DCA, respectively, and as set forth in this Loan Agreement. The Bank shall provide the Borrower with such notification as soon as practicable after the Borrower has informed the Bank that the Nepal Tourism Board and CAAN have been established and are fully capable of assuming the responsibilities of DOT and DCA as set forth in this Loan Agreement.

Land Acquisition 27. The Borrower and MOTCA shall ensure that all land Loan Agreement Complied with. and rights in land required for Parts B and C of the Schedule 6, para. 19 Project are made available in a timely manner. For this purpose, the Borrower shall also ensure that adequate budgetary allocation is made to cover the cost of land acquisition.

Mid-Term Review 28. A mid-term review shall be undertaken by the Loan Agreement Complied with delay. Borrower and the Bank within about 2 years of the Schedule 6, para. 20 Midterm review Effective Date (December 1998) to enable the undertaken in Borrower and the Bank to adjust the design and August 1999. implementation arrangements, if necessary. The review shall focus on the status of Project implementation and the sustainability of benefits, including environmental and social impacts, and institutional reform.

Reports 29. The Borrower shall (i) cause MOTCA and the Loan Agreement Partly complied with. Project Implementing Agencies to maintain separate Article IV, Section MOTCA did not submit accounts for their respective Parts of the Project; 4.06 (b) the audited financial (ii) have such accounts and related financial statements statements for audited annually, in accordance with appropriate FY2002/2003 and CAAN auditing standards consistently applied, by auditors did not submit the audited whose qualifications, experience and terms of financial statements for reference are acceptable to the Bank; (iii) cause FY2000/2001 and MOTCA and the Project Implementing Agencies to FY2001/2002. furnish to the Bank, as soon as available but in any event not later than 12 months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the

Appendix 5 25

Covenant Reference in Status of Compliance Loan Agreement auditors relating thereto, all in the English language; and (iv) furnish to the Bank such other information concerning such accounts and financial statements and the audit thereof as the Bank shall from time to time reasonably request.

30. The Borrower shall furnish, or cause to be Loan Agreement Complied with. furnished, to the Bank all such reports and information Article IV, Section as the Bank shall reasonably request concerning (i) the 4.07 (a) Loan, and the expenditure of the proceeds and maintenance of the service thereof; (ii) the goods and services and other items of expenditure financed out of the proceeds of the Loan; (iii) the Project; (iv) to the extent relevant to the Project, the administration, operations and financial condition of the agencies of the Borrower responsible for carrying out the Project, including MOTCA, the Project Implementing Agencies and the Borrower’s Nepal Tourism Board to be established by the Government under the Tourism Policy (hereinafter called Nepal Tourism Board); (v) financial and economic conditions in the territory of the Borrower and the international balance-of- payments position of the Borrower; and (vi) any other matters relating to the purposes of the Loan.

31. Without limiting the generality of the foregoing, the Loan Agreement Complied with. Borrower shall furnish, or cause to be furnished, to the Article IV, Section Bank quarterly progress reports on the carrying out of 4.07 (b) the Project and on the operation and management of Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as the Bank shall reasonably request, and shall indicate, among other things, physical progress of works, status of related organizational, financial and capacity building issues, problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter.

32. Promptly after physical completion of the Project, Loan Agreement Complied with. but in any event not later than three (3) months Article IV, Section Received the Executing thereafter or such later date as may be agreed for this 4.07 (c) Agency’s project purpose between the Borrower and the Bank, MOTCA completion report in shall prepare and furnish to the Bank a report, in such August 2003. form and in such detail as the Bank may reasonably request, on the execution and initial operation of the Project, including its implementation, cost, benefits, monitoring and evaluation activities, the performance by the Borrower of its obligations under the Loan Agreement and the accomplishment of the purposes of the Loan.

Particular Covenants 33. The Borrower shall cause the Project to be carried Loan Agreement Complied with.

26 Appendix 5

Covenant Reference in Status of Compliance Loan Agreement out with due diligence and efficiency and in conformity Article IV, Section with sound administrative, financial, engineering, 4.01 (a) environmental, tourism development, civil aviation, public utility, urban development, and conservation and training practices.

34. In the carrying out of the Project and operation of Loan Agreement Complied with. the Project facilities, the Borrower shall perform, or Article IV, Section cause to be performed, all obligations set forth in 4.01 (b) Schedule 6 to this Loan Agreement.

35. The Borrower shall make available or cause to be Loan Agreement Complied with. made available, promptly as needed, the funds, Article IV, Section facilities, services, land and other resources which are 4.02 required, in addition to the proceeds of the Loan, for the carrying out of the Project and for the operation and maintenance of the Project facilities.

36. In the carrying out of the Project, the Borrower Loan Agreement Complied with. shall cause competent and qualified consultants and Article IV, Section contractors, acceptable to the Borrower and the Bank, 4.03 (a) to be employed to an extent and upon terms and conditions satisfactory to the Borrower and the Bank.

37. The Borrower shall cause the Project to be carried Loan Agreement Complied with. out in accordance with plans, design standards, Article IV, Section specifications, work schedules and construction 4.03 (b) methods acceptable to the Borrower and the Bank. The Borrower shall furnish, or cause to be furnished, to the Bank, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as the Bank shall reasonably request.

