Document of The World Bank, International Development Association, and International Finance Corporation Public Disclosure Authorized FOR OFFICIAL USE ONLY Report No: 64299-NP PROJECT APPRAISAL DOCUMENT ON A PROPOSED INTERNATIONAL DEVELOPMENT ASSOCIATION CREDIT IN THE AMOUNT OF SDR 26.1 MILLION (US$40.0 MILLION EQUIVALENT) AND A PROPOSED GRANT IN THE AMOUNT OF SDR 4.0 MILLION (US$6.0 MILLION EQUIVALENT) Public Disclosure Authorized TO NEPAL AND ON A PROPOSED INTERNATIONAL FINANCE CORPORATION FINANCING CONSISTING OF: AN “A” LOAN IN THE AMOUNT OF UP TO US$19.3MILLION AND A CANADA CLIMATE CHANGE PROGRAM (CCCP) SENIOR LOAN IN THE AMOUNT OF UP TO US$19.3 MILLION WITH INTERNATIONAL FINANCE CORPORATION ACTING AS IMPLEMENTING ENTITY OF THE CCCP Public Disclosure Authorized TO KABELI ENERGY LIMITED IN NEPAL FOR THE KABELI-A HYDROELECTRIC PROJECT April 19, 2014 Sustainable Development Department Infrastructure & Natural Resources Department Nepal Country Management Unit Climate Business Department Public Disclosure Authorized South Asia Region International Finance Corporation This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Exchange Rate Effective = December, 2013 Currency Unit = Nepalese Rupees (NPR) US$ 1 = 99.0 NPR US$ 1 = 0.65018 SDR FISCAL YEAR July 16 – July 15 ABBREVIATIONS AND ACRONYMS BOOT Build, Own, Operate, Transfer ISN IDA/IFC Interim Strategy Note BPC Butwal Power Company Limited KAHEP Kabeli-A Hydroelectric Project CCCP Canada Climate Change Program kcal Kilocalorie CIA Cumulative Impact Assessment KEL Kabeli Energy Limited CO2 Carbon Dioxide km Kilometer DA Designated Account kW Kilo Watt DDC District Development Committee kWh kilo Watt-hour DfID Department for International Development LRMC Long-run Marginal Cost DOED Department of Electricity Development MJ Mega Joule EA Environmental Assessment MOE Ministry of Energy EMP Environmental Management Plan MOF Ministry of Finance EIA Environmental Impact Assessment MW Mega Watt EIRR Economic Internal Rate of Return MWh Mega Watt-hour FIDIC Federation Internationale des Ingenieurs- NEA Nepal Electricity Authority Conseils FIRR Financial Internal Rate of Return NCB National Competitive Bidding GAAP Governance and Accountability Action Plan PAP Project-affected Persons g/kWh Gram per kilo Watt-hour PDA Project Development Agreement Gurans Gurans Energy Limited PIC Public Information Center HIDCL Hydroelectricity Investment and Development POE Panel of Experts Company Limited IBN Investment Board of Nepal PS IFC Performance Standards on Environmental and Social Sustainability ICB International Competitive Bidding RCIA Rapid Cumulative Impacts Assessment ICP Informed Consultation and Participation RCLAP Resettlement Compensation and Livelihood Assistance Plan IDA International Development Association SA Social Assessment IDC Interest During Construction SAP Social Action Plan IFC International Finance Corporation TOR Terms of Reference InfraCo InfraCo Asia Himalayan Hydro Pte. Ltd. VDC Village Development Committee Asia IPVCDP Indigenous People Vulnerable Community VEC Valued Environmental and Social Development Plan Component International Development Association (IDA) International Finance Corporation (IFC) Regional Vice President: Philippe Le Houerou Vice President: Karin Finkelston Country Director: Johannes C. M. Zutt Regional Director: Serge Devieux Sector Director: John H. Stein Industry Director: Anita M. George Sector Manager: Julia Bucknall Manager: Sumeet Thakur Task Team Leader: Jie Tang Team Leader: Andre S. Van Hoeck ii NEPAL KABELI-A HYDROELECTRIC PROJECT TABLE OF CONTENTS Page I. STRATEGIC CONTEXT .............................................................................................................. 1 A. Country Context ........................................................................................................................... 1 B. Sectoral and Institutional Context ................................................................................................ 1 C. Higher Level Objectives to which the Project Contributes .......................................................... 6 II. PROJECT DEVELOPMENT OBJECTIVE(S)/GLOBAL ENVIRONMENT OBJECTIVE(S) ........................................................................................................................................... 7 A. Project Development Objective(s) ............................................................................................... 7 B. Project Beneficiaries .................................................................................................................... 7 C. PDO Level Results Indicators ...................................................................................................... 7 III. PROJECT DESCRIPTION ........................................................................................................... 7 A. Project Components ..................................................................................................................... 7 B. Project Cost and Financing .......................................................................................................... 8 C. Lessons Learned and Reflected in the Project Design ................................................................. 8 IV. IMPLEMENTATION .................................................................................................................... 9 A. Institutional and Implementation Arrangements .......................................................................... 9 B. Results Monitoring and Evaluation ............................................................................................ 11 C. Sustainability .............................................................................................................................. 11 V. KEY RISKS AND MITIGATION MEASURES ....................................................................... 12 A. Risk Ratings Summary Table .................................................................................................... 12 B. Overall Risk Rating Explanation ............................................................................................... 13 VI. APPRAISAL SUMMARY ........................................................................................................... 13 A. Economic and Financial Analysis .............................................................................................. 13 B. Technical .................................................................................................................................... 13 C. Financial Management ............................................................................................................... 13 D. Procurement ............................................................................................................................... 14 E. Social (including safeguards and performance standards) ......................................................... 15 F. Environment (including safeguards and performance standards) .............................................. 17 G. Other Safeguards Issues ............................................................................................................. 18 iii Annex 1: IDA’s Results Framework and Monitoring ........................................................................... 19 Annex 2: Detailed Project Description .................................................................................................... 22 Annex 3: Implementation Arrangements ............................................................................................... 29 Annex 4: Operational Risk Assessment Framework (ORAF)- IDA funding ...................................... 41 Annex 5: Implementation Support Plan ................................................................................................. 46 Annex 6: Technical and Contracting Aspects of the Project ................................................................ 48 Annex 7: Environmental and Social Aspects of the Project .................................................................. 57 Annex 8: Economic and Financial Analysis ........................................................................................... 83 Annex 9: Governance and Accountability Action Plan (GAAP) .......................................................... 89 Annex 10: Strengths, Risks and Issues .................................................................................................... 94 Annex 11: Statement of IFC’s Held and Disbursed Portfolio ............................................................... 96 Map ......................................................................................................................................................... 97 iv PAD DATA SHEET Nepal Kabeli-A Hydroelectric Project (P122406) PROJECT APPRAISAL DOCUMENT SOUTH ASIA SASDE Report No.: PAD761 . Basic Information Project ID Lending Instrument EA Category Team Leader P122406 Specific Investment A - Full Assessment Jie Tang Loan Project Implementation Start Date Project Implementation End Date 31-July-2014 30-Dec-2019 Expected Effectiveness Date Expected Closing Date 30-Sep-2014 30-Dec-2019 Joint IFC Joint Level Joint Project - involving co-financing with IFC Yes (loan, equity, budget,