Nepal - Second Highway Project

R-;port No. 1439a-NEP FILE COPY Nepal: Appraisal of a Second Highway Project June 9, 1977 Transportation Division South Asia Region FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS* Currency Unit - Nepalese Rupee (NR) US$1.00 3 NR 12.45 (January 1977) NR 1.00 = US$0.08 NR 1 million - US$80,321 * The exchange rate is floating; the rate used in this report is as above. WEIGHTS AND MEASURES Metric System Metric British/US Equivalent 1 meter (m) 3.28 feet (ft) 1 kilometer (km) 0.62 miles (mi) 1 metric ton (m ton) 2,204.6 pounds (lb) 1 hectare (ha) 2.47 acres (ac) ABBREVIATIONS AND ACRONYMS ADT = Average Daily Traffic CEDA = Center for Economic Development and Administration CIDA m Canadian International Development Association ER a Economic Rate of Return GDP 3 Gross Domestic Product ILO - International Labor Organization MWT = Ministry of Works and Transport NTC = Nepal Transport Corporation UNDP - United Nations Development Program USAID - United States Agency for International Development GOVERNMENT OF NEPAL FISCAL YEAR mid-July to mid-July  FOR OFFICIAL USE ONLY NEPAL APPRAISAL OF A SECOND HIGHWAY PROJECT Table of Contents Page No. SU.INTRODCTO ....................................................1 I. INTRODUCTION........... . ..1 II. THE TRANSPORT SECTOR .................. . . . .. . . . . . . . . . . . . 2 A. Geographic, Demographic and Economic Setting ......... 2 B. Transport Modes . ....... . ........... .......... . .... .s. 3 C. Transport Coordination . ......................... ..... 6 III. THE HIGHWAY SECTOR ...... ................................. 6 A. The Network ........... 6 B. Traffic ...................................7 C. Administration ..................................... . 8 D. Planning and Finance ................................. 9 E. Design and Construction .............................. 10 F. Maintenance .......................................... 11 IV. THE PROJECT ................................. .......... 12 A. Formulaticn .......................................... 12 B. Description ................................ 12 C. Cost Estimates ....................................... 17 D. Execution ............................................ 20 E. Financing ............................................ 21 F. Disbursements ............................... ........... 22 V. ECONOMIC EVALUATION ..................................... 22 A. Introduction ....... .................................. 22 B. Feeder Road .................................... . ..... 23 C. Main Road Upgrading .* ................... . ... 24 D. Road Maintenance Program ............................ 25 VI. AGREEMENTS REACHED AND RECONMENDATIONS ................... 26 Thb domenthi*" has a rei.ik deWbuiton na may be used by recipients only in the performance of thof OSa dUti. ItA cownts may iM gAS c 0 dbcoeId without World Snk authorization.  TABLES 1. The National Highway Network and Estimated Growth 2. Registered Motor Vehicles (1964-1975) 3. Fifth Highway Investment Plan 4. Highway Expenditures (1967-1977) 5. Road Transport Revenue 6. Road Maintenance Allocations 7. Selected Design Standards 8. Road Construction Equipment 9. Outline Five-Year Road Maintenance Program 10. Road Maintenance Equipment and Workshops 11. Total Project Costs 12. Schedule of Estimated Disbursements 13. Economic User Costs and Savings 14. Feeder Road: Estimated Benefit and Cost Streams 15. Main Road Upgrading: Estimated Benefit and Cost Streams 16. Five-Year Road Maintenance Program: Estimated Benefit and Cost Streams 17. Implementation Schedule--Bar Chart CHARTS IBRD 16771 Department of Roads, Previous Organization IBRD 16770 Department of Roads, Recently Introduced Organization MAPS IBRD 12622 NEPAL: Transport Network and Project Location IBRD 12621 NEPAL: Five Year Road Maintenance Program  NEPAL APPRAISAL OF A SECOND HIGHWAY PROJECT SUMMARY i. Nepal, a mountainous, landlocked country with an estimated per capita income of US$110 per year, is one of the least developed countries in the world. Over the past ten years GDP growth has hardly exceeded the estimated 2.2X annual growth rate of population, currently about 12.6 mil- lion. The growth of the main economic activity, agriculture, has been dis- appointing except in 1975/76 when favorable weather conditions produced a relatively large grain crop. ii. Since 1951, when Nepal emerged from a century of isolation, development efforts have emphasized infrastructure, particularly roads, in order to integrate the many loosely linked village economies. In 1958, the first road from Kathmandu to the Indian border was completed, and substantial progress in the development of a road network has since been made. Despite the difficulties of topography and climate, with the assistance of princi- pally bilateral aid, the network now consists of about 4,200 km of road, of which nearly 1,600 km are paved. Also, over 30 airports and landing strips have been constructed. iii. As indicated by the present Five Year Plan (FY 1976-1980), directly productive investments are now being emphasized so that increased benefits can be derived from the previous infrastructural investments. However, this shift in emphasis will be gradual because infrastructure decisions taken in preceding years still dominate the current plan and the basic infrastructure is not yet complete. Within the highway sector, feeder road construction which will stimulate agricultural production will become of increased impor- tance. Also, His Majesty's Government realizes that in order to preserve the rapidly expanding road system increased emphasis will have to be placed on road maintenance. iv. The Bank Group has assisted the Government in the transport sector with a highway project (223-NEP) for US$2.5 million. This project included the construction of five road bridges, five pedestrian suspension bridges in the hills, implementation of a four-year maintenance program and consulting services. The principal objectives of the first highway project have been met, particularly in that roads are quickly reopened after the monsoon land- slides. However, due principally to the shortage of materials in 1974 and contractual difficulties, the project will be completed only around the end of June 1977, about two and a half years behind schedule. In the preparation of the second highway project, these previous implementation difficulties have been taken into account. v. The proposed second highway project is comprised of the following elements: (i) construction of a 50 km feeder road, together with improvement of connecting local roads; (ii) procurement of construction equipment for use  - ii - by contractors constructing the feeder road; (iii) upgrading of about 17.5 km of main road; (iv) support for a five-year maintenance program with procure- ment of road maintenance equipment, tools and construction of workshops; (v) consulting services in connection with the feeder road; and (vi) training of equipment mechanics. Also, as a separate but integral part of the project, technical assistance for the Roads Department will be provided by the Canadian International Development Association (CIDA). vi. The Department of Roads, Ministry of Works and Transport, will be responsible for the execution of the project. Contracts for feeder road con- struction works, for the upgrading of the main road and for the construction of the maintenance workshops will be awarded using local bidding procedures in accordance with the Association's "Guidelines for Procurement." The road construction and maintenance equipment are to be procured on the basis of international competitive bidding in accordance with the Association's "Guide- lines for Procurement." The estimated cost of the project is US$20.0 million with a foreign exchange component of US$14.3 million. The proposed credit of US$17.0 million will finance 85% of project costs including 100% of the foreign exchange and some local expenditures. vii. Improvement of the feeder road, which will provide nearly all weather access to the Dang Valley, will stimulate agricultural production and reduce user cost. For this project element the economic rate of return (ER) is estimated to be about 30%, assuming only a minimum improvement in agricul- tural extension in the Dang Valley. When the agricultural/rural development investment project takes place as now being prepared by Government and USAID, benefits would be enhanced. The upgrading of the main road leading to Kathmandu will lower user costs and reduce losses caused by landslides. This project component is estimated to have an ER of about 14%. The maintenance program component will help to preserve the substantial investment which has recently gone into the construction of highways as well as contributing to lower user costs for the main highway network. Based on user cost saving alone, the maintenance program would provide an ER of 30%. Combining the various project components, the weighted average ER for the entire project is estimated to be 28%. viii. The project constitutes a suitable basis for an IDA credit of US$17.0 million to His Majesty's Government of Nepal.  NEPAL APPRAISAL OF A SECOND HIGHWAY PROJECT I. INTRODUCTION 1.01 His Majesty's Government of Nepal (the Government) has asked the Association to assist in financing a second highway project comprised of: (i) construction of a 50 km feeder road, together with improvement of connecting local roads; (ii) procurement of construction equipment for use by contractors constructing the feeder road; (iii) the upgrading of about 17.5 km of main road; (iv) support for a 5-year road maintenance program with procurement of road maintenance equipment, tools and construction of workshops; (v) consulting services in connection with the feeder road and for East-West highway feasi- bility studies; and (vi) training of construction and maintenance equipment mechanics. The estimated cost of the project is US$20.0 million equivalent; the proposed Credit of US$17.0 million would cover 85% of project costs in- cluding the foreign exchange cost of US$14.3. 1.02 This would be the second Bank Group lending operation for high- ways and in the transportation sector in Nepal. The first highway project (NEP-223) in 1970 included the construction of road and porter suspension bridges and support for a four-year maintenance program mainly within the Central Region. Initial delays in project implementation followed by a short- age of materials, notably cement, and transportation difficulties in the hills delayed completion of the bridges by about 18 months to mid-1976. Contractual difficulties due to price increases delayed minor work; and to accommodate the completion of these and to allow for the procurement of some additional spare parts, the Closing Date was extended to June 30, 1977. The general objectives of the project have been realized, and account has been taken of implementation difficulties in the preparation of the second highway project. UNDP-financed technical assistance was included in the first highway project; technical assistance will be provided for part of the duration of the second highway project by the Canadian International Development Association (CIDA). 1.03 The present project forms part of the Government's Fifth Five-Year Plan (FY1976-80) with the feeder road element being prepared on the basis of a UNDP-financed feasibility study carried out between 1971 and 1973. The 5-year maintenance program is a continuation of maintenance support begun under the first highway project. 1.04 This report is based on information provided by the Government and its consultants and on the findings of the November 1976 appraisal mission composed of Messrs. M. W. Dickerson, engineer, and R. N. Panfil, economist. Mr. V. Ross, agriculturist, assisted the mission.  II. THE TRANSPORT SECTOR A. Geographic, Demographic and Economic Setting 2.01 The Kingdom of Nepal is a landlocked country bordering on China (Tibet) in the north and India, its main trading partner, in the east, south and west (Map No. 12622). Nepal, roughly 800 km long and 170 km wide (about the size of Greece), is divided into three distinct physical regions which extend in an east-west direction across the country: (i) the relatively fer- tile Terai plains (21%) in the south; (ii) the Hills (45%) in the center which includes the important Kathmandu Valley; and (iii) the Himalayas (34%), the world's highest mountains, in the north. The central and northern regions are dissected by deep valleys running generally from north to south. 