38. The Borrower shall ensure that the activities of its Loan Agreement Complied with. departments and agencies with respect to the carrying Article IV, Section out of the Project and operation of the Project facilities 4.04 are conducted and coordinated in accordance with sound administrative policies and procedures.

39. The Borrower shall make arrangements Loan Agreement Complied with. satisfactory to the Bank for insurance of the Project Article IV, Section facilities to such extent and against such risks and in 4.05 (a) such amounts as shall be consistent with sound practice.

40. Without limiting the generality of the foregoing, the Loan Agreement Complied with. Borrower undertakes to insure, or cause to be insured, Article IV, Section the goods to be imported for the Project and to be 4.05 (b) financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such goods.

Appendix 5 27

Covenant Reference in Status of Compliance Loan Agreement 41. The Borrower shall maintain, or cause to be Loan Agreement Complied with. maintained records and accounts adequate to identify Article IV, Section the goods and services and other items of expenditure 4.06 (a) financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to the extent relevant to the Project, to reflect, in accordance with consistently maintained sound accounting principles, the operations and financial condition of MOTCA and the Project Implementing Agencies.

42. The Borrower shall enable the Bank’s Loan Agreement Complied with. representatives to inspect the Project, the goods Article IV, Section financed out of the proceeds of the Loan, and any 4.08 relevant records and documents.

43. The Borrower shall ensure that the Project facilities Loan Agreement Complied with. are operated, maintained and repaired in accordance Article IV, Section with sound administrative, financial, engineering, 4.09 environmental, tourism development, conservation, civil aviation, training and maintenance and operational practices.

Particular Covenants in the Project Agreement between ADB and CAAN 44. CAAN shall maintain, or cause to be maintained, Project Agreement Partly complied with. records and accounts to identify the goods and Article II, Section CAAN did not submit services and other items of expenditure financed out of 2.06 audited financial the proceeds of the Loan, to disclose the use thereof in statements for the Project, to record the progress of the Project FY2000/2001 and (including the cost thereof) and to reflect, in accordance FY2001/2002. with consistently maintained sound accounting principles, its operation and financial condition.

45. CAAN shall furnish to the Bank all such reports Project Agreement Partly complied with. and information as the Bank shall reasonably request Article II, Section concerning (i) the Loan and the expenditure of the 2.08 (a) proceeds thereof; (ii) the goods and services and other items of expenditure financed out of such proceeds; (iii) the Project; (iv) the administration, operation and financial condition of CAAN; and (v) any other matters relating to the purposes of the Loan.

46. CAAN shall (i) maintain separate accounts for the Project Agreement Partly complied with. Project and for its overall operations; (ii) have such Article II, Section CAAN did not submit accounts and related financial statements (balance 2.09 (a) audited financial sheet, statement of income and expenses, and related statements for statements) audited annually, in accordance with FY2000/2001 and appropriate auditing standards consistently applied, by FY2001/2002. independent auditors whose qualifications, experience and terms of reference are acceptable to the Bank; and (iii) furnish to the Bank, promptly after their preparation but in any event not later than 9 months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the

28 Appendix 5

Covenant Reference in Status of Compliance Loan Agreement report of the auditors relating thereto (including the auditor’s opinion on the use of the Loan proceeds and compliance with the covenants of the Loan Agreement) all in the English language. CAAN shall furnish to the Bank such further information concerning such accounts and financial statements and the audit thereof as the Bank shall from time to time reasonably request.

47. CAAN shall enable the Bank, upon the Bank’s request, to discuss CAAN’s financial statements and its Project Agreement Partly complied with. financial affairs from time to time with CAAN’s auditors, Article II, Section and shall authorize and require any representative of 2.09 (b) such auditors to participate in any such discussions requested by the Bank, provided that any such discussion shall be conducted only in the presence of an authorized officer of CAAN unless CAAN shall otherwise agree.

ADB = Asian Development Bank, BME = benefit monitoring and evaluation, CAAN = Civil Aviation Authority of Nepal, DCA = Department of Civil Aviation, DOT = Department of Tourism, KMTNC = King Mahendra Trust for Nature Conservation, MLD = Ministry of Local Development, MOTCA = Ministry of Tourism and Civil Aviation, NGO = nongovernmental organization, NTB = Nepal Tourism Board, PEA = project executing agency, PEC = Pokhara Environment Committee, PIU = project implementation unit, PMU = project management unit, PSC = project steering committee, PSM = Pokhara Sub-Metropolis, PVTDC = Pokhara Valley Tourism Development Committee, RSDC = Rural Self-Reliance Development Center, TD = technical division.

Appendix 6 29

ECONOMIC ANALYSIS

1. The potential realization of economic benefits varies significantly across project components. All physical works under the Manaslu ecotourism development component were completed on schedule. However, the realization of project impacts is significantly delayed due to political instability in the region. Nevertheless, since 1997, tourist arrivals into the area have increased by 39%. The King Mahendra Trust for Nature Conservation (KMTNC) reports that tourism revenues (excluding permit fees levied by the Government) have increased by 84.6%. Increasing the duration of stay, tourists’ daily spending, and reducing deforestation by introducing alternative energy were all objectives of the Project, but no data was available to quantify such benefits.

