Document ofe o The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. P-3437-NEP

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

IN AN AMOUNT EQUIVALENT TO US$16.0 MILLION (SDRs 15.1 MILLION)

TO THE

KINGDOM OF NEPAL Public Disclosure Authorized

FOR A

BHAIRAWA-LUMBINI GROUNDWATER STAGE II PROJECT

December 29, 1982 Public Disclosure Authorized

This document has a restricted distribution and may be used by recipients only un their official duties. Its contents may not otherwise be disclosed without World Bank aou_ CURRENCY EQUIVALENTS

Currency Unit - Nepalese Rupee (NR)

Since December 17, 1982

US$1.00 = NRs 14.3

WEIGHTS AND MEASURES

1 cm = centimeter 0.39 inches 1 m = meter = 3.28 feet 1 m3 = cubic meter 264 US gallons 1 1 = liter = 0.26 US gallons 1 bbl = barrel = 42 US gallons 1 kg = kilogram = 2.2 pounds 1 km = kilometer = 0.62 miles 2 1 km = square kilometer = 0.39 square miles 1 t = ton = 2,205 pounds I klW = kilowatt = 1,000 watts 1 MW = megawatt = 1,000 kilowatts 1 kWh = kilowatthour = 1,000 watthours 1 GWh = gigawatthour = 1 million kilowatthours

ABBREVIATIONS AND ACRONYMS

ADBN - Agricultural Development Bank of Nepal AIC - Agricultural Inputs Corporation BLGPO - Bhairawa Lumbini Groundwater Project Office DADO - District Agriculture Development Officer DI - Department of Irrigation DOA - Department of Agriculture ERR - Economic Rate of Return HMG - His Majesty's Government of Nepal ICB - International Competitive Bidding LCB - Local Competitive Bidding MA - Ministry of Agriculture MF - Ministry of Forestry MA - Ministry of Agriculture MWR - Ministry of Water Resources NEC - Nepal Electricity Corporation GRDB - Groundwater Resources Development Board O&M - Operation and Maintenance PCC - Project Coordinating Committee

NEPAL FINANCIAL YEAR

July 16 - July 15 FOR OFFICIAL USE ONLY KINGDOM OF NEPAL

BRAIRAWA-LUMBINI GROUNDWATERSTAGE II PROJECT

Credit and Project Summary

Borrower: Kingdom of Nepal

Amount: Special Drawing Rights (SDRs) 15.1 million ($16.0 million equivalent)

Terms: Standard

Project Objectives The project aims at ensuring the proper operationand and Description: maintenance of the tubewellsincluded under Stage I, introducingimproved tubewell irrigationsystems on a pilot basis, promoting the participationof farmers in the project, ensuring the provision of adequate inputs and extension services to farmers and strengtheningthe institutionsconcerned with the project.

The project would comprise (a) the completion, operation and maintenance of 64 tubewells built under Stage I; (b) the constructionof 15 improved tubewells on a pilot basis; (c) the constructionof power transmissionfacilities; (d) the provision of technical support and training; (e) the provision of agriculturalextension; (f) improvementand repairs of Birganj tubewells; and (g) a study to determine groundwaterdevelop- ment strategiesfor the Terai. The major benefits from the project would be increased foodgrain production,foreign exchange earnings, employment opportunitiesand net farm income.

The possible risks related to the project are failure on the part of HMG to provide adequate power for the wells, failure of project staff to properly operate and maintain the project facilities,and failure to achieve the active participationof farmers in the project. However, adequate safeguards have been built in the project to limit these risks.

This document has a restricteddistribution and may be used by recipients only in the performance of their officialduties. Its contents may not otherwise be disclosed without World Bank authorization. -ii -

Estimated Cost: US$ Million Local Foreign Total

Civil Works and Materials 1.9 1.9 3.8 Land Acquisition 0.1 - 0.1 Vehicles and Equipment - 1.1 1.1 Agricultural Inputs - 0.1 0.1 Salaries and Operating Cost 1.3 0.5 1.8 Electricity Cost 0.2 0.6 0.8 Technical Assistance and Training 0.6 3.1 3.7 Birganj Wells Improvement 0.4 0.7 1.1 Stage I Completion 1.0 1.2 2.2 Base Costs 5.5 9.2 14.7

Contingencies: Physical 0.5 1.1 1.6 Price 1.3 1.8 3.1 Total Project Cost 7.3 12.1 19.4

Financing Plan:

HMG 3.2 - 3.2 IDA 3.9 12.1 16.0 Farmers 0.2 - 0.2 Total 7.3 12.1 19.4

Estimated IDA FY FY83 FY84 FY85 FY86 FY87 FY88 Disbursements: Annual 1.0 3.2 3.9 4.2 3.0 0.7 Cumulative 1.0 4.2 8.1 12.3 15.3 16.0

Economic Rate of Return (entire project): 29% (excluding sunk cost and technical assistance)

Staff Appraisal Report: No.4038-NEP, dated December 6, 1982

Maps: IBRD 16431 and 16432

1/ Project costs include taxes and duties estimated at US$0.2 million. INTERNATIONAL DEVELOPMENT ASSOCIATION

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

1. I submit the following report and recommendation on a proposed development credit to the Kingdom of Nepal in an amount of Special Drawing Rights (SDRs) 15.1 million ($16.0 million equivalent) on standard IDA terms to help finance a Bhairawa-Lumbini Groundwater Stage II Project.

PART I - THE ECONOMY 1/

2. The most recent economic report, "Nepal - Policies and Prospects for Accelerated Growth" (Report No. 3577-NEP) was distributed to the Executive Directors on October 15, 1981. The principal findings of the report and recent developments are described below. Country data are shown in Annex I.

3. By almost any standard, Nepal is one of the least developed countries in the world. Per capita income is estimated at $156 (1981) 2/ and health and education standards are well below the average for South Asia: life expectancy at birth is only about 44 years, infant mortality is 150 per thousand, and adult literacy is only about 20%. The population, estimated to be 15.0 million (1981), grew at a rate of about 2.6% per year during 1971 to 1981. About 95% of the population live in rural areas.

4. Population density with respect to arable land has reached very high levels and is threatening to overwhelm the resource base of the economy. Cultivation has been extended beyond economically feasible and ecologically safe limits in the Hills, and together with denudation of forests to meet housing and fuel needs, soil erosion has become a critical problem. Firewood and water have become more difficult to obtain as the forests are reduced and springs and streams dry up. This degradation of the agricultural base has made even the present low level of living standards difficult to maintain.

5. Agriculture accounts for nearly 60% of Nepal's GDP and 75% of merchandise exports, and provides the main source of livelihood to over 90%

1/ Parts I and II of this report are substantially the same as in the President's Report (Report No. P-3211-NEP) dated May 20, 1982 for the Petroleum Exploration Promotion Project in Nepal, distributed to the Executive Directors under cover of the Secretary's Memorandum IDA/R82-69.

2/ World Bank Atlas methodology, using the exchange rate then prevailing ($1 = Rs 12). -2- of the population. Crop production accounts for about 60% of agricultural output, livestock for 30%, and forestry for 10%. Paddy is the predominant food crop (planted on about half of the total cropped area), followed by maize, wheat, millet, and barley; cash crops (oilseeds, jute, sugar and tobacco) are grown on about 10% of the cropped area. About 25% of total rural incomes arise from nonagricultural activities, of which cottage industries are one of the more important and engages over one million people on a part time basis.

6. Apart from agricultural land, Nepal's only other important exploitable resources are hydropower and tourism. The exploitation of the vast hydropower resources, however, beyond that required to satisfy the country's own power demand, will depend crucially on Nepal's ability to enter complex financial, exploitation and export agreements with neighboring countries. The tourism sector, based on Nepal's magnificent landscape and rich cultural heritage, has been dynamic though it still accounts for only about 1% of GDP.

7. When modernization efforts started in the early 1950s, there was virtually no economic or administrative infrastructure, and initial develop- ment efforts were necessarily concentrated on establishing a foundation for future development. The Fifth Development Plan (1975/76-1979/80) marked a shift in development objectives; acceleration of economic growth, employment creation and raising living standards of the population became major plan objectives. Development expenditures rose during this period and there were substantial shifts in the composition of spending away from transport to agriculture, power and social services. GDP growth, however, barely kept up with that of population, and the continued economic stagnation since the mid 1970s needs to be overcome.

8. Part of the reason for this stagnation lies in factors beyond Nepal's control. The difficult topography and poor resource base are obviously important in retarding growth. Nepal's landlocked position, long open border with India and the dependence of its overseas trade on transit through India create additional disadvantages. While Nepal benefits from the proximity of a vast potential market for Nepalese goods, the ability to pursue independent economic policy measures is circumscribed. Furthermore, industrial develop- ment faces the competition of a far larger and more efficient industrial sector in India.

9. But factors within Nepal's control have also contributed to the stagnation. Problems with the implementation of projects in most sectors of the economy have constrained the growth of public sector capital formation which grew at an average of only 5.5% per annum in real terms during the 1970s. In addition, the returns on investments were often lower than expected because necessary complementary investments or current spending were lacking, and because of managerial deficiencies. A good example is the agriculture sector, where output stagnated despite considerable investments in irrigation, a virtual doubling of the irrigated area and a 40% increase in -3- fertilizer use between 1974/75 and 1979/80. In the past, insufficient atten- tion was paid to bringing water down to the farm level and this was com- pounded by inadequate support services such as extension and research, by the lack of timely supplies of improved seed, fertilizer and other inputs such as credit, and by the lack of farm-to-market roads. Recent major irrigation projects financed by IDA and the Asian Development Bank are now addressing some of these problems by taking more comprehensive and integrated approaches.

10. Although Government revenue efforts have improved considerably over time, revenues have now reached only the equivalent of about 9% of GDP, which is low by international standards. With limited domestic resources, current expenditures have been squeezed in an effort to generate savings for invest- ment spending, with the result that the efficiency of total spending was lowered. Furthermore, while about one quarter of total budgetary expendi- tures (regular and development) was being financed by the rest of the world in 1974/75, this proportion was 36% in 1981/82.

11. The slow economic growth has been accompanied by a widening trade deficit. Import payments have grown while the trend in export earnings has been sluggish due to declining rice exports. Increased tourism receipts and remittances, together with foreign assistance in the form of grants and concessionary financing have, however, generally ensured that the overall balance remained in surplus. But even so, foreign exchange reserves have declined from being equivalent to about one year of imports in the early 1970s to six months in 1981.

12. Whereas 1980/81 was a year of recovery from the previous year's severe drought, 1981/82 was a more modest year; agricultural production is estimated to have grown by 3.5% and GDP by about 4%. Budgetary developments were, however, quite encouraging. Development expenditures increased sharply, and revenue collections increased substantially for the second successive year. Nevertheless, the budget deficit increased from about 5.5% of GDP in 1980/81 to about 8.5% in 1981/82, and while foreign assistance also increased, domestic borrowing rose sharply. Early reports indicate that the 1982 monsoon has been less than satisfactory and this will adversely affect economic performance in 1982/83.