2.02 The population of Nepal is estimated to be about 12.6 million (1975) and is presently increasing at a rate of about 2.2% per year. With an average of 90 persons per square kilometer, Nepal is one of the most densely populated mountainous countries in the world. About 41% of the population lives in the Terai region, while 59% live in the Hills and Himalayas regions Considering only arable land, the population density reaches 450 persons/km for all Nepal (vs. about 950 for Bangladesh and 400 for India) and even higher in the hills at about 930 persons. 2.03 For more than a century prior to 1951, Nepal maintained a policy of isolation from the rest of the world. Partly as a result of this policy and also of the difficulties of internal communications, Nepal is still in the early stages of economic development. It consists of many loosely linked minor valley economies rather than one integrated economy. Recent Government development efforts to provide infrastructure, particularly roads, have yet to benefit the general population. Over the past ten years, GDP growth has hardly exceeded the 2.2% growth rate of the population. The per capita income is about US$110 per year which is among the lowest in the world. The growth of the agriculture sector, which contributes about 67% of GDP and employs 94% of the work force, has been disappointing. However, in 1975/76 weather conditions were favorable, the grain crop was relatively large, and GDP grew by about 6.0%. 2.04 In the current Fifth Five-Year Plan (FY1976-80), the Government has recognized that a shift from the expansion of infrastructure to the expansion of directly productive activities is warranted. The plan rightly indicates that the time has come for Nepal to derive increased production benefits from its past efforts to expand the infrastructure. However, this shift in emphasis is bound to be gradual because the infrastructure decisions taken in preceding years still dominate the current plan, and the need for completion of the basic infrastructure cannot be neglected. In addition, while Nepal has significant long term development possibilities in agriculture, forestry, and water re- sources, their development will require a lengthy period of project prepara- tion and institution building.  - 3 - B. Transport Modes 2.05 Historically, transport in Nepal has been by means of porters and, to a smaller extent, by pack animals. These means of transportation are still of great importance, especially in the hills of central Nepal where the majority of the population lives (para. 2.02). With the Government's relatively recent emphasis on infrastructure, since the 1950's a road network has begun to emerge and numerous airports and STOL landing fields have been built. Other modes such as railroads, ropeways and waterways play a minor role within Nepal's transport system (Map 12622). 2.06 Topographic and climatic conditions are the major obstacles to reliable and inexpensive transport. The rugged, mountainous terrain and the large number of rivers and streams, together with heavy monsoon rains create great difficulty in the construction and maintenance of the transport system, particularly with roads and all-weather aircraft landing facilities. In addition, since Nepal is a landlocked country and the nearest ocean port, Calcutta, is over 1,000 km away, the transportation of overseas trade is difficult and expensive. 2.07 In the past, transport demand had been local in nature, between nearby villages and rural areas located in the hill terrain. Since the 1950's with the eradication of malaria in the Terai region and increased trade with India, transport demand has been largely concentrated in a north/ south direction. Grains and manufactured goods move in a northern direction into the hills while herbs and spices come south. Also more recently, with emphasis on the integration of the country and the development of the East- West highway system, some lateral transport demand is starting to develop along the Terai. Hill Trails 2.08 Although it is difficult to identify and measure the total length of the hill trails, estimates have ranged from 15,000 to 20,000 km. These trails not only link the many minor village economies but also play a vital role in unifying the country since often there is no other means of access. During the rainy season the numerous rivers which dissect the mountains rise and swift currents make their crossing difficult or impossible so that many villages are isolated during a significant part of the year. Government is anxious to make movement of people and goods easier in the hills and to this end has been taking a number of measures, including constructing porter trail suspension bridges--five of which were financed under the first highway project. To further assist the suspension bridge program, German Consult (Germany) carried out a study of 66 proposed sites which was financed by UNDP with the Bank as Executing Agency. Government has asked and USAID has agreed to finance further suspension bridge construction based on the study findings. Government will also be receiving assistance from the World Food Program to upgrade four major north-south trails for use by mules and also to make one passable for jeeps.  -4- Highways 2.09 Although the road system is the dominant modern mode of transpor- tation, Nepal still has one of the smallest networks, either in relation to surface area or to population, of any country in the world. Road construc- tion for motor vehicle travel outside the Kathmandu valley was only started in 1953, and the road network now consists of about 4,200 km, of which about 1,600 km are paved. In 1975, total motor vehicle registration was about 15,500 units, 35% of which were trucks and buses. The highway system is described in more detail in Chapter III. Civil Aviation 2.10 The Government has given high priority to air transport communica- tion to remote and inaccessible parts of the country and such transport is also a pre-condition for the development of tourism. Commercial air transport started in Nepal in 1950 with services by Indian Airlines between Kathmandu and Patna, India. In 1955 the first domestic airline company was formed and now Royal Nepal Airlines Corporation (RNAC), which is Government owned, serves four international airports (New Delhi, Calcutta, Patna and Bangkok), 25 air fields by means of scheduled flights and an additional 8 landing strips by means of charter flights. The volume of domestic traffic, which reached 17,000 passen- gers in 1975/76, has increased at about 25% p.a. during the last two years. This reverses a decline in traffic which took place after the Kathmandu-Pokhara highway was opened. International traffic carried by RNAC, on the other hand, has remained relatively constant at around 80,000 passengers during the last 3 years. Cargo traffic, which tends to fluctuate widely, amounted to 1,650 tons in 1975/76 and over the long term appears to be declining as the road network improves. 2.11 With the growth in domestic traffic, improvement in operating efficiency and international fare increases, RNAC has been able to realize an increasing profit during the last three years. Domestic operations, where passenger fares have not changed since 1972, are, however, being subsidized by the international operations. The tourist traffic seasonality and the monsoon rains, which close more than half of the domestic airports, are two major factors which cause difficulties in the airline operation. By upgrading existing airports to an all-weather standard, the Government hopes to some extent to improve the utilization of the existing fleet. Also, RNAC has recently started international services to Sri Lanka. Railroads 2.12 There are three short, separate, narrow gauge railroad lines in Nepal: The Janakpur line (53 km), the Nepal line (8 km) and the Kosi line (35 km). The Janakpur line, which is an extension of the Indian railroad network from Jayangar, principally caters to a growing number of pilgrims 1/ (1.2 million in 1975/76) from India who visit the shrines in Janakpur, where there is no alternative road transport. The Nepal line is also an extension 1/ Numbers dropped in 1976 due to the poor serviceability of rolling stock.  of the Indian railroad, extending from Raxaul to Birganj, and transports principally bulk cargoes. Because of the long delays at Indian and Nepalese customs checkpoints, railroad transshipment costs are sometimes said to be lower than comparable trucking costs. However, in 1975/76 railroad traffic declined to only 5,000 tons p.a. The Kosi line was built in order to trans- port construction materials to the Kosi River Barrage and is no longer in operation. 2.13 Both the Janakpur and Nepal lines are operated by the Nepal Trans- port Corporation (NTC), a Government entity. Until 1974/75 the traffic on both lines was able to cover operating expenses, but little was generated to cover depreciation or replacement of capital. Since both lines have reached a point where little useful life remains and the Government wishes to keep both operations, the Government is now considering the purchase of additional secondhand equipment for the Janakpur line and the conversion of the Nepal Railroad to meter gauge to avoid the cumbersome transshipment of international goods which now has to take place at Raxaul, in India. However, before rail- road investments are made, the viability of using alternative transport modes should be considered. Ropeways 2.14 The first ropeway, which was built in 1928 to serve the Kathmandu corridor, was for many years the only means of freight transportation other than by porter to and from the Kathmandu valley. The present ropeway between Kathmandu and Hetaura which was opened in April 1964 has a length of 42 km and a design capacity of nearly 22 tons per operation hour. A practical annual operating capacity of 70,000 tons has been estimated by NTC who operate the system. Transport charges on the ropeway are generally lower than on the competing road system; however, when storage, pilferage and transshipment costs are taken into account, only in the transport of large bulk shipments is the ropeway found to be competitive, and trucks are preferred by the private sector. However, even with this type of cargo, since 1972/73, the ropeway appears to be losing its competitive edge, and traffic only amounted to 11,500 tons in 1975/76. In recent years, with the drop in traffic, the ropeway has not been able to cover even direct operating expenses. At pres- ent, a UNDP project team is studying the feasibility of constructing three new north-south ropeway systems in the western, central and eastern parts of the country. Waterways and Maritime Transport 2.15 Because of the nature of Nepal's mountainous topography and the seasonality of rainfall, the use of waterways as a mode of transportation is of limited importance in Nepal. A few rivers in the Terai area are navigable by small craft and some movement of grain takes place to and from India. Also, in central Nepal, rivers are sometimes used to transport logs from the hills to the Terai region. 2.16 As a result of a request for a license to establish a private ship- ping company in 1968, the Government has established legal and administrative procedures for maritime shipping. Since then two private shipping companies have been established, but only one ship has been chartered for one journey.  - 6 - C. Transport Coordination 2.17 All modern modes of transport are regulated and/or operated by the Ministry of Public Works and Transport (MWT). Within the MWT there is no separate entity which specifically coordinates the various modes. Some as- sistance has been provided in transport planning by a transport economist financed by the UNDP. Also, the Center for Economic Development and Admin- istration (CEDA) is now carrying out a study to evaluate the relative merits of investment in various modes of transport, particularly in the hills. Proposed investment plans are reviewed by the National Planning Commission and final approval for implementation depends on the Ministry of Finance. 2.18 Because of the relative infancy of the transport system and the dominance of roads, problems of inter-modal competition (paras. 