World Bank Document

py r | l'lllJ Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. P-1883-NEP

REPORT AND RECOMMENDATION

OF THE

OF TIIE

Public Disclosure Authorized PRESIDENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO THE

Public Disclosure Authorized KINGDOM OF NEPAL

FOR THE

BHAIRAWA -LUMBINI GROUNDWATER PROJECT

June 23, 1976 Public Disclosure Authorized

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT

US$1 = NRs 12.50 NR1 US$0.0800 NRs 100,000 = US$8,000 NRs 1,000,000 = US$80,000

FISCAL YEAR

Nepal Fiscal Year - July 16 to July 15

PRINCIPAL ABBREVIATIONS AND ACRONYMS

ADBN = Agricultural Development Bank of Nepal AIC = Agricultural '[nputs Corporation DA = Department of Agriculture DIHM = Department of Irrigation, Hydrology and Meteorology GDP = Gross Domestic Product GRDB = Groundwater Resources Development Board RIC = His Majesty's Government of Nepal MFAI = Ministry of Food, Agriculture and Irrigation NEC = Nepal Electricity Corporation NFC = Nepal Food Corporation NZIDB = Narayani Zone Irrigation Development Board O&M = Operation and Maintenance PCC = Project Coord[nating Committee PM = Project Manager INTERNATIONAL DEVELOPMENT ASSOCIATION FOR OFFICIAL USE ONLY

REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE KINGDOM OF NEPAL FOR THE BHAIRAWA-LUMBINI GROUNDWATER PROJECT

1. I submit the following report and recommendation on a proposed development credit to the Kingdom of Nepal for the equivalent of US$9.0 million on standard IDA terms to help finance a groundwater irrigation project in the Lumbini Zone near Bhairawa.

PART I - THE ECONOMY

2. The most recent economic report entitled "A Review of Major Issues Related to Nepal's Development Prospects" (Report No. 677a-NEP) was distributed to the Executive Directors on June 10, 1975. A mission visited Nepal in January/February 1976 to review the public sector investment program and the adequacy of available resources. The principal findings and conclusions of this mission are included below. Country data are shown in Annex I.

3. Nepal has been classified by the United Nations as one of the least-developed countries in the world. Its per capita income in 1974 was estimated at $90-100 per year and the literacy rate at about 14%. Serious efforts toward development have been underway only since the 1960s. Develop- ment expenditures have increased rapidly from NRs 232 million in 1964/65 to NRs 926 million in 1974/75. About half of expenditures for development has been financed with external assistance, notably from India, the United States and the People's Republic of China. About 80% has been in the form of grants.

4. Nepal's economic growth over the last nine years has been slow. From 1965-67 to 1973-75, the average annual rate of growth of GDP was only 2.2% in real terms. During the same period population increased at a rate of over 2%. There was, therefore, hardly any improvement in GDP per capita. Agriculture accounts for about two-thirds of GDP and for 80% of export earnings and provides employment to about 90% of the population. Foodgrain production has grown at a lower rate than population since the mid-1960's. If present trends continue, domestic consumption per capita or exports of food- grains will fall. Nepal is currently exporting over 200,000 tons of rice a year, accounting for about 60% of export earnings. Some progress was achieved in the organized manufacturing sector which, however, accounts for less than 3% of GDP.

5. This slow growth largely reflected the priority given to development of road infrastructure over the directly producing sectors. This priority was probably an inescapable necessity. When the country began to come out of its isolation in 1951, it had no transportation facilities and hardly any trained people to man an administration oriented toward economic development. At least one generation was needed to build a basic physical and administrative infrastructure without which a development policy is devoid of meaning. In that respect, substantial progress has been achieved.

6. In the past, only 20% of public sector investments was made in the directly producing sectors, which largely benefited the Kathmandu Valley, and, to a lesser extent, the eastern Terai plains. The development of the Kathmandu Valley, where 4% of Nepal's population lives, has been a success story. New cultivation methods have been widely adopted and the farming community is enjoying an improved standard of living. With the Fifth Five- Year Plan (1975/76-1979/80), Nepal is now attempting to shift its order of priorities and to focus on the productive sectors and the development of its very substantial hydroelectric potential. Half of planned development expenditures is tentatively allocated to these sectors; 30% of public sector capital expenditures is planned to be allocated to agricultural and rural development. The basic strategy of the Fifth Plan towards agriculture is to balance growth with more equal income distribution and regional development. Largely because of absorptive capacity problems, the country may experience serious difficulties in redirecting its development along this new and very pertinent course.

7. Nepal's development is likely to be impaired seriously by the recent changes in world economic conditions. The country has to import prac- tically all capital and manufactured consumer goods. World price increases are, therefore, greatly affecting Nepal. As the country is landlocked, it depends on India for most of its imports, but India developed shortages of its own. This forced Nepal to import from distant places at high prices together with very high freight and transit costs through India, particularly for bulky commodities such as cement. For the ten years ending in the latter part of 1974 the trade deficit was more than offset by invisible earnings, mainly from remittances and pensions, interest on external reserves and tourism. Over this period balance of payments surpluses amounted to about $10 million a year and foreign exchange reserves were at the very comfortable level of $139 million in November 1974 (more than 12 months of imports). How- ever, and largely because of changes in world prices in late 1974, Nepal's foreign exchange reserves declined to $94 million by September 1975. This decline is expected to continue at a rate of $20-25 million a year, unless Nepal succeeds in increasing its foreign exchange earnings and obtaining increased foreign assistance.

8. If imports have to be curtailed, this would not only directly affect economic activity but also the potential for domestic resource mobilization, as nearly two-thirds of tax and non-tax revenue is collected - 3 - on external transactions. Revenue potentials from other tax sources are limited, given the poverty of the country and the low degree of monetiza- tion of the economy. In view of its importance for resource mobilization, encouragement of exports has high priority. Export potentials lie mostly in the development of agriculture, tourism and hydro-power.

9. On October 9, 1975 the Nepal Rupee was devalued against the U.S. dollar from NRs 10.56 to NRs 12.50. Rates for other foreign currencies are established daily by the Nepal Rastra (Central) Bank on the basis of the parity rates between the U.S. dollar and such currencies. The parity rate with the Indian Rupee remains unchanged. This selective devaluation was addressed to the problems of increasing earnings of convertible foreign exchange and reducing the demand for such exchange, encouraging labor-intensive investments, reducing the diversion of trade through unofficial channels, restoring the profitability of jute exports and increasing revenues in Hill areas by enhancing the rupee value of pensions and remittances received mainly by retired Gurkhas who had served abroad. There can be little doubt that the devaluation was a step in the right direction.

10. In April 1975, substantial changes were made in the pricing of resources to consumers and investors. Consumer subsidies on basic commodities, such as rice and sugar, which in the recent past were growing rapidly, have been almost entirely rescinded. In addition a major reform of the interest rate structure was introduced in April 1975 with a view to increasing mobilization of private savings and rationalizing resource allocation. This welcome and timely reform entails an increase of the two- year fixed savings deposit rate from 9-3/4 to 16% per annum. Lending rates of commercial banks have been raised to the level of 15-18% per annum and those of financial institutions to 10-16%. These rates were introduced when the rate of inflation was about 20% a year. Inflation has, however, declined markedly since then; in the 12 month period ending October 1975, it was 8%.