13. On September 19, 1981 Nepal unified its exchange rate with the US dollar at NRs 13.2 = $1; the exchange rate with the Indian rupee was unchanged at NRs 145 = 100. This completed a series of steps to reform Nepal's exchange rate system which began when a complex system of multiple exchange rates and trade restrictions for overseas trade was replaced with a dual exchange system on March 31, 1978. A technical adjustment to re-establish cross-rates between the Indian and Nepalese Rupees was effected on December 17, 1982 setting the exchange rate with the US dollar at NRs 14.3 = US$1.

14. During 1979-81 economic policy making had been delayed by political developments during 1979-81. Following disturbances in 1979, a referendum -4- was held in May 1980, which reaffirmed the existing partyless system, with suitable reforms. The constitution was amended in December 1980 to provide, among other things, for direct election of members of parliament. General elections were held in Hay 1981, and the political situation appears to have since stabilized. During the past year, the Government has been able to focus its attention on economic problems and on implementing the Sixth Plan (1980/81-1984/85).

15. The Sixth Plan reflects Nepal's determination to search for ways to overcome stagnation and, as a set of objectives, it was endorsed by members of the Nepal Aid group at its December 1981 meeting. The strategy to shift investment into more productive sectors is continued and emphasis is given to alleviating some of the factors that limited past growth. The Plan's prin- cipal objectives are to increase production at a faster rate, to increase productive employment, and to meet basic minimum needs in food, fuel (firewood), drinking water, health services, primary education and rural transportation. The strategy: (i) accords high priority to developing agriculture, small-scale industries and Nepal's abundant water resources; (ii) stresses soil conservation and population control; and (iii) emphasizes full utilization of existing infrastructure and alleviation of absorptive capacity constraints. The development strategy also calls for full involve- ment of the private sector in agriculture, manufacturing, trade, tourism, construction and transport operations.

16. Achieving the Plan's objectives will require quick-yielding sector programs to generate growth in the short to medium-term as well as human resource development programs to lay the foundation for sustained growth in the longer term. Program targets must also be made consistent with overall financial and implementation capacity. But at the same time, vigorous measures are needed to remove administrative and domestic financial con- straints, and the Government has begun to respond to the problems. Reforms in development administration include the establishment of an Administrative Staff College; appointment of a Permanent Pay Commission to review civil service salaries and schemes of service; creation of a Central Monitoring Unit within the Foreign Aid Division of the Ministry of Finance; and estab- lishment of treasury offices in each of Nepal's 75 districts to expedite the release and audit of budgetary funds. The record 49% increase in development expenditures during 1981/82 may indicate these efforts to speed up disburse- ments are starting to pay off. To strengthen domestic resource mobiiliza- tion, the Government has set up a revenue training center; formed a Tariff Board which recommended increases in indirect taxes for the 1982/83 budget; made preparations for close monitoring of all public enterprises and also liquidated certain of these enterprises; and decided to phase out rice and fertilizer subsidies in the relatively higher-income Kathmandu Valley.

17. Nepal has received substantial external assistance. Aid commitments averaged $165 million per year since 1976, but, according to current indica- tions, could reach an average of about $300 million per year during 1981/82-1983/84. Foreign assistance is expected to account for about 53% of total development spending during the Sixth Plan period. The Nepal Aid Group -5- was foraed in 1976 to assist in the overall coordination of financial and technical assistance efforts and the Group now accounts for some 70% of all aid disbursements. The Group has met four times at plenary meetings under the chairmanship of the Bank to discuss overall external assistance needs; local Aid Group meetings in Kathmandu are also held to discuss and coordinate sectoral development strategies.

18. Foreign aid disbursements grew rapidly in current prices during the past five years and were estimated to be $156 million in 1981/82, but only about 42% of disbursements were from foreign borrowings, the remainder being grants. As of December 31, 1981, official foreign debt outstanding was $234 million, of which $192 million was due to multilateral agencies. These loans were obtained on a highly concessional basis and the grant element of total loans remains in excess of 70%. As a result, debt service payments were only $4.0 million during 1981, equivalent to less than 2% of exports of goods and services.

PART II - BANK GROUP OPERATIONS IN NEPAL

19. Bank Group operations in Nepal began in FY70 with an IDA credit of $1.7 million equivalent for a telecommunications project. Since then, 29 additional credits have been approved, bringing total IDA assistance to Nepal to $326.5 million equivalent, net of cancellations. In view of Nepal's many development needs, this assistance has been for projects in a wide variety of sectors. Six of these sectors account for about 79% of IDA credits by amount: irrigation/agriculture ($110.2 million for nine projects); water supply and sewerage ($46.8 million for three projects); power ($40.8 million for one project); telecommunications ($21.7 million for three projects); highways ($19.2 million for two projects); and rural development ($19.0 million for two projects). The proposed credit would be the first in FY83, bringing the total amount of IDA assistance to Nepal to $342.5 million equiv- alent, net of cancellations. No Bank loans have been made to Nepal. IFC made its first investment in Nepal ($3.1 million) in a hotel project in Kathmandu in FY75. In addition, IFC approved a loan of $6.23 million equiv- alent to Nepal Orind MIagnesite (Private) Limited (i.e., a private company) on March 16, 1982. The loan was to help finance a $24.9 million project to mine and process magnesite ore. Annex II contains a summary statement of Bank Group operations as of September 30, 1982, and notes on the execution of ongoing IDA projects. It shows certain delays in the implementation of some of these projects, particularly during the initial periods. The delays have been largely due to Nepal's limited technical and managerial capabilities. In order to assist Nepal in coping with this constraint, considerable techni- cal assistance is being given by Bank Group staff, including our Resident Representative in Kathmandu. As a result, the rate of disbursements is improving; during FY81 and FY82, $27.8 million and $28.5 million equivalent, respectively, was disbursed compared to $65.1 million equivalent disbursed during the entire previous 10 years. Project completion reports have been prepared for four projects--First Telecommunications (Credit No.166, $1.7 -6- million equivalent), First Highways (Credit No. 223, $2.2 million equiv- alent), Tourism (Credit No. 291, $3.2 million equivalent), and Birganj Irrigation (Credit No.373, $6.0 million equivalent). All four projects experienced delays in implementation, and institutional improvements were less than anticipated; however, all four generated acceptable rates of return. A fifth completion report on the Settlement Project (Credit No. 505, $6.0 million equivalent) has also been written and is under review.

20. Bank Group lending to Nepal has so far been at a modest level com- pared to the country's need for external assistance. The international community has shown considerable interest in Nepal's economic development and, to date, the shortage of funds has not been a major bottleneck. The main constraint on the utilization of increased aid has been Nepal's limited absorptive capacity, affecting the pace of project preparation and implemen- tation. The Bank Group has been assisting the Government in project prepara- tion through a Technical Assistance Credit (Credit No. 659-NEP, $3.0 million equivalent) and by acting as Executing Agency for a number of technical assistance projects financed by UNDP. The Bank Group 'has also addressed the problem of absorptive capacity through its role in organizing the Aid Group for Nepal (para 17).

21. The Bank Group's current lending strategy places major emphasis upon the productive sectors (particularly agriculture) and the development of complementary infrastructure, including manpower training programs and facilities, transport, and hydroelectric power. For agriculture, the basic strategy is to assist Nepal to maintain overall self-sufficiency in foodgrain production and, when possible, promote exports of agricultural products. The strategy has two major elements: (a) to assist in building the irrigation infrastructure in the Terai mainly to increase paddy production, and (b) to help reduce the food deficits in the Hills both through rural development projects which emphasize increasing food production, and more recently through specific Hill food projects. To increase the chances for the success of these efforts, we have, at the same time, assisted in the improvement of agricultural extension services as well as the provision of agricultural inputs, including credit. Preparation of projects in cash crops, forestry, leather industry, agricultural manpower development, highways and hydroelec- tric power is underway.

PART III - THE AGRICULTURE SECTOR

22. Agriculture is key to economic development in Nepal. It accounts for 60% of GDP and exports, and 90% of employment. Of the total land area available for cultivation , less than 15% is irrigated. About 90% of the cropped area is used for foodgrains including rice (covering about 50% of the area), maize, wheat, some other cereals and pulses. Agricultural growth is largely determined by the performance of foodgrain production. Less than 10% of the cropped area is under cash crops, mainly oilseeds, jute, sugar- cane, potato and tobacco. -7-

23. The production of major foodgrains, except for wheat, has not been satisfactory over the past decade; it has not kept pace with the rate of population increase which averaged 2.6% per annum. Apart from the lead time required for investments to start yielding, the unsatisfactory performance is accounted for by such factors as erratic rainfall, loss of land due to ero- sion, poor management and insufficient support services, and lack of ade- quately trained manpower. The Government is taking measures to overcome these constraints. The measures include development of irrigation to reduce dependence on rainfed agriculture and/or to supplement the monsoons, formula- tion of suitable forestry and soil conservation programs, improvements in input supply and extension services, development of manpower training programs, and intensification of command area development, i.e., secondary and field level irrigation infrastructure. The performance of public sector irrigation based agricultural development projects is under review by the Water and Energy Commission of the Ministry of Water Resources. Cash crops, however, fared better due to favorable prices and the fact that these crops are mainly grown in the Terai where the environmental conditions are more favorable. The increase in production of cash crops was derived from expanded cultivation (area increase) rather than from increased yields.

24. The institutions responsible for agricultural development and policy include: the Ministry of Agriculture (MA), the Ministry of Water Resources (MWR), and the Ministry of Forestry (MF). MA includes the Department of Agriculture (DOA) which is entrusted with the task of promoting production through extension, training and research. It has also overall responsibility for a number of public institutions such as the Agricultural Development Bank of Nepal (ADBN) and the Agricultural Inputs Corporation (AIC). ADBN, estab- lished in 1967, is the main source of institutional credit in agriculture; to date, the commercial banks play only a minor role in this sector. ADBN extends short, medium and long-term loans to individual farmers, groups of farmers, cooperative societies and village committees. At present, its lending covers about 25% of total agricultural credit requirements. The supply of agricultural inputs is the responsibility of AIC which procures both abroad and locally, and stores and distributes all inputs through a network of regional and district branches. The Department of Irrigation (DI), which is a part of the Ministry of Water Resources, is responsible for the construction, operation and maintenance of public sector irrigation projects. The Ministry of Forestry is responsible for the Forestry sector.

25. The irrigation sector in Nepal remains vital to increased agricul- tural production and it is one of the major sectors receiving IDA assistance. A recent review of the sector has indicated that nearly two-thirds of poten- tial irrigable area, mostly in the Terai, remains to be developed by a short- and medium-term strategy of concentrating effort at completion of basic infrastructure (roads, irrigation, power) at the more favorable locations in the Western Terai. In the somewhat better developed Central and Eastern Terai the best strategy would appear to be strong promotion of year-round multiple cropping combined with cash crops development. This would be achieved by year-round intensive irrigation including private and community -8- wells, conjunctive use of groundwater in existing rudimentary irrigation project areas and surface water modernization coupled with intensive manage- ment of existing assets, and agricultural extension.

26. The proposed Stage II project is a follow up on the first stage of a groundwater development program to provide irrigation to the Western Terai. The Stage I project, supported by an IDA credit of US$9 million which became effective in November 1976, included: the design and installation of 64 1/ tubewells, distribution networks, transmission lines, village roads, grain storage facilities and the strengthening of agricultural support services in the project areas. Due to inadequate staffing, cumbersome procurement and land acquisition procedures, and the poor performance of local contractors, the construction of project facilities, the acquisition of construction materials and repair of equipment and vehicles was held up. With the arrival of essential construction equipment and machines, the implementation of project works has picked up and completion of the project is now scheduled for mid-1983.

27. The Bhairawa-Lumbini Groundwater Project is the first relatively large size tubewell development scheme in Nepal. At present, very little experience exists with the operation of electrically driven tubewells and with the distribution of water to a relatively large number of farmers. In order to generate project benefits as projected, HMG requested IDA's assis- tance for a Stage II project to help with the operation and maintenance of the completed wells and canal infrastructure and to build up the required institutions for O&M of this and similar groundwater development projects in the future.

28. The Birganj Irrigation Project (IDA Credit No. 373) was the first irrigation project undertaken with IDA assistance in Nepal. It comprised the establishment of improved surface irrigation facilities on about 28,400 ha in the Central Terai, the rehabilitation of 14 existing tubewells and the construction of 14 new tubewells on 2,700 ha. The project faced a number of serious problems and delays, mainly linked to the lack of sufficiently qualified, experienced and equipped local contractors (there was no interest on the part of foreign contractors to bid for the works), shortcomings in management during the first years, shortages of construction materials, and shortage of trained and experienced engineering and agricultural staff. The project was completed in mid-1981; however, due partly to technical problems and partly to shortages of funds, most of the 28 wells have not been properly maintained. Therefore, about US$1.0 million has been included in the proposed credit for the repair and improvement of the wells.

1/ 63 + I observation well converted to a production well. -9-

PART IV - THE PROJECT

29. The project is intended mainly to ensure the proper operation and maintenance of the tubewells included under Stage I, to introduce improved tubewell irrigation systems on a pilot basis in an area adjoining the area of Stage I, to organize the participation of farmers in the project area in the irrigation systems included in the project, to ensure the provision of ade- quate agricultural inputs and extension services to such farmers, and to strengthen the Borrower's institutions responsible for the planning, design, construction, operation and maintenance of tubewell irrigation systems. It is based on a report prepared with the assistance of consultants (Tahal Engineers Ltd. of Israel) and the findings of an IDA appraisal mission which visited Nepal in February/March 1982. Negotiations were held in Washington during November 29-December 31, 1982. HMG was represented by a delegation led by Mr. I.B. Shrestha, Joint Secretary, Ministry of Law and Justice. A report entitled "Nepal: Bhairawa-LurabiniGroundwater Project - Stage II, Staff Appraisal Report" (Report No. 4038-NEP, dated December 6, 1982) is being distributed separately to the Executive Directors. A timetable of key events relating to the project and the special conditions of the proposed credit are given in Annex III.

Project Description

30. The Project comprises the following components:

A. Completion of Works, Operation and Maintenance of Tubewells under Stage I

About 80% of the Stage I project works, including the drilling of 60 of the 64 tubewells, has been completed as of October 1982. The remaining works are scheduled for completion by mid-1983. Project implementation was initially delayed due, inter alia, to inadequate staffing and budget alloca- tions, cumbersome procurement, tendering and land acquisition procedures and poor performance of local contractors. These problems have largely been resolved in the course of project implementation. Nevertheless, delays have resulted in a cost overrun estimated at US$1.9 million, representing higher costs for civil works, project staff and consulting services. Because of budgetary constraints, the Government is unable to finance these cost over- runs. The required amount is, therefore, included in the Stage II credit. The Stage II credit also includes financing of O&M costs not only because of budgetary constraints on the part of the Government but also because reliable and sufficient funding for O&M would be crucial for the achievement of project objectives.

The works and services under Stage I that need to be completed include installation of the tubewells; construction of water distribution and drainage canals, gravel roads, power transmission lines and field chan- nels; formation of water users groups; and operation and maintenance of -10- tubewells. This component also includes the procurement of vehicles, spare parts, construction materials and workshop and office facilities required for operating and maintaining the tubewells.

B. Additional Pilot Tubewell Systems

Under this component, the project would experiment with improved technologies in the design and construction of new tubewell irrigation sys- tems. 15 tubewell systems would be installed on a pilot basis to enable comparison with the technology used for the Stage I tubewells. If the new systems prove to be more efficient and more suitable for Nepal, they will be used in future groundwater development projects.

The component also includes operation and maintenance and formation of water users groups for the 15 new tubewell systems; construction of improved water distribution systems, 100 km of field channels and 25 km of gravel roads; and extension of power transmission lines from the Stage I area to the new tubewells.

C. Agricultural Extension and Training

Under the project, the T&V (Training and Visit) system of agricul- tural extension would be strengthened in the entire Rupandehi District. 1/ This would include in-service training for extension workers, regular farm visits and periodic monitoring of the results. The extension effort would focus on on-farm water management and improvement in the use of high yielding variety seeds for major crops.

D. Technical Assistance and Training

About 190 man-months of consultancy services are provided under the project over a five-year period at an estimated cost of about US$10,000 per man-month. The consultants would (i) advise and guide the project staff in project management, in organizing and implementing the day-to-day O&M activities, and provide in-service training; (ii) be responsible for provid- ing the plans, designs, tender documents and construction supervision for the 15 new tubewells; and (iii) also advise on broader project aspects such as cost recovery, preparation of bid documents and evaluation of bids, monitor- ing of project costs and benefits.

The proposed credit would also include US$1.0 million for the provi- sion of consultants and training to assist the Government in strengthening the institutions responsible for implementing irrigation projects. The US$1.0 million would be allocated to specific IDA-assisted on-going irriga- tion projects by mutual agreement between the Government and IDA. One likely

1/ The district comprises about 75,000 ha of agricultural land of which the project's tubewell areas cover 9,400 ha. -11- allocation would be the funding of consultancy services required to complete the implementation of the Sunsari-Morang Irrigation and Drainage Project (Credit No. 812). Because of delay of at least two years in implementation, the allocation for technical assistance included under Credit No. 812 will run out before the completion of the project (which is now expected by mid-1986). Additional funds would, therefore, be required to continue the consultancy services needed for project implementation. The qualifications and experience of all the consultants financed under the IDA credit, their terms of reference and the terms and conditions of their appointment would be subject to IDA's approval (Development Credit Agreement, Section 3.03(a)).

E. Repair and Improvement of Birganj Tubewells

This component includes funding for the repair, improvement and O&M of 28 tubewell systems (see para 29) and to convert an observation well to a production well at Birganj. The cost is estimated at US$1.2 million. The component would be implemented by staff of the Narayani Zone Irrigation Development Board (NZIDB) which would also be responsible for the operation and maintenance of the tubewell systems. To strengthen NZIDB's capacity to properly operate and maintain the wells and to supply agricultural inputs and support services to the farmers in the command areas of the tubewells, this component would finance salaries, allowances, staff quarters, transport and operating expenses for O&M and agricultural project staff over a period of five years.

F. Study of Alternative Groundwater Development Strategies

Consulting services would be required to assist the Groundwater Resources Development Board in undertaking a comprehensive study of past, present and projected future performance of various public and private groundwater development alternatives in the Terai in Nepal. Prior to the anticipated start of the study, an IDA mission will review in the field the data base necessary for the work primarily to narrow the scope of the proposed study, to update and if necessary amend the draft terms of reference for the study. In order to make as much use as possible of the construction and O&M experience obtained from the Bhairawa Lumbini and Birganj projects the study would be initiated in 1985. The final report would be submitted by March 1986. It is estimated that about 30 man-months would be required for the study, at an estimated cost of US$10,000 per man-month. Qualified local consultants may be used in collaboration with foreign consultants. Consult- ants whose qualifications, experience and terms and conditions are satisfac- tory to IDA would be employed for the purpose of carrying out the study (Development Credit Agreement, Section 3.03(a)).

Project Implementation

31. The implementation of Stage I was carried out by existing line agen- cies which were brought together in the Bhairawa Lumbini Groundwater Project Office headed by a Project Manager. The Project Manager was responsible to the Groundwater Resources Development Board (GRDB) for programming, budgeting -12- and finance, and coordinated all project components. This organizational arrangement has worked satisfactorily and will be continued for Stage II; however, in view of its importance, O&M would be separated from construction and handled by its own full-time staff under the Project Manager.

32. The project would be implemented under the overall responsibility of the Department of Irrigation (DI) of the Ministry of Water Resources. Coordination at the national level on all policy matters would continue to be the responsibility of the Groundwater Resources Development Board (GRDB). The Board's functions would also include: approval of key staff appoint- ments, annual budget proposals for the execution of the project and award of large contracts and consultants agreements; and semi-annual reviews of implementation programs and progress. In order to improve coordination of project activities and ensure that actions requiring Board approval are quickly brought to the Board's attention, HMG has agreed to include the Project Manager as an observer on GRDB for all matters relating to the project (Development Credit Agreement, Section 3.02(b)). Coordination at the project level is handled by the Project Coordinating Committee (PCC) set up under Stage I. This committee is chaired by the Chief District Officer; its meetings are convened by the Project Manager who is a member secretary of the committee.

33. The Project Manager would be based at the Project Office in Bhairawa and would have direct responsibility for the implementation of the project. He would have four Divisions under him: (a) General Administration and Finance Division responsible for, inter alia, personnel, procurement, budget- ing, finance; (b) Construction Division responsible for planning, design, and construction; (c) Operation and Maintenance Division dealing with O&M mat- ters; and (d) Agricultural Division handling mainly agricultural extension and the organization of farmers into water users groups.

34. The Project would be responsible for the operation and maintenance of the pumping equipment, canals and structures as well as pipe distribution networks. The water users groups to be established for each tubewell command area would provide assistance to the project staff in drawing up rotational water distribution schedules and the actual implementation of the schedules. The groups would also play a key role in the planning, construction and the O&M of field channels below the 4-5 ha outlets. Since properly functioning water users groups and the existence of field channels below the 4-5 ha outlets are considered key elements in achieving an equitable distribution of water to each farmer, the formation of water user groups and the construction of field channels in the tubewell command areas should be given top priority. HMG has agreed that (a) no water would be supplied from completed wells until water users groups have been set up and are ready to assume responsibility for water distribution below the 4-5 ha outlets; and (b) the drilling of any of the fifteen new tubewells would not start until two-thirds of the beneficiaries have formally agreed to form water users groups and to pay water charges (Development Credit Agreement, Section 3.07(a)). -13-

35. Monitoring and evaluation activities under the project would be carried out by a special unit directly under the Project Manager. HMG has agreed to establish such a unit and to staff it with an engineer, an agricul- tural officer and a statistician. The existing groundwater monitoring unit would be integrated in the new monitoring and evaluation unit to be estab- lished directly under the project manager (Development Credit Agreement, Section 3.05(d)).