2.12 and 2.14) are minimal. Nepal's investment strategy has been generally based on a 1965 transport survey organized and financed by the Bank which concluded that transport should be given high priority and that roads should be the prime mode. Most development expenditures, including investment in transport, have been financed by bilateral agencies. Although this bilateral assistance has been essential for the development of the infrastructure, the preference by donors for major self-contained projects, usually donor designed and super- vised, has sometimes made preparation and implementation of consistent invest- ment plans more difficult. 2.19 In line with giving more emphasis to the directly productive sec- tors (para. 2.04), future investments such as feeder roads, are now being favored. Also, greater emphasis is now being given to the maintenance of the existing transport system and the possibility of increased investments in modes of transport other than roads (paras. 2.13 and 2.14). III. THE HIGHWAY SECTOR A. The Network 3.01 The total road network is about 4,200 km of which about 1,600 are bitumen paved (Table 1). The two main national roads are: (i) the north-south road from the Indian border at Birganj to Kathmandu and then to the Mainland Chinese (Tibet) border; and (ii) the East-West Highway located in the Terai which when complete (about 1985) will traverse the entire length of the country (1,040 km). 3.02 Since there were only a few local roads in 1950, the present-day network is impressive. The terrain is rugged and landslide prone, making road construction difficult and expensive. Most major construction has been of main roads and has been undertaken with bilateral assistance including aid from Mainland China, India, Russia, UK and USA and is continuing with Switzerland and ADB joining the ranks of donors. Currently, the average  - 7 - road density is 0.024 ke of road/km of land area. This indicator c mpares poorly with 0.033 km/km for Afghanistan but better than 0.019 km/km for Ethiopia. By 1982 the total road network will be about 5,800 km (about a 40% increase over the present system). B. Traffic 3.03 Vehicle registration statistics are limited in Nepal. Over the last five years, the vehicle fleet has grown at an average rate of 9% per annum, and in 1976 there were 15,500 registered vehicles (Table 2). Of this number, 35% were trucks and buses. However, no information on scrapped vehicles is available, and it is probable that only about two-thirds of registered vehicles are in operating condition 1/. During negotiations, the Government agreed to improve the collection of vehicle registration data so as to enable accurate estimates to be made of the running fleet in Nepal. 3.04 In addition to operating the ropeway and two railroads (paras. 2.13 and 2.14), NTC also provides truck services and operates a Mainland Chinese constructed trolley bus service in the Kathmandu valley. One of NTC's truck transport operations is concerned with supplying the ropeway terminal at Hetaura from the Indian railhead at Raxaul. NTC's truck operations have suffered from neglect and inadequate management and efforts are being made through a UNDP-financed Road Transport Development Project to improve the truck serviceability. However, management and administration still require improvement. The trolley bus service commenced operations in 1976 and although no financial or traffic figures are yet available, the service, which operates on a 13 km route between Kathmandu and Bhaktapur, appears popular. 3.05 With the exception of the Kathmandu valley, roads are not heavily trafficked. One of the more heavily trafficked is the road between Birganj and Hetaura, with about an Average Daily Traffic (ADT) of 500. On the same road through the hills leading to Kathmandu, the figure drops to about 400 ADT and for all other rural roads, the figures are low. In general, traffic seems to be growing at about 5% per annum; however, these growth rates vary throughout the road system. 3.06 There are few restrictions on the licensing of trucks and buses. There are weight regulations, but these are for loads only and are difficult to enforce. There are no size regulations; however, the rugged nature of the terrain precludes the operation of vehicles much larger than the present 5-7 ton capacity trucks. 1/ Resource Paper on Roads in Nepal, World Bank 1974, Page 35.  - 8 - C. Administration 3.07 The Roads Department (the Department) is responsible for the con- struction, maintenance, administration and, to some extent, planning, of all national roads (Table 1). In charge of the Department is a Chief Roads Engineer, with superintending engineers heading regional offices and func- tional branches. Until recently, the Department was overcentralized and not adequate to administer the rapidly expanding network (Chart 16771). Re- cognizing the Department's increasing limitations and resulting from a UNDP- financed institutional improvement study included under Highways I, the Depart- ment has now been decentralized with a phased expansion planned to match net- work growth (Chart 16770). Four regional offices, located in regional admin- istrative centers, have been sanctioned, together with operating divisions and appropriate subdivisions (Map 12621). As far as possible, regions will be eventually self-contained with respect to maintenance and all but major con- struction projects. At headquarters in Kathmandu, the Department will con- tinue to administer major projects and will maintain technical and adminis- trative branches to provide backup services to the regions. The proposed reorganization is generally satisfactory and provides for the expansion of the Department over the next five years to match road network growth. Imple- mentation of the reorganization has already started. 3.08 Senior staff are reasonably well qualified and, with respect to the past limited road network, are well experienced. As with other Government departments, salaries are very low compared to the private sector; and until recently, there has been little room for professional initiative. However, with the expansion of the road system and the Government's intention to more actively manage bilateral and multilateral projects, professional staff will be called upon to play a more meaningful role. In addition, all staff will benefit from further training and technical assistance with respect to their increasing responsibilities. The Department has received technical assistance in the past; the most recent being financed by UNDP as part of the first highway project. The team was moderately successful, particularly with respect to equipment management; but to assist in the execution of this project, further technical assistance due to commence about September 1977 will be financed by CIDA and will consist of four specialists for an initial period of 18 months. 3.09 There is an even greater need for training of road overseers and mechanics. The CIDA-financed team, which will include short term training experts, will draw up recommendations for both professional and artisan training, including the training of road overseers; the team will also assist the Department in assessing the additional staffing and associated training needs. During negotiations assurances were obtained that the Government will, by July 31, 1978, submit a training program for staff of the department for approval by the Association. For mechanics' training, the Government has approached the International Labor Organization (ILO) to prepare a suitable program (paras. 4.14 and 4.15).  - 9 - D. Planning and Finance 3.10 Planning priorities stem from a desire for national integration, access to hill areas and also from offers from bilateral donor agencies. The formation of the Aid Coordination Group (December 1976) and regular meetings of Group representatives in Kathmandu should go some way to achieve coordination and standardization of bilateral- and multilateral-financed highway projects. 3.11 The Government is basically working to a 20-year road improvement plan (1966-85) modified and updated by five-year plans. The five-year plans include main features of the 20-year plan (i.e., continuation of the East-West Highway) but also include new proposals and results of the UNDP-financed feeder road feasibility studies of about 1,000 km, undertaken by COALMA 1/ (Italy) which were completed in 1973. The current plan aims at completion of about an additional 1,200 km at a cost of about US$91.0 million (Table 3); this investment represents 23-26% of the national development plan -- a reduction from 44% in the previous Five-Year Plan (para 2.04). However, 60% of the planned expenditure still represents the Government's ongoing commitments to the major bilateral aid programs and only 24% will be directed towards feeder roads. The plan is ambitious and there may well be some delays in completion, particularly of the major bilateral programs. 3.12 The current investment program is largely dictated by national aims of integration and also by the desire to construct penetration roads into the hills regardless of economic viability. Although completion of the main high- way network was expected in the next ten years, two major additional road schemes totalling 800 km and both running through difficult country have been recently added to the future road program. Although the aim of the schemes is to integrate the mid-hills, it is extremely doubtful that construction could be justified on economic grounds. 3.13 The Planning Branch of the Department is engaged principally in undertaking simple feasibility studies and converting road construction pro- posals into possible alignments. In preparation for the recent Aid Group meeting 2/, IDA assisted the Government in selecting and ranking future proj- ects which would need external financing. IDA will continue its dialogue with the Government in order to improve planning so that sector lending may be possible in the future. During negotiations, the Government agreed to take measures to strengthen the Department's Planning Branch in order to upgrade its capability to undertake appropriate economic and technical analyses of all major investments in the road sector. 3.14 The Department's annual budget is based on the current Five-Year Plan and for FY76 was NRs 75 million (US$6.0 million equivalent). However, in addition, bilateral and multilateral agencies contributed NRs 121 million (US$9.7 million equivalent) making a total annual expenditure of NRs 196 1/ Comtec in association with Alpina and Studio Macchi (Italy). 2/ December 2, 1976.  - 10 - million (US$15.7 million equivalent). About NRs 22 million (US$1.8 million equivalent) was spent on road maintenance. The Department's total budget has increased at an average rate of about 21% per year (1972-76). Total foreign aid expenditure averaged about US$14.0 million per year (Table 4). A sharp increase in expenditure is predicted for both the Department and foreign aid in the forthcoming years reflecting increased maintenance and construction costs. 3.15 Revenue from the highway sector is derived principally from customs on fuel and vehicles, vehicle tax, licenses and road cess (Table 5). Gross revenues which were generally increasing in previous years (NRs 60 million in FY75) showed a sharp decline in FY76 possibly due to fuel shortages and the consequent loss of customs revenue. Although highway sector revenue is not set aside for highway expenditure, gross annual revenue in FY76 covered high- way recurrent expenditures (NRs 25.0 million) and almost half of the non-aid construction budget. 3.16 A notably unsatisfactory feature of highway taxation is the road cess. This is not only expensive in terms of driver and vehicle delays, but there is a high administrative cost. 1/ The Bank has suggested that the road cess be dropped but Government is reluctant to relinquish this significant source of revenue. 2/ During negotiations, an assurance was obtained that the Government will undertake a study, by June 30, 1978, under terms of reference approved by the Association, of practical methods of raising revenues alterna- tive to the road cess. The Government and the Association also affirmed that mutually agreed recommendations from the study will be implemented. Further assurances were obtained that no road cess will be charged on the feeder road project during construction. E. Design and Construction 3.17 The Design Branch has a complement of about ten design engineers and is currently engaged on design of hill roads and minor projects, and the quality of work is reasonable. Major projects are designed by foreign con- sultants under contract to the Department. Road design standards were for- mulated by the Department in 1970 and are generally on the high side for present and prospective traffic volumes in Nepal. However, the standards are being relaxed for feeder road schemes. Bridge design standards are based on 1/ In 1973 a CEDA study indicated that two-thirds of the revenue collected from road cess was consumed in administrative and collection charges. 