Table A6.1: Manaslu Tourism Statistics

Year 1997 1998 1999 2000 2001 2002 2003 2004 Tourism Revenue 0 0 0 762,100 741,000 178,000 1,069,000 1,407,000

Tourist visits 491 756 620 617 798 428 645 682 Source: King Mahendra Trust for Nature Conservation and Ministry of Culture, Tourism and Civil Aviation.

2. The Pokhara environmental improvements component has yet to deliver substantial economic benefits. Annual tourist arrivals in Pokhara have decreased by 5.4% (Table A6.2). The appraisal report estimated that the average length of stay in Pokhara in 1994 was 3 days. Current data from the Pokhara Tourist Office suggest that the average length of stay in Pokhara in 2004 was 2 days. No accurate data was available to verify whether the average spend per day for tourists in Pokhara has changed.

Table A6.2: Pokhara Tourist Visits

Year 1997 1998 1999 2000 2001 2002 2003 2004 Tourist Visits 92,717 103,895 105,546 95,095 77,853 50,533 59,435 87,693 Source: Ministry of Culture, Tourism and Civil Aviation.

3. Drainage improvements have significantly reduced flooding in Pokhara. The appraisal report estimated that the annual cost of flood damage, prior to the Project, was $330,000. Road improvements will cause savings in vehicle maintenance and reduce traffic congestion. However, these benefits cannot be quantified accurately.

4. Benefits from improved solid waste and septage management are yet to be realized. Completion of the waste site and septage management facility were significantly delayed. The waste site, although operational since July 2005, has not generated any revenue, and if not managed effectively, will not deliver the planned environmental and economic benefits. The septage management facility and septage cleanout trucks are not being utilized, and the issues and economic costs related to poor septage management are largely unchanged. Several households and businesses have diverted sewerage lines into the newly constructed storm water drains, which will result in significant contamination of Phewa Lake. The septic tank improvement program only reached 165 households (instead of 5,000 estimated at appraisal). The benefits of that subcomponent are negligible. If not remedied soon, the overall investment in environment improvement in Pokhara will largely be wasted.

5. The domestic airport upgrading component was the most successful. Despite initial delays, all airport upgrading components were completed in a timely manner (see

30 Appendix 6

Appendix 4). The performance of the upgraded airports, overall, are positive. The total number of flights to the six airports under the Project has increased by 45% since appraisal. This is most notably driven by the 218% increase in traffic to Lukla. Flights to Pokhara have remained flat, while flights to Jumla have decreased by 16.3%.

6. Passenger volume through the upgraded airports has increased 23% since appraisal. Again, Lukla has demonstrated the most significant improvement, with a 102.7% increase, followed by Jumla at 91.4%. Overall cargo volume transported through the upgraded airports has increased by 211.4% since appraisal. Once again, this increase is largely driven by Lukla. Data and trends of airport usage are in Tables A6.2, A6.3, and A6.4.

7. The appraisal report estimated the benefits of airport upgrading would include increased length of stay, increased spend per day, and reduced cost of transport of essential goods, among other indicators. No data was available order to accurately quantify all these benefits. However, an economic reevaluation was conducted using conservative assumptions.

8. The economic internal rate of return (EIRR) calculation assumes that 10% of the incremental passengers at the upgraded airports are tourists. The average length of stay in the region of the upgraded airport, which does not come at the expense of a stay elsewhere, is assumed to be 5 days. (The average length of stay for visitors, nationally, was 13.51 days in 2004.) The tourism benefit (both direct and indirect) from the incremental tourist stays is assumed to be $10 per day, although the actual average income per visitor per day Nepal-wide was $45.1. Twenty percent of this incremental value is assumed to be attributable to the Project. Financial values were converted to economic values using a standard conversion factor of 0.9. Passenger volume and airport revenue growth assumptions are outlined in the financial analysis (Appendix 7). Based on the above assumptions, the EIRR of the airport upgrading component is calculated to be 18.96%.

9. Values that are not captured in the analysis include the benefit to airlines from increased capacity, reduced aircraft maintenance, and faster flight turnaround. Other benefits—such as reduced injury and loss of life due to accidents; increased access to remote communities for health, education, and social welfare; and savings due to increased efficiency in transport of essential cargo—were not included. The summary EIRR calculations are shown in Table A6.5.

Appendix 6 31

Figure A6.1: Number of Flights per Airport

25,000 Jumla Jomsom 20,000 Pokhara

15,000 Bharatpur Biratnagar 10,000 Lukla 5,000

0 1997 1998 1999 2000 2001 2002 2003 2004

Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

Table A6.3: Number of Flights per Airport

Percent Increase Since Airport 1997 1998 1999 2000 2001 2002 2003 2004 Appraisal Jumla 3,784 6,170 5,7103,684 2,946 2,208 4,496 3,168 (16.3) Jomsom 1,656 2,476 3,406 4,317 5,104 2,988 3,852 2,610 57.6 Pokhara 13,761 14,671 18,512 22,775 21,511 16,216 19,887 13,795 0.2 Bharatpur 2,1582,132 1,756 1,322 1,776 2,982 38.2 Biratnagar 6,946 8,086 7,890 9,689 10,198 9,472 9,582 11,233 61.7 Lukla 2,482 3,372 7,0368,774 7,284 6,370 8,616 7,892 218.0

