Dmme f The World Bank
FOR omcwL. USE ONLY
Public Disclosure Authorized Report No. P-4332-NEP
REPORT AND RECOMMENDATION
OF THE
PRESIDENT OF THE
Public Disclosure Authorized INTERNATIONALDEVELOPMENT ASSOCIATION
TO TRE
EXECUTIVEDIRECTORS
ON A
PROPOSEDCREDIT OF SDR 21.6 MILLION
TO THE
KINGDOMOF NEPAL
Public Disclosure Authorized FOR A
NARAYANIIII IRRIGATION PROJECT
June 2, 1986 Public Disclosure Authorized
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Is contents may not otherwise be disclosed without World Bank authorization. CURRENCYEQUIVALENTS
US$1.0 = KRs 20.5
ABBREVIATIONS AND ACRONYMS
AG - Auditor General AIC - Agricultural Inputs Corporation BSC - Branch Secondary Canal CCA - Cultivated Commanded Area DG - Director General (DIHM and DOA) DIHM - Department on Irrigation, Hydrology and Meteorology DOA - Department of Agriculture FAO - Food and Agriculture Organization GM - General Manager cOI - Government of India HMGN - His Majesty's Government of Nepal ICB - International Competitive Bidding IDA - International Development Association LCB - Local Competitive Bidding M&E - Monitoring and Evaluation MOA - Ministry of Agriculture MSC - Main Secondary Canal MWR - Ministry of Water Resources NEC - Nepal Eastern Canal NZIDB - Narayani Zone Irrigation Development Board NZIDP - Narayani Zone Irrigation Development Project (Stages I, II and III areas) O&M - Operation and Maintenance SA - Special Account SDC - Swiss Development Cooperation Stage I Area - Narayani Zone-Blocks I-VI--15,900 ha Stage II Area - Narayani Zone-Blocks VII-XII--12,800 ha Stage III Area - Narayani Zone--Blocks XIII-XV--8,700 ha TC - Tertiary Canal T&V - Training and Visit System (of Agricultural Extension) USAID - United States Agency for International Development WUG - Water Users' Group
FISCAL YEAR
July 16 - July 15 FOR OFFICIALUSE ONLY
NEPAL
NARAYANI III IRRIGATIONPROJECT
Credit and Project Summary
Borrower: Kingdom of Nepal
Amount: SDR 21.6 million (US$24.5 million equivalent)
Terms: Standard
Project Objective The main objectives of the Project are to increase and Description: dry-season agricultural production and reduce the risks to monsoon crop production by introducingan equitable, predictableand reliable irrigation system in the Narayani irrigation scheme. The proposed project is the third phase of an IDA-supportedprogram and would complete the developmentof irrigation and drainage infrastructureover about 37,400 ha served by the Nepal Eastern Canal in the Narayani Zone of the Central Region of Nepal. The project would also provide for: flood protection and river training works; improvementsto village roads and canal service roads; support to agriculturalextension and research; a regional workshop; training of project staff; consulting services; funding for project establishmentand O&M; a small component for groundwaterdevelopment; and monitoring and evaluation. In view of the experiencewith the implementationof the first and second projects,no major risks are anticipatedregarding the physical implementationof the project. Possible risks that could affect project objectives include: HMG's failure to make adequate provisions for OEM financingafter contributions from the credit phase out at the end of implementation;a major flood damage to the main canal and other essential irrigation infrastructure;and inadequatewater management. With respect to these risks, the cost of project establishmentand ObM would be financed under the credit on a declining basis; special training would be provided to project staff in water management and water users' groups would be strengthened; and project planning and design would enable the introductionof a water management system that would enable the irrigation service to be timely, reliable and equitable.
This document has a rstricted distribution and may be used by recipients only in the performance | of their offiil duties Its contents may not otherwie be disclsed without World Dank authoriation. Estimated Costs: a1
US$ Millions- Project Component Local Foreign Total
NEC Improvementand Repairs to the Tilawe Barrage 1.2 1.0 2.2 Irrigationand Drainage (Stage III Areas) 1.5 3.0 4.5 Irrigation and Drainage (Stage I and II Areas) 1.2 2.2 3.4 Flood Control and River Training 0.5 1.1 1.6 Upgrading of Road Network 0.5 1.1 1.6 Equipment and Radio-Communication System 0.1 1.3 1.4 Regional Workshop 0.1 0.9 1.0 Technical Support 1.6 2.5 4.1 Establishmentand O&N 3.6 1.8 5.4 Land Acquisition and Crop Compensation 0.6 - 0.6
TOTAL BASE COSTS 10.9 14.9 25.8
Contingencies Physical Contingencies 1.1 1.8 2.9 Price Contingencies 3.0 3.8 6.8
TOTAL PROJECT COSTS 15.0 20.5 35.5
Financing Plan: b/ -- US$ Millions--
Local Foreign Total
IDA 9.2 15.3 24.5 SDC 2.3 5.2 7.5 HMGN 3.5 5.2 3.5
TOTAL 15.0 20.5 35.5
a/ Not including taxes and duties estimated at about US$0.5 million. b/ SDC grant is denominated in Swiss Francs and is fixed at 15 million Swiss Francs: the US$ equivalent of 7.5 million (using exchange rate of April 22, 1986) may vary with exchange rate movements. Cofinancing is on a joint basis following Bank Group's procurementand consultants guidelines. -iii-
Estimated Disburseuents: IDA FY
FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 a/
(a) For IDA Credit
Annual 0.8 2.3 3.4 5.0 6.5 3.7 2.3 0.5 Cumulative - 3.1 6.5 11.5 18.0 21.7 24.0 24.5 (b) For SDC Grant
Annual 0.2 0.7 1.1 1.5 1.6 1.3 0.9 0.2 Cumulative - 0.9 2.0 3.5 5.1 6.4 7.3 7.5
Rate of Return: 21 percent
Appraisal Report: NEPAL: Narayani III IrrigationProject, Report No. 6067-NEP,dated June 2, 1986
Map: IBRD 19549
a/ One semester. INTERNATIONALDEVELOPMENT ASSOCIATION
REPORTAND RECOMMENDATIONOF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSEDCREDIT TO THE KINGDOMOF NEPAL FOR A NARAYANI III IRRIGATION PROJECT
1. I submit the following report and recommendationon a proposed development credit to the Kingdom of Nepal in an amount of SDR 21.6 million (US$24.5 million equivalent)on standard IDA terms to help finance the Narayani III Irrigation Project. Cofinancing has been arranged with the Swiss Development Cooperation (SDC) for a grant of Sw F 15.0 million (about US$7.5 million equivalent).
PART I - THE ECONOMY 1/
2. The most recent economic report, Nepal: Prospects for Eccnomic Adjustment and Growth (Report No. 5867-NEP), was distributedto the Executive Directors on December 17, 1985. The principal features and recent performance of the economy are described below. Country data are shown in Annex I.
3. Nepal is one of the least-developedcountries in the world. Per capita income is estimated at US$170 (1983) and health and education standardsare well below the average for South Asia. Life expectancy at birth is about 46 years, infant mortality is about 145 per 1,000 and adult literacy is only 19 percent. The population,estimated to be 16.3 million (mid-1984),grew at a rate of about 2.7 percent per year between 1971 and 1984. About 95 percent of the population lives in rural areas.
4. Population density with respect to arable land (394 persons per sq km) has reached very high levels, and cultivationhas been extended to marginal lands and forests. Forests have been denuded further to meet the growing demand for fuelwood, on which Nepal depends for more than 90 percent of its energy consumption,mostly for household cooking and heating. Because of deforestationand excessive grazing on hills and mountains, when rainfall is abundant, accelerated soil erosion occurs causing rivers to silt and flood with consequent loss of agricultural productivity.
5. Agriculture, largely rainfed, accounts for nearly 60 percent of Nepal's GDP and merchandise exports and provides the main source of livelihood to more than 90 percent of the population. Crop production
1/ Substantiallyunchanged from Cottage and Small Industries II Project (Report No. P-4295, dated April 24, 1986). -2-
accounts for about 60 percent of agriculturaloutput, livestock for 30 percent, and forestry for 10 percent. Apart from agricultural land, Nepal's only other important exploitable resources are hydropower and tourism. Exploitationof its vast hydropower resources will depend upon the Government'sability to enter into complex agreements with neighboring countries regarding the use and development of water resources and the exchange of water-related benefits. The tourism sector, based primarily on Nepal's Himalayan environment provides about 20 percent of the country's foreign exchange earnings, but accounts for only about 1 percent of GDP.
6. Following centuries of self-imposedisviation, efforts to develop the economy of Nepal began in the mid-1950s--a time when the country had virtuallyno physical infrastructure,an ancient administrativesystem, and very limited educational and health services. Between 1955 and 1975, the country's primary development goal was to build basic infrastructureand provide a basis for future economic growth. Reasonably good progress has been made. A basic road network now exists. Schools accommodating almost half of the children of primary school age have been built, as have a number of secondary schools and a national university. A rudimentary hospital system, including rural health posts, has also been established. Then, in the Fifth Five-Year Plan the Government shifted its development objectives to stress acceleratingeconomic growth and creating employment,as well as raising living standards. These objectives were reiterated in the Sixth Plan (FY81-FY85)and in the Seventh Plan (FY86-FY90),which also appropriately assigned high priority to developing agriculture, small-scale industries and Nepal's abundant water resources. Additionally, both Sixth and Seventh Plans stressed the need to conserve soil, control population growth, make better use of existing infrastructure,expand absorptive capacity and develop human resources. But despite rapid expansion of development expenditures, sup- ported by growing foreign assistance, from US$103 million (7 percent of GDP) in FY75 to US$421 million (18 percent of GDP) in FY85, per capita real income grew at only 0.5 percent annually during this period.
7. The country's difficult terrain, landlocked position, and poor natural resource base have contributed to its disappointingeconomic performance. Other important factors are the Government'sseverely limited capacity to manage the economy and to administer rapidly expanding develop- ment programs.
8. Over the past ten years, public expenditureshave continued to grow faster than revenues, with increasing shares of the growing budget deficits financed by aid flows. The situation deteriorated sharply, starting in FY83 when large unanticipatedemergency expendituresdue to a drought necessitated recourse to significantdomestic bank borrowings. The budget position has remained unstable since then, and the continued reliance on domestic bank financinghas created inflationarypressures. Serious balance of payments problemshave also emerged in the past three years as the cumulative result of a decade of poor economic management,as characterizedby low real GDP growth, and dwindling agriculturalsurpluses for export. The external pay- -3-
ments position remained precarious in FY84 and FY85, with the country con- tinuing to lose foreignexchange reserves. By June 1985, gross official internationalreserves had declined to the equivalent of 1.6 months of imports compared with the peak of 6.2 months at the end of FY82.
9. To restore financial stability, the Government needs urgently to step up domestic resource mobilizationwhile stringentlycontrolling the growth of expendituresin order to reduce domestic bank borrowings. As a result of efforts to improve income tax assessment and collectionand to apply indirect taxes, revenues have steadily increased,but the tax structure remains inelastic and narrowly based. Immediatereform should be geared to rationalizingthe structureof taxation and widening the tax base, for example, by reducing income tax exemptions and deductions and eliminating sales tax rate differentialsbetween imported and domestically-produced goods.
10. To control expenditure,the Governmentmust contain the growth of wages and salaries, now the largest component in the regular budget. A freeze on further civil service hiring is required over the next few years. Implicitly,selective redeployment of positions is also required in order to achieve priority objectives in some sectors. Also, in the wake of a hefty 35 percent general salary increase introduced in FY85, no increases should be allowed in the Sev-enthPlan period. Additionally,public enterprisereform must be pursued in order to reduce subsidy and transfer payments to public corporations,some of which are causing a serious drain on the budget. Developmentexpenditures should be directed toward activities that will produce economic results efficientlyand quickly. To this end, existing productive capacity and infrastructureneed to be strengthenedto increase their usage, for example, through measures to improve operations and maintain roads and irrigationcanals. Resources for new investments should be directed to activities that will earn additional foreign exchange for the economy within short gestation periods. To lessen the burden of counterpart funding, the Government should take a critical look at the pipeline of ongo- ing operationsand re-evaluatethe returns to the economy of completing each project. Tough decisions will likely be requi:ed to postpone, re-design or cancel any ongoing project that does not measure up to the criteria applied.
