Nepal - Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 5935 PROJECT PERFORMANCE AUDIT REPORT NEPAL - FIRST TECHNICAL ASSISTANCE PROJECT (CREDIT 659-NEP) November 25, 1985 Operations EvaluatiGn Department lis docament bs a restricted distributloan d may be sed by recipients only I the perfomance of taeir effidal duties. Its ceatts may aet otherwise be diselewd without World Bank authriation. ABBREVIATIONS APROSC - Agricultural Projects Services Center DLIM - Department of Irrigation, Hydrology and Meteorology DMG - Department of Mines and Geology FAPD - Foreign Aid And Program Division (Ministry of Finance). HMGN - His Majesty's Government of Npal ISC - Industrial Services Center OED - Operations EvaLuation Department PCR - Project Completion Report PPAM - Project Performance Audit Memorandum PR - President's Report TA - Technical Assistance r0R - Terms of Reference FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT NEPAL - FIRST TECHNICAL ASSISTANCE PROJECT (CREDIT 659-NEP) TABLE OF CONTENTS Page No. Preface ... ................ ................ ............ . i Basic Dara Sheet .......... .............. ................... ....... 11 Evaluation Summary .....o................................ ..........iii PROJECT PERFORMANCE AUDIT MEMORANDUM I. PROJECT PREPARATION AND DESIGN.................. .......1.... II. IMPLEMENTATION AND ACHIEVEMENTS......... ......... ........ 3 III. FACTORS AFFECTING EFFECTIVENESS............................. 5 IV. LESSONS OF EXPERIENCE........ o............................. 9 TABLES: 1. Average Duration of Phases of Sub-Project Implementation.... 12 2. Achievements by Sub-Project............................. ... 13 PROJECT COMPLETION REPORT 1. Introduction................. ... .............. .......... 14 11. Project Description...... ................................ 15 III. Evaluation.............................. ................... 17 IV. Conclusions and Suggestions for the Future................. 20 TABLES ...... ................. ....................... ........ 22 ANNEX: Description and Evaluation of Subprojects .................. 25 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. PROJECT PERFORMANCE AUDIT REPORT NEPAL - FIRST TECHNICAL ASSISTANCE PROJECT (CREDIT 659-NEP) PREFACE This report reviews the experience with the First Technical Assistance Project in Nepal supported by Credit 659-NEP for US$3.0 million, signed in September 1976. The credit was extended twice for a total of 30 months (from December 31, 1980 - June 30, 1983) but was not fully disbursed until June 30, 1984. The audit consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) dated January 22, 1985 prepared by the Bank's South Asia Regional Office. The PPAM is based upon a review of the President's Report (No. 1903-NEP) dated August 20, 1976, the Development Credit Agreement dated September 16, 1976, Bank supervision reports and other related documents and the PCR, and has also benefitted from interviews with Bank staff. The Borrower provided substantial inputs to the preparation of the PCR. Following customary OED procedures, a draft copy of the audit report was sent to the Borrower for comment on August 2, 1985, but no comments were received. - 11 - PROJECT PERFORMANCE AUDIT REPORT NEPAL - FIRST TECHNICAL ASSISTANCE PROJECT (CREDIT 659-NEP) BASIC DATA SHEET (USS mltions) As of LUI31/84 Original Disbursed Cancelled Repaid Uutstandinig Credit No. 659-NEe 3.0 2.99 .u1 -- 2.99 CUMULATIVE CREDIT DISBURSEMENT FY77 FY78 FY79 FY80 FY61 FY82 FY83 FY84 (1) Planned .3 1.3 2.3 3.0 (i) Actual 0 .1 .63 1.4 2.13 2.58 2.85 2.99 (111) (it) as Z of (1) 0 8 27 47 71 86 95 1li OTHER PROJECT DATA Original Dare Actual or Re-estimated Board Approval U9/07/7b Credit Agreement 09/lb/7b Effectiveness 11/16/76 Credit Closing 12/31/8u o/M/si MISSION DATA* Month, No. of No. of Date of Year Weeks Persons Man-weeks Report Supervision 1 5/78 2 1 i 1/79 Supervision II 3/19 1 1 1 4/79 Supervis;on 11E 10/79 1 1 1 11/179 Supervision IV 3/8 1 1 I .801 Supervision V 3/81 1 2 2 4!81 Supervision VI 9/81 1 2 2 4/81 Supervison VII 3/82 1 I I 4/82 PCP sad Supervision o!83 : 1 2 i/83 FOLLOW-ON PROJECT The ie-ond Technlcal Assistance credit was .ppr.a%ed by the U.ard '.n March 22, 1983 fur USo.o million. OTHER DATA Borrower: Kingdom of Nepal (HMG.*) Executing Agency: Foreign Aid -ind Program Uivision ot HHUN Fisral Year of Borrower: Jul/ lb to July 15 CURRENCY EqUIVALENTS Name of Currency: Nepalese Rupees Exchaage Race 9/bn Nks 12.5 Exchange Rate 12/84 NRs 1.1 * Dates of other missinns that t.ok place during the life li the [rje(t buL for which supervision reports were not issued ticlude: It/I, 5/1I, 1/71, 10-11/178, and 1l82. - iii - PROJECT PERFORMANCE AUDIT REPORT NEPAL - FIRST TECHNICAL ASSISTANCE PROJECT (CREDIT 659-NEP) EVALUATION SUMMARY Introduction A major constraint to the implementation of Nepal's development plans in the 1970s was its limited absorbtive capacity, which made it difficult for the Borrower to take advantage of development assistance. The Nepal First Technical Assistance Project was first prepared as a contingency financing instrument in case a UNDP Umbrella Project that was expected to support feasibility studies could not be funded for FY77. The IDA project was prepared over a four-month period in 1976 and approved by the Board in September 1976. The credit closed in June 1983, after two extensions of the closing date (PCR, paras. 2.1-2.3, PPAM, paras 4-6). Objectives The project had two purposes: (i) to develop a pipeline of high priority projects suitable for financing by the Association and other donors and (ii) to strengthen project preparation and implementation capacity, particularly in agriculture and industry. These purposes were to be served through the use of consultants, who were expected to devote attention to training. Special emphasis was given to building up the capacity of the Agricultural Projects Services Center (APROSC) and the Industrial Services Center (ISC). The project was designed as a line-of-credit, under which a stream of individual sub-projects, primarily feasibility studies, would be approved during credit implementation. The Foreign Aid and Program Division (FAPD) of the Ministry of Finance was responsible for the administration of the project, including the screening and selection of sub-projects for IDA approval (PCR, paras. 2.4-2.7, PPAM, paras. 7-9). Implementation Experience The project experienced serious problems during implementation. Start up was slow both because the Borrower had difficulty in identifying suitable sub-projects for financing under the credit and because of difficulties in recruiting consultants. There were delays in reaching an agreement between the Bank and the Borrower on the priorities for the use of the credit, while the Borrower was reluctant to use credit funds for funding sub-projects until it had sought first to obtain grant funds from other sources. The hiring of consultants under the project was also impeded by a slow decision-making process, cumbersome procedures, the Borrower's unfamiliarity with Bank procedures and by disputes over consultant's fees and taxation. In some cases the Borrower also had difficulty in finding consultants with the necessary specialized skills (PPAM paras. 10-12, 19-24, PCR, paras. 3.9-3.11). - iv - A total of 16 preinvestment studies were completed during the 6-year project. Half of these were executed by the two Nepalese project preparation centers (APROSC and ISC) and half by five other agencies. The rate of implementation of sub-projects tended to speed up during the project as the Borrower gained experience. However, disbursements were much slower than had been originally estimated. Less than half of the credit had been disbursed by the origiral closing date (December 1980) and the credit was eventually not closed until June 1983 (PPAM, paras 13-15, PCR, para 2.9). Results The credit succeeded in developing a project pipeline in Nepal. While the PPAM and PCR assess outcome in slightly different ways, both conclude that at least half of the sub-projects contributed to the preparation of Bank-financed investment projects amounting to a total of around US$100 million (PCR, para. 3.1 and Table 2; PPAM, para. 17-18 and Table 2). The achievements of the project in its second objective--building local capacity--are less certain. The project was not well defined to strengthen the capacity of local institutions and during implementation this objective was overshadowed by the priority attached to the generation of projects for IDA financing. For the most part consultants were not required to provide training for local staff, or to foster the organizational changes necessary to institutionalize the process of investment planning (PCR, paras. 3.2-3.3, PPAM, paras. 35-36). Sustainability Although the project was intended to expand Nepal's limited absorpLive capacity, its ultimate role was to be that of a preparation fund for Bank-financed projects. As a result, there was no systematic effort under the project to enhance the project preparation and implementation capacity of participating agencies or to improve the coordinating functions of FAPD. Nor was there much progress made in developing the capacity of local consultants. Nevertheless, while the impact is difficult to assess, it appears that the two principal target 4gencies, APROSC and ISC, gained valuable experience by participating in the project (PCR, para. 4.2, PPAM, para. 34). Findings ard Lessons Both the PCR (para. 4.3) and the PPAM (paras. 34-40) draw useful lessons from this project. In particular: (i) The purpose of the project needs to be carefully defined and agreed with the Borrower. This implies that the Borrower should be fully involved in the preparation of the project. - v - (ii) If a TA project is intended to strengthen borrower capacity, specific design features should be built in to ensure, for example, that consultants give sufficient attention to systems development and training. (iii) There is need to clarify the linkages between preinvestment studies financed under such a project and later financing by other donors. (iv) There is need for a more realistic estimate of the length of time it takes to disburse TA credits. In particular, when TA is readily available on grant terms, the Bank may have to assume a role of lender of last resort, with obvious consequences for the rate of disbursement. (v) The Bank's particular contribution to the selection and supervision of consultants should be carefully reviewed and agreed with the Borrower during project preparation and negotiation. - 1 - PROJECT PERFORMANCE AUDIT MEHORANDUM NEPAL - FIRST TECHNICAL ASSISTANCE PROJECT (CREDIT 659-NEP) 1. PROJECT PREPARATION AND DESIGN Background and Objectives 1. The Nepal First Technical Assistance Project (Credit 659-NEP for US$3.0 million) was approved by the Board on September 7, 1976 and the Agreement was signed on September 16, 1976. The Credit became effective on November 16, 1976. The December 31, 1980 closing date of the Credit was extended on two occasions until June 30, 1983 when only US$14,000 remained undisbursed. At the end of FY80, or shortly prior to the initial closing date, only 47 percent of the Credit funds had been disbursed. 2. The Credit Agreement indicated that the proceeds of the credit would be used in carrying out "...high priority sub-projects...designed to assist the Borrower in the planning and implementation of its program of economic development- (Art. III, Sec. 3.01(a)). Credit funds would be used to finance 100 percent of the costs of consultants, foreign or local, and the foreign expenditures for equipment and materials in connection with the sub-projects. Credit funds were also to be used to finance the cost of travel for overseas training programs. 3. The President's Report specified (para. 20) that, though sub-projects were expected to fall primarily into the agricultural, agro-industrial and industrial sectors, they would not be specificied in advance in order to maintain flexibility in implementation. The sub-projects would consist of studies, design and engineering work to develop a pipeline of projects suitable for financing by IDA and other donors. The Project was expected to benefit the Borrower by assisting in "... enhancing project preparation capabilities of the technical ministries and associated agencies, and in the long term, reduce dependence on foreign assistance for these purposes." To this end, it was anticipated that the consultants' terms of reference would emphasize the importance of training local staff (para. 22). 4. The essential constraint in the implementation of Nepal's development plans was identified as its limited absorptive capacity "at every stage of the project cycle." This made it difficult for the Borrower to take advantage of bilateral and multilateral aid because of the scarcity of projects. As a result, aid funds were misallocated because projects were selected on the basis of available studies and donor preferences rather than development priorities. Due to the lengthy decision-making process within the Government, the risks associated with the Project were expected to lie primarily with delays in the selection of consultants. To overcome this problem, the Foreign Aid and Program Division of the Ministry of Finance - 2 - (FAPD) was given the responsibility for coordinating the various Government agencies involved for the screening and selection of the studies to be undertaken under the Project. The Bank was also expected to provide assistance (staff time in Washington, Resident Mission in Kathmandu and frequent missions to Nepal) to supplement the Borrower's limited technical and managerial capability. However no additional staff time was budgeted for carrying out this function. 