2/ Recently the rate has been doubled and the road cess is now expected to contribute nearly a quarter of total highway revenue.  - 11 - Indian loaJing for main roads and American Association of State Highway Offi- cials (AASRO) H15 loading for feeder roads. Both road and bridge design standards will be reviewed by the CIDA-financed technical assistance team, and one team member will assist specifically with bridge location and design. 3.18 Although some development of the local contracting industry has taken place in recent years, there is still considerable room for improvement. Currently, there are about 300 contractors in Nepal but only five to ten medium-sized firms with the largest being the Government-owned organization, National Construction Corporation of Nepal (NCCN). Several foreign contrac- tors are active on bilateral and multilateral projects. Small contractors' operations are labor intensive while the larger contractors use a blend of labor and equipment. Constraints to further development of the industry are lack of access to credit, shortage of Nepalese skilled labor, lack of equip- ment, one-sided conditions of contract and the growth of NCCN. 3.19 The Government is keen to promote local contracting, and a CEDA study of the industry is now taking place. However, the study is concentrat- ing only on specific projects. At the Government's request, and using a Bank-financed specialist, the Association will shortly give assistance in broadening the study to cover all construction agencies together with estimates of future construction requirements. Concerning other constraints, the Depart- ment has recently revised and improved its conditions of contract. Several measures have also been taken in preparation for this project to assist con- tractors working on the feeder road project (para. 4.22). 3.20 Force account work is mainly undertaken on minor projects and also in conjunction with some bilateral aid projects and on self-help schemes. The UK is financing a construction unit, which while constructing a feeder road, is being used to train staff in road construction techniques. Emphasis is also being placed on self-help schemes, and one or two hill penetration roads are being constructed by voluntary labor. 3.21 Contract supervision is carried out either by Department engineers or by the Department's consultants. Formerly, contract supervision was admin- istered by a construction branch. With the abolition of this branch in the recent reorganization (para 3.07), supervision for all but major projects will be administered by regional offices. The transfer of supervision responsi- bility will be at a pace appropriate to regional staff ability. The Depart- ment is, however, considering forming a construction/maintenance branch to set standards and provide backup assistance to the regions. F. Maintenance 3.22 Nepal's road network is one of the most difficult in the world to maintain. Some roads run through tropical plains, and some are perched on mountainsides subjected to freezing, snow and landslides. The network is also expanding rapidly, bringing additional responsibilities to the overcen- tralized organization which has been underfunded for years. The Department  - 12 - has therefore been constantly striving to cope with both these natural and administrative difficulties and to catch up with its ever-increasing mainte- nance commitments. 3.23 In the late 1960's, the Government began to plan ahead to maintain the expanding network. The first highway project included a four-year main- tenance program which was comprised of equipment procurement, workshops, spare parts and a commitment by Government to adequate maintenance funding. The project's resources have been concentrated in the four more heavily trafficked areas of Bagmati, Narayani, Gandaki and Lumbini; and although funding has proved to be inadequate (para. 3.24) some improvement in road maintenance has taken place. 3.24 Budgeted maintenance allocations in the past have not been adequate to maintain the expanding network. Budget allocations have, however, shown a regular increase over the past years and from FY72 to FY77, the allocation has increased from NRs 6 million to NRs 43 million (Table 6). While this latest budget allocation is about in line with present requirements for recurrent costs, in the past the Department has only received about 75% of the mainte- nance allocation from the Ministry of Finance. The Government is now taking steps to ensure that this situation will not occur in the future. 3.25 While the maintenance budget for FY77 appears adequate to cover recurrent costs, little of this amount is allocated for the purchase or main- tenance of road maintenance equipment. The Department intends to reintroduce a rental system with updated hire charges which should reflect the true cost of purchasing and maintaining road maintenance equipment, During negotiations the Government agreed that, based on maintenance rates and equipment hire charges, the Department will at all times allocate adequate funds from the road maintenance budget for equipment maintenance. 3.26 Maintenance is generally labor intensive and will remain so for the foreseeable future. Equipment is used to complement labor and the principal items include bulldozers and loaders for landslide clearing, removal of boulders and emergency works, graders for maintaining surfaces and trucks for moving materials and labor. There are currently about 3,000 laborers employed on road maintenance, and in the next five years, the number is expected to increase to about 5,000. The CIDA program for road overseer training should help improve supervision and labor productivity. 3.27 Formerly, two branches were responsible for all construction and maintenance to the east and west of the country, respectively (Chart #16771). The latest reorganization (November 1976) puts responsibility for maintenance in the field; i.e., in the four regional offices which among them cover the country. The principles are sound; although implementation has started, much remains to be done to make the regional offices fully operational.  - 13 - IV. THE PROJECT A. Formulation 4.01 The proposed Second Highway Project has developed as an extension of the First Highway Project (223-NEP) which assisted maintenance efforts mainly within the Central Region. With the rapid expansion of the road * network, support is now needed for a nationwide maintenance program together with upgrading sections of older roads. In addition, in order to promote the integration of the hills with the Terai region, a comprehensive feeder road study was financed by UNDP (para 3.11). During the study, the Tulsipur feeder road was identified as a top priority project and, after further study updating and final design undertaken by N.D. Lea Associates (Canada), has been included as an element of the proposed project. B. Description 4.02 The project consists of: (i) construction, generally on an existing alignment, of a 50 1/ km feeder road, together with improvements to connecting local roads; (ii) procurement of construction equipment for use by the feeder road construction contractors; (iii) upgrading, on the existing alignment, of a 17.5 km mountainous section of the main Kathmandu to Indian border road; (iv) a five-year nationwide road maintenance program including the provision of road maintenance equipment, spares, two workshops and facilities; (v) consulting services for: (a) feasibility studies, de- tailed engineering and assistance in construction super- vision for the feeder road; (b) feasibility studies of the remaining 190 km section of the East-West Highway; and (c) technical investigation assistance; (vi) training of construction and maintenance equipment mechanics. The location of the project roads are shown on the Map 12622 at the end of this report. Design standards are shown in Table 7. 1/ Includes 3 km road to Tulsipur airport.  - 14 - Feeder Road Construction 4.03 The feeder road to be constructed is located in the Far Western Region and with a gravel surface will provide nearly all-weather access from the East-West Highway (para. 3.01) in the Terai to the Dang Valley. Within the Valley, the proposed road will link the main trading town of Ghorahi to the new Government administrative (Zonal) headquarters at Tulsipur. One river will be crossed by a bridge and the remainder by concrete paved fords. There are numerous tracks within the valley, and the project includes culverting and minor improvements to these to allow greater use in both dry and wet weather. Road Construction Equipment 4.04 The project includes procurement of some construction equipment for rent or sale to contractors working on the feeder road. While construction will be primarily labor intensive, certain items of equipment will be required to tackle rock excavation, to transport materials and labor, and to compact and finish the subgrade and gravel surfacing. In addition, vehicles will be provided for supervisory staff and tools for the equipment maintenance work- shops (Table 8). In order not to delay the start of construction, bids were called in January 1977. About US$400,000 of the total cost of US$1.25 million will constitute retroactive financing. 4.05 The construction equipment will be made available on hire to con- tractors at commercial rates and will be maintained by the Department mechanics in a workshop to be constructed initially for this purpose. On completion of the road, the workshop and other buildings will house a maintenance unit for the feeder road and for other roads in the area. The equipment may also be sold to contractors either outright or on a hire/purchase basis. During negotiations, assurances were obtained from the Government that: (i) the Department will maintain the feeder road construction equipment in good operat- ing condition; and (ii) equipment which is not rented or sold to contractors engaged on the project feeder road construction would be made available to contractors on other road works or would revert to the road maintenance fleet. Main Road Upgrading 4.06 The 17.5 km section of the Kathmandu-Indian border road to be up- graded is located between Thankot in the Kathmandu Valley and Naubise, the junction with the main road to Pokhara. The alignment, which is tortuous, traverses a mountain pass and is subject to landslides. Upgrading work will comprise pavement widening from 3.5 m to 6.5 m, minor realignments, improvement to drainage and landslides protection works. Detailed engineering is under preparation by the Department and N.D. Lea, consultant, advised on pavement design and slope stability (para 4.13). Five-Year Maintenance Program 4.07 The Five-Year Road Maintenance Program (FY1978-1982) included in the project is aimed at achieving adequate road maintenance on existing roads and increasing the Department's capacity to cope with the network increase.  - 15 - The Department prepared the program in late 1976, based on the expected com- pletion of construction projects included in the 5th Five-Year Plan, together with increased assistance to local Panchayats 1/. The program will be reviewed periodically, and the CIDA team will assist with a detailed program review in early 1978. The team will make recommendations and assist with implementa- tion--in particular, the establishment of a model maintenance subdivision for training. 4.08 The Program covers estimates of funds (Table 9) for equipment, mate- rials and permanent facilities required during FY1978-1982. Manpower require- ments will be estimated and translated into training programs with the assist- ance of CIDA and ILO (paras. 3.26 and 4.13). The budget requirements call for a total expenditure of NRs 330 million during the Program of which NRs 200 million will be recurrent expenditure. The estimated annual recurrent require- ments, commencing with NRs 30.5 million in 1978 are expected to increase by about 13% annually 2/. Of the capital expenditure of NRs 130 million, about 67% will be financed by the proposed credit. The capital requirements are principally road maintenance equipment, tools and spares, together with con- struction and equipping of two base workshops in the Eastern and Western Regions near Ithari and Butwal. The road maintenance equipment will be procured in two groups to match the road network growth. 