11. Concurrently,additional foreign exchange needs to be generated through export promotionand efficient import substitutionin order to stabi- lize the country's precariousexternal payments position and to accelerate real GDP growth in the medium to longer term. To improve its agricultural trade position, the Government'simmediate priority should be to secure an adequate supply of foodgrains(rice, maize, wheat) and principal food crops (sugar, oil seeds) to eliminate the sporadic requirementfor food imports in years when the monsoon fails. An effort should also be made over the longer term to promote the export of minor cash crops such as ginger and cardamom. The key elements to improveagricultural production over the medium term include: improvementsin the supply and distributionof agriculturalinputs; increasedaccess by farmers to credit; investmentsin transport,storage and -4-
other basic infrastructureto facilitate marketing;and a more effective and flexible agricul.ural pricing policy. The developmentof cottage and small industries (CSI) should also receive high priority over the next few years because of their potential for earning foreign exchange. Currently, the output from CSI, such as carpets, ready-made garments,and handicrafts, accounts for 30 percent of Nepal's total merchandiseexports. In recent years, the Government has legislated a wide range of fiscal and administra- tive incentives to stimulate private investment in CSI as well as the export of CSI products. Implementationof these measures, together with the alleviation of severe transport and transit constraints,constitute essential elements of an export trade promotion strategy for Nepal.
12. In late 1985, the Government took major first steps toward stabilizing,and stimulatinggrowth of, the economy. Effective November 30, 1985, the Nepalese Rupee was devalued by about 14 percent. Subsequently,the Government introduceda financial stabilizationprogram as part of a 13-month standby arrangementwith the InternationalMonetary Fund. Major features of the program are: (a) maintenanceof a flexible exchange rate policy; (b) restraints on public regular and developmentexpenditures; (c) strengthenedtax administrationto help reduce the budget deficit; (d) restraint on the creation of domestic credit, especially bank credit to the public sector; (e) maintenanceof key bank deposit rates at positive real levels; (f) increases in the prices charged by public enterprisesand a reduction in the subsidies received by them; (g) restraint on external comr mercial borrowing; (h) increased numbers of licenses for commercial imports; (i) abolition of a 10 percent cash subsidy on exports; and (j) a number of procedural and institutionalreforms liberalizingand rationalizingthe trade and exchange regime.
13. The tasks that Nepal must undertake to address its multiple long-term developmentproblems are challenging. While it attempts to mobilize domestic resources to finance about 40-50 percent of developmentexpenditures, exter- nal assistance at concessionalterms will continue to play an important role in financing investment and achieving economic growth. In the last three years, aid commitments to Nepal have averaged US$250 million per year, and have almost entirely been in the form of grants or concessionalcredits with grant elements exceeding 70 percent. Gross disbursementsgrew from about US$130 million in FY81 to US$165 million in FY85. Nearly 70 per_ent of total aid disbursementshave come from members of the Nepal Aid Group, formed in 1976 and now comprising eight Developing Assistance Committee (DAC) countries and four multilateralagencies.
14. By December 1984, Nepal's official foreign debt outstanding and disbursed amounted to about US$430 million. As virtuallyall loans have been concessional,debt-service payments, including payments to the International Monetary Fund (IMF), have remained small in relation to exports of goods and services: in FY85, debt-servicepayments amounted to about US$17 million, equivalent to 5 percent of exports of goods and services. These payments -5-
over the medium term, are anticipated to remain at about 7 percent of Nepal's exports of goods and services.
PART II - BANK GROUP OPERATIONS
15. Bank Group operations in Nepal began in 1969 with an IDA credit of US$1.7 million equivalent for a telecommunicationsproject. Since then, 43 additional credits have been approved, bringing total IDA assistance to Nepal to US$599.1 million equivalent, net of cancellations. In view of Nepal's many developmentneeds, this assistance has been for projects in a wide variety of sectors. Five of these sectors account for about 90 percent of IDA credits by-amount: irrigation/agriculture(US$192.0 million for 16 projects);water supply and sewerage (US$46.8 million for three projects); power and energy (US$168.0 million for four projects); telecommunications (US$41.7million for four projects); and highways (US$67.0 million for three projects). The proposed credit of US$24.5 million would be the second to be approved in FY86. No Bank loans have been made to Nepal. IFC has made three investmentsin Nepal, the first in FY75 (US$3.1 million) for the expansion of the Soaltee Hotel project in Kathmandu, the second in FY82 (DM 14.5 million) to Nepal Orind Magnesite Company for the mining and production of dead burnt magnesite, and a third approved in FY84, but not yet signed to NepaL Metal Company (DM 7.8 million), for a zinc/lead mining and concentratesproject. Annex II contains a summary statementof IDA credits and IFC operations as of March 31, 1986.
16. Bank Group lending to Nepal has been modest until now, considering the country'sneed for external assistance. The internationalcommunity has shown considerableinterest in Nepal's economic developmentand, to date, shortage of funds has not been a major bottleneck. The main constraint on the utilizationof increased aid has been Nepal's limited absorptive capacity,affecting the pace of project preparation and implementation. The Bank Group has provided assistance to the Government in project preparation through two Technical Assistance Credits (Cr. 659-NEP and 1379-NEP) and by acting as Executing Agency for a number of technical assistance projects financea by UNDP. Project completion reports have been prepared for six projects: First Telecommunications(Cr. 166-NEP), First Highways (Cr. 223-NEP),Tourism (Cr. 291-NEP), Birganj Irrigation (Cr. 373-NEP) the Settlement (Cr. 505-NEP), Bhairawa-LumbiniIrrigation (Cr. 654- NEP), and the First Rural Development (Cr. 617-NEP) Projects.
17. In recent years Bank lending has attached particular importance to (a) agriculture (including irrigatedagriculture) and forestry; (b) populationcontrol; and (c) educationand training. Agriculture,a main source of livelihood to over 90 percent of the population,accounts for about 60 percent of CDP and of merchandise exports. The primary objective of our Lending in this sector is to increase production and employment. To that end, we will emphasize actions and investmentsaimed at improving the supply of inputs, strengtheningsupport services to maximize benefits from existing -6-
infrastructureand equipment,upgrading the irrigationnetwork, and improving operation and maintenancein medium and large scale irrigation projects. In forestry, the Bank Group will support reforestationschemes at the community level. Investmentsin agricultureand forestry would have to be supplemented by effective programs to control populationgrowth, particularlyin the hill areas, where a rapidly growing need for food, fuelwood and fodder is causing serious environmentaldegradation. The manpower development objectiveswill be to improve the quality of primary educationand to increase the supply of trained technicalmanpower for public administration. Outside these three areas of primary emphasis, Bank Group involvementwould concentrate in areas where investmentswould complement growth in production capacity. Accordingly,we plan to maintain some support to the power sector which previously abeorbed a significantportion of our lending; we envisage our future role in the sector more as a provider of technical assistance and a catalyst for mobilizingadditional external resources. In the transport sector, our plan is to combine technicalassistance through sector work with selected interventionsdesigned to facilitateregional integrationand improved rural access to markets and input supplies. We also propose to continue supportingcottage industrieswhere previous investmentshave made a notable contributionto export promotion, import substitutionand rural employmentgeneration.
18. In allocatingresources, the Bank Group's basic approach will be to strike a proper balance between quick and high yielding investments(e.g., agriculture),which is dictated by Nepal's precarious budgetary and balance of payments position,and an equally important commitment to those sectors whose impact cannot be felt immediatelybut which neverthelessare vital to the country's long-termdevelopment (e.g., populationand human resource development). Some of the Bank Group's operations would be deliberately targeted to the poorest and least developed parts of the country, such as the hill area3.
19. The proposed Narayani III irrigationproject would contribute to Nepal's policy objective to utilize more fully, and more rapidly, existing irrigation infrastructureand thereby enable past investmentsto realize their expected return. The project would complete the constructionand development of the physical infrastructure(water distributionsystem, drainage, farm roads) in the course of which it would apply the lessons learned during the first two phases of the scheme.
PART III - SECTORAL BACKGROUND
General
20. Agricultureis the mainstay of the economy. However, the resource base for agriculturalproduction is restricteddue to the rugged terrain; only about a sixth of the land area (3.1 million ha) is suitable for -7-
cultivation,of which some 50 percent is irrigable. Decades of inefficient land use and exploitationof natural resources have resulted in severe agro- ecological imbalance, particularlyin the Hills, and have placed severe constraintson the developmentof the country. While HMGN's development strategy and investment priorities for the agricultureand rural sectors have been generally consistent with the national and sectoral needs, achievements have fallen short of the targets for the production of basic agricultural commodities,correction of the agro-ecologicalimbalances, and improvementof the socio-economicconditions in rural areas. This has been so because some of the investment programs were not well designed and many were not effec- tively implemented due to shortages of skilled manpower and local funds, and weaknesses in the relevant institutions,administrative structure and opera- tional procedures.
21. Agriculturalproduction during the last decade increasedonly by about 0.7 percent per annum, while population surged by about 2.7 percent per annum, thus leading to a progressivelydeteriorating food balance. An FAO study on food and security,dated September 1984, estimated that 39 out of the 75 districts currently have a deficit in food productionand unless production trends are changed, domestic production of cereals would meet only about 65 percent of Nepal's consumptionrequirements by year 2000.
22. The present forest area in Nepal is about 5.3 million ha. These figures represent a 33 percent reduction in forest areas since 1964. Destruction is acceleratingbecause of tree felling for fuelwood and addi- tional cultivable lands, and reduction of regenerationand seedling growth by uncontrolledgrazing. As the forests are destroyed and fuelwood sources become remote and relatively inaccessible,use of dried dung and crop residues for fuel is increasing,thereby depriving the soil of what are often the main sources of nutrient replacementand resulting in a continuous declint in productivity. The disappearanceof forests is also resulting in increaseddamage to agriculturallands in the lower catchments of the water- sheds and, in general a degradationof the environment. With the increased populationpressure on the land, accessible forests in the Hills are faced with the grim possibilityof complete denudation within the next 15 years, and those in the Terai within 25 years, unless reforestationand conservation efforts are enhanced.
The Irrigation Subsector
23. Water Resource Utilization. Nepal has abundant surface water resources. Annual average discharges of its rivers total about 150 billion m3 and would be capable of irrigating 8 to 10 million ha. However, there are only about 1.3 million ha suitably located for gravity irrigation. The major and minor rivers can serve relatively small command areas in Nepal while they are costly to develop, because of the Large diversion structures needed to spill the huge monsoon floods and the sedimentsthat should be desilted out of the systems every year in very large quantities. The developmentof these rivers is further constrainedby the need for legal -8-
agreementswith India. Groundwaterresources are abundant in the Terai, but developmentis constrainedby lack of infrastructureto keep scattered pumps and engines operating reliably. Electric power to energi,e tubewells is severely restricted in extent and amount, particularlyin the more remote parts, but the situation is improving.
24. IrrigationDevelopment. At present, only about 540,000 ha have some form of irrigation,of which about 140,000 ha are under public schemes. The inventoryof irrigation facilities(1985) by ecological zones and development regions is as follows:
Region Mountain Hill Terai Total Z
__ --(______ha)…-____--___-…_
Eastern 4,365 75,676 148,912 18,953 33.2 Central 4,028 34,618 129,900 168,546 31.3 Western 29 38,254 60,990 99,273 18.4 Mid-western 2,254 12,313 32,674 47,241 8.8 Far-western 3,641 8,476 32,438 44,555 8.3
Nepal 14,317 119,337 404,914 538,568 100.0
Z 2.7 22.1 75.2 100.0
Private sector surface irrigationdevelopment consists mostly of simple river and stream diversionswhich often use temporaryweirs to head up the river flows into ungated intakes. It was initiated in the Hills and started to extend into the Terai during the first half of the present century when diversion schemes were constructedby large landownersand farmer groups.
25. The first two government-operatedschemes (Mahakali, 4,700 ha, and Chandra, 11,000 ha) were constructedon the Terai during the 1920s. These are based on river diversionand were implementedwith the assistance of the Indian governmentas recompense to Nepal for water rights allotted to much larger irrigationschemes in India. Design parameterswere similar to those of the Indian systems of the period: they aimed at spreading water rela- tively thinly over the largest possible area, to provide drought insurance to kharif crops. The distributionsystem was developed only to the 700-1,000 ha block level; farmers were expected to build the system beyond it but this expectationdid not materialize. Consequently,much of the potential command could not be seeviced. After independence,Indian assistance to construct irrigationschemes in Nepal continued; schemes were based on traditional design concepts,and ended with similar unsatisfactoryresults.
26. In the late 1970's, HMGN's planning objectiveswere changed to (a) extend the distributionsystem down to the 50 ha level; (b) organize Water User Groups (WUGs); and (c) provide agriculturalsupport services to the farmers. This policy change was a corollary to increasing support of the -9-
irrigationsector by the World Bank and the Asian DevelopmentBank. A more recent policy trend in the public irrigationsector has been to extend the irrigation infrastructuredown to 5-7.5 ha areas.
IDA Involvement In IrrigationDevelopment
27. The objective of IDA's involvementin the irrigationsubsector is twofold: (a) to support the Government'sefforts to increaseagricultural output for domestic consumptionand, to the extent possible,for export; and (b) to assist in strengtheningmanagerial and institutirnalcapability as well as sustaining growth in agriculturalproductivity. As one of the world's poorest countrieswith a high populationgrowth rate, Nepal must continue to give high priority to increasing employmentand agricultural production. Development of water resourceswill be an importantmeans of achieving this objective. This does not necessarilymean developmentof only new areas. Under Nepal's L,lnditions,investment enabling improvedoperation of existing assets is at least as important,if not more so, in the short run. IDA has assisted HMGN to utilize more fully and rapidly irrigation infrastructurealready built and thereby enable past investmentsto realize their full potential. However, there is also a need to improve planning for the long term developmentof water resources and to coordinatebetter the activities of the various donors. IDA's assistance in the sector will be geared to these needs. To date, IDA has financed six irrigationprojects (of which four are ongoing), one irrigation engineeringcredit, and irrigation components in three rural development projects.
28. The first project undertaken with IDA assistancewas the Birgan Irrigation Project (NarayaniZone) (Cr. 373-NEP, US$ 6.0 million, 1973). Its objective was to complete and upgrade the irrigationand drainage system on 28,700 ha of the 37,400 ha commanded by the Nepal Eastern Canal (NEC) and to provide groundwaterirrigation to 2,700 ha, north of the NEC command area, through public tubewell development. Because of implementationdelays which led to considerablecost overruns, the surface componentwas reduced to 16,300 ha, which was designated Stage I. The reduced projectwas completed in 1981. The Project PerformanceAudit Report (PPAR No. 4267 of December 30, 1982) concluded that the groundwater componenthas been less than successful, mainly due to inadequateattention to operationand maintenance(OEM), some well failures, and the then unreliablepower supply.
29. The Narayani Zone Irrigation DevelopmentStage II Project (Cr. 856-NEP, US$14.0 million, 1978) followed on the Birganj Irrigation Project. It was designed to develop the 12,700 ha deferred from the Stage I project and to provide intensifiedagricultural support services. While progress in the achievementof physical targets has been satisfactory,opera- tion and maintenance and the involvementof farmers in water distributionat farm level is still weak. Completion is scheduledfor the end of 1986.
30. The Bhairawa-LumbiniGroundwater Project (Cr. 654-NEP,US$9.0 million, 1976) represented the first stage of a public sector groundwater -10-
irrigationdevelopment program in Western Terai. The project provided for the constructionof 64 deep tubewell systems serving about 7,600 ha, together with provision of agriculturalsupporting services. Implementationof project works was delayed by t-o years, resultingin a 20 percent cost overrun. The delay was due to: (a) slow tenderingand land acquisition procedures; (b) shortagesof constructionmaterials; and (c) inadequate staffing and budget allocations. The credit was fully disbursed in March 1983, when project completionstood at 80 percent (PPAR No. 5261 of September 20, 1984).
31. A follow-on project, Bhairawa-.umbiniGroundwater Project Stage II (Cr. 1316-NEP,US$16.0 million, 1982) prrvides financing for completionof Stage I works, O& of the completedwells during the 5-year implementation period, including the public tubewellsdeveloped under the Birganj Irrigation Project (para. 28), and introductionof imiproveddesign and constructionof new tubewell irrigationsystems. Performanceof completed tubewell systems has suffered from unreliablepower supply and shortagesof spares for maintenance. Power supply is expected now to improve as the national power grid is nearing completion. Lack of effectiveagricultural support and difficultieswith organizationof the farmers into WUGs have been additional obstacles to successful operation;this situation is now gradually improving.
32. The Sunsari-MorangIrrigation and DevelopmentProject (Cr. 812-NEP, US$30.0 million, 1978) was designed to restore and improve an existing system, the Chatra Canal command, serving 69,000 ha. The project concept and scope were revised in mid-1983because of: (a) the desirabilityof adopting a considerablymore detailed approach to managing water distributionthan originally envisaged; and (b) the limited implementationand financial capacity of HMGN to develop in one time-slicethe whole 69,000 ha. Consequently,the project was divided into 4 stages. The area of the ongoing project (Stage I) was reduced to 12,000 ha. The first stage is expected to be completed by the end of 1986. The second stage, covering an additional 23,000 ha, is now under preparation.
33. The Mahakali IrrigationProject (Stage I) (Cr. 1055-NEP, US$16.0 million, 1981) aimed to rehabilitateand upgrade an existing irrigation system of 3,400 ha on the left bank of the Mahakali (Sarda) River in the Far Western Region and to extend it to 6,600 ha. Implementationis more than a year behind schedule,mainly because of delays in engaging local and foreign consultants,procurement of equipmentand materials, and difficult commiunica- tions to the rest of the country. Most of the problems have now been resolved, but the project area has been reduced to 4,700 ha, due to (a) HMGN decision not to release some of the forest lands for agricultureand (b) mapping errors at preparation. The reduced project continues to be viable. Completion is scheduledfor 1987.
34. The Babai IrrigationEngineering Project (Cr. 1093-NEP,US$3.5 million, 1981) financed the preparationof detailed designs for the proposed Babai IrrigationProject on 13,500 ha, and for 46 km of the East-West -11-
highway. A consulting firm was engaged in 1981 and work has progressed as scheduled.
35. A componentof the First Rural DevelopmentProject (Cr. 617-NEP, US$8.0 million, 1976), completed in December 1983, provided for improvements of small scale irrigation schemes in the Hills and development of a high-lift scheme on the Batar plateau in Nuwakot District, for a total of approximately 1,900 ha. The small scale irrigation schemes have made a substantial impact on production;the effect of the more complex lift scheme has not been up to expectation. A follow-upproject in the same district has been negotiated, and includesa number of additional small schemes. The Second Rural DevelopmentProject (Cr. 939-NEP, US$11.0 million, 1979) includes a component for the improvementof small scale Hill Irrigation schemes in the Mahakali Zone. Implementationis progressing slowly.
36. Lessons of Past InvestmentsIn Irrigation. The principal lessons learned from IDA's experience with past lending in the subsector include the need to: (a) bring the water distributionnetwork closer to the farmer's fields; (b) provide closer technical supervisionof design and construction parameters,and operation of the completed parts of the project; (c) increase the emphasis on staff training and institutionbuilding; (d) increase the involvementof farmers in water management through proper training and organizationand giving their groups the necessary statutory powers to carry out their roles; (e) increase O&M expenditures;and (f) improve cost recovery mechanism. The rates charged have not only failed to cover operating and maintenancecosts, but the collection mechanisms have been weak. A basic reformulationof charges and collection mechanisms is needed to reduce the budgetaryburden on HMGN.
PART IV - THE PROJECT
37. The Project was appraised in November/December1985. Negotiations were held in Washington,D.C., between April 16 and 22, 1986. The Nepalese delegationwas led by Mr. C.D. Bhatt, Director General, Department of Irrigation,Hydrology and Meteorology. The Staff Appraisal Report titled Narayani III Irrigation Project (Report No. 6067-NEP) dated June 2, 1986 is being circulatedseparately. A supplementaryProject Data Sheet is attached as Annex III.
Project Description
38. The objectives of the project are to increase dry-season agricultural productionby introducingan equitable, predictableand reliable irrigation system in the Narayani irrigation scheme. The project would have the follow- ing components: (a) improvementsto the NEC and extensive repairs to the Tilawe Barrage,which was damaged during the 1985 monsoon; (b) development of the Stage III area (8,700 ha) including about 40 shallow tubewells to support -12-
early rice nurseries; (c) improvementand repairs in the Stage I and II areas (28,700 ha); (d) flood protectionand river trainingworks; (e) improvement of the road network; (f) provisionof vehicles and equipment to support project constructionand maintenanceactivities and radio communication equipment for improvementof project operation;(g) establishmentof a regional workshop; (h) provisionof technicalassistance for consultancies, staff training, strengtheningagricultural extension and research and studies, includingplanning and design, of suitable irrigationprojects in the Terai; and (i) supportof project establishmentand O&M costs.
39. The project will use water from the Candak River, an international water way, in accordancewith a treaty dated December 4, 1959, as amended, between Nepal and India. It has been designed taking into account the provi- sion of such treaty. The rehabilitationworks under the project would include embankmentsfor flood protectionto be constructedat the Bagmati and Lal Bakeya, as well as Eavrangia, Tilawe, Bangari and Posaha Rivers. None of the works will adverselychange the quality or quantity of water flows downstream; and, as the proposed project is a rehabilitationoperation, notificationto the downstream riparian is not required pursuant to OMS 2.32.
40. The Narayani scheme is probably the most importantirrigation rehabilitationoperation in Nepal. It is expected to serve as a model for rehabilitatingexisting irrigationschemes as well as for the planning and design of new projects and the developmentof effective and sustainable operationalsystems. The lessons of past lending outlined above are taken into account in its design. To encourage farmers to use dry season irrigation,the tertiary canals would be constructeddown to the 4-ha area. Within this area, constructionand maintenanceof field channels and water distributionwould be undertakenby the farmers themselvesorganized as water users groups (WUGs). The WUGs would be constitutedas statutory bodies by December 31, 1986, and establishedconcurrently with the completion of the infrastructure,thereby ensuring the close involvementof farmers in water management. The technical staff will be trained by the project while the WUGs as well as individualfarmers would be given training through the agriculturalextension service system. HMGN would be required under this project to make appropriatebudgetary allocations for financing O&M, and the project includes a study, scheduledto be concludedby June 1987, of the physical and budgetaryrequirements for O&M. Consultant services would be provided under the project to assist with various aspects of project implementation. Finally, the cost recovery mechanismwould be strengthened through the transfer of responsibilityfor collectingwater charges from the project management to the Land Revenue Departmentand through adjustment (every two years) of the level of water charges from August 31, 1988 onwards.
Detailed Features
41. Improvementof NEC. Improvementsstarted under the first and second projects would be completed so that NEC can operate at design capacity. -13-
These include: brick lining of about 3 km of canal section; protection of canal slopes (2 km); strengtheningof embankients (3.5 km); improvementsof service roads (18.5 km); and provision of check and cross drainage structures,cart and foot bridges.
42. Before the NEC was constructed,a barrage on the Tilawe River com- manded some 6,500 ha, most of which was later integratedinto the NEC command. The barrage was extensivelydamaged during the 1985 monsoon. Since its diverted waters continue to be required within, and upstream of, the NEC cGmmand, it would be rebuilt and its flood protectionworks strengthened.
43. Stage III Area Development. The area (8,700 ha) would be provided with main secondarycanals (MSC), several branch secondarycanals (BSC) totalling about 120 km, and about 85 structures includingculverts, cross- drainage structuresand drops as required. Tertiary canal (TC) turnouts would be fixed-dischargestructures, each commanding about 30 ha. To encourage dry season irrigation,the TCs would be constructeddown to the 4-ha area. Within this area, water distributionwould be arranged by the farmers themselves. Constructionof field channels from the 4-ha point would be undertaken by WUCs. To ensure irrigationwater for early rice nurseries, the project would construct about 40 shallow tubewellswhere water supplies are not available from other sources. An internal drainage system would evacuate surplus irrigation and excess rainwaterduring the monsoon. The area would require about 74 km of major drains and 95 km of minor drains, as well as field drains. The existing constructioncamp would be extended to accommodatestaff required to supervisenew construction. Upon completion of constructionactivities the buildings and offices would be used by the O&M staff.
