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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 11013

PROJECT CONPLETION REPORT

NEPAL

KARNALI PREPARATION PROJECT - PHASE I(Credit 1452-NEP)

August 7, 1992

Energy and Infrastructure Operations DivisionCountry Department ISouth Asia Regional Office

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

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CURRENCY EQUIVALENT

Currency Unit - Nepalese Rupee (NR)NR 1.00 - US$0.064 (end-1983)

- US$0.023 (end-1991)US$1.00 - NRs 15.65 (end-1983)

- NRa 42.70 (end-1991)

WEIGHTS AND MEASURES

km - Kilometer (- 0.6214 miles)kV - Kilovolt (thousand volts)kW - Kilowatt (thousand watts)kWh - Kilowatt hour (- 860.42 Kilocalories)MW - Megawatt (thousand kilowatts)

ABBREVIATIONS AND ACRONYMS

CIDA - Canadian International Development AgencyCK - Committee on KarnaliFSL - Full Supply LevelGOI - Government of IndiaHPC - Himalayan Power ConsultantsHMG/N - His Majesty's Government of NepalKCC - Karnali Coordinating CommitteeKCG - Karnali Consultants GroupKMP - Karnali (Chisapani) Multipurpose ProjectNEA - Nepal Electricity AuthorityNK - Nippon Koei Co. Ltd.OBI - Overseas Bechtel IncorporatedPCR - Project Completion ReportSMHA - Snowy Mountains Hydroelectric AuthorityTOR - Terms of ReferenceUKHP - Upper Karnali Hydroelectric ProjectUNDP - United Nations Development ProgrammeWB - World Bank

FISCAL YEAR

July 16 - July 15

FOR OFFCIAL USE ONLYTHE WORLD SANK

Washington, D.C. 20433U.S.A.

Ofce of DirectonCenaiOperat:mn Evaluatkn

August 7, 1992

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on NEPALKarnali Preparation Project - Phase I (Credit 1452-NEP)

Attached, for information, is a copy of a report entitled "ProjectCompletion Report on NEPAL - Karnali Preparation Project - Phase I

(Credit 1452-NEP)" prepared by South Asia Regional Office. No audit of this

project has been made by the Operations Evaluation Department at this time.

Attachment 2

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

FOR OFFICIAL USE ONLY

PROJECT COMPLETION REPORT

NEPAL


TABLE OF CONTENTS

Page No.

Preface .Evaluation Summary .......................... .i

PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Project Identity .2. Background .3. Project Objectives and Description.. 24. Project Design and Organization.. 35. Project Implementation.. 46. Project Results.. 67. Bank Performance... 88. Borrower Performance . .. . . . . . . .89. Project Relationships .. 910. Consulting Services 9.911. Project Documentation and Data.. 9

Annex I - Project Organization.. . 10Annex 2 - Project Summary Statistics.. 11

Part II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

1. Project Identity.... . . . . 122. Background ..... ..... 123. Objective ....... .... 134. Scope of Work.......... . 135. Project Organization . . . .. ...... . 146. Project Implementation 14... ..... 147. Study Results.... ..... 148. Development Impact .... .. .... 159. Lessons Learned and Recommendations...... . 1610. Other Matters. . ...... 1711. Bridging Studies.... ...... 1712. Integration Studies .... .. .... 1813. Concluding Remarks . . ..... . . 18

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

TABLE OF CONTENTS (Cont.)Page No.

PART III: STATISTICAL INFORMATION

1. Related IDA Credits .e .. ... . ........... 19

2. Project Timetable . . . . . . . . . . . . . . . . . . . . . . . . 20

3. Credit Disbursements . . . . . . . . . . . . . . . . . . . . . . . 214. Project Implementation ........... . .......... 215. Project Costs and Financing . . . . . . . . . . . . . . . . . . . 226. Project Results . . . . . . . . . . . . . . . . . . . .237. Status of Covenants ...... .. ........ . 238. Use of Bank Resources . . . . . . . . . . . . . . . . . . . . . . 23


NEPAL


PREFACE

This is the Project Completion Report (PCR) for the Karnali

Preparation Project - Phase I in Nepal, for which Credit 1452-NEP in the

amount of SDR 10.2 million (US$ 11.0 million equivalent) was approved on March

20, 1984. The final disbursement under the Credit was made on November 13,

1990, and the Credit was closed on December 31, 1990 with a total disbursement

of SDR 10,148,368.30. SDR 44,452.16 was undisbursed as of December 31, 1990

and was cancelled as of that date. SDR 7,179.54 undisbursed in the Special

Account was refunded to the Credit Account on August 8, 1991 and was cancelled

as of that date.

The PCR was jointly prepared by the Energy and Infrastructure

Division, Country Department 1, South Asia Regional Office (Preface,

Evaluation Summary, Parts I and III) and the Borrower (Part II). Preparation

of the PCR was started in November 1990 during IDA's final supervision mission

for the project and is based, inter alia, on the President's Report,

Development Credit Agreement, supervision reports, progress reports,

correspondence between IDA and the Borrower and internal Bank memoranda.

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NEPAL


EVALUATION SUMMARY

i. The development of a major hydropower project at Chisapani on theKarnali River in Western Nepal has long been recognized as one of the mostpromising hydroelectric developments in Nepal which could generate substantialbenefits from power export to India. Previous studies had examined theproject's viability but did not consider the multipurpose aspects of thedevelopment and were inconclusive on the issues of project size and damlocation. A final feasibility study was needed to confirm the project'stechnical and economic feasibility, given the geological and seismic risks inthe area. At the same time, given India's stake and interest in the projectdevelopment, India had to be closely involved in the study's supervision. IDAprovided a credit of SDR 10.2 million to His Majesty's Government of Nepal(HMG/N), the executing agency being a Project Unit within the Ministry ofWater Resources. India's involvement in the study's supervision was throughtwo joint committees: (a) a high level (Secretariat) committee, the Committ-eon Karnali; and (b) a technical coordinating committee, the KarnaliCoordinating Committee. This was the second credit granted to Nepal in thepower sector following the Kulekhani project (Cr. 600-NEP) approved in 1976.Since then IDA has provided three additional credits, the most recent of whichwas approved in March 1992.

Oblectives

ii. Overall the project achieved its specific objectives and hasdefined the optimum location and design of a viable scheme, hence resolvingthe issues raised in the previous feasibility studies.

iii. The project also established the prefeasibility study of anattractive 240 MW run-of-river scheme on the Karnali Bend upstream of theChisapani site.

Implementation ExDerience

iv. Despite about one and a half years delay, overall projectimplementation was satisfactory. The project implementation delay was duemainly to: (a) the delayed appointment of the Study Consultant (para. 5.3);(b) protracted management decision processes within HMG/N's bureaucracy (para.5.4); (c) the lengthy and delayed review process involving India through themain and coordinating committees (para.5.5); and (d) the Study Consultant'sdifficulty in gaining access to basic data mainly from India (para. 5.6).