Total 28,629 34,775 44,712 51,371 48,799 38,576 48,209 41,680 45.6 Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

Figure A6.2: Total Number of Flights

60,000 50,000 40,000 30,000 20,000 10,000 0 1997 1998 1999 2000 2001 2002 2003 2004

Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

32 Appendix 6

Figure A6.3: Number of Passengers per Airport

300,000 Jumla

250,000 Jomsom

200,000 Pokhara

Bharatpur 150,000 Biratnagar 100,000 Lukla 50,000

0 1997 1998 1999 2000 2001 2002 2003 2004

Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

Table A6.4: Number of Passengers per Airport

Percent Increase Since Airport 1997 1998 1999 2000 2001 2002 2003 2004 Appraisal Jumla 10,550 10,309 13,680 8,969 11,740 14,510 15,695 20,193 91.4 Jomsom 22,323 34,440 19,174 24,755 25,682 17,029 21,489 33,836 51.6 Pokhara 185,388 207,874 245,575 277,704 275,383 192,374 211,671 214,645 15.8 Bharatpur 20,496 24,087 22,618 15,995 20,911 35,265 72.1 Biratnagar 17,9007 17,1825 17,1066 173,658 188,517 156,807 147,485 176,839 (1.2) Lukla 35,243 40,020 59,628 67,969 45,453 50,360 70,959 71,422 102.7

Total 432,511 464,468 529,619 577,142 569,393 447,075 488,210 552,200 27.7 Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

Figure A6.4: Total Number of Passengers

700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 1997 1998 1999 2000 2001 2002 2003 2004

Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

Appendix 6 33

Figure A6.5: Cargo per Airport (kilograms) Jumla

2,500,000 Jomsom

Pokhara 2,000,000 Biratnagar

1,500,000 Lukla

1,000,000

500,000

0 1997 1998 1999 2000 2001 2002 2003 2004

Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

Table A6.5: Cargo per Airport (Kilograms) Percent Increase Since Airport 1997 1998 1999 2000 2001 2002 2003 2004 Appraisal Jumla 912,300 1,788,427 267,083 756,880 496,707 236,534 1,096,749 1,960,366 1,14.9 Jomsom 88,000 129,405 62,018 81,254 155,901 111,025 77,312 138,198 57.0 Pokhara 198,837 298,717 1,639,027 1,236,459 1,049,459 656,548 465,252 227,645 14.5 Biratnagar 133,451 354,130 434,443 456,645 382,422 214,845 204,079 281,623 111.0 Lukla 42,010 137,910 1,353,340 1,868,247 115,447 301,880 1,203,000 1,672,606 3,881.4

Total 1,374,598 2,708,589 3,755,911 4,399,485 2,199,936 1,520,832 3,046,392 4,280,438 211.4 Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

Figure A6.6: Total Cargo (Kilograms)

5,000,000 4,000,000

3,000,000 2,000,000

1,000,000 0 1997 1998 1999 2000 2001 2002 2003 2004

Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

34 Appendix 6

Table A6.6 Economic Internal Rate of Return Calculation

Incremental Incremental Total Incremental Airport Tourism Capital Incremental Incremental Terminal Incremental Year Passengers Revenue Benefit Cost O&M Benefit Value Benefit 1999 — — — (170,268) — (170,268) (170,268) 2000 — 10,850 — (170,268) 3,377 (156,041) (156,041) 2001 — 31,639 — (170,268) (5,923) (144,553) (144,553) 2002 — 23,126 — — (4,702) 18,424 18,424 2003 — 27,790 — — (4,937) 22,853 22,853 2004 — 18,399 — — (5,184) 13,215 13,215 2005 5,522 32,454 5,522 — (5,443) 32,533 32,533 2006 11,651 34,814 11,651 — (5,715) 40,750 40,750 2007 18,439 37,336 18,439 — (6,001) 49,774 49,774 2008 25,937 40,032 25,937 — (6,301) 59,668 59,668 2009 38,968 43,251 38,968 — (6,616) 75,603 75,603 2010 83,306 48,837 83,306 — (8,874) 123,270 123,270 2011 130,305 54,759 130,305 — (11,245) 173,819 173,819 2012 180,123 61,036 180,123 — (13,734) 227,425 227,425 2013 232,930 67,690 232,930 (180,000) (16,349) 104,272 104,272 2014 288,906 74,743 288,906 — (19,093) 344,556 344,556 2015 348,240 82,219 348,240 — (21,975) 408,484 408,484 2016 411,135 90,144 411,135 — (25,002) 476,277 476,277 2017 477,803 98,544 477,803 — (28,179) 548,168 548,168 2018 548,471 107,448 548,471 — (31,515) 624,404 624,404 2019 623,379 116,887 623,379 — (35,018) 705,248 705,248 2020 702,782 126,891 702,782 — (38,697) 790,977 790,977 2021 786,949 137,496 786,949 — (42,559) 881,887 881,887 2022 800,000 139,141 800,000 — (42,559) 896,582 896,582 2023 800,000 139,141 800,000 — (42,559) 896,582 896,582 2024 800,000 139,141 800,000 — (42,559) 896,582 1,073,134 1,969,716 O&M = operation and maintenance. EIRR 18.96% Assumptions: 1. Ten percent of the incremental passengers are tourists. 2. Average length of stay in the area of the upgraded airport, which does not come at the expense of a stay elsewhere, is 5 days. 3. The tourism benefit, per incremental tourist day (both direct and indirect), is $10. 4. Twenty percent of the incremental tourist benefit is attributable to the Project. 5. Financial values have been converted to economic values using a standard conversion factor of 0.9. 6. Passenger volume and airport revenue growth assumptions are outlined in Appendix 7. Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