5. The Nepal First Technical Assistance Credit was first proposed as a contingency financing instrument, in case the UNDP Umbrella Project, which was expected to support feasibility studies, could not be funded for FY77. It was proposed that some of the more promising projects awaiting funding in the UNDP Country Program be brought forward as part of the studies to be implemented under the Project. The Project was prepared and processed over a four-month period (from May to September 1976). The schedule for its preparation was agreed upon between the Ministry of Finance and the Regional Vice President on May 17, 1976. The project was justified to Management as urgent in view of the financial constraints of the UNDP program in Nepal, and it was expected at that time that the Board would approve the Project at its July meeting. 6. The Loan Committee review of July 21, 1976 agreed to the Project but called for more information about the proposed sub-projects as well as the choice of the FAPD to coordinare project activities. During negotiations, the need for early identification of sub-projects was reiterated and it appeared probable at the time (August 1976) that items dropped from the UNDP list were the most likely candidates for inclusion in the project. This reflected the concern that the Bank intervention not be perceived as a substitute but rather as a supplement to UNDP funds. Major Components 7. The project was to have a double purpose: first, to develop a pipeline of high priority projects suitable for financing by IDA and other donors; and second, to assist in the strengthening of institutions responsible for project preparation and implementation. This last goal was to be achieved through the consultants working with local agencies and the training of local personnel. The Government requested, in particular, that two government consulting institutions--the Agricultural Projects Services Center (APROSC) and the Industrial Services Center (ISC) should be intensively involved in the implementation of sub-projects. 8. The FAPD was judged to have competent and qualified staff to undertake the following tasks: - coordinate the various government ministries and agencies; - screen and select the studies to be undertaken; - 3 - - select and contract with consultants, subject to agreement by IDA. The President's Report expected that the consultants' terms of reference would emphasize the importance of training local staff so as to reduce the need for foreign technical assistance in the long term. The Credit Agreement, however, makes no reference to this objective in Article IV, Section 4.01, which sets out the requirements for consultants' TORs. 9. Although the Project was to be coordinated by the FAPD in the Ministry of Finance, it was expected that technical ministries would act as executing agencies and sub-contract studies to suitable local or external consultants. While project preparation units existed in most ministries, they were not adequately staffed and APROSC and ISC were therefore expected to execute a number of the studies. II. IMPLEMENTATION AND ACHIEVEMENTS Difficulties in Project Start-Up 10. The period between the signature of the Credit Agreement (September 1976) and Credit Effectiveness (November 1976) saw the emergence of two issues which continued through the implementation period. The first issue concerned the identification and selection of sub-projects. Repeated requests to the FAPD from the Resident Mission having failed to elicit a list of sub-projects, the Bank drafted a "highly tentative list" for consideration by the Government. Most of the proposed sub-projects were studies from the UNDP Umbrella Project, and at least two of them (Horticulture and Minor Irrigation) had strong support from the Bank's Agriculture Projects Division. The Bank indicated to the Borrower that presentation of a project list at the October 1976 Aid Group meeting would demonstrate that progress was being made in building up a pipeline of good projects suitable for external financing. Nevertheless, although an initial list was produced after the Aid Group meeting, the Borrower did not provide a firm list until January 20, 1977. The Resident Mission immediately recommended that the Bank find the list acceptable in order to speed up implementation of sub-projects. 11. The second issue concerned the relationship of expatriate consultants to the Nepalese executing agencies. Soon after it realized the high cost of external contracts, the Government moved to tax the salaries of external consultants; this ocrurred as early as September 30, 1976. A few months later, the Borrower also sought to establish its contracts with individuals rather than firms, presumably to lower costs. 12. There were continuing delays in arriving at a consensus on the studies to be included in the list of sub-projects. Both the Bank and the Borrower had priorities which had to be taken into account. Within the Bank, the Projects divisions wanted to discuss the inclusion of new studies internally, before these were discussed with the Borrower. This approach had the merit of offering the Borrower some measure of assurance that such studies would lead to new Bank-assisted projects. The Borrower on his part preferred to present the list to the Bank only after financing of the studies had been sought from other sources. This meant that only sub-projects which had high Government priority but little donor support would be candidates for funding under the Project. This situation led to the inclusion of some studies even though follow-on funding did not seem likely or forthcoming (for example the Silica Lime Bricks Feasibility Study and the Airborne Magnetometer Survey which together consumed one-third of total Credit funds). Delays in Sub-Project Implementation 13. A total of 16 pre-investment studies were completed in the course of the six years of the Project. Eight of these were executed by the two principal Nepalese project preparation centers (five by APROSC and three by ISC). The remainder were executed or supervised by the Department of Irrigation, Hydrology and Meteorology (DIHM-three sub-projects), the Department of Mines and Geology (DMG-two sub-projects), the Department of Roads, the Ministry of Finance, and the Ministry of Education (one sub-project each). The PCR (Table 1) details the sub-projects financed under the Credit and the sequence of their approval by the Bank and the Borrower. 14. The length of sub-projects varied, the average duration of a sub-project being 29 months. This refers to the time period between the first mention of a potential study in project files to its ultimate completion (submission and acceptance of the report). Later sub-projects were completed in a shorter time than earlier ones; for example, studies executed in the 1981-83 period took an average of only 11 months. Two possible factors in the subsequent improvement of overall efficiency of the Project may have been: (i) the experience gained by both the Bank and the Borrower in the contracting of consultants and in supervision, and (ii) the desire by both parties to more rapidly allocate and disburse the remaining US$2 million after the second extension of the closing date. 15. The length of sub-projects also varied by agency (see Table 1). Those executed by APROSC had the shortest duration (24 months). APROSC was also the only agency which, except for the involvement of FAO experts, did not call upon external consultants or firms for the implementation of studies. In comparison, the ISC and DMG sub-projects, almost all of which called upon external resource personnel, took almost twice as long to complete (50 months and 43 months respectively). Achievements in Reaching Project Objectives 16. The record does not provide any evidence one way or the other whether local institutions derived an improved capability as a result of their participation in the project. Early in the project (May 1977) the Bank concurred with the Echrower's request and asserted that the key issue in using APROSC and ISC as consultants would be their absorptive capacity. An * assessment of their capabilities indicated that they might find cooperation on agro-industrial projects difficult: while the ISC was a "one man organization" which "spread its resources too thin,- the APROSC was - considered much better staffed and more atuned to the needs of the small farmer. It was recommended at an early stage of implementation that the project should help build local consulting capacity. Nevertheless, at the end of the project, only 18 percent of the funds were used on studies contracted to local firms, including the two agencies singled out by the Government. 17. The project has been generally successful in identifying investment projects; while the PPAM and PCR assess results in slightly different ways, both conclude that, in one wzy or another, studies financed by the Project are linked to the preparation of Bank projects with a total value of around US$100 million. The audit concludes that two of the studies (Sub-projects 2, and 3) were directly used in the preparation of USS22.5 million of further Bank loans and credits. An additional six studies (Sub-projects 6, 8, 10, 13, 15 and 16) partially contributed to Bank-financed projects with a value of US$85.9 million (See table 2). 18. Achievements varied by agency. The sub-projects carried out by APROSC were the most successful in generating investment projects: 3 of the sub-projects led directly to the formulation of IDA credits in generating investment projects totalling US$25.8 million (US$41.8 million including the role of sub-project 2 in the Agricultural Extension and Research Project). Studies with the ISC were considerably less successful (US$3.0 million or US$9.5 including the role of sub-project 3 in the analysis of the appraisal for the Cottage Industry Project). The cost of APROSC sub-projects represented 1.4 percent of the total amount of credits generated as a result, while at ISC these represented nearly 18 percent of the value of later projects. A number of studies were completed successfully but did not warrant any follow-up due to their lack of feasibility. III. FACTORS AFFECTING EFFECTIVENESS Borrower Capacity 19. The Bank became aware at an early date (July 1977) that a slow decision-making process and cumbersome organizational and administrative procedures on the part of the Borrower would lead to delays in the approval of TOR, the hiring of consultants and the finalization of contracts. Nevertheless, although the Bank moved swiftly whenever necessary to provide the Borrower with the required assistance, there was no attempt to develop a sustained Nepalese capacity. The only training which took place under the Project started in September 1981, when officials (mostly from the Ministry of Finance) were sent for short-term study in the planning, administration - 6 - and coordination of development activities. An assessment of institutional capacity of ISC wos undertaken in July 1978, although no additional sub-projects were subsequently initiated. In the case of APROSC, no full assessment was conducted, since the Bank believed that its capacity was greater. 20. Shortly after the Credit became effective, it became clear that the Borrower was not aware of Bank procedures for selecting and contracting consultants. A proposal that the Bank recruit individuals for subsequent secondment to the Borrower was rejected. Later, as Lhe contracting of consultants, including their taxation, emerged as a significant bottleneck, the Bank provided the FADP with model contracts for use in connection with the hiring of national or expatriate assistance. Reticence of Borrower to Use Credit Funds 21. The Project was initially intended as a funding substitute for projects included under a considerably reduced UN program. It was expected that Project funds would be rapidly disbursed. However, the Borrower sought to first obtain grant funds from other donors and a list of proposed studies to be funded by the TA Project could not be firmed up until these alternative sources had been explored. Thus the Bank truly acted as a lender of last resort. In one instance (Sub-project 3), the appointment of consultants to prepare project proposals was delayed until a Government request for grant support from a donor for these same services had been processed. 22. These factors affected the communications between FAPD and the line ministries. While the latter were primarily concerned with the quality of the work performed under the sub-projects, the FAPD was anxious to minimize the cost of TA and wary of the criticism that credit funds were being used to employ consultants at a cost that was very high by Nepal standards. The timing, selection and contracting of c,nsultant services appeared from the start to have been affected by this senaitivity to possible criticism. 23. In the first request by the Region for an extension of the closing date, the Government's delay in identifying sub-projects was highlighted as a contributing factor to slow implementation. After two years, only slightly over a third of the total Credit had been committed to specific sub-projects. in March 1979, the Bank seriously considered cancelling the uncommitted amount of the Credit. Two years later, in March 1981, uncommitted funds still amounted to US$200,000. 24. The Borrower faced a number of difficulties with the selection and contracting of technical assistance. The most serious problems occurred in the start-up phase of the Project. As pointed out in the PCR (para. 3.9 - 3.11), these problems involved the recruitment of consultants with the requisite skills, disputes over consultant rates and the taxing of expatriates' income: - 7 - - Signature of the DMG contract with consultants for Sub-project 4 was delayed for almost a year because of a disparity between the proposed rates and those applied in Sub-project 3 (a contract between the ISC and their consultant firm); misunderstandings on tax payments also resulted in an increased cost of the sub-project; - Government was reluctant to approve a contract with consultants for Sub-project 6 because it exempted the expatriate consultants from local taxes; - The ISC selected a firm for Sub-project 7 under questionable procedures: after some difficulty in obtaining proposals for this study and their inability to come to an agreement with the first-ranked firm, the agency contacted two additional firms directly and selected one of them; - Fee disputes with consultants on Sub-projects 4, 5, and 6 were eventually resolved but, in the case of Sub-project 1, the overbilling by consultants of US$240,000 remains under litigation. Bank Performance 25. The Region had already acquired some experience in the coordination of a TA project. Nepal TA activities were first assigned to a coordinator responsible for other TA projects in Burma and Bangladesh. It was subsequently assigned to the holder of a newly established Regional Technical Assistance Coordinator position (October 1977). This served to focus TA responsibilities which were previously scattered between project officers, loan officers and the TA Division in the External Relations Department. The new position was located in the Projects Department, so that it could have technical support of relevant divisions in the choice of sub-projects, the drafting of TORs and in the selection of consultants. 26. Even before the Credit became effective, the TA coordinator started establishing procedures with the Borrower for the implementation of project activities. In October 1976 a listing of the different steps in the selec- tion, preparation and implementation of sub-projects was agreed upon with the FAPD. The procedure was similar to the one use in the Burma project and later applied to the Bangladesh TA projects. 27. The Project was supervised on an average of twice a year. Each visit became an opportunity for identifying bottlenecks and bringing up-to- date the status of each sub-project. Supervision reports include detailed accounts of progress and often provide valuable insights into the contextual constraints on sub-project implementation. The projects divisions were clearly made responsible, starting in January 1977, for the technical backstopping of the sub-projects. The division of responsibilities involved the TA Coordinator's office until the engagement of consultants; after that, the project divisions would become more directly involved in the technical aspects of implementation. The projects divisions reviewed all TORs and - 8 - often assisted the Borrower in drafting them (Sub-projects 5 and 7). There were nevertheless some significant differences between the Borrower and the Bank regarding sub-project supervision: - In Sub-project 1 (Kosi River Training), the Bank retained a consultant to supervise and monitor the study since the Borrower did not have the expertise to do so. A number of serious oversights resulted in significant time lags and misinterpretations of the objectives of the study. These included: lack of clariLy over the date for the start of the study so that relevant data could be collected, lack of definition of the cost limit on the selected solution to be presented by Consultants, and some mistaken assumptions by consultants regarding the authority of a consultant (retained by IDA) to commit in the name of the Borrower. - In Sub-project 5 (Airborne Magnetometer Survey) the Borrower expressed concern that delays in the implementation and the ultimate contractual dispute with the consultant had resulted from unclear initial objectives and hasty contracting under Bank pressure. 28. The generally good coordination between the Regional Program and Projects Departments considerably improved the potential for project's effectiveness. The only disagreement concerned the degree of flexibility over the use of funds: projects staff thought that the major project objective was to produce pre-investment studies for agro-based industries, while the Program Division favored a greater latitude in the use of funds, without any commitment to finance any investment proposed by the studies. At the end of the project, studies which led to Bank financing were predominantly in the agriculture and agro-industrial sectors, which had been identified as priority areas in the 1976 President's Report. 29. In at least two instances the Borrower felt that the Bank was assuming d more active part in the supervision of the studies than was warranted by its lending agency role: in Sub-project 1, the study consultants assumed that a consultant employed under a Bank-financed project spoke for the Nepali executing agency and had acted on that assumption, with product and cost overrun consequences (see PCR, Annex 1, pp. 1-8); in Sub-project 5, the Bank was reproached for dealing with the consultants directly rather than through the Government. The supervision problems, as well as the absence of early agreement on procedures for the selection and contracting of consultants, suggest that the Bank could have done more to ensure the Borrower's capacity to implement the Project. Lack of Borrower Involvement in Project Preparation 30. The involvement of the most relevant agencies in the design of the TA Project appears to have been minimal. The Ministry of Finance made an urgent request to the Bank for a line of credit for project preparation studies. However, there does not seem to be any evidence that the Ministry - 9 - consulted with other relevant agencies, except for the ISC. Shortly after effectiveness, it was reported by Bank staff that no other agency was aware of the existence of the Credit and that little preparation activity had been undertaken in anticipation of its start. Officials who were in a position to make decisions on the choice of sub-projects were reportedly weary from the large number of "aid missionaries" which Nepal seemed to attract; they were also wary of the terms under which assistance was being offered to them from all sources, including the Bank. Borrower and Bank Expectations 31. The Borrower perceived the Credit as a costly resource, to be used literally as a "last resort" when grant funding was not available for a study or when there was no prospect of obtaining grant funds for the follow-up investment. This approach was not consistent with the Bank's expectation of relatively rapid disbursement of the funds. The Borrower and the projects divisions of the Bank were fundamentally in agreement that sub-projects should preferably consist of pre-investment feasibility studies for future Bank-financed projects. However, the projects divisions found it difficult to accept that these funds might well be preliminary to financing and investment by donors-at-large rather than be used for the preparation of the Bank's lending program. 32. The principle used by the Bank in the approval of sub-projects seemed to concur with the Borrower's position: it required that the Bank be satisfied that the funds not be wasted and that some investment potential existed to justify the cost of proposed studies. Later, the Bank confirmed that funds used in connection with feasibility studies were to be more directly related to immediate production and for the strengthening of institutions responsible for project preparation and implementation. Bank Estimates of Disbursements 33. The Bank overestimated the rapidity of disbursements under the Project. Shortly before effectiveness, the Resident Mission expected that funds would be allocated quickly. Two years later, it was thought that US$2.4 million had already been allocated, but the Resident Mission estimated this amount at little over US$1.0 million. This was essentially due to variation in the amounts allocated to each project at any one time and uncertainty over the composition of that list. IV. LESSONS OF EXPERIENCE 34. Although the Project was intended to overcome Nepal's limited absorptive capacity at every stage of the project cycle, its ultimate role was to be that of a preparation fund for Bank-financed projects. The slow process under which consultant resources were made available for executing pre-investment studies underscores the reluctance of the Borrower to use - 10 - credit funds for TA and the lack of competitiveness of IDA funds compared with grant sources. Though these studies appear to have been useful in generating development activities, the input of technical assistance in mid-stream of the project cycle did little to ensure an improvement of the process as a whole. Need to Emphasize Institutional Development and Training 35. The Project was clearly not well designed to strengthen the capacity of local institutions. The strategy pursued by this project was not appropriate for generating a sufficient number of studies to fully utilize grant funds available from aid donors. Nor was it sufficient to establish and foster the organizational changes necessary to institute a system for planning a pre-investment study program. 36. Except for the development of a working relationship between the Bank TA Coordinator and the Project Coordinator within the Ministry of Finance, the objective of institutional strengthening receded in importance and was not seriously pursued in the course of the project. Assessments of the capabilities of APROSC and ISC as executing agencies of sub-projects did not occur until the project was well into the implementation phase. Moreover, consultants were not contractually required to train local personnel, and only a modest short study program was mounted for national personnel in the planning and management of development activities. Need to Clarify Purpose of Project 37. In stressing Nepal's immediate need to generate and prepare projects suitable for external financing by IDA and other donors, the President's Report did not clarify the linkages between pre-investment studies under the project and later financing by other donors. The establishment of a system for donor coordination was not considerel either during preparation nor during implementation. The need for such a system became apparent in the course of the project, in particular in developing a pre-investment studies work program as well as in obtaining financing for projects that resulted from these studies. The absence of such coordination led to unnecessary delays in project implementation, as Bank staff assumed that some studies were to be included on the TA sub-project list while they were in fact still under consideration by other aid agencies. Ambiguity over the ultimate source of finance led to frequent changes in the list of potential TA sub-projects, and this in turn contributed to fluctuations in the amount of unallocated funds and consequently to extensions of the closing date of the project. 38. The role of foreign consultants in the development of a local con- sultant capability was also the object of some ambiguity. The PR expected that most of the technical assistance would be provided by external consul- tants and that local institutions would benefit from such interventions. It was recommended, early in project implementation, that the project support local consulting organizations by contracting with APROSC and ISC for - 11 - sub-project preparation. However, there was no clear agreement between the Bank and the Borrower on the p m-pose of consultant interventions. Even when expatriates were hired, the contracts made no reference to training or to strengthening of the relevant agency. 39. Given the availability of grant money, it is understandable that Government regarded the Bank, through the IDA credit, to be a lender of last resort. However the Bank was reluctant to accept the reality of this situation (with its consequences for slow disbursements and extended closing dates) and during implementation sought to find additional projects to use up funds not committed under the Credit. Need for Greater Borrower Involvement 40. The absence of Borrower involvement during preparation of the project resulted in differing interpretations of its purpose. Even after the establishment of procedures between the Bank and the Borrower for the implementation of sub-projects, some confusion remained about which funding sources would benefit from pre-investment studies and which projects should be included in the work program. Delays in the utilization of funds and in the preparation of a project pipeline became inevitable. Follow-Up Project 41. The FAPD expressed the wish (March 1979) that IDA consider a second TA project. As a result of experience under the First Project, care was taken in the preparation of a second project to identify some sub-projects at an early date. By April 1980, a tentative list of possible sub-projects was developed for that purpose. The Borrower was equally aware of the problem, since lack of advance agreement on the studies to be undertaken heightened the uncertainty of their subsequent financing. For that reason, the Government requested (October 1981) that only studies which would lead to financed projects be included in the list and that a small number (3 or 4) of studies should be identified before the credit was processed, with the remaining portion unallocated until projects with a high probability of financing could be identified. - 12 - TABLE I AVERAGE DURATION OF PHASES OF SUB-PROJECT IMPLEMENTATION From From Identification Appraisal From to to Contract Joint Appraisal Contracting to Report Total of Full Project of Consultants Submission Implementation (months) (months) (months) (months) Executing Agency APROSC 10.0 6.0 9.4 23.6 ISC 16.6 12.0 17.3 50.0 DIHM 5.6 - 20.3 26.0 DMG 4.0 20.5 18.5 42.5 Others 1.7 .33 9.3 11.3 Period Sub-Project Identified 1976-78 8.6 13.0 20.7 44.0 1979-80 9.2 2.7 8.7 20.7 1981-83 1.7 .33 9.3 11.3 Total TA Project 7.5 6.7 14.1 29.1 Source: PCR and Project Files. Table 2 ACIEVEMENTS BY SUB-PROJECT Problems Size of Reasons for Executing US$ Type of Objective Effectiveness Use of Project Less Than Full Agency Cost TA a/ of TA b/ Rating c/ Output d/ (USS million) Effectiveness e/ APROSC 2 51,379 LC PIP 3 Bank 1 16.0 a 85,790 LC PIP 3 Bank 2 6.2 9 80,000 LC PIP 2 No F Do,Dt 10 58,819 LC PIP 2 Bank 2 9.2 Do 13 86,144 EC/LC PIP 3 Bank 2 7.4 Dt [SC 3 215,245 1C PDP,VIP I Bank 1 6.5 Is'lc b 11)5,112 K C PDP,PIP 3 Bank 2 3.0 Ig,Is 7 217,9o03 EC(LC) PDP,PIP I No F Is Dl 1* 1 735,598 EC VIP U No F Uo,Dt Ig,Ib,1c 11 49,112 EC PIP 3 Support 12 78,137 EC PE 2 Support Do DMG 4 323,855 EC Pip 2 No F Lg 5 710,245 EC PIP 2 No F Is,Ig,Ib Others 14 68,U36 Ec PIP 3 No F 15 20,430 LC PuP,PIP 3 Bank 2 12.6 lu 1U,U00U EC PIP 3 Hank 2 47.5 NUrEs: a/ LC - Local LonsUltants; EC - External Consultants. b/ PDP - Policy Developmeiit Planning; PIP - Project Implementation PreparAtion. c/ 3 - Output fuLL. IlLilized, 2 - mainly utilized, I - some used, ' - None used d/ No i - No iunding ;jbtained, Support - used in support of preparation o: funding, Bank I - used directly for development/prepArHtion -f Bank-financed project, Bank 2 - used as c busis for Bank-financed project. o/ Do - Desigi, ObJL(ives, Ot - Design TORs, Is - Consultant selecti;)n, I4 - Government management, Ib - bank supervision, lke - eerformance of Consultants. PROJECT COMPLETION REPORT NEPAL FIRST TECHNICAL ASSISTANCE PROJECT (CREDIT 659-NEP) January 22, 1985 South Asia Regional Office - 14 - PROJECT COMPLETION REPORT NEPAL - FIRST TECHNICAL ASSISTANCE PROJECT (CREDIT 659-NEP) I. INTRODUCTION 1.1 The purpose of this Project Completion Report (PCR) is to analyze the effectiveness of the first free-standing technical assistance credit to Nepal. The PCR treats the technical assistance project supported by Credit 659-NEP approved by IDA September 7, 1976 for US$3.0 million. The credit was signed September 16, 1976, became effective November 16, 1976 and was originally scheduled for closing December 31, 1980. The credit was extended 30 months through two extensions--first to June 30, 1982 and again to June 30, 1983. The undisbursed balance of US$ 14,000 was cancelled by June 30, 1984. 1.2 The PCR is organized into four main headings with subtopics, tables and an annex. The main headings are: I. Introduction, II. Project Descrip- tion, III. Evaluation, and IV. Conclusions and Suggestions for the Future. Table 1 lists the subprojects, their approval dates and final disbursements. Table 2 shows IDA follow-up investments and Table 3 is in the form of a graph comparing estimated and actual disbursement. The Annex provides statistics and a description and evaluation of each of of the sixteen subprojects. - 15 - II. PROJECT DESCRIPTION Background 2.1 IDA began lending to Nepal in 1970 and, as the number of projects increased, Nepal's technical and managerial capabilities became stretched to the limit. With other agencies stepping up their aid, the Lack of absorptive capacity and not lack of funding became the principal inhibitor to Nepal's development. This situation led, in turn, to project selection being deter- mined by available studies or donor preference rather than by development priority. 2.2 Nepal and IDA were especially concerned with low productivity in agriculture--the sector most important to the population. Agricultural activities accounted for 2/3 of CDP, 80% of export earnings and 90% of employment. In order to concentrate on this priority, Nepal and IDA agreed that agricultural projects must be prepared to draw external financing. Agro-industrial and industrial sectors were also prime targets for develop- ment. Project Identification 2.3 The Government, in discussions with IDA, identified the technical assistance project to be financed by IDA after UNDP was unable to finance such a project because of serious financial constraints. The Government and IDA agreed that the TA project was to be modeled on a line-of-credit project operating in Bangladesh (Cr. 409-BD), i.e., a project composed of discrete subprojects each one to prepare or test the feasibility of an investment project. The project was presented on this basis to IBRD's Board by a Presi- dent's Report. Objectives 2.4 The objectives stemmed from the identification of the need for well prepared investment projects. The two stated objectives were: 1) To assist the Government in the preparation of feasibility studies, design and engineering work in order to develop a pipeline of high priority projects suitable for financing by IDA and other donors; and 2) To assist in strengthening institutions responsible for project preparation and implementation through provision of consultants and training. In accordance with the second objective the credit would augment the capacity of the technical ministries responsible for each project preparation under the credit as well as the capacity of the two quasi-governmental consulting organizations with whom the ministries would contract. The two organizations included the Agricultural Projects Services Center and the Industrial Serv- ices Center developed to respond to the Government's emphasis on small-scale development projects. - 16 - Design 2.5 The US$3.0 million TA credit served as a flexible Line of credit, which meant that the approval of the credit did not depend on a prior deter- mination of each di!rcrete study to be financed by the credit. This permitted the Government to request allocations for individual studies (subprojects) as the need arose, and processing could begin as soon as the Government and IDA agreed on the subproject. In a nutshell, the design was intended to allow flexibility and responsiveness to meet immediate needs and to permit direct action to meet those needs. Organization 2.6 The TA project was organized to emphasize coordination by both IDA and the Government. The number of varied subprojects, each requiring separate attention, made coordination a crucial concern as did the monitoring of the project as a whole. The Foreign Aid and Program Division of the Ministry of Finance was responsible for Government coordination of the over- all project. Within the Bank coordination was assigned to a project coor- dinator (later Technical Assistance Coordinator). Implementation 2.7 The Foreign Aid and Program Division had ultimate responsibility for screening, selection and approval of the project studies with IDA's approval. The technical ministries and agencies hired and directed the consultants in accordance with IDA's guidelines. In IDA, the projects division associated with an individual study was responsible for its technical supervision; the TA Coordinator assumed overall supervision of the project. 2.8 Standard Bank practice was followed where IDA approved the TORs, the consultants to be hired by the Government as well as the contract. Most of the contracts were expected to go to expatriate consultants; however, TOR were to emphasize training of local staff to reduce the need for foreign consultants in the Long-term. Disbursement 2.9 The credit financed 100 percent of the total costs of both foreign and local consultants hired directly or through subcontract. The credit also provided for foreign exchange funds for materials and training. The credit was expected to disburse 10% in FY 77, 33% in FY 78, 33% in FY 79 and 24% in FY 80. However disbursement followed a slower pace: 0% in FY 77, 3.3% in FY 78, 17.7% in FY 79, 25.8% in FY 80, 24.4% in FY 81, 15.1% in FY 82 and 9% in FY 83 and finally 4.7% in FY 84. (See Table 3.) - 17 - III. Evaluation Overall Assessment 3.1 Objective to Prepare Investment Projects: The studies under the credit mostly achieved this objective by leading to IDA follow-up investment. Out of the thirteen studies intended to tead to project preparation, seven projects materialized for a total follow-up investment of US$ 100.0 million. Four subprojects provided support through training and TA to agencies implementing investment projects totaling an additional US$ 50.0 of IDA investment. (See Table 2) 3.2 Objective to strengthen institutions responsible for project prepara- tion and implementation: It is difficult to assess precisely how much stronger an institution is after a project than before. However we can say that the credit did provide the targeted institutions, the Agricultural Projects Services Center and the Industrial Services Center, with an oppor- tunity to increase their project preparation capacity. The intention was that the Government would contract preparation or feasibility studies to these local project preparation centers, and they in turn would subcontract to expatriate consultants who would provide missing technical expertise and train the Centers' staff. These centers contracted to execute eight of the sixteen studies--a notable achievement. Five subprojects, including the National Agricultural Extension Study (subproject 2), Grain Storage Study (subproject 8), Terai Development Study (subproject 9), Agricultural Manpower Survey (subproject 10), and Cash Crop Development (subproject 13) were con- tracted to the Agricultural Projects Services Center (APROSC), and three subprojects including Cottage Industry Preparation (subproject 3), Leather Goods Study (subproject 6), and Electrical Goods Study (subproject 7), were contracted to the Industrial Services Center (ISC). However, only three of subprojects involved expatriate consultants: Cottage Industry Preparation (subproject 3), Leather Goods Study (subproject 6) and the Electrical Goods Study (subproject 7) and none of the terms of reference called for a training function. Whatever strengthening of the Centers came about mostly through their own efforts in preparing the studies and in the supervisory assistance offered by IDA staff. It appears that the intention of the objective was served but not by the stated method. 3.3 The Primary School Mapping Study (subproject 15), contracted to a local university, was a particularly successful study. IDA and UNESCO made a clear transfer of technology to the local consulting group, and the study led to follow-up investment. Other organizations both local and foreign now seek out the services of this local consulting group. 3.4 However, the Borrower, IDA, and consultants encountered difficulties with several subprojects. In the case of one subproject, classic problems in design, implementation and effectiveness crystallized into a dispute over performance and pay. Some of the significant problems are discussed as follows. Terms of Reference 3.5 Terms of Reference for technical assistance studies are too often carelessly prepared. Weak TOR can stem from Government's indifference and - 18 - from inattention by IDA staff who are not given the extra time needed to develop TA TOR properly. Terms of Reference that slight guidelines for the preparation of TOR may be incomplete, vague, and conseq ently susceptible to varying degrees of interpretation by the agency and consultants. Personal misunderstandings that result, extra costs incurred, and a mediocre product can quickly cool a Borrower's enthusiasm for spending scarce resources on TA even if the results are minimally acceptable. Specific examples are as follows. 3.6 The Cash Crop Development Study (subproject 13) cost more than anticipated because original TOR were discovered to be incomplete and had to be redefined after implementation began. The Terai Agricultural Development 9) resulted in an impasse between Government and IDA because the TOR did not include all the important variables to be analyzed. Thus the study conclu- sions became debatable. 3.7 Terms of Reference not related to the available resources or to Government commitment may carry unrealistic objectives. Although the con- sultant for the Mechanical Workshops Superintendent (subproject 12) was very effective in his work, his activities represented a significant reduction in the scope of the original objectives which had included three consultants for three different investment projects. 3.8 The TOR for the Kosi River Training Study (subproject 1) were both ambiguous and unrealistic and predestined this study to failure in attaining its desired objectives. The problem began when the Staff Appraisal Report (SAR) estimated unrealistically low costs to obtain a feasible hydraulic solution. The problem was compounded when the TOR for the consulting firm to carry out the design did not specify parameters for the design and the the consultants overspent the contract attempting to develop a hydraulic solution ultimately neither feasible technically nor economically. The result was a disappointment for HMGN and a dispute with the consultants. Implementation 3.9 Recruiting and Contracting Consultants: This process causes troublesome delays in implementation. HMGN had difficulty recruiting foreign consultants with the necessary specialized skills for the Cottage Industry Study (subproject 3) Leather Goods Study (subproject 6), and the Electrical Goods Study (subproject 7). HMGN would like IDA to be more helpful in finding a winer selection of consultants clearly in possession of a particular exper- tise. 3.10 Contracting delays occurred because of disputes over consultant rates and the taxing of expatriates' incomes. These contracting problems affected the ,Silica Lime Bricks Study (subproject 4), Airborne Magnetometer Survey (subproject 5) and the Leather Goods Study (subproject 6). The development of a standarized contract should help mitigate these problems. 3.11 On the other side, the push to avoid delays in the contracting process generates other tensions. Government officials suggested that, although IDA urges HMGN to reduce delays in contracting, IDA does not always give equal importance to helping provide a broad choice of consultants and in - 19 - helping to define contract TOR and financial terms. Consequently, the off i- cials sometimes feel pressed to accept consultants who may not be the best at financial terms that may not be the best. 3.12 Supervision: Adequate supervision of TA depends on keeping the objective of the study always in mind. The task sounds deceptively simple; it is instead highly difficult. The Kosi River Training Study (subproject 1) failed to attain the expected solution because this complex study focused on finding a hydraulic solution independent of the rest of the objective which called for the solution to be also economically feasible. IDA hired its own skilled specialist to help supervise the consulting firm hired by HNGN because it was agreed that the HMGN was unable to provide the expertise. IDA's specialist supervised the consulting firm diligently as he and they worked toward a hydraulic solution. However, the results of this subproject remind us that it is necessary for IDA and HMGN staff to remain always in control of a sense of the larger picture. In this case all parties lost sight of the objective--that the solution had to be economically feasible as well as technically feasible. 3.13 Consultants' performance: This issue came under dispute in The Kosi River Training Study (subproject 1). HMGN and IDA expressed the view that the consulting firm continued to proceed with inherently unsuitable and expensive designs well beyond the bounds of technical common sense. A dis- pute also arose out of an ambiguous contract with an individual in the Air- borne Magnetometer Survey (subproject 5). Although the dollar amount was relatively small, HMGN raised the issue of IDA dealing directly with a con- sultant in its supervisory role and appearing "to take sides" in the dispute. 3.14 Government Commitment: Some studies, although reasonably well done, were less effective than intended because of soft Government commitment. The Agricultural Manpower Study (subproject 10) experienced a reduction in project scope because there was lack of agreement within HMGN on the project size. Other studies may not have been ideally effective because of factors outside HMCN and IDA control, e.g., market conditions or technical human resources within the country stretched beyond their Limits. 3.15 Cost Overruns: Overruns can occur when a consultant's contract is not clearly written and not carefully supervised by joth HMG and IDA. The Kosi River Training Study (subproject 1) suffered from the lack of a tight contract and unclear TOR. As a result the consulting firm interpreted the contract as "open ended" both in time and money, which was not the intention of HMGN or IDA. The consultants billed HMGN 40% over the original contact leading to a pay dispute still unresolved. - 20 - IV. CONCLUSIONS AND SUGGESTIONS FOR THE FUTURE Summary 4.1 The credit delivered technical assistance to Nepal with a few notable exceptions. Most of the problems encountered in the subprojects originated in the inadequate design of the terms of reference and in the poor procedures for recruitment and contracting of consultants. 4.2 The credit was effective ii bringing about follow-up investment but was significantly less successful in the pursuit of the simultaneous objec- tive of strengthening project preparation institutions. In pursuit of this second objective it had been intended that expatriate consultants be associated with most of the studies not only to help prepare the investment project but also specifically to provide training and assistance to the two quasi-governmental consultant centers. Because of difficulties in finding expatriate consultants and the need to complete the studies, expatriate consultants were involved with only three of the eight studies implemented by the two centers and then with no clear mandate stated in their TOR to train the local staff. The overriding emphasis for both local and expatriate staff was the first objective--to produce an investment project. Why did the pursuit of the second objective become sidetracked? One reason may be that the Bank and Government did not fully anticipate the large amount of time and energy that each objective would require; and, when the objectives began to compete for scarce resources, it is not surprising that pursuit of institu- tional objectives gave way to concentration on preparing a project. The Bank and Government may wish to seek both objectives but priority is given to staff time and expertise devoted to preparation of investment activities culminating in a lending operation. This dilemma might be resolved by focus- ing on institution building as i primary or separate objective of an entire credit or of individual subprojects, that must be achieved before other objectives. To encourage Bank staff to make this objective a primary goal and thus to encourage Government staff to do the same, clear evidence of the Bank's priority should be communicated to Bank staff through provision of time, expertise and in the evaluation process. - 21 - Suggestions for the Future 4.3 1. State clearly the objectives of the free-itanding credit and a strategy (methodology) for their achievement. Strategy should strike a balance between a number of studies that are clearly identified before Board approval to achieve a goal and unallocated amounts in the credit for future flexibility. 2. Consider a separate TA project or set aside specific subprojects with the overriding objective of strengthening institutional capacities. 3. Provide a more realistic estimate of the length of time it takes to implement and consequently disburse TA credits. 4. Devote more time and resources to assisting with terms of reference and to a more thorough review with the HMG. 5. Government and IDA staff should give more time to the supervision of TA and take care to utilize associated in-house skills (legal, financial, etc.) in addition to depending on their own technical expertise. 6. IDA staff should deal through Government with consultants who are retained by the Government and not directly with the consult- ants. Any exception should be carefully defined by the Govern- ment. 7. Remember that responsibility for project implementation of the project rests with the Government agency. TABLE 1 - 22 - SUBPROJECTS FINANCED UNDER CREDIT 659-NEP Amount Approval Date Number Subprolect Name (USD) April, 1978 1 Kosi River Training 735,598 May, 1977 2 Agricultural Extension Study 51,479 April, 1977 3 Cottage Industry Preparation 215,245 June, 1977 4 Silica Lime Bricks Feasibility Study 323,855 October, 1977 5 Airborne Magnetometer Survey 710,245 August, 1979 6 Leather Goods Subsector Study 105,112 August, 1979 7 Electrical Goods and Accessories Subsector 217,903 Study April, 1979 8 Grain Storage Study 85,790 May, 1980 9 Terai Agricultural Development Study 80,000 May, 1980 10 Agriculture Manpower Survey 58,819 November, 1979 11 Babai Irrigation Supplementary Study 49,112 May, 1980 12 Mechanical Workshops Superintendent 78,137 March, 1981 13 Cash Crop Development 86,144 February, 1982 14 Marsyangdi Technical Review 68,036 April, 1982 15 Primary School Mapping 20,430 June, 1983 16 Preparation Third Highway 100,000 Total disbursed 2,985,905 Total undisbursed 14,095 Total credit 3,000,000 TABLE 2 -23 - IDA FOLLOWUP INVESTMENT to CREDIT 659-NEP Inv. credit Amount Subp. no. Subp. title no. LSSmil 2 Agricultural Extension Study 1100 16.0 3 Cottage Industry Preparation 1191 6.5 8 Grain Storage Study 1062 6.2 11 Babai Irrigation Supplementary Study 1093 3.4 13 Cash Crop Development 1379 7.4 15 Primary School Mapping 1463 12.6 16 Preparation Third Highway 1515 47.5 Total 99.6 ONGOING OR PROPOSED IDA INVESTMENT Supported By CREDIT 659-NEP 1 Kosi River Training 812 30.0 5 Airborne Magnetometer Survey 1260 8.3 * 6 Leather Goods Subsector Study 1535 3.0 10 Agriculture Manpower Survey 1534 9.2 Total 50.5 Part of a broader Industrial Development project TABLE 3 - 24 - Estimated and Actual Cumulative I Disbursement by USDollars and by Fiscal Year - - - - - - - Estimated Actual uss million 100% 1002 1 2.8 95.3% I 2.6 s I 86.3% 2.4 / * 2.2 I 76% ; I 2.(. I I 71.2 1.4 I I 1.4a 46.8% 1. 1 43% 1 I 1.1 1 I I I .6, I 21% , 10%, 1 e3.3 - 0% FY 77 78 79 81 82 83 84 original Extended closing - 25 - PROJECT COMPLETION REPORT NEPAL - FIRST TECHNICAL ASSISTANCE PROJECT (CREDIT 659-NEP) ANNEX: DESCRIPTION AND EVALUATION OF SUBPROJECTS Subproject Annex Page No. 1. Kosi River Training.............................. 26 2. Agricultural Extension Study..................... 31 3. Cottage Industry Preparation..................... 32 4 Silica Lime Bricks Feasibility Study.............. 34 5. Airborne Magnetometer Survey...................... 36 6. Leather Goods Subsector Study..................... 38 7. Electrical Goods and Accessories Subsector Study.. 40 8. Grain Storage Study .............................. 42 9. Terai Agricultural Development Study.............. 43 10. Agricultural Manpower Survey....................... 45 11. Babai Irrigation Suppmementary Study............... 47 12. Mechanical Workshops Superintendent ...............48 13. Cash Crop Development.............................. 49 14. Marsyangdi Technical Review........................ 50 15. Primary School Mapping............................ 52 16. Preparation Third Highway....... ............... 53 - 26 - Annex Page 1 of 28 DESCRIPTION AND EVALUATION OF SUBPROJECTS Subproject No. 1 Title: Kosi River Training & Chatra Main Canal Sediment Control Study Government Implementing Agency: Dept. of Irrigation, Hydrology & Meteorology Date IDA Approved: April 18, 1978 Contract Signed: May 2, 1978 Project Completed: April 1982 Original Allocation: $60C,700 Current Disbursement: $735,598 Investment Support: Supported Credit NEP-812 approved May 25, 1978 for US$30.0 million for Sunsari-Morang Irrigation and Drainage Project Background/Objectives In order to raise crop yields through more efficient use of the existing irrigation infrastructure, His Majesty's Government of Nepal (HMGN) requested that IDA assist in financing stage I of the Sunsari-Morang Irriga- tion and Drainage Development project and stage II of the Narayani Zone Irrigation Development project. The project would improve the existing Chatra Canal irrigation system and extend distribution of regulated water supplies. During appraisal three preparatory activities were identified, one of which was financed under the TA credit: The Study and Design of River Train- ing Works in the River Kosi and of Sediment Control Works for the Chatra Main Canal (CMC). The consultants' main objectives under the TA crelit were to advise DIHM how to: a. divert sufficient water from the Kosi River into the intake or the Chatra Main Canal to meet project requirements. b. reduce sediment entering the CMC from the Kosi river; c. protect CMC against damage during high floods in the Kosi river; d. maintain designed discharge capacity of the CMC by removing sediment; and e. maintain satisfactory operation and maintenance of the works and facilities. - 27 - Annex Page 2 of 28 Implementation On April 18, 1978 HMGN requested a US$600,000 allocation under the TA credit to finance the services of a consulting engineering firm to carry out the Kosi River Training and CMC Sediment Control Study. A two-year contract was signed between HMGN and the consulting firm May 2, 1978. The United Kingdom financed the hydraulic model studies contracted to Hydraulic Research Institute, Wallingford, England that were complementary to the IDA-financed study. A consultant, previously hired by IDA to help appraise the Sunsari Morang Irrigation an. Drainage Project was retained by IDA to supervise and monitor this study because it was agreed that HMGN was unable to provide the expertise. HMGN's consulting firm did not begin data collection for the river survey until late in 1978 and so missed collecting data on the rising flood of the monsoon. This data was rendered unreliable; therefore, Addendum No. 1 to the contract was signed on February 22, 1979 to permit collection of hydrological information on the Kosi River during the monsoon--June and July 1979. In September, 1979 extended river surveys were completed and HMCN's consulting firm began testing design options on a fixed bed model. IDA's consultant visited the consulting firms in October/November 1979 and drew up a model testing schedule to be completed by mid-1980 that would include fixed and mobile bed testing. In April, 1980 HMGN's consulting firm completed testing on the fixed bed model and repoLlied that the River Training solution (downstream solu- tion), while hydraul-:ally feasible, was very expensive. They suggested instead an "upstream" solution involving an intake upstream to a connecting tunnel to CMC. The consulting firm indicated a rough estimate of a range of Pounds Sterling 15 to 10 million difference between the costs of the two solutions. At this time, IDA's consultant expressed serious reservations about the tests done on a fixed bed model and requested mobile bed tests in lin2 with previous Bank staff recommendations. By June, 1980 the consulting firm had begun testing the "upstream" and "downstream" hydraulic solutions on a mobile bed. Late in June, 1980 a major flood occurred in the Kosi River that changed the course of the river and the bed level, resulting in imminent danger to the Chatra Main Canal. In August, 1980, when IDA's consultant met with HMGN's consulting firm in the U.K., the latter reported costs for the solutions ranging from Pound Sterling 40.0 million to Pound Sterling 45.0 million. By this time, the devastating results of the flood had indicated that none of the tested solutions was workable. IDA then called the consult- ing firm to Washington (September 3, 1980) and informed them that the solu- tions were too expensive and unworkable. The consulting firm reduced the cost estimates to a range of Pounds Sterling 15 - 35.0 million, which remained significantly above the Staff Appraisal Report estimates of US$2.64 - 28 - Annex Page 3 of 28 million. At this meeting, IDA recommended to the consulting firm a main- tenance solution as the only feasible one. IDA informed DIHM of this recom- mendation on September 10, 1980. On September 19, 1980, IDA's consultant met with the HMGN's consult- ing firm and the representative from DIHM, in the U.K. acting on instruc- tions to demonstrate to DIHM's representative that the maintenance solution was the only sound solution. IDA's consultant was also instructed to convey to the consulting firm that work on the hydraulic model should be halted and that they should concentrate on protection works and a maintenance solution. The consulting firm raised an objection: they argued that their original TOR did not suggest a maintenance solution and they held out little hope for the effectiveness of the less expensive solution. On October 30, 1980, IDA and DIHM informed high officials of HMGN that neither the "upstream" nor "downstream" hydraulic solution was viable. It was agreed that DIHM and IDA would instruct HMGN's consulting firm to prepare a maintenance solution. In fall, 1980, Addenda No. 2 to the con- tract was signed, which provided for the work done several months earlier on the upstream solution, now abandoned. The consulting firm had also sub- mitted Addenda 3 (cost escalation beyond May, 1980) and 4 (mobile bed test- ing). HMGN and IDA reviewed the.preliminary designs for a maintenance scheme in March, 1981; as a result, HMGN's consulting firm was advised to make substantial design changes. The consulting firm worked on a total of three maintenance schemes through 1981. The firm prepared addendum 5 and in June 1982 addendum 6 to pay for the maintenance work. IDA confirmed to DIHM that the consulting firm was to make the alterations and minor design changes that the consulting firm and the IDA staff had discussed in London, January 29/30, 1982. In April, 1982, the consulting firm submitted to DIHM the tender drawings and specifications of the design solution agreed to in January, 1982. By this time, problems with payments had arisen, leading to a perfor- mance and pay dispute. Evaluation The four-year study that was intended to take two years, failed to produce a hydraulically feasible solution. The following factors con- tributed to the inefficient and delayed implementation of the studies: (1) unrealistic cost estimates in the staff appraisal report (SAR) for the Sunsari-Morang Irrigation and Drainage project (2) vague, ambiguous TOR, and (3) inadequate supervision. (1) The SAR for the investment project raised unrealistic expectations when it stated "The design of river works and sediment control arrangements by consultants would be based on modern hydrauL;c and fluvial process technology," and that an estimated - 29 - Annex Page 4 of 28 US$ 2.64 million for river control, flood protection and sediment control was the amount to make the project technically feasible. After early 1979, consultants reported costs for a hydraulic solution from at least US$ 10-18.0 million over SAR estimates. The wide gap between the SAR estimates and those of the consultants indicates that a hydraulic solution to the Kosi River training problem was impossible within the SAR estimates. (2) The TOR failed to specify a cost Limit for the selected solution. Because HMGN's consulting firm understood that the TOR called for a hydraulic solution, they continued to develop and test options that were inherently unsuitable and too expensive. (3) Inadequate supervision by the HMGN/DIHM and IDA permitted HMGN's consulting firm to continue testing solutions after they were known to be too expensive. The firm claimed that IDA took the lead, through its own consultant, in ordering more and more model testing of the hydraulic solutions. The firm claimed that it was not until after the serious flood demonstrated that hydraulic solutions may not work (let alone be economically feasible) that IDA referred to the cost of the hydraulic solutions and advised DIHM to support a low- cost maintenance solution. The lesson here is that IDA's supervisory responsibility cannot be delegated. By contrast, DIHM did not take a strong enough role which raises one of the most important lessons to be learned: ultimate responsibility for project implementation must be with the agency of the Government. In addition to these technical problems, the financial terms of the contract were susceptible of contradictory interpretation, leading to a payment and performance dispute. DIHM believed that it was not obligated to pay for services over the estimated maximum expenditures of the original contract plus amounts under signed Addenda 1 and 2. Both DIHM and the Bank viewed the contract as a fixed maximum and believed that the firm had inade- quately informed them of the financial impact of their activities. However, because an expenditures ceiling was not given in the con- tract, HMGN's consulting firm interpreted the contract as open-ended, both in time and money, to allow for additional studies needed to find a solution. They claimed that DIHM, or the Bank staff, or IDA's consultant had regularly asked them to perform additional tasks and that they performed these tasks in good faith because they assumed the contract allowed this flexibility. The firm submitted six addenda for claimed additional work during the four years although Addenda 3, 4, 5 and 6 were never signed. Eventually, the consult- ants billed HMGN US$240,000 over the costs of the original contract estimate and the six addenda--a significant cost overrun. DIHM was concerned that the consulting firm's performance was not commensurate with their bills. For example, the consultants failed to present engineering calculations on their upstream proposal. IDA and DIHM also held the view that the firm went beyond any sensible limits in attempt- ing a feasible hydraulic solution and did not submit addenda on bills in a - 30 - Annex Page 5 of 28 timely manner to reflect that activity. Consultants maintained that because of many differing instructions and changes, the final result could not properly reflect the full extent of their work. IDA has suggested mediation; however, the dispute remains unresolved. - 31 - Annex Page 6 of 28 Subproject No. 2 Title: National Agricultural Extension Study Government Implementing Agency: Ministry of Food, Agriculture & Irrigation Subcontracted to Agricultural project Services Centre (APROSC) Date IDA Approved: May, 1977 Contract Signed: March 12, 1978 Project Completed: March 1979 Original Allocation: 593,500 Final Disbursement: $51,479 Follow-up Investment: Agricultural Extension & Research Project, Cr. 1100-NEP was approved February 3, 1981 US$16.0 million. Background/Objectives The objective of the subproject was to prepare a national agriculture exten- sion program based on the "training and visit system" in six districts of Terai (Phase I) and 14 other districts in Terai (Phase II). The activities were limited to crop production only and would include: 1) overall review of current agricultural situation; 2) critical review of existing extension system; 3) review of relationship between research and extension; 4) review input supply and delivery system; and 5) identification and preparation of an investment proposal. Implementation An eight-month contract dated March 12, 1978 was signed between the Agricultural Project Services Center (APROSC) of Nepal and HMG of Nepal with the starting date backdated to January 1, 1978 to provide retl.,active payment for work already begun. The project preparation report on Phase I was submitted in May, 1978. The Phase II draft final report was submitted February, 1979 and subproject activities were operationally completed by April 1979. Based in the findings of an IDA and FAO/CP preappraisal/identification mission (July 1979), FAO/CP prepared (December 1979) a project identification report cover,ng agricul- tural extension, training and research needs in the Terai. Evaluation The subproject successfully prepared the intended investment project with very few problems. The APROSC report which recommended an improved extension system covering all the Tersi districts (20) based on the Training and Visit System, was favorably received by HMGN. Accordingly HMGN included the program in the Sixth Five Year Development Plan. HMGN officials suggested that the IDA provide more assistance with disbursement procedures. - 32 - Annex Page 7 of 28 Subproject Nc.3 Title: Cottage Industry Preparation Government Implementing Agency: Dept. of Cottage & Village Industries (DCVI) Subcontracted to Industrial Services Centre (ISC) Date IDA Approved: April, 1977 Contract Signed: June 28, 1978 Project Completed: January, 1980 Original Allocation: $270,000 Final Disbursement: $215,245 Follow-up Investment: IDA approved The Cottage Industry Project (Cr.1191) for US$6.5 million on November 24, 1981. Background/Objectives The purpose of the Nepal Cottage Industry Study was to develop the base for an investment program to help expand employment, incomes, and export earnings in selected cottage industry subsectors. The strategy to implement the study was for DCVI to contract the work to the Industrial Services Center (ISC) who, as main contractor, would subcontract the various components to expatriate consultants/advisers. The study was broken down into two phases with Phase I to be carried out by ISC staff and Phase II by expatriate advisors. Phase I activities included a sample survey and analysis of (i) existing cottage and agro-industries, public and private marketing and (ii) credit support system in nine districts. Phase II required the preparation of detailed project proposed for investment/technical assistance. Implementation A contract between DCVI and ISC as the main contractor was signed on June 28, 1978. During July - November, 1978, ISC staff carried out the Phase I survey resulting in a description and ranking of selected subprojects in the nine surveyed districts. The inception report was presented to HMG/DCVI in September, 1978. Completion of Phase II (preparation of detailed project proposals) of the study was significantly delayed because of the difficulty in idenLifying suitable expatriate advisers to carry out the various subsec- tor project preparation proposals. Eventually, three subsector assignments (handloom, garments and woolen goods) were subcontracted to expatriates late in 1978. However, the appointment of consultants to prepare proposals for the food processing and forestry product subsectors was delayed, pending resolution of HMG request to the Government of Japan for assistance and funding. This request was met in early 1979 and Japanese advisers on food processing and industrial economics arrived in July 1979, and a forestry adviser in August, 1979. Phase II was eventually completed in January 1980. Evaluation Overall, the study achieved its objective by providing the subsector analysis necessary for the appraisal and subsequent approval of the Nepal - 33 - Annex Page 8 of 28 Cottage and Small Industries Project (Cr. 1191-NEP). However, the study was considerably delayed in completion because of the difficulties of recruiting experienced consultants/advisers, a process made particularly difficult by the lack of any formal registe- of cottage and small scale industry specialists available from IDA. To move the study along, some consultants/advisers were appointed who were generally acceptabLe but who lacked the ability to apply a broad perspective to the needs of the subsectors under review. This weakness resulted in the need for considerable ISC effort to produce a satisfactory final report. - 34 - Annex Page 9 of 28 Subproject No. 4 Title: Silica Lime Bricks Feasibility Study Government Implementing Agency: Dept. of Mines & Geology . Date IDA Approved: June, 1977 Contract Signed: October, 1978 Project Completed: January, 1981 Original Allocation: $287,800 Final Disbursement: $32;,855 Follow-up Investment: Project determined unfeasible. HMGN rejected the consultants' suggestion of a further study. Background/Objectives By February, 1977 the Department of Mines completed a preliminary study on manufacturing silica lime brick in Hetauda. Raw material was found in the region, tested in India and found to be suitable. The Department of Mines was especially interested in further investigation of the production of silica lime brick because it requires far less energy than the production of redclay brick. The objectives of the study were to analyze whether it was techni- cally feasible to establish a silica lime brick project in Hatauda, including cost estimates and engineering, and determine the quality of the deposits at Hetauda, as well as the possibility of establishing similar units in other regions of Nepal. Implementation The Government selected the consultants in late 1977. Contract signing was delayed because of lengthy financial negotiations related to disparities in rates between the contract for Cottage Industry and the one for Silica Lime Bricks. The contract was signed October 17, 1978. The expatriates' association, with a local consulting firm thar did the marketing survey, was an important factor in their selection. The first and second reports were produced by the consultants in May, 1979. By July, 1979 it became apparent that, though first thought suitable, the raw material was inadequate in quality and quantity. The need for addi- tional testing resulted in a delay in preparing the final report. By April 1980 it had become apparent that silica lime brick manufacturing was not feasible. IDA received a copy of the final report in January, 1981. Evaluation The consultants produced a good and acceptable report, though it was determined that the project was not feasible. IDA staff at the time of the study proposal had doubted project feasibility, but agreed that the Nepalese authorities, who argued strongly for inclusion of the study, were entitled to put the technical and economic questions to the most qualified scrutiny available in the construction industry. - 35 - Annex Page 10 of 28 The contract signing was delayed for over a year because of disagree- ments over the rates. There were also some misunderstandings on tax pay- ments, which resulted in an increased allocation for the study. - 36 - Annex Page 11 of 28 Subproject No. 5 Title: Airborne Magnetometer Survey Government Implementing Agency: Department of Mines & Geology Date IDA Approved: October, 1977 Contract Signed: November, 1979 Project Completed: October, 1980 Original Allocation: $800,000 Final Disbursement: $710,245 Investment Support: Survey Supported IDA Credit (1260-NEP) approved June 10, 1982 for US$ 8.3 million which supported petroLe-im exploration. Background/Objectives Random deposits of minerals and gas have been found throughout the country, but it was thought that an airborne survey would help zero in on high potential areas faster and more efficiently. The topography of Nepal is so rugged that the conventional method of surface exploration for mineral is time consuming and expensive. The length of the southern belt of the country was considered to have high potential for oil and gas by several teams of international experts, and an airborne survey would help further judge the possibilities. The Study was designed to prepare airborne geophysical maps to help locate and delineate areas of potential mineral and oil gas projects. Implementation Subproject was approved for inclusion in the TA credit October, 1977. At the request of HMG, IDA prepared TOR and the short-list. Letters of Invitation were withheld while IDA and HMG debated the practicality of using RNAC aircraft. In June, 1978 a tentative time schedule was laid out, includ- ing expected contract signature in September 1978. Time schedule was delayed as discussion on use of aircraft continued. By March 23, 1979, HMG agreed that the selected contractor could use the contractor's aircraft. On this basis bids were sent out, and it was expected that the subcontractor would be selected by mid-July, 1979. On September 23, 1979 the Ministry of Finance approved a draft con- tract between the Department of Mines & Geology and expatriate consultants and the contract was signed in November 1979. The consultants completed field survey by January, 1980, and the survey was inspected by a geophysical consultant. The consultants' compiled the survey data, and in 1980 HMGN contracted a geophysicist to interpret the data. Later a payment dispute arose between HMGN and the consultant. The report issued in October 1980 pointed to petroleum potential in the Terai Basin and showed that further geophysical exploration was war- ranted. - 37 - Annex Page 12 of 28 Evaluation Delays in getting started and a contract dispute with the geophysicist, which arose out of an unclear contract, did not detract from the usefulness and value of the larger study. Government officials expressed concern that IDA pushed them to con- tract and also that IDA did not always deal with the consultants through the Government. - 38 - Annex Page 13 of 28 Subproject No. 6 Title: Leather and Leather Coods Subsector Study Government Implementing Agency: Department of Industries Subcontracted to Industrial Services Centre (Isc) Date IDA Approved: August 1979 Contract Signed: with ISC, February, 1980, Subcontract with expatriate consultants signed July, 1980 Project Completed: April, 1981 Original Allocation: $100,000 Final Disbursement: $105,112 Investment Support: Leather project part of broader Industrial Development Project approved December 1984 (1535-NEP) Leather component estimated at $3.0 million. Background/Objectives This subsector study was designed to examine the potential of the leather Yoods industry to generate employment, import substitution, export revenues and optimal utilization of natural resources. The study proceeded in two phases. The objective of Phase I was to study raw materials availability, existing products and processes, economic and technical evaluation of existing products and processes, economic and technical evaluation of existing industries, product definition and iden- tification, Government rules and regulations and market strategy. The objective of Phase II was to provide an in-depth feasibility study of projects identified and recommendations with regard to sponsors, financing plan, government/institutional support and physical infrastructure. Implementation TOR prepared by ISC were found acceptable in August, 1979, and a subproject allocation was made. A contract between the Department of Industries and ISC was drawn up in October 1979 for ISC to execute the project and finally signed February 27, 1980. Significant delay was caused by indecision on who the executing agency in the Government would be and what the total budget should be. In late October, 1979 IDA suggested a short-list of expatriate consultants that ISC might consider when subcontracting the work. The consultants were selected, and it was anticipated that work would begin in 1980. However, the Government was reluctant to approve the contract because it exempted the expatriate consultants from local taxes, although other contracts funded under the TA credit carried such an exemption. The matter was not resolved until June, 1980, and the contract was signed July, 1980. An interim report was received in September, 1980, and the final report was received in April, 1981. The subcontractors work was generally well regarded. In September, 1981 discussions were held with the Government concerning the nexc steps. - 39- Annex Page 14 of 28 In October, 1981 IDA recommended that an Integrated Leather Develop- ment project be prepared and included such a project in the FY84 lending program. In November, 1981 IDA asked for a project request from the Govern- ment before taking any further steps. A mission in October, 1981 recommended that HMGN set up a special leather cell in the Ministry of Industry to prepare the project, and in July, 1982, HMCN notified IDA that a Leather Industry Coordination Cell had been set up. A pre-appraisal mission went to Nepal in February, 1983. It was decided to subsume the leather project into a broader project, the Industrial Development project, scheduled for presentation to the Board in September, 1984. The entire project is estimated at U.S.$7.5 million of which the leather component will absorb about U.S.$2.5-3.0 million. The technical assistance for Leather sector development will include export promotion and advisory services at a cost estimated at U.S.$450,000. The balance of the funds for leather would be lent to Nepal Industrial Develop- ment Corporation, which would in turn relend for rehabilitation and expansion of leather companies. Evaluation This subproject produced a valuable study of the leather subsector that resulted in the inclusion of a leather component in a broader project. Taere were delays in contracting and also subsequent delays in approving and agreeing on a leather project because of a new weakness in the world market for leather. But, because of leather's sustained importance in the economy it was wise to pursue this detailed subsector work. - 40 -Annex Page 15 of 28 Subproject No. 7 Title: Electrical Goods and Accessories Subsector Study Government Implementing Agency: Department of Industries Subcontracted to Industrial Services Centre (ISC) Date IDA Approved: August, 1979 Contract Signed: with ISC in February, 1980 ISC and expatriate consultants in December, 1980. Project Completed: August, 1982 Original Allocation: $250,000 Final Disbursement: $217,903 Follow-up: No specific project could be formulated. However, electrical firms would be eligible to borrow under the Industrial Development Project (see subproject 6). Background/Objectives The growing consumption of electrical power produced a need for more electrical accessories both for household and industrial consumption. It was estimated that an electrical accessory industry would save US$ 10-20 million of foreign currency annually. The objectives of the study were to identify items that could be manufactured in Nepal, to prepare a detailed feasibility report, to prepare a plan and policy regarding quality control and standardization of the product, and to draw up a long-term plan for promotion, establishment, operation, and development of these industries. Implementation An IDA mission prepared a draft outline of TOR sent to ISC in February 1978. ISC was to prepare detailed TOR, but no progress was made for a year because they were preoccupied with other studies under the TA credit and their own work program. ISC submitted detail TOR in August 1979 and divided the study into two phases, i.e., a marketing and preliminary feasibility study and a detailed feasibility study of the most promising product lines. The contract between Government and ISC as prime consultant was signed in February, 1980. It was intended that ISC would subcontract the work to expatriate consultants, but no proposals were rece;ved. A search for expatriate consultants was intensified, and in May, 1980 ISC decided to begin work on Phase I and allow for a full review period before deciding to under- take Phase II. The market studies were subcontracted to local consultants. The expected completion date for Phase I was end of 1980 and for Phase II mid-June, 1981. Proposals were finally received from three expatriate firms for the bulk of Phase I work. However, ISC could not conclude negotiations with first ranked firm and did not wish to enter negotiations with the other short-listed firms because of their lack of technical capability as evidenced - 41 - Annex Page 16 of 28 by inadequate proposals. ISC contacted two additional firms directly and selected one. IDA agreed with this final selection, although it pointed out that p:ocedures were not strictly followed. IDA did agree that the selected consultants should have been on the initial short-list but were not because of lack of information. Volumes I and II of Phase I were produced by the consultants in July, 1981 but were not submitted to the IDA until early 1982. In September, 1981 ISC began the search for consultants to execute Phase II. The Government asked for an extension to the credit in order to have time to complete Phase II; the same consultants were then selected to save time. IDA Bank agreed, provided the contract was again reviewed. The con- sultants submitted a draft final report in August 1982. Evaluation On one hand, the analysis by the expatriate consultants was reasonably well done and resulted in nine out of eleven projects judged to be feasible that might be financed by Natiunal Industrial Development Corpora- tion (NIDC) under the upcoming Industrial Development Project. On the other hand, the Government would have liked a wider description in the report of available technology, especially in Europe and the U.S.A. - 42 - Annex Page 17 of 28 Subproject No. 8 Title: Grain Storage Study Government Implementing Agency: Nepal Food Corporation Subcontracted to Agricultural Projects Services Centre (APROSC) Date IDA approved: April, 1979 Contract Signed: May 10, 1979 Project Completed December, 1979 Original Allocation US$ 90,000 Final Disbursement: $85,790 Follow-up Investment: IDA Credit 1062-NEP was approved August 26, 1980 and signed January 14, 1981 for US$ 6.2 million. Background/Objectives Because demand for Nepal's rice dropped, sizeable stocks of rice intended for export had to be held in substandard godowns resulting in sig- nificant loss. The services provided under the TA credit were to include the preparation of investment proposals for increasing foodgrain storage facilities and infrastructure in the Terai and Kathmandu Valley. The emphasis was on reducing storAge losses and deterioration, improving infrastructure, and reducing operating losses. Implementation The Agricultural Projects Services Center (APROSC) agreed to execute the study, and a contract was signed in May, 1979 between APROSC and the Ministry of Food, Agriculture and Irrigation. By June, 1979 the APROSC team had begun to tabulate the field survey data. A final draft report was sub- mitted November, 1979, and the IDA appraisal mission used it in Novem- ber/December, 1979 for the basis of grain storage project. Evaluation Successfully completed. - 43 - Annex Page 18 of 28 Subproject No. 9 Title: Terai Agricultural Development Feasibility Study Government Implementing Agency: Ministry of Food and Agriculture Subcontracted to Agricultural Projects Services Centre (APROSC) Date IDA Approved: May, 1980 Contract Signed: August 28, 1980 Project Completed: October, 1981 Original Allocation: $100,000 Final Disbursement: $80,000 Follow-up: None Background/Objectives The agricultural sector in Nepal assumes increasing importance as the population expands and needs more food, employment, raw materials and exportable surplus. Because most arable land is in the Terai with virt ially no scope for expansion, higher production needs to be obtained through improved yields and increasing cropping intensity. It was proposed early in 1980 that the Agricultural Projects Services Centre (APROSC) study the feasibility of an area development project to aim at a higher level of production in the western Terai districts in a way to make it repl..cable in other districts. Implementation A contract between Ministry of Food and Agriculture and APROSC was signed August 28, 1980. A first phase report was made late summer 1981, apparently duplicating the preparation under The Agriculture Extension & Research Project and suggesting a number of varied components already being dealt with by other institutions. Therefore IDA Bank concluded that the Project was not viable for IDA funding. However, HMGN remained interested in the project and financed Stage II. Again APROSC developed TOR for a "balanced" project. HMGN then requested the FAO/CP identification and preparation mission to visit Nepal in Spring 1983. The mission agreed with the earlier conclusion that the variety of development projects already under implementation in the proposed western districts made the project unfeasible and instead suggested a project for shallow tubewell development. This proposal was rejected by HMGN because adequate funds existed for this project under a credit financed by the Asian Development Bank. The Ministry of Agriculture continued to propose an integrated approach to development in three Terai districts, including components such as gravity irrigation, land levelling and consolidation, livestock develop- ment, and input supply and marketing. IDA reviewed a Position Paper prepared by FAO/CP following the above discussions, and informed HMGN that as most of the activities envisaged for Terai Agricultural Development are already included or are being considered for inclusion as part of projects financed - 4- Annex Page 19 of 23 by various other agencies, it would not be advisable to invest scarce funds in activities already adequately funded. Evaluation A subproject with the objective to determine feasibility certainly can have met its objective even if the results determine lack of feasibility. However, this subproject did not come to a satisfactory conclusion because HMGN with IDA's determination that the project was not feasible. One of the reasons for the disagreement was that the TOR for the original study did not specify incorporating the impact of other projects into its -nalysis of the feasibility of this particular study. Therefore complete information was not available to the satisfaction of either party. Another reason for disagree- ment stems from HMGN's conviction that, in this case, the FAO/CP mission did not give full consideration to HMGN's interpretation of the study results. - 45 - Annex Page 20 of 28 Subproject No. 10 Title: Agriculture Manpower Survey Government Implementing Agency: Ministry of Food and Agriculture Subcontracted to Agricultural Project Services Centre (APROSC) Date IDA Approved: May, 1980 Contract Signed: September 7, 1980. Project Completed: April, 1981 Original Allocation: $100,000 Final Disbursement: $58,819 Investment Support: An Agricultural Manpower Training Project with IDA assistance of US$9.2 million was approved December, 1984 (1534-NEP). Background/Objectives The agriculture sector has long received priority in Nepal. As a consequence, external assistance from bilateral and multilateral sources has increased at a substantial rate, placing a severe strain on the manpower needed to implement the projects. A dearth of trained staff within the Government is seen to be one of the most serious obstacles to development. It was suggested early in 1980 that APROSC undertake a study with the objective to collect and analyze data on present and future availability and requirements for trained agricultural manpower in Nepal and to prepare an investment project to assist the Government in its agricultural manpower aims. Implementation A Mission went to Nepal in Feb. 1979, to discuss TOR for this study. Also, an IDA consultant prepared a preliminary report in July 1979, commented on by IDA staff. TOR were further refined during the remainder of 1979, especially in relation to the IDA's consultant's report. The contract with APROSC was approved in September 1980, and discus- sions continued into November, 1980 on the TOR for their work. The draft final report was submitted by APROSC in April, 1981. An IDA preparation mission traveled to Nepal in September, 1981 and a project brief was prepared in October, 1981. However, project appraisal was held up over the question of who in the Government would implement the project, especially the training component. The slippage required updating of identification and preparation work. The Project was reappraised in Sept. 1983. At the time of this report, an appraisal report was being prepared for a smaller project that would tailor the agricultural training system to the requirements of extension workers and general agricultural technicians, and establish a degree program in Animal Husbandry. The proposed credit would be for US$9.2 million. - 46 - Annex Page 21 of 28 Evaluation The APROSC report identified needs and the kind of project to meet the needs. However, the scope of the project had to be reduced. The report supported the Ministry of Agriculture as the implementing agency, and Govern- ment was divided on this point between MOA and Ministry of Education implementation. Severe slippage occurred and reappraisal was necessary. As a result a smaller project has been developed that makes the large study figures less relevant, although the reforms suggested remain an important objective of the project. - 47 - Annex Page 22 of 28 Subproject No. 11 Title: Babai Irrigation Supplementary Study Government Implementing Agency: Department of Irrigation, Hydrology and Meteorology (DIHM) Date IDA Approved: November 1979 Contract Signed: November 1979 Project Completed: June, 1980 Original Allocation: $50,000 Final Disbursement: $49,112 Follow-up Investment: Credit for detailed engineering of the Babai Irrigation Project (Cr. 1093) was approved January 6, 1981 for US$3.4 million Background/Objectives In 1976, IDA Mission identified the Babai Irrigation Project to irrigate some 13,500 ha (net) of land on east bank of the Babai River. A feasibility study financed by UNDP was completed in 1978. Subsequently, the Government redefined the project area and an additional supplementary study was financed under TA I. Implementation The consulting firm which had carried out the earlier feasibility study signed a contract in November, 1979 with the DIHM for consultancy services to survey additional 3,000 ha and to prepare the preliminary engineering designs for the Babai Irrigation Scheme. The supplementary study was completed by June 1, 1982. Evaluation The supplementary study was successfully completed on time. - 48 - Annex Page 23 of 28 Subproject No. 12 Title: Mechanical Workshops Superintendent Government Implementing Agency: Department of Irrigation. Hydrology & Meteorology (DIHM) Date IDA Approved: May, 1980 Contract Signed: April, 1980 Project Completed: November, 1980 Original i.ilocation: $120,000 Final Disbursement: $78,137 Follow-up: Institutional support to Bhairawa-Lumbini Groundwater Project (IDA-assisted rredit 654) Background/Objectives This subproject was proposed as early as September, 1979 to set up funding for three mechanics to supervise the planning and operation of the mechanical workshops for three ongoing IDA-assisted projects: (a) Sunsari- Morang, (b) Narayani Zone, and (c) Bhairawa-Lumbini. It was expected that a total of US$450,000 would eventually be spent. Implementation Although an allocation was made, the arrangement as described above was not subsequently agreed to. Instead a mechanical workshop superintendent who had been working under the Bhairawa-Lumbini Groundwater investment project was extended under this TA project when funds under the investment project ran out. Be was hired in April 1980 to work under the TA project by Amendment No. 2 to the original consulting firm's contract. The amendment extended his services to Bhairawa-Lumbini by seven months. During that time the consultant trained one mechanical engineer and four mechanics. Evaluation The activities envisioned under this subproject were not the ones carried out. Instead a mechanical superintendent was hired to assist the Bhairawa-Lumbini project in repair and maintenance of project equipment and in the establishment of the project's mechanical workshop. The Government was very pleased with his work. However, in order to avoid commiting large amounts for activities not ultimately needed, final allocations under TA II are made only after contract negotiation. - 4- Annex Page 24 of 23 Subproject No. 13 Title: Cash Crop Development Government Implementing Agency: Ministry of Agriculture Subcontracted to Agricultural Projects Services Centre (APROSC) Date IDA Approved: March 13, 1981 Contract Signed: February, 19d2 Project Completed: November, 1982 Original Allocation: $30,000 (1st Phase) Final Disbursement: $86,144 Follow-up Investment: The project Cash Crop Development (Cr. 1379) was approved for IDA assistance of US$7.4 on March 22, 1983. Background/Objectives In their Sixth Five Year Plan (1980-85) HMGN gave priority to increasing food production in the Hills and in the Terai and also to expanded production of cash crops, particularly those with export potential or the capability of replacing imports. The main objectives under this subproject were to conduct a study of cash crops to identify priority cash crops in Phase I and to prepare an investment project for the development of these crops in Phase II. Phase II TOR were developed as it became apparent that original TOR were inadequate. Implementation APROSC had already completed Phase I (June, 1981) before a formal contract was signed February, 1982 which covered both phases. In July, 1981 APROSC submitted the Cash Crops Identification Report (Phase I), which covered a variety of important cash crops relevant to Nepal. After redefin- ing TOR, Phase I was followed up with Phase II preparation for an investment project for sugarcane, tobacco, tea, oilseeds, (groundnut), ginger and sericulture. FAO/CP visited Nepal several times to help APROSC prepare the reports. Phase II was completed by fall, 1982. Evaluation The Identification Report and the Investment Project Report were well prepared by the consultants, though the Phase II report was delayed. The original TOR did not spell out all objectives to be accomplished so provision was made for a Phase II after Phase I was completed. The Ministry of Agricul- ture and APROSC were highly pleased with the assistance provided by FAO/CP. - 50 - Annex Page 25 of 28 Subproject No. 14 Title: Marsyangdi Technical Review Government Implementing Agency: Ministry of Finance Date IDA Approved: Feb., 1982 Contract Signed: April, 1982 Project Completed: Nov., 1982 Original Allocation: $85,000 Final Disbursement: $68,036 Follow-up: The last visit of the panel is to be financed under the Second TA Credit (Cr. 1379) Background/Objectives The proposed project is a run of river power project located on the Marsyangdi River, a tributary of a major river, the Trisuli, which drains into the GandaKi Basin in Central Nepal. The Project site is 110 km west of Kathmandu. In December, 1981 the Bank suggested to the Government that it was necessary that a panel of experts be hired to review the findings and design of consultants funded by KFW (Germany) in order to enhance co-financing possibilities. The consultants would review concepts and designs, basic data, surveys and field investigations, optimization of project, proposed methods for diversion of river and construction, engineer- ing, quality and progress of works, operation and maintenance and other items relating to safety and soundness. Activities would be continued under the credit for the project when it became effective. Implementation The panel of experts met during July 21 - July 28, 1982, coinciding with visit of Bank's preappraisal team. A report was produced by the panel at that meeting. The report dealt with hydraulic model studies, hydraulic design criteria, seismicity studies, headrace construction schedule, and cost estimate. The consultants prepared comments dated August, 1982 on the panel's report. The consultants carried out additional studies in response to the panel's report in Sept., 1982. These studies were discussed in Frank- furt in October 19B2 between Panel members, Bank and KFW. Thereafter in November, 1982 the project was appraised. The project was found to be under- costed, and it was delayed while co-financing was sought. The panel again met at Frankfurt in May, 1983 to witness and advise on the hydraulic model test. Modifications were suggested and the panel agreed that the embankment dam design had an adequate factor of safety. The modified model was again witnessed and run by the panel in August, 1983 and in May, 1984. Evaluation The panel generally succeeded in its objective. The report was clear and on time, and the report brought out the deficiencies in the design. Based on the observations of the panel, the consultant undertook additional - 51 - Annex Page 26 of 23 work, and improvements were made in the design. Wherever necessary cost estimates were also revised. - 52 - Annex Page 27 of 28 Subproject No. 15 Title: Primary School Mapping Covernment Implementing Agency: Ministry of Education DaLe IDA Approved: April, 1982 Centract Signed: March 26, 1982 (local contract) Projct Completed: Sept., 1983 Original Allocation: $30,000 Final Disbursement: $20,430 Follow-up Investment: A project, Primary Education was approved for IDA assistance (Cr. 1463) of SDR i2.1 million in April, 1984 Background/Objectives HMGN has made the education sector a priority, and to this end a primary education project was formulated. One of its objectives was to rpdice dropouts and to increase the achievement of primary school graduates. Th5 idea was to cluster primary schools around a school that would serve as a re LurC center. Each project school would have access to these centers. The objective of the Technical Assistance funds under the TA project i o ;urvey the location, physical conditions, and other school charac- : ir cs necessary to determine the number of schools to be in each cluster .-no ;nose to serve as resource centers. Further objectives were to determine t amount, type of material, and help to be provided to each center. lmpl.-mentation A local contract was signed March 26, 1982 with Tribhuvan University. By August, 1982, consultants has designed three questionnaires. The consult- ants required computer assistance but completed the preliminary report by Feb. 22. 1983. Final report tas completed August, 1983. a;j i! ion This subproject was notably successful in two important areas: in - ibjiective to produce a useful survey and study and to transfer technology .r.J IDA and UNESCO to the consultants in the process of achieving the objec- !ive. These two successes began when HMCN choose a competent local body rommitted to the project and fully familiar with the milieu. Chances for success grew firmer with careful project definition and TOR, backstopping, and consistent supervision. - 5- Annex Page 28 of 28 Subproject No. 16 Title: Preparation Third Highway (Road Rehabilitation) Government Implementing Agency: Department of Roads Date IDA Approved: June, 1983 Contract Signed: June, 1983 Project Completed: Sept., 1983 Original Allocation: $100,000 Final Disbursement: $100,000 Follow-up Investment: The Third Highway Project (Credit 1515-NEP) for US$47.5 million was approved on August 28, 1984. Background/Objectives The TA credit supported a survey and design to refite cost estimates and collected economic data to assess benefits of rehabilitation in order to appraise the proposed Third Highway Project, including rehabilitation works on the Birgunj-Kathmandu Highway. Implementation A contract with a consulting firm, funded under Credit 730 (Highway II), was extended under the TA Credit. When the credit approached closing date, the Government moved rapidly to secure the consultants' services. Although appraisal of Highways III took place in February, 1983, the consult- ants preliminary cost estimates were provided in good time for inclusion in the SAR. Evaluation The consultant provided competent field personnel who worked sys- tematically as a team. Its services culminated in a report that has proved of value not only to the IDA appraisal team, but also to a co-financier of the Project.