44. Stage I and II Area Works. To improve the distributionsystem within the Stage I and II areas (28,700 ha), the project would constructor rehabilitateabout 450 structures,including ungated control structures,and calibrated offtakes from the NEC to the MSC and the BSC canals. About 1,000 fixed, ungated turnouts from the TCs servicing the 30 ha areas and about 7,000 outlets serving the 4 ha sub-areaswould also be provided. In addition, about 85 km of secondary canals and 1,730 km of the TC system would be repaired and the TCs would be extended to the 4 ha level. The WUGs would be provided with a layout plan of the field channels below the 4 ha outlets, which they would construct themselves. Any structuresthat may be required below the TC outlets would be constructedby the project. In addition, improvementswould be made to the natural and constructeddrains and to their related structures,including completion of the missing portion of major drains within the Stage I and II areas and the pertinentfield drains.
45. Flood Protection and River Training Woiks. Two rivers, the Lal Bakeya and the Bagmati, regularly inundate adjacent lands in the Stage III area. To adequately rehabilitatethe Narayani Irrigationscheme, retaining embankmentswould be constructedon critical reaches at the Bagmati and Lal Bakeya Rivers. The embankmentswould be grassed over and protected by trees. -14-
In addition,flood protection works would include short-cut channels and new flood embankmentsat four other rivers (Navrangia,Tilawe, Bangari and Posaha).
46. Improvementto Village and Service Roads. Roadworks would include: (a) about 91 km of link roads connecting vilLages and storehouse locations to the NEC service road; (b) gravelling of part of the existing MSC and BSC service roads in the Stage I and II areas; tc) constructionof gravel- metalled service roads on the MSC and BSC in the Stage III area; and %d) upgradingabout 152 km of existing roads and constructingabout 60 km of new roads, also in the Stage III area. Service roads would be constructed along all main and secondary drains.
47. Vehicles and Equipment. New equipment for constructingproject works and spares for equipmentalready with the project would be provided, as well as office, survey, design and drawing equipment. An internal radio network would supportmanagement of new construction,and subsequentoperation of the canal system. Subject to agreement with COI, it is proposed that the project head office should be linked to key points on the Indian Eastern Canal System, to better manage water supplies to the NEC command. It was agreed with HHCN that it would, not later than July 1, 1987, issue all the necessary authorizationsand permits to enable NZIDB to install the internal radio communicationsfacilities required.
48. Regional Workshop. A regional workshop would be established to service vehicles and equipment from this and other public irrigation projects in the eastern Terai.
49. Technical Support. Consultantsservices of about 280 man-months would be required to assist project management with various engineering, design, constructionsupervision, in-service training tasks, and studies of other irrigation schemes elsewhere in the Terai. It was agreed with HMCN that it would retain consultantswhose qualifications,terms of reference and period of employmentare acceptable to IDA; their selectionwill be in accordancewith Bank/IDA guidelines on employing consultants.
50. In-service training of the project staff, initiated under the Stage I and II projects,wo'Ald be strengthened. Provision would be made under the project to (a) constructor rehabilitateand equip training facilities; (b) engage instructors,and (c) prepare training curricula. The project would also support overseas training in irrigation system design, construc- tion and management.
51. The agriculturalextension service is organized according to the T&V system, under the IDA-supportedsecond agriculturalextension project. To serve the special extension requirementsof irrigated agriculture, the proposed project would finance one additional Assistant Agricultural DevelopmentOfficer and a Subject Matter Specialist in irrigated agriculture in each district, to concentrate on the canal-irrigatedareas. Adaptive -15-
agriculturalresearch, appropriateto the project, would be carried out within the NEC command area in cooperationwith the Departmentof Agriculture and funded by the project.
52. Monitoring and Evaluation. The project would provide facilitiesand equipmentto monitor and evaluate the progress of project constructionand performanceof commissionedworks. Special attentionwould be paid to water deliveries and agriculturalproduction performance.
53. Support of Project Establishmentand O&M Costs. Incrementalstaff salaries and allowances-about 65 percent of the total salaries and allowances--andother establishmentand O&M costs would be financed by the Swiss DevelopmentCooperation (SDC) under the project at a decliningrate during project implementation,as follows:
HMCN's Fiscal Year SDC MlGN
1987-88 to 1989-90 90 10 1990-91 to 1991-92 70 30 1992-93 50 50 1993-94 25 75 1994-95 onwards -- 100
54. O&M funding of irrigation schemes has until now been based on finan- cial norms not related to physical and staffing requirements: budgetary allocationsin surface-irrigatedareas are only NRs 140/ha; a tentative estimate of the appropriatefigure is about NRs 370/ha. The extent and frequencyof repairs and routine maintenancewould be regularly reviewed. It has been agreed with HMGN that it would, throughNZIDB: (a) by December 31, 1986, carry out, under terms of reference satisfactoryto IDA, a detailed study of the physical and budgetary requirementsfor operationand main- tenance of all works under the project; (b) furnish, by June 30, 1987, a report summarizing the results and recommendationsof the study to IDA for its review and comments; and (c) thereafter,taking into account IDA's comments, if any, implementthe results and recommendationsof the study. To permit disbursementfor project establishmentand O&M costs, assurances were obtained from HMGN that it would: (a) by March 31 of each year, start- ing in 1987 for FY87/88, submit to IDA for review and comments, its estimates of salaries and allowances for project staff and estimates of operation -ad maintenancecosts (excludingestablishment costs); and (b) taking into account IDA's comments,make the required budgetaryallocations to adequately cover O&M costs.
55. Design and ContractingPackages. Consultantsengaged under the previous projects have prepared the Narayani III feasibilitystudy and are preparingrevised final designs and contractingpackages for the 1986-87 -16-
constructionseason, taking into account modifications suggestedduring project appraisal. Most of the individualworks planned are relatively minor, and the actual work experience gained under the Stage I and II projectshave given a good basis for cost estimations on Stage III works. To help ensure prompt startup of the project, completing satisfactorily reviseddetailed designs for at least the 1986-87 constructionseason would be a conditionof credit effectiveness.
Organization and Management
56. Operation and Maintenance of public irrigation in Nepal is the responsibility of the Department of Irrigetion, Hydrology and Meteorology (DIHM), which is part of the Ministry of Water Resources (MWR). The Secretary, MWR, is the chief executive officer. The DIHM is headed by a Director-General, usually an engineer. Responsibility for constructing the large public irrigation projects rests with their Boards, established under the Development Board Act. The Secretary of HWR is the Chairman of all these boards;members are representativesfron the concerned ministries,entities related to rural developmentand the senior regional officers of the con- cerned ministries.
57. Narayani Zone IrrigationDevelopment Board (N2IDB). The NZIDB, formed in 1973 for executing the Stage I project, would oversee the execution of the proposed project. At present it has 14 members, including repre- sentativesfrom the Ministries of Finance, Agriculture and Land Reform, the Planning Commission,the Directors-Generalof DIHM and of DOA, and the Regional Directors of DIHM and DOA (Central Region). The project's General Manager (GM) is its Member-Secretary. The Board's functions include: (a) approval of annual budget proposals for executing, implementing and operatingthe project; (b) senior staff appointments; (c) award of large constructionand consultancycontracts; (d) semi-annualreviews of implemen- tation programs and progress; (e) coordinationof policy matters on programming,budget and finance, and (f) determinationof the level of water charges.
58. The Chief Executive Officer of the project is the GM, appointed by the Minister of Water Resources, in consultationwith the Secretary,MWR, and the Director-Generalof DIHM. It has been agreed with HMGN that it would, at all times, maintain in NZIDB a General Manager whose qualifications,experience and terms of reference shall be satisfactoryto the Association.
59. The GM, the heads of all the operating divisionsand the project consultantsare in Birganj. The GM's responsibilitiesinclude: (a) preparationof the annual engineeringwork program, budget and staff requirements;(b) administrationof project staff, including consultants; (c) authorizationof constructionby force account and of civil works and equipmentcontracts up to the limits of his financial authority; and (d) coordinationof all project activities at the Regiona' and District -17-
levels. The project staff is organized into administrative,finance, design and construction,mechanical and the recently formed operation and main- tenance divisions. Monitoringand evaluation(M&E) is at present carried out by a small section.
60. Proposed Organization. HMGI is consideringa reduction of the mem- bership of the NZIDB. The Secretary of MWR would continue to be its Chairman; others would be the Directors-Generalof DIHM and DOA, and one representativeeach from the Ministry of Finance and the Planning Commission. The GM of the project would continue to be its Secretary. The Board would meet four times a year to consider policy and inter-agencycoordination issues. To reduce the Board's involvementin day-to-day issues, the GM would be given increasedauthority to approve contracts for civil works and for equipment purchase. The main changes in project organizationwould be as follows: (a) the AdministrativeDivision's responsibilities in connection with water charge assessmentand collectionswould cease with the proposed transfer of this function to the Revenue Department; (b) the Finance Division would continue to function without substantialchanges; (c) the Design and ConstructionDivision's design and survey section would be strengthenedand its functionsadapted to the changing scope of works; more engineerswould be assigned to the section who would be suitably trained to ensure that they can design and supervise civil works and structuresaccording to the principles and concepts of the project; eventuallypart of the division'sstaff would form a small nucleus in the O&M Division for any future developmentwork; (d) the Operation and MaintenanceDivision's Operations Section would operate the system from the beadworks to the 30-ha area, and allocate the water and monitor deliveries;the Maintenance Sectionwould maintain the system to the 30 ha turnouts,all the drainage system, flood control works and roads; (e) the MechanicalDivision would administerand operate the Regional DIHM Workshop; and (f) the Monitoring and Evaluation(M&E) Unit would become a division and would collect and analyze pertinent data on project planning, implementationand performance,particularly with respect to (i) construction targets, progress and quality control findings; (ii) actual disbursements compared to targets; (iii) effectivenessof water management:timeliness and quantity of deliveriescompared to projectedschedules; (iv) operationsand effectivenessof WUGs in securing complianceof their members to their directives;(v) maintenancecosts; (vi) agriculturalprogress in terms of changing patterns of land use, cropping patterns, or any institutionalchan- ges in tenancyagreements; (vii) support given by the agriculturalsupporting services;and (viii) water charge collection. It would also be responsible for the preparationof progress reports.
61. To enable project mnnagementto carry out its functions, it would be a conditionof effectivenessthat IMGN authorize all the required project staff positionsin a manner satisfactoryto the Association. 1MGN would, at all times, continue to provide all staff positions required for effective project management. -18-
62. In-service training would place special emphasis on survey, design, constructionsupervision, quality control for irrigationand drainage systems and associated civil works, and design and layout of field channels below the TC outlet. Appropriate training would be provided to canal operators in operation and maintenanceof the system within their required scope of work responsibilities,and to WUC members in improved irrigation techniques. HCGN has agreed to cause NZIDB to: (a) submit an overall training program to IDA by January 1, 1987, for its approval; (b) by January 1 of each year comenc- ing on January 1, 1987, submit to IDA for its approval the annual training program for the followingfiscal year; and (c) thereafter,promptly begin implementationof the approved annual programs not later than April 1 of each year.
Water Management
63. Nepal's agreementwith India specifiesthat up to 24.1 m3/sec (850 cusecs) be delivered to the head of NEC from the Don Branch whenever required, except during closure periods for scheduledrepairs and maintenance. In the past, principallybecause the NEC command area has not been fully developed,actual deliveries were well below authorized quantities. In addition, the NEC system obtains, or has the potentialto develop, a limited supply from local sources. threerivers are diverted through small barrages which serve distributionsystems that interlinkwith the NEC system. Fourteen other streams which cross the NEC can, potentially, be developed. However, supplies in all these rivers are unreliable towards the end of the dry season. Private shallow tubewells,a more reliable source, contribute to supplies;and their number is increasing.
64. The water management program is designed to: (a) deliver water in a timely and equitablemanner to all farmers in the project area so that they fairly share available supplies; (b) deliver water to each farmer at a flow rate that enables efficient on-farm irrigation;(c) notify farmers of the time they will receive their allocationsby preparingoperation schedules which take account of the physical constraintsof the network and the expected water supplies at the head of the NEC; and (d) so far as possible, adapt the delivery schedulesto crop requirements.
