Nepal - Kathmandu Tourism Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No'. 2574 PROJECT PERFORMANCE AUDIT REPORT NEPAL KATI14ANDU TOURISM PROJECT (CREDIT 291-NEP) June 29, 1979 Operations Evaluations Department 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.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT NEPAL KATHMANDU TOURISM PROJECT (CREDIT 291-NEP) Table of Contents Page No. PREFACE ii PROJECT PERFORMANCE AUDIT BASIC DATA SHEET iii PROJECT PERFORMANCE AUDIT MEMORANDUM (HIGHLIGHTS) 1 - 2 BORROWER COMMENTS RECEIVED THROUGH RESIDENT REPRESENTATIVE 3 ATTACHMENT I: PROJECT COMPLETION REPORT I. Introduction 5 II. Sectoral Background 5 III. Project Preparation and Appraisal 6 IV. Project Implementation and Cost 8 V. Organization and Management 11 VI. The Khumbu Valley Tourism Study 12 VII. Financial Status 12 VIII. Economic Evaluation 15 IX. Conclusions 15 ANNEXES ANNEX I: Table 1: Actual and Estimated Projected Implementation 17 Table 2: Comparison of Appraisal Estimates, Revised Estimates and Actual Project Costs 18 Table 3: Statement of Expenditures -- Yak and Yeti Hotel 19 Table 4: Comparative Disbursement Schedule 20 ANNEX II: Visitors to Nepal 21 ANNEX III: Assumptions on Operating Projections for the Yak and Yeti Hotel 22 Table 1: Yak and Yeti Hotel -- Pro-Forma Income Statement 23 Table 2: Yak and Yeti Hotel -- Pro-Forma Balance Sheet 24 Table 3: Yak and Yeti Hotel -- Pro-Forma Cash Flow Statement 25 ANNEX IV: Economic Costs and Benefits Streams 26 Map: Nepal -- Kathmandu City 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.  - ii - PROJECT PERFORMANCE AUDIT REPORT NEPAL KATHMANDU TOURISM PROJECT (CREDIT 291-NEP) Preface This report presents a performance audit of the Nepal Kathmandu Tourism Project, for which Credit 291-NEP in the amount of US$3.2 million was closed fully disbursed in December 1977. It consists of a memorandum prepared by the Operations Evaluation Department (OED), and a Project Com- pletion Report (PCR) prepared by the Bank's Tourism Projects Department. OED has reviewed the PCR against the Appraisal and President's Reports and has found that it covers in a comprehensive way the issues arising from the implementation experience. On the basis of this limited review process, OED accepts the findings contained in the PCR and sum- marizes them in the audit memorandum. No mission was undertaken for this project by OED staff. In or- der to obtain Borrower views, a draft of this report was sent to Nepal but the Borrower indicated that it had no comment. The Borrower's reply is attached as an annex to the audit memorandum.  - iii - PROJECT PERFORNANCE AUDIT BASIC DATA SUE NEPAL KATHMANDU TOURISM PROJECT (CREDIT 291-NIP) Actual or Original Current Item Plan Estimate Total Project Cost (US$ Million) 6.6 5.a Overrun (%) _/ Loan Amount (US$ Million) 4.20 3.20 Disbursed 4.20 3.20 Cancelled - 1.00 Repaid to 12/78 0 Outstanding to 12/78 - 3.20 Date Civil Works Completed 6/74 10/74 Proportion actually completed by above date - 99! Time over-run (1) 170% Economic Rate of Return (I) 20 15 Cumulative Estimated and Actual Disbursements $ Millions) FY73 FY74 FY75 FY76 FY77 FY78 (i) Actual - - 0.1 0.9 2.8 3.2 (ii) Estimated .64 3.1 3.9 4.2 - - OTHW PROJECT DATA Actual or Original Current Item Plan Estimate First Mentioned in Files 6/70 6/70 Government's Application Negotiations - 11/15/71 Board Approval 3/14/72 Loan Signature - J/22/72 Effectiveness 8/01/72 11/09/72 Closing Date 9/30/75 12/31/77 gorrower WSg- of gpal Pollow-on Project . Mone" UgSSIOW DATA No. of No. 6f Purpose Mouth/Year Days/b Persons /c manweeks Report Date Preappraisal 1/71 11 1 1.6 2/05/71 Appraisal 7/71 7 3 3.0 8/11/71 4.6 Supervision I 5/72 7 1 1.0 5/31/72 Supervision II 10/72 12 3 5.1 11/27/12 supervision III 3/73 3 S 1.3 4/11/73 Supervision IV 8/73 7 3 3.0 10/01/73 Supervision V 2/74 3 2 0.8 3/15/74 Supervision VI 7/74 6 2 1.7 8/20/74 Superviedon VII 11/74 6 3 2.6 12/05/74 Supervision VIII 4/75 7 2 2.0 6/03/75 Supervision IX 6/75 7 3 3.0 7/31/75 SupervisAnn X 9/75 5 1 0.7 9/29/75 Supervision XI 11/75 7 2 2.0 12/19/15 SuperviaAon XII 4/76 7 1 1.0 5/25/76 Supervision XIII 9/56 6 3 2.6 10/07/76 Supervision XIV 2/77 8 2 2.2 4/07/77 Supervision XVI 6/77 10 3 4.3 8/05/77 Supervision XVI 3/78 3 1 0.4 3/22/78 CU11CY NpqgWf RAM Name of Currency Nepalese Rupee (NRS) Appraisal Year 1971-1973 1974 US$1.00 - NRS 10.1 1975 US1.00 - NRS 10.5 1976 US$1.00 - BRS 12.45 7-1978 US1.00 - NRS 15.50 US$1.00 * MRS 14.475 La The original project Imelm"~ construction and refurbishing the Hotel de ltAnuaputona, a8t01eG*Aft Vbith wee deleted in 1976. At apprainal,ache Yak and Yeti Hotel was estmatd o cstUS$1.9 million while the final cost of a substantially upgraded hotel ia US$4.6 million representing an overrun of 140!. Lb Field days only. LcTMP personnel only,  PROJECT PERFORMANCE AUDIT MEMORANDUM (HIGHLIGHTS) NEPAL KATHMANDU TOURISM PROJECT (CREDIT 291-NEP) 1. The Kathmandu Tourism Project, supported by Credit 291-NEP for US$4.2 million of 1972, was IDA's third operation in Nepal. The project originally consisted of construction of the 120-room Yak and Yeti Hotel and expansion and upgrading of the Hotel de l'Annapurna from 90 rooms to 240. In 1974, based on market requirements, it was agreed between the Borrower and IDA to upgrade the Yak and Yeti Hotel to a first-class, air- conditioned hotel from the more modest design originally proposed. In addition, the Hotel de l'Annapurna was deleted from the project because, after designs had been substantially completed, the sponsors of the hotel changed the project concept several times and failed to come to a defini- tive agreement. A feasibility study of tourism development of the Khumbu Valley was added to the project. Accordingly, the Credit was amended in 1976 to reflect these changes and the Credit amount was reduced to US$3.2 million. 2. With the exception of a few minor items, the revised project's components were completed and the Yak and Yeti Hotel was opened in October 1977, representing a delay of more than three years over the appraisal schedule. The main reason for delay in completing the project was the in- ability of both sponsors to definitively agree on the project's concept (PCR, paras. 3.06 and 4.09-4.10) and complete the design. Once construc- tion began, further delays were caused by changes in hotel management, in- adequate municipal electrical supply, difficulty in securing safe water supply, requiring drilling of an artesian well and difficulties in obtain- ing materials and furniture (PCR, paras. 4.04-4.09). The study of tourism development was completed in 1977 and, based on this study, bilateral aid agencies are now considering investment in the Khumbu Valley. Industrial Services Center (ISC), a quasi-public agency, carried out the study with expatriate assistance. In view of socio-cultural implications of tourism development, the decision to have a local organization execute the study was a good one; in the course of carrying out this study, ISC has acquired con- siderable expertise in tourism development (PCR, paras. 