Cost Recovery

36. The majority of the beneficiaries would be small farmers. Per capita incomes of the farmers in the project area now average about US$67 per year, which is well below the national per capita income of US$156 per annum (1981). The project would raise average farmers' incomes from present poverty levels to close to the national average; however, farmers' ability to pay would still be limited for most beneficiaries. The projected level of cost recovery would be, on average, about Rs 1,000 per ha at full develop- ment, which is slightly higher than the estimated annual costs of O&M and replacement costs of pumps and motors. HMG has agreed to establish, by March 1, 1983, a technical committee charged with the preparation of proposals for a suitable new system of water charges for public tubewell irrigation based on the following principles: (a) the new system would include a charge per hour, based on an estimate of the marginal economic cost of pumping 1/ per volume of water normally received by a farmer at the outlet during an hour of service; (b) in order to achieve an agreed minimum rate of cost recovery, and considering desired distributional effects and the need to protect mar- ginal farmers and tenants from excessive charges, a fixed charge per ha would be levied on medium and large farmers. As an alternative to (b), HMG may consider a modification of the existing land tax legislation to levy a sur- charge on land with access to a reliable public irrigation service. As a minimum, all operation and maintenance costs and an allowance for replacement of pumps and motors would be covered by the new system of water charges. The proposals would be submitted to IDA, by December 31, 1983, for review and comments. The new system, which would be acceptable to IDA and would permit adequate cost recovery for public tubewell irrigation, is to be implemented and made operational by March 31, 1984. Until such time as a new system of water charges has been introduced, HMG would continue to charge the present rate for public irrigation systems (Development Credit Agreement, Section 4.04). Present water charges in public irrigation schemes, most of which are surface water schemes, are based on a flat rate of about NRslOO (US$7.6) per ha per crop.

1/ Includes long-run marginal cost of power and energy, at economic prices, and variable maintenance costs. -14-

Cost and Financing

37. The total project cost (over a five-year period, 1982-87) is estimated at US$19.4 million, including the Birganj tubewell improvement component and about US$0.2 million in taxes and duties. Of the total amount, US$12.1 million or 62% of total project cost is in foreign exchange and US$7.3 million equivalent in local cost. The proposed credit of US$16.0 million would finance the entire foreign exchange cost of the project plus US$3.9 million of local cost, amounting to about 82% of total project costs. Local cost financing is recommended in view of the country's limited capacity to generate resources (see paragraph 10 above). HMG would contribute US$3.2 million and the project farmers US$0.2 million equivalent towards the finan- cing of local costs. The IDA credit includes an estimated US$1.5 million for retroactive financing of expenditures incurred from March 1982. Due to delay in implementation, the Stage I project is facing a cost overrun of about US$1.9 million. Although the project has not yet been completed, the proceeds of the Stage I credit have been fully disbursed. The proposed credit therefore provides funds for the completion of Stage I, including US$1.5 million of retroactive financing to permit uninterrupted tubewell installation, civil works construction and consultancy services. The project cost includes the following contingency provisions: physical contingency of 15% for civil works, salaries, allowances and operating expenses; 10% for equipment, materials, technical assistance and training; and price contin- gency of about 21% of the baseline cost. Price contingencies have been estimated assuming annual inflation of 9% in FY83, 8% in FY84, 7.5% in FY85, 7% in FY86 and 6% in FY87 and FY88 for local costs; and 8% in FY83, 7.7% in FY84, 7.2% in FY85, 6.5% in FY86 and 6% in FY87 and FY88 for foreign costs.

Procurement and Disbursement

38. The construction of roads, the supply and installation of the PVC pipe conveyance system and the supply and erection of the power transmission lines, totalling about US$2.3 million, or 40% of civil works, would be con- tracted through international competition bidding (ICB). Eligible domestic bidders would be given a preference of 7-1/2%. The construction of the drainage systems, buildings and other minor works, each estimated at less than US$50,000 in value but totalling about US$2.6 million or 45% of civil works, would be contracted on the basis of local competitive bidding (LCB) procedures acceptable to IDA; these small works, scattered over the project area, would not be of interest to foreign bidders. About 15% of the works, estimated at US$0.8 million, would be constructed by force account; these works include the drilling, development, testing of tubewells and improvement of Birganj wells, mainly using existing equipment. Of the total cost of goods under the project, estimated at US$4.8 million, about 75% would be procured through ICB. Qualified domestic manufacturers would receive a preference in ICB bid evaluation of 15% of the CIF price or the import duty, whichever is lower. About 25% of the goods, would be procured on the basis of LCB procedures acceptable to IDA; this would be restricted to basic con- struction materials such as brick, stone, cement or urgently required spare parts for operation and maintenance. All bidding packages estimated to cost -15-

US$50,000 equivalent or more, 90% of all the procurement by value, would be subject to IDA's prior review; the remaining contracts would be subject to IDA's post-review.

39. Disbursements from the credit would be made over five years against: (a) 100% of foreign expenditures, 100% of local expenditures ex-factory and 75% of other local expenditures for materials, equipment, agricultural inputs, vehicles and spare parts; (b) 100% of total expenditures for techni- cal assistance and overseas training; (c) 50% of total expenditures for staff salaries, allowances, local training, and operating costs exclusive of elec- tricity cost; (d) 100% of foreign expenditures and 75% of local expenditures for civil works carried out under contract; and (e) 40% of local expenditures for civil works executed by force account. Disbursements under (c) and (e) above would be made against certified statements of expenditures. The project costs would be audited annually by independent auditors acceptable to the Association (Development Credit Agreement, Section 4 .01(c)).

Benefits and Risks

40. The major benefits from the project would be the substantial increase in foodgrain production in the project area, mainly rice, wheat, maize and pulses, increased foreign exchange earnings and employment opportunities to over 4,700 farm families who are mainly small subsistence farmers; and substantial increases in net farm income. At full development of the project, it is estimated that production of foodgrains would increase by about 27,300 tons, equivalent to an increase of 185% over production without tubewell irrigation; average per capita income of project farmers would also increase to about US$148 after water charges (from US$67 at present). Agricultural employment is estimated to increase from about 1.2 million to about 2 million man-days, or by about 63%. It is also expected that employ- ment in the non-farm sector (both rural and urban) would increase as a result of additional demand for marketing, transport and processing facilities. There are also unquantified benefits such as those related to village roads; these benefits include improved communication, resulting in time and tran- sport cost savings as well as additional economic activities such as the production and marketing of vegetables by farm families along the roads. Another benefit is the availability of safe drinking water from the tubewells.

41. The economic viability of the Stage I Project (i.e. the 64 tubewells) has been re-assessed; and it is now estimated to yield an economic rate of return of about 10% (including sunk costs, but excluding the cost of techni- cal assistance). The new tubewell scheme is expected to yield an economic rate of return of about 12% (excluding the cost of technical assistance). The rate of return of the entire proposed project has been estimated at about 29% (excluding sunk costs and technical assistance).

42. A possible risk would be the underutilization of the project tubewells. Utilization of the project tubewells as projected would depend mainly on three factors: adequate power supply to the wells, the ability of -16- the project staff to operate and maintain the project facilities successfully and active farmers' participation. To minimize the risk of underutilization of the wells the project would support measures to strengthen the operation and maintenance performance to supply irrigation water in a reliable, timely and equitable manner. HMG's agreement to operate the 33 kV line from the Gandak West power station to the project area as a dedicated feeder would assure a reliable supply (Development Credit Agreement, Section 3.09(b)). Institutional weaknesses most prevalent in Nepal, such as lack of coordina- tion between Government departments, have been identified and dealt with in the proposed project organization. In order to reduce the management risk and supply the required technical assistance, provisions have been made under the credit for consultancy services. Increased motivation for farmers to participate in the project is provided through the strengthening of the extension service and the establishment of water user groups under the project. Consequently the risk associated with this project is acceptable.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

43. The draft Development Credit Agreement between the Kingdom of Nepal and the Association, and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to the Executive Directors separately.

44. Special conditions of the project are listed in Section III of Annex III.

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

PART VI - RECOMMENDATION

46. I recommend that the Executive Directors approve the proposed Credit.

A.W. Clausen President By E. Stern

Attachments December 29, 1982 ANFEX 7 -17-

TABI. 3A NEPAL - SOCIAL INDICATORS DATA SlEET

NEPAL REFERENCE CROUPS (WFIGHTED AVF'RAGES AREA (THOlSANO sq. KM.) - MOST RECENT ESTIFATE)- IOTAL i40.8 MOST RECENT LOW IlNCO4E MIDDLE INCOME AGRICULTURAL 40.2 1960 lb 1970 /b ESTIMATE /b ASIA 6 PACIFIC ASIA & PACIFIC

NP PER CAPITA (USS) 50.0 70.0 156.0 261.4 890.1

FNEFGY CONS;U';PT1ONPLR CAPITA (EELOUCAIISOf CO/E. EQUiVA'L:NT) 4.3 14.9 13.0 448.7 701.7

POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (TI9LSANOS) S447.0 11355.0 15020.5 Lc URBAN POPULATIO;i (PERCENT OF TOIAL) 3.1 3.9 5.0 17.3 32.4

POPULATION PROJECTIONS POPULAIIUN IN YEAR 2000 (MILLIONS) 22.3 STATIONARY POPULATION (MILLIONS) 53.9 YEAR STATIONARY POPULATION IS REACHED 2135

POPL'ULATIONDENSITY PER SQ. KM. 67.1 80.6 101.3 158.1 255.9 PER SQ. EM. AGRICULTUPAI. LAND 267.4 312.4 354.8 355.9 1748.0

POPVLATION AGE STRUCTURE (PERCENT) 0-14 YRS. 39.1 42.0 42.5 36.8 39.9 15-64 YRS. 57.4 55.0 54.5 59.7 56.8 65 YRS. AND ABOVE 3.5 3.0 3.0 3.5 3.3

POPULATION GROWTHRATE (PERCENT) TOTAL 1.3 1.8 4LC 2.0 2.3 UREAN 4.4 4.2 4.9 3.3 3.9

CRUDE BIRTH RATE (PER THOUSAND) 43.6 45.5 42.1 29.3 31.8 CRUDE DRATII RATE (PER THOUSAND) 26.5 23.7 19.8 11.0 9.8 CROSS REPRODUCTIONRATE 2.7 3.0 3.0 2.0 2.0 FAMILY PLA'.NING ACCEPTO.S, AMNUAL(THOUSANDS) .. 37.4 146.0 USERS (PERCENT OP MARRIED WOMEN) .. 0.7/d 4.3/d 19.3 36.3

FOOD AND NIUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 106.0 101.0 89.0 108.1 115.6

PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 94.2 94.5 88.7/e 97.3 106.4 4 6 PROTEINS (GRAMS PER LAY) 50.8 50.5 .51e 56.9 54.4 OF WHICH ANIIIAL AND PULSE 9.5 9.2 8.4/i 20.0 13.9

C-HILD (AGES 1-4) MORTALITY RATE 32.6 27.8 23.0 10.9 6.7

HEALTH LIFE EXPECTANCYAT BIRTH (YEARS) 37.6 40.5 44.2 57.8 59.8 INFANT MORTALITYRATE (PER THOUSAND) 194.5 172.5 150.2 89.1 63.7

ACCESS TO SAFE WATER (PERCENT OP POPULATION) TOTAL .. 2.0 8.0/f 32.9 32.0 URBAN 47.7 53.0 81.0/f 70.7 51.9 RURAL .. .. 5.0/7 22.2 20.5

ACCESS TO EXCRETA DISPOSAL (PERCENT OP POPULATION) TOTAL ,, 1.0 1.O/ 18.1 37.7 URBAN ,. 14.0 14.0f& 72.7 65.7 RURAL ...... 4.7 24.0

POPULATION PER PHYSICIAN 73804.7 51380.1/h 35896.6/h 3297.8 8540.4 POPULATION PER NURSI11G PERSON .. 70528.071; 13513.67h 4929.3 4829.4 POPULATION PER HOSPITAL BED 9 8 TOTAL 8294.1 6938.4 63 .5/e 1100.4 1047.5 URBAN 286.8 329.1 360.0/i. 301.3 651.6 RURAL ...... 5815.7 2597.6

ADMISSIONS PER HOSPITAL BED ...... 27.0

HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. 5.5 URBAN 5.4 .. RURAL .. ..