65. To achieve the water allocation objectives,the NEC system would be operated at two distinct but interdependentmanagement levels. The canal system from the NEC headworks down to tertiary outletswould be operated and maintained by the project through the Operations Section of the O&M Division. Below the turnout, the TC and field channel systems (down to tho farmgate) would be managed by the WUGs. It would be the individualfarmer's respon- sibility to manage supplies on his farm. A regular maintenanceprogram would ensure that the management system outlined is able to function. Performance would be monitored. To ensure effective and equitablewater distribution, HKGN agreed that it would by January 31, 1987 adopt and thereafter implement a detailed water management plan for the irrigation scheme in the project area satisfactoryto IDA. -19-
Water User Groups (WUCs)
66. An essential prerequisitefor successful operation below the TC turnout would be to organize the water users within the 30 ha area. As far as topographyallows, the WUGs' area of activity would coincide with the local administrativeWards. Thus, Ward leaders may well become WUG leaders, thereby ensuring continuity of the traditionallyestablished leadership. The Chairmen and members of the WUGs would be trained in the procedures to be followed. Their first task would be to construct the field channel systems, according to designs and layouts provided by project management. Structures would be built by the project. It has been agreed with HMGN that: (a) in tertiary commands where there is already an irrigation service, water users' groups will be established by December 31, 1986; and (b) it would cause its NZIDB to establishwater users' groups along each new tertiary canal not less than six months before the tertiary is scheduled to begin operation.
67. To enable the WUGs to perform these functions effectively,they need statutorypowers. Accordingly, it was agreed with HMGN that it would, by December 31, 1986, constitute the Water Users' Groups as statutory bodies, which would grant them authority to (a) supervise the distributionof water amongst their members in proportion to the size of their landholding; (b) cause their members to construct and maintain the field channels adjoin- ing their holdings and any other sections of the field channels that do not skirt commandableareas; (c) in case of default, arrange for such work to be done at the cost of the defaulters,provided, however, that if the WUGs fail to maintain their part of the distributionsystem, the work will be carried out by HMCN at the cost of the WUG concerned.
Cost Recovery
68. The Boards which have been established in each of the major irriga- tion projects are at present responsiblefor determining the level of, and -ecovering,water charges within their jurisdictions. In the Narayani project, the NZIDB charges farmers NRs 100/ha for a one-season crop and NRs 200/ha for sugarcane. This is equivalent to an average of about NRs 140/hafper year at present irrigation intensities. Recovery from surface water schemeshas been only about 15 percent on the average, which reflects in part farmers' reluctance to pay for an unreliable and inequitableservice. However, recovery in the adjacent area served by public tubewells (under the Birganj GroundwaterScheme) has been significantlybetter, partly due to the more reliable and equitable service and partly due to more effective enforce- ment (a farmer is usually supplied with water only upon the presentationof payment for the last delivery); collection rates in this case are reported to be around 70 percent.
69. Substantialimprovements in recovery are possible when the quality of the irrigationservice is improved. Once farmers have realized the benefits of a reliable irrigation service, it should be possible to increase the level -20-
of charges and, more importantly,to improve collection rates. Assessment under the project would be simplified by replacingthe existing rates with a flat annual rate on the cultivated command area (CCA). Responsibilityfor collection would be transferredto the Revenue Department which has the legal power to enforce payment. Water deliveries in other irrigation projects in the Terai (e.g., Sunsari-Morangand Mahakali)are expected to operate along similar principle.,and followingan assessmentof the lessons learned in Earayani in revising its cost recovery system, the other schemes are also expected to charge a flat rate. As the service, and the benefits from irrigation improve,it should ba possible to gradually increase the water charge to cover, at least, full O&M costs and, taking into account farmers' payment capacity,part of capital costs.
70. An agreementwas reached with HMCN that it would: (a) by December 31, 1986, introducea flat rate of not less than NRs 200lha/yr on all comman- dable land in Narayani that receives an assured surface water supply, and increase water charges in the Birganj GroundwaterScheme to not less than NRa 400/ha/yr;and (b) charge its Revenue Department by July 16, 1987, with the duty of collectingwater charges in the Narayani Scheme. In addition, an agreementwas reachedwith HMGN that it would, by August 31, 1988, and there- after every two years, review and if required,revise the assessment and collection proceduresand adjust, as required, the level of water charges in the project area to ensure that, by fiscal 1993, and thereafter,water char- ges would cover the full O&M costs and a reasonableportion of capital costs, taking into account the farmers' payment capacity. Commitments for recover- ing O&M costs and such portion of capital costs that lie within the farmers' payment capacity exist in all major irrigationprojects supported by IDA (e.g., Kahakali,Bhairawa-Lumbini, Narayani II and Sunsari Morang) as well ac projects supportedby the Asian DevelopmentBank; between them, they cover about 95 percent of all public irrigation schemes in the Terai. The delivery of reliable water supply, the provision for improved operationand main- tenance and the transfer of recovery responsibilityto the Revenue Department under this projectwould result in significantimprovements in cost recovery. To ensure that the reforms introducedunder this project are extended to other major projectsafter a brief trial period, HMGN agreed to complete, by April 1, 1989, a study of how these reforms can be applied to all other major irrigationprojects (largerthan 2,500 ha) in Nepal and to prepare and fur- nish to IDA, for its review and comnents, the results and recoumendationsof the study. Upon receipt of IDA's comment's, if any, HHGN would implement the recommendationsof such study. The timing of the study would take into account the need to: rehabilitatethe water distributionsystem; make avail- able reliable water supply to the farmers; and test the farmers' response in terms of their willingnessand capacity to pay water charges.
Project Cost and Financing
71. Total project costs are estimated at US$35.5 million equivalent, excluding taxes and duties. The foreign exchange component would be US$20.5 million or about 58 percent of total project costs. Costs are based on -21-
estimated prices of April 1986. Physical contingencieshave been assumed at the rate of 15 percent on civil works and 10 percent on equipment,and amount to about US$2.9 million. Pr1re contingencies,which amount to about US$6.8 million, reflect expected inflationrates over the project period. The same rates have been assumed for local and foreign expenditures:7 percent in 1986-87 through 1989-90, 5.5 percent in 1990-91, and 4 percent thereafter.
72. The proposed credit of US$24.5 million would finance 69 percent of total project costs. The Swiss grant of about US$7.5 million (Sw F 15.0 million) would finance 21 percent. The combined external financing (US$32.0 million) would represent 90 percent of total project costs. Cofinancing would be on a joint basis followingBank Group's procurementand consultants guidelines. Allocation of the credit and grant by categories is shown in Annex V. The balance of capital and recurrent expendituresover the implementationperiod would be met by HMGN from its developmentbudget, for which adequate funds were allocatedunder the SeventhNational Plan (1985-90). The credit would be made to HMGN on standard IDA terms.
Procurementand Disbursement
73. Major civil works to be financed under the projectwould cost about US$17.5 million (about 50 percent of total cost), includingphysical and price contingenciesbut excludingland acquisition,engineering and administrationcosts. All the major works would be packaged under one con- tract to attract competitionfrom large contractorsand be procuredunder ICB procedures. This would enable planning a more continuouswork program by the contractor by switching between activities according to seasons and site accessibility. The estimated cost of other miscellaneousand dispersed minor works procured under LCB procedures satisfactoryto IDA would be about US$2.1 million. Force account work would amount to about US$0.6 million. Operation and maintenanceand establishmentcosts amount to US$7.3 million. Of this amount salaries and allowancesof incrementalproject staff and other management costs, estimated at US$4.3 million, would not involve procurement. Of the maintenanceworks, US$2.0 million would be implementedby small con- tracts and procured through LCB procedures satisfactoryto IDA, and the remainingUS$1.0 million would be implementedby HMGN's departmentalforces. This componentwould be financed by SDC on a decliningbasis, with HMGN's share increasingaccordingly (para 53).
74. Equipment and vehicles would cost approximatelyUS$Z.7 million, inciudingphysical and price contingencies. Heavy equipment,vehicles and workshop facilities (US$1.9million) would be grouped into appropriate pack- ages of US$100,000or more, and procured through ICB procedures. Light equipment, motorcycles,bicycles and diesel generators (US$0.8 million), would be purchased at various times over the project life; they are available locally and would be purchasedthrough limitee internationalshopping from at least three qualified supplierseligible under the Bank's guidelines. Local purchase would ensure servicingfacilities and spares. Costs for the consulting services are estimatedat about US$3.9 million, including physical -22-
and price contingencies. This component would be financed by SDC. Selection of consu'lantswould be in accordance with Bank/IDA guidelines. Training, MaE, and agriculturalresearch costs are estimated at US$0.5 million and will be financed by IDA. Bicycles for extension staff (US$0.1 million) wouLd be procured under limited internationalshopping from at least three qualified suppLierseligible under Bank guidelines; buildings (US$0.4 million) would be constructedby force account. Other items would not involve bidding.
75. Bidding packages for works estimated to cost more than US$0.5 million, and all ICB packages for goods and services, would be subject to standard IDA pre-action review. Such packages would account for about 90 percent of the total estimated value of the civil works and about 70 percent of the goods and services. The remaining contracts would be subject to post-actionreview by IDA.
76. The proceeds of the IDA credit and the Swiss grant would be disbursed over seven years against: (a) 100 percent of expenditureson civil works; (b) 100 percent of foreign expenditures, 100 percent of local expenditures based on ex-factory costs and 70 percent of other expenditureson items procured locally, on vehicles and equipment; (c) 100 percent of expenditures for technical services; and (d) 90 percent of expenditureson O&M, estab- lishment costs and salaries and allowances for project staff for FY87, FY88 and FY89, 70 percent in FY90 and FY91, 50 percent in FY92 and 25 percent in FY93. Disbursements for payments of less than NRs 500,000 for works (includ- ing departmentalworks), NRs 250,000 for goods, staff costs for training, adaptive and engineering research, monitoring and evaluationand the costs for special surveys and study tours would be against statementsof expenditures. The supporting documentationwould be retained by NZIDB for review by IDA. Full documentationwould be required for all other disbursements.
77. Special Account. To ease the burden on HMGN between incurring authorizedexpenditures and obtaining reimbursementsfrom IDA, a special account would be establishedwhich would be equivalent to approximatelyfour months of estimated expendituresor US$0.4 million equivalent. Payments out of this account shall be made exclusively for project components to which IDA contributesand according to IDA's guidelines governing payments from such accounts, including prior submission of two confirmedcopies of the contract against which payments are made, except in the case of statements of expendi- ture which will follow the normal procedure whereby HMG would retain support- ing documents for review by IDA. Reimbursementapplications for expenditures to be funded through the special account would be accompanied by certified statementsof transaction.
Accounts and Audits
78. iMGN has, in the past, been in arrears with audit covenants of irrigationprojects. Following a recent intensivefollow up and review, the situation is now improving, and good progress is being made toward full -23-
compliancewith covenants. It was agreed that HMGN would cause DIHM and NZIDB to: (a) maintain separate records and accounts for all project expen- ditures in accordancewith sound accountingprinciples; (b) have such accounts, including the Special Account, audited by an independentauditor acceptableto IDA, in accordancewith sound auditing principles;the audit report would includea statementverifying that funds advanced by IDA to the special account had been used for the purpose for which they were provided; %c) forward to IDA such accounts, together with the auditor's reports, within nine months after the end of each fiscal year; (d) include in the annual audit reports, submittedto IDA, a separate opinion from the auditor as to whether the disbursementsmade on the basis of statement of expenditureswere in respect to goods and services received and incurred for the purposes of the project.
Benefits,Justification and Risk
79. Agriculturalbenefits from the project would derive mainly from extending the command area by 8,700 ha and by providing a more efficient irrigationservice to the entire command. The annual incrementalagricul- tural production at full project development is expected to be about 68,500 tons of foodgrains,6,800 tons of oilseeds and about 16,800 tons of sugarcane. The value added of agriculturalproduction is estimated to increase by about NRs 206 million (US$8.8 million) per year. About 31,500 farm families would benefit directly from this project. The increase in employment opportunitieswould result in 9,300 full time farm jobs. Project constructionwork would provide employment to about 7,500 unskilled laborers over seven years. As a result of the project, annual farm incomeson the typical one hectare farm are expected to increase from an average of about NRs 7,000 to about NRs 14,200 and the incidence of poverty among farm families would be substantiallyr2duced.