4.09 The equipment (Table 10) will comprise the normal range for road maintenance with emphasis on trucks, rollers and supervision vehicles. Bull- dozers and front-end loaders are primarily for emergency works including rapid clearing of annual road-blocking landslides during the monsoon. Light motor- cycles (first procured under 223 NEP) have proved successful in improving supervision, and the project will expand the Department's current fleet. The GIDA team will review equipment requirements and, if appropriate, recommend adjustments in the composition of the second group (para. 4.07). 4.10 The successful implementation of the program will require substantial effort by the Department and availability of resources. Accordingly, during negotiations, the Government and the Association agreed on the five-year road maintenance program (Table 9) and specifically agreed that the amount of NRs 30.5 million represented a reasonable estimate of the funds to be released for road maintenance in FY78. During negotiations assurances were obtained that the Government will: (i) consult annually on an informal basis during the project period on the adequacy of road maintenance allocations; (ii) make timely releases of maintenance funds based on a 5-year program (Table 9) or as modified by the Department after review by the technical assistance team with such modifications being mutually acceptable to the Government and the Asso- ciation; (iii) with respect to the 5-year maintenance program, employ a tech- nical assistance team on terms and conditions satisfactory to the Association; (iv) cause the technical assistance team to carry out by March 31, 1978, a 1/ Local village governments. 2/ Basic requirements only (see Table 9).  - 16 - review of the 5-year maintenance program, and; (v) enable the Association to participate and comment in appropriate technical assistance review sessions and exchange views with the Association regarding the findings and major recommendations resulting from the review including: (a) composition of the program; (b) the composition of the project maintenance equipment list; (c) the effectiveness of the technical assistance provided; and (d) need for technical assistance throughout the 5-year program. The Government will carry out such recommendations resulting from the review as are mutually acceptable to the Borrower and the Association. Consulting Services (a) Feeder Road Feasibility Study, Detailed Engineering and Construction Supervision 4.11 To undertake the feeder road feasibility study and detailed engi- neering, the Department engaged consultants, N. D. Lea (Canada), in December 1975 under terms and conditions acceptable to the Association. 1/ Provision for 100% of the cost of these services (US$0.44 million) is included in the credit. This would constitute retroactive financing. For construction supervision, the Government intends to request N. D. Lea to supply one engineer to provide training and assistance to both Department site staff and to the local contractors. 2/ During negotiations the Government agreed that, prior to awarding any contracts for construction, it will employ consultants whose qualifications, experience and terms and conditions of employment are satis- factory to the Association. The relatively high cost of the feasibility study, design and construction supervision in respect to total road construction cost results principally from the short and isolated nature of the project (see Map No. 12622). (b) East-West Highway Feasibility Studies 4.12 The Government is undertaking a prefeasibility study of the remaining unbuilt section of the East-West Highway (190 km). The study findings are intended to form the basis of a request to Saudi Arabia to finance construction. The Government is engaging consultants on terms and conditions acceptable to the Association, and the four-month study is expected to be completed January 1978. 3/ 100% of the cost of these services (US$0.2 million) is included in the credit. Financing for a detailed study (US$0.4 million) is also included in the project if further investigation and evaluation is required. During negotiations, for any work on the East-West Highway financed under the credit, the Government agreed to employ consultants whose qualifications, experience and terms and conditions of employment are satisfactory to the Association. 1/ Services included 43.5 expatriate and 140 local man-months. 2/ Services include about 38 expatriate and 160 local man-months. 3/ For the prefeasibility study, the services will include about 18 expa- triate and 40 local man-months. For further preparation work, the ser- vices include 32 expatriate and 80 local man-months.  - 17 - (c) Technical Investigation Assistance 4.13 While employed on the feeder road studies, N. D. Lea was requested by the Government to assist with pavement and slope stability investigations for possible improvement of the Thankot-Naubise road section (para 4.06) 1/. Cost of this, estimated to be some US$20,000, has been included in the project. Mechanics' Training 4.14 With the network increase, the procurement of road maintenance equipment, and the eventual construction of three 2/ new base workshops, the number of mechanics will have to be increased considerably. At present, vocational training for mechanics in Kathmandu is largely directed towards producing, for example, lathe operators and not heavy equipment mechanics. To meet the need for equipment mechanics, the Government had requested and UNDP had agreed to provide assistance in financing an appropriate training project to be executed by the ILO. However, due to paucity of UNDP funds the project was canceled. The Government has now included a similar training program to be financed under the proposed second highway project, with ILO remaining as executing agency. 4.15 The program is expected to provide two training streams: (i) train- ing school leavers over a three-year period; and (ii) upgrading the Department's own staff of mechanics and recruits. ILO will prepare the program and will recruit two trainers for an initial period of three years. The program will be conducted by the Engineering Institute of Nepal which has been fortunate in taking over an adjoining recently vacated Department equipment workshop for this purpose. During negotiations the Government agreed to submit, by December 31, 1977, the ILO-proposed training program for approval by the Association. C. Cost Estimates 4.16 The total estimated cost of the project including contingencies is NRs 249 million or US$20.0 million equivalent. 3/ The Credit of US$17.0 will finance 85% of project costs, including foreign exchange costs of US$14.3 million equivalent. Estimated project costs are summarized on page 19 with details shown in Tables 8, 9, 10, and 11. 4.17 Cost estimates, including contingencies for feeder road construction, prepared by the consultants, N.D. Lea, average US$50,000/km in the Valley and US$100,000/km in the hills. Cost estimates for main road upgrading, 1/ Services included 4 expatriate and 22 local man-months. 2/ The two project workshops and a third workshop to be constructed about 1983. 3/ Includes Taxes: civil works, about 10% and equipment, about 3%.  - 18 - prepared by the Department, average US$90,000/km. Quantities have been derived from preliminary and detailed engineering, and the unit prices are based on cost of labor, materials, depreciation and running costs of equip- ment, overhead and profit. Recent bids for similar works were also taken into account. The cost estimates for road construction and maintenance equipment and workshop equipment are based on recent preliminary quotations by manufac- turers. Actual costs have been used for feeder road feasibility studies and detailed engineering with average man-month billing rates, including the firm's overhead and profit, of US$4,900. The cost of supervision is based on detailed time schedules and expected foreign and local staffing rates. The cost of the East-West Highway studies is based on man-month rates and studies under similar conditions elsewhere. For the main road upgrading, a 20% con- tingency allowance for quantity and time overruns has been included. For other civil works, maintenance equipment and consulting services, a 10% allowance is considered adequate. The price escalation allowance is based on an annual increase of 12% for civil works and 8% for road maintenance and construction equipment and consulting services. During negotiations, the Association and the Government agreed on project cost estimates. 4.18 A principal consideration in calculating the foreign exchange com- ponent of the feeder and main road civil works is whether the contracts will be awarded to foreign, foreign/local or local contractors. In light of past experience it is expected that local contractors will be awarded all contracts. The foreign exchange component for the maintenance program is estimated prin- cipally on the CIF costs of road construction and maintenance equipment, work- shop equipment and tools--nearly all of which will be procured outside Nepal. The foreign exchange component for consultants' services is based on the estimated man-months of expatriate personnel, air travel and also on imported survey and design equipment. The resulting estimated foreign exchange com- ponent for the total project is 72%.  - 19 - PROJECT COSTS % Foreign NRs (millions) US$ (millions) Exchange Item Local Foreign Total Local Foreign Total Component A. Feeder Road Construction 1. East-West High- way to Tulsi- pur (50 km) 1/ 19.4 16.6 36.0 1.56 1.33 2.89 46 2. Contractor rental equipment 0.2 8.5 2/ 8.7 0.02 0.68 2/ 0.70 97 3. Local road improvements 2.5 2.5 5.0 0.20 0.20 0.40 50 Subtotal (A) 22.1 27.6 49.7 1.78 2.21 3.99 55 B. Main Road Upgrading (B) 7.5 11.2 18.7 0.60 0.90 1.50 60 C. Road Mainte- nance Program 1. Equipment and spares 3.7 76.7 80.4 0.30 6.16 6.46 95 2. Workshops and tools 2.7 5.6 8.3 0.22 0.45 0.67 67 Subtotal (C) 6.4 82.3 88.7 0.52 6.61 7.13 93 D. Consulting Services 1. Feeder road feasibility 3/ studies and detailed engineering 1.3 4.2 5.5 0.10 0.34 0.44 77 2. Feeder road construction supervision 1.6 3.4 5.0 0.13 0.27 0.40 68 3. East-West High- way feasibility studies 2.5 5.0 7.5 4/ 0.20 0.40 0.60 4/ 67 Subtotal (D) 5.4 12.6 18.0 0.43 1.01 1.44 72 E. Mechanics' Training (E) 5.0 5.0 10.0 0.40 0.40 0.80 50 Subtotal (A, B, C, D & E) 46.4 138.7 185.1 3.73 11.13 14.86 75 F. Contingencies 1. Physical 6.7 16.8 23.5 0.54 1.35 1.89 2. Price 17.4 23.0 40.4 1.40 1.85 3.25 Subtotal (F) 24.1 39.8 63.9 1.94 3.20 5.14 TOTAL 70.5 5/ 178.5 249.0 5.67 5/ 14.33 20.00 72 1/ Includes 3 km road to Tulsipur airport and supervision/maintenance facil- ities (US$180,000). 2/ Figure represents residual value after completion of feeder road Total value = US$1.25 million of which about US$0.57 million included as hire charges in A-1. 3/ Includes technical investigation assistance, US$20,000. 4/ Prefeasibility study-US$0.2 million, feasibility study-US$0.4 million. 5/ Includes taxes of about NRs 5.0 million (US$0.40 m).  - 20 - D. Execution 4.19 The Department will be responsible for the execution of the project. Advice and assistance will be rendered by N. D. Lea for the feeder road and for the main road by a specially-appointed construction engineer. For the imple- mentation of the Five-Year Maintenance Program, advice and assistance will be provided by the CIDA team. 4.20 The feeder road construction works have been divided into ten contracts; eight for road works 1/, one for bridge works and one for paved fords. Estimates for individual contracts, based on detailed engineering, range between US$100,000 and US$300,000 equivalent. The contract sizes were determined to allow local contractors the opportunity to bid for the separate contracts. However, the construction work may be bid as one contract or in any combination. Individual bids and combination bids will be evaluated to determine the lowest evaluated cost for the whole works. Prequalification is open to registered contractors, and those contractors not registered have been given the opportunity to do so. Government registration, which does not discriminate against foreign firms, classes contractors in four groups accord- ing to annual volume of work with the first three groups being eligible to participate in project works. Out of 20 contractors who applied for prequali- fication for the feeder road works, 18 have been considered eligible to bid. The contracts will be awarded using local bidding procedures in accordance with the Association's "Guidelines for Procurement" and on the advice of the consul- tants retained for detailed engineering. 