Appendix 7 35 FINANCIAL ANALYSIS

1. The financial internal rate of return (FIRR) for the domestic airports upgrading component was recalculated to assess the financial impact of the Project.1 The analysis covers 25 years with a base year of 1999, when construction began. Airport revenues are derived primarily from airport taxes; aircraft parking fees, concession rentals, and other sources account for the rest. The growth in passenger volume is used as the basis for estimating revenues. The terminal value of the Project in 2024 is assumed to be an annuity of the projected 2025 income, discounted at 10%. Summary revenue and expenditure data for the upgraded airports are in Table A7.1. The basic data for the financial analysis was provided by Integrated Research Application and Development (IRAD) and the Civil Aviation Authority of Nepal (CAAN).

2. The FIRR of the domestic airport upgrading component is estimated to be 11.82%. Financial projections and calculations of FIRR are summarized in Tables A7.2, A7.3, and A7.4.

3. In the with Project scenario (Table A7.2), passenger volume and annual revenue up to 1996 are based on actual data. It is assumed that passenger volume will grow at 6% per year from 2005 onward, until maximum capacity is reached. The maximum passenger throughput capacity for the six upgraded airports is assumed to be 1.5 million passengers per year. Revenue per passenger is assumed to remain constant at NRs127 (US$1.82). Actual operation and maintenance (O&M) data was only available up to 2002. O&M costs are assumed to increase by 5% per year, up to 2021, when maximum passenger throughput capacity is achieved. It is also assumed that the subsidiary loan from The Government to CAAN has principal of NRs491,981 million (US$7,053), a grace period of 3 years, interest rate of 10.25%, and repayment period of 15 years, beginning 2005.2 A capital expenditure of NRs200 million is assumed for 2013 for resealing and resurfacing runways.

4. In the without Project scenario (Table A7.3), passenger volume and annual revenue up to 1996 are based on actual data provided by CAAN and IRAD. It is assumed that passenger volume would have grown at approximately the same rate with project scenario during this period. Passenger volume is assumed to increase by 5% per year from 2005 onwards, until an estimated maximum capacity (without improvements) of 700,000 passengers per year is achieved. Revenue per passenger is assumed to remain constant at NRs61.05 (US$0.88), the 1999 level. O&M costs are assumed to increase by 5% per year, up to 2009, when maximum passenger throughput capacity is achieved.

1 Pokhara is not generating any significant increase in revenue as of 2005. The FIRR of the Manaslu ecotourism development component cannot be calculated based on the data available. 2 Based on data from IRAD and the 2004 CAAN annual report.

36 Appendix 7 Appendix 7 36 Appendix 7

Table A7.1: Summary Financial Data for Upgraded Airports (NRs '000)

Item 1998 1999 2000 2001 2002 2003 2004 Revenue Baratpur 861 1,520 2,242 2,321 1,589 3,169 3,455 Biratnagar 6,503 10,544 14,563 19,897 17,624 18,236 28,644 Jomsom 358 974 2,821 5,129 4,021 7,481 3,676 Lukla 513 1,630 3,184 7,366 6,322 6,930 Pokhara 8,442 16,898 26,621 35,710 25,042 29,081 26,963 Jumla 325 765 832 1,690 1,329 1,283 1,406 Total revenue 17,002 32,332 50,263 72,113 55,929 66,179 Compound annual growth rate 31.23%

O&M Expenditures Baratpur 801 2,318 2,198 3,886 2,669 Biratnagar 3,063 8,291 7,983 11,264 12,931 Jomsom 344 1,287 1,299 2,307 2,374 Lukla 374 1,087 1,226 2,677 2,298 Pokhara 1,093 6,190 6,820 10,453 11,434 Jumla 290 1,110 1,244 1,505 1,260 Total O&M expenditure 5,965 20,283 20,770 32,092 32,966

Operating Income Baratpur 60 (798) 44 (1,565) (1,079) Biratnagar 3,440 2,254 6,581 8,633 4,693 Jomsom 14 (312) 1,522 2,822 1,647 Lukla 139 543 1,958 4,689 4,024 Pokhara 7,349 10,707 19,801 25,257 13,608 Jumla 35 (345) (412) 185 69

Total Operating Income 11,037 12,050 29,493 40,021 22,962 Compound Annual Growth Rate 20.10% Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