80. The economic rate of return (ERR) is about 21 percent. The results of the sensitivityanalysis indicate that only large deviationsof expected benefits (by -61 percent) or constructioncosts (by +203 percent) could make the scheme economicallyunviable. Perceived project risks are the following: (a) if provisionsfor operation and maintenancewere to be only half that required after IDA assistance for the project is completed,the ERR could decline to 11 percent; however, HMGN awareness of the linkage between ade- quate 0&M and cost recovery,and the legal agreementswith IDA reduce such risk; (b) the Indian authoritiescould fail to provide water from the Don Branch to NEC in the quantitiesassumed; this risk is small since flows in the Candak River are more than adequate for all project needs; moreover, provisionshave been made under the project for better coordinationbetween the NZIDB and the Bihar authority responsiblefor managementof the Indian Eastern Canal System; the assumed supplies may in fact improve, particularly in respect to releases prior to the wet season; (c) a major flood could damage the Don Branch or NEC: both canals cross difficultcountry and have many cross drainage structuresover rivers and torrent beds; however, in the past both the Indian and Nepalese authoritieshave been able to repair any -24-
damage quickly, so that the risk of interruptionto supplies for periods that would affect crop yields in the kharif to a significantextent is small; and (d) NZIDB could experiencedifficulties in implementingan efficient water management system. Much of the benefit is predicated on the assumption that the system would be managed to provide a secure, equitable and timely water supply to all farmers in the command. Implementationof any management system demands the cooperationof all parties, and increased farmer dis- cipline will be needed to reduce the risk of failure. However, at least a part of past indisciplinehas developedbecause design deficienciesmade it difficult to provide reliabLe and equitableservice to water users. Since it will be possible to manage the canal system in a manner which is less suscep- tible to abuse, and the WUGs would be strengthenedand accorded legal status, the risk of a major failure of water managementwould be much reduced.
PART V - RECOMMENDATION
81. I am satisfied that the proposed credit would comply with the Articles of the Associationand recommendthat the Executive Directors approve the proposed credit.
A. W. Clausen President
Attachments Washington,D.C. June 2, 1986 -25- ANNEXI -AI L s k Page 1 of 6
- OCUALun ,U i o Al
lS t1@~~LMSTCUC PTMAT^zX 1geOL). tileSl UICKNI 8 llCWSi6m lgk 19701, "la ria& AU & SCIZrACA FAPCIFLC Ann CT D sq. a) TOTAL 160.4 140.6 140.6 AORICOLTUUAL 35.3 36.4 41.2
GM Nu F (on) . . 160.0 276.3 I011.t
(RILOURAU O OIL NUlVVALIT) 3.0 10.0 10.0 26S.7 34.6
P1MATIm A1 VTAL nmSTz S POWMUATION.09D0-AR(THOUANDS) 9404.0 11350.0 15736.0 a""1 POFU1 CEOP 0,TAL) 3.1 3.9 4.9 22.3 33.9 P0CULTIOU POJUCTIOII6 nCUsATION IS W 2000 C7ELL) 24.5 STAROIUM F0OII6TTi (PULL) 74.0 PorUlATioN iliBI 1.6
FOaUsT mai 133 go. W. 44.8 80.6 111.6 173.6 316.9 ug SQ. Ms. SAL. LAM 26G.2 301.4 374.5 333.3 1391.2
POPULATIONaCt STRUCTURECZ) 0-14 TU 39.0 42.0 42.1 36.3 36.2 I1s- TN 57.4 35.0 54.2 ".4 37.7 65 ANDAlOVE 3.4 2.9 2.9 *.3 3.3
POPULATZOiCRfUM RATE CZ) TOTAL 1.4 1.9 2.3 2.u 2.3 Utuu 4.5 4.2 5.0 4.1 4.1
CRUDEUZOTI RanE (VEX TNOOS) 45.9 46.3 41.* 27.5 30.1 cuim D13 au (M TOUS) 25.6 23.0 16.1 10.2 9.4 CROss UOoucTIo1 RATE :.7 3.1 3.0 1.7 1.s TAMMYTPLANIUI ACWTOIS. 4UI1 (C3003) .2. 9.7 223.2 USR (I OF AI UN) . 7.0 49.4 34.3
FOD AD HUTrITO LNU oF 1OODnOD. MI CAPITA (1969-71-100) 106.0 101.0 64.0 116.6 124.4
PEILCAPITA SU"LY OF CALORIESCZ OarR3WeNTS) 87.0 94.0 69.0 106.3 115.7 PROTEIN (cuns Fm DAT) 50.0 50.0 47.0 60.1 6S.3 OF WHICHMANAL AND PULSE 10.0 9.0 8.0 Ic 14.4 14.1
CHMD (ACES 1-4) DEAN RAZE 32.5 27.3 21.0 7.3 7.2
LIFE EPECT. AT URTS (YEARS) 36.4 41.4 46.1 60.5 80.6 sWANT IlOrT. RALTE(PER TlltNS) 194.5 172.5 143.0 69.2 64.9
ACCZ5SSTOSAFE WATE (1POP) TOTAL .. 14.0 Id 44.2 46.0 URBAN 47.7 71.0 S3.0t 77.2 RURAL '- b.0 7.0 7i- 34.6 37.1
ACCESSTO EXCRETADISPOSAL (S OF POPULATION) TOTAL .. 1.5 2.0 Id 7.6 SO.1 UR1I .. 13.0 16.0 2S.826 52.9 RUAL .. 1.0 1.0 Id 5.5 I6.7
POPULATIONPER PNYSICIAS 73470.0 51360.0 Ia 30060.0 Id 3318.0 7751.7 POF. PER NURSINGIIPERSON .. 70500.0 to 33420.0 7d 4690.7 2-66.8 POP. PERHOSPITAL BED TOTAL 8260.0 6930.0 5720.0 /f 1039.2 1112.1 URIAS 290.0 330.0 *50.0 o7 299.1 b51.6 RURIAL ,.. .028.2 159b.9
ADEISSIONSPER HOSPITAL BED ...... 52.3 *1.1
AVERAGESIZE OF NtOISEHOLD TOTAL .. 5.. URBAN . .. - RURAL .. ..
AVERAGEtlO. Of PERSONS/RO04 TOrAL .. .. URBAN 2.0 .. RURAL .. ..
PERNTACS Of WCLLI3 WIM ELECT. TOTAL ...... UoRn" 30.2 .. RURAL. .. .. -26- ANNEX I
STABLECs 3~ Page 2 of 6
NcPAL - SOCALINDICATOUS DATA SHEET NEPAL naxnsct GRoun (ItmGD AVENS= Ia MST (1OST RECENT STLNATE) /b RECANT LOW INCU . RIDDLE INCUS 196&L 1970lb ESTmtAT!!b ASIA 6 PACItIc ASIA & PACIFIC
ADJUISTCEDENOLUIENT RATIOS PntI f TOTAL 10.0 26.0 73.0 92.6 100.7 IALE 19.0 43.0 102.0 105.5 104.4 PENAL= 1.0 8.0 *2.0 79.3 97.2
SrCoNDARS:TOTAL 6.0 10.0 21.0 31.3 47.6 KtLC 11.0 16.0 32.0 40.8 50.6 PUBIS 2.V 3.0 9.0 21.9 64.8
VOCnowSa CZ or S5DNUMW) 0.2 5.6 6.a Ia 3.2 18.4
PUPL-TEASER RATIO PRZnr 33.0 22.0 46.0 38.0 30.4 SECOMNhA 32.0 .. 22.0 17.4 22.2
PASSESOERCARS/STOUSAND P1P 0.1 0.4 .. 0.9 10.1 RADIO RZCKERS/tTOUSMID FOP3.0 4.8 22.7 129J 172.9 TV IRECMVRSITNOUSNDPay ...... 19.8 58.5 UEWSPAPE("UDILY GICEAL INTEREST") CIRCLATO PUr THWSn POPULATION 0.7 2.4 7.1 25.7 65.3 CUlI. ANNAL ATTENDANCE/C*PITA ...... 6.0 3.4
TOTAL LABOR,FOCE (T110S) 4653.0 5534.0 7413.0 PUBIS (PFCU t) 40.5 39.2 39.0 33.2 33.6 ACUICEL7URX(UNCUT) Y5.0 94.0 93.0 /d 69.6 52.2 INDUSY (PECENT) 2.0 2.0 2.0 7 15.3 17.9
PARTICIPATION IA= (PECENIT) TOTL 51.6 48.8 47.1 41.9 33.9 MALE 61.5 58.8 56.9 53.6 50.8 EALS . 41.8 36.6 36.9 25.1 2b.8
ECONOMaCWmNIDCICY RATO 0.6 0.9 1.0 1.0 1.1
InSc DINSTIS72[ caRCw VIVATE ECCDk RECEIVEDBY RICHEST 5O OE OUSZEI.LDS .. .. 35.3 /c RICGEST202 o0 ROUSULD,S .. .. 59.2 7g *- 4U.0 LOUEST 202 OP HOUSSIIOLDS .. .. 4.6 rc .. b.4 LOVES 40S OF IOUSEOLDS .. .. 12.6 c .. 15.5
Pe t TASCT C- ESTMLATEDABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URSA .. .. 95.0 1 33.9 RURAL .. .. 45.0 111.6 151.9
ESTDATED RELATIVE POVERTYICUE EVEL. (USS FM CAPrTA) URBAN ...... 177.9 4 1 0 RURAL .. .. i1. 61.7 164.7
ESTlATIED POP. BELOWABSOLUTE POVERTYINCOM LEVEL CZ) URBAN .. .. 55.0 Ic 43.8 23.5 RURAL .. .. 61.0 /c 51.7 37.8
NOT AVAILABLE !IOT APPLICABLE N 0 T E S
/a The group averages for each indicator are population-weighted arithmetic means. (average of countries smug the indicators depends on availability of data and is not uniform.
/b Unless otherwise noted, *'Data for 1960" refer to any year between 1959 and lVbl: "Data for 197u" between 1969 and 1971; and data for "loet Recent Estimate" between 1981 and 1983.
/c 1977; Id 1980; /e Personnel in goverant services only; /f i97b; S 1979.