4.21 The contracts for the upgrading of the main road will be divided and evaluated in a manner similar to the feeder road. In addition, the Government has agreed that no disbursements will be made until the Association approves the detailed engineering, contract drawings, specifications, construc- tion program and the arrangements for construction supervision. 4.22 Under the project, the Government has taken the following steps to assist the local contracting industry: (i) the Department's conditions of contract have been revised to put both the contractor and the Government on an equitable footing; (ii) contractors awarded contracts may receive a 15% cash advance against a suitable guarantee; (iii) contractors will have several options concerning the use of equipment--these include: (a) providing their own equipment; (b) hiring from the Department; and (c) using the cash advance to purchase equipment with import assistance by the Government; and (iv) management and technical assistance will be offered to contractors by N.D. Lea's construction supervision advisor. The Government is also considering selling the equipment to contractors. 4.23 Road maintenance and construction equipment, tools, workshop machin- ery and spare parts will be procured on the basis of international competitive 1/ To include earthworks, compaction, gravelling and culverts.  - 21 - bidding procedures in accordance with the Association's "Guidelines for Pro- curement" and on the advice of the technical assistance team. Contracts for construction of workshops will be awarded on the basis of local competitive bidding, also in accordance with the guidelines. 4.24 Bids were called for the feeder road construction in May 1977 and will be awarded shortly after Credit effectiveness so that construction can commence at the end of the monsoon, i.e., November 1977. While the construc- tion period is scheduled for 40 months 1/, based on past performance (para. 1.02), completion may be delayed. Accordingly, disbursement estimates are based on a 4 1/2-year construction period. Bids for the main road works will be called in late 1977 with a construction period of 24 months. Bids for the feeder road construction equipment which were invited January 1977 have been received and are in line with cost estimates. Evaluation was completed in May 1977 and contracts are now being awarded. The equipment should arrive late 1977/early 1978. Bids for the first group of road maintenance equipment will be invited in August 1977, and the equipment with spares should arrive about one year later. Bids will be invited for workshop construction about November 1977, after the layouts have been reviewed by the CIDA team. The consulting services to be financed by CIDA will commence about September 1977 for an initial period of 18 months and are expected to be extended to cover satisfactory implementation of the five-year maintenance program. During negotiations the Association and the Government agreed on the project imple- mentation schedule (Table 17) and progress reporting requirements, including the borrower's project completion report. 4.25 The potential of the project for relieving unemployment has been considered. As local contractors will probably win nearly all contracts for the road construction, the work will be largely labor intensive. It is ex- pected that on the feeder road works 2,000 laborers will be employed for a total of three years. However, for short periods of intensive earthworks the number of laborers may reach 10,000. With the relatively low population in the Dang Valley area, for feeder road construction contractors will bring laborers from the relatively highly populated eastern area of Nepal. 4.26 No particular ecological problems are expected with the project elements. The feeder road mostly follows an existing track, and little additional right-of-way will be required. For the main road, grass and tree planting will take place as part of slope stabilization measures. E. Financing 4.27 The proposed credit of US$17.0 million represents 85% of total project cost and will finance the foreign exchange component of all project items together with some local costs. The Government intends to fully fund the recurrent expenditures of the 5-year maintenance program; and although not specifically allocated for this use, gross revenues from the road transport 1/ 30 months for road construction, 40 months for floodways and bridges.  - 22 - sector should be larger than these expenditures. During negotiations appro- priate assurances were received from the Government regarding provision of funds for the successful completion of the project. F. Disbursements 4.28 Disbursements from the Credit Account will be on the basis of: (a) 75% of both feeder and main road construction (excluding the purchase of contractor rental equipment) and road maintenance workshops; (b) 100% of the foreign expenditures of imported road construction and maintenance equipment; (c) 100% of the costs of consulting services; and (d) 100% of the foreign exchange cost of mechanics' training. Retroactive financing is required as follows: (i) feeder road construction equipment, US$400,000; (ii) feasibility studies and detailed engineering for feeder road construction (US$420,000), and technical investigation assistance (US$20,000), totaling about US$500,000. During credit negotiations, the Government and the Association agreed on the estimated schedule of disbursements (Table 12). V. ECONOMIC EVALUATION A. Introduction 5.01 The broad objective of the project is to contribute to the mainte- nance and improvement of the transport system of Nepal so as to facilitate economic development. More specifically, the improvement of the feeder road, which will provide access during the rainy season to the Dang Valley, will stimulate agricultural production and reduce user costs. The main road up- grading between Thankot and Naubise will reduce losses due to landslides and lower user costs. The maintenance component will help to preserve the sub- stantial investment which has recently gone into the construction of highways and also lower user costs for the main highway network. 5.02 Most of the project benefits will accrue to the Nepalese economy through various means. The vehicle fleet is principally owned by the private sector; however, there is Government ownership directly through the Nepal Transport Corporation and indirectly through nationalized industries. While the majority of private trucks are owned by Nepalese, a substantial proportion of long-distance hauling is also done by trucks with Indian ownership. Since there are relatively few barriers restricting free competition and there is an ample supply of vehicles, most of the transport savings will be passed on from the transporter to the consumer in terms of lower prices and increased product availability. With respect to Government transported items, however, the passing on of lower transport costs will probably be mitigated by the  - 23 - fact that most products have fixed and uniform prices. Passenger vehicles are predom-1nantly owned by Nepalese and the benefits would directly accrue to the owners of cars and jeeps in terms of lower operating costs. For buses, in the short run, the transport savings would accrue to the bus owners since routes are controlled by Government licensing. However, in the long run, the medium and lower income groups should benefit when rates are adjusted. 5.03 Combining the various project components, the weighted average economic rate of return (ER) for the entire project is estimated to be 28%. B. Feeder Road 5.04 The Dang Valley, which is the primary area of influence of the proposed feeder road, is an inner Terai valley covering appproximately 60,000 hectares of which about 40,000 hectares are considered to be arable, of mod- erate fertility. The principal crops are rice, maize, wheat and mustard seed and surpluses are exported both to the adjacent hill areas and to India. The valley has a population of about 100,000 people, and the most important trad- ing centers are Ghorahi and Tulsipur, the zonal headquarters. In addition, the hinterland to the north of the valley includes a population of about 500,000. While there is no available data concerning the average income for inhabitants within the valley, annual per capita income for the far western development region is estimated by the Government to be only about NRs847 (US$68) compared with a national average of NRs1,370 (US$110). 5.05 At present, the Dang Valley is accessible during the dry season by two truckable tracks (Amile-Tulsipur, 35 km and Lamahi Ghorahi, 25 km), which start from the East-West Highway and then cross the Churia mountains. Within the valley, these two tracks are joined by a common link which connects the towns of Tulsipur and Ghorahi (24 km). Daily dry season traffic volumes on the existing tracks during 1975 were estimated to range from only about five to fifteen vehicles (nearly all trucks). Access to and within the valley during the wet season from June to October is not possible since there are numerous rivers within the valley which cannot be crossed, and the soils become soft and slippery, particularly on the mountain sections. 5.06 Feasibility studies undertaken by the consultant, N. D. Lea, indicated that projected traffic volumes would still be low and that the existing Lamahi-Ghorahi-Tulsipur alignment would be the most economical alternative to improve. By 1980, with the completion of the construction of the East-West Highway, which would greatly improve access to the area near the Dang Valley, traffic volumes on the existing tracks were projected to be double current levels. The ten-year traffic projections, which included normal, diverted and generated traffic, amounted to an ADT of about 100 (about 65% heavy traffic). After study of six different alternatives, the Lamahi-Ghorahi-Tulsipur alignment with a 5-meter gravel surfacing was found to provide the access required to increase agricultural production at the lowest cost (user, maintenance and construction costs).  - 24 - 5.07 Benefits for the selected alignment were measured in terms of both user cost savings and value added from expected increased agricultural production (Tables 13 and 14). The expected user cost savings which include time savings for commercial drivers were derived from the projected normal, diverted (both link and mode diverted traffic) and generated traffic. The user cost savings amounted to about 15% of the total benefits while the re- mainder came from agricultural development. With the improvement of access, production is forecast to increase since not only will transportation costs be lowered for inputs and for the marketing of products, but, of possibly greater importance, extension agents will be able to provide services during the growing season. In anticipation of construction of the road, the Govern- ment has already included the Dang Valley within the ongoing IADS/USAID Basic Cereals Program 1/. Under this program research, development and extension services for rice and other cereals will be undertaken. In addition, the Government and USAID are now preparing a comprehensive regional development project which would include the Dang Valley, as well as the surrounding dis- tricts. During negotiations, the Government confirmed that it will endeavor to complete the preparation of a development program for the Dang Valley before 1979 and start implementation of the program before 1980 to coincide with completion of the project road. 5.08 The economic return (ER) for the feeder road project is estimated to be about 30%. In the analysis a minimum package of improved agricultural extension for increased rice production similar to the IADS/USAID is assumed. If an agricultural/rural development investment project as discussed above were included, project benefits would increase. The economic return is most sensitive to the expected increase in agricultural production and construction costs. A 20% decrease in benefits from the agricultural production or a 20% increase in construction costs would give an ER of 27%. Combining a 20% decrease in production benefits with a 20% increase in costs, the ER would be 24%. Even assuming in the most unfavorable case that no package of improved agricultural extension services were put into effect with the completion of the road, the project is still estimated to have a satisfactory ER of about 13% which is based on road user saving and spontaneous agricultural development. C. Main Road Upgrading 5.09 The Thankot-Naubise section of the Kathmandu Indian border road currently serves as the only connection between Kathmandu and the southern, eastern and western regions of the country. This section commences at the edge of the Kathmandu valley and runs over a mountain range down to Naubise which is at the junction with the main road to Pokhara. The road surface is in poor condition with frequent undulations and jagged edges and many sec- tions have failed completely. Presently, side drainage is poor and also several bridges need to be replaced. During the rainy season it is not 1/ International Agricultural Development Services/United States Agency for International Development.  - 25 - unusual for landslides to occur which block the road for several days. The traffic is currently around 300 vehicles per day of which about 80% are trucks and buses. 5.10 The main benefits for the upgrading of the Thankot-Naubise road would come from reductions in user costs and avoidance of future emergency maintenance and reconstruction costs. With the improvement and widening of the pavement (from 3.5m to 6.5m), user cost savings on average are estimated to be about equal to the normal savings between a paved and a gravel road. Upon completion of the improvement in 1980, initial traffic (which takes into account the completion of the Mugling-Naryanghat road) is estimated to be about 300 trucks and buses and 75 cars and jeeps per day. An annual traffic growth of 5% was assumed for the first 10 years of the project; thereafter no additional traffic growth was assumed since there is a possibility that an alternative alignment might be constructed between Kathmandu and the Terai which would divert traffic away from the road. Other benefits will accrue to the project from the improvement of the pavement since the structural strength of the existing pavement is inadequate and resurfacing is needed about every two to three years instead of the normal six-year cycle. Also, with the improvement, the average yearly expenditure for emergency maintenance and road reconstruction caused by landslides is expected to be reduced from about NRs 1.2 million to about NRs 0.2 million. In addition, time losses because of road blockages would be considerably reduced. 5.11 The economic return for the main road upgrading project is estimated to be about 14% (Table 15). A sensitivity test, assuming there was no growth over the projected initial traffic, would yield an ER of 12%. Assuming that benefits decreased by 20% and costs increased by 20%, the ER would be 8%. The risks appear to be within reasonable limits and the project is recommended. D. Road Maintenance Program 5.12 The recommended program for improving the standard of maintenance covers 2,700 km of road that will be maintained directly by the Department in 1978. 1/ By 1982, 4,300 km of roads are expected to be covered under the program. In addition to the normal task of building an organization to main- tain the road system, maintenance work is complicated by the severe terrain conditions found in Nepal. Landslides are a constant threat within the moun- tainous regions of the country, while in the Terai area, flooding and washouts are a major problem. 5.13 Benefits from an improved maintenance program would include: (i) savings from the deferment of future reconstruction costs; (ii) savings in user costs; and (iii) savings in future maintenance costs. Only the user cost savings were included in the quantification of the program's benefits in the economic analysis. The user savings were developed for paved, gravel and earth 1/ The Department also assists in the maintenance of an additional 1,600 km of Panchayat roads.  - 26 - roads for improved maintenance over an eight year period, which approximates the expected life of the equipment. Estimates of user cost savings assume that, with the maintenance program, user costs will gradually reduce, and without the program, they would slowly increase. Taking into account the expected growth in the road network, the growth trends of vehicle registration and fuel consumption, total annual vehicle km were projected to increase at a 9% growth rate. 5.14 The estimated cost and benefit streams for the five-year maintenance program, FY1978-1982, are shown in Table 16. The economic return for the pro- gram would be 30%. A sensitivity test of a pessimistic solution with a cost increase of 20% and a reduction in benefits of 20% would reduce the internal rate of return to 12%. Even on pessimistic assumptions, the maintenance com- ponent deserves a high priority in the road development program. VI. AGREEMENTS REACHED AND RECOMMENDATIONS 6.01 During negotiations agreement was reached on the following principal issues: (a) the five-year maintenance program (Table 9) and speci- fically the funds to be released for road maintenance in FY78, technical assistance and training provisions and further review procedures (para 3.09 and 4.10); (b) the transfer of feeder road construction equipment which is not rented or sold to contractors engaged on the project to contractors on other road works or to the road maintenance fleet (para 4.05); (c) the study of practical methods of raising revenues alternative to the road cess (para 3.16); (d) the allocation of funds, based on maintenance rates and equipment hire charges, from the road maintenance budget for equipment maintenance (para 3.25); and (e) the disbursement of funds for the Thankot-Naubise road subject to approval by the Association of the detailed engineering, contract drawings, specifications, construc- tion program and the arrangements for construction supervision (para 4.21). 6.02 Based on the agreements reached during negotiations, as indicated above, the project constitutes a suitable basis for an Association credit of US$17 million equivalent.  TABLE 1 NEPAL SECOND HIGHWAY PROJECT The National Highway Network and Estimated Growth (Kilometers) Year Total Length Department of Roads Department of Roads Panchayat Bitumen Gravel Earthl/ Earth 1 1965 1,826 289 147 300 1,090 1967 2,430 536 344 320 1,230 1969 2,750 661 408 360 1,321 1971 2,810 934 486 206 1,184 1972 2,951 1,115 475 186 1,175 1973 3,016 1,356 318 166 1,176 1974 3,900 1,456 150 640 1,654 1975 4,179 1,540 219 800 1,620 1976 4,199 1,568 160 850 1,621 % Average Annual Growth Rate (1966-76) 8.2 15 0 16 1977 4,238 1,568 170 1,000/ 1,600 2/ 1978 4,337 1,651 186 1,000 1,600 1979 4,722 1,946 276 1,000 1,600 1980 4,927 2,084 343 1,000 1,600 1981 5,505 2,437 568 1,000 1,600 1982 5,800 2,600 700 1,000 1,600 Estimated % Average Annual Growth Rate (1976-1982) 6.5 10.7 34.1 1/ Many earth roads are only tracks. Earth roads are not shown on maps. 2/ Notional only--likely to increase gradually. Source: Department of Roads and Mission Estimates. June 1977  TABLE 2 NEPAL SECOND HIGHWAY PROJECT Registered Motor Vehicles (1964-1975) 1/ Year Jeeps and Cars Trucks Buses Total 1964 2,362 1,352 290 4,004 1965 N.A. N.A. N.A. N.A. 1966 3,761 1,834 426 6,021 1967 4,411 2,150 497 7,058 1968 5,142 2,534 561 8,237 1969 6,oo8 2,993 578 9,579 1970 6,649 3,072 541 10,262 1971 7,215 3,258 652 11,125 1972 7,810 3,627 713 12,150 1973 8,768 L,109 919 13,796 1974 9,611 4,612 1,021 15,244 1975 9,684 4,651 1,223 15,558 Average Annual Growth Rates in % 1964-75 13.6 11.9 14.0 13.1 1970-75 7.8 8.6 17.4 8.7 1975-76 .8 1.8 19.8 2.1 1/ The number of vehicles registered in a given year is obtained by taking the total in the previous year and adding the new vehicles registered during the given year. No account is taken of scrapped vehicles. Source: Department of Roads June 1977  TABLE 3 NEPAL SECOND HIGHWAY PROJECT Fifth Highway Investment Plan 1/ (NRs millions) Fifth Plan (1976-80) % Trunk Highway 642.5 56.8 Feeder Roads 267.5 23.6 Urban Roads 35.0 3.1 Bridges 22.2 2.0 Suspension Bridges 47.9 4.2 Hill Trails 30.0 2.6 Maintenance 59.5 5.3 Miscellaneous 27.5 2.4 TOTAL 1,132.1 100.0 1/ Minimum Allocation Source: The Government's "Fifth Plan (1975-80)." June 1977  NEPAL SECOND HIGHWAY PROJECT Highway Expenditures (NRs millions) Item 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1/ Administration 4.1 4.1 2.6 2.6 1.6 1.0 1.1 2.9 3.6 3.2 3.6 Maintenance 3.0 3.0 2.5 3.5 3.9 6.o 8.o 14.7 19.5 22.3 43.4 Construction (excluding bilateral financing) 5.0 7.2 8.8 18.3 24.0 27.9 32.6 37.8 73.2 49.7 108.0 Subtotal 12.1 14.3 13.9 24.4 29.5 34.9 41.7 55.4 96.3 75.2 155.0 Construction (bilateral financed) 73.5 77.6 96.5 198.3 139.0 140.5 147.6 172.4 178.2 121.0 235.1 TOTAL 85.6 91.9 110.4 222.7 168.5 175.4 189.3 227.8 274.5 196.2 391.0 1/ Estimated from budget Source: Department of Roads June 1977  TABLE 5 NEPAL SECOND HIGHWAY PROJECT Road Transport Revenue A/ (NRs millions) Item 1974 1975 1976 Road Cess 6.2 6.9 7.6 Vehicle Tax 1.1 1.8 2.0 Customs from Vehicles 1.4 4.3 2.5 Customs from Petroleum 25.7 28.5 15.6 Customs from Diesel 16.9 17.1 9.9 Route Licenses (1.2) / 1.3 1.4 52.5 59.9 39.0 1/ Gross receipts 2/ Assumed--data not available Source: Department of Roads June 1977  TABLE 6 NEPAL SECOND HIGHWAY PROJECT Road Maintenance Allocations (NRs millions) Received as % of Year Requested Received Requested 1965 1.7 1966 1.4 1967 3.0 1968 3.0 1969 2.5 1970 3.5 1971 6.4 4.0 63 1972 8.2 6.o 73 1973 14.0 8.0 57 1974 16.8 14.7 87 1975 24.7 19.5 79 1976 29.9 22.3 76 1977 43.0 Estimated (See Table 9.) Capital ./ Recurrent 2/ Total 1978 35.9 30.5 66.4 1979 38.o 35.7 73.7 1980 27.6 38.5 66.1 1981 17.9 45.9 63.8 1982 10.9 49.4 60.3 1/ Includes external financing. 2/ No allowance made for rehabilitation, contingencies or traffic growth. All estimates to be reviewed by technical assistance team. Source: Department of Roads and Mission Estimates June 1977  TABLE 7 NEPAL SECOND HIGHWAY PROJECT Selected Design Standards East-West Highway - Tulsipur Feeder Road Thankot-Naubise Road Flat Mountainous Design Speed (km/h) 50 30 30-45 Formation Width (m) 5 5 8 1/ Paved Width (m) - _ 6.5 Average Gradient (%) 5 8 8 Maximum Gradient (%) 8 10 10 Cross Slope (%) 5 5 10 Stopping Sight Distance (m) 50 30 120 1/ Minimum Horizontal Radius (m) 90 30 20 Distance Between Passing Bays (m) - 150 Structural Design: "Standard Specifications for Highway Bridges" adopted by the American Association of State Highway Officials (AASHO), Loading HS 15. 1/ Where this can be achieved. 2/ Except for hairpin bends where absolute minimum is 11 m with widened formation of 9.25 m. Source: Consultants to Department of Roads June 1977  TABLE 8 NEPAL SECOND HIGHWAY PROJECT Road Construction Equipment (Foreign Exchange Cost) Total Cost Description Number us$ Bulldozers (140 hp) with rippers 2 Graders 2 Pneumatic rollers 2 Road rollers, steel wheel (8/10 tons) 4 Vibrating rollers, towed 4 Tractors (light) 4 Tipping trucks (5 ton) 12 Flat trucks (5 ton) 4 Water distributors 4 Generators 5 Pickup vehicles 4 4-wheel drive vehicles 2 Portable compactors 4 Welding sets 2 Mobile crane 1 Compressors 6 Pneumatic drills 25 1,088,000 Spares and Tools 15% 162,000 Grand Total 1,250,000 Source: Department of Roads June 1977  NEPAL SECOND HIGHWAY PROJECT Outline Five-Year Road Maintenance Program (NRs million) (Fiscal Years) A. Capital Expenditures Financed By 1978 1979 1980 1981 1982 Totals Item Local For. Total Local For. Total Local For. Total Local For. Total Local For. Total Local For. Total Maintenance Equipment Gov't/IDA 1.3 24.6 25.9 0.9 16.4 17.3 0.7 12.4 13,1 0.1 2.2 2.3 0.1 0.9 1.0 3.1 56.5 59 6 Spare Parts (New Equip.) Gov't/I1p 0.3 6.0 6 3 0.3 4.2 4.5 0.2 3.2 3.4 0.2 0.5 0.7 0.0 0.2 0.2 1.0 14.1 15.1 Maintenance Equipment Gov't. - --- --- --- --- --- --- --- --- --- 0.3 6.2 6.5 0.3 6.2 6.5 0.6 12.4 13.0 Spare Parts (Exist. Equip) Gov't/IDA --- --- --- 0.3 3.7 4.0 0.2 2.2 2,4 0.5 5.9 6.4 Workshop Buildings and Equipment Gov't/IDA 0.2 --- 0.2 0.6 3.8 4.4 0.6 0.9 1.5 0.4 0.8 1.2 0.1 0.1 0.2 1.9 5.6 7.5 Technical Assistance Gov't/CIDA- 0.5 3.0 3.5 0.6 4.0 4.6 0.6 3.2 3.8 0.8 3.0 3.8 0.3 2.7 3.0 2.8 15.9 18.7 Training Gov't/IDA/ILO --- --- --- 1.6 1.6 3.2 1.7 1.7 3.4 1.7 1.7 3.4 --- _ --- 5.0 5.0 10.0 Total Capital 2.3 33.6 35.9 4.3 33.7 38.0 4.0 23.6 27.6 3.5 14.4 17.9 0.8 10.1 10.9 14.9 115.4 130.3 B. Recurrent Expenditures 4/ Local For. Total Local For. Total Local For. Total Local For. Total Local For. Total Local For. Total Labor Gov't. 12.3 --- 12.3 14.2 --- 14.2 15.1 --- 15.1 17.7 --- 17.7 19.0 --- 19.0 78.3 78.3 Equipment Operation Gov't. 3.1 1.6 4.7 3.7 1.9 5.6 4.0 2.0 6.0 4.7 2.4 7.1 5.1 2.6 7.7 20.6 10.5 31.1 Spare Parts 5 Gov't. 0.3 4.5 4.8 0.4 5.3 5.7 0.6 5.7 6.3 0.9 7.0 7.9 0.9 7.7 8.6 3.1 30.2. 