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Results

v. The project confirmed that the Karnali (Chisapani) MultipurposeProject (KMP) scheme (10,800 MW at a cost of US$ 5 billion in 1988 dollars) istechnically feasible and economically very attractive. However, the projeetdid not address the numerous financial and institutional issues associatedwith the development of a binational project of this size. These issues andthe project's macroeconomic impacts on the Nepalese economy vill be addressedunder a UNDP-financed Integration Study which may also involve India'sparticipation and is expected to start in 1992 or 1993 with IDA as theexecuting agency. IDA also plans to carry out sector work on Nepal-Indiapower trade issues starting in 1993.

vi. While the prefeasibility of the 240 MW run-of-river scheme upstreamof Chisapani has been established, fundamental questions concerning the weakgeology, dam foundations and sedimentation remain to be answered. Theseissues will be addressed through further site investigations to be carried outunder the proposed Upper Karnali feasibility study.

vii. The institutional arrangements devised to involve India in thesupervision of the study did not succeed in raising India's interest in theproject's development and in moving the project to the next phase of detailedengineering as was initially anticipated.

Findings and Lessons Learned

viii. The main lessons to be learned from the project are:

(a) for a binational project, more binding binational arrangements --probably in which both countries borrow and are obligated to IDA --should be considered (para. 8.3);

(b) the complex institutional, financial and macroeconomic aspects ofthe KMP development should have been part of the feasibility study(para. 7.3);

(c) a contracting philosophy of a Client/Consultant relationship, asopposed to an Owner/Contractor relationship, should be adopted forstudies where terms of reference and scope may change duringcontract execution (para. 9.1);

(d) to facilitate good working relationships, the compensation packagefor counterpart personnel provided to the Consultant should not betoo different from that of the local labor market from which theConsultant may hire local consultants (para. 6.3); and

(e) when IDA supports preparation of a binational project, arrangementsneed to be made to insure that IDA has an effective dialogue vithboth countries (para. 7.2).


NEPAL


PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Prolect Identity

Name : Karnali Preparation Project - Phase ICredit Number : 1452-NEPRVP Unit : South Asia RegionCountry : NepalSector : EnergySubsector : Power

2. Background

2.1 Nepal's energy resources consist mainly of hydroelectric potentialestimated to be around 83,000 MW, of which less than 250 MW had been developedby 1992. Traditional fuels, mainly wood, account for 93X of total energy use.Commercial energy (coal, petroleum products and electricity), which accountsfor 7% of total energy use, supplies industry, commerce, transport andresidential consumers in the main cities. Coal and petroleum products areimported from India as there is no domestic production or known reserves offossil fuels in Nepal.

2.2 About 9% of Nepal's population has access to electricity, andannual per capita consumption is about 25 kWh, one of the lowest in the world.Although electricity consumption grew at a rate of 18X in the 1970's and 9S inthe 1980's, the local market remains limited, and Nepal will not be in aposition to use a substantial amount of its hydroelectric potential in thecoming 40 to 50 years. On the other hand, the construction of medium andlarge projects with lower development costs (on a unit-cost basis) will not bepossible unless Nepal can export a substantial portion of the electricitygenerated to India, the natural customer for it. Electricity exports wouldnot only reduce the cost of internal consumption through economies of scalebut would also generate foreign.exchange to support development efforts inNepal. The substitution of Nepalese hydropower for coal-fired generation inIndia would also be environmentally beneficial.

2.3 The Indian power system is developing rapidly. In 1989 the totalinstalled capacity was about 50,000 MW, which included 19,000 MW for theNorthern India region and 8,500 MW for the Eastern India region, both of whichborder Nepal. Demand has continued to grow at a rapid rate (9-10% p.a.), andthe supply capability has not kept pace with growth in demand. As aconsequence, India has continued to suffer from very significant loadshedding.

2.4 It has long been recognized that one of the most promisingmultipurpose developments in Nepal would be a major hydropower project atChisapani on the Karnali River in Western Nepal. Before breaking through the

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last mountain range onto the Terai, the river has carved a 4 kilometers (km)long deep gorge which provides an ideal location for a high dam. In 1962, HisMajesty's Government of Nepal (HMG/N) obtained financial aid from UNDP for asurvey of the Karnali River potential. The studies, carried out by NipponKosi Co. Ltd. (NK) of Japan between December 1962 and February 1966,identified ten sites with potential varying from 18 to 1,800 MW. Among thevarious sites, the consultants recommended the development of a concrotegravity-arch dam with an 1,800 MW surface hydro plant at the upstream site ofChisapani.

2.5 NK's studies and recommendations were reviewed by the SnowyMountains Hydroelectric Authority (SMHA) of Australia in 1968 under a UNDP-funded contract with HMG/N. Further site investigations were recommended inparallel with the study of an alternative embankment dam at the downstreamsite and an increased installed capacity. In 1976 HMG/N hired two firms,Norconsult from Norway and Electrowatt from Switzerland, to carry out furtherstudies. Both firms concurred with SMHA's recommendation and proposed thodevelopment of an embankment dam at the downstream site with 3,600 MWinstalled capacity. Both of these earlier studies, however, viewed theChisapani project as a single purpose project, and no quantitative evaluationof potential irrigation in the Terai was carried out.

2.6 In view of the results of the studies, in 1978 HMG/N and theGovernment of India (GOI) established a high level joint committee, theCommittee on Karnali (CK), to promote bilateral discussions on the Karnali(Chisapani) Multipurpose Project (KMP). At its first meeting in 1978, theCommittee agreed to review the consultants' reports and the proposed projoct'seconomic and financial aspects. It was recognized that the first step wouldbe to carry out a final feasibility study of the project which would considerthe relative merits of the two alternative dam sites, assess the water-relatedbenefits, and ensure that the selected devolopment would be compatible withthe most likely development of the Karnali basin. In 1981 the CK also agreedthat this feasibility study would be carried out under joint supervision,mutually agreed terms of reference, and jointly selected consultants.Subsequently, IDA was invited to propose draft terms of reference (TOR) forthe studies of Chisapani. The draft TOR, completed in September 1981 andreviewed by both Governments, was the basis of appraisal of the project by IDAin February 1983.

3. Prolect Obiectives and Description

3.1 The project's main objective was to assess the economicjustification and technical viability of the KMP as a multipurpose project onthe Karnali River in Nepal, with India being closely involved in the study'ssupervision. The findings of the feasibility study of Chisapani would formthe basis on which India and Nepal would decide whether or not to undertakethe next phase, which would include detailed engineering, design andpreparation of bidding documents. The project was also to assess thoprefeasibility of a smaller hydroelectric project upstream of Chisapani (UpperKarnali), mainly for domestic use.

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3.2 The project consisted of:

(a) preparation of the final feasibility study for Chisapani includingall necessary engineering work to confirm the scheme's technicaland economic feasibility;

(b) prefeasibility of a proposed smaller project upstream of Chisapani(Upper Karnali); and

(c) provision of advisory consulting services to HMG/N for overallsupervision of the project.

