Initial Environmental Examination June 2021 NEPAL: Electricity Grid Modernization Project - Additional Financing Main Report - Part 2 of 4 This Initial Environmental Examination is a document of the borrower. The views expressed herein do not necessarily represent those of ADB's Board of Directors, Management, or staff, and may be preliminary in nature. Your attention is directed to the “terms of use” section on ADB’s website. In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area. 56 meet their power demand. However, the Transmission Directorate of NEA under private financing is implementing the Bardhaghat to Sardi 132 kV transmission line on their behalf. The Bardhaghat to Sardi 132 kV transmission line was conceptualized to provide power to Hongshi Cement with the agreement that NEA will construct it for them and that the second circuit will be utilized by NEA (from where the line will be tapped to the proposed Dumkibas Substation). Therefore, they have control over it. But this is not an associated facility as per ADB’s Safeguard Policy Statement (2009) definition because construction of Dumkibas substation by NEA is not required for it to go ahead. 78. Given that Dumkibas Substation is in Chure Conservation Area, a due diligence of the transmission line has been carried out to ensure it has been installed in accordance with national environmental requirements. Appendix 5 sets out the anticipated impacts and risks informed by the national EIA completed by NEA, including baseline surveys and public consultations. The transmission line is currently under construction and it is expected to complete by Q2 2021. Based on NEA reports till July 2020, 60 of the 67 tower foundations and 30 of the 67 tower erection works were complete at that time. Currently stringing works are already ongoing in areas close to the proposed tower tapping site i.e., tower number 12. The EIA which includes a costed EMP was disclosed and cleared by the Ministry of Energy, Water Resources, and Irrigation in September 2016. The transmission line is passing through the Chure Conservation Area including forest areas. Chure Board has approved construction of the transmission line project within the protected area. Figure 20: Integrated Nepal Power System10 10 Image Courtesy: Nepal Electricity Authority 57 G. Project Benefits 79. There will be beneficial technical as well as socio-economic impacts as a result of the EGMP-AF implementation. After completion of the proposed Project components, the following outputs will benefit the NEA and its customers in seven project provinces of Nepal as well as to the nation: • Available energy will be best utilized and expected energy spillage in next few years will be better managed. • Adequate, reliable, and quality power will be ensured for socioeconomic development. Favorable atmosphere will be created for Nepal’s economic growth from which more jobs may be created, and the country’s economy may be improved. • Transmission capacity of Kathmandu Valley and other regions of Nepal will increase, to help meet growing demand in the country whilst ensuring a quality and reliable electricity supply. • Transmission and distribution system modernization will ensure quality and reliable supply, reduce technical losses, provide better service to the consumers, and reduce the number of NEA staff which are required to deliver the required level of service, thereby helping to increase revenue and improve the financial health of NEA. H. Analysis of Alternatives 80. ADB’s Safeguard Policy Statement (2009) and as a key aspect of good environmental practice potential alternatives to the project should be evaluated. In order to achieve this, environmental and social considerations need to be brought into planning from the early stages. In case of EGMP-AF, a range of alternatives to the proposed Project and its components has been considered by NEA. 81. No Project Alternative: This would have no adverse environmental impacts since no construction works would be involved. However, socioeconomic benefits would not be realized. Unprecedented growth in power consumption has led to severe imbalance in demand and supply of electricity power in the country which has resulted in load shedding. Customers (in 2019 figures show 42.06% of sales were to domestic consumers, followed by 38.21% to industrial customers) would continue to experience unreliable and poor-quality electricity supply. Relying on an old mechanically operated system, NEA would continue to experience technical losses and future increased demand for electricity could not be met, the resulting imbalance in optimization of demand and supply creating an unfavorable environment for economic growth and providing affordable clean energy for all (UN Sustainable Development Goal 7). Moreover, after the current COVID-19 related economic slump in Nepal, there has also been a slump in power consumption. With the economic slowdown, NEA’s proactive role in ensuring modern infrastructure makes implementation of this project even more important. There are no current practical alternatives to the project in Nepal for demand and supply economics of energy other than having consumers producing their own energy in isolation. The project will also be helpful for the expansion of rural electrification program to help reduce pressure on fuel wood. Therefore, the “with project” alternative was preferred by NEA over the “no project” alternative. 58 82. Location/Route Alternatives: Location/route alternatives were analyzed by NEA in selecting sites for the new substations and the alignment of the new transmission lines (overhead as well as underground), taking into consideration the following criteria. • ROW which have minimal environmental impact; • Improvement of reliability of the power system; • Provide the shortest straight route as far as possible with minimum number of angle points; • Minimum number of structure crossings; • Avoid built up, swampy, and unstable areas; • Provide easy access for construction and maintenance works; • Avoid settlements as far as possible; • Proximity of road; and • Provide short, easy, safe, and economical route for access road. 83. For the new transmission lines comparative studies of different routes, design, and construction methods were done by NEA, as detailed in Appendix 6. Routes have been selected to minimize forest clearance and no disturbance to sites of the cultural and historical significance. Specifically, for the Chobar-Lagankhel underground transmission line in Kathmandu Valley, options that avoid impacting on its cultural World Heritage Sites were considered. 84. For Dumkibas Substation the option to avoid the Chure Conservation Area was considered but determined practically not possible as the transmission line it is connected to runs entirely within the protected area. However, within the Chure Conservation Area the site has been selected on agricultural land. 85. Other Alternatives: Other alternatives such as use of existing substation land for construction of new substations; overhead or underground line in Kathmandu Valley, and air (AIS) or gas (GIS) insulated substations (the former requiring a greater footprint, and having greater risk of flashover, but the latter using sulfur hexafluoride [SF6] a potent greenhouse gas) were considered in the project planning stages. 86. The principle that has (and will be) adopted for the selection and design of new equipment is to comply with national requirements as well as considering international good practice per the IFC EHS Guidelines particularly with respect to avoiding the use of PCB oils in purchase of transformers, and the use of all asbestos containing materials in new construction. I. Climate Change Risks 87. The climate change impact of the project is categorized as medium. The project has been assessed for its risk and vulnerability to climate change impacts, identified risks being extremes of temperature and rainfall and more frequent/severe extreme weather events. Design measures have been identified to ensure that these risks can be minimized, including raising plinth heights at substations to avoid inundation by floodwater, providing fire walls between transformers, ensuring project infrastructure withstands 55 m/s windspeeds, using pile foundations in flood prone areas, revetment and use of geo-synthetic material in foundation, concrete encasing and painting of stub in water logged areas, and use of ACSR conductors that can withstand higher temperatures. 59 88. In addition, the project contributes to climate mitigation by reducing technical losses from the transmission and distribution network and allowing higher penetration of hydropower. J. Project Cost and Implementation Schedule 89. The total cost estimate for the project is $75 million. ADB will provide $60 million through its ordinary capital resources (OCR) facility with $15 million counterpart funding of NEA. The project will be implemented progressively over five years with a completion date by 2027. 90. Each new transmission line or substation component is anticipated to take 36 months including a 6 months pre-construction phase and a 30 months construction, testing and commissioning phase. The construction work on transmission lines will primarily be carried out during the dry season