Appendix 7 37

Table A7.2: Financial Projections (With Project Scenario) (NRs '000) Revenue/ Capital Loan Loan CAAN's Net Terminal Year Passengers passenger Revenue Cost O&M Inflow Payments Benefit Value Total Benefit 1999 529,619 79.14 41,915 (189,187) (26,294) 163,994 (9,573) (9,573) 2000 577,142 100.03 57,731 (189,187) (23,856) 163,994 8,682 8,682 2001 565,765 141.28 79,929 (189,187) (35,571) 163,994 19,165 19,165 2002 439,820 137.56 60,503 (35,663) 24,840 24,840 2003 488,210 142.39 69,515 (37,446) 32,070 32,070 2004 552,200 116.16 64,145 (39,318) 24,827 24,827 2005 585,332 140.00 81,946 (41,284) (65,608) (24,946) (24,946) 2006 620,452 140.00 86,863 (43,348) (65,608) (22,093) (22,093) 2007 657,679 140.00 92,075 (45,516) (65,608) (19,049) (19,049) 2008 697,140 140.00 97,600 (47,791) (65,608) (15,800) (15,800) 2009 738,968 140.00 103,456 (50,181) (65,608) (12,334) (12,334) 2010 783,306 140.00 109,663 (52,690) (65,608) (8,636) (8,636) 2011 830,305 140.00 116,243 (55,325) (65,608) (4,690) (4,690) 2012 880,123 140.00 123,217 (58,091) (65,608) (482) (482) 2013 932,930 140.00 130,610 (200,000) (60,995) (65,608) (195,993) (195,993) 2014 988,906 140.00 138,447 (64,045) (65,608) 8,793 8,793 2015 1,048,240 140.00 146,754 (67,247) (65,608) 13,898 13,898 2016 1,111,135 140.00 155,559 (70,610) (65,608) 19,341 19,341 2017 1,177,803 140.00 164,892 (74,140) (65,608) 25,144 25,144 2018 1,248,471 140.00 174,786 (77,847) (65,608) 31,330 31,330 2019 1,323,379 140.00 185,273 (81,740) (65,608) 37,925 37,925 2020 1,402,782 140.00 196,390 (85,827) 110,563 110,563 2021 1,486,949 140.00 208,173 (90,118) 118,055 118,055 2022 1,500,000 140.00 210,000 (90,118) 119,882 119,882 2023 1,500,000 140.00 210,000 (90,118) 119,882 119,882 2024 1,500,000 140.00 210,000 (90,118) 119,882 1,198,822 1,318,704

CAAN = Civil Aviation Authority of Nepal, O&M = operations and maintenance. Assumptions: App 1. The Government subsidiary loan to the CAAN has principal of NRs491.981 million, grace period of 3 years, interest rate of 10.25%, and repayment

period of 15 years. 37 endix 7 2. Capital expenditures and disbursements for airport upgrading were distributed equally over the 3-year duration of civil works. 3. Passenger volume grows at a rate of 6% per year from 2005 onwards, until a capacity of 1.5 million is reached. 4. Revenue per passenger will remain constant at NRs127 from 2005 onwards. 5. O&M expense will grow at 5% per year until maximum passenger capacity is reached. 6. Estimated refurbishment expenditures for the six airports in 2013 are NRs200 million. 7. Terminal value is calculated as an annuity of projected 2025 net income, discounted at 10%. 8. Historic nominal values are converted to real 2004 values. Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

36 Appendix 7 Appendix 7 38 Appendix 7 Table A7.3: Financial Projections (Without Project Scenario) (NRs '000)

Revenue per Capital Loan Loan CAAN's Terminal Total Year Passengers Passenger Revenue Cost O&M Inflow Payments Net Benefit Value Benefit 1999 529,619 79.14 41,915 (26,294) 15,621 15,621 2000 577,142 79.14 45,676 (27,609) 18,067 18,067 2001 565,765 79.14 44,775 (28,989) 15,786 15,786 2002 439,820 79.14 34,808 (30,439) 4,369 4,369 2003 488,210 79.14 38,638 (31,961) 6,677 6,677 2004 552,200 79.14 43,702 (33,559) 10,143 10,143 2005 579,810 79.14 45,887 (35,237) 10,650 10,650 2006 608,801 79.14 48,181 (36,998) 11,183 11,183 2007 639,241 79.14 50,590 (38,848) 11,742 11,742 2008 671,203 79.14 53,120 (40,791) 12,329 12,329 2009 700,000 79.14 55,399 (42,830) 12,569 12,569 2010 700,000 79.14 55,399 (42,830) 12,569 12,569 2011 700,000 79.14 55,399 (42,830) 12,569 12,569 2012 700,000 79.14 55,399 (42,830) 12,569 12,569 2013 700,000 79.14 55,399 (42,830) 12,569 12,569 2014 700,000 79.14 55,399 (42,830) 12,569 12,569 2015 700,000 79.14 55,399 (42,830) 12,569 12,569 2016 700,000 79.14 55,399 (42,830) 12,569 12,569 2017 700,000 79.14 55,399 (42,830) 12,569 12,569 2018 700,000 79.14 55,399 (42,830) 12,569 12,569 2019 700,000 79.14 55,399 (42,830) 12,569 12,569 2020 700,000 79.14 55,399 (42,830) 12,569 12,569 2021 700,000 79.14 55,399 (42,830) 12,569 12,569 2022 700,000 79.14 55,399 (42,830) 12,569 12,569 2023 700,000 79.14 55,399 (42,830) 12,569 12,569 2024 700,000 79.14 55,399 (42,830) 12,569 125,688 138,257 CAAN = Civil Aviation Authority of Nepal, O&M = Operations and maintenance. Assumptions: 1. Passenger volume from 1999 through 2004 would have been similar to the actual figures. 2. Passenger volume grows at a rate of 5% per year from 2005 onwards, until a capacity of 700,000 is reached. 3. Revenue per passenger would have remained unchanged from 1999 onwards. 4. O&M expense grows at 5% per year until maximum capacity is reached. 5. Terminal value is calculated as an annuity of projected 2025 net income, discounted at 10%. 6. Historic nominal values are converted to real 2004 values. Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