JUNE. 1955 -27- ANNEX I Page 3 of 6
DUWfl1OII5 OF SOCIA INDICATO No Altbohoth dauare d rawfro s wrurit elyjudupd tm muhemMademadM mbl. it ho slul uld hume tha th*y my notbe asaruauoly npab b s at i lehe f tdaduddnJem. and cow pu by diffent cean cellig t dat. Tb dataamnofethulm miiie eoicrilin,I - .1ou* i cl_ p The unes tompsan (al dh amceuaty wup _odthe saut c_my md (2) a countrygoup wits ummuwthiwr rap Incomethan the acutry AoupoutdlUb y (uaaptlfor-H les ODiEspormu groupwhem Middie ln Ntb Afris nd Midd Est ig buses.n a pr mociemctlt Waidt.). li. I ac gboupda th ari- ppulpatoen_i athic _ sum feroc indiator andshowe only whmajority dth _aii i* aop hdaa f toridater. Slhnedie mrcounutm ong theindatendp w ilabilityofd mandis noeunife uuanmu_ beaetidmm inamg ate..Indiator toaa Thmeave ar7eonly umsiulia cmpsulu hdewvalue aw indkatori* -anguma
ARlEA (thouand sq.knL) Crud AWh Rate (pr s as.md)-Number of live births in the year Tera-Totai surfac area comprising land area and inlad wates; per thousand of mid-year population; 1960.1970. and 1983 data. 1960,1970 and 1983data. Crud Dewd Rae (per ah.usued)-Number of deaths in the year Agdubwml-Estinte of agricultural ar uw temp rily or per thousand of mid-year population; 1960,1970. and 1933 data. permanently for crops pastur market and kitcben gardenaor to Gr Repedelm Rae-Averap number ofdaulghters a woman he fallow, 1960.1970 anc 19U2data. will bear in her normal rproductive period if she expeiences prsnt age-speckfc rcrlity mnes;usually five-year avenges ending GNP PEl CAPIfA (US)-CNP per capta estites at cunent in 1960.1970. an 1983. arwketpm. calculated by s-me conversion method as World b flendA e ra.rs (rh -Aanu awn- Bask Atlas (193143 basis): 1933data. xerof accepton of binh-control devicesunder auspice of national ENERGY CONSUMPTION PER CAPITA-Annual appare raIy planning progrm. consumption of commercal priay enemy (coal and lignite. PIelr'4smn (peror Gf-ir)e baO-Thepercen- petroleum. natunl gS and hydro- nucear and geothermal ele- tap of married women orchili-bearing age who a practicing or tricity) in kilograms of oil equivalent per capita; 1960. 1970,an whose husbands are practicingany form of contraception.Women 1982datL of child-bearing age are generallywomen aged 1549. although for sme countries contraceptive usge is measured for other age POPULATION AND VITAL STATSlTICS groups. Tol Ptp.kd... Mid- Yew(rhomvd-As of July 1;1960, 1970. FOOD AND NUITION and 1983data. Index effod PdPwcdo Per Capt (1969-71 - I00--lndex of per Urha PopsWin. (ptrcent of treal)-Ratio of urban to total capita annual production of all food commodities. Production population;different definitionsof urban areas may affectcompar- exelude animal feed and see for agicultue. Food commodities ability of data among countries; 1960. 1970.and 1983data. include primary commodities (e.g. sutgcane instead of sugars hbpulaoA- PA*cris which are edible and contain nutrients (e.g. coffee and tea are fopueaioru Yer 200TheI projection of population for 2000. excluded); they comprise cereals. root crops. pulses. oil seeds. made for each economy separately. Starting with information on vegetables.fruts. nuts. suprcane and sugar beets. livestock.and total population by age and sex. fertility rates. mortality rates. and livestockproducts. Aggrepte production of each country is Sased iternational migration in the base year 1980. thes pneters on national average producer pnce weights: 1961-65.1970. and were projected at five-year intervals on the basis of generalized 1982data. assumptionsuntil the population became stationary. -p Capita Sapl f Colories (prewr qfrequn- rsj-Comput- Staltonarvpopultio Is one in which age- and sex-specificmor- ed from calorieequivalent of net food suppliesavailable in countrv ulity rates have not changed over a long period. while age-specific per capita per day. Availablesupplies compnse domestic produc- fertility rates have simultaneously remained at replacement level tion. imports less exports. and changes in stock. Net supplies (net reproduction rate- 1). In such a population. the birth rate is exclude animal feed. seeds for use in agricultn.re. quantities used in constant and equal to the death rate. the age structure is also food processing. and losses in distribution. Requirements were constant. and the growth rate is zero. The stationary population estimated by FAObased on physiologicalneeds for normal act%it' size was estimated on the basis of the projected characteristics of and health considering environmental temperature. body weights. the population in the year 2000. and the rate of decline of fertility age and sexdistribution of population.and allowing In percent for rate to replacement lemel waste at houshIold level: 1961. 1970 and 1982data PopvdationMonsenuwn-Is the tendency for population growth to Per Capita Supply of Protein (ranes per diayj-ProLein contenL 0o continue beyond the time that replacement-level fertility has been per capita net supply of food per dav. Net supply of food is defined achieved: that is. even after the net reproduction rate has rcached as above. Requirements for all countnes established by USDA unity. The momentum of a population in the year t is measured as provide for minimum allowances of 60 grams of total protein per a ratio of the ultimate stationary pop':lation to the population in day and 20 grams of animal and pulse protein. ol which 111grams the year r. giwen the assumption that fertility remains at replace- should be animal protein. These standards are lower than tholt of ment level from year t onward. 1985 data. 75 grams of total protein and 23 erams of animal proeeiii a- an Pop-lation Denstyr average for the world. proposed by FAQ in the Third %korld;iood Per sq.km.-Mzd-year population per square kilometer t100 hec- Supply. 1961. 1970 and 19x2 data. tares) of total area: 1960. 1970.and 1983data Per Capita Protein Suppl fram Ainimal and Pulse-Pr.'iin arpi;. Per rq km ajret ultural land-Computed as above for agricultural oftfood dern ed from aninmals and pukes in eram' per dl. 1i. 'h5 land oniv. 1960. 1970. and 19N2 data 1970 and 19'' dant Ppulatien Age Snrrsare (percentj-Children t0-14 years). work- Child (ages 1-4l Death Rate (pei rhousand)-N umber otitdt.1:.u,' ingaget15-64 vears). and reured (65 years and over) as percentage children aged 1-4 years per thousand children in the %ame age of mid-year population: 1960.1970. and 1983data. group in a yven year. For most developingcountries data derned from life tables: 1960. 1970 and 1983 data. PepuulusienGmrhwr Rate (perceiu-ttal---Annual growth rates of total mnid-yearpopulation for 1950-60. 1960-70. and 1970-83. HEALTH Papulaion Grouwt Rate (percerat)j-nau-Annual growth rates Life Epecatncy at Birth (yea-)--Number of years a neobom of urban population for 1950-60. 1960-70. and 1970-83 data. infant would live if prevailing patterns of mortalitv for all people -28- ANNEX I Page 4 of 6 attbh due of of ha birth wa to sty th - throughoutit Ufb; Ap&meee Raia.- prxay. ed aceuer-Toui stude e 1960, 1970ad 1963 data. rold In pimary Nd sedary levs dvded by numbers of h Mwhjt Raw (pm hed)-Number of Iifas whodie tache in dn coronapondlgbveb. bore rechig on yer of ap pr tdound livebirths In a give year 19ff0,1970 and 1913data. CONSUMPTION Aeer is SO POW f(pwe ef p8p.mkJ-i ar4 _end. Cuec pmie d Po cae_-snrca cn- xurd-Numbaror poopla (toal, nuAe, and rurl) withreasonable p-r motor cas adng ls than eightpenon; excludesambul- main to safwar sup*y (lahad tetd sfaC wats or ancs, hre and miliuty vehil untregtd but umminmiendwa term aldthat ffo prde Jau.o Raeeive (par rhe.uuodppapsulera)-All tpes of receivers b ursholas.sprinp anA snitary wels) a peronp of theirrpec. for mdiobroadcts to sgenealpubicper thousnd at pulawdon dvep In an urba ae a publicfountan or stoapost excluds un-flcesed recve In counti and In yer when lobatednot - taonM0 maOmsha a houms y be c d repsrtion of radio s wu In dffn; data for ecentyems ay * beingwit rsnable aosns or the ho_ In rura am not b compaal sinesmost countrie abolishedlicensing. eoableorao would Imply that houewwife orminbers oftbeor t hous o do mo have to sed _tOalpublka disproportionate pan of the day per thond populuionelude unLfensedTs
inef i txh a* filawtneeds * In u andinyvans wben registrationof TV mm was Acces a._EeaDpearpu peun.)- . .hm id _d ared-Number of peope (total urban, and ural) srved by acnm disposl a poeta of their rpecdve populations. k1Fs GeIre (PUP &pand dte aver- Exct dbposl may indude the colecdton and diposL with or age dcruao of daly ge neinet newspapr, deid as a withouttreamt, of humanexcrt and waste-waterby water- Fdodl publautio devotedprimaiy to recordinggeneril news bon systms or the - of pit pr snd similarinaldtionL It i cowdderd to be dailyf ifk appear at leasttour times a wek. tpadm. pa Ptosinh-fpulation divided by number of p1> Ch_ Amul AUIAdI pUr Capita pm Yaw-Based on the ti physidi qualif froma medcl shool at universitylvl. numberor ticets sold duriw the year.including admisions to AhuIde per NIA Po .-Rpultion dividedby numberof driemVdenems and moble units. pnaicag male and fema grduate nun, astunt nure, psedal nursesand nusing auxi;lad LAO FORaCe pAtie per Hspbd So&-eo4, w,, _ed rw-pudo, e i-Econom y ve p nv (total, urban, and ral) ided by their res number of duding armed forces and unemployedbut excluding houswives, hospitalbeds availablein publicand private,genal ads d students, etc.. coverinn populatio of all age Definitions in hospials and rehbilit cne. Hopits re esbl various countrie arn not comparab; 1960. 1970and 1983 daut pemamdy staffedby at la one physicnL Esablshments proyv.n (F_eo)-Femal labor fame as pemntage of total labor iding pricpaly cuodil cae are not included- Rural hospitl torce. owevr,include halt and meddal otes not permanentlysafred A rkde (preema)-Labor force in farming. forestry. hunting by a physicin (but by a medical aisnt, nurse, midwife, etc.) and flshingas percentageof total labor force; 1960.1970 and 1980 which offer in-patient acoim tion and provide a limited ranp dat of medicalfacilities. bhusri (perej-Labor torce in urPing. constmction, manu- Ad.minm per H.aitaleJh-Total number of admissions to or tacturing and electricity,water and ps as pecetage of toul labor discharges from hospitalsdivided by the nunber of beds. force; 1960. 1970and 1980data. PoUIWG Rare(po ,-4lmrk, adfa-Particdp on HOUSING or activityrt are computedas totaL male,and fenale labor formc A4a Siw of Howelw (persaasper .s*h.d)-4orc4 wa, a pemtage of totaL maleand femalepopulation of all ags and rrO-A householdconsists of a group ofindividual who share repectivdr, 1960. 1970.and 1983 data. These ane based on ILO's Livingquarnts and their mai meals.A boarder or lodger mry or. paricipation raes reflting a-sex str cture of the population. and nay not be included in the household for statsticl purpose longtime trend. A fewestiutes are from mntionalsoure APwg NwnMr of Pain per RAoo-taual, urban, end nrua- Econk Dependr Rato-Ratio or population under 15.and Averagc pumber oa persons per room in all urban, and rural 65 and over. to the working age population (those aged 15-641. occupied conventional dwellings,respectivly. Dwelings exdude non-permanentstructures and unoccupiedparts. INCOME DISTRIBlTION Percenageof Dwellns _rit Elkciriery-rtal. urba, and rural- Perceaege of Toel DiwposableIome (borh i casA and kind)- Convcntionaldwelling withelectricity in livingquarters as percen- Accnringto percentilegroups of householdsranked by total house- tage oa totaL urban. and rural dwelinp respectively. hold income. EDUCATION POVERTY TARGETGROUPS AdsanredEmwLlwr Ratos The followingestimates are very approximate measuresof poverty Prmary school - total. maki and female-Gross totaL male and level. and should be interpreted with considerable caution. femaleenrolment of all ages at the primary level as percentagesof Estimaed Absolac PbverryIncome Level (3SS per capita)-arban respectiveprimary school-age populations. While many countries and rural-Absolucte poverty income level is that income level considerprimary school age w be 6-11 years. others do not. The below which a minimal nutritionally adequate diet plus essential differencesin country practices in the ages and duration of school non-food requirements is not affordable. are reflectedin the ratios given.For some countries with universal Estimaed Relativr PorerryIncomw Level (ESS per capita)-rban educauon. gross enrollment may exceed 100 percent sincc some and rural-Rural relative poverty income level is onc-third of pupils are below or above the counrrv's standard primary-school average per capita personal income of the country. Crban level is age. derived from the rural level with adjust-nent for higher cost of Secondary school - total, male and female-Computed as above; livingin urban areas. secondaryeducation requires at least four years of approved pn- Eshmated Popaaio Below AbsolarePoery lxcome Level tper- mary instruction;provides gencraLvocationaL or teacher training cent)-urbsn and rural- Percent of population (urban and rural instructionsfor pupils usuallyof 12 to 17 years of age; correspond- who are absolute poor. ence coursesare generallyexcluded. VocationalEnroilmeni (percent of secondary)-Vocational institu- Comparative Analysis and Dat Division tions includetchnal, industiaL or other programs which operate Economic Analysisand Projections Department independentlyor as departmentsof secondaryinstitutions. June 1985 -29- ANNEX I Page 5 of 6
ECONOMICINDICATORS - NEPAL
GNP PUR CAPITA IN 1983: US$170
GROSS DOMESTIC PRODUCTIN 1984/85 ANNUALRATE OF GROWTH. 1974/75-1984/85 (S. constant prices) US$ Mln. S CDP at Market Prices 2.344 100.0 3.2 Gross Domestic Investment 446 19.0 Gross Domestic Saving 247 10.5 Current Account Balance (arc. official grants) -168 -7.2 Exports of Goods. NFS 288 12.3 Imports of Goods. NFS 487 20.8
CUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1982/83 Value Added Value Added Labor Force */ Per Worker US$ ln. S Mln. US$
Agriculture 1,286 56 6.3 91.0 204 Industry b/ 277 12 0.2 3.0 1.385 Services 725 32 0.4 6.0 1.813
Total/Average 2.282 100 6.9 100 331
COVERNMENT FINANCE CENTRL GO W NRs. Mn. _ of GDP 1981/82 1982/83 1983/84 1984/85 1984/85
Current Receipts 2.668 2.808 3.342 3.961 9.5 Regular Expenditures 1.627 1.994 2.274 2.984 7.1 Current Surplus 1.041 814 1.068 977 2.3 Development Expenditure 3.727 4.982 5.164 5.528 13.2 External Assistance (Net) 1.688 2.028 2.861 2.643 6.4
HONEY. CREDIT AND PRICES
1980 1981 1982 1983 1984 1985
(Million NFR. outstanding mid-July)
Honey and Quasi Money 5.285 6.308 7.459 9.222 10.456 12.213 Bank Credit to Government 1.258 1.263 2.062 4.090 5.029 6.433 Bank Credit to Public Enterprises 702 946 840 1.137 953 1.151 Bank Credit to Private Sector 2.346 2.952 3.142 3.264 3.842 4.689
Honey and Quasi Money as Z of GDP 22.6 21.7 22.9 27.4 27.4 29.3 General Price Indez (1974/75 = 100) 128.7 145.9 161.2 184.1 195.6 198.6 Annual Percentage Changes in: General Price Index 9.8 13.4 10.4 14.2 6.2 1.5 Bank Credit to Government 15.8 -0.4 57.1 93.8 24.2 27.9 Bank Credit to Public Enterprises 14.9 33.3 1.0 44.0 -18.9 20.8 Bank Credit to Private Sector 28.9 26.9 2.4 3.7 16.9 22.1
Note: All conversionS to US dollars in this table are at the average exchange rate prevailing during the period covered. Fiscal year data are for Nepalese fiscal year, July 16 - July 15. a/ Total labor force; unemployed are allocated to sector of their no=ral occupation. b/ Includea mining. manufacturing. construction and utilities. -30- ~~~~~~~~PageANNEX6 of I 6
1981/82 1982/83 1983/84 1984/85 MERCHUNDISEEYPORTS 1984/85 (USS Million) US$ Nln. S BALANCEo0 PAYMDflS Agricultural products 91.7 59 Exports 277.6 250.4 303.5 306.0 Manufactures 63.7 41 Merchendige f.o.b 115.6 82.3 123.9 155.4 Non-factor Services 162.0 168.1 179.5 150.6 Total 155.4 100
Imports 450.5 521.6 551.3 515.3 Merchandise c.i.f 382.5 459.0 473.6 445.7 EXTERNALDEBT, DECEMBER31, 1984 Non-factor Services 68.0 62.6 77.7 69.6 US$ Mln. Resource Gap 172.8 271.2 247.8 209.3 Public Debt. inc. guaranteed 426.5 Net factor Income 12.5 13.0 0.1 0 Non-Guaranteed Private Debt -
Not Current Transfers 40.6 41.7 50.2 41.7 Total Outstsnding & Disbursed 426.5
Current Account Deficit 119.8 216.5 197.5 167.7
Official Grant Aid 89.4 95.3 100.1 87.1 DEBT SERVICE RATIO for 1984/85 S
Net M<Loans 59.8 67.0 87.2 73.8 Public Debt. inc. guaranteed 5.0 Diobursements 62.3 69.9 92.4 78.7 Repaymento 2.5 2.9 5.1 4.9 Capital Plovs N.E.T. 9.3 5.2 1.0 -40.0 IBRD/IDA LENDING, Sept. 30. 1985 (Millions USS)
Overell Balance 38.8 -49.0 -9.1 -46.7 US$ mn.