33.3 Materials Gov't. 3.0 3.0 6.0 3.6 3.6 7.2 3.9 3.9 7.8 4.6 4.6 9.2 5.0 5.0 10.0 20.1 20.1 40.2 7 = .27.8 T5 T5 _7 = W T'77 T 45. 1;7 W7 TI!: Emergencies 2.0 0.7 2.7 2.2 0.8 3.0 2.3 1.0 3.3 2.7 1.3 4.0 2.8 1.3 4.1 12.0 5.1 17.1 Total Recurrent 20.7 9.8 30.5 24.1 11.6 35.7 25.9 12.6 38.5 30.6 15.3 45.9 32.8 16.6 49.4 134.1 65.9 200.0 Total Program Cost 23.0 43.4 66.4 28.4 45.3 73.7 29.9 36.2 66.1 34.1 29.7 63.8 33.6 26.7 60.3 149 0 181.3 330.3 1/ All at FY77 prices--no escalation included. 2/ Replacement equipment for 1976 fleet. 3/ Costs and program tentative. 4/ Based on standard per kkm rates less equipment depreciation. Resulting rates are: NRs 12,750 paved; NRs 8,800 gravel; and NRa 4,500 earth. No allowance for contingencies, rehabilitation or traffic growth. All estimates tu be reviewed by Technical Assistance team. 5/ Estimate on percentage hire-charge basis. To be reviewed by Technical Assistance team. taking into account ILA-financed spares in "A" above. Source: DLepartment of Roads and Mission estimates. June 1977  TABLE 10 NEPAL SECOND HIGHWAY PROJECT Road Maintenance Equipment and Workshops (Foreign Exchange Cost) Total Total Existing Units Usable Total To Be First Second First Second Total Description Equipment Needs Purchased Group Group Group Group Cost US$ US$ US$ Graders (100 hp) 6 14 8 6 2 Bulldozers (200 hp) 4 9 5 3 2 Bulldozers (140 hp) - 5 5 3 2 Loaders 10 19 9 6 3 Tipping Trucks (5 ton) 35 100 65 45 20 Water Distributor - 8 8 6 2 Road Rollers, Steel Wheel (8/10 tons) 14 30 16 12 4 Portable Hot Mix Plant 1 9 8 6 2 Portable Vibrating Rollers 12 33 21 15 6 Small Dumpers, 1 cu.yd. 1 11 10 10 - Pickups 18 44 26 18 8 Trucks 16/20 ton - 2 2 2 - Low Loaders - 2 2 2 - Roller Trailers - 3 3 3 - Tractors (light) - 7 7 7 - Cranes (10 ton) - 1 1 1 - Crushers, Mobile 11 16 5 3 2 Motorcycles (125 cc) 16 105 89 65 25 Generators 3 KVA - 9 9 9 - Portable Engine Drills 16 35 19 19 - Pneumatic Drills 26 58 32 24 8 Compressors 2 10 8 6 2 Tractor Grader (light) 1 7 6 6 - 3,295,000 1,245,000 4,540,000 gpares (new equipment) 29% 824,000 311,000 1,135,000 Spares (existing equipment) 300,000 175,000 475,000 4,419,000 1,731,000 6,150,000 Base Workshops (near Ithari, Butwal) @$150,000 300,000 Workshop Equipment 150,000 150,000 450,000 Grand Total $6,600,000 Source: Dept. of Roads June 1977  TABLE 11 NEPAL PROPOSED SECOND HIGHWAY PROJECT Total Project Costs (US$ millions) Without Allocated Contingencies With Price Contingency Allocated Financing X % IDA Local Foreign Total Foreign Local Foreign Total HMG IDA Financed CATEGORY (1) Feeder Road (Excluding Equipment) 1.56 .76 2.32 33 2.33 1.15 3.48 Local Road Improvement .20 .20 .40 50 .33 .33 .66 Workshops .22 .23 .45 50 .33 .33 .66 TOTAL (1) 1.98 1.19 3.17 2.99 1.81 4.80 1.20 3.60 75% CATEGORY (2) Thankot-Naubise Road .60 .90 1.50 60 .75 1.12 1.87 .48 1.40 75% CATEGORY (3) Rental Equipment .02 1.25 1.27 98 .02 1.30 1.32 Maintenance Equipment(lst) .20 4.42 4.62 95 .24 4.77 5.01 Maintenance Equipment(2nd) .10 1.74 1.84 95 .11 2.04 2.15 Tools .0 .22 .22 100 - .26 .26 TOTAL (3) .32 7.63 7.95 .37 8.37 8.74 .34 8.40 100% F.E. CATEGORY (4) Feeder Road Study .10 .34 .44 77 .10 .34 .44 Feeder Road Supervision .13 .27 .40 67 .18 .36 .54 East-West Highway Feasibility .20 .40 .60 67 .24 .48 .72 TOTAL (4) .43 1.01 1.44 .52 1.18 1.70 - 1.70 100% CATEGORY (5) Mechanics' Training .40 .40 .80 50 .50 .50 1.00 .50 .50 100% F.E. CATEGORY (6) Unallocated Price Contingency 1.40 1.85 3.25 Physical Contingency .54 1.35 1.89 .54 1.35 1.89 TOTAL (6) 1.94 3.20 5.14 .48 1.40 GRAND TOTAL 5.67 14.33 20.00 5.67 14.33 20.00 3.00 17.00 June 1977  TABLE 12 NEPAL SECOND HIGHWAY PROJECT Schedule of Estimated Disbursements (US$ thousands) IDA Fiscal Year and Quarter Disbursements Cumulative Disbursements 1978 September 30, 1977 December 31, 1977 1,000 1,000 March 31, 1978 1,000 2,000 June 30, 1978 2,300 4,300 1979 September 30, 1978 1,800 6,ooo December 31, 1978 2,700 8,800 March 31, 1979 1,700 10,500 June 30, 1979 goo 11,490 1980 September 30, 1979 goo 12,300 December 31, 1979 1,400 13,700 March 31, 1980 1,200 14,goo June 30, 1980 500 15,400 1981 September 30, 1980 300 15,700 December 31, 1980 300 16,000 March 31, 1981 300 16,300 June 30, 1981 300 16,600 1982 September 30, 1981 200 16,800 December 31, 1981 100 16,goo March 31, 1982 1oo 17,000 June 30, 1982 17,000 Closing Date December 31, 1982 Source: Mission Estimates June 1977  TABLE 13 NEPAL SECOND HIGHWAY PROJECT Economic User Costs and Savings TERRAIN Rolling Hilly Cost Savings Cost Savings CAR Paved .96 1.18 .24 .34 Gravel 1.20 1.52 .81 .85 Earth 2.01 2.37 JEEP Paved 1.56 1.87 .47 .60 Gravel 2.03 2.47 1.25 1.27 Earth 3.28 3.74 TRUCK Paved 2.13 2.63 .514 .75 Gravel 2.67 3.38 1.80 1.88 Earth 4.47 5.26 BUS Paved 2.09 2.68 .56 .72 Gravel 2.65 3.40 1.74 1.96 Earth 4.39 5.36 1/ Road surface in good condition. Source: N. D. Lea (consultants) and Mission Estimates June 1977  NEPAL SECOND HIGHWAY PROJECT Feeder Road: Estimated Benefit and Cost Streams (NRs millions) . . . . . . . . . .B E N E F I T S. . . . . . . . . . . . . . . .C O S T S. . . . . . . 1/ Road Additional Road 2/ Road User- Agricultural Maintenance Total Agriculture Construction- Total 1978 - - - .4 7.0 7.4 1979 - - - 1.2 11.0 12.2 1980 - - - - 1.0 11.0 12.0 1981 1.8 .4 - 2.2 .9 7.0 7.9 1982 2.2 1.7 - 3.9 .1 - .1 1983 2.4 2.6 - 5.0 .1 - .1 1984 2.6 6.8 - 9.4 .1 - .1 1985 2.8 15.5 .1 18.4 .1 - .1 1986 3.0 23.2 .1 26.3 .1 - .1 1987 3.2 31.0 .1 34.3 .1 - .1 1988 3.5 38.7 .2 42.4 .1 - .1 1989 3.7 42.0 .2 45.9 .1 - .1 1990 4.0 42.0 .2 46.2 .1 - .1 1991 4.4 42.0 .2 46.6 .1 - .1 1992 4.8 42.0 .3 47.1 .1 - .1 1993 5.2 42.0 .3 47.5 1994 5.8 42.0 .3 48.1 1995 6.6 42.0 .4 49.0 1/ 80% of N.D. Lea's user cost benefits. 2/ Economic costs are estimated to be 90% of financial costs including physical contingency but excluding price contingency. June 1977  NEPAL SECOND HIGHWAY PROJECT Main Road Upgrading: Estimated Benefits and Costs Streamn (NRs millions) . . . . . . . . . .B E N E F I T S. . . . . . . . . . . . . . . . . . . . . Cu T S. . . . . . . . Emergency Maintenance User Repaving and Additional Cost 1/ Cost 2 Reconstructiq9 Total Constupction Repav"g Routine 6/ Total Savings,- Savings-/ Cost Savings-_ Benefits Costs- Costs- Maintenance- Costs 1978 - .61 - .61 6.00 - 6.00 1979 - - - 14.2n_ - 14.20 i980 1.62 - 1.00 2.o2 - - .05 .05 1981 1.70 .61 1.00 3.31 - - .05 .05 1982 1.79 - 1.00 2.79 - - .05 .05 1983 1.88 - 1.34 2.88 - - .05 .05 1984 1.97 .61 1.00 3.58 - - .05 .05 1985 2.07 - 1.00 3.07 - .79 .05 .84 1986 2.17 - 1.00 3.17 - - .05 .05 1987 2.28 .61 1.00 3.89 - - .05 .05 1988 2.39 - 1.00 3.39 - - .05 .05 1989 2.50 - 1.00 3.50 - - .05 .05 1990 2.50 .61 1.00 4.11 - - .05 .05 1991 2.50 - 1.00 3.50 - .79 .05 .84 1992 2.50 - 1.00 3.50 - - .05 .05 1993 2.50 .61 1.00 4.11 - - *05 .05 1994 2.50 - 1.00 3.50 - - .05 .05 1995 2.50 _ 1.00 3.50 - - .05 .05 1996 2.50 .61 1.00 4.11 - - .05 .05 1997 *.J5 - 1.00 3.50 - .79 .05 .84 1998 2.50 - 1.00 3.50 - - .05 .05 1999 2.50 .61 1.00 4.11 - - .05 .05 -~~~~~~~~~~~~~~~~~~~~~~~ 1/ 1980 - 300 truck/bus per day. NRs 73 user savings per km x 17.5 km x 365 days + 75 car/jeep x .45 user savings per km x 17.5 km x 365 days. 2/ Estimated at NRs 35,000/km. 3/ Estimated at NRa 45,000/km. 4/ Economic construction costs are estimated at 90X of financial costs including physical contingency but excluding price contingency. 5/ Estimated at NRa 45,000/km. 6/ Estimated at NRs 3,000/km. June 1977  NEPAL SECOND HIGHWAY PROJECT Estimated Benefit and Cost. Streans (NRs millions) BENEFITS COSTS Additional -Pn-vp(i Gravel Earth Total Recurrent Capital L' Total Roads Roads Roads Expenditures Expenditures 1978 5.3 .7 1.8 7.8 2.5 35.9 38.40 1979 11.6 1.9 4.o 17.5 7.7 38.0 45.70 1980 18.8 3.5 6.4 28.7 10.5 27.6 38.10 1981 26.7 7.6 9.6 43.9 17.9 17.9 35.80 1982 36. 0 11.6 12.8 60.4 21.4 10.9 32.30 1983 45.2 14.5 16.2 76.5 21.4 -- 21.40 1984 55.2 17.6 19.8 94.0o -1.4 __ 21.40 1985 65.7 21.0 23.7 11-3. 21.4 -- 21.40 1/ No salvage value has beer. included. It was estimated that the salvage value at the end of 1985 would approximately equal equipment replacement costs during 1983 to 1985. June 1977  MrPAL SECOND IIISPRAY PROJECl Profoao Implf oniaLOon Sclodoin 76 1 97 7 1978 _ 1979 1980 l I l L-~ boom Aoootnvl Action Bv 2 FY 77 4 _ 2 3 4 _ 2 39 4 _ 2 3 4 2 3 _2 Asa-cistio- Credit Nego.taL-oos HM G/IdA Signiog Cr-dir Agrem-n-t IMWT/DAiR Cr-dit Ag- - - facve H7di GIGA CoOsoroco I on of Po'oqna if O coOf on EMCIG Feader Road Bid Pr-par-t.on ConfrLto-t- PO,R CoVr- to-L-n HMG/Contractr LoafOeton and A-ord VIM/BiLA Coos tra Loan BMB/Conltrattoro Cootraroor OmentAl AdvIrtisemn- - .MG /t_ Eqaipweet Bid .reparation Sapploer_ EvLoaf 0040 and iloard MOB/IRA*__ _ _ Beivory -orplor_ Locsl Road, M.nor Proirdo Praporation -MG improvement6 Construl-tzolz H7~d21/Contratoars Main E ad Upgr-ding D-Lailod E.gi-eerng 1MG_ foffoesriog Approno- l IDA POeulCalfi -tLion MG _ _ Bid Proparrtoon ..otrerOoo* EBnsatoioo -ad A-ard IMG_ C-o-Lratio- HMOC--ntr-aPs Ro.d Maiote-a'e Prepara-ioo Spe ificGtions dG_B Eqoip-eoe, Sparo- sod Associatlon Appro-.1 DA/ Workshop TooI6 oOdvertisesaeOf BMG Bid Prepar-e-o SBoppl-er* vls-ion s-d A-ard EMG/IDA__ DBin-e-y Suppli-rs Workshops Breoiog Bod Program_ S Prepars..t oMs O. Aesoiatlio A'ppo... BilkA Ad-erni.emen. HnGt Rid Prep- rsf-o- CoeRcs Lr * foafoseloa sad Riard h4G/IL_ feeder Rosd siasuEiaofo Assistenos Conealfotsn6* Fe .ibtliy StpdLus snd ORher Actinitiio Coapfooo Detailed .gi.-ieerReg Feeder Rosd CoostrooLio Ptep-psti.f of Te.-s of Nuperiasios Referesoe HMGW Caet,oct Ner,tistion. -nd SLgning HG/IDA_ _ ___ ConaetruceLLoO RspeLOfOfion BSI/Consosl Lenet _ _ __ Ea.I-W.eE HigbesoY Trees of Ref-reece HMG/IDA Peeeiblity stRdiRE Prep-rption_ Pr-ops-l Prepar--Ron Co.e. lLanfY .E-Lali.. sed A-erd MGMlA _P_ Pre_eRRibillty Study Co-a lt tes_ FestbiRlity Study CosnBl5t.t_ rl IlraElOlO PreReeRp-rtion T-rining Perarsr H4G/ILO/IP/fB Treiner Rearsitmeo- ILOB Prep.eatLon Trfa.i. _ P --iRitee MG/FI/ILO_ ____ TrolseRag ProWrsm sec4/RI/ILO _ _ _ _ T-bcaifol A.eis.tanc Coasoleset BlesL CIGA PrJnRetee of 19e77fee Cosoitae_ __ RoAd Mageteonrne Progsam RMB/Caeo ltaetsne/OOAt   NEPAL SECOND HIGHWAYS PROJECT DEPARTMENT OF ROADS Previous Organization |CHIEF ENGINEER Western Eaand Far Suspensitr astern Suantitn Administrative Fiscal ooprtin Mechanical Supensi Design Planning ion Roads Surveying Branch Branch Cooperaton Branch BridgesWBranch Bradsh Branch Branch Branch ProjectBrnhrac Nepalguni Hipeavy HetaudnauHetauda Pokhara Sub-iipmentns (Mechanical) Divisin Diiuo DivisionSu-Kth.nu Division Division Division Maintenance and ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Maintenance and loailntfnance ad cosrcin Ilocally financed construction projects in Western and Far proectsa ReionEstran Western Regions CetaRein World Bank - 16771   NEPAL SECOND HIGHWAYS PROJECT DEPARTMENT OF ROADS Recently Introduced Organization CHIEF ENGINEER Other lang MehnalConstruction Quantity Maior Branch DBranch and Mainten- Surveying Adinsra tive Briscal Projects Br.C.ne Brunc.h BranchBrnhrac Far Western Western Central Eastern Regional Regional Regional Regional Office Office Office Office Godawvari Nepalgune Mechanical Butwal Poka MchaniCal ath nu Kathmandu Hetauda Mechanical bhtahari Mechanical Division Division Division Division Division Divso ivision - Division -2 Division Division Dvision Div,sion Division Divisions are responsible for both construction and maintenance   - - NEPAL 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~BRD 12622R INDIA '~TRANSPORT NETWORK 30' HE PROiE~~~~~~~~~~~~~~~~T OTHER TRAN5.POR.~~~~~~~~~~~~~~~~~~~~~~~ FACILniES~~~~FAILTIS [7'&i Bose W~~~~or~rshe~~,s 4' ~tnternsational Airport ~~~~~~-o~~~~~~~~~~~~~ 0 REL~~~~~~~~~~~~~~~~~~~~~~Z~ ATEE~ PROGRA*~Sjtot Prpij#M - 0hj p loe Airports / 0 ~~~~~~~~~~~~~~~~~~~~~~~~or~~~~~~~~~~~~~~p~~~~~~~~~% Tr'ori 06flsrrs~ OCPSTO Airpo..rt +~~~ - - Pruss~~~~~~~~~y il~~~~Iswrrys 0 O~~~~~~~~~Iter Tlwtss, Cities~~~~~O , - - L.A [of~~~~ (Pitip ~aIAtoO eeVRoskernotionaG B6,uodai-ias ~~~ o ROADS (Uhder Comiroctioni) Ri3ners~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ir INDIA N~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~e tI~~~~~~~~~~~3 20140 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ y~ 4 M ~3~' 160~ ~ ~ ~ ~ ~~~~~~~~~~r tLW cessAR q0ii+ -R9 W SR LANKA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Nl ~_________________________T_______________________   VYNVI 18SU 69 o
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