Appendix 7 39

Table A7.4: Financial Internal Rate of Return Calculation

Incremental Total Incremental Revenue Incremental Capital Incremental Loan Loan Incremental Terminal Incremental Year Passengers per Revenue Cost O&M Inflow Payments Benefit Value Benefit 1999 —— — (189,187) - 163,994 — (25,193) (25,193) 2000 —21 12,055 (189,187) 3,753 163,994 — (9,385) (9,385) 2001 —62 35,154 (189,187) (6,582) 163,994 — 3,379 3,379 2002 —58 25,695 — (5,224) — — 20,471 20,471 2003 —63 30,878 — (5,485) — — 25,393 25,393 2004 —37 20,443 — (5,760) — — 14,684 14,684 2005 5,522 61 36,059 — (6,047) — (65,608) (35,596) (35,596) 2006 11,651 61 38,682 — (6,350) — (65,608) (33,276) (33,276) 2007 18,439 61 41,485 — (6,667) — (65,608) (30,791) (30,791) 2008 25,937 61 44,480 — (7,001) — (65,608) (28,129) (28,129) 2009 38,968 61 48,057 — (7,351) — (65,608) (24,903) (24,903) 2010 83,306 61 54,264 — (9,860) — (65,608) (21,204) (21,204) 2011 130,305 61 60,844 — (12,494) — (65,608) (17,259) (17,259) 2012 180,123 61 67,818 — (15,261) — (65,608) (13,051) (13,051) 2013 232,930 61 75,211 (200,000) (18,165) — (65,608) (208,562) (208,562) 2014 288,906 61 83,048 — (21,215) — (65,608) (3,775) (3,775) 2015 348,240 61 91,355 — (24,417) — (65,608) 1,329 1,329 2016 411,135 61 100,160 — (27,779) — (65,608) 6,772 6,772 2017 477,803 61 109,493 — (31,310) — (65,608) 12,575 12,575 2018 548,471 61 119,387 — (35,017) — (65,608) 18,762 18,762 2019 623,379 61 129,874 — (38,909) — (65,608) 25,356 25,356 2020 702,782 61 140,990 — (42,996) — — 97,994 97,994 2021 786,949 61 152,774 — (47,288) — — 105,486 105,486 2022 800,000 61 154,601 — (47,288) — — 107,313 107,313 2023 800,000 61 154,601 — (47,288) — — 107,313 107,313 2024 800,000 61 154,601 — (47,288) — — 107,313 1,073,134 1,180,447 O&M = operations and maintenance. FIRR 11.82% App Assumptions:

See assumptions under with Project and without Project scenarios. 39 endix 7 Sources: Civil Aviation Authority of Nepal and Integrated Research Application and Development Consultant’s Report.

40 Appendix 8

ANALYSIS OF INSTITUTIONAL STRENGTHENING, ENVIRONMENTAL, AND OTHER IMPACTS

A. Institutional Strengthening

1. Institutional strengthening was a critical and central component to the success of the Project. At appraisal, it was recognized that the capacity of the Implementing Agencies was weak and needed strengthening, particularly the Pokhara Sub-Metropolis (PSM). Provision was included in the Project for consulting services to assist in institutional strengthening and capacity building. However, PSM failed to take full advantage of this provision. Consequently, at the end of the implementation period, PSM’s Technical Division lacked the necessary expertise to properly manage, operate, and maintain the waste management facility. It is under staffed and current staff lack the skills necessary to carry out tasks related to the waste management systems, implementation of the land use plan, and maintenance of drainage facilities in Pokhara. Urgent action is required to correct this deficiency.

B. Drainage Improvements

2. Improvements of urban roads and drainage in Pokhara have reduced flooding. Almost all roadside drains improved under the Project are covered, and discharge into the Seti River and other local streams (such as Phirke) or into Phewa Lake. Only one out of four planned sedimentation basins was constructed at the discharge point at Hallan Chowk near Phewa Lake. The other discharge points continue to deposit sediments in the lake. Another concern is the lack of cleaning and maintenance of the sedimentation basins, which will soon make them ineffective or nonfunctional. In addition, in many places (such as the lakeside and Chipledunga area), septic tank outlets or direct sanitary waste are illegally connected to the covered roadside drains, bypassing septic tanks. This means that they discharge sewage into storm drains and then Phewa Lake or rivers/streams. The washing facility built near the lake does not have any treatment facility. Pokhara Municipality has not started effective collection and safe disposal of septage as of October 2005. Some private sector operators provide septic tank cleanout services but septage is haphazardly disposed of in unidentified locations, probably into local streams. All these activities continue to pollute the lake and rivers/streams. Therefore, it is concluded that the Project has not made a significant difference in abating pollution of the lake and rivers/streams in and around Pokhara.