Change in Net Reserves -38.8 49.0 9.0 46.7 IRBD IDA (-increase) Outstanding & Disbursed - 236.3 Gross Official Reserves 322.6 163.1 123.1 93.6 Undisbursed - 354.9 (Mid July) Outstanding. incl. undisbursed - 590.3
RATE OF EXCHANGE
from March 20. 1978 From September 19. 1981 From December 17. 1982 to September 18, 1981 to December 16, 1982 to May 31, 1983 June 30, 1984 a/ December 31, 1984
US$1.00 = NRs 12.00 US$1.00 = NRa 13.2 US$1.00 = NRs 14.3 USS1.00 = NRa 16.4 USS1.00 = NRs 18.0 NRa 1.00 = US$ 0.083 NRa 1.00 = US$ 0.076 NRa 1.00 = US$ 0.070 NRa 1.00 = USS 0.061 NRs 1.00 = USS 0.056
March 31. 1985 June 30, 1985 September 30, 1985 December 31. 1985
US$1.00 = NRs 18.1 US$1.00 = NRa 18.1 US$1.00 = NRs 17.3 US$1.00 = ER. 20.9 MeR1.00 = US$ 0.055 NRs 1.00 = US$ 0.055 NRs 1.00= US$0.058 MNs 1.00= US$ 0.048
a/ Since June 1, 1983, the Nepal Rastra Bank announces the exchange rate daily. based on a trade-weighted basket, with the US dollar as the intervention carrency. The rate shown here is the mid-rate on the date indicated.
South Asia Program Department February 24. 1986 -31- Annex II Page 1 of 2
STATUSOF BANKGROUP OPERATIONS IN NEPAL
A. STATEMENT OF IDA CREDITS (as of March 31, 1986) a/ & b/
US$ million (net of cancellations) No. Year Borrower Purpose IDA Undisbursed
Fourteen credits fully disbursed 127.8
704 1977 Kingdom of Nepal Second Water Supply & Sewerage 8.0 0.7 772 1978 Kingdom of Nepal Technical Education 5.7 1.2 812 1978 Kingdom of Nepal Irrigation(Sunsari-Morang) 30.0 5.6 856 1979 Kingdom of Nepal Irrigation (NarayaniZone) 14.0 2.8 939 1979 Kingdom of Nepal Second Rural Development 11.0 6.8 1008 1980 Kingdom of Nepal Comunnity Forestry 17.0 9.7 1055 1980 Kingdom of Nepal Irrigation (Mahakali) 16.0 10.9 1059 1981 Kingdom of Nepal Third Water Supply & Sewerage 27.0 10.5 1062c/ 1981 Kingdom of Nepal Grain Storage 6.2 2.7 1093c/ 1981 Kingdom of Nepal Irrigation (Babai) 3.5 0.1 1100 1981 Kingdom of Nepal AgriculturalExtension & Res. 17.5 7.1 1OOc/ 1981 Kingdom of Nepal Hill Food Production 8.0 5.1 1191c/ 1982 Kingdom of Nepal Cottage & Small Industries 6.5 0.7 1198c/ 1982 Kingdom of Nepal Second Education 14.3 11.9 1260c/ 1982 Kingdom of Nepal Petroleum ExplorationPromotion 9.2 4.0 1316c/ 1983 Kingdom of Nepal IrrigationVI-Bhairawa-Lumbini 16.0 11.5 1339c/ 1983 Kingdom of Nepal Cash Crop Development 6.0 3.6 1379c/ 1983 Kingdom of Nepal Technical AssistanceII 6.0 5.2 1400c/ 1984 Kingdom of Nepal Second Forestry 16.0 16.8 1452c/ 1984 Kingdom of Nepal Karnali Preparation 11.0 11.4 1463c/ 1984 Kingdom of Nepal Primary Education 12.8 13.4 1478c/ 1984 Kingdom of Nepal Marsyangdi HydroelectricPower 107.0 114.4 1515c/ 1985 Kingdom of Nepal Third Highways 47.5 50.9 1534c/ 1985 Kingdom of Nepal Agric. Manpower Development 8.4 9.7 1535c/ 1985 Kingdom of Nepal IndustrialDevelopment 7.5 8.5 1570c/ 1985 Kingdom of Nepal AgriculturalExtension II 7.2 8.4 1588c/d/ 1985 Kingdom of Nepal TelecommunicationIV 22.0 22.0
Total, 589.1 355.6 of which has been repaid 1.0 Total now outstandingb/ 588.1
Total now held by IDA 588.1 Total undisbursed 355.6
a/ No Bank loans have been made to Nepal. b/ Prior to exchange adjustments. c/ IDA 6th and 7th ReplenishmentsCredits, principal amounts shown in U.S. dollar equivalentat date of negotiations,as shown in President Reports, and undisbursedamounts shown U.S. dollar equivalentare valued at the exchange rate applicableon the date of this statement. d/ Not yet effective. -32-
Annex II Page 2 of 2
B. STATEMENTOF IFC INVESTMENT (as of March 31, 1986)
Amount ($ million) Year Obliger Type of Business Loan Equity Total
1975 Soaltee Hotel (Pvt) Ltd. Hotel 2.7 0.4 3.1
1982 Nepal Orind Magnesite Mine and process 4.8 - 4.8 (Private)Limited magnesite ore
Total comitments now held by IFC 7.5 0.4 7.9 ANNEX III Page 1 of 2
NEPAL
NARAYANI III IRRIGATION PROJECT
SupplementData Sheet
Section I Timetable of Key Events
(a) Time taken by the country to prepare the project:
24 months.
(b) The agency which has prepared the project:
Narayani Zone IrrigationDevelopment Board, assisted by consultants
(c) Date of first presentationto the Bank Group and date of first mission to consider the project:
October 1984; June 1985
(d) Date of departure of appraisalmission:
November 1985
(e) Date of completion of negotiations:
April 1986
(f) Planned date of effectiveness:
October 1986
Section II Special IDA ImplementationAction
None -34-
ANNEX III Page 2 of 2
SecticinIII Special Conditions
Conditionsof credit effectiveness
(a) submissionby HMCN of satisfactorilyrevised final design and contractingpackages for the 1986-87 construction season (para 55); and
(b) authorizationby HMGN of all staff positions required for project implementation(para 61).
Other Conditions
(a) HMGN/NZIDBwould revise and simplifywater charge assessmentand collectionprocedures with the objective of collectingat least full O&M costs in the scheme area by fiscal 1993 (para. 70).
(b) Collectionof water charges would be done by HMGN's Revenue Department (para. 70).
(c) Water users groups would be establised (para 70) and given statutorypowers to ensure that they can effectivelymanage water distributionbelow the 30 ha outlet (paras. 66,67). -35- ANNEX IV
NEPAL
NARAYANI III IRRIGATIONPROJECT
Proposed ProcurementMethods
(US$ Million)
ProcurementMethod (US$ M)
Item ICB LCB Other NA a/ Total Costs
Civil Works 17.5 2.1 0.6 -- 20.2 (17.5) (2.1) (0.6) (20.2) Equipment, vehicles 1.9 0.8 b/ -- 2.7 and workshopfacilities (1.9) -- (0.8) - (2.7) Consul:ing Services -- -- 3.9 - 3.9 -- -- (3.9) - (3.9) Training, agriculture - 0.5 - 0.5 research,monitoring - (0.5) - (0.5) and evaluation Establishment,operation - 2.0 1.0 4.3 7.3 and maintenance (1.6) (0.4) (2.7) (4.7) Land acquisition - 0.9 0.9 ___ - - (0) (0)
TOTAL 19.4 4.1 6.8 5.2 35.5 (19.4) (3.7) (6.2) (2.7) (32.0) c/
a/ NA--not subject to procurement. bi/ Procurementunder limited internationaltendering. c/ Figures in parenthesisare amounts to be financed by IDA and SDC. -36- ANNEX V
NEPAL
NARA"ANI III IRRICATION PROJECT
Credit/GrantAllocation (US$N)
Amount of Credit/Grant Category Allocated Percent Financed
IDA SDC al
1. Civil Works: 18.0 100Z
2. Equipment, vehicles and 2.4 100Z of foreign expenditures workshop facilities 100Z local expendituresof ex-factory costs and 70Z of other locally procured items.
3. Technical services and studies:
(a) Consultanciesand studies 3.5 100Z (b) Training, agriculturalresearch and monitoring and evaluation 0.4 1001
4. Project establishmentand O&M costs 2.4} 902 in FY87-89 (escluding salaries) 1 70% in FY90-91 501 in FY92 ) 25% in FY93
5. Salaries and allowances of staff b/ 1.6) 90X in FY87-89 701 in FY90-91 '50Xin FY92 } 25% in FY93
6. Unallocated 3.7
Subtotal 24.5 7.5 c/
TOTAL 32.0 a/ Swiss DevelopmentCooperation. b/ For administrativeease, disbursementswould be made against total salaries and allowances;the declining disbursementrate would mean that grant allocation represents in the aggregate 851 of the salaries and allowances of incrementalstaff throughout the project implementationperiod. c/ Sw F 15.0 Million. VFS - eIS i
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