The project also included the acquisition of equipment, materials andinstruments needed for site investigations as well as civil works related to:

- rehabilitation and maintenance of a 2 km runway and related airportfacilities at Tikapur, the nearest airport to Chisapani;

- construction, operation and maintenance of a heliport at KarnaliBend;

- rehabilitation and maintenance of about 25 km of access roads fromTikapur to Chisapani;

- construction of exploratory tunnels at Chisapani (about 800meters); and

- construction of temporary housing and office facilities atChisapani and Karnali Bend.

4. Proiect Design and Organization

4.1 Although the feasibility study was financed solely by Nepal, Indiawas to be closely involved through the Committee on Karnali in the selectionof the Study Consultant, supervision of the study, and endorsement of itsrecommendations. To advise the CK on technical matters regarding execution ofthe Chisapani studies, a joint technical committee, the Karnali CoordinatingCommittee (KCC), was established in 1984 with four technical staff appointedby each Government. The coordinating committee was to review the StudyConsultant's work and make recommendations to the CK on policy decisions.Further, an International Board of Experts was to be appointed to advise thecoordinating committee on specialized technical matters.

4.2 Nepal's Ministry of Water Resources was responsible foradministering the project. A Project Director, who reported to the Secretary,Ministry of Water Resources, was responsible for day-to-day administrativematters. He had to provide the logistic support and qualified counterpartpersonnel to the Study Consultant and served as a liaison between the partiesinvolved in the project. The studies under the project were carried out byHimalayan Power Consultants (HPC)1, in accordance with TOR approved by the CKin February 1984. Since Nepal did not have sufficient capability to executeprojects of the size and complexity of Karnali, HMG/N appointed independentconsultants, Overseas Bechtel Incorporated (OBI), to serve as its generalproject advisors. The project organization chart is given in Annex 1.

1/ HPC is a consortium of consultants which includes Acres (Canada), Ebasco(USA), Shawinigan (Canada) and SNC (Canada).

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4.3 The prefeasibility study of a smaller project upstream of Chisapani(Upper Karnali) was carried out by HPC under the supervision of the NepalElectricity Authority (NEA) and did not involve the CR since the project,unlike Chisapani, was intended mainly to supply the Nepalese domestic market.

4.4 The institutional arrangements were designed to involve India asmuch as possible in the KMP studies through the main and coordinatingcommittees because India would be the sole customer of the energy to begenerated by the KMP. However, the two committees did not function asefficiently as anticipated, and as a result, the two sides had conflictingviews on the project design and benefit evaluation. The Indian counterpartsin the coordinating committee did not endorse the methodology proposed by HPCof avoided cost for the evaluation of power benefits and denied that therecould be any irrigation benefits. HPC was, therefore, not provided access toall of the data needed for power planning in India and for irrigationdevelopments. Further, the Indian counterparts in the main and coordinatingcommittees raised reservations on some important project design features(para. 6.5) and were unwilling to agree that an International Board of Expertsbe appointed to review the study and provide an independent expert opinion onthe key design parameters.

5. Proiect Implementation

5.1 Credit 1452-NEP was approved on March 20, 1984, and signed on March22, 1984. The Credit was made effective on June 21, 1984, upon submission ofthe legal opinion since there were no special conditions for effectiveness.

5.2 At the time of appraisal, both the KMP feasibility study and theUpper Karnali prefeasibility study were expected to be completed by June 30,1988, and the Credit closing date was December 31, 1988. The studies wereactually completed in December 1989, almost a year and a half behind theoriginal schedule. This was due mainly to: (a) the delayed appointment of theStudy Consultant; (b) protracted management decision processes within theNepalese bureaucracy; (c) the lengthy and delayed review process involving themain and coordinating committees; and (d) the Study Consultant's difficulty ingaining access to basic data mainly from India. Further, the Project Unitadopted a rigid approach in administering the contract, placing all risksassociated with unavoidable delays and cost overruns with the Consultant.

5.3 In view of the contract's size (the original contract amount wasabout US$ 8.5 million), the project raised world-wide interest in theconsulting community, and a working group was set up within the Bank tomonitor the selection process. Following an invitation issued on May 28,1984, proposals were received from seven consortia of consultants representing23 major consulting firms from 11 countries. The proposals were evaluated bya joint Nepal-India technical group which ranked the consultant KarnaliConsultants Group (KCG)2 first and HPC second. The evaluation of theproposals by the OBI advisor, who took office in January 1985, reached adifferent conclusion and ranked HPC first. The results leaked outside, and

2/ KCG: Snowy Mountain (Australia), Harza (USA), Nippon Koei (Japan), andBinnie & Partners (UK).

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both consultants complained to the Bank. Political events in India in lato1984 prevented the KCC from meeting between October 1984 and April 1985.Following its own review, the coordinating co =ittee confirmed the OBIadvisor's recommendation, and on June 6, 1985, HMG/N notified IDA that theCommittee on Karnali had selected HPC for the studies and sought IDA'sconcurrence. However, in view of inconsistencies in the evaluation reportssubmitted by HMG/N, IDA decided to review KCG's and HPC's proposals. IDA'sevaluation concluded that both consortia scored about the same number ofpoints, and on November 1985, IDA gave its concurrence to HMG/N's selection ofHPC. It then took another six months for EMG/N to complete the negotiationswith HPC, and the contract was executed only on May 28, 1986, exactly twoyears after the invitation of proposals. Actual mobilization of HPC waseffective in June 1986.

5.4 The original contract for the KMP feasibility study wasoptimistically scheduled to be completed in June 1988, and all fieldinvestigations were to be carried out in one dry season. By March 1987, HPCrecognized the need for a Contract Variation because of delays of approval ofequipment procurement and subcontracts, unavailability of data on a timelybasis, extension of the project scope in relation to the scheme's installedcapacity, and introduction of a cost escalation budget not provided in theoriginal contract. Following protracted and lengthy negotiations, ContractVariation 1, based on completion of the project in December 1988, was finallysigned in July 1988. It was soon realized, however, that because of furtherdelays which had occurred, the project could not be completed in December1988, within the schedule and budget of Contract Variation 1. Protractednegotiations of Contract Variation 2 were held beginning in January 1989 andled to signing of Contract Variation 2 in July 1989, with project completionscheduled for December 1989.

5.5 The coordinating committee's supervision of the study turned out tobe too infrequent and too formal and bureaucratic; and the "positioningeffort" of each side prevented consensus even on technical matters. Theworking relationship within the coordinating committee was highly sensitive tothe political climate prevailing between the two countries. In particular,the coordinating committee did not meet during the Trade and Transit Dispute(March 1989 to April 1990). Although informal contacts were maintained duringthis period, India's final comments on the final draft reports were receivedonly in October 1990.

5.6 Lack of key data from India concerning power system planning andirrigation developments delayed execution of parts of the study. To completethe study, HPC had to use published data and make a number of assumptionswhich could be questioned. In view of the long-term planning horizon, theassumptions made on load growth, fuel cost, load factor, project cost andconstruction schedules necessarily include some risk and uncertainty. Anumber of sensitivity studies were carried out, however, to test therobustness of the study findings.