C. Airport Upgrading

3. Upgrading the airports has not resulted in any significant, adverse environmental impacts as they were small-scale improvements of existing airport facilities. For the people of Jumla, Jomsom, and Lukla, which are remote and devoid of road or other modern means of transport, the improved airport is helping tourism and provides a more convenient and reliable way to connect to the rest of the country. Construction of the drainage channel (Basta Nala) at Biratnagar airport protected the airport from flooding and helped protect agricultural land north of the airport from being flooded during monsoon. However, maintenance of the drainage channel is lacking. Upgrading of Biratnagar and Pokhara airports made it possible for larger aircraft to operate from these facilities.

Appendix 8 41

D. Manaslu Ecotourism Component

4. Although it was not possible to visit the Manaslu Conservation Area,1 it is expected that provision of kerosene depots and construction of micro-hydro plants will have positively contributed to conservation by saving the forest in the area.

E. Noise

5. Construction activities caused some disturbances (such as noise and dust pollution). For example, construction of roadside drains and improvements of urban roads in Pokhara caused temporary inconvenience to the movement of people and vehicles during implementation. Construction activities in the hills (such micro-hydro, trail upgrading, and airport terminal construction) may have contributed to increased soil erosion and slope instability during construction. However, all these were minor and temporary in nature and are no longer a concern.

F. Land Acquisition

6. Land acquisition was not necessary, except for the construction of the terminal building at Lukla airport and waste disposal facility at Pokhara. The Government formally acquired the land for the Lukla terminal building following approved the land acquisition and compensation procedures. The encroached settlers at Pokhara landfill site were convinced by the municipality and local administration to leave the public land. No resettlement was required under the Project.

1 Due to prevailing political instability and security concerns in the region.

42 Appendix 9

OVERALL PROJECT RATING

Table A9.1. Assessment of the Pokhara Environmental Improvement Component (Part A) Criterion Assessment Rating Weight Weighted (0–3) (%) Rating Relevance Relevant 2 20 0.4 Efficacy Inefficacious 0 25 0.0 Efficiency Inefficient 0 20 0.0 Sustainability Less Likely 1 20 0.2 Institutional Development Negligible 0 15 0.0 and Other Impacts 0.6 Partly Successful

Table A9.2. Assessment of the Ecotourism Component in Manaslu Conservation Area (Part B) Criterion Assessment Rating Weight Weighted (%) Rating Relevance Relevant 2 20 0.4 Efficacy Efficacious 2 25 0.5 Efficiency Efficient 2 20 0.4 Sustainability Likely 2 20 0.4 Institutional Development Moderate 2 15 0.3 and Other Impacts 2.0 Successful

Taable A9.3. Assessment of the Domestic Airports Upgrading Component (Part C) Criterion Assessment Rating Weight Weighted (%) Rating Relevance Relevant 2 20 0.40 Highly Efficacy Efficacious 3 25 0.75 Efficiency Efficient 2 20 0.40 Sustainability Likely 2 20 0.40 Institutional Development Moderate 2 15 0.30 and Other Impacts 2.25 Successful

Appendix 9 43

Table A9.4. Cost per component Component Cost (NRs) Proportion Part A 503,548,993 44.02% Part B 72,853,957 6.37% Part C 567,561,172 49.61% Total: 1,143,964,122 100.00% Source: Project management unit accounts, Ministry of CTCB

Table A9.5 Overall rating based on proportion of the Project: Individual Weighted Component Rating Proportion Proportion Part A 0.6 44.02% 0.26 Part B 2.00 6.37% 0.13 Part C 2.25 49.61% 1.12 Total 1.51 Partly Successful Overall rating: HS = highly successful 2.5 < HS ≤ 3.0 S = successful 1.6 ≤ S ≤ 2.5 PS = partially successful 0.6 ≤ LS < 1.6 U = unsuccessful < 0.6

Table A9.6. Rating of each component by criterion: Component Relevance Efficacy Efficiency Sustainability Institutional Part A 2.00 0.00 0.00 1.00 0.00 Part B 2.00 2.00 2.00 2.00 2.00 Part C 2.00 3.00 2.00 2.00 2.00 Overall 2.00 1.62 1.12 1.56 1.12 Less Assessment: Relevant Efficacious Efficient Likely Little Assessment Ratings: Relevance: 3 = highly relevant, 2 = relevant, 1 = partly relevant, 0 = irrelevant. Efficacy: 3 = highly efficacious, 2 = efficacious, 1 = less efficacious, 0 = inefficacious Efficiency: 3 = highly efficient, 2 = efficient, 1 = less efficient, 0 = inefficient. Sustainability: 3 = most likely, 2 = likely, 1 = less likely, 0 = unlikely. Institutional Development and Other Impacts: 3 = substantial, 2 = moderate, 1=little, 0 = negligible.