11. Development expenditures, including foreign assistance, for the Fifth Plan (1975/76-1979/80) are estimated at about $670 million, i.e., twice as much in real terms as during the previous plan (1970/71-1974/75). The plan may be ambitious compared to the likely availability of resources and the country's implementation capacity. Substantial additional foreign assistance above the present level would be redquired. Recurrent expenditures are likely to increase sharply on account of rapidly growing expenditures in social sectors, especially in education, increased maintenance and management cost of previous investments, and additional administrative cost required to decentralize Government (HMG) services. As in the past, the increase in HMG's recurrent expenditures is likely to outstrip growth of revenue so that the budget surplus is likely to fall sharply, possibly to a third of its current level in real terms. In view of this, an economic mission visited Nepal in January to review the public sector investment program and the related resource requirements; its report is expected to be issued in July. - 4 -

12. In summary, on the one hand, the extreme poverty of the country points to its limited capacity to generate resources; on the other hand, urgent development needs and the expected gradual improvement in the country's absorptive capacity will lead to an increasing demand for foreign exchange. Consequently, Nepal's requirements for foreign assistance on soft terms will rise rapidly. There is also a clear need for some local cost financing, as most projects with high development priority have a larger domestic cost component than can be mobilized from internal sources.

13. So far, Nepal's external debt has been very low. As noted in paragraph 3 the bulk of foreign aid has been in the form of grants. As of December 31, 1975 official foreign debt amounted to only $125 million of which $90 million remained undisbursed. This low utilization is largely due to the fact that 80% of foreign loans has been contracted since 1970. Consequently, debt service was about $1.5 million in 1975 or equivalent to about 2% of exports of goods and services. IDA's share in the debt service was negligible. However, future assistance may increasingly take the form of loans, albeit soft. In view of the accelerated development efforts, external public debt is expected to rise and, based on the trend in recent years, may well reach $250 million by 1980, of which approximately 2/3 could be in IDA credits. The debt service ratio by 1980 is, however forecast to remain below 10%, of which the Bank Group's share would be less than 1%.

PART II - BANK GROUP OPERATIONS IN NEPAL

14. The first IDA credit to Nepal in the amount of $1.7 million equivalent was made in FY70 for a telecommunications project. This was followed by credits for highways ($2.5 million), tourism ($3.2 million), irrigation ($6 million), a second telecommunications project ($5.5 million), a water supply and sewerage project ($7.8 million), a settlement project ($6.0 million), a power project ($26.0 million) and a rural development project ($8.0 million). The proposed credit would bring the total amount of IDA assistance to Nepal to $75.7 million equivalent net of cancellations. No Bank loan has been made to Nepal. IFC made its first investment in Nepal (US$3.2 million) in a hotel project in Kathmandu in FY75. Annex II contains a summary statement of Bank Group operations as of May 31, 1976 and notes on the execution of ongoing IDA projects. It shows certain delays in the implementation of these projects, particularly during the initial periods. These delays are largely due to Nepal's limited technical and managerial capabilities. In order to assist Nepal in coping with this constraint, considerable technical assistance is being given in the form of inputs of staff time in Washington, from our Resident Mission in Kathmandu, and during frequent missions to Nepal. As a result, improvements in the rate of disbursements are being realized. During the first eleven months of FY 76, $2.5 million were disbursed compared to $4.3 million disbursed during the previous six years. Moreover, there is scope for substantial further improvement. - 5 -

15. Bank Group lending to Nepal has so, far been at a modest level compared to the country's needs for, and total receipts of, external assistance. This is due to the country's limited absorptive capacity, affecting the rate of project preparation and implementation. The Bank has, therefore, agreed with HMG to assist it in project preparation, particularly by acting as Executing Agency for a number of technical assistance projects in the current UNDP Five-Year Program, which coincides with Nepal's Fifth Five Year Development Plan.

16. The Bank Group's objectives in Nepal reflect the country's needs: (a) to place major emphasis upon directly producing sectors, particularly agriculture, and increasing food production; and (b) to continue assistance for the development of complementary infrastructure -- including feeder roads--to support other development expenditures, facilities to expedite communications (particularly between the Hills and the Terai), and additional hydroelectric capacity to meet the forecasted increase in demand for energy for agricultural and industrial development.

17. Preparation work is being carried out for a number of projects, including a third irrigation project, a DFC project, a feeder roads project, and a technical assistance project. In view of the institutional constraints and shortage of trained personnel in Nepal, technical assistance and training would be an important element in the proposed project as well as in future projects.

PART III - AGRICULTURE IN NEPAL

18. As indicated in paragraph 4 above, Nepal's economy depends heavily on agriculture. However, out of two million hectares of cultivated land only 260,000 ha (13%) are irrigated. Paddy, the main crop, covers 51% of cropped area; maize 19%; wheat and other cereals 16%; and other crops including oilseeds, pulses, jute, potatoes, sugarcane, tobacco and horti- cultural crops 14%. Livestock accounts for 22% of the agricultural output and contributes an important part of the farmer's subsistence diet, and in many Hill areas provides the only source of cash income. Forests cover some 46,000 km2 or about one-third of the country. Terai forests, covering about 820,000 ha, are the most significant economically. All forest land is owned by HMG, and the Ministry of Forest is responsible for forest management and forest industries.

19. Agriculture is still mainly characterized by subsistence farming. In spite of HMG efforts in recent years, the increase in agricultural production during the last decade has fallen behind population growth, resulting in decreased exportable surpluses, mainly rice, and foodgrain deficits may appear by the turn of the decade, unless agricultural production is increased at a higher rate. The major development constraints include - 6 - inadequate irrigation and drainage facilities, the low level of agricultural inputs and shortage of trained manpower. In order to increase food production, HMG is giving high priority to the development of quick yielding irrigation projects accompanied by improvement of inputs and extension services. The Terai offers the greatest potential for such development.

20. Because of physical conditions, conventional surface irrigation development in Nepal has been slow; sedimentation is heavy and only small areas can be commanded by gravity diversions between the foothills and the Indian border. Also, to permit year-round irrigation, storage is required to supplement the natural river flows during the dry season. Though of recent origin in Nepal, the development of groundwater irrigation has pro- mising prospects in the Terai plains. Most of the Terai is underlain by a groundwater aquifer which drains the underground flows from the foothills to the Ganges River. These can be quickly developed and put to use without the need to develop major works normally involved in surface water development requiring long gestation periods. However, in view of the high operating costs (energy, pumps, motors and well) costs must be control- led, water used efficiently, and productivity raised through the provision of necessary inputs and extension services. This also requires effective management of the individual wells, including the organization of the farmers using each well. Extension, provided by the Ministry of Food, Agriculture and Irrigation (MFAI), is weak, reflecting lack of staff and training, limited research and lack of facilities. Extension at the farm level is carried out by Junior Technical Assistants and Panchayat Level Agricultural Assistants supervised by Junior Technicians and District Agricultural Development Officers. MFAI receives support in extension and research from a number of external agencies including USAID, UNDP and IDA.

21. The Agricultural Development Bank of Nepal (ADBN), established in 1967, provides institutional agricultural credit directly to large farmers and, through guided cooperatives or guided village committees, to small farmers. The Agricultural Inputs Corporation provides farming inputs, while the Agricultural Food Corporation buys rice from farmers. Surplus rice is exported by the recently established Rice Exporting Companies. Inadequate storage and transportation are major marketing constraints. ADBN and the farmers cooperatives undertake the construction and management of storage facilities while the Roads Department is in charge of planning, construction, and maintenance of roads down to the village level. Village roads, tracks and canal roads are the responsibility of local Panchayats (local governments).