AVERAGENHEBER OF PERSONS PER ROOM TOTAL .. .. URBAN 2.0 .. RURAL .. ..

ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOIAL .. .. IJRII.A 30.2 .. RURAL .. .. -18- AEN 2 Page 2

TABLE 3A NEPAL - SOCIAL. INDICATORS DATA SHEET

NEFAI. REFERENCE GROUPS (WEIGHTED AVOPAGES MOST RKFfNT ESTIMA7E)-a MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC

EDUCATION ADJUSTED ENROLLMENTRATIOS PRLRARY: TOTAL 10.0 26.0 88.0 97.4 96.2 KALE 19.0 43.0 124.0 101.C 99.8 FEMALE 1.0 8.0 49.0 87.8 92.1

SECONDARY: TOTAL 6.0 10.0 19.0 53.0 37.6 MALE 11.0 16.0 30.0 63.8 41.1 FEMALE 2.0 3.0 8.0 41.3 34.1

VOCATIONAL ENROL. (X OF SECONDARY) 0.2 2.4 6.8/c 1.7 20.8

PUPIL-TEACHER RATIO PRIMARY 33.3 21.7 32.9/e 37.7 35.5 4 SECONDARY 32.0 .. 2 .8/e 20.2 25.0

ADULT LITERACY RATE (PERCENT) 8.8 14.3 19.0/f 52.1 73.1

CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 0.1 0.4/i .. 1.5 9.8 RADIO RFCEIVERS PER THOUSAND POPULATION 3.0/1 4.8 17.5 35.4 116.5 TV RECEIVEELNPLR THOUSAND POPULATION ...... 3.2 37.6 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 0.7 2.4 7.3/f 16.4 53.7 CINEMA ANNUALATTENDANCE PER CAPITA ...... 3.6 2.8

LABOR FORCE TOTAL LABOR FORCE (IHDUSANDS) 4875.1 5536.6 6967.9 FEMALE (PERCENT) 40.5 39.2 39.1 29.5 33.6 AGRICULTURE (PERCENT) 95.0 94.0 93.0 70.0 52.2 INDUSTRY (PERCENT) 2.0 2.0 2.0 15.0 17.9

PARTICIPATION RATE (PERCENT) TOTAL 51.6 48.8 47.6 40.0 38.5 MALE Q1., 58.6 ,i.Q ... 0 n., FEMALE 41.8 38.6 37.5 23.8 26.6

ECONOMIC DEPENDENCYRATIO 0.8 0.9 1.0 1.D 1.1

INCOME DISTRIBUTION PERCENT OF PKIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT CF HOUSEHOLDS .. .. 35.3/e HIGHEST 20 PERCENT OF HOUSEHOLDS .. .. 59.2/e. LOWEST 20 PERCENT OF HOUSEHOLDS .. .. 4.6.. LOWEST 40 PERCENT OF HOUSEHOLDS .. .. 8.o/.

POVERTY TARGET GROUPS ESTLMATED ABSULUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 95.0 133.8 194.7 RURAL .. .. 45.0 111.1 155.1

ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN ...... 17B.2 RURAL .. .. 41.0 .. 164.9

ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) L'RBAN .. .. 55.0/e 43.8 24.4 RURAL .. .. 61.0/i 51.7 41.1

Not available Not applicable. NOTES

/Ia The group averages for each indicator are population-weighted arithmetic meana. Coverage of countries among the indicators depends on availability of data and is not uniform.

/b Unlers other.ise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Moat Recent Estimate, between 1978 and 198L

/e 1911, annual &routh rate is fcr 191-81. .'d Government progrrms only. L. 1977. Lgs1976 1975. lb Tcrsonzol in governMnent services only. /f 1968. D 1963.

Revised September, 1982 -19- Annex I

tN- : dleesth the Uat are dens ftam aaron ra-1tl jdged the ne . th.atbotati-e and reliable, it should also be noted htha they may not be Inter- nationaly ropsreble berna of the l1rk of st-dedt.nd defttinito aot conepts .and by diff-eren conurie I. collecing the data. The da.tare. tote- thelean .ftt1 to describe orders of magnitude, tdinae tred. and.o, chroracee c--ni major Otffereuces belfa-oco ris

The .efere... groups a.e .I) the toycuor ooputhibrtuhctc-otoyaod (2) aco..otoy forty eith -onhoha bighot -orof itro..e hoon the .... otry groop oftbo subjec coor (eucepo for 'tttgh oon Oil Ozcprtert groupner "Mtiddle Iooe Month Attica aod Middle ta-t" in rho- becaue of -irtte otootoloffilattles) 1.to th frfereore group data the acnrn - ac pop.1taiooneightea1 aIh-eIcI 0 foraic each tdIcau ad shun ouly ebh- aoItyof the coon lea to a go..ap ha data foe tha iod iracor. lice theco-rage of coorn no teId-Ico-r dlepedt cc the aoiluhillcyofdt