5.7 The prefeasibility of the Upper Karnali scheme was equally delayed,and the final report was issued only in December 1989. With the delayedissuance of the report, the Upper Karnali scheme was no longer the next mostattractive option since HMG/N had already committed itself to the Arun 3scheme, the detailed design of which was well underway.

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5.8 The delay in the execution of the studies, combined with HIG/Nhaving drastically reduced HPC's proposed staff time during contractnegotiations, resulted in the need to increase contractual amounts during thestudy's execution. In particular, the number of staff months included in thecontract to carry out satisfactory environmental and resettlement work wastotally inadequate, and HPC had to devote much greater staff time to thiscritical area. There were two Contract Variations with HPC and three withOBI. The cost increases were directly related to the increased level ofeffort and duration of the study as well as adjustment of consultant fees.For the KMP feasibility study, the level of effort deployed was almost 701greater than anticipated (560 staff months against 332 budgeted). Also,during the review process, HPC had to maintain a team of experts in Kathmanduover a longer period than planned to address the various comments from theKCC, IDA and HMG/N. Further, to respond to comments by IDA, additionalstudies were carried out to test the project's robustness under variousplanning assumptions concerning the Indian system, and an additional contracthad to be concluded with HPC (US$ 215,000 and NRa. 1.4 million).

6. Prolect Results

6.1 Overall the project achieved its specific objectives. The KMPstudy defined the optimum location and design of a viable scheme, resolvingthe issues raised in the two previous feasibility studies. Further, theConsultant should be given credit for having prepared a design which provid-ethree times the original capacity. This substantially enhances the project'spotential economic benefits through displacement of peak capacity in theIndian system. However, this led to adopting several design parameters atscales which generated reservations among the Indian counterparts, who lackedexperience with projects of the proposed scale. The optimized KMP schemerecommended in the study (10,800 NW at a cost of USS 5 billion in 1988dollars) is technically feasible and economically very attractive. Theoptimized project's main features are given in Annex 2. The study recommendeda 270 meter high embankment dam located at the upstream site of the Chisapanigorge; an underground powerhouse cavern for 18 units of 600 MW each; re-regulating facilities located 8 km downstream to provide uniform daily flowsfor irrigation from the highly variable flows of the DMP; and five 765 kVtransmission lines to connect to the Indian system 300 km away. Regulation bythe dam would provide a four-fold increase in dry season low flow withcorresponding increases in agricultural production. In order to construct theproject, however, it would be necessary to resettle about 60,000 people.Although not fully assessed yet, there may also be some loss of river habitatand encroachment on the Royal Bardiya Wildlife Reserve which is an area ofspecial environmental significance.

6.2 The project also established the prefeasibility of an attractive240 MW run-of-river scheme on the Karnali Bend upstream of the Chisapani site.However, unlike the KMP, the consultant did not carry out sufficient siteinvestigations to address the fundamental questions of the weak geology, damfoundations and sedimentation. These investigations would be carried outunder a proposed Upper Karnali feasibility study.

6.3 The project also achieved to some extent its objectives oftransferring knowledge and providing on-the-job training. The study was

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executed entirely in Nepal with wide participation by Nepalese engineers (upto 40 Nepalese for 22 expatriates). Problems were encountered, however, withthe timing and continuity of the counterpart staff provided. Further, thesystem of salary scales and incentive allowances for counterpart staff,compounded by differences with remuneration packages offered by HPC fordirectly hired local staff, contributed to problems in creating good teamworking relationships.

6.4 Unlike the previous studies, a major effort was made to assess theKMP's environmental impact and resettlement issues using local and expatriatestaff. Further work is needed, however, to firm up the baseline environmentalconditions to allow an authoritative assessment of impacts and mitigation.Some of the main outstanding environmental questions will be addressed in theBridging Studies which commenced in November 1991 under financing by theCanadian International Development Agency (CIDA). In addition, anenvironmental impact statement and resettlement plan would need to be preparedduring the detailed engineering phase of the MP's development.

6.5 The project did not succeed, however, in winning India's fullcommitment to the KMP, and a decision to proceed with the next phase (detailedengineering) is still uncertain. As yet, the feasibility study has not beenformally approved by the Committee on Karnali because of reservations raisedby the Indian counterparts on some KMP design features. These reservationspertain to:

(a) the dam height and size -- the full supply level (FSL) of 415meters with a 270 meters high dam is considered too risky; a lowerFSL is preferred with a smaller dam;

(b) the rate of sedimentation of 260 million tons per year estimated byHPC is judged excessive;

(c) the probable maximum flood of 63,000 cubic meters/second isregarded as too high;

(d) the underground powerhouse cavern's size is considered risky inview of the site's geological and seismic conditions; and

(e) there is no agreement on the methodology used to evaluate theproject benefits.

The Panel of Experts (para. .7.1) appointed by IDA to review the study did notraise such concerns and concurred that the proposed scheme is technicallyfeasible.

6.6 Despite these reservations, India is convinced that the KRP is avery attractive project which will be implemented at some time in the future.However, based on the latest meetings of the India-Nepal Sub-Commission onWater Resources, it seems that other projects, such as the PancheswarMultipurpose Project on the Mahakali River on the Nepal/India border, may beconsidered for development as well. Therefore, at the conclusion of the KMPfeasibility study, it is unclear whether India and Nepal are closer to signingan agreement to proceed with implementation of the KMP than they were beforethe study. In addition, further work (which has now been initiated under the

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Bridging Studies) is needed to confirm the project's environmentalacceptability.

7. Bank Performance

7.1 At the identification stage, the Bank devoted great efforts toconvince Nepal and India to undertake the KMP final feasibility study as afirst phase of the KMP's development. The Bank drafted the terms of referenceand assisted in finalizing the institutional arrangements for jointsupervision of the study. Using a trust fund, the Bank appointed a Panel ofExperts which provided detailed comments on the study.

7.2 The Bank recognized at the outset that Joint development of largeexport-oriented projects would face difficulties in agreeing how the projectshould be developed and the benefits shared. During supervision, the Bank'srole was more focused on the progress of the study itself rather than on theNepal-India interactions. The Bank's role as an intermediary "honest broker"was made more difficult by the split of internal responsibility for Nepal andIndia into two separate departments. To play an effective intermediary role,the Bank needed to communicate with both countries at the highest level, andthe management of the project from only one country department may not havebeen as effective as it might have been under the pre-1987 Bank organizationalstructure. However, the Bank could not have anticipated the souring ofpolitical relations between the two countries, and an even more intensive Bankdialogue with India would not have achieved much during a period of suchstrained relations.

7.3 Resolution of the complex technical, financial, institutional,legal and riparian rights issues of large hydro projects in Nepal to bedeveloped for export to India is complicated by the asymmetrical economic andpolitical relations between the two countries. While most of the technicaland engineering aspects of the KMP scheme have been satisfactorily coveredunder the feasibility study, the institutional and financial aspects as wellas the macroeconomic impact on Nepal have yet to be addressed. Theseimportant issues, which should have been part of the feasibility study, arethe subject of a UNDP-financed Bank-executed Integration Study which mayinvolve GOI's direct participation and is expected to commence in 1992 or1993. IDA also plans to carry out sector work on Nepal-India power tradeissues starting in 1993.