22. The Ministry of Land Reform is responsible for the implementation of the two land reform acts of 1959 and 1964 which fixed ceilings for ownership and provided for the sale of surplus land. In the Terai the ceiling is 16.4 ha. The Ministry is also responsible for cadastral surveys and land classification for the purposes of tax assessment. PART IV - THE PROJECT

23. The proposed project would be the second IDA project for the development of irrigation in Nepal; the first is the Birganj Irrigation Project (Credit No. 373 of April 18, 1973) which includes the irrigation of 28,700 ha by surface water and 2,700 ha by tubewells. Implementation of the Project encountered initial delays, but present progress is satisfactory and the Project is expected to be completed by mid 1978 as originally scheduled. The proposed project is based on a feasibility report prepared by consultants (Tahal Engineers Ltd., Israel) financed under Credit No. 373, and on the findings of an appraisal mission in November/December 1975. Negotiations were held in Washington in May 1976. HMG was represented by a delegation led by Mr. B. K. Pradhan, Director General, Department of Irrigation, Hydrology and Meteorology, MFAI. A report entitled "Nepal-Appraisal of the Bhairawa-Lumbini Groundwater Project" (Report No. 1093a - NEP, dated June 17, 1976) is being circulated separately to the Executive Directors. A credit and project summary is attached as Annex III.

Project Description

24. The proposed project would involve the construction of 63 tubewells, each with a storage reservoir, and associated irrigation and drainage networks to permit year round irrigation of 7,500 ha, near Bhairawa in the Western Terai, which are now limited to the production of one crop per year under rainfed conditions during the monsoon season. In addition, the project would include the construction and improvement of village roads, the construction of 11 kV transmission systems to electrify the wells, the provision of additional grain storage capacity, strengthening of the agricultural support services -- particularly the extension service and the provision of agricultural production credit -- a feasibility study for another tubewell project in adjacent areas and a study of irrigation water charges in Nepal with the view to recommending their future levels.

Organization and Implementation

25. The implementation of the project would be carried out by existing line agencies of HMG:

(a) The Department of Irrigation, Hydrology and Meteorology (DIHM) of the Ministry of Food, Agriculture and Irrigation would be responsible for the topographic survey of the project area, the design and construction of tubewells, associated irrigation and drainage networks, village roads, 1,000 ton grain store and other project buildings. DIHM would establish the Bhairawa -Lumbini Groundwater Project Office in the project area, headed by a Project Manager, who would be responsible for the project on a day to day basis; - 8 -

(b) The Nepal Electricity Corporation (NEC) would construct and operate the electrical transmission system;

(c) The Department of Agriculture (DA) would carry out the agricultural research and extension components of the project;

(d) The Agricultural Development Bank of Nepal (ADBN) would be responsible for the agricultural production credit component of the project (seeds, fertilizers, pesticides, hired labor and bullock teams); and

(e) The Agricultural Inputs Corporation (AIC) would mobilize inputs to^meet increased demand.

The beneficiaries would construct on-farm irrigation and drainage canals. Consultants would be appointed to provide technical assistance in construction, procurement, general administration and operation and maintenance; to conduct feasibility studies for a further groundwater irrigation project in adjacent areas and to assist HMG in conducting a study of water charges in Nepal. They would also assist DA in carrying out agricultural research and extension programs and in making a soil survey for the project area. A total of 235 man-months would be required. All project works are expected to be completed in four years.

26. Coordination would be achieved by two committees. The existing Groundwater Resources Development Board (GRDB) at the central level, would coordinate and resolve any policy issues including those related to program- ming, budgeting and finance. The present membership of GRDB includes the Secretary of MFAI (Chairman) and representatives of the Ministry of Finance, Ministry of Water and Power, the National Planning Commission, DA, and DIHM and the Project Manager of GRDB who serves as Secretary. The Order establish- ing CRDB provides for the addition of other members as appropriate. For purposes of implementing the proposed project, representatives of NEC and the Ministry of Home and Panchayat would be appointed as members to be called as needed (Section 3.01 (c)(i) of draft Development Credit Agreement). At the field level a Project Coordinating Committee (PCC) would be established under the chairmanship of the Chief District Officer, who is responsible to the Ministry of Home and Panchayat, and would include the District level officers and representatives of participating agencies to advise and assist the Project Manager in the coordination of various components of the project, in particular in the siting of wells and the organization of water users groups (Section 3.01 (c)(ii) of draft Development Credit Agreement).

27. The appointment of the Project Manager, with qualifications and experience acceptable to IDA, the establishment of PCC and the selection of the consultants would be conditions of credit effectiveness (Section 5.01 of draft Development Credit Agreement). - 9 -

28. A water users group including all farmers receiving water would be established in respect of each tubewell. To ensure that project farmers accept the responsibility for meeting project charges, drilling of any individual tubewell would not be started until potential beneficiaries representing at least two thirds of the service area had signed up in the tubewell's water users group and agreed to pay water charges (Section 3.06 (a) of draft Development Credit Agreement).

29. Alter completion of construction works for each tubewell and command area, the irrigation and drainage networks would initially be trans- ferred to the tubewell's water users group for operation and maintenance, while DIHM would continue to operate the tubewell. As the water users de- monstrate their capacity to operate the system, it is anticipated that they would be encouraged to expand their operation into such activities as transportation, storage and marketing, and eventually take over the operation of tubewells.

30. Extension services would be strengthened by appointment of an Assistant District Agricultural Development Officer and 63 Panchayat Level Agricultural Assistants, one for each tubewell command area, and four Subject Matter Specialists (rice, wheat, plant protection and on-farm water management), in addition to the presently sanctioned staff of 12 Junior Technicians and Junior Technical Assistants. Consultants would assist in conducting the extension services and in training HMG extension staff.

31. It is expected that the increase in production resulting from the project would be mainly exported to India through the traders in Bhairawa and the Rice Export Companies. The Nepal Food Corporation would acquire a percentage of rice marketed by farmers (25% in 1975) for shipment to food deficit areas in Nepal. It is estimated that more than 17,000 tons of food- grains would be available for export annually.

Cost Recovery

32. The vast majority of the beneficiaries would be small farmers. Approximately 40% of the inhabitants of the project area have average holdings of 0.6 ha and average annual per capita incomes of approximately $28, while 16% are larger farmers with average holdings of 6.07 ha and average per capita incomes of $59. Average annual per capita income in the proposed project area amounts to approximately $37, compared to the national average of approximately $100. Although the project would raise average farmers' incomes from present subsistence levels to close to the national average, farmers' ability to pay would be limited for most beneficieries. Water charges would be collected from beneficiaries receiving water from each tubewell starting one year after completion of works for the tubewell. Water charges would be fixed at such a level as to recover full operation and maintenance (O & M) costs from the outset and would be raised gradually over a reasonable period of time to recover as much of the investment cost of irrigation works as practicable, with due regard to farmers' incentives and capacity to pay. It is estimated that charges amounting to approximately 10% of gross value of production or - 10 -

25% of incremental net farm income would be adequate to cover O&M including the cost of energy and replacements, and in 30 years recover approximately 20% of capital cost at 10% interest. Considering the risks inherent in the higher cropping intensities projected, charges in excess of such a level would adversely affect the incentive for farmers to participate in the project. HMG in consultation with the Association would review the level of charges at intervals of not more than three years (Section 4.02 of draft Development Credit Agreement).

Cost and Financing

33. Total project cost excluding taxes and duties is estimated at US$13.7 million equivalent, of which US$6.8 million equivalent would be in foreign exchange and US$6.9 million equivalent in local cost. The proposed credit of US$9.0 milion equivalent would finance the entire foreign exchange cost of the civil works, equipment and consulting services plus approximately US$2.2 million of local cost, amounting to 66% of total costs. Local cost financing is recommended in view of the country's very limited capacity to generate resources (paragraph 12 above). HMG would finance the balance of the local cost of US$4.7 million equivalent.

Procurement and Disbursement

34. Procurement of all construction materials, equipment, vehicles and spare parts would be on the basis of international competitive bidding following IDA guidelines. Such materials and equipment would be bulked as far as possible in lots of not less than $100,000, and local manufacturers would be allowed a preference of up to 15%. However, small off-the-shelf items costing less than the equivalent of US$10,000 would be purchased through normal Gov- ernment procurement procedures, which are satisfactory to IDA, provided the total cost of such procurement would not exceed US$100,000. Since the timing of the drilling of each well would depend upon establishment of the respective water users group, construction of the wells would not be suitable for competitive bidding since any delay in the organization of such groups might give rise to damage claims. Therefore, drilling and development of project wells would be carried out by force account. The irrigation and drainage networks, transmission system, the grain store, project buildings, and roads would be small, simple, suitable for labor-intensive construction, subject to seasonal weather interruption and, so far as possible, would be constructed at times when interference with farming operations would be minimal . These would not be attractive to international contractors. They would be procured by local competitive bidding procedures which are satisfactory to IDA. To avoid delays which could be the basis of contractual claims, no civil works contracts would be awarded until the necessary land or rights-of-way (in case of transmission lines) have been acquired.

35. Disbursements from the proposed credit would be made against 100% of foreign expenditures for directly imported construction materials, equipment, vehicles and spares, 90% of local expenditures if purchased from local manufacturers, or 75% of their total cost if procured off-the-shelf; 100% of - 11 -

the foreign exchange cost of consultants; and a percentage of the cost of civil works presently estimated at 75% if carried out by force account or 100% of foreign expenditures plus 75% of local expenditures if carried out under contract.

Benefits and Risks

36. The major benefits from the project would be the substantial increase in foodgrain production in the project area, mainly rice and wheat; increased foreign exchange earnings, employment opportunities to the approximately 22,500 inhabitants of the project area who are mainly small farmers; and substantial increases in net farm income. At full development of the proposed project, it is estimated that production of paddy would increase from 8,700 tons at present to 25,000, wheat from 900 to 16,500 tons, pulses from 170 to 300 tons and oilseeds from 80 to 200 tons. New crops of maize and potatoes would add 400 and 2,500 tons respectively. Production of sugarcane would remain at 5,000 tons cultivated on 100 ha instead of the present 200 ha. Average annual per capita income would increase from the current US$37 equivalent to US$140, with nobody on farms over 0.5 ha in size living below the subsistence level. Farmers in the poorest groups would have an average per capita income of approximately US$70 after payment of water charges at the proposed level. It is estimated that 3,400 tons of rice and 14,000 tons of wheat would be available for export, yielding about US$1.7 million in net foreign exchange earnings.

37. The economic rate of return of the project is estimated at 19%. A sensitivity analysis shows that with an increase of 20% in project cost, a 20% decrease in benefits and a delay of one year in the realization of benefits the estimated rate of return would still be 11%.

38. Other intangible but important benefits would include the demon- stration effect of the project and its institution-building and training aspects. The experience gained in its implementation would serve in repli- cating it in other parts of the Terai.

39. Water from tubewells in the project area is potable and the development would help in reducing the incidence of gastrointestinal diseases resulting from polluted water used by the villagers. No adverse ecological effects are foreseen from the project.

40. Project risks considered during appraisal arise from the uncertainties related to: the coordination of agencies involved in project implementation and their ability to carry out the project; farmers' acceptance of project charges; and the provision of the services necessary to enable farmers to obtain full project benefits. In order to minimize these risks, coordination would be achieved by two committees: one, GRDB, to coordinate and resolve policy issues, the other, PCC, to coordinate implementation and assist the Project Manager in the field (Paragraph 26). Consultants would assist the Project Manager and participating agencies in implementation and carrying out studies. Acceptance by farmers of the responsibility of meeting project charges is - 12 -

being approached through the formation of the water users groups. Drilling of any individual tubewell would not be started until potential beneficiaries representing at least two-thirds of the service area had signed up in the water users group and agreed to pay for the charges (Paragraph 28). In order to assist farmers in obtaining full project benefits, special measures to ensure the availability of extension services, agricultural inputs and credit are included in the project (paragraphs 25 and 30).

PART V - LEGAL INSTRUMENTS AND AUTHORITY

41. The draft Development Credit Agreement between the Kingdom of Nepal and the Association, the recommendation of the Committee provided for in Article V, Section 1(d) of the Articles of Agreement and the text of a resolution approving the proposed credit are being distributed to the Exe- cutive Directors separately.

42. Special features of the draft Development Credit Agreement are referred to in paragraphs 26, 27, 28, and 32 above. Special conditions of effectiveness would be (a) appointment of a Project Manager with qualifications and experience satisfactory to the Association, (b) establishment of the Project Coordinating Committee and (c) arranging the appointment of a consulting firm for the purposes described in paragraph 25 above.

43. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association.

PART VI - RECOMMENDATION

44. I recommend that the Executive Directors approve the proposed credit.

Robert S. McNamara President

bY J. Burke Knapp

Attachments

June 23, 1976 I TABLE 3A P4a 1 of 4 p.,,, NEPAL - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM21… ------… ------NEPAL REFERENCE COUNTRIES (19701 TCTAL 140.8 MOST RECENT AGRIC. 39.8 1960 1970 ESTIMATE INDONESIA INDIA TURKEY*

GNP PER CAPITA (USII 60.0 80.0 90.0 100.0 110.0 450.0

POPULATION AND VITAL STATISTICS

POPULATION (MID-YR, MILLION) 9.2 11.1 12.0 115.6 538.1 35.2

POPULATICN DENSITY PER SQUARE KM. 65.0 80.0 85.0 61.0 168.0 45.0 PER SC. KM. AGRICULTURAL LAND .. .. 284.0

VITAL STATISTICS CRUDE BIRTH RATE PER THOUSAND i46.3 4is.7 42.9 45.9 42.7 40.6 CRUCE CEATH RATE PER THOUSANC 27.8 -24.6 20.3 20.6 18.8 l4.4 INFANT MORTALITY RATE (/THOU) .. 2-300.0 .. .. 130.0 145.0 LIFE EXPECTANCY AT BIRTH IYRS) 35.6 J&o.6 43.6 45.0 47.2 54.4 GROSS REPRODUCTION -RATE 3.0 3.0 2.9 3.2 2.9 2.6,,ak

POPULATICN GROWTH RATE (Y) TOTAL 1.5 1.8 2.8 2.0 2.3 2.5 URBAN 6.4 4.0 5.6 3.6 3.5 4.2

URBAN PCPULATICN (t OF TOTAL) 3.6 4.0 4.0 17.5 20.2 31.2

AGE STRLCTURE (PERCENT) 0 TO 14 YEARS 39.9 42.0 40.4 44.1 42.0 41.8 15 TO 64 YEARS 57.0 55.0 56.5 53.4 55.0 53.9 65 YEARS AND OVER 3.1 3.0 3.1 2.5 3.0 4.3

AGE DEPENDENCY RATIO 0.8 0.8 0.8 0.9 0.8 0.9 ECONOhIC CEPENDENCY RATIO 1.0 .. 1.2 .. 1.21 1.1 La

FAMILY PLANNING 8 ACCEPTCRS (CUMULATIVE, THOU) .. 86.5 37 .S ,, 259.3 11308.0 USERS It OF MARRIED WOMENI .. .. 13-7 k .. 8.2

EMPLOYMENT

TOTAL LAEC'P FORCE (THOUSAND) 4300.0 .. 4900.0 *- 221000.0 /b 14500.0 ,d LABOR FCRCE IN AGRICULTURE 4I) 94.0 .. 94.0 .. 71.0 67.0 UNEMPLOYED (3 OF LABOR FORCE) ...... 2.0, 3.0 ,/ 4.0 /

IKCCME DISTRIBUTION

r Cf PRIVATE INCOME REC D BY- HIGHEST 5 CF HOUSEHOLDS ...... 25.0 d 32.8 /f HIGHEST 201 OF HOUSEHOLDS ...... 53.1 60.6 LCWEST 203 CF HOUSEHOLDS ...... 4.7 2.9 LOWEST 40% OF HCUSEHOLDS ...... 13.1 d 9.4

DISTRIBUTION OF LAND CWNERSHIP

I OWNED BY TOP 10 OF OWNERS ...... 53.0 S OWNED 8Y SPALLEST 10 OW'NERS ...... 0.9

HEALTH AND NUTRITION

POPULATICN PER PHYSICIAN 72000.0 49770.0& .. 27650.0 4800.0 2220.0 POPULATION PER NURSING PERSON .. 35600.0O .. 8010.0 5110.0 1880.0 ,, PGPULATICN PER HOSPITAL BED 7000.0f, 6750.0 .. 1720.0 1620.0 490.0

PER CAPITA SUPPLY OF - CALCRIES (t OF REQUIREMENTS) 92.0 93.0 95.0 89.0 93.0 110.0 PROTEIN (GRAMS PER DAY) 51.0 52.0 49.0 43.0 53.0 78.0 -OF WHICH ANIMAL AND PULSE 9.0a 11.0 .. 14.0 16.0 22.0 ,h

DEATH RATE I/THOU) AGES 1-4 ...... A .. 15.0 ,

EDUCATION

ADJUSTED FNROLLMENT RATIO PRIMARY SCHOOL o. o 31:fl I/4L 34.0 69.0 68-0 / 111.0A SECCNOARY SCHOOL 6.o 7 0 12.0 28.0 28.0 YEARS OF SCHOOLING PROVIDED (FIRST ANC SECOND LEVEL) 10.0 10.0 10.0 12.0 12.0 11.0 VOCATIONAL ENROLLMENT It OF SECONDARY) 0.2 6.0 .. 29.0 6.0,gf 14.0 ADULT LITERACY RATE (t) 10.0 14.Q ...... 55.0 L. HOUSING

PERSCNS PER ROOM (AVERAGE) 2.0/4 . ,. .. .. 1.9 OCCUPIED DWELLINGS WITHOUT PIPED WATER (t7 52.0O ...... I 64.0 ACCESS TO ELECTRICITY IS OF ALL DWELLINGS) 30.0L, ...... 41.0 RURAL DWELLINGS CONNECTED TO ELECTRICITY (t) ...... 18.0

CONSUMPTION

RADIO RECEIVERS (PER THOU PCPI 1.0 5.0 9.0 114.0 21.0 89.0 PASSENGER CARS (PER THOU POP) 0.2,/4 0.4 .. 2.0 1.0 4.0 ELECTRICITY (KWH/YR PER CAP) 1.0 6.0 S.°La 20.0 114.0 247.0 NEWSPRINT (KG/YR PER CAP) .. .. ,. 0.2 0.3 0.7

SEE NOTES AND DEFINITIONS ON REVERSE Page 2 of 4 page.

NOTES

Isles. other,i.. .oted, date for 1960 refer to soy year b.t-,eo 1959 aed 1961, for 1970 botwee. 1969 ..d 1970, and fdr Most Rece.nt Eatinte between 19 71 nd 1973.

- Over the peer forty years,Turkey's - tnoyhasgr o atrn respectable pace.,startig fro a very setallbas. Is,'so doing the -o,iryh.. foruae objetivspoblns an faed nd cnstaInt whch, o aconiderabl degee re quite siilar to thes wIh NePal is -o facinyg. ocad omthers, these. Inclidc.i.g utu ip romith productive seto s,ariculture aed induatry, accelerating ispori sub.titutiona, divesfyn ndicas e copore, noilinngreoures, imrovig eduatio, health, tra.inin and emPlo,ent opportunities, lad rfo nsd improving incom die tribution.

NEPAL. 1960 /a1965; lb 1964-66, Ic 6-10 sod 11-15 years of age repectively; /d Data feo capital and main cities, /s 1963.

1970 /aPersonnel in geveemet asocsonly; lb I.cl.ding mid.Wie. /c 6-10 sod 11-16 years of age r-pecti-sly.

MOST RECENTrESTIM(ATE Is 1974; Lb 1975.

INDONESIA 1970 Rageia.red applicants for work.

INDIA 1970 / Ratio of population ondar 11 and 60 and ovr to Laker force In age group 15-59; lb AID esotimate of labor force in age group 15-59. IBRD report gives a figure of 180.4 million ka...d on 1971 population cenau. Thef diffecenee is due to changes in the definition of e ,serkr. In the 1971 ceawa, prsons -er class.ified only on the basis oftheir main .otWivitte This lad to the secluion of aever.1 categories .uoh as housewive /c Regiatered applicenta for wok; /d 1967- 689 Ic 5- 10 years of age; If 1967.

TURXE-Y 1970 Ia Ecludes 17 easternmprvincee; /b 1965.67; /c Ratio of population onder 15 m,d 65 and evr to laker force 15 /Ayears old and evr; /Ld 15 years and evr, selue meploysd. Ia Registered only; If Dinpeahl incoe LaInlaIng assison nuse and dideive; lb 1964-66; /i 7-11 year of age, j,j Perons sin yasrs old sad over who tell the censu taker. thg theeycan read ad write..