one iodi-cator at tine amog the coun.try asd r.efre.ct gots.W~

ARUh (thousand nq.ka.j PoPulatIonf ptootttd-ttl ra,adrrl-Pplto ttl -Total - Total turface area c-8r iting laud ana nod ioled ncr;11da.ohn.nd -rualdioidad by tbei r retPeolioe abet of hospta bedn iutual-taEa lne otfgtuioa rra uaed t oeilr 19c79ueIly- oaiable io nlcadproc eea ar ycahe opitlan1 for croy. poat-ree, staket nod kitchen goodets or to lie fallon; 1979 daco. hab, tooooen oynl r esaltbet -enoety tIaff by at lesI o hyticlan . nE IttI ertprootdle princtyalyran-- 180 Pta- lOPCAPITA pet 1101caita eatinatet atcutreo nariet iten cal dial tent are no-tlded. toa h..ptI ls hnnor. loclude health caaeynm o-oe-i- mothnd at Wonld'Bauk A'tlas (119ff-At hoatal) 1'96i0. ndediclcoenotrtaetysafd b hnra htb 1971, and 1981 data. edical a..sLnint. cuse a:id-le, ot.)aich offer 10-patItotI c~ datioo aud pro-ide a limiced ra-ge of nndtca1 facilt ln- Par stani- fENfaY COSIUSPTPION PUR CAPITA - aooua o1 aatinof - -rotl noerg lona tica1 purpotenorhtboop lninclud -nu rt-rten/ne oe-o honp-ol.. and IIgotie. peeolet, -... onI gas and hydro-, toclear and -eoterma elec- aud rural hnpilnals, Local or nato honPitaln and edica1 aod nantnliny oricto-yf Io bognaof -oa1 eqti-al- pee capita; 19ff. 1971. ad 1979 coters.SIpeialteed honpitaln are iocloded otly ouder Itoial do-. Adiaonprtnio n - otn o-shr of adulations to or diacharges fra bo-pitaln dinided by rha tueber of bedn. POPUlATION AllD VITAL. STATISTICS Tnlpplto,Mid-Teat (thnoaa...d) - An of Jtly 1; l9hU, 1978, .an 1988 AINGC dat. A-eroe line of RaunhoId freenoon .por hontebhld - toal ora.ad rural- Irhan PooaI.t Ipe--n f nta) tn of aIno. to tonal populatito; A hoo-hald conInt oI a grop Iofldloidoals ho thoarn liotog q-atee difeeo efintIII- of or ..ea may affect cop .. abilily of da. aod thIr. ao eat.A boar.der or lodger ea r 00my -o be inrlnded In _19t--.- 870, and lAng d-ta the hoone.hold 'for tointta .puo o.- P-op tl-tn Pool octiou A-ergnto-t-ofyetotpr om-oal.rbn..d..l-oeag o- PosoIIn Io yeate 28780-C.oren popolantot peolecIfon one base.d .. 1980 her of Pnrn pernti oil ur1ban, au Irurl occpind -- onotiona.l tota1 .pnotanio by age and net and their -artllt an d teotility -oten. d-ellirgo, e-pectio-ly. Inalllogo eoclodeno-eoa tottr -otee -o Projectoc, faaeettrsortol.iop eate' compoie of thyna lacela tccPiedpats.st.. ito oecancyatlt a brthiocreatlig nith ... re. ft0 pt lcm Acoo I lectit yno of drllioonl toa,uban, and rural- .L.nel, ad feesla litI enperitucy -tb II lenot 75yan The Para- Corn ca nlhiogt nith electricity ho lotiog qoe-te-t aspttg nrteetfoe frtiliY tote alan ha-n thre . . ne. t..o.dclneI of totl, unban ad ura1 dn-11iogs rapectionLy. tetiltIyicndlgt -cn I.o.. and fon fanlly Planniogpeforane lohontr is then saigned -oe of thesee oite mio loof -ornlity EDUCATION and fnoiiIy I-ornda for P_enojolo -popone. Adga-edInrolloos iatloa Sttaie.. ey fppo.iatt - loa onlnaypop.intiot thereI ogot ic Poimoro nh,oI-ttl,mlr d fenale -lost . mole and female theis binobequa tteto Ohe deah rote. or alao therge% aouIur on_orl or of ul agen at the primary l-el an percentogen of olaecti maacntat 4hsitahee onlaterfertli-ryrtesdc n 0prlIy irhool-age populations; tortlly iteludet childnet aged A-il tbe replacesen le..elIof "Itinntreprod-ctonrtn ohec noob groeratilo yer :odjanted fun diffternot le-gnn of primay edac..tioo; for of__oen rcplac- ic-nf ro-ctly. Th atinry population ie nncorIn mAth unioncsolId-catocrrolt- may -nc-d 1010percet eniieefed on the basin of tho njnsd hlrootoint ion of ohe Popl-tu- nioc non popln are belon nr o1boo. the aficial .cheol ag. Io the yea 2f00, and the atet of decliho of fertility rate to eylace.- n-od~ar nohool - tta, ol nod femle - Conpoted an oh ne -eood-te -enle-el. eduani. oneoqir-nat .ens. taut oarn of approoe priar 'Y nncit Tear stationary eooulatlio in te-ehd - Thte yea aih ta. tor pola-ioo pro-lde- te-ral,-octI-local on teahel. iriog itoonnfnr pupils titei e-nhad. -aoily oft12otf 17nat of ao octconc 0m rt -earily Pen na. km Mid-ye-t population po sqarkilonetet (ill hoontori. aofTo-tincol e Jnollno (ne r-oo af uectdary) - Pocatina ltsitif..i.nn Petotal ae;1860, 1911 and 1979 data. inolade ieohoi-al, ind-ntlal. or other poogrss obich operota indepeod- Prn.k. agoi-tlro Iaod -Connotd as above fotrgrcltrl -ad -rtly or a.dpnianuofneodaryintttn. ouly; 1960. 1970 oud 1979 dato. Poil-tacI caio -pinry, a-a -ecodry -ouTal -ndentanorotlad in fopoatriot Age Stro't.re (peeceno) - Children li-l4 ynti . nothing-age (15- posradncondary Leo-I. dirided by o-ber- of neanheon In the hA year), and entirad f65 y-nra andan)a porrceerage of nid-yeac poyc- cries.ponding ile-t. lotion; 1960, 1870, atd 1980 data. Adult Ilitreroocin (oercenno, - Lltno.. aduls fble to read and iteune Pop Iaios leonth Rate (rece..n t - total1 deroal fret -ro of itol. ild- aop-oc-ooge of.troo odotIpopua...n Aged 15 yoam and oven. yerpoys-acle for 195f-i.19170-f, sd1970-80. "PouaIon" "Ish tte (,na...oof - urhan - A.troa groI-t ronn of -rbo Popu- CONSUMiPTION latloni fun 1900Al 19 70, aad 19f0-8 Pannor Cot (oat thoc....d .... olatiof- Pongnoan arn mater mo.de Mirth Rtat (pet th-nt..od) - Ansai lIon bietha per thousad of nid-y.eoer cco taoi Itothat night pert-n; -10ldtn ambalancot, h Latu n paPtlatian; 1961), 1970. and 98i data. fli-ono orhirle. Crodo -ttah tac (per cho-nod - -... I dracl par ibo-nad ot cd-yo-c tdor tneloi-nno Irrhoo.....dAilo -51 types of -nreto-t for radio popolatiot; 196f, 1978, and 19810data. brrod .a.stto g-eoeI yablic Peo tIuadof poplatIon; toldenA- boat Reotodoction Rtae- A-,age oushn- of daoohners Ano-aillha in.le licae-d o icot -nsi -ctteand to yearn ahe. e-gist-ato ofrai bet .t-na rpr-dnotion perind if she -peotincet present oety forfe- eto non In off-t; data for re-eo 7ero maY cot be cntaahe in IllItynoten;as-11y fio-y-o ran eudiog In 181,0 19ff, ad 19t0 so_no countyt abolished llcening. Penal 0Placnin-Acpiotn.Annualfibaaondn)- aeol ober of ocoepo.rt TV Uetreirs font shocuatd popolatiocf - IV roe-foam too be...dIac to of bitihb IIt--ouoo noMsio atapton of aotiooaI faily pl.ooing progr". generalpbt.e1hoadypltc; oldnaliendT enor famltinnlo-Users lperceon of marrIed nomoo - P-ernta of teried ivooto-tri-n aud In rear thttei rtnof TO tort acti ef ltuneef~ cid-bnaaiog age flO-WA yeastuue birth-ooott~%oldeolent esnaenIrsltrN(per iChaunarldpyuaio - hnthoaeanir all -arred n oIo tote ago gonop. cltioo f"alygtttItenr o..sP.pt" dfindosynoiol. puhlttcaiio deotodF yolmrly on Io..ordin goeo rnnn ti.ao-idered POODAlly 8lflITIOt cc be "doily"- if ito appnar at lean for fIis a na lcdoPod o ocdcno ne oita 1i969-fl-liUf2 - lodn of pot rapitannarleoAoa redneytCaIopeOa-on 0teotbto prudotio ofal trodHn oitan Pn-otoooldnne c edadookt dmlsn.intsi oldrn I n nldn s dpi-oe-tr.i-eo iscaleodan on ononb.t. -oneiteore pnt_ry goo:ds (t. sfaror-ad mobile -oint.. itttnad of nofar) Anlob re CdIhIn and contain ttoon(.. coffe o- tea arI tldd. AgAtegotn p-od-tcii tf each -- ny In hae.. dLAtORtn PORCE nationlasrg peodre prOIm- aight; 1991-AS, 1870, -od 1888 data.Turo1 Lahot Froo (thoono.od.f - F,-oc -r11y ortion roa iocl.dioo Per oapit. sorly of loin prcent of reqsieem-t) - Coopttoe rnarned..een.o ueA=oe buhncoig -ooe -on trent, ec. netogy eqooa1et of -n food nypl ins -nilble in o.uot,Y Per ",apic croigPotJ.i, of oI ge.' teftoitont to -api... o-ntrien ate yet day. Aralable sopphiea -ouptine d-tannt prodootice iyot lets -c cryarahle; l9iU, 1970 and 19An dat. enporo. andchag in-noIk tNt noppylttetc lod a,1oisol te,ed. te-dt.mao(eret F-1Pea labor farce Fauperetgo of Ottol labor fo,rte. qoiinundItofood peenn,allne od lsb,o c.tqin Arr'tr (reon)-Lao forca i nrcy'.a.uo, hotio' n it nete eutnI and by FAO hate d ton physiological nedi for canma aci ithing as petnotoge of total labor lote; 1960, 1970 nd 19800 dota. lity and health .... nidentoeooroetltneaue body neigha,ag ldtttn (pe,rceo) labor force io ainio. oonocio.sooiuing ood te- ittoito roatia.atIlont 0prcn oo a..sre an ad ele-roeti y, toter aod gas as percetage of conol abot force; hosoeblt lnel;f 19-61-hI19,70 audN1,977 da-. 1960, 1970 and 1080 data. PerortanoolrO poao (ra- per$00- yr-aunroi no of Per -a ita ytr~ttoitpano lon .. r.n... otl mi, o feslc -paocctrai- or "oinppiy of food Per. day et otpl ofylfrod it defiond aobore. R- ociityt-otonreoeot8a total so -od fenle laboor 00ea qoesotfun all otr ie nrbinhed by JitA pootdn 1or nlisi- peroa-nag- of tia 1oe -od female .popultion of all ages ae--tio-ly; alan onfa hIgota of troa prutele pro day and 20 geoso of aoinal and 19ff , 1970,..od 1980 dato. Theo- ae bate.d or ILO'n panoiiipattot Itote pult. Protein, of nhich 10 goaa aboold be oulnal proteio. Thbn tiood- tIlclgg-etrcoeof che pupolatin- and long tin trend. A -tdnare Iosooharcb.a. off75gnomaoftcuna1 proinrolgaatiftnot_it_annt orc fuoartoc_so-e- animal potelo am 00n- aefor the marIa, rop.osd by PAn Io the Third Oroo-ib Dpendooy Ratio - tacit of .poplatino oude 10 otd 60 and tr World Food Snrony; 1961-65, 1970 aod 1977 data to hn total labor force. Pl caPIta prtien tplyl fron anial nod polen- Proneic a-ply of food dr- riodro atman od Fautt ram Per day. 1961-6b. 1870 and 1977 data. INCOHOfDISTRIBUTItON ahtldPfDee1A)bo hoRatelea c -unn) - Anua1nub pee tho....od to Peonoro ron e e(ohi ahmdA ) - eojn-od by irhub-u age groupi- I Yeurs no childreo in chia age grosp, for sot de-eltping co- 5ettet richent 20 pe-rcet, p..re. 20 pecoeot, mod parent 40 percent tIas_ dnt. dettoed trot life tables; 1960, 1970 atd 1980 data, of h....eha1ds.

HEALTH toronytPOVtRTY TARGtT GRtOUPS Lift enrpb81 -o-oraY.. A.noa.a nuahe of ra-r of life ronoiriog Tha foloignn an rrty oppro.timte saar of yorrty I.o-I., at birth; 1960, 1970 and 1980 data and ahoald he i-c-precad nith -ouidt rahIn atin 1sfoan -lroltly ~tarloer thoasad) -Ano1 deatha of infan-nod-oroe. year -nti tid Abtolote Po-noy i.too level (US$ II.)pta- arbat ad rural - aagpethoad lice births; l.9hg 17an190dt.hAbolnt.. p-oteey on IneInht broom leee bene ahiob aAnimol Acrcesan. tt Watr enrfe ofe lItt) -oa,orbac. sodrurl -Non- ntrai dequate dIet Pla ero t-food requitenons in o her of .PsIy. (ttlorban an total) Anthnn- -nblescotoaf ffordabln eater apply Itolode.t ireamd n..ac no.tees or anraerId hoI ocoIai-aed E.intmaed Rnlotioe Porerty Itoome Lnel. (UIeun t - urba and rural - ase -ah an that tfom pretarted boreholea, syrioga, and sutiory mall) an ooa rel-nt- e-erny to-ee leon In to-third of aoneprcpt pennentagrn ni their remperrio- ptytlationn. Inanon-b-na,eIaytblic pesnlitm If thef,cototry.I Urbatoinel lis dreimd f nothe natal fionrateo or trndynp - ecaned eo mere than 200 meters. foam a hone _oY he leenlethb djut-e for hi gheecotf r llot In orb.n. e ro-iderad as bein -uiteasnbla -cea at that botue. Inroro -na Rtaan Poptto elndmlt Poetrorlocoy leve lPeec t -ar rens...able norss 1ndiply nhbnthnb hnouesifeno menbers of the, bIseI ud27-rortt -Per1cetof PnE. ain Iunadraa) ah.renbml doroa haen apen diaptoporttfmte pant of teda toi fetobiogth poOr .

A.t-s to fotetst DtfPan f. pntent of pplta)-tetat, orbao,. ad total - MuterIf paIn(tota, Ianood tota) snored by tncrrntadiapoat1 at peoentage at teft. reape:tti- Ppoplotinna. fRretoI diapasi apinLa.de the talietikan nod diapas ithn an eimost - -stt, atI a -met and -nst-ente by_eten-hero_ aYane at the us of pit Petoten and stab

Poptaati= ten Physaician - Paptintian dielded hp -tb- of prttciso physt- E-nsmi and Sactat Mac DLtei.in tian qaitfied fern. a mdloni shobal at aonos..ity lenel, ramomic toIYsL. and Pnjertians DepsetmaL Peenatins pen Nuenfen Pe-n - Papmnitian divided by nsb-oe of pe...tiaiog Myn 1982 malt and femal geadmatennna i.otatat maaa, pemrtirat nanse sa ateta nnL taneg -20-

ANM'FX I Page 4

ECONOMIC INDICATORS - NEPAL

GNP PER CAPITA IN 1981: US$156

GROSS DOMESTIC PRODUCT IN 1980 ANNUAL RATE OF GROWTHI, 1960-1979 (%, constant prices) US$ Mln. % GDP at Market Prices 1,989 100.0 3.1 Gross Domestic Investment 268 13.5 Gross Domestic Saving 148 7.4 Current Account Balance (exc. official grants) -72 -3.6 Exports of Goods, NFS 241 12.1 Imports of Goods, NFS 361 18.1

OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1979/80 Value Added Value Added Labor Force a/ Per Worker US$ Mln. % Mln. %_ J7S$

Agriculture 1,065 57 6.9 93 155 Industry 251 14 0.1 2 1,696 Services 543 29 0.4 5 1,468

