Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 59893-NP PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF Public Disclosure Authorized SDR 53.8 MILLION (US$84 MILLION EQUIVALENT) AND A PROPOSED GRANT IN THE AMOUNT OF SDR 9.7 MILLION (US$15 MILLION EQUIVALENT) TO Public Disclosure Authorized NEPAL FOR A NEPAL-INDIA ELECTRICITY TRANSMISSION AND TRADE PROJECT May 27, 2011 Sustainable Development Department South Asia Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Exchange Rate Effective January 31, 2011 Currency Unit = Nepalese Rupee (NRs) NRs. 72 = US$1 US$1.56194 = SDR 1 FISCAL YEAR July 16 – July 15 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities HVDC High-voltage Direct Current ADB Asian Development Bank ICR Implementation Completion Report AEPC Alternative Energy Promotion Center IDA International Development Association APL Adaptable Program Loan IDC Interest During Construction BIMSTEC Bay of Bengal Initiative for Multi-Sectoral IEE Initial Environmental Examination Technical and Economic Cooperation BtB Back-to-Back IFC International Finance Corporation CARC The Central Asia Regional Economic IL&FS Infrastructure Leasing and Finance Services Cooperation Ltd. CAS Country Assistance Strategy IMCC Inter Ministerial Coordination Committee CEA Central Electricity Authority IMF International Monetary Fund CERC Central Electricity Regulatory INPS Integrated Nepal Power System Commission CMU Country Management Unit IPP Independent Power Producer CPTC Cross-border Power Transmission ISN Interim Strategy Note Company DfID Department for International Development ISO International Organization for Standardization D-M Dhalkebar-Muzaffarpur Transmission ITSA Implementation and Transmission Service Line Agreement DOED Department of Electricity Development JICA Japan International Cooperation Agency ECO Economic Cooperation Organization kWh Kilowatt hour EIRR Economic Internal Rate of Return MDG(s) Millennium Development Goal(s) EMP Environmental Mitigation Plan MEA Ministry of External Affairs ESIA Environmental and Social Impact MoE Ministry of Energy Assessment ESMAP Energy Sector Management Assistance MoF Ministry of Finance Program ESPP Environment and Social Policies and MoP Ministry of Power Procedures ETFC Electricity Tariff Fixation Commission MOU Memorandum of Understanding MW Megawatts FY Fiscal Year NEA Nepal Electricity Authority GAAP Governance and Accountability Action NLTA Non-Lending Technical Assistance Plan GDP Gross Domestic Product NPC National Planning Commission GEF Global Environment Facility NRETTP Northeast Regional Electricity Transmission and Trade Program GoB Government of Bangladesh OAG Office of the Auditor General GoN Government of Nepal OECD Organization for Economic Cooperation GWh GigaWatthours (1 million kWh) and Development ii H-D-D Hetauda-Dhalkebar-Duhabi Transmission OTC Over the counter Line PAF Poverty Alleviation Fund SIMF Social Impact Management Framework PDP Power Development Project SJVNL Sutlej Jal Vidyut Nigam Ltd. POWERGRID POWERGRID Corporation of India Ltd. SPV Special Purpose Vehicle PMO Project Management Office SREP Scaling-up Renewable Energy Program PPA Power Purchase Agreement SWAp(s) Sector wide Approach(es) PSA Power Sales Agreement TA Technical Assistance PSDP Power Sector Development Project TSO Transmission System Operator PTC Power Trading Corporation UI Unscheduled Interchange PTCN Power Transmission Company Nepal UK United Kingdom RAP Resettlement Action Plan UNDP United Nations Development Program RoW Right of Way USA United States of America SAARC South Asia Association for Regional VDC Village Development Committee Cooperation SAR South Asia Region VPDF Vulnerable People Development Framework SAWI South Asia Water Initiative VPDP Vulnerable People Development Plan SDAP Social Action Development Plan WBG World Bank Group SIA Social Impact Assessment WECS Water and Energy Commission Secretariat SIL Specific Investment Loan Regional Vice President : Isabel Guerrero Director, Regional Integration : Salman Zaheer Country Director : Susan Goldmark Sector Director : John Henry Stein Sector Manager (Acting) : Malcolm Cosgrove-Davies Task Team Leader : Raghuveer Sharma iii NEPAL-INDIA ELECTRICITY TRANSMISSION AND TRADE PROJECT Table of Contents I. Strategic Context ..................................................................................................................... 1 A. Regional Context ................................................................................................................ 1 B. Energy in Nepal .................................................................................................................. 3 C. Regional Sectoral and Institutional Context ....................................................................... 9 II. South Asia Northeast Regional Electricity Transmission and Trade Program (NRETTP) .. 12 A. Higher Level Objectives to which the Project Contributes .............................................. 14 B. Project Development Objectives....................................................................................... 15 1. Project Beneficiaries ..................................................................................................... 15 2. PDO Level Results Indicators ....................................................................................... 15 III. Project Description ............................................................................................................ 15 A. Project components ....................................................................................................... 15 B. Project Financing .......................................................................................................... 17 1. Lending Instrument ....................................................................................................... 17 2. Project Cost and Financing ........................................................................................... 17 C. Lessons Learned and Reflected in the Project Design .................................................. 18 IV. Implementation ................................................................................................................. 20 A. Institutional and Implementation Arrangements .......................................................... 20 B. Results Monitoring and Evaluation .............................................................................. 23 C. Sustainability................................................................................................................. 24 V. Key Risks and Mitigation Measures ..................................................................................... 24 VI. Appraisal Summary .......................................................................................................... 26 A. Economic and Financial Analysis ................................................................................. 26 B. Technical ....................................................................................................................... 29 C. Financial Management .................................................................................................. 31 D. Procurement .................................................................................................................. 32 E. Safeguards ..................................................................................................................... 32 Annex 1: Results Framework and Monitoring.............................................................................. 38 Annex 2: Detailed Project Description ........................................................................................ 40 Annex 3: Implementation Arrangements ..................................................................................... 52 Annex 4: Operational Risk Assessment Framework (ORAF) ...................................................... 81 iv Annex 5: Implementation Support Plan ........................................................................................ 84 Annex 6: Team Composition ........................................................................................................ 87 Annex 7: Institutional Aspects of NEA ........................................................................................ 88 Annex 8: Financial Analysis ......................................................................................................... 92 Annex 9: Economic Analysis........................................................................................................ 96 Annex 10: Governance Framework ............................................................................................ 101 Annex 11: Maps .......................................................................................................................... 106 v PAD DATA SHEET Country Name: Nepal Project Name: Nepal-India Electricity Transmission and Trade Project PROJECT APPRAISAL DOCUMENT Region: South Asia Sector Unit: SASDE Date: May 27, 2011 Sector(s): Power; Energy Director, Regional Integration: Salman Zaheer Theme(s): Regional Integration Country Director: Susan Goldmark EA Category: