Nepal - Technical Education Project

FILE COPY r n DvDocument of The World Bank FOR OFFICIAL USE ONLY Report No. P-2231 REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE KINGDOM OF NEPAL FOR A TECHNICAL EDUCATION PROJECT February 15, 1978 This document has a restricted distribution and may be used by recipients only in the performance of their offtelal duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Nepalese Rupee (NR) US$1.00 = NRs 12.50 NR 1.00 = US$0.08 NRs 1 million US$80,000 ABBREVIATIONS AND ACRONYMS GDP = Gross Domestic Product IOE Institute of Engineering NESP National Education System Plan ODM Ministry of Overseas Development of the United Kingdom PIU = Project Implementation Unit GOVERNMENT OF NEPAL FISCAL YEAR July 16 to July 15  FOR OFF1CIAL USE ONLY NEPAL - TECHNICAL EDUCATION PROJECT Credit and Project Summary Borrower: Kingdom of Nepal Amount: US$5.7 million equivalent Terms: Standard Project Description: The project is designed to increase the supply of qualified engineering technicians needed to imple- ment Nepal's development programs. The IDA credit would help finance facilities and equipment for the Institute of Engineering of Tribhuvan Univer- sity in order to: (a) strengthen the quality of existing teaching programs for about 1,000 students at the certificate level (Grades 11-12) and about 200 students in remedial courses; and (b) estab- lish a new training program for about 430 students at the diploma level (Grades 13-15). Related staff training and specialists' services would be financed by the Ministry of Overseas Development of the United Kingdom. Also in conjunction with the project, three studies would be carried out to provide a basis for future development of the education sector. The project faces no special risks. However, expected benefits will be real- ized only if the IOE limits enrollment to the number specified above and is able to effect, and maintain, the reorientation of its teaching programs towards practical ends as intended. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Cost: US$ Thousands Equivalent Local Foreign Total Institute of Engineering 1,685 3,075 4,760 /a Technical and Engineering Services 15 125 140 Total Base Costs 1,700 3,200 4,900 Contingencies Physical 160 330 490 Price 500 830 1,330 Total Contingencies 660 1,160 1,820 Specialists and Fellowships 0 1,100 1,100 Total Prolect Costs 2,360 5.460 7,820 /b Financing Plan: US$ Thousands Equivalent Local Foreign Total IDA 1,340 4,360 5,700 United Kingdom - 1,100 1,100 Government of Nepal 1,020 - 1,020 Estimated IDA Disbursements: US$ Thousands Equivalent IDA FY 1980 1981 1982 1983 1984 Annual 150 750 1,800 2,000 1,000 Cumulative 150 900 2,700 4,700 5,700 Staff Appraisal Report: No. 1772b-NEP dated February 15, 1978. /a In general, facilities provided would be used for both the diploma and certificate level programs to facilitate economical operation. /b Including taxes and duties of US$100,000 equivalent.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE KINGDOM OF NEPAL FOR A TECHNICAL EDUCATION PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Kingdom of Nepal for the equivalent of US$5.7 mil- lion on standard IDA terms to help finance a technical education project. PART I - THE ECONOMY 2. The most recent economic report entitled "Review of the Economic Situation of Nepal" (Report No. 1180-NEP) was distributed to the Executive Directors on July 30, 1976. A country economic memorandum is under prep- aration to be issued in March 1978. The principal findings of the memorandum are described below. Country data are shown in Annex I. 3. Nepal has been classified by the United Nations as one of the least-developed countries in the world. Its per capita income in 1977 was estimated at $120. It has a population of 12.9 M, estimated to be growing at around 2% per year. A large proportion, nearly 96% of the population, live in rural areas. Health and education facilities are below the standards achieved in the rest of South Asia. Nepal has an infant mortality rate of 200 per thousand live births, an adult literacy rate of 19%, and a life expectancy at birth of less than 44 years. 4.. The country has a difficult topography which severely limits the area of arable land. Yet population density is now 450 per square kilometer of arable land for all of Nepal and 930 persons in the Hill areas where 59% of the people live. Already the results of pushing the area of cultivated land beyond ecologically safe limits are being felt in the Hill areas. Agricul- tural yields have declined, and soil erosion and landslides have resulted in these areas. In the Terai plains where foodgrains, sugar and jute are grown, little room is left for extending the cultivated areas. The traditional grain surpluses produced in the Terai are declining as population has grown. 5. The landlocked position of the country imposes an additional con- straint. Par removed from sources of supplies of development goods and ac- cess to export markets, development is more costly in Nepal than in many other countries. Moreover, uncertainties of trade and transit over the sub- continent complicates all economic decision-making, necessitates the holding of relatively large foreign exchange reserves, and reduces the country's attraction to private investors.  -2- 6. The economy is predominantly agricultural. About 68% of total value added originates in agriculture, and over 90% of the labor force is engaged in this activity. Agricultural products constitute more than 80% of Nepal's exports. Ninety percent of these exports go to India. Rice, the main export, accounts for about 60% of the total export value, while jute is the second most important. Industrial value added amounts to only 4% of GDP and Nepal, therefore, has to import almost all of its capital goods and a large part of manufactured consumer goods. 7. Between 1965 and 1975, Nepal's GDP growth rate averaged 2.4% per year, marginally above the rate of population growth. Thus far, development efforts have been mostly directed towards building an economic and adminis- trative infrastructure. This was necessary since it was only in the early fifties that the Government adopted economic and social development as major objectives. The investments in infrastructure made since then were the country's first steps toward modernization. They have not yet paid off, however, in terms of accelerated economic growth. 8. There have been no significant changes in the trend of economic growth in recent years. The weather continued to be the main factor which determined yearly fluctuations in growth. While GDP grew at 2.5% in 1974/75, marginally above the average rate for the decade, it rose to 6% in 1975/76, largely as a result of favorable weather. In 1976/77, however, GDP growth is estimated to have fallen below the average growth rate for the decade. This was due to infavorable weather which affected paddy and wheat produc- tion. The balance of payments, however, continued to improve during this period. Although imports increased and exports were stagnant in 1976/77, the adverse trade balance was more than offset by increased remittances and earnings from tourism. As a result, foreign exchange reserves increased by $21.7 million to $142.4 million, equivalent to about ten months of imports. However, prospects are that the balance of payments will weaken, as food- grain surpluses are declining and imports rising in response to increasing developmental activity. 9. After substantial efforts in the last two decades to build up the country's infrastructure, Nepal's planners believe that the time has come for a shift in the development strategy. The leading principle of the current Five-Year Plan (1976-80) is that Nepal should aim its development efforts at deriving increased production benefits from its past efforts to establish and expand the infrastructure. The allocation of investment funds under the Plan shows a drop in the share of transport and communications (from 41% to 23% of the total) and corresponding increases in the shares of agriculture, industry and the social sectors. Attention is to be concentrated on quick-yielding projects, mostly in agriculture but with an appropriate component of viable import substitution in industry. 10. The most important opportunity to reap production gains lies in agriculture. Present yields in the Terai, where most of the foodgrains are cultivated, average only 1-1.3 tons per hectare. These yields can be increased substantially by improvements in agricultural extension, by in- creased application of inputs, adaptive research, and by irrigation.  -3- Similar improvements could also be extended to sugar and jute cultivation which also have very low yields. Over the long-run, the wide difference between growing conditions in the Hills and in the Terai offers scope for increased specialization and exchange of products. For the time being, the Hills must continue to emphasize food production. Declining yields in the face of a growing population have caused serious food deficits in these areas. However, in the long-run, the Hill areas are comparatively well-suited to produce cash crops -- fruits, spices, vegetables, potatoes and natural silk, etc. On a limited scale such cash crops are already being produced in the Hills. Achievement of production gains will also require the strengthening of marketing and credit institutions. Some progress in institution-building has already been made in recent years, as evidenced by the establishment of the Agricultural Development Bank and the Agricultural Projects Services Center. 11. Although agriculture must occupy a predominant position in Nepal's development strategy, opportunities also exist in other directly productive sectors, mainly industry and tourism, and these should be vigorously pursued. The contribution of modern industry to GDP is still small, about 4%, but it has been growing. Most of the sector consists of the processing of agricul- tural products such as rice, wheat, vegetable oil, sugar and jute. The re- mainder is made up of factories producing simple consumer goods, wood pro- ducts, bricks, tiles and cement. The small size of the market, lack of raw materials, competition from Indian products, and the shortage of domestic entrepreneurs and trained workers will continue to be limiting factors for some time. Modern industry, nevertheless, has its role in Nepal's future development. The scope for processing of agricultural products for domestic use and export should increase with the intended diversification of agricul- ture. In the meantime, however, industry must, by necessity, be predominantly of a small-scale nature and an ancillary activity to agriculture, such as cottage industry. 12. Tourism has grown at 11.5% per year over the last five years; tourist arrivals at present are estimated to be above 85,000. Foreign ex- change earnings from this source are equivalent to about 25% of merchandise exports. In line with a master plan for the sector, prepared with German assistance, a number of projects are to be undertaken to develop hill sta- tions, observation points, and national parks, as well as to restore ancient temples, and to strengthen the hotel school. While small in size, these pro- jects are important for the long-term development of tourism. 13. On the basis of these and other considerations, it appears that there is sufficient scope for development of the directly-productive sectors to allow a modest acceleration of GDP growth to perhaps 3.5% a year during the last years of the decade and 4-5% in the 1980s. The proposed develop- ment strategy appears to be appropriate to Nepal's circumstances. The past ratio of investment (8.5-10.5% of GDP) to growth (2% of GDP) appears to be very high and, in view of the scarcity of resources in Nepal, the planners are right in looking for opportunities for more rapid growth without neglect- ing the need for completion of the basic infrastructure.  - 4 - 14. Nepal has made commendable efforts to mobilize domestic resources for development. In the last five years, real revenue growth has averaged over 7% per year, much higher than the growth rate of GDP, and budgetary savings were maintained at 40% of revenue, slightly over 3% of GDP. This result was obtained in the face of serious difficulties. On the revenue side, Nepal suffers from the constraints of extreme poverty and low degree of mone- tization of the economy. The open border with India, moreover, makes it dif- ficult to control foreign trade and to levy the trade taxes which play such a large role in the tax system of most developing countries. On the current expenditures side, the Government has to cope with rising claims for main- tenance of infrastructure and the need to raise government salaries from levels which are low even by the standards of a poor country. 15. In view of the pressures to increase current expenditures, all that can be realistically expected in the next few years is that the Government maintains its savings rate at 3% of GDP. Only when economic growth starts to accelerate significantly in the 1980s will there be prospects for an in- crease in this rate. Given the constraints on mobilizing domestic resources, which will prevail even with continued satisfactory fiscal management, foreign aid will remain a decisive factor in Nepal's economic development. In fact, since public savings are likely to increase less rapidly than public invest- ment during the period of the current Five-Year Plan, aid will become, at least temporarily, more important. In view of this scarcity of public savings, aid will have to cover not only the foreign exchange cost of projects, but, as a rule, also at least part of local cost. Total aid disbursements during 1971-75 (the previous Five-Year Plan) averaged $33 M a year in constant (1974/ 75) prices and covered 45% of public investment. During 1976-80 (the present Five-Year Plan), this proportion would have to rise to 57% if public invest- ment is not to be held back by lack of financial resources. Under these cir- cumstances, disbursements in real terms would have to rise by around 12.5% per year to average about $60 M in constant (1974/75) prices and about $90 M in current prices. 16. The international community has thus far been very responsive to these aid needs of Nepal. Shortage of finance has not yet been a bottleneck and prospects are that aid flows of the required magnitude will continue to be available. The real factor determining Nepal's development pace has been its limited absorptive capacity, an important constraint on project prepara- tion and implementation. It is the growth of this absorptive capacity which will determine the actual level of aid disbursements. Technical assistance is being provided by a number of donors to prepare a pipeline of projects suitable for external financing which should help increase commitments. Project implementation capacity is improving through aid to several govern- ment agencies from various donors, but is by no means adequate. Strengthen- ing of implementing agencies is only a partial solution; steps must concur- rently be taken to alleviate the acute shortage of trained technical manpower to carry out the physical implementation of projects. The essential questions regarding aid to Nepal are, therefore, what donors should do to attune their aid programs to Nepal's development priorities and what they can do to help raise absorptive capacity.  - 5 - 17. These questions, obviously requiring consultations between the Nepal Government and the donors, provide the focus for the Nepal Aid Group which had its first meeting in Tokyo in December 1976. On the basis of sector and project documentation prepared by the Government, the meeting reviewed the type of projects needed to support the Government's development strategy and the type of technical assistance programs needed to build up absorptive capa- city. Sustained attention to these matters in the framework of the Group is expected to lead to improvements in the composition of aid and to speed up the still very slow rate of disbursement of aid funds. 18. As of December 31, 1976, official foreign debt amounted to $236 M, of which 33% was to IDA. Of the $236 M, $192 M remained undisbursed. This low utilization is largely due to the fact that the bulk of foreign loans has been contracted since 1970. Debt service was about $2.3 M in 1977 or equiva- lent to about 2% of exports of goods and services. Most external loans will probably continue to be on concessionary terms, which is highly desirable in view of Nepal's poverty and limited export prospects. In view of the acceler- ated development efforts, external public debt is expected to rise and, based on the trend in recent years, may reach about $350 M by 1980, of which approxi- mately 40% could be in IDA credits. The total debt service ratio by 1980 is, however, projected to be about 5%. PART II - BANK GROUP OPERATIONS IN NEPAL 19. The first IDA credit to Nepal in the amount of $1.7 M equivalent was made in FY70 for a telecommunications project. This was followed by credits for highways ($2.2 M), tourism ($3.2 M), irrigation ($6.0 M), a second telecom- munications project ($5.5 M), water supply and sewerage ($11.8 M), settlement ($6.0 M), power ($26.0 M), rural development ($8.0 M), groundwater ($9.0 M), technical assistance ($3.0 M), a second water supply and sewerage project ($8.0 M), and the Nepal Industrial Development Corporation project ($4.0 M). In FY78, to date, one credit has been approved for a second highway project (US$17.0 M). The proposed credit would bring the total amount of IDA assist- ance to Nepal to $117.1 M equivalent, net of cancellations. No Bank loans have been made to Nepal. IFC made its first investment in Nepal ($3.2 M) in a hotel project in Kathmandu in FY75. Annex II contains a summary statement of Bank Group operations as of January 31, 1978, and notes on the execution of ongoing IDA projects. It shows certain delays in the implementation of these projects, particularly during the initial periods. These delays have been largely due to Nepal's limited technical and managerial capabilities. In order to assist Nepal in coping with this constraint, considerable technical assistance is being given by Bank Group staff, including our Resident Mission in Kathmandu. As a result, improvement in the rate of disbursements is being realized. During the first six months of FY78, $8.4 M were disbursed compared to $12.8 M disbursed during the entire previous seven years. There is, however, substantial scope for further improvement.  -6- 20. Bank Group lending to Nepal has so far been at a modest level com- pared to the country's need for, and total receipts of, external assistance. The international community has persistently shown considerable interest in Nepal's economic development and, to date, the main constraint on the utili- zation of increased aid has not been shortage of funds, but Nepal's limited absorptive capacity. The Bank has agreed to assist the Government in project preparation through the technical assistance credit and by acting as Executing Agency for a number of technical assistance projects in the current UNDP Five- Year Program. The Bank Group has also addressed the problem of absorptive capacity through its role in organizing the Aid Group for Nepal (para 17). 21. The Bank Group's current strategy places major emphasis upon the directly-productive sectors (primarily agriculture) and the development of complementary infrastructure, including feeder roads (particularly con- necting the Hills to the Terai), communications and hydroelectric power. Preparation of projects in irrigation, forestry, telecommunications, power and rural development is underway. PART III - THE EDUCATION SECTOR Development Strategy and Manpower Implications 22. Over the past decade, the shortage of trained technical manpower to implement development projects has been an important factor which has prevented the Government from achieving projected rates of growth in GDP. Success in implementing the current Fifth and future Five-Year Plans will require, inter alia, that steps be taken to alleviate these technical man- power constraints, particularly of junior and senior engineering technicians. 23. The shortage of senior engineering technicians (diploma level) is exemplified by the existence of about 80 vacancies for technical staff in the major government departments concerned with development projects. The National Planning Commission's technical manpower requirement estimates for the whole economy during the Fifth Plan, discounted to reflect effective employment opportunities, indicate that an additional 1,100 senior techni- cians, and 2,700 junior technicians (certificate level), will be needed over the period 1976-8On Manpower requirements for the Sixth Plan period (1981-85) are conservatively estimated to increase by about 4% per annum. 24. There is no local capacity in Nepal for training senior engineering technicians. Almost all of the 780 senior engineering technicians in Nepal in 1975 were trained abroad, usually under government or bilateral scholar- ships. The number of places available for Nepalese diploma students at for- eign institutions (mainly in India) has fluctuated widely and has been de- clining in recent years. The estimated number of returning graduates through 1980 represents less than half of the projected needs for the current Plan period. In addition, foreign training is not specifically related to Nepalese conditions and problems, and foreign-trained technicians are  -7- generally reluctant to work outside the Kathmandu Valley. Junior engineering technicians are currently being trained locally, but the quality of training is poor and the number of graduates is insufficient to meet demand. The Education System 25. The acute manpower shortages in technical fields reflect the his- torical neglect of education in Nepal. At the end of the Rana regime (1951), which opposed schooling of the general population, less than 1% of the school age population (only 10,000 children) were in school. Since then, however, enrollments have expanded rapidly. In 1976, 19% of the population over six years of age (1.3 million) were literate, about 60% of children of the relevant age group were enrolled in primary schools, and 21,400 students were enrolled at the undergraduate level in Tribhuvan University. 26. This significant progress was achieved under the New Education System Plan (NESP) which the Government adopted in 1971 to help overcome the deficien- cies in the education system. The major thrusts of the NESP were to enlarge access to basic education, improve teacher training and reorient education away from academic and theoretical subjects towards practical activities more closely related to the needs of development. Education administration was decentralized and the Government assumed greater responsibility for educational financing. 27. Despite this progress, and although the structural and administra- tive aspects of the NESP have been largely implemented, Nepal's educational problems are still far from solved. Enrollment targets have been only par- tially met, trained teachers and textbooks are in short supply and dropout rates are high. While expenditures on technical/vocational education have increased, the demand for technical manpower is still largely unmet. 28. As part of the NESP, primary education was shortened from five years to three, so that minimum learning skills could be provided to greater numbers of children. Primary enrollments grew by 165% during 1971-76, reach- ing about 60% of the relevant age group. The female enrollment ratio has increased to 20%, but remains low compared to the 90% ratio for boys. Regional enrollment disparities continue to be pronounced. Dropout rates are exception- ally high, with less than 30% of entering students completing the three-year cycle. 29. Secondary education consists of two levels: lower secondary (Grades 4-7) for 40% of the total number of students enrolled at the primary level; and upper secondary (Grades 8-10) for 40% of the total enrolled at the lower secondary level. Since 1971, the enrollment ratio has improved from 11% to 14% of the relevant age group in lower secondary (73% of the NESP target) and from 6% to 10% in upper secondary schools (57% of target). As at the primary level, the enrollment ratio of girls remains substantially less than that of boys and there continues to be a pronounced disparity in enrollment ratios between regions. Prevocational subjects have been introduced in recent years at the lower secondary level (10% of instruction time), and vocational sub- jects were introduced at the upper secondary level (20% in general and Sanskrit  - 8 - high schools, and 40% in vocational high schools). Five vocational streams are taught in upper secondary schools - agriculture, secretarial science, education, home science and industrial arts. The quality of training suffers from poor workshop/laboratory facilities, lack of equipment and inadequately trained teachers. Enrollment in upper secondary vocational streams has been limited by financial and staffing constraints. 30. The key problem in secondary education as a whole is low achieve- ment rates among students, especially at the upper level. In general, only 30-40% of Grade 10 students pass the examination for the School Leaving Certificate. Even those who pass are poorly prepared for higher education and often require remedial work in some subjects. Substantial improvements have been made under the NESP to increase teachers' qualifications, but the effects of this have not yet been reflected in examination results. 31. Under the NESP, the post secondary (higher) education effort was centered in Tribhuvan University and was divided into three principal seg- ments commencing with Grade 11 -- certificate, diploma and degree. Each of these segments has a minimum of two years duration. A key problem of higher education is the uniformly low quality of preparation of incoming students. Because of this, each level is often extended by one semester or year for remedial training. In line with the NESP policy of emphasizing study in technical fields, enrollments have shifted from the five general institutes (e.g., humanities, law) and the education institute towards the other five technical institutes (e.g., engineering, agriculture, medicine). Although 66 branch campuses have been established to spread higher education more evenly throughout Nepal, the majority of enrollments remains in the Central Region (72% in 1976/77). 32. The Institute of Engineering (IOE, established within Tribhuvan University in 1971) became responsible under the NESP for providing and/or supervising technical/vocational training at almost all levels. The IOE's principal activity has been training of junior technicians at the certificate level, mainly at its central campus at Pulchowk, near Kathmandu. To meet pressing manpower requirements for implementation of public investment pro- grams, enrollments were sharply increased from 470 in 1976 to 1,000 in 1977. Although both male and female students are eligible for admission to the Institute, to date only a few women have enrolled in the certificate program in engineering, and about 80 have enrolled for training in architectural drawing. There is strong competition for admission due to excellent employ- ment prospects for graduates. Because of the poor academic preparation of students, however, only 37% passed the final examination in 1976. The cer- tificate level training at the IOE includes courses in civil and electrical engineering and architectural drafting. The time devoted to practical work is less than the amount desirable. This is largely a reflection of the limited workshop/laboratory facilities and equipment at Pulchowk. Although the IOE's staff have been adequate in numbers, they lack practical experience and have diverse educational backgrounds, most having been trained abroad in the USSR, India and Europe. This makes it difficult to achieve a consistent teaching program appropriate to Nepalese conditions.  - 9 - 33. Skilled worker training in Nepal is limited - eight training centers produce a total of less than 300 skilled workers per year. Mechanical and electrical trades, carpentry and crafts are taught. Dropout rates are high as most students who meet the entrance requirement (an upper secondary level education) still represent an elite group and, therefore, do not like to pur- sue manual occupations. Previously, students without upper secondary educa- tion were admitted and had a lower dropout rate, but were found to have academic difficulties. 34. The Department of Cottage and Village Industries has offered non- formal rural skill training to rural families since 1966 at ten centers (four for women, six for men). The three-day to six-month courses are offered in knitting and sewing, cotton weaving, carpentry, and mechanical and electrical fitting. The courses are free, and some financial assistance is available to enable graduates to practice the skills acquired. Government Strategy for Educational Development 35. There are three main priorities for development of education in Nepal: (i) to expand basic education, especially for girls, and to reinforce literacy skills learned in school; (ii) to improve the quality of instruction at all levels, particularly at the upper secondary and junior technician levels; and (iii) to strengthen the quality and expand the output of tech- nical training and thereby provide the manpower needed for development. 36. These are addressed by the Government in its objectives for the development of education under the Fifth Plan (1976-80). About 10.5% of the total Fifth Plan allocation has been devoted to education, representing a doubling of the Fourth Plan allocation. The largest single item is for ex- pansion of primary education (by 300,000 students) and the largest portion of the allocation to higher education would be focused on the development of six technical institutes, including engineering. Overall enrollments in higher education would stabilize and there would be a major shift from the general to the technical institutes. 37. Although Nepal has received external assistance for education from many sources, aid will need to be increased in order to meet the Fifth Plan targets, particularly in the area of technical education. Past aid has been in such areas as fellowships, women's teacher training, curricula and mate- rials development, textbook production, skill training, radio education, agricultural education and medical training. Donors include Canada, the United Kingdom, India, the United States, the USSR, UNDP, UNICEF and Unesco. In addition, the Asian Development Bank recently approved a project to assist in the establishment of a regional training center (mainly trade level) in the Eastern Development Region.  - 10 - PART IV - THE PROJECT 38. The proposed project was prepared by the Government with assistance provided under the Unesco/IBRD Cooperative Program which sent a project prep- aration mission to Nepal in July/August 1976. The mission's report was issued in October 1976. The project was discussed with donors at the Aid Group meet- ing in Tokyo in December 1976, and the United Kingdom's Ministry of Overseas Development (ODM) expressed preliminary interest. After review, however, ODM officials indicated that funds available were inadequate to finance the capital components of the proposed project, but th,at nnM would be interested in fund- ing the technical assistance components. Thus, in light of the importance of the project to the success of development efforts in Nepal and the increasing priority assigned by the Government to the sector, IDA decided that the pro- posed project should be considered for an IDA credit. A preappraisal mission visited Nepal in June/July 1977, followed by an appraisal mission in November 1977. Negotiations were held in Washington, D.C., during January 23-27, 1978. The Government delegation was led by Mr. G. N. Rimal, Dean, Institute of Engineering. Annex III of this report contains supplementary project data. A report entitled "Nepal - Staff Appraisal Report for a Technical Education Project (No. 1772b-NEP)" is being distributed separately to the Executive Directors. A. Project Objectives and Scope 39. The proposed project is aimed at increasing the supply of junior and senior engineering technicians needed to implement Nepal's development programs. This would be achieved by increasing the capacity and quality of training of the main campus (Pulchowk) of the Institute of Engineering (IOE) of Tribhuvan University. The two principal objectives of the project would be to: (a) through provision of facilities, equipment, and technical assistance, strengthen the quality of existing teaching pro- grams for (i) about 1,000 students at the certificate level (Grades 11-12; primarily in civil and electrical engineering, and architectural drafting) and (ii) about 2nn students for six-month remedial courses; and (b) through provision of facilities, equipment, and technical assistance, establish a new teaching program in civil engineering for about 430 students at the diploma level (Grades 13-15). 1/ 1/ Because of the technical nature of the course and the generally poor academic background of students, the diploma course would be three years rather than the usual two years for other diploma courses within Tribhuvan University.  - 11 - The Institute of Engineering (IOE) 40. Equipment and Facilities. The project would provide additional classrooms, laboratories, workshops, a library and a canteen/dining hall. Because of inadequate accommodation in the Kathmandu Valley, boarding facil- ities would be provided for about 560 students coming from outside the Valley. As an incentive to help the Institute recruit and retain qualified staff, housing for about 30 staff would be included to accommodate administrators, department heads and about half the diploma level teaching staff. Teaching equipment for laboratories and workshops would be provided, as well as teach- ing materials (books and jo-urnals)-_ v-or economica1 operation, the facilities and equipment provided would, in general, be used by both the certificate and diploma level programs. About 60% of total project costs, excluding technical assistance, could be attributed to the certificate program and 40% to the diploma program. 41. Enrollments. The project aims at quality improvement of certificate level training, which could not easily be achieved while enrollments continue to increase. Assurances were, therefore, obtained from the Government that: (i) the combined enrollments of Grades 11 and 12 of the IOE at Pulchowk would be held at the 1977 level (1,000) throughout implementation unless jointly reviewed in advance with the Association (Section 3.12(a) of the Development Credit Agreement) 1/; and (ii) any Government plan to establish additional certificate level engineering programs at other campuses should be jointly reviewed in advance with the Association (Section 3.12(b) of the Development Credit Agreement). A six-month remedial program would also be instituted under the project with an enrollment of about 200 students to strengthen their background in science, mathematics and language prior to their entering Grade 11. By 1983, 220 students would be enrolled in the remedial program, 500 in Grade 11, and 480 in Grade 12. 42. A diploma level program would be established under the project be- ginning in 1978 with the admission of 25 students to Grade 13, increasing to 150 in 1981. Allowing for dropout rates of 10% per year, a total of 400 students would be enrolled in the diploma course in 1983. 43. Admission Policy. In order to increase enrollments of students from remote areas, applicants from designated districts are given extra points on the entrance examination for the certificate program. The Government has agreed that applicants admitted to the diploma level after January 1981 would be required to have had at least one year of prior related work expe- rience (Section 3.10 of the Development Credit Agreement). 1/ During negotiations an understanding was reached that in view of the intense pressure on the IOE to increase enrollments in response to the acute manpower shortage, a temporary increase in enrollments to 1,200 would be acceptable to the Association until such a time as the 200 additional students could be accommodated at another campus of the Institute.  - 12 - 44. Teaching Programs. At the certificate level, the program would provide training primarily in civil and electrical engineering and architec- tural drafting. The diploma level program would be limited to civil engineer- ing. At both the certificate and diploma levels, emphasis would be placed on solving engineering problems frequently encountered in Nepal. A considerable proportion of instruction time would, therefore, be devoted to practical work in laboratories and workshops (designated at 45% at the diploma level, and increased from the present about 40% to about 55% at the certificate level). Curricula would be revised and developed with the assistance of specialists to be provided under the technical assistance to be financed by the Overseas Development Ministry (ODM) of the United Kingdom (para. 47). The content of teaching programs would be based on an analysis of the present and projected skills required of junior and senior technicians by government agencies. New courses would make use of problems and case material drawn from experience with Nepalese development projects. 45. Staff Recruitment. Under the project, the IOE, which at present has a staff of 85, would need to recruit 118 new staff members, including replacements. Recruitment would be phased over four years, through 1981, and would include 48 graduates, 48 nongraduates and 22 laboratory technicians. Recruitment of teaching staff for the certificate level program should not present a problem in view of the IOE's recent success in employment of addi- tional staff and the projected number of returning graduates. Recruitment of teaching staff for the diploma level program is expected to be more difficult, but will be eased by the incentives offered in the forms of fellowships (para. 46) and housing (para. 40). Salaries offered by the IOE are competitive with other employers of engineering graduates in Nepal. Assurances were obtained from the Government that student/teacher ratios would be maintained at 10:1 and 9:1 for the certificate and diploma programs, respectively (Section 3.11 of the Development Credit Agreement), which are appropriate, and that adequate funds would be provided for this purpose. 46. Staff Training. The proposed project would include about 53 man- years of staff training to be financed by the ODM technical assistance pro- gram. This would include study tours of similar institutions in both develop- ing and advanced countries for IOE administrators. Training of teaching staff would focus on curriculum development, teaching methods and, where appropriate and feasible, acquisition of industrial experience. The fellowship program would be phased over four years to ensure adequate coverage of administration and teaching programs. A fellowship committee has been organized, and spe- cific procedures and selection criteria have been established to ensure that selection of staff for training is in accordance with project objectives. The recipients of fellowships would be bonded to IOE upon their return for a spe- cified period of time in accordance with the duration of their fellowship. 47. Specialists' Services. Also provided under the proposed project would be about 16 man-years of expatriate specialists' services to be financed by ODM. These services and staff training (para. 46) would be provided through  - 13 - a linkage with a well-established technical institute in the United Kingdom 1/ and would be phased over the four-year implementation period (1978-82). The specialists, together with their Nepalese counterparts, would: (i) evaluate and develop teaching programs; (ii) help prepare detailed teaching manuals; (iii) help train staff to teach the course content effectively; and (iv) assist in the procurement, installation, and operation of equipment. Assurances have been obtained from the Government that: (i) terms of reference and qualifica- tions of the specialists would be acceptable to the Association (Section 3.09 (a) of the Development Credit Agreement); and (ii) that additional specialists' services would be sought after completion of the project as may be required to achieve fully and to maintain the objectives of the project (Section 3.09(b) of the Development Credit Agreement). 48. Project Output. The number of certificates awarded yearly by the IOE is projected to increase from 120 to about 420 in 1979, 300 of which would be in civil engineering. Output at the diploma level is expected to start at about 20 in 1981, increasing to 100 in 1984. These graduates are expected to have no trouble obtaining employment in their fields (para. 55). 49. Related Studies. In conjunction with the proposed project, the Government would conduct three studies on key issues in education in Nepal to provide the basis for future development of the sector. The three studies would examine: (i) primary education with emphasis on female participation and retention rates; (ii) trade level skills, developing a plan for rational- izing trade training on a national basis and designing the content and delivery system of a rural skill training program; and (iii) the need for establishing a trade and certificate level engineering institute in the Western Development Region. Outside sources of funding for these studies are being sought. Assur- ances have been obtained that the Government would provide or cause to be provided the funds necessary to carry out the studies by June 30, 1979, under terms of reference acceptable to the Association (Section 3.13 of the Devel- opment Credit Agreement). B. Project Costs and Financing 50. The total project would cost US$7.8 million equivalent of which ODM would finance 14% (US$1.1 million) for technical assistance, IDA 73%, and the Government 13%. The project cost includes physical contingencies of US$490,000 and price contingencies of US$1.3 million. The proposed IDA credit of US$5.7 million equivalent would finance US$4.4 million in foreign exchange and US$1.3 million of local costs. The remaining US$1.0 million of local costs would be met by the Government, which would also finance all annual recurrent costs. The improvement of the existing certificate program is not expected to increase annual recurrent costs from their present level of less than NRs 4,000 per student. However, the new diploma program is expected to gene- rate incremental annual recurrent costs of about NRs 1.8 million in 1983 (in 1/ Paisley College of Technology, near Glasgow, Scotland.  - 14 - 1977 prices), about NRs 4,200 per student, which represents less than 1% of the Government's 1977 budget for recurrent educational expenditures. C. Project Implementation 51. A Project Implementation Unit (PIU) has already been established at the IOE, Pulchowk Campus and will be maintained with an adequate number of qualified staff until September 30, 1983, the closing date of the project (Section 3.06 of the Development Credit Agrement). Funding for adequate facilities and supporting staff would be provided under the project. The PIU staff would be assisted in its responsibilities by consultant architects and engineers financed under the project with qualifications and terms of reference acceptable to IDA (Section 3.02 of the Development Credit Agreement) and by an equipment and curriculum specialist financed by ODM. All key project staff and the consultant architects have been appointed and the campus master plan, all sketch plans, and the equipment lists of major items for all the engineer- ing laboratories have