Total/Average 1,859 100 7.4 100 251

GOVERNMENT FINANCE CENTRAL GOVERNMENT Rs. Mln. % of GDP 1978/79 1979/80 1980/81 1981/82 1979/80

Current Receipts 1,791.6 1,852.9 2,403.9 2,900.9 8.9 Current Expenditures 982.1 1,055.4 1,263.6 1,588.9 4.9 Current Surplus 809.5 797.5 1,140.3 1,312.0 4.0 Capital Expenditure 1,961.5 2,293.2 2,726.1 4.032.9 12.4 External Assistance (Net) 989.4 1,317.8 1,531.1 2,024.0 6.2

MONEY, CREDIT AND PRICES

1978 1979 1980 1981 1982 mid-April

(Million Rs outstanding mid-July)

Money and Quasi Money 3,772 4,512 5,285 6,308 7,332 Bank Credit to Government 966 1,129 1,258 1,263 1,785 Bank Credit to Public Enterprise 869 1,080 1,131 1,401 1,292 Bank Credit to Private Sector 1,072 1,332 1,917 2,498 2,641

Money and Quasi Money as % of GDP 19.3 21.1 22.1 22.2 General Price Index (1974/75 = 100) 113.3 117.3 128.7 145.9 159.6 (April) Annual Percentage Changes in: General Price Index 11.2 3.5 9.8 13.4 9.2 (April on April)

Bank Credit to Government 28.9 16.9 11.4 0.4 42.4

Bank Credit to Public Enterprises 70.1 24.3 4.7 23.9 3.5

Bank Credit to Private Sector 24.1 24.3 43.9 30.3 10.2

Note: All conversions to IJS dollars in this table are at the average exchange rate prevailing during the period covered.

a/ Total labor force; unemployed are allocated to sector of their normal occupation.

not available -2 1-

ANNEX I Page 5

TRADE PAYMENTS AND CAPITAL FLOWS

BALANCE OF PAYMENTS MERCHANDISE EXPORTS 1980/81 a/ US$ Mln. % 1978/79 1979/80 1980/81 (Millions us$)

Exports, f.o.b. b/ 108.5 95.1 134.4 Agricultural products 100.7 75.1 Imports, c.i.f. b/ 244.7 294.3 370.2 Manufactures 33.4 24.9

Trade Balance 135.2 -199.2 -235.8 Total 134.1 100.0

Services, net 65.6 91.6 93.1 of which: Tourism 41.8 54.0 64.5 EXTERNAL DEBT, DECEMBER 31, 1980 US$ Mln.

Transfers, net 30.1 36.1 of which: Private Remit. 25.5 29.6 40.4 Public Debt, inc. guaranteed 233.9 Indian Excise Fund 3.0 3.1 4.8 Non-Guaranteed Private Debt

Current Account Balance -39.7 -71.7 -96.4 Total Outstanding & Disbursed 233.9 (exc. grants)

Official Grants 42.9 63.2 71.7 Official Capital, net 36.0 48.1 52.8 Private Capital, net 9.7 -37.4 -11.9 DEBT SERVICE RATIO for 1980/81 c/

Change in Reserves -48.9 -2.2 -16.2 Public Debt, inc. guaranteed 1.9 (- Increase)

Gross Reserves (mid-July) 179.8 187.0 192.5 Net Reserves 151.0 153.2 174.9 IBRD/IDA LENDING, (June 1982)(Millions US$) IBRD IDA

Fuel and Related Materials Imports of which: Petroleum 16.7 30.2 NA Outstanding & Disbursed 121.4 Exports of which: Petroleum ------Undisbursed ---- 205.2 Outstanding, incl. undisbursed 326.6

RATE OF EXCHANGE

From October 1975 From March 20, 1978 through March 20, 1978 through September 19, 1981 Since September 19, 1981 Since December 17, 1982 US$1.00 = NRs 12.5 US$1.00 = NRs 12.00 US$1.00 = NRs 13.20 US$1.00 = NRs 14.30 NR 1.00 = US$ 0.08 NR 1.00 = US$ 0.083 NR 1.00 = US$ 0.076 NR 1.00 = US$ 0.070

a/ Customs basis. b/ Payments basis. c/ Ratio of Debt Service to Exports of Goods and Non-Factor Services.

not applicable

South Asia Programs Department September 1982 -22- ANNEX II Page 1

STATUS OF BANK GROUP OPERATIONS IN NEPAL

A. STATEMENT OF IDA CREDITS (as of September 30, 1982) /a

US$ million (net of cancellations)

No. Year Borrower Purpose IDA Undisbursed

Five credits fully disbursed 39.0 397 1973 Kingdom of Nepal Telecommunications II 5.5 0.2 470 1974 Kingdom of Nepal Water Supply and Sewerage 11.8 1.8 505 1974 Kingdom of Nepal Settlement 6.0 3.1 600 1977 Kingdom of Nepal Kulekhani Hydroelectric 14.8 2.8 617 1976 Kingdom of Nepal Rural Development 8.0 3.4 654 1976 Kingdom of Nepal Bhairawa Lumbini Groundwater 9.0 0.2 659 1976 Kingdom of Nepal Technical Assistance 3.0 0.2 704 1977 Kingdom of Nepal Second Water Supply & Sewerage 8.0 3.0 705 1977 Kingdom of Nepal Industrial Dev. Corporation 4.0 2.0 730 1977 Kingdom of Nepal Second Highway 17.0 4.2 772 1978 Kingdom of Nepal Technical Education 5.7 3.9 799 1978 Kingdom of Nepal Telecommunications III 14.5 12.7 812 1978 Kingdom of Nepal Irrigation (Sunsari-Morang) 30.0 21.5 856 1978 Kingdom of Nepal Irrigation (Narayani Zone) 14.0 10.1 939 1979 Kingdom of Nepal Second Rural Development 11.0 10.9 1008 1980 Kingdom of Nepal Community Forestry 17.0 16.5 1055 1980 Kingdom of Nepal Irrigation (Mahakali) 16.0 15.3 1059 1980 Kingdom of Nepal Third Water Supply & Sewerage 27.0 26.1 1062/c 1980 Kingdom of Nepal Grain Storage 6.2 6.0 10937 1981 Kingdom of Nepal Irrigation (Babai) 3.5 1.6 1100/c 1981 Kingdom of Nepal Agricultural Extension & Res. 17.5 12.9 1101/c 1981 Kingdom of Nepal Hill Food Production 8.0 6.7 1191/c 1982 Kingdom of Nepal Cottage & Small Industries 6.5 6.5 1198/c 1982 Kingdom of Nepal Second Education 14.3 14.3 1260/c 1982 Kingdom of Nepal Petroleum Exploration Promotion 9.2 9.2

Total, 326.5 195.1 of which has been repaid 0.1

Total now outstanding /b 326.4

Total now held by IDA 326.4

Total Undisbursed 195.1

/a No Bank loans have been made to Nepal. /b Prior to exchange adjustments. /c IDA 6th Credits, Principal amounts shown in U.S. dollar equivalent at date of negotiations, as shown in President Reports, and Disbursement amounts at the rate of SDR on September 30, 1982. -23- ANNEX II Page 2

B. STATEMENT OF IFC INVESTMENT (as of September 30, 1982)

Amount ($ millions) Year Obligor Type of Business Loan Equity Total

1975 Soaltee Hotel Hotel 2.7 0.4 3.1 (Pvt) Ltd.

1982 Nepal Orind Mine and process 5.9 - 5.9 Magnesite magnesite ore (Private) Limited 8.6 0.4 9.0

Total commitments now held by IFC 8.2 0.4 8.6

C. PROJECTS IN EXECUTION 1/

Credit No. 397 Telecommunications Project II $5.5 million Credit of June 20, 1973; Effective Date: September 11, 1973; Closing Date: December 31, 1982

Procurement for switching equipment was initially delayed due to difficulties with the selected bidder after award decision and the need for rebidding. The procurement for this item has subsequently been combined in one tender with procurement for a similar equipment under the third project.

Credit No. 470 Water Supply and Sewerage Project $11.8 million Credit of May 8, 1974; Effective Date: June 26, 1974; Closing Date: June 30, 1983

After a long mobilization period the project is now nearing comple- tion with 85% of the credit disbursed. Because of delays in completing the sewerage component, due to physical and contractural difficulties, the clos- ing date had to be extended by 6 months to June 30, 1983. This was also occasioned by delays in delivery of pipes for the remaining water supply component. The British experts, funded by the UK Overseas Development Administration to help WSSB operate its water supply facilities in Kathmandu valley, have now completed their assignment and departed Nepal.

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 used in this sense on the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. -24- ANNEXII Page 3

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

The project has been closed on scheduled date, i.e. July 15, 1982. The project failed to achieve revised targets for land clearing and settle- ment; only 66% of forest land had been cleared and 44% of families settled by the closing date. The project suffered from shift in Government policy on timber export, and from implementation problems relating to timber extraction and land use. The Government is being consulted regarding cancellation of the remaining balance.

Credit No. 600 Kulekhani Hydroelectric Project; $40.8 million Credit of January 9, 1976; Effective Date: May 18, 1976; Closing Date: December 31, 1983

Reservoir impounding commenced on June 9, 1981. When headrace tunnel was tested with water for first time on November 8, 1981, water leakages were observed, which on subsequent investigation, were found due to inadequate grouting. Immediate rectification work was started and a panel of experts was also set up by the Bank to suggest remedial steps. The additional works have been undertaken. With the approval of the panel of experts, the tunnel was refilled with water and Unit No.1 was commissioned on March 13, 1982. Since that date, all restrictions on the use of electricity in the central grid system of Nepal have been removed. Unit No. 2 was commissioned on March 29, 1982.

The present cost estimate is $119.93 million, including taxes and duties but excluding any claims by contractors and additional works. The foreign portion of the cost estimate is $98.39 million. The Government of Nepal is evaluating the claims to work out the total cost.

Credit No. 617 Rural Development Project; $8.0 million Credit of April 30, 1976; Effective Date: July 15, 1976; Closing Date: December 31, 1983

Until about the end of 1980, implementation progress had been satis- factory for most of the components (except health, education and livestock development) and nearly 70-80% of physical targets had been achieved. However, implementation was unsatisfactory during 1981 due to (a) inadequate local funding of the project, (b) poor management and coordination of project activities, (c) inadequate control and supervision of the activities of the Panchayats involved in construction work, and (d) the inability of the Minis- try of Local Development to provide leadership in matters of programming and implementing activities of the various line ministries. Since early 1982, the situation has improved with HMG having released the required funds and administrative action to improve implementation having been initiated. -25- A-NEXKi'l'

4 Credit No. 654 Bhairawa - Lumbini GroundwaterPro ect; $9O rn'1ic3n Credit of July 9, 1976; Effective Date: P, b&c- Closing Date: December 31, 1982

55 of the 64 planned tubewells,which are '_c i r'rgai - E. C2 xvz been constructed and drilling is nearly completed. Progress on Li ctruc tion of the canal distribution network is slow due to the weakrness of local contractors. However, all civil works contracts have been awardec and the project is scheduled for completion by mid-1983. The follow-lup Stage Ti project would concentrateon ensuring effective operation an malintenanceof the infrastructurebuilt under Stage I.