6.01-6.02 and 9.04). 3. The total cost of the Yak and Yeti Hotel of US$4.6 million rep- resents an overrun of 140% over the appraisal estimate of US$1.9 million and 44% over the revised 1976 estimate of US$3.2 million. The higher than expected cost is due to inflation and the decision to construct a higher- class hotel. Concerning the latter, while the decision was a sound one, closer control of cost should have resulted in some savings (PCR, para. 9.02). Higher than expected taxes and duties, consultants' services and land acquisition also increased costs (PCR, para. 4.10). Other factors contributing to cost increase were: the purchase of cement and steel local- ly at a higher price rather than from abroad because the project sponsor failed to place the order in a timely way; drilling the artesian well; and alteration of the water heating system because of unreliable power supply (PCR, paras. 4.04-4.07). - 2 - 4. The estimated economic rate of return at appraisal based on benefits from tourist expenditures within and outside the hotel was 20%. Using the same methodology, the PCR calculates a reestimated rate of return of 16%. Although room rates are higher than expected in real terms, this has been offset by the greater project investment cost. If factors not included in the appraisal methodology -- diversion of tourists from other hotels as well as tourist expenditures on tips -- are considered, the reestimated rate of return is reduced to 15% (PCR, paras. 8.01-8.03). These factors are now routinely included in tourism projects. 5. The project's gross operating profits are larger than expected at appraisal because of the higher room rates; occupancy rates are in line with the appraisal expectation (PCR, paras. 7.04-7.09). However, after meeting interest payments and depreciation, the project will operate at a loss until its fifth year, 1981/1982 (PCR, Annex III, Table 1). 6. A realistic implementation schedule and cost estimate should have been established at appraisal based on a reasonable amount of final design work. Although the Bank Group considered that a clear definition of the project had been agreed upon, this definition-was later altered, a circum- stance which might have been avoided if the credit had been made later in the project cycle, i.e., after the designs of the two hotels were suffi- ciently completed. Such action would have saved much in time and cost. 7. This project required relatively large Bank manpower inputs into what turned out to be a small single-hotel project and, in addition to super- vision by the Headquarter's staff, considerable additional input by the Bank's Resident Representative in Nepal was required (PCR, para. 9.03). Although channeling IDA funds through a local development financing institution was desirable, this institution was not at the time sufficiently capable of hand- ling the project (PCR, para. 9.01). The project nevertheless was considered to have high priority, which could not be held in abeyance pending institu- tional development. At the time the project was under preparation, the most important sources of foreign exchange for Nepal were the small earnings from merchandise exports and gurkha remittances and pensions. There was little prospect for growth in these areas and it was considered that, although tourism accounted for only 5% of the country's foreign exchange receipts (US$1.3 million equivalent) in 1969/1970, it possessed the greatest poten- tial for expansion. This assessment turned out to be correct; by 1977, tourism had indeed developed into the largest single earner of foreign exchange accounting for US$23 million equivalent. The decision to finance this project, therefore, appears to have been an appropriate one. - 3- ANNEX I Borrower Comments Received Through Resident Representative JUNE 1801979 KAYH 0A b 342 FOR SEI-YOUNG-PARK REF NEPAL- CREDIT 291-NEP PROJECT PERFORMANCE AUDIT'REPORT ON NEPAL KATHMANDU TOURISM PROJECT AND URTEL OF JUNE 06, EYE HAVE NO COMMENT NOR DO NIDC AND FINANCE MINISTRY HAVE ANY. REGARDS ABBOTT WORLDBANK WSH 個 5 - ATTACHMENT I N E P A L KATEMANDU TOURISM PROJECT (Credit 291-NEP) PROJECT COMPLETICN REPORT I. INTRCDUCTI CK 1.01 In 1970, the Government of Nepal requested assistance from IDA in expanding hotel capacity in Kathmandu to meet the rapid growth of visitor traffic which had begun in the late 1960s. An IDA Credit was provided in March 1972 to assist in financing the expansion and upgrading of an existing hotel (Hotel de l'Annapurna) and the con6truction of a new hotel (the Yak Yeti Hotel) to provide in all about 270 new rooms. 1.02 Subsequently, when it proved impossible to reach a definitive agreement with the sponsors of the Annapurna hotel, the borrower and the Association agreed in October 1974 to delete the Annapurna hotel sub-project, to cancel $1 million equivalent of the credit and to add a feasibility study for further tourism facilities. The credit was officially amended in April 1976. 1.03 The Yak and Yeti Hotel with 110 rooms has been built and was opened for guests in October 1977. A feasibility study for tourism development in the. Khumbu Valley was also completed by the end of 1977., Despite many problems encountered in project implementation, organization and financing, the Yak-and Yeti hotel is now operating satisfactorily. The project*s rate of return has been calculated at 15% as compared to the appraisal estimate of 20%. 2.01 Nepal possesses attractions including spectacular mountain scenery, ancient cities, temples and monasteries of great beauty, a mild climate throughout most of the year and hospitable people from varied ethnic backgrounds. These attractions have drawn increasing numbers of foreign -6- visitors in the past decade. Some of these visitors are trekkers and climbers attracted by the challenges offered by the world's highest mountains, but most are interested in Nepal's cultural heritage and include a visit to Nepal as a component of their tours to South Asia. 2.02 Nepal's distance from the main tourist-generating markets of North America, Europe and Japan means that it attracts a relatively high-priced market which must necessarily be relatively small. However, the number of visitors from India has increased significantly in recent years, and India could be an increasingly important market in the future. 2.03 Visitor numbers from countries other than India, though small absolutely, increased rapidly from 1962-1970 by an average 28% per annum. Between 1970 and 1973 growth appears to have been limited by capacity constraints and after the energy crisis in 1973 by the recession in the major generating markets. In 1976 and 1977 the growth in visitor numbers again accelerated and arrivals increased by almost 20% annually. Total visitors amounted to 106,000 in 1977, as compared with 6,200 in 1962. In addition, there were 2,300 visitors from India in 1977; no comparable figure is available for 1962. 