8. Borrower Performance

8.1 At the beginning, the project suffered from protracted delays inselecting the Study Consultant. Once the Consultant was selected, it tookanother six months of negotiations to finalize the contract, which isexcessive. The project also suffered from poor communication with theConsultant, leading to unresolved contractual and payment matters whichadversely affected the working relationship and forced Consultant staff tospend time on unproductive activities. The Project Director's replacement inFebruary 1989 greatly facilitated the resolution of all contractual matters indispute and improved the working relationship.

8.2 The handling of relations with India was critical to the project'ssuccess. While the coordinating committee held eight meetings between 1984

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and 1992, this was not enough; and more importantly, the meetings were tooformal, and the two sides did not seem to share a comnon goal for the project.In binational projects, it would be preferable to agree on a formula forsharing the benefits before engaging jointly in major studies. Further, Nepaldoes not seem to have a clear strategy for marketing its high potential hydroresources. Learning from past experience, Nepal should be more aggressive inselling its hydropower and integrating its power system with India.

8.3 The institutional framework adopted for the study gave India theright to review and criticize without having any significant responsibility.Nepal had to borrow the funds and satisfy IDA, whereas India could delaymeetings and offer cavalier criticisms at will. The lesson is that in suchcircumstances more binding binational arrangements -- possibly in which bothcountries borrow and are obligated to IDA -- should be considered.

9. Proiect Relationships

9.1 HMG/N adopted a contracting philosophy of an Owner/Contractorrelationship rather than a Client/Consultant relationship during contractnegotiations and continued this approach during contract execution. Thisatmosphere, combined with HMG/N's policy of attaching personal financialliability to HMG/N staff, tended to shift all schedule and cost overrun risksto the Consultant and contributed largely to the delayed and protracteddecision-making process. This is not desirable in contracts where terms ofreference and scope may change during the contract. The project's success,however, is a result of the catalytic role of the consultant OBI and theeffective working relationship between the Bank and HMG/N and the variousconsultants. Another contributing factor was the high professionalism of theparties involved, particularly on the part of the consultants HPC and OBI.The Bank failed, however, to maintain the dialogue with India on the KMPproject as it did during the preparation stage. Also, Nepal and India's"positioning efforts" during coordinating comittee meetings did notcontribute to the resolution of issues at hand.

10. Consulting Services

10.1 The high technical quality of the KMP feasibility study was theresult of the level of effort, expertise and quality control devoted to theproject by the consultants. In addition to the review provided by OBI and theBank, HPC appointed an internal panel of experts to review the main criticaldesign areas. Although the project's technical feasibility cannot bequestioned given the amount of investigations and thorough analysis carriedout under this study, some project features are unprecedented in South Asia.Perhaps in part for this reason, despite a high level of dedication, HPC didnot succeed in winning the Indian counterparts' agreement on the merits of theKMP design features.

11. Prolect Documentation and Data

11.1 The Credit Agreement was adequate and appropriate for achieving theproject objectives. Since it was a technical assistance project, there was noStaff Appraisal Report but the project data base was adequate for thepreparation of the PCR.

PROJECT ORGCANISATION

Karnali (Chisavani) KultipurDose Ipper Karnali HydroelectricProiect Project

| ZEP^ | |IUDIA |

COWITTEE ONKARNALI

1. LEGAL ADVISER NINISIR OF NEPAL ELECTRICITY

UATER ESOURCES I AUTNoRln

2. FINANCIAL ADVISER Ka rnwf Co-Ordinatfng Committee

ADVISER CNSULTAIT

PROJECT DIRECTOR Overse B chtel Inc. PROJECT MANAGERLEAD ADVISER

INTERNAL SlIDY OUNSJLTANT

TECHNICAL COORDINATING . Himilayn

AND ADVISORY COIUITTEE Power Consuttants

|AD141MISTRATION SECTION FIELD OFFICE HNICAL SECTION TECHNICAL SECTION ADMINISTRFIELD OFFICEAND TECHNICAL AND TECHNICAL

ADMINISTRATION ADMINISTRATION

GENERAL A STRATI ri

ADMINISTRATION O]>

- E11 -ANNEX 2

Chisapani Project Summary Statistics

Location- at Chisapani on the Karnali River in western Nepal 600 km west of Kathmandu, 500 km east of Delhi

Purpose- hydro power, primarily for export to India, and flow regulation for increased irrigated agriculture and

flood control in both India and Nepal

Hydrology- drainage area - 43 679 km2

- average tlow - 1389 m3/s

Reservoir- full supply level (FSL) - 415 m, above sea level (asl)- average tailwater level - 203 m, asi- drawdown - 60 m- surface area (at FSL) - 339 km2- live slorage - 16.2x109 m3 (37% of average annual runoff)

Dam- type - gravel till wilh central core- crest elevation - 445 m, asi- maximum height - 270 m- embankment volume - 45x1 Of m3

Power Facilities- location - left bank. underground- capacity - 10 800 MW installed (9000 MW firm)- units eighteen 600-MW units (500 MW at

minimum operating level of reservoir)- average energy - 20 842 GWh/yr

Reregulating Facilities- location - 8 km downstream from Main dam- reservoir - 100x106 m3 live storage- dam - 6-km long embankment (maximum height-24 m)- power plant - six 14-MW units

Transmission Facilities- five 765-kV lines from Chisapani power plant to India, 300 km long- one 22G-kV line from Reregulating power plant to India, 160 km long

Irrigation- potential in Nepal - 191 000 ha net- potential in India

Sarda Sahayak - 2 OOO 000 ha grossSaryu - 1 200 000 ha grossrotal - 3 200 W0 ha gross

(Project provides supplemental water to existing and committed irrigation developments in India.)

Costs (1988)- capital cost - US $4.890 million- economic cost (November2003) - US $6,808 million- equivalent economic unit costs - US $630 AW (3.3 tAkWh)

Economic Evaluation (at 10% discount rate)- gross economic benefits (November 2003) - US $16,780 million- net economic benefits (November 2003) - US S 9,972 million- benefit/cost ratio - 2.46

- 12 -


NEPAL


PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

The Government's contribution to the PCR was prepared by the Karnali(Chisapani) Multipurpose Project Office under the WinIstry of Water Resouues.The text below is as received from the Borrower; its contents are notattributable to IDA. Footnotes 1-6 have been added by IDA to clarify certainpoints in the text.

.1 Proiect Identity

Name Karnali Preparation Project - Phase ICredit No. 1452 - NEPExecutingAgency Ministry of Water Resources, HMG/NImplementingOffice Karnali (Chisapani) Multipurpose Project, KathmanduSector Power

2. Background

2.1 Nepal, a comparatively small nation with a territory of 147,181 kI2and population of around 20 million has boen highly endowed by nature withimmense water resources. More than 600 small and big rivers flowing throughher territory from north to south and contained in three major river basins -Mahakali and Karnali, Gandaki and Koshi - generously offer the opportunity todevelop around 83,000 MW of hydroelectric potential along with the vastpossibility of developing irrigation and other uses. Nevertheless, due topoor economy and the preliminary stage of technological development, only lessthan 1% of the potential has been harnessed so far.