RS, June 10, 1976

DRFThTTIo9R OF SOLAL IDMICATURS

2 Land Ares I thou he ) Peosolatienper nur,i~ea:Porson - Pspulatiem divided by make of practicing Total -Ttal srtfLacearea oomprising lend area and inland srr.mlanfasgadtesea,"rri-d" er 'certiffed" nuse, ad Aigric. - Moot recent stimate of agriculturalrerm used tenporerily o amailisry persoml with training or experience. permnetly for crop., peactrs, market & kitchen gardens or to ILe Pavulaio atbaIts! bed - Pmpsl.tio dinided by et.mr of hospital heds fallow avial npbIc and priva_e grel and spociali.ed hespita1 and rehabilictaion ctentr; secldes -srhng hons ad eetablielhnentsfor GNP er capita (InS - GIP per capita estimates at market prices, calcw- oustdia1 and preventive cars. feted bys covrion sthod as -ord Rank Atlas (1972-76 hesie). Par ceosit.sussIr of oslories 17.of rommir-nent.) - Cmputed from energy sqeivlot of at food supplies available Is country per capita par dey. Peulti:: sod vIta sttistics . rliable supplia comprise deatic production.,tnporta Isss seports. Populatio (mIid-e milo) - A. of July first, if not availble, edcag nsok tspla eld nmlrn.sas oni -vrog.of two end-year estimaes, ties used In fend processing sod lenses In di.trihutioo; requirenets mere estimated by PAO based on physiological..nede for norma activity Popula:tiondensity - Per snar he- Id-year.ggpult.atm per aquaza-k±Io- md health coosiLdering nii±Lpru m body " ights, age and etr(100 hetars of total ara-e dietribtnions ef pepulation, and s11iio g 107. for wase act houaehold Popul.tion demaity - e sur e faric. lForopus sahe o level. p agriculturs1 land only. Pe spr oel of ecetein C r one tdry) - Prteint contour of per capita at so'pplyof fodprdy; atspply af food is defined as Vital statistics &abve; requirements for all cosetrias established by USDA gEcnmic Crudehir h, rats per tho-eend - eAl live births per thussmd of mId- Reseach Service provide for a WM-naa all-.s.. of 60 gr-n of toral 'yea poultion. om-year aritdaiic avrges enigi 96 n 90 pretain per day, sand 20 gr of snins and pulse protein, of which and five-year averag enig= 17 o ma e t aatiwte 1D10 grat shol he animal protein; theas standards ar t.ner them those Crude deah rate per thousand - Aooual deaths per thoosad omi-year of 75 gran of tonal protein ad 2f3grat of animal protein sa popltion; te-year arithsseticaverages ending in 1960 and 1979. and average for the eorld, proposed by PA0 in, the Third World Food Survy. five-yer average ending in 1975 for east reseat eatMAld. Pet conite eroteim supply frms anim alnd oul.e - Protein supply of food Infant mortlity rate f/thou) - A--Ia deathe of infants under on year of derived from,aimal end pulses In gr-n per day. ago per thouoaod live births. Death rate 1/thon) aRe. 1-4 - Aenu1 deaths per thousand In oge group Life eoetac,. at birth f'rrs)- Aversge mashr of yners of life reanaing 1-4 years. to children in this age group; suggested as an indicator of ahith; u _usly five-year averages ending in 1960, 1970 and 1975 for alntrition. developing co_trine. rons reproduction rate - Average maskr of liv- daughtersawoa .111 dcto bear in her norsa reroductive Period if she eep.aricea Present age- Ad,tderollMnt ratio - pri-nr school - Enrollmet of sli ages a Specific fertilIt y ratee; usuall five-year averages ending in 1960, p-rnntags of primay school-age population; includes childre aged 1970 snd 1975 for deve.loping coutries. 6-11 yesre hut adjusted for different lagtho of primary education, Population or_th rate (7.) - total - Compound saue growth rates of mid- for coutries with uiversl sductioo, enrollment may exceed 1007. Pyear popultion for l1950-6, 190-70, and 1970 to -oat recant year. simce sat pupils arbhl. or shov the official school ag.. Pooultion cr_th rate(.) - -CoputedCrb like growth reat of total Adinated enrollment ratio - secondarv school - Compte as eboe populstion; different defiitions of urban areas may affect oenpsra- secondary educatio reqire at leas.t four yer of approved primary bility of data eong coutries. Instution; previde general, voctional or tes..h-r training Urban peultion (7. of total) - Ratio of urban to total pep.latio; instructions for pupils of 12 to 17 years of eg.; correspondence dfeet definition of urban areas may affect potparbilityof data onroee are genrally seclded. aong coutrie.. t hl-(-4y.) oku-g 1-4y.) Y""r of schooling roided `firt and seond. lvels) - Total years of ARestructure (Peret, hlon(-4yas) okn-g 1-4yas, schooling; at asecndry level voctional instrution may he psr- and retired (65 years sod over) so percetages of mid-year population. tially or completely ael.dad. Aoe depedency ratio - Ratio of population under 15 and 65 ad ovr to Vocational enrllmet C7. of ... mdary) - vocational institutions toeof agee 15 throg 64. include technical, industrial or ther progrs whih operate Econmic dependency rstih_ Ratio of population under 15 ad 65 and -ovr independently ora depertr,ent of secondary instirtutions. to the lbor forc in oge group of 15-64 years. Adult literary rare (7.) - Literate aduitt (able to read and write) a fe_il planningf_ acceptor (tmltive. thou) ;.- aulati-e -asr of percentage of total adult population aged 15 years and over. acce ptors of birt-orl dics onder auspices of nationa fenily paly oesinaia (7 oftmaried woe)- Percentgags of married Prosper roo (average) - Averagesucker of person per roo in women of child-bearing age (15-44 years) who use birth-control devices occupied conventional dwellings i.nurban areas; dwellingo -1clde to allImaried wcat in som age group. no-smon tut,e e ncuid porte. Occupied dwelli.nms without Piped watri (C) - ccupied conentional REpleymet deaIliege in urban end rura areas without inside or outside piped Total labor force (thouasd) -coomclyative perona, including water facilities as percntage of all occupied dwellings. armd forces end snployed hut eoluding h-eusei-e, students, etc.; Accea toelctict (7.of all dvelllnms) - Convetion'I d-ellingo defintioncounriessre in vriou nt coparabe. wth olotri iyIn, living quarters as percent of total dwellings in Labor force iinpariculture (7.)- gricultual labor,force (in foming, urban d rural ase foretry, hunting end fishing) as percentage of total labor farce. Rural dweling concedt lctricity (7.) - Computedas above for U.-mploved (7 flabor force) - Unopleyed ore usmaly defined aso paersn rua wl ooly. wh.oare able and willing to take o Job, out of s Job on . gIve day, renamd out of aJob, ad seeking work for a specified ninieme period Co mtio not exceding one wek;my not he coparable between onntrIes due to Radio recever (per thou peop)- All types of rece.iversfor radix broad- different definitiona of unoploysd ad source of data, e.g., amplay- cesta to general public per thousand of population; ecldes ant office statistics, smaple survys, compulsory onamplyement insurance, unlicensed receive-rs in coutries end In yearn when registration of radio sets wee in effect; dsta for r.eet years nay not he cmparbhle I.oat distribution - Percentage of priv-te incom (both In cash and kind) since mot counotries abolished Iiiceong. receivedZb richest 57., rich-et 207., poorest 20%, and Poorest 407. of Pese !r.cr peor thou pool - Passenger cars comprise motor care housholds seating less than eight person; ecludes enbul...... hearses and

Distibuionof andnonr.hip - Percentages of land ownd by wealthiest Ecleticiy prcp)tooy - Annua co-aPtion of iodustria1, con- 107. and poorest 107. of lend onr.a il,public end privete electricity in kilowtt hour par capita, generally baeed on production data, without allowace for lenses in Health and Nutrition grids but 1llming for imports end sportn of electricity. Pouatoerpyicia - Population divided by nober of practicing hov e a)pesrn - Per capita ans.aI con-option, in kilogrnsa ptft iciao gaifiisd fro a a edicaI scohol at un1-reity level, estimated from dometic production plus net imports of newprint. AIiNEX I Page 3 o: 4 pages NELPAL

ECONO1IC INDICATORS

GNP PER CAFITA in 1974: US $90-100

GROSS NATIONAL PRODUCT IN 197L/75 ANNUAL RATE OF GRCz4TH (% constant prices)

US $ MfLn. % Approximately 2.2 (1965-67 to

-- -1973-75) GNP at Market Prices 1,584 100.0 Gross Domestic Investment Gross National Saving Current Account Balance Exports of Goods, NFS Imports of Goods, NFS

OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1973/74

Value Added US $ Mln

Agriculture 889 69.1 Industry 127 9.9 Services 271 21.0 Total/Average 1,287 100.0

GOVERNMENT FINANCE Central Government (1974/75) (Rs MLn.) %of GDP

Current Receipts 998 6.0 Current Expenditure 551 3.3 Current Surplus 2.7 Capital Expenditures 926 5.6 External Assistance (net) 366 2.2

%/ Calculated by the same conversion technique as used in the 1974 World Atlas. All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered .. not available 1Lage U-of 4 pagoC5 COU1TTRY DATA - ITPAL

MOEY, CREDIT and PRICES 1965 1972 1973 1974 1975 (Ri4 ion Rs outstanding mid-JuT y

Money and Quasi-1Honey 554 1,2h0 1,493 1,850 2,250 Bank Credit to Public Sector (net) -1149 - 39 117 251 490 Bank Credit to Private Sector 136 )400 59 652 934

Money and Quasi-Money as % of GDP 8.0 11.9 13.2 13.7 13.5

BALANCE OF PAYMENTS SIT121ARY (US $ millions) 1974 1975 Exports f.o.b. 78.8 oO.9 Imports c.i.f. 126.0 161.2 Trade Balance - 47.2 - 80.3 Transfers and Services(net) 72.6 80.5 Current Acc.Balance 25.4 0.2

Official capital (net) 7.9 8.3 Private non-bank capital (net) - 26.8 4 9.2

Surplus(+) or + 6.5 - 4o.7 Deficit (-) EXTERNAL DEBT, DECEMBER 31, 197)4 Gross Official Reserves US$ MIn. July 1973 July 197) Sep.1975 Public Debt, incl.Guaranteed 35.2 (US $ millions) Non-Guaranteed Private Debt .. 128.6 135.7 94.0 Total Outstanding & Disbursed 35.2

RATE OF EXCHAITGE DEBT SERVICE RATIO FOR 1974 About 1.9O Up to February 20, 1973 US $ 1.CO = NR. 10.125 IRRD/IDk LEIIDTIG, II 1, 1?76 NR 1.00 = US $ 0.099 (US$ millions) IBRD IDA Since Fcb mLary 20, 1973 Outstanding and Disbursed - 6.7 US $ 1.00 = NR 10.56 Undisbursed - 0O.O 2/ NR 1.00 = US $ 0.095 Outstanding,incl.Undisbursed - 66.

Since October 9. 19'75 US $ 1.00 = IA. 12.50 NR 1.00 = US $ 0.080

/ Ratio of Debt Scrvice to )xpc-xrrts o. 2,or S anci Ser-ices.

2/1 ot of cancel2a :iions. .. not aavailable ANNEX II Page 1

STATUS OF BANK GROUP OPERATIONS IN NEPAL

/a A. STATEMENT OF IDA CREDITS (as of May 31, 1976)

US$ Million Credit Amount (less cancellation) No. Year Borrower Purpose IDA Undisbursed

166 1969 Kingdom of Nepal Telecommunications 1.7 0.1 223 1970 Kingdom of Nepal Highways 2.5 0.8 291 1972 Kingdom of Nepal Tourism 3.2 2.4 373 1973 Kingdom of Nepal Irrigation 6.0 4.7 397 1973 Kingdom of Nepal Telecommunications 5.5 5.4 470 1974 Kingdom of Nepal Water Supply and and Sewerage 7.8 6.6 505 1975 Kingdom of Nepal Settlement 6.0 6.0 600 1976 Kingdom of Nepal Kulekhani Hydroelectric 26.0 26.0 617 1976 Kingdom of Nepal Rural Development 8.0 8.0 /b Total Outstanding 66.7 /c

Total Undisbursed 60.0

B. STATEMENT OF IFC INVESTMENT (as of May 31, 1976)

Amount of US$ Million Year Obligor Type of Business Loan Equity Total

1975 Soaltee Hotel Hotel 2.70 0.48 3.18 (Pvt) Ltd. Total commitments now held by IFC 2.70 0.48 3.18

Total Undisbursed 2.70 0.48 3.18

/a No Bank loans have been made to Nepal.

/b Credit not yet effective.

/c Prior to exchange adjustments. ANNEX II Page 2

C. PROJECTS IN EXECUTION1/

Credit No. 166 - Telecommunications Project US$1.7 million Credit of November 10, 1969; Effective Date: February 26, 1970; Closing Date: July 31, 1974 - Revised Closing Date: September 30, 1976

This was the Associations first project in Nepal. In the early stages there was delay in setting up the Nepal Telecommunications Board, later converted into a corporation (NTC), followed by delays in obtaining expert assistance with consequent delay in procurement. There have also been delays in civil engineering work. Satisfactory progress has been made over the last four years and almost all the facilities to be provided under this project are now in service about 2-1/2 years behind schedule. Very real progress has been made in developing a satisfactory organization for the sector and NTC showed its first profit in FY 1974.

Credit No. 223 - Highway Project US$2.5 million Credit of December 21, 1970; Effective Date: February 3, 1971; Closing Date: June 30, 1975 - Revised Closing Date: December 31, 1976

Initially project implementation was delayed mainly due to land acquisition difficulties and a national shortage of cement and fuel. With a delay of about eighteen months, the last of the five project road bridges and the remaining two of the five porter suspension bridges are expected to be opened in 1976. All project road maintenance equipment has been received and is now part of the Road Department fleet. Equipment workshop construction has been slow due to contractual difficulties stemming from price escalation; however, workshop construction should be completed by the end of 1976. Bid prices, although above appraisal estimates, are within contingencies. Total project cost is approximately 11% above appraisal estimate. In view of the effect of general inflation on the benefits, this is not likely to affect the rate of return. The project is expected to be completed by the end of 1976.

1/ These notes are designed to inform the Executive Directors regarding the projects, in execution and in particular to report any problems which are being encountered, and the action being taken. They should be read in this sense and with the understanding that they do not purpose to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 3

Credit No. 291 - Tourism Project US$3.2 million Credit (Net of Cancellation) of March 22, 1972; Effective Date: November 9, 1972; Closing Date: September 30, 1975 Revised Closing Date: December 31, 1977

Due to delays in appointing qualified architectural, engineering and project management consultants, and repeated changes in scope proposed by the sponsors of the subprojects, the project is two years behind schedule. Construction of the Yak and Yeti subproject is underway and is expected to be completed by January 1977. On the other hand, it was not possible to reach a firm agreement with the sponsors on an appropriate revision of the Annapurna subproject, and $1.0 million of the Credit was cancelled from the original allocation ($2.88 million) for that subproject. The remaining $1.88 million would meet increased costs of the Yak and Yeti subproject and finance feasibility studies for further tourism facilities outside the Kathmandu Valley.

Credit No. 373 - Birganj Irrigation Project US$6.0 million Credit of April 18, 1973; Effective Date: July 9, 1973; Closing Date: December 31, 1978

Implementation of the project was initially delayed by Govern- ment's delay in appointing consultants for detailed engineering and construction supervision, slow field surveys and procurement difficulties. Contracts to the value of 20% of the total under the project have been awarded. After a slow start, present progress is satisfactory. Cost overruns are approximately 50% of appraisal estimate. The Project remains viable in view of increase in agricultural commodity prices, and is expected to be completed by mid-1978.

Credit No. 397 - Telecommunications Project II US$5.5 million Credit of June 20, 1973; Effective Date: September 11, 1973; Closing Date: June 30, 1980

Due to organizational problems, lack of continuity in senior management and delay in obtaining expert assistance, there have been delays in procurement and the project is at this stage about 12 to 18 months behind schedule. Good progress is now being made with the assistance of consultants and experts provided through ODM and present estimates allow for completion by December 1979, about 6 months behind schedule.

Credit No. 470 - Water Supply and Sewerage Project US$7.8 million Credit of May 8, 1974; Effective Date: June 26, 1974; Closing Date: June 30, 1978

Project implementation is proceeding with approximately 20% of the contracts awarded. Tender documents for the major contracts have been ad- vertised and bids received. Because of recent price escalations, significant cost overruns are expected. Therefore, when tenders on the major contracts have been evaluated and total project costs are more accurately ANNEX II Page 4 known, the Government will decide upon a method for financing the increased costs or postponing some parts of the project to the next stage. A management team made up of four specialists provided by the British Overseas Development Ministry is now in Nepal and is assisting the Water Supply and Sewerage Board.