Credit No. 659 Technical Assistance Project $3.0 million Credit of September 16, 1976; Effective Date: November 16, 1976. Closing Date: June 30, 1983

Four subprojects are ongoing and include: the I"arsyangdi Techinical Review Panel, second phase of the Cash Crop Development, second phase of Electrical Accessories,and Primary School Mapping. These are proceeding satisfactorily. Eleven of the subprojects financed under the technical assistance credit have been completed and contributed to the pipeline of bankable projects in Nepal.

Credit No. 704 Second Water Supply and Sewerage Proect 0 millicn Credit of May 27, 1977; Effective Date: Februarv 28,91978; Closing Date: June 30, 1984

Slowness in recruiting consultants delayed declaring the credit effective and, as a result, project implementationwas hampered. Procurement of materials is now well advanced although suppliers, to whom awards were made for pressure pipes, have had difficulty in meeting promised delivery schedules. These problems have been overcome, enabling a constructionstart at the various sites. The contractor engaged on building the sewerage com- ponent under this project is the same as the one having diffiLcultiesunder Credit 470-NEP with a similar contract. Should delays continue, the sewer contract may need to be rescinded and relet.

Credit No. 705 Nepal Industrial Development CorporationProlect; $4.0 million Credit of May 27, 1977; Effective Date: February 17, 1978; Closing Date: December 31, 1983

Since March 31, 1982 (latest date of subloan authorization) NIDC has fully committed the $4.0 million Credit. Close supervision is being carried out to ensure further improvementsin NIDC's operations and implementatiornof subprojects and disbursements under the Credit within the closing date. -26- ANNEX II Page 5

Credit No. 730 Second Highway Project; $17.0 million Credit of October 19, 1977; Effective Date: December 23, 1977; Closing Date: December 31, 1984

The project is now moving steadily towards a successful conclusion, though there remain several areas where improved performance is required. Procurement, which has been a source of considerable delay in the past, is now virtually complete. The work on the Thankot-Naubise road pavement has now been completed. Much supervisory attention is currently being given to the Tulsipur feeder road in an effort to improve performance on a few con- tracts. Disbursements, which currently stand at 75% of appraisal estimates, are expected to improve substantially over the next year since the major project component has been completed.

Credit No. 772 Technical Education Project; $5.7 million Credit of April 14, 1978; Effective Date: July 11, 1978; Closing Date: September 30, 1983

The project, which provides new facilities for technician training at the Institute of Engineering in Kathmandu, will be completed by June 1983. Good progress has been made with equipment procurement, furniture procurement and part of the civil works.

However, one contractor on the site has failed to achieve target dates for construction, partly due to shortage of materials, but mainly due to overcommitment of labor and machines on other contracts. Civil works are now expected to be completed by June 1983. Educational objectives, espe- cially teaching quality improvements, which had been jeopardized by student strikes, are more likely to be achieved now that the new Vice Chancellor of the University has adopted a more resolute approach to students and student problems.

Credit No. 799 Third Telecommunications Project $14.5 million Credit of August 22, 1978; Effective Date: February 27, 1979; Closing Date: June 30, 1984

Project implementation is proceeding satisfactorily. The earth station for satellite communication and the international telex exchange (both financed by ODA of UK) have been completed and commissioned. Procure- ment under the IDA credit is also progressing satisfactorily. About US$12.2 million of the credit has been committed. -27- ANNEX II Page 6

Credit No. 812 Sunsari-Morang Irrigation and Drainage Development Project $30 million Credit of July 7, 1978; Effective Date: November 30, 1978; Closing Date: June 30, 1984

In July 1980, a landslide in the catchment area caused a major flood in the Kosi river, causing a considerable erosion and endangering the Chatra Main Canal. Emergency flood protection works were carried out. Investiga- tions for the design of headreach works to improve the water supply to and distribution within the main canal have been completed. The ICB process for the construction of the headreach improvements and irrigation and drainage works in about 12,000 ha has been completed; bids have been evaluated and a contract award has taken place. Project implementation has fallen about two years behind schedule.

Credit No. 856 Narayani Zone Irrigation - Stage II Project $14.0 million Credit of November 27, 1978; Effective Date: January 8, 1979; Closing Date: December 31, 1983

Project implementation is proceeding steadily, although slower than anticipated. The major constraint is the weakness of local contractors. Construction is now on-going in all six irrigation blocks. Most civil works and equipment contracts have been awarded, and construction is progressing satisfactorily.

Credit No. 939 Second Rural Development Project - Mahakali Hills $11.0 million Credit of August 9, 1979; Effective Date: January 15, 1980; Closing Date: February 28, 1985

Project progress since credit effectiveness has been negligible due to: (a) delays in setting up and staffing of project management; (b) delays in constructing project headquarters; (c) remoteness of the project area and communication difficulties; (d) dislocation created by the devastating earth- quake in the project area during June 1980; and (e) delay in the release of budgeted funds. Recently, some civil works have started, and a considerable amount of initial planning and design work for major construction work under the project has been completed. Consequently, implementation is likely to pick up pace.

Credit No. 1008 Community Forestry Development and Training Project $17.0 million of May 22, 1980; Effective Date: September 19, 1980; Closing Date: June 30, 1986

The Project is progressing well. An effective administrative organization has been established into which the UNDP/FAO technical assis- tance team has been integrated. Most planting targets have been achieved. Motivation and Education, and Monitoring and Evaluation programs are being efficiently conducted. Project committees have been set up and are function- ing. Architects have been appointed for construction of training facilities at Pokhara, Hetaura and Kathmandu. The designs for the Kathmandu Training -28- ANNEX II Page 7

Wing have been started by the Training Wing and Tribhuvan University. The urban fuelwood study has been completed.

Credit No. 1055 Mahakali Irrigation Project (Stage I); $16.0 million Credit of September 29, 1980; Effective Date: February 27, 1981; Closing Date: December 31, 1985

Contracts for undertaking the survey and engineering designs have been awarded to local engineering consultants. Most of the work is progress- ing satisfactorily. ICB tenders for the procurement of the project's equip- ment and vehicles requirements have been invited. The project area has been reduced by about 20%, because (i) inaccurate maps were used, and (ii) HMG decided to put restrictions on forest cloning.

Credit No. 1059 Third Water Supply and Sewerage Project; $27.0 million Credit of September 29, 1980; Effective Date: August 27, 1981; Closing Date: December 31, 1985

The credit was declared effective August 27, 1981, about 9 months after the original effectiveness date. Consultants, appointed by WSSB, using the experience gained on Credits 704-NEP and 470-NEP quickly produced bidding documents which have allowed early award of certain materials contracts. Final design of civil works is well underway and contracts are being grouped for efficient implementation.

Credit No. 1062 Grain Storage Project; $6.2 million Credit of January 14, 1981; Effective Date: July 31, 1981; Closing Date: September 30, 1984

Engineering staff for the project have been engaged and implementa- tion work commenced. The project study on marketing is completed, and the one on future storage and processing needs is well underway. Consultants have been engaged to assist Nepal Food Corporation (NFC) in management, finance and quality control. NFC started last season with primary procure- ment on a trial basis. -29- ANNEX II Page 8

Credit No. 1093 Babai Irrigation Engineering Project; $3.5 million Credit of March 26, 1981; Effective Date: June 5, 1981; Closing Date: December 31, 1983

Consultants were contracted in May 1981, and project implementation is proceeding on schedule. The detailed design work is under way. Pre- qualifications for the construction of project works are being processed.

Credit No. 1100 Agricultural Extension and Research Project; $17.5 million Credit of April 6, 1981; Effective Date: July 8, 1981; Closing Date: July 15, 1987

The Project Coordinator is in position. Orientation training for Agricultural Development Officers, Subject Matter Specialists, Junior Tech- nicians, Junior Technical Assistants and Panchayat Level Agricultural Assis- tants, has been completed in the first two project districts (Jhapa and Nawalparasi) and field work has started.

Professional staff recruitment and progress of civil works is slow. The first year's supply of fertilizer has been received. Tenders have been floated for the second year's supplies.

The Technical Assistance Agreement has been signed and the four consultants have finished the first phase of their assignments.

The overall progress of the project is considered satisfactory.

Credit No.1101 Hill Food Production Project; $8.0 million Credit of April 6, 1981; Effective Date: May 28, 1981; Closing Date: July 15, 1987

The project was activated by the appointment of the project coor- dinator in the summer of 1981, but HMG budget was not available until November. Existing staff have received orientation and training in extension methodology. Consultants for technical assistance have been appointed and they have implemented the first phase of their program. The first shipment of fertilizer under the project has been distributed and tenders are now out for the second. Livestock and irrigation activities and construction of agricultural service centers are lagging, but the project is making satisfac- tory progress.

Credit No.1191 Cottage and Small Industries Project; $6.5 million Credit of March 9, 1982; Effective Date: July 9, 1982; Closing Date: December 31, 1985

HMG complied with all conditions, and the Credit was declared effec- tive on July 9, 1982. Staffing and training for nearly all implementing agencies have been completed. The advisor for the credit component has been fielded, and other long term consultants, financed under the UNDP portion of the project, are expected to arrive in the second quarter of FY83. Trained -30- ANNEX II Page 9

Cottage and Small Industry officers of the three banks have been posted to key branches, and commitments under the credit component have begun.

Credit No.1198 Second Education Project; $14.3 million Credit of April 7, 1982; Effective Date: July 23, 1982; Closing Date: June 30, 1988

The project, which will provide a new technician and trade training institutionin Pokhara in the Western Region of Nepal, was declared effective on July 23, 1982 having fulfilled two conditions of credit effectiveness, within 90 days of signing. These concerned the availabilityof the site to commence constructionand the signing of a technicalassistance agreement. The project unit (PIU) has been establishedand nearly all PIU staff have been appointed.

Credit No.1260 Petroleum Exploration Promotion Project; $9.2 million Credit of July 9, 1982; Effective Date: September 30, 1982; Closing Date: December 31, 1985

Project implementationstarted under an advance from the Project PreparationFacility (PPF). The credit was declared effective on October 1, 1982. Contracts for geophysical consultancyand the seismic survey have been awarded and field work is progressing. -31- ANNEX III Page 1

NEPAL

Supplementary Project Data Sheet

I. Timetable of Key Events

(a) Time taken to prepare the project:

6 months

(b) Project prepared by:

Government with the assistance of consultants

(c) First presentation to the Bank Group:

September 1981

(d) Departure of Appraisal Mission:

February 1982

(e) Completion of negotiations:

December 3, 1982

(f) Planned date of effectiveness:

March 31, 1983

II. Special Implementation Action:

None

III. Special Conditions

Government to -

(a) strengthen the National Groundwater Resources Development Board and include the Project Manager as an observer for all matters relating to the project (para 32);

(b) agree not to supply water to farmers in completed tubewell schemes until water users groups have been set up and are ready to assume responsibility for water distribution below the 4-5 ha outlet (para 34); -32-

ANNEX III Page 2

(c) agree not to start the drilling of any of the 15 new tube- wells until two-thirds of the beneficiaries have formally agreed to form a water users group and to pay watter charges (para 34);

(d) establish a committee by March 1, 1983 to work out concrete proposals for water charges by December 31, 1983 for consider- ation by HMG and IDA (para 36); and

(e) introduce a new system of water charges for public tubewells by March 31, 1984, which would be satisfactory to IDA (para 36).

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