2.2 HMG/N has been developing and planning micro hydel plants up to1,000 - 2,000 kW capacity in the rural hilly areas of the country. Smallscale hydel plants of 50 - 100 MW capacity and medium sized projects of 250 -1,000 MW capacity are also under planning to meet the internal power demand ofthe country. Whereas, mega project developments of multipurpose nature(power, irrigation, flood control, end navigation) on large rivors likeMahakali, Karnali, Sapta Gandaki end Sapta Koshi are being envisaged for bulkpower export to India which is the only market. The demand of loectricity inrural terai areas is being met through the distribution network of nationalpower system and operated by Nepal Electricity Authority.

2.3 Karnali river at Chisapani offers a unique location for amultipurpose development of mega scale. The feasibility of the project hasbeen studied three times, the latest being completed in 1990 by HimalayanPower Consultants (HPC), a consortium of three Canadian and one Americanconsultants. The previous two studies were conducted by Nippon Ko-i (NR) ofJapan during 1962 - 1966 and Norconsult of Norway and Electrowatt ofSwitzerland during 1976 - 1978. While the first two studies viewed theproject as a power generation project only with an installed capacity of 1,800and 3,600 MW respectively, the last study by HPC had explored the multipurposeaspects of the project.

- 13 -

2.4 The feasibility study of Karnali (Chisapani) Multipurpose Project(KMP) was financed by the World Bank under a loan agreement between HMG/N tndWB1 under credit number 1452-NEP for an amount of 10.2 million SDR. Theinitial contract amount of the.HPC was 7.8 million SDR which was raised to9,127,603.26 SDR due to time extensions for the consultants and amendment inthe initial scope of work.

2.5 Although the cost of the feasibility study was solely borne byNepal, India has been participating in its supervision through policy levelCommittee on Karnali (CK) constituted in 1978 and the technical level KarnaliCoordinating Committee (KCC) constituted in 1984 consisting of both Indian andNepalese technical and administrative officers.

2.6 A total amount of 10,148,368.30 SDR inclusive of the reimbursedamount of 93,897.39 US $ for local coverage of costs spent from the loanamount. A sum of NRa 75,153,344.00 was also contributed by HMG/N as localcomponent to conduct the study.

2.7 The project also included the prefeasibility study of Upper KarnaliHydroelectric Project (UKHP) a run-of-river hydroelectric scheme of smallersize upstream of the Chisapani reservoir for Nepal's internal use.

3. Oblective

The basic objective of the project was to study in detail all thetechnical aspects of KMP and assess its technical viability and economicattractiveness along with identification of its scale of development andbenefits that could be derived from the implementation of KMP. This wouldserve as a basis for Nepal and India to negotiate the possible implementationof KMP jointly.

4. Scope of Work

The project consisted of following scope of works:

4.1 Preparation of a detailed feasibility study of the ChisapaniMultipurpose scheme including field investigations, mapping and otherengineering works in the form of a set of technical reports along withrecommendations on the technical viability and economic attractiveness of thescheme.

4.2 A prefeasibility level study of a medium size run-of-river schemeupstream of Chisapani - Upper Karnali Hydroelectric Project (UKHP).

4.3 Procurement of necessary equipment, materials and instruments tocarry out investigations and other relevant civil works as needed.

1/ World Bank.

- 14 -

5. Proiect Oraanization

5.1 MWR, HMC/N2 was responsible for the implementation of the projectthrough the Karnali (Chisapani) Multipurpose Project Office working under it.Participation of India was facilitated in the supervision of the study throughCR taking policy decisions based on reporting of KCC, a committee of technicalstaffs appointed by Government of India (GOI) and HMG/N.

5.2 An independent advisory consultant, Overseas Bechtel Inc (OBI)served as a project advisor to the Karnali (Chisapani) Multipurpose Projectduring the execution of the study.

5.3 HPC carried out the detailed feasibility study of KMP under thedirect supervision of the RMP office. HPC also carried out the prefeasibilitystudy of UKHP under the supervision of NEA.

5.4 Nepalese counterpart engineers were deputed to HPC to work with theexpatriate personnel in different disciplines in order to facilitate transferof technology and to coordinate different activities envisaged in the scope ofwork.

6. Proiect Implementation

6.1 The Credit 1452-NEP was made effective on June 21, 1984. Thedecision of HMG/N and GOI through CR to entrust HPC to carry out the detailedfeasibility study of KMP was made in May 1985. The contract agreement withHPC was signed in May 28, 1986. The study was initially scheduled to becompleted in June 30, 1988. However, the study was completed only in December1989 and full set of final reports were delivered to KMP office in February1990. Lack of constructive inter relationshiR between KMP office and HPCduring the first period of execution of the study and lack of promptness indecision making from the HMG/N and RIP administration caused the delay.

6.2 Agreement for conducting the prefeasibility study of UKHP wassigned between NEA and HPC in May 1986 and the study was also scheduled to becompleted by June 30, 1988. However, the study was completed only in December1989. It would appear that frustration of the consultants due to non paymenton time for Chisapani study works resulted in lack of sincerity of theconsultant to complete this study on time, although it was administered not byRMP office but by NEA project manager.

7. Study Results

7.1 Final conclusions of the feasibility of the Chisapani Project hasshown that an economically attractive multipurpose scheme can be developed atChisapani with a 270 m high embankment dam and an underground powerhouse of10,800 MW capacity. As a peaking station, KMP would generate a total of20,842 GWh of average energy annually. The project would also provide

2/ Ministry of Water Resources, HMG/N.

- 15 -

irrigation facilities for 192,000 hectares3 of new command area in Nepal andfor additional irrigation development of existing 3.2 million hectares of landin India besides providing some flood control and marginal navigationbenefits. The project would cost 4.89 billion US $ at 1988 price and generatea net economic benefit of around 10 billion US $, that could be shared byNepal and India. The study also indicated a high benefit-cost ratio of 2.46for the project.

7.2 The prefeasibility study of UKHP indicated that given to thetopography of the site an economically very attractive run-of-riverhydroelectric scheme with an installed capacity of 240 MW can be developed atan estimated cost of 365 million US $ including access road (about 65 km) andmore than 200 km of 220 kV transmission line up to main load conters in Nepal.

7.3 In spite of the high quality of the feasibility report, highstandard of methodologies applied, critical and scientific analyses of projecteconomics, detailed study of relevant technical aspect. of the project, theIndian side has expressed reservations on the project parameters recommendedby HPC and the methodologies and quantitative evaluation of benefits derivablefrom the project. This has questioned the project development and moving intothe detailed engineering and design phase. This is mainly because of Indiavisualizing KMP from the traditional viewpoint of developing large projects inIndia internally and ignoring its international dimensions and undermining therole of KMP in Indian system in spite of the acute power shortage in theIndian system, which can be met only by undertaking more costly alternatives,basically the thermal plants. Further, the Indian side has always maintaineda position of scaling down the project, turning it into more as a hydropowerproject (sic) and has always shown their unwillingness to accept the rationalof evaluation and sharing of all logical benefits that may be derived from theproject.

8. Development Impact

8.1 The project has resulted in developing technical skills of about 30to 40 Nepalese engineers. Many Nepalese local consultants were bonefitted inacquiring technical knowledge from the consultant. High level decision makersin HMG/N have acquired pretty good knowledge of diversities, complexities andmagnitude of administrative and technical works to be handled whileundertaking a feasibility study of a mega project.

8.2 Although Nepal was not fully successful in securing the commitmentof India for immediate undertaking of the project the interaction of highlevel HMG/N officials with the concerned Indian counterparts have been veryuseful for Nepal to understand and evaluate India's attitude towardsdevelopment of this binational mega scheme. This can be well applied innegotiating other mega projects with India. The content of the feasibilityreports, specifically the statistical information and methodologies applied inthe feasibility study will serve as a very useful basis for planning powerdevelopment in Nepal for quite a foreseeable future. Project advisory

3/ Feasibility study gives a figure of 191,000 hectares.

-16 -

consultant OBI has played appreciable role in guiding the KMP office for thesuccessful completion of the project.

9. Lessons Learned and Recommendations

9.1 Contract negotiations between HMG/N and HPC took unusually longperiod of around six months which delayed the commencement of the feasibilitystudy.

9.2 It has been realized that a very healthy working inter relationshipbetween the client and the consultant must be maintained for smooth and timelycompletion of the study.

9.3 The WB should have played more effective role and paid more atten-tion towards resolving the difference of opinion between the consultant plusthe Nepalese side and the Indian side. In this regard a steering committeeconsisting of representative of the Bank, EHG/N, GOI and the consultant toreview the progress of the study and quick resolution of the differences ofopinions might have been useful. The Bank should consider this for futureinvolvement of the Bank in moving the Karnali Project towards Phase II.

9.4 The interaction between the KMP office and concerned Indiancounterparts was poor due to several reasons. Exchange of views with theIndian officials could be made only in the CK and KCC meetings which used totake place after long gaps. This has contributed to non resolutions ofseveral issues.

9.5 HPC expatriates were not always accommodative towards India'srequest for making some complimentary studies and failed to win the goodwillof the Indian officials.

9.6 In future studies or Phase II works of KMP, Indian involvement bothtechnically and financially and joint day to day administration of theactivities might be fruitful. However, their commitment for openness,exposure of information, allowances for reasonable compromise on importantissues and timely response should be secured.

9.7 In the KMP administration, only technical personnel as counterpartshave been provided with hardship allowances. Accounts and administrativeofficials were being provided only their regular salaries. This has reducedthe internal efficiencies of the project management. Provisions for suchallowances should be considered.

9.8 The prefeasibility study of the Upper Karnali Hydroelectric Projectwas completed in December 1989. A 240 MW run-of-river hydroelectric schemewas found very attractive. This project has a special significance, becauseof (i) no hydroelectric scheme has been developed so far in the Far WesternRegion of Nepal, (ii) it can supply construction power for Chisapani andPancheswar projects, and (iii) it can significantly help socio-economicpromotion of the area. A Terms of Reference (TOR) on the feasibility study ofUKHP was developed by KMP in 1990 and had been approved by the Bank. It

- 17 -

indicated a total requirement of 2.2 million US $ (at 1990 price level) tocomplete it.

9.9 In all the missions between June 1990 and June 1991 of the WB toNepal, the Bank had been consistently recommending and encouraging HMG/N torequest for financing the feasibility study of this project. HMG/N made arequest to the Bank in September 1990, but the Bank has not yet responded toit. HMG/N is very eagerly awaiting for the Bank's positive response to it.4

10. Other Matters

10.1 A summary of statistical information on credit disbursements,project costs and financing etc. are given in Part III of the PCR. Theseinformation were found to be adequate.

10.2 In item number 7 "Status of Covenants" of the Part III of the PCR,there is a remark on delay of audit reports. The delivery of audit reportswere delayed due to auditing procedures of HMG/N in spite of prompt actionstaken by the Project to complete them on time.

10.3 The Bank's views and analysis contained in Part I of the PCR areagreeable to KMP. Moreover, the relationship between the Bank and theBorrower right from the beginning of the study has been always encouraging andproductive.

11. Bridzina Studies

11.1 A program of studies including data collection/collation around thedam site consisting of hydrometric, sedimentation and seismic measurements aswell as environmental impact studies is currently undergoing with theassistance of Canadian International Development Agency (CIDA) and is beingconducted by HPC. However, another important study related to theresettlement of population around the Chisapani reservoir area still needs tobe undertaken for a better assessment of socio-economic impacts of theproject. These studies being taken up as a bridging activities between PhaseI - Feasibility Study of and Phase II - Detailed Engineering and Design work.of the project are very important for accurate establishment of designparameters of the project as well as for the more detailed analysis of socio-economic and environmental impacts both in Nepal and India. Continuation ofthese studies is felt essential and HMG/N is looking for arrangement ofadditional financing to complete these studies from the donor agencies. Inaddition, study on irrigation development in Karnali command area in Nepal andsome complimentary studies related to the resolution of the feasibility studyissues specifically those raised by the Indian side also need to be completed.The cost requirement for these studies under a package titled "BridgingStudies - Phase 2" will be from 1.5 M US $ with irrigation development and 3.5

4/ The Bank advised HMG/N in early 1992 of its willingness to finance thefeasibility study under the ongoing Third Technical Assistance (Pancheawar)Project (Cr. 1902-NEP) and/or the recently approved Power Sector EfficiencyProject (Cr. 2347-NEP).

- 18 -

M US $ inclusive of irrigation development in Karnali command area of 192,000hectares (sic).

12. Integration Studies

12.1 The scope of detailed feasibility study of KMP did not includeanalysis of the issues related to Financial, Institutional/Contractualarrangements for the implementation and operation of the project as well asissues related to the role of KMP in Indian and Nepalese power systems,assessment of benefits and macro economic impact of the project in the contextof Nepal's economy. These studies called "Integration Studies" are beingfinanced by UNDP with WB acting as executing agency and KMP officecoordinating as implementing agency.5

12.2 Better part of these studies can be conducted solely by Nepalwhereas analysis of KMP in the Indian power system along with assessment ofpower, irrigation and flood control benefits requires Indian participation forobtaining more accurate results of the analysis for better appreciation offinancial, institutional/contractual arrangements both by Nepal and India.HMG/N intends to contact GOI in this regard. It is realized that both WB andUNDP could play a role of "third good will party" to coordinate the matterbetween HMG/N and GOI.6

13. Concluding Remarks

13.1 KMP, if materialized, will be the largest hydro development in theIndian subcontinent and one of the ten largest projects in the world. Byvirtue of its location in Nepal and market availability of generated energy inIndia (sic), it is a binational project between Nepal and India. It willrequire a huge investment of around 6 billion US $ by the time of itscompletion. A scheme of such a nature and magnitude naturally requiresresolution of cost and benefit sharing issues between Nepal and India and alsoa strong and effective organization to manage its construction along witharrangement of finances and commercial arrangements etc. As such it isadvised that all concerned parties continue their best efforts to keep theproject moving on.

5/ Issues related to the role of KMP in the Indian and Nepalese power systemsand assessment of benefits were addressed in the feasibility study of the KHP.However, access to the data needed for power planning and irrigation develop-ments in India was limited in the feasibility study (paras. 4.4 and 5.6 inPart I), and it is intended to strengthen these aspects of the analysis in theIntegration Study.

6/ Based on the "lessons learned" under the present project vis-a-vis theimportance of India's direct participation in studies of binational projectssuch as the KMP (para. 8.3 in Part I), it was agreed in March 1992 that, as afirst step, HMG/N would approach GOI about its possible participation in allaspects of the Integration Study.

- 19 -


NEPAL


PART III: STATISTICAL INFORMATION

1. Related IDA Credits

Credit Purpose Year of Status Comments

No. Approval

Cr. 600-NEP Help expand 1976 Completed 21 month delay

Kulekhani the hydropower in 1982 and 80Z cost

Hydroelectric generating overrun

Project capacity(2 x 30 MW)

Cr. 1478-NEP Provide generation 1984 Hydroplant Physical

Harsyangdi capacity up to commissioned implementation

Hydroelectric 1993 in February successfulPower Project 1990 NEKA financial

(3 x 23 MW) performanceunsatisfactory

Cr. 1902-NEP Carry out field 1988 Under

Third Technical investigation for implementationAssistance the Pancheswar(Panch-swar) Multipurpose ProjectProject Finance studies and

TA in the powersector

Cr. 2347-NEP Increase NEA's 1992 Not yet signed/Powor Sector effective supply effective

Efficiency capacityProject Strengthen NEA's

financial/institutionalperformanceEnhance energyconservation measures

- 20 -

2. Project Timetable

Item Date Date DataPlanned Revisod Actual

Identification (Executive - - 03/03/82Project Suinary)

Preparation Hission - - 06/82

Appraisal Hission - - 02/22 - 03/05/83

Crodit Negotiations (Completed) - - 05/30/83

Board Approval - - 03/20/84

Credit Signature - - 03/22/84

Credit Effectiveness 07/84 _ 06/21/84

Credit Closing 12/31/88 12/31/89 12/31/90

Credit Completion 06/30/88 06/30/89 06/30/90

- 21 -

3. Credit Disbursements (US$ Million)

Estimated Actual Actual as aIDA Fiscal Year Cumulative Cumulative % of Estimate

June 30, 1985 4.5 0.14 3%

June 30, 1986 9.5 2.15 23%

June 30, 1987 10.5 3.41 32%

June 30, 1988 11.0 6.98 63%

June 30, 1989 11.0 9.77 89%

June30, 1990 11.0 12.66 115%

Final disbursement was made on November 13, 1990, bringing the totaldisbursement to SDR 10,148,368.30. SDR 44,452.16 was undisbursed asof December 31, 1990 and was cancelled as of that date. SDR 7,179.54undisbursed in the Special Account was refunded to the Credit account asof August 8,1991 and was cancelled as of that date.The increase in the amount of the Credit expressed in US$ equivalent Is dueto appreciation of the SDR relative to the USS.

4. Proiect ImDlementation

N.A.

-22-

5. Project Costs and Financing

A. Project Costs(USS Million)

Appraisal Estimate Actua

Foreign ForeignLocal Exchange Local Exchange

Expenditure Categoro Costs Costs Total Costs Cot TotlI

1. Consulting Services(a) For the Studies 1.2 5.6 6.8 2.17 10.99 13.16(b) HMG/N Advisors 0.1 0.6 0.7 0.07 1.12 1.19

2. Equipment and Tools 0.3 0.5 0.8 0.07 0.20 0.27

3. Miscellaneous Constructlon 0.8 2.3 3.1 0.09 0.11 0.20

4. Operation ExpensesProject Office 0.4 0.1 0.5 0.02 * 0.08 0.10

5. Contingencies 0.4 1.7 2.1

6. Taxes and Duties 0.6 0.6

Total Cost: 3.8 10.8 14.6 2.42 12.50 14.92

Includes local taxes.Additional drilling equipment costing the equivalent of about US$660,000was provided by CIDA (Canada) in the form of a grant.

B. Financina Plan(USS Million)

Planned Actua

Sources IDA HMG/N Total IDA HMG/N ioail

Foreign 10.8 10.8 12.5 12.5

Local 0.2 3.6 3.8 0.1 2.3 2.4

Total: 11.0 3.6 14.6 12.6 2.3 14.9

* Additional drilling equipment costing the equivalent of about US$660,000was provided by CIDA (Canada) In the form of a grant.

- 23 -

6. Prolect Results

A. Direct Benefits : N.A.

B. Economic Impact : N.A.

C. Financial Impact : N.A.

D. Studies : The project was a technical as-istance projectconsisting of a feasibility study and aprefeasibility study as discussed in the textof the PCR.

7. Status of Covenants

Brief Description Section Conformity Remarks

1. The Borrower to furnish DCA 4.01(ii) No Although the period was increasedwithin nine months after to 12 months (amendment of March 8,the end of each fiscal 1989), the audit r port of theyear a certified audit project accounts certified by thereport of the project AuditorGCeneral was always receivedaccounts. beyond the deadline. The audit

incLuded the verification of theuse of funds from the SpecialAccouint.

8. Use of Bank Resources

A. STAFF INPUTS*

Stage of Proiect Cycle Actual CQmmts

Through Appraisal 42.8 sw Includes 5.7 LOP

Appraisal through Board 9.2 sw IncLudes 6.1 LOP

Supervision 75.5 Sw Includes 2.2 PAD

Project CompLetion Report 2.4 sw

TOTAL : 129.9 sw

* Local higher level staff and local consultants discounted at 4:1 ratio.

- 24 -

6. MISSIONS

Stags of Month/ Number of Days in SpecializatIon Psrfoc* Type ofProeif yct Yea nr Persons Field Reresented Probles

(of whichis KarnaLi)ZY

Through Aoraisat

Preparation 06/82 1 Engineer

Appraisal 02/83 1 13 Engineer

Sucervision

Supervision 1 06/84 1 4 Engineer 1


Supervision 3 06/86 3 14 Engineer (2) 1 Financial(4) Financial Analyst


Supervision 5 03/87 2 5 Engineer 2Financial Analyst

Supervision 6 01/88 4 20 Power Engineer (2) 2(5) Financial Analyst

Consultant

Supervision 7 06/88 2 14 Power Engineer 2 Financial(6) Financial Analyst


Consultant


Economist

Supervision 10 11/89 6 11 Power Engineer (3) 2Financial AnalystEconomistConsultant


Supervision 12 11/90 3 13 Power Engineer 2 Issue of reports delayed(3) Financial Analyst

Economist

/ 1 - Problem free or minor problems; 2 -Moderate problems; 3 - Major problem.

2 Conbined mission with other projects.

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