Credit No. 505 - Settlement Project US$6.0 million Credit of August 14, 1974; Effective Date: February 20, 1975; Closing Date: July 15, 1982

Project implementation is more than a year behind schedule due to delays in signing and making the credit effective; also due to delays in preparing bidding documents. Intensive supervision is being provided to accelerate project implementation. In the meantime, work has begun on clearing a portion of the existing settlement area, together with procurement and work on preparing the necessary infrastructure (sawmills, work camps) prior to clearing the new settlement area. A field training program on the use of winch lorries is being set up.

Credit No. 600 - Kulekhani Hydroelectric Project US$26.0 million Credit of January 9, 1976; Effective Date: Mtay 18, 1976 Closing Date: December 31, 1981

Consultants (Nippon Koei of Japan) have been appointed for: field investigation, detailed designs, specifications, tender documents, procurement and supervision of construction. Prequalification of contractors and preparation of bidding documents for civil works are underway.

Credit No. 617 - Rural Development Project US$8.0 million Credit of April 30, 1976; Effective Date: July 30, 1976 Closing Date: December 31, 1981

This credit is not yet effective. ANNEX III Page 1

NEPAL

BHAIRAWA-LUMBINI GROUNDWATER PROJECT

Credit and Project Summary

Borrower His Majesty's Government of Nepal

Amount US$9.0 million equivalent

Terms Standard

Project Description The four-year project would involve the construction of 63 tubewells to serve the 7,500 hectares that are now limited to the production of one crop per year under rainfed conditions during the monsoon season. In addition, the project would include the construction of 11 kv transmission systems to electrify the wells, construction of feeder roads, the provision of additional grain storage capacity, strengthening of the agricultural supporting services -- particularly the extension service-and provision of agricultural production credit, the completion of a feasibility study for another tubewell project in adjacent areas and a study of water charges in Nepal. ANNEX III Page 2

Estimated Cost ------US$ million------Major Categories Local Foreign Total

A. Land Acquisition 0.3 - 0.3 B. Civil Works 2.9 0.8 3.7 C. Equipment, Vehicles and Imported Materials 0.3 2.7 3.0 D. Consulting Services 0.1 1.4 1.5 E. Agricultural Support Services 0.2 - 0.2 F. Engineering and Administration 0.4 0.1 0.5 G. Agricultural Credit to Farmers 1.0 - 1.0 H. Contingencies 1.7 1.8 3.5

Total 6.9 6.8 13.7

Financing Plan Government IDA Total ------US$ Million------

Land Acquisition 0.4 - 0.4 Civil Works 1.2 3.4 4.6 Equipment, Vehicles and Materials Imported 0.4 3.3 3.7 Consulting Services 0.1 1.7 1.8 Agricultural Support Services 0.3 - 0.3 Agricultural Credit 1.0 - 1.0 Engineering and Administration 0.5 0.1 0.6 Unallocated 0.8 0.5 1.3

Total 4.7 9.0 13.7 % (34) (66) (100)

Estimated Disbursements (US$ million)

IDA Fiscal Year 1977 1978 1979 1980 1981

Annual 1.0 2.0 2.5 2.5 1.0

Cumulative 1.0 3.0 5.5 8.0 9.0 ANNEX III Page 3

Procurement Agreements All equipment, vehicles and imported materials (US$3.3 million) for the project would be procured through international competitive bidding in accordance with IDA guidelines, and drilling and development of project wells would be carried out by force account (US$0.4 million).

The irrigation and drainage networks, project buildings, and roads (US$4.2 million) would be small, simple, suitable for the labor-intensive construction method, subject to seasonal weather interruption and, so far as possible, would be constructed at a time to minimize interference with farming operations. These would, therefore, be procured by local competitive bidding procedures under government procedures which are satisfactory to IDA. Small off-the-shelf items costing less than the equivalent of US$10,000 would be purchased through normal Government procurement procedures which are satisfactory to IDA, provided the total cost of such procurement would not exceed US$100,000.

Disbursements Disbursements from the proposed credit would cover:

(a) 100% of foreign expenditures for directly imported construction materials, equipment, vehicles and spares, purchased from local manufacturers;

(b) 90% of local expenditures for locally manufactured construction materials, equipment, vehicles and spares (purchased from local manufacturers);

(d) 75% of local expenditures for civil works if carried out by force account, and 100% of foreign expenditures and 75% of local expenditures if carried out by local contractors; and

(e) 100 % of foreign expenditures for consultants services. ANNEX III Page 4

Technical Assistance A consulting firm would be retained: (a) to provide the project with technical assistance and advisory services in construction, procurement, general administration and operation and maintenance (180 man-months), and (b) to conduct feasibility studies for a further 15,000-20,000 ha groundwater irrigation project in adjacent areas of the Lumbini Terai, and a study of water charges and recommendations of their future levels with the view to recovering full 0 & M costs and a reasonable portion of capital costs of projects, having due regard to the incentives and capacity of farmers to pay (55 man-months).

Economic Rate of Return 19%

Appraisal Report Report No. 1093a - NEP, Dated June 17, 1976 IBRD-12074 aoRS_ 82° 81~ 16' 88' APRIL 1976

\_.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~B - -- C H I N A N EPAL INDIA _ (T I B ET) BHAIRAWA GROUNDWATER PROJECT

-300 fy \~. \' t OSIMIKOT PROJECT LOCATION AND CIVIL WORKS 30'-

TRANSMISSIONLNE PROJECTAREA PROPOSED .TALKET I EXISTINGIRRIGATED AREAS TRANSMISSIONLINES EXISTINGOR UNDER CONSTRUCTION

.)=u. IRRIGATIONI O UPROJECTS NDER CONSTRUCTION PROPOSEDPOWER PLANTS DL-ll< POTENTIALIRRIGATION AREAS E POWERPLANTS COMPLETED OR UNDER CONSTRUCTION -z' Al t K A R N A L I . TERAI BOUNDARY

El 'S)OIUMBA t HWSKOT <, a A /~ _.E - PROPOSEDROAOS MECHI ADMINISTRATIVE BOUNDARES AND NAMES

.______EXISTINGPAVED ROADS _ INTERNATIONALBOUNDARIES

K-HARAR22.~~~~~~~~~~~~~~-W)aXS\;/1L_.SC'------MAJOR ROADSUNDER CONSTUCTION

; EA v= DHAULAGIRI /

NARUSRPATI( T I B E T 0

..O.PATI~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A.

2'A i; A t MAA EELIN8

Hi r, a 4 9 1 0 I

~~~~~~~16 N~~~~~~~~~~~~~~~~~AH

I I KILOMETERSI I N EI~ i -,--~, SANASLI . ' &HUTAIN~~ ~ ~~~~~~~~I 41~~~~~~~Z 0 2 0 60 9 O- MILOS~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~DRELN

26' ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~H __ _'A__ N__ _ D __ __I _ __A ______K 82' BR'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~oBR A a

~TWAHBU< LS5 --, 3p i _' . ? - N EP A L

|7 s-r-t1-Qif: f F ri--c--i ~ , Ha l: t LaSSsr + (0 SHAAIRAWAB~ GROUNDWATER PROJECT

PROJECT AREA

APPROXIMATELIMITS OF GROSSPROJECT AREA - -. ~~SOUTHERNLIMITS OF BHABAR ZONE SEDIMENTS

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