been prepared. Assurances have been obtained from the Government that: (i) monitoring and evaluation systems would be established by December 31, 1979, and summary reports provided annually to IDA during the project implementation period, and for five years thereafter (Section 3.07 of the Development Credit Agreement); (ii) a draft completion report would be provided to the Association by the Closing Date (Section 3.04(c) of the Devel- opment Credit Agreement); and (iii) a maintenanre and repair workshop would be established and maintained with properly trained personnel (Section 3.08 of the Development Credit Agreement). D. Procurement and Disbursement 52. Total civil works for the project would cost about US$3.3 million including professional services and contingencies. Because of the relatively small size of contracts which are unlikely to be attractive to foreign bidders (estimated at below US$600,000), contracts for civil works would be awarded on the basis of competitive bidding advertised locally following government pro- cedures which are satisfactory to the Association. Foreign and locally estab- lished foreign firms would be allowed to participate. IDA's prior approval would be required for any civil works contract exceeding US$200,000 equivalent. 53. Furniture and equipment for the project would total about US$3.2 million including contingencies. Contracts for this category exceeding US$50,000 equivalent would be awarded after IDA approval on the basis of international competitive bidding (ICB) in accordance with Bank Group guide- lines. In bid comparison, domestic manufacturers would be allowed a prefer- ential margin of 15% or the existing customs duty, whichever is lower, over the c.i.f. price of competing imports. Equipment and furniture would be pack- aged reasonably to allow bulk procurement. Equipment and furniture purchases which cannot reasonably be grouped to form contracts for at least US$50,000 equivalent and aggregating a total of less than US$350,000, could be awarded  - 15 - without prior IDA approval on the basis of competitive bidding advertised locally, following government procedures satisfactory to the Association. Books and journals (amounting to about US$0.2 million including contingen- cies) would be purchased directly from publishers and authorized distributors. In addition, off-the-shelf items, not exceeding US$10,000 equivalent in each contract and aggregating a maximum of US$50,000 equivalent, could be purchased on the basis of a minimum of three price quotations. 54. The proposed credit would be disbursed on the basis of: (i) 100% of foreign expenditures for directly imported teaching materials, equipment and furniture; (ii) 100% of lznl xpend5itures (ex-factory) for locally manu- factured teaching materials, equipment and furniture; (iii) 65% of the cost of imported teaching materials, equipment and furniture procured locally; (iv) 75% of the expenditures on civil works; and (v) 100% of the cost of technical and engineering services and professional fees. E. ProJect Benefits and Risks 55. The principal benefit of the proposed project would be in helping to eliminate one of the critical bottlenecks to implementation of development plans in Nepal - the shortage of engineering technicians. Under the project, the quality of the existing certificate level training would be improved and the graduates would meet about 5Q% of est4mated requ4rements for junior tech- nicians in the Fifth Plan, and about 85% in the Fifth and Sixth Plans combined. Diploma level output would meet 30% of the expected demand for civil engineers in the Sixth Plan, and the remaining requirements would be met by diploma holders returning from abroad and by those promoted from certificate level. Through the establishment of local diploma level training capacity, the pro- posed project would minimize the present dependence on foreign diploma level training, which is unreliable (positions for Nepalese students have been de- clining in recent years), and, most importantly, is generally unrelated to Nepals unusual conditions. Additionally, analysis has shown local training to be considerably less expensive than sending Nepalese students abroad, when taking into account the weighted average cost of all foreign institu- tions presently providing such training. A further benefit of the project would be the reinforcement of government strategy to redirect higher educa- tion resources along productive lines needed for develonment. 56. Achievement of project objectives would depend mainly on two factors. The first is that, under pressure of acute manpower shortages and a high number of applications, the Government might expand enrollments of IOE more rapidly than envisaged under the project and thus jeopardize the objective of achiev- ing reasonable quality standards. Assurances have been obtained from the Government that expansion will be limited (para. 41). Another possible risk associated with the proposed project is that there would be a tendency of the IOE to maintain, or revert to, a theoretical, rather than the intended prac- tical, emphasis in instruction. Specific measures, such as required work experience (para. 43), have been introduced into the project to help prevent  - 16 - this, but this factor would need to be kept under close review during imple- mentation. On the whole these potential risks have been minimized through project design and are offset by the potentially strong benefit of reducing the shortage of engineering technicians. PART V - LEGAL INSTRUMENTS AND AUTHORITY 57. The draft Development Credit Agreement between the Kingdom of Nepal and the Association, and the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement are being distributed to the Executive Directors separately. 58. Special conditions of the project are listed in Section III of Annex III. A condition of effectiveness is that all conditions precedent to the effectiveness of the United Kingdom grant for technical assistance have been fulfilled (Section 6.01 of the Development Credit Agreement). 59. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 60. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments February 15, 1978  ANNEX I TABLE 3A Page 1 of 4 pages NEPAL - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) ---