2.04 Air arrivals account for about 85% of all arrivals and approximately 80% of all visitors are on sight-seeing vacations. A further 10-12% are trek- kers and climbers. 2.05 Recorded foreign exchange earnings from tourism (in convertible currencies) totalled Rs 244 million (US$23 million equivalent) in 1977. Tourism is now the largest single earner of foreign exchange, accounting for about 30% of exports of goods and services. III. PROJECT PREPARATION AND APPRAISAL 3.01 Following the initial request from the Government, a project iden- tification mission visited Nepal in January 1971, followed by a project preparation mission in March 1971. The appraisal mission completed its fieldwork in July 1971; negotiations were held in January 1972 and the Credit was approved by the Executive Directors in March 1972. 3.02 The Credit was to be on-lent by the Government to the ultimate beneficiaries - the Hotel de 1'Annapurna Pvt. Ltd. and the Yak and Yeti Hotel Pvt. Ltd. The Nepal Industrial Development Corporation (NIDC) was to provide, against a fixed fee, administrative and technical supervision of the sub-projects - 7.- on behalf of the Government. The Credit of $4.2 million was designed to cover the estimated foreign exchange component of project costs. The IDA funds were to be on-lent to the sponsors of the two hotels at an interest rate of 7 1/2% for 24 years including 4 years grace. Interest and other charges during construction estimated at $580,000 were to be capitalized. The balance of the financing was to be provided as equity by the sponsors. 3.03 The project was designed to provide for the expansion and upgrading of the Hotel de 1'Annapurna from 90 rooms to approximately 240 rooms and for the construction of the new Yak and Yeti Hotel of 120 rooms. The Hotel de 1'Annapurna was expected to be managed by Hilton International. The Yak and Yeti Hotel was to be managed by qualified expatriate staff under the overall direction of Mr. Lissanevitch, one of the shareholders who had long experience in the hotel and catering business both in India and Nepal. 3.04 Total project costs including contingencies but excluding interest and other charges during construction were estimated at $6.0 million equivalent, of which about $4.0 million was for the Annapurna Hotel and the balance for the Yak and Yeti Hotel. Given the very high occupancy rates being experienced by hotels in Kathmandu at appraisal time, and the then favorable prospects for the continued growth of visitor traffic, the economic rate of return on the project was estimated at 20% (for each hotel). 3.05 Among the conditions of effectiveness of the Credit was the con- clusion of subsidiary loan agreements between the NIDC and the sponsors of the two hotels in a form acceptable to IDA. These agreements provided, inter alia, for the limitation of dividend payments to 80% of net earnings in iay financial year, and pre-payment of part of the loan in any amount by which dividend payment exceeded 20% of the par value of the capital shares. The shareholders were also obligated to subscribe for additional shares if needed to meet cost overruns. 3.06 The sponsors of the Annapurna hotel sub-project changed the project concept several times and it proved impossible to reach a definitive agreement with them. Therefore, the borrower and the Association agreed in October 1974 to delete the Annapurna hotel sub-project, to cancel $1.0 million equivalent of the credit and to add a feasibility study for further tourism facilities. These changes were reflected in an amendment of the Development Credit Agreement which was formalized in April 1976. The total credit amount became $3.2 million equivalent, of which $2.7 million were allocated for the Yak and Yeti Hotel and $0.2 million for the feasibility study. The unallocated amount of $0.3 million was later also reallocated to the Yak and Yeti Hotel. - 8 - IV. PROJECT IMPLEMENTATION AND COST Project Implementation 4.01 At the time of appraisal the preliminary drawings for the Yak and Yeti Hotel, prepared by a Nepalese architect, were not adequate for estimating costs, but the plans, specifications and cost estimates for the Annapurna Hotel expansion were sufficiently detailed to establish accurate unit prices from which also the cost estimates of the Yak & Yeti Hotel could be derived. The Yak and Yeti Hotel was to be a modest three-star non- airconditioned 120-room hotel connected to a renovated former palace in which restaurants and kitchen facilities were located. At the Bank's suggestion, the Yak and Yeti Corporation sought the services of foreign architects and engineers to prepare the final designs and contract documents. Various firms were interviewed and a contract.for architectural and engineering services was finally signed on August 25, 1973, with Gherzi Eastern of Bombay, India (approved by IDA on September 10, 1973). Assistance in staff training and management of the project was to be provided by foreign consultants. Early in 1974 HMG, in order to help meet unforeseen project management costs by foreign consultants, agreed to a oner-third subsidy of the cost of such consultants to be paid partially in Nepalese rupees, Indian rupees and Swiss francs. No payments of this subsidy have yet been made. 4.02 Initially, the preferred design alternative, adopted in March 1974, was estimated to cost $2.345 million including physical and price contingen,- cies of 15% and 20% respectively. Subsequently the concept was modified to provide a higher category hotel with airconditioning considered necessary to meet market requirements. A detailed scale model of the final design for a 110-room hotel was approved by the owners, NIDC and IDA, in September 1974. The project still included the renovation of the nearby palace to provide the main dining room and banquet hall. The site improvements included a swimming pool, tennis court, boating pond and landscaping. By then the cost estimate had increased to $3.2 million, due mainly to price escalation and upgrading of the hotel category. The foreign exchange component was estimated at US$2.5 million or 78% of project cost. 4.03 In November 1974, the owners 1/ informed the Bank that they could not invest more than US$0.8 million in equity and a new financial plan had to be formulated with NIDC based on a 70:30 debt/equity ratio. 2/ On April 1, 1975, the NIDC Board agreed to participate in equity in the amount of $250,000 (equivalent in Nepalese rupees) and the Chairman gave the IDA mission verbal assurance that NIDC would provide additional financing to cover cost overruns. 1/ Mr. Saraf and members of his family are the principal shareholders. 2/ The appraisal estimate was based on a 60:40 ratio. -9- 4.04 With the project delayed by over two years, the consultants and the general contractor agreed to an accelerated construction program. On February 28, 1975, Chadda Construction Company of Bombay signed the contract for the civil works valued at $1,822,823 equivalent excluding the supply of steel and cement which was to be provided by the owner. Work started on March 28, 1975 with completion scheduled for the end of September 1976. By April 1975 the first of a series of delays in construction occurred. Though the bids for the imported cement were opened in October 1974, the owners waited six months before placing the order in India. Thus the first shipment did not arrive before June 1975. To start construction the owners had to purchase cement in the local market at 3 1/2 times the Indian price. The delivery of imported steel suffered similar delays forcing the owners to make initial purchases in the local market at twice the Indian price. Shipments of other materials and equipment were held up in India due to excise exemption formalities and delays occurred in the local procurement of face bricks and kiln-dried timber. Labor disputes between the Nepalese and Bengali workers caused a short construction stoppage. 4.05 Obtaining a safe water supply from the municipal system emerged as a further problem. The low water quality and pressure as well as inter- mittent supply forced the owners to drill their own tube-well on site. A satisfactory artesian supply was found, but it contained methane gas and was highly alkaline which required special treatment resulting in additional costs. 4.06 At the end of 1975 the general contractor increased the work force to accelerate construction, and by the end of May 1976 the basic structure was completed. The interior was then expected to be completed with fixed mechanical and electrical equipment by September 1976 so that furnishing could begin. 4.07 In January 1976 the Nepal Electricity Corporation refused to provide a permanent power connection to the site because of a general power shortage in Kathmandu, In April 1976 the Bank intervened to ensure a 700 kva connection, which would at least permit continuation of construction. Because of the uncertain electric power supply the hot water system was converted to oil fired burners adding five months of delays and further cost increases. The suppliers of the electrical, mechanical and telephone equipment could not complete their installations until firm power was connected on July 19, 1977. Though the Nepalese firm supplying the furniture was behind schedule and some design changes caused further delays and modest cost increases, deliveries of all furniture were completed by the first week of August 1977. 4.08 The on-site landscaping including the boating pond, lighted walk- ways and tennis court as well as the main access road through NIDC headquarters property were completed in the summer of 1977. The three guest suites on the top floor have not yet been completed, but the rest of the hotel was opened for guests on October 1, 1977. The short road link (80 m) between NIDC and the hotel is still incomplete. IDA has urged HMG to construct this link as soon as possible. - 10 - Time Schedule 4.09 Four principal factors were responsible for the delays in the completion of the Yak and Yeti hotel project: (i) slow preparation of the final design and bidding documents 18 months delay; (ii) reduction in quantity and delay in supply of power 5 months delay; (iii) late delivery of building materials, equipment and furniture - 3 months delay; and (iv) change in management of the hotel -- 1 month delay, The total delay in completing the hotel was 2 1/4 years. The appraisal estimate for completion of the hotel was three years (Annex 1, Table 1). However, this schedule was unrealistic in that it assumed a construction start in December 1972, only 9 months after the credit was signed, and this clearly gave insufficient time for final design, preparation of bidding documents, receipt and evaluation of bids and contract awards. The actual construction time for the hotel was 28 months compared to the appraisal estimate of 21 months. Cost and Disbursement 4.10 The final costs of the hotel project of 110 rooms, excluding land, working capital, interest and other capital charges during construction was $4.61 million as compared with the original appraisal estimate of $1.92 million and the amended 1974 estimate of $3.2 million for 110 rooms, the latter, both for a lower category hotel (Annex I, Tables 2 and 3). The final cost per room was US$41,936, 140% higher than the appraisal estimate and 44% higher than the amended estimate. The decision to raise the hotel to a higher cate- gory, involving the choice of an elaborate design for a five-storey structure with expensive permanent finishes rather than a simpler two- and three-storey pavilion-type construction with plain plaster walls - along with unpredictable increases in costs for renovation of the old palace - caused 16% of the cost overrun. Increased costs of equipment constituted the biggest increase due to upgrading of furniture, fixtures and equipment during final design, and installation of full airconditioning; these caused 22% of the cost overrun. Non-construction items such as higher-than-estimated contract tax, import duties, taxes and transportation of imported items plus project administration caused 16% of the overrun. Additional land acquisition and increased pro- fessional services accounted for respectively 4% and 6% of cost overruns. The balance of the cost overrun, 36%, reflects inflation, especially severe as the result of the energy crisis and the delay in project implementation. The delays in project execution caused equivalent delays in disbursement of the IDA credit. - :11 - Quality of Completed Work 4.11 The quality of workmanship throughout the hotel is excellent, reflecting the desire on the part of the contractor as well as the super- vising architects to provide an example of outstanding quality. Special care was taken to provide a permanent finish to the exterior of the building -- virtually maintenance free. The finishes by Nepali craftsmen on the interiors are superior to those in hotels of the same category in the area. Procurement 4.12 Civil works, equipment and furniture were procured in accordance, with the provisions of the Credit Agreement and Bank guidelines. At the outset a few lots of equipment had to be retendered, since the lowest eval- uated bidder did not follow the specifications of the tender documents. In the case of telephone service a Bank supervision mission was successful in persuading the owners to install a manual PMBX exchange system achieving a savings of 50% over the proposed automatic PABX system. A Nepalese firm was the lowest bidder for the interior finishings and furniture. A high quality product was provided within the bid price, even though the firm had to quad- ruple its production and allocate all its production capacity to the Yak and Yeti Hotel for 6 months. V. ORGANIZATION AND MANAGEMENT 5.01 Project management by the consultants -- Gherzi Eastern - during implementation of the Yak and Yeti hotel project was satisfactory and progress reports on construction and costs were received regularly from the consultants. Quarterly reports, financial and expenditure statements which were to be pre- pared by NIDC were continually delayed. IDA has repeatedly expressed concern that audited accounts be provided as required under the terms of Section 5.02 of the Credit Agreement. 5.02 When the Credit was made, one of the project sponsors, Mr. Lissanevitch, was expected to provide overall direction of the hotel, overseeing expatriates in senior managerial and professional positions. As a result of differences' which have arisen between the sponsors, Mr. Lissanevitch is not presently per- forming this function. Early in 1977 the Yak-and Yeti Hotel Company hired an expatriate general manager as well as an expatriate chief accountant and chef. The front office manager is an experienced and able Nepalese. In September 1977, just before the opening of the hotel, a new expatriate general manager was appointed. He is performing well, as are the food and beverage manager, the housekeeper and the front office manager. Taking into account that the hotel, at the time of the completion mission, was only open for 8 months, it was operating satisfactorily and providing the same level of services as other Nepalese hotels of similar class. 5.03 The Yak & Yeti Hotel Company is required to submit regular financial statements to NIDC and the Association. The operating accounts submitted for - 12 - the first six months of operation were not well prepared. The reason is that the hotel's accounting machines had not yet been installed and all transac- tions had to be recorded by hand. The manager is aware of these deficiencies; the machines are in Kathmandu and an improvement in the financial accounting procedures and quality of the accounts can be expected. VI. THE K MMBU VALLEY TOURISM STUDY 6.01 Early in 1976 HMG requested the commissioning of a feasibility study for tourism development in the Khumbu Valley, The Association drafted detailed TOR which were reviewed with the Government and private agencies concerned. The increasing flow of trekkers had congested the Khumbu trails which provide access to the Sagarmatha National Park and Mt. Everest. This had resulted in new economic activity, generating new sources of income and employment, but the social impact of the trekkers on the local mountain people and the ecological impact on the environment had been detrimental. An integ- rated tourism study was conceived at two levels: (1) regional planning for land use, transportation, natural resources and environmental control; and (ii) a feasibility study for development of infrastructure as well as accom- modations for trekking and mountaineering tourists in the Khumbu Valley. The project was designed to serve as a prototype for other high mountain regions. 6.02 The Association agreed that the Industrial Services Center (ISC), a quasi-government agency, be commissioned to undertake the study with the understanding that substantial technical assistance would be provided by the Association. Two expatriate consultants were hired (partly financed by the project and partly by the Association) to prepare the financial and economic feasibility analysis, and to provide guidance to ISC (and to ensure that the study would meet Bank standards). The study was completed in September 1977 and accepted by the Government and the Association after thorough review. As the Association subsequently decided not to participate in the project because of higher priority assigned to other projects, HMG decided to seek financing elsewhere. Four bilateral aid agencies (New Zealand, Australia, Switzerland and Germany) have expressed interest. The Association's guidance to ISC during the execution of the study contributed to the build-up of local consulting expertise. After satisfactory completion of the Khumbu Valley Study ISC was charged with several other studies involving international agencies. VII. FINANCIAL STATUS Project Financing 7.01 The financing of the Yak and Yeti hotel project as conceived at the time of appraisal and as realized is shown in Table 1: - 13 - Table 1 Appraisal Estimate Actual US$ million Equity capital: Sponsors 0.74 1.21 1/ NIDC - 0.20 0.74 1.41 Loan: IDA Credit 1.32 3.00 HMG (capitalized interest and other charges) 0.18 0.33 1.50 3.33 Balance still to be found - 0.32 2.24 5.06 7.02 Various proposals have been made to find the remaining $320,000 required to complete the hotel, including the three unfinished suites on the top floor. No definitive arrangements have yet been concluded, but the Association has urged HMG, NIDC and the project sponsors to cooperate to resolve this problem. Financial Projections 7.03 The steady growth in visitor numbers to Nepal has led to renewed interest in hotel investment in Kathmandu. Some 600 new hotel rooms are planned or are under construction and are expected to open for guests before 1980. In the short run, this will adversely affect occupancy rates of all hotels. The Yak and Yeti Hotel has, however, a good competitive position. It is one of three hotels in Kathmandu of first class standard which are in high demand by business visitors and tour operators, and it is centrally located for both business and holiday visitors. With an adequate level of service, which appears attainable once the first year operating problems have been overcome, and with a proper promotional effort with tour operators, who in Nepal provide the bulk of tourists, the Yak and Yeti Hotel is expected to reach a 70% room occupancy by 1981/82. 7.04 Tables showing projected operating results for 1977/78 (based on actual figures for the first six months of operations,_and projections for 1978/79 to 1982/83) are attached (Annex III: Tables 1-3). Income statements show gross operating profits rising from NR 3.3 million in 1977/78 (for 9 months from the opening date) to NR 10 million in 1982/83 or 35% of total revenues in that year. Revenues are projected at approximately double the appraisal estimates because of much higher average room rates. The average room rate was about $35.0 in the first year of operation as compared with 1/ In view of rising costs, the sponsors, in 1976, were persuaded to increase their equity participation from $0.8 million (para 4.03) to $1.21 million. - 14 - $15.0 estimated at the time of appraisal. This difference reflects, besides inflation, the upgrading of the hotel as well as the real increase in hotel tariffs which has occurred in the past seven years. Estimated occupancy rates are approximately the same as in the appraisal report (the realized occupancy in the first operating year was some 3% above the appraisal estimate). 7.05 The ratio of food and beverage costs to sales of these items is approximately the same as estimated at appraisal (42% and 39% respectively) but payroll costs are substantially less -- only 10% of revenue as compared with 21.6% estimated at appraisal. This reflects mainly the higher levels of revenues which have not been matched by equivalent rises in wage rates. Overhead costs as a proportion of revenues are also significantly below the appraisal estimates, but the difference here is much less -- 23-24% as compared with an estimated 29.9%. 7.06 As a result of these several factors, gross operating profits are estimated to be substantially higher than at the time of appraisal. However, investment costs rose even more relative to the appraisal estimate, with a result that net profits are lower than estimated during appraisal. In fact, after meeting depreciation and interest payments a net loss is projected until the fifth year of operations (1981/82). 7.07 NIDC has agreed that debt service should be deferred until March 1979 and interest capitalized until then. The sponsors of the hotel have requested an extension of the grace period by a further six months. On the assumption that such an extension will be given, the cash generation from operations will be adequate to meet all debt service obligations from October 1979 on. In the attached tables, interest is charged against income in prior years but is not assumed to be paid until 1979/80. Debt service coverage rises from 1.1 in 1979/80 to 1.8 by 1982/83. 7.08 In the attached pro-forma balance sheet and cash flow statements (Annex III: Tables 2 and 3) it is assumed that additional funds amounting to some $320,000 equivalent will be provided by the end of 1978 to enable the hotel to be completed and outstanding obligations to be paid off. If HMG and NIDC fulfill commitments which they earlier made, the principal project spon- sors have undertaken to find the balance of the required financing. 7.09 Though prospects of profits for the Yak and Yeti Hotel are poor until 1980/81, the financial position of the company is satisfactory in earlier years, and cash generation will be substantial after 1979/80. - 15 - VIII. ECONOMIC EVALUATION 8.01 The economic rate of return on the Yak & Yeti Hotel was estimated during appraisal at 20%. The economic benefits were defined as tourist ex- penditures inside the hotel (including sales tax) and estimated expenditures outside the hotel; economic costs included investment and replacements (net of indirect taxes and duties) as well as operating costs connected with tourist expenditures. Because of scarcity of hotel accommodation it was assumed that there would be no significant diversion of business from other hotels. The economic rate of return has been recalculated based on compar- able benefit and cost streams (Annex IV, Table 1), and is now estimated at 16%. 8.02 Although actual investment costs per room ($42,000) have risen substantially from the appraisal estimate ($16,000), the average room rate has also increased to $36 compared to the appraisal estimate of $15. Only part of this increase can be attributed to inflation. The increase in demand together with a tight supply of accommodation in Kathmandu has helped to increase rates in real terms throughout the hotel industry by about 10%. In addition, while Yak & Yeti rates during appraisal were estimated at 20% below those of the Annapurna Hotel, they are currently 20% above, reflecting the more luxurious facilities offered at the Yak & Yeti. Another element which raises the actual economic return is the increase in Government sales tax from 5 to 10%. 8.03 There are two elements which were not taken into account during appraisal: (a) benefits from tourist expenditure on tips and (b) diversion of tourists from other hotels in the low season. The diversion effect in 1978/79 is estimated at 25% of hotel guests but only 20% of revenues, since rates at other hotels are lower. It is expected that the diversion effect will be eliminated in five years due to the increase in tourist traffic. Incorporating the additional benefits and the diversion effect in the cal- culations reduces the rate of return to 15% which is considered the best estimate. IX. CONCLUSIONS- 9.01 The difficulties and delays experienced in trying to reach final' agreement with the sponsors of the Hotel de l'Annapurna, although there was a management agreement with Hilton International, point to the complexities which may well arise where the Bank/IDA finances directly ventures in the private sector and becomes involved in detailed project supervision. A more efficient means for the Bank/IDA to assist in financing private sector hotels is through suitable local development financing institutions. This approach would have been preferred in Nepal had the NIDC been a stronger institution with greater expertise in hotel financing. - 16 - 9.02 The extended period of construction of the Yak and Yeti Hotel during years of high inflation and the upgrading of the hotel resulted in investment costs per room approximately 140% above the appraisal estimate. Having regard to the quality of facilities provided in the hotel, this higher cost does not appear out of line with market demand. The high stan- dard of facilities has stimulated an upgrading of older hotels and the construction of comparable new hotels so that Kathmandu is now much better equipped to meet demand than in the early 1970s. Nevertheless, some cost savings in the case of the Yak and Yeti Hotel appear in retrospect to have been possible. The choice of a rather complex design points to the need for more detailed cost analyses of design alternatives during the design stage and greater insistence by the Bank/IDA that such analyses be made. 9.03 The project required a heavy input of manpower for supervision, This reflected the difficulties of implementation described earlier, the unfamiliarity with the Bank's requirements (this was IDA's third credit in Nepal), the limited capacity and experience of the agencies involved and the rather inactive role of the NIDC which took a much more limited interest in the implementation of the project than had been expected at the time of appraisal. Extensive assistance on the part of the Bank's resident repre- sentative in Nepal has been of crucial importance in supervising the project. Experience with this project suggests that Bank/IDA financing for a project consisting only of one or two hotels represents an uneconomic use of scarce Bank manpower. No other hotel project of comparable scope has in fact been financed by the Bank/IDA, 9.04 The Khumbu Valley tourism study provided a prototype for other studies of comparable areas in Nepal and elsewhere, integrating the assessment of tourism potential with the social and economic development of the area concerned. The important impact of tourism on the social and cultural life of the Khumbu population and on the physical ecology of the area, and the complexity of these interrelationships made it particularly useful to have a local consulting firm (ISC) execute the study. The successful completion of the study with technical assistance provided by IDA contributed signifi- cantly to the build-up of local consulting expertise in Nepal. 9.05 Financial and economic results of a hotel project cannot be accu- rately measured six months after project completion. Another evaluation of the assumptions regarding market, occupancy rates and tariffs some five years after the completion report would be useful. PROJECT COMPLETION REPORT NEPAL: KATHMANDU TOURISM PROJECT (CREDIT 291-NEP) Actual and Estimated-/ Project Implementation Contractor/ % of Works Consultant Contract Beginning Completion Completed by and Bid Receipt Award of Work of Work Estimated A. Yak and Yeti Hotel Nationality Actual Est. Actual Est. Actual Est. Actual Est. Completion Date 1.0 Land & Existing Bldg. - - -- -- -- -- -- -- - - 2.0 Construction (CW) 2.1 Site Development Chadda Const. 11/74 3/73 2/75 5/73 3/75 6/73 8/77 6/75 20% 2.2 Hotel Building (India) 11/74 3/73 2/75 .5/73 3/75 6/73 8/77 3/76 20% 2.3 Professional Services Gherzi Eastern (Consultants) (India) 8/73 11/72 8/73 11/72 N/A N/A N/A N/A N/A 3.0 Equipment & Furniture Electrolux/Otte 3.1 Imported . (Sweden) (India) 7/75 11/73 11/75 1/74 2/76 1/75 7/77 3/76 20% 3.2 Locally Procurred Ballaju 3/75 7/73 6/75 1/74 12/75 1/75 7/77 3/76 25% (Nepal) 4.0 Staff Training & Pre-Opening N/A N/A N/A N/a 3/76 N/A 8/77 3/76 5% 5.0 Project Administration N/A N/A N/A N/A N/A N/A N/A N/A N/A B. Tourism Study Industrial Services N/A N/A 9/76 N/A 10/76 N/A 12/77 N/A N/A Center - ISC (Nepal) If Appriasal Report NEPA7.3 KATitWNIl TOURISH PADJECT (CREDIT 291-HIP) Comparison of Appraisal got imstpARVIsed st imat as and Actual Project Cost. 1/ Cost Eifaeret Appraisal Estimate (1972) Revised aid Acul aot B id Price Acta ATMEalost Local Foreign Total Urtimto (1973) Price LQ.1 FrIn Total Revised Cost Revised PROJECT COMPONENT WR Na MR usp MR US$ MR US$ HR US$ MR US$ Estimate lid Price Estimate A. Yak & Yett Hotel 1.0 Land 6 Existing Bldg. 0.28 0.28 0.03 1.72 0.17 H/A H/A 1.50 1.50 0.12 NIA MIA -29 1.0 Land 6 Existing ltdg. 2.0 Construction 2.1 Site Development 0.25 0.57 0.82 0.08 0.71 0.07 0.87 0.07 0.56 0.03 0.88 0.07 -0- -0- -0- 2.2 Hotel Building 3.37 7.53 10.90 1.08 13.87 1.37 22.75 1.82 9.60 1.43 27.50 2.20 133 121 161 2.3 Professional Services (Consultants) 0.35 0A 0.69 07 1.11 0.11 2.25 0.1 B 0.24 3.0 0.24 1 133 218 Sub-Total (2.1-2.3) (3.97) (8.44) (12.41) (1.23) 15.69) (1.55) (25.87) (2.07) (10.16) (1.70) (31.38) (2.51) (134) (121) (162) 3.0 Equipment & Furniture 0.56 2.01 2.57 0.25 9.11 0.90 16.0 1.28 3.83 1.22 19.12 1.53 142 120 170 4.0 Staff Training & Pre-Opening 0.06 0.28 0.36 0.03 0.91 0.09 1.12 0.09 1.25 0.02 1.50 0.12 -0- 133 133 5.0 Project Administration 0.10 -- 0.10 0.01 0.20 .002 . 62 0 02 00 8 0.87 0.07 -0- M 350 Sub-Total (1.0-5.0) (4.99) (10.73) (15.72) (1.55) (27.63) (2.73) (43.24) (3.46) (17.61) (2.94) (54.37) (4.35) (127) (126) (159) 6.0 Contingencies (Contract tax. import d_tes. etc.) 1.07 .63 .70 0.37 3 85 0.38 3 16 0.25 3.62 0.09 4.75 0.38 66 152 -0- Project Costs 6.06 13,36 19.42 1.92 31.48 3.11 46.40 3.71 21.23 3.03 59.12 4.73 119 127 152 7.0 Interest & Capital Charges 4.12 0.33 8.0 Uorking Capital 1.12 0.09 TOTAL CAPITALIZED LOST 64.36 5.15 B. Tourism Study 2.02 0.20 2.25 0.18 2.50 0.20 -0- I/Exchange rate $1-10.125HR 2/Exchange rate $112.5NR I/Included only land required for access road. 4/InrluAed additional -it* sequbition end extting building. NEPAL: KATHMANDU TOURISM PROJECT (CREDIT 291-NEP) Statement of Expenditures - Yak and Yeti Hotel (US$'000) Revised Total Appraisal Deviation PROJECT COMPONENT 1973174 1974/75 1975/76 1976/77 1977/78 Exenditure Estimate Plus Minus 1.0 Land & Existing Bldg. -- 120 -- - -- 120 170 -- 50 2.0 Construction 2.1 Site Development 31 17 22 -- 70 70- -- -- 2.2 Hotel Building - 265 786 829 320 2,200 1,370 830 -- 2.3 Professional Services (Consultants) 61 59 56 42 22 240 110 130 -- Sub-Total -- (355) (859) (893) (342) (2,630) (1,550) (960) (50) 3.0 Equipment & Furniture -- - 360 1,138 32 1,530 900 630 -- 4.0 Staff Training & Pre- Opening -- -- 5 85 30 120 90 30 -- 5.0 *Project Administration 18 23 17 12 70 20 50 -- 6.0 Contract Tax, Import Duties, etc. 72 176 132 380 380 PROJECT COSTS 61 565 1,423 2,265 416 4,730 3,110 1,670 50 7.0 Interest & Capital Charges -- 18 60 104 148 330 8.0 Working Capital -- -- -- 40 50 90 TOTAL CAPITALIZED COST 61 583 1,483 2,409 614 5,150 CUMULATIVE 61 644 2,127 4,536 5,150 -20 - ANNEX I Table 4 NEPAL: KATHMANDU TOURISM PROJECT (CREDIT 291-NEP) Comparative Disbursement Schedule (cumulative) (US$ million) Appraisalj Revised2/ Actual Quarter Estimate Estimate Amount 1 - 7 197-3-1974 0.9 - 8 3-31-75 1.0 - - 9 6-30-75 1.1 0.1 0.1 10 9-30-75 1.2 0.4 0.2 11 12-31-75 1.2 0.7 0.3 12 3-31-76 1.3 1.4 0.6 13 6-30-76 2.0 0.9 14 9-30-76 2.4 1.4 15 12-31-76 2.9 1.9 16 3-31-77 3.2 2.4 17 6-30-77 2.8 18 9-30-77 3.1 19 12-30-77 3.2 1/ From the Appraisal Report 2/ FVem First Supervision Report after proposed amendment of Development Credit Agreement, 1975 - 21 - ANNEX II Table 1 NEPAL: KATHMANDU TOURISM PROJECT (CREDIT 291-NEP) s 1/ Torist2/ Touwist Arrivals as Year kerivals Arivals % of Total Arrivals 1965 99388 8A55 94-3 1966 12,567 10,971 87o3 1967 18,093 16,369 90o5 1968 24,209 22,103 9103 1969 34,901 31,9643 907 1970 5,970 42;437- 9203 1971 69.91 46,9277 9207. 1972 52,930 499789 94.1 1973 68,07 64,120 94.2 1974 729601 64 213 88.h 1975 74,59 66,712 8905 1976 859769 76,606 89.3 1977 106,277 97,544 91.5 Notes: 1/ Excluding Indians SExcluding BUsiMess & Official Visitcrs -22- ANNEX III NEPAL: KATHMANDU TOURISM PROJECT (CREDIT 291-NEP) Assumptions on Operating Projections for the Yak and Yeti Hotel Projections were made in current Nepalese rupees with an assumed annual inflation rate of 6% over the five years 1978/79 - 1982/83. Operating revenues and expenses in the first six months, October 1977 - March 1978, were actual and for the following three months, April - June 1978, and for 1978/79 - 1982 /83 were estimated based on the following assumptions: - Average room occupancies 55% in the first full year (1978/79) reaching 70% in the fourth year of operation (1981/82). - Average room rates, after commissions and sales tax: Rp 425 (or US$35.71) in the first year (1978/79), and to increase by 6% annually for the period 1978/79 - 1982/83. - The composition of sales from operational departments varies from 53-57% for room sales; 34-36% for food sales; 8-10% for beverage sales and 1% for other minor departments. - Direct costs of food sales: 40-42%, of beverage sales: 28-32%, of other sales: 80%. - Other departmental expenses and overheads,including payroll: 23-25% and 23,27% of gross sales, respectively. - Payroll and related expenses: 8-10% of gross sales for operational departments and at 7-8% for administration, promotion and engineering departments. - Annual depreciation rates: 3% for buidlings and 5-10% for fixtures, furniture and equipment. Pre-opening expenses, including interest during construction, are amortized over five years. - Interest rates: 7-1/2% on a first loan of US$1.32 million and 11% on a second loan of US$1.68 million. NEPAL: KATHMANDU TOURISM PROJECT (CREDIT 291-NEP) Yak and Yeti Hotel Pro Forma Income Statement ('000 Nepalese rupees) Actual (Eatimate ) (Estimates) Oct. 1. '77 - Apr. 1 - Mar,31. e78 June 30, '78 78/79 79/80 80/81 81/82 82/83 Sales Room 4.420 1.926 9,385 10,841 12,449 14,193 15,036 Food 2,679 1,261 5,598 6,899 7,922 9,640 10,213 Beverages 650 280 1,317 1,774 2,037 2,678 2,837 Others 8 35 165 197 227 268 284 Gross Sales 7,757 3,502 16,465 19,711 22,635 26,779 28,370 Costs & Expenses Direct costs: Food 1,134 530 2,351 2,898 3,327 3,856 4,085 Beverages 258 106 500 674 774 964 1,021 Other 39 61 132 158 182 214 227 Subtotal 1,431 697 2,983 3,730 4,283 5,034 5,333 Payroll 841 441 1,647 1,774 2,037 2,142 2,270 Other departmental expenses 1.149 525 2.470 2.957 3.395 _,017 _,256 Total Costs & Expenses 3,421 1,663 7,100 8,461 9,715 11,193 11.859 GROSS INCOME: 4,336 1,839 9,365 11,250 12,920 15,586 16,511 Overhead Administration 847 455 1,976 2,168 2,264 2.678 2,837 Promotion 81 70 494 591 453 535 567 Heat, light & power 657 350 1,482 1,774 1,811 2,142 2,270 Repairs and maintenance 259 140 494 591 679 803 851 Total Overhead 1,844 1,015 -4,446 5,124 .5,207 6,158 6,525 HDUSE PROFIT: 2,492 824 4,919 6,126 7,713 9,428 9,986 Income from store rental 136 66 300 315 331 348 365 Rent, insurance, tax (137). (69) (274) (288) (302) (317) (333) GROSS OPERATING PROFIT: 2.491 821 4.945 6.153 7742 9.459 1 Capital Expenses Depreciation 1,924 961 3,847 3,847 3,847 3,847 3,533 Interest 1.956 852 4.193 5.881 4.645 4.554 L4.45 Total Capital Expenses 3,880 1,813 8,040 9,728 8,492 8,401 7,987 wET PROFIT (or Loss) (1,.2) ( _992) (3.095) (3,575) (__750) 1.058 2 031 Cumulative (1,389) (2,381) (5,476) (9,051) (9,801) (8,743) (6,712) H Rate of Return on Investment: 8.2 10.3 13.0 15.8 16.8 Rate-of Return on Equity: - 5.1 9.9 NEPAL: KATIANDU TOURISH HROJECT (CREDIT 291-NEP) Yak and Yeti Hotel Pro Forma Balance Sheet Actual Actual (Estimate) (Estimates) Sept. 30, '78 Sept, 30, '78 Mar. 31, '78 June 30, '78 78/79 79/80 80/81 81/82 82/83 (US$ '000) (Rp '000) (ap '000) (Rp '000) ---------------------- (P 00) ---------------------- ASSETS Current Assets Cash on hand/Bank account 2 26 384 349 4,737 5,617 7.325 10.491 14.691 Accounts receivable - - 2,595 3.715 4,940 4,928 5,659 6,695 7,093 Other current assets 84 997 1.497 1.R89 2,130 2,538 2.91S 3 358 3 558 Total Current Assets 86 1,023 4,476 5,653 11,807 13.083 15,899 A0,544 Fixed Assets Land 102 1,214 1214 1,214 1,214 1214 1,214 1,214 Building 3,163 37,640 37,075 36,793 35,664 34,535 33,406 32,277 31.148 FF & E 1,228 14,613 13,882 13,517 12,056 10,595 9,134 7,673 6,212 Other fixed assets 528 6,283 5,655 5,341 4084 2,827 1570 313 - Total Fixed Assets 5,021 59,750 57,826 56,865 53,018 49,171 45,324 41,477 37,944 TOTAL ASSETS 5.107 I62302 62.518 64,825 62.254 61.223 62,021 63,286 LIABILITIES & EQUITY Current Liabilities Accounts payable 86 1,028 1,990 2,346 3,555 4,231 4,858 5,597 5,930 Other current liabilities 323 3,844 3,844 3,844 - - - . Current portion of debt service - - - - 55 553 5,553 5,553 5,553 Total Current Liabilities 409 4,872 5,834 6,190 9,108 9.784 10,411 11,150 11,483 Long-ters Liabilities Long-term loans 3.288 39,122 41,078 41,930 40.570 40.898 39.990 38.991 37.892 Total Liabilities 3,697 43,994 46,912 48.120 49,678 50,682 50,401 50,141 49,375 Equity Capital Paid-in capital 1,410 16,779 16,779 16,779 20,623 20,623 20,623 20,623 20,623 Retained earnings -- (1,389 (2,381 (5.476 (9,051 (9801) (8.743) (6712 Net Worth 1,410 16,779 15,390 14,398 15,147 11,572 10.822 11,880 13,911 IOTAL LIABILITIES & EQUITY 5.107 60,773 62,302 62,518 64.825 62.254 61.223 62.021 63,286 Current Ratios: 0.2 0.2 0.8 0.9 1.3 1.3 1.5 1.8 2.2 Debt/Equity Ratios: 70/30 70/30 73/27 74/26 73/27 78/22 79/21 77/23 73/23 NEPAL: KATIIANDU TOURISM PROJECT (CREDIT 291-NEP) Yak and Yeti Hotel Pro Forma Cash Flow Statement ('000 Nepalese rupees) Actual Actual (Estimated) Up to Oct. 1, '77 Apr. 1, '78 - (Estimates) Sept. 30, '77 Mar.31. '78 June 30, '78 78/79 79/80 12M8 81/82 82/83 SOURCES Cash at beginning - 26 384 349 4,737 5,617 7,325 10,491 Cash generation - 2,491 821 4,945 1,425 3,097 4,905 5,564 Equity contribution 16,779 - - 3,844 - - - - Long-term loans 39,122 - - - . . Increase (or decrease) in accounts payable 4,872 962 356 (2,635) 676 627 739 333 Total Funds 60,773 - - - 12.969 16,388 APPLICATIONS Project costs 59,750 - - - - - - - Payments of long-term loans - - - 825 908 999 1,099 Increase (or decrease) in accounts receivable 997 3L095 1,212 1,766 396 1,108 1,479 598 Total Applications 60,747 3,095 1,212 1,776 1,221 2,016 2,478 1,697 SURPLUS 26 384 349 4.737 5.617 7.325 10,491 14,691 Debt Service Coverage: - - - 0.9 1.1 1.4 1.7 1.8 - 26 - ANNEX IV NEPAL KATHMANDU TOURISM PROJECT Economic Costs and Benefits Streams (in NR'000 in 1978 prices) . Benefits from Investment & Hotel Government Tourist Expendi- Replacement Hotel Operating Sales Tax on tures Outside Costs Revenues Costs Hotel 'Revenues Hotel 1 820 - 2 6,270 - 3 18,590 - 4 35,930 - - 5 6,760 11,260 7,150 1,130 1,200 6 - 16,470 10,390 1,650 1,660 7 - 18,600 11,530 1,860 1,810 8 - 20,150 11,950 2,015 1,960 9-14 - 22,480 13,110 2,250 2,110 15 1,670 22,480 13,110 2,250 2,110 16-24 - 22,480 13,110 2,250 2,110 25 1,670 22,480 13,110 2,250 2,110 26-29 - 22,480 13,110 2,250 2,110 30 -7,630 22,480 13,110 2,250 2,110 MAP 3 NEPAL NEPAL T _T _so5 KATHMANDU CITY Proposed land use: Royal Palace le 00 2 0 a 2 Yak and Yeli Hotel MISS \\ \ Zm~" dninistralive, insltiTonal 3 nnoQurna Hotel -eRCreoin a nrmoo 4 Soalteo-Oberol Hotel G 6'\-n~i~'+~'Enønst , Jj >~,,ndcustialOd 5 Ta,ci-Goon Hotel Village (under constrcIOn) Ko thmeondu & aC 6Soyoanbna hStupa Kothnn.n4 Proposed roOd netwiork: Boud.t.mninu Sup - Majora roods 8 Pashupcti Temples \MKKr b °do 9 Singbo-Ourbar Secreto,iat Suilding xEisting rods 10 Tribhuwan University Rivers li water reservoir AL INDUTR-- TRIBHUBA ESPATAN \CTOBE 1\R3 7 %\\ - - - - - TRIBHUBAN t,~ 1 'i I ~ , ~AIRPORT 1m0h ffiq 10 Q'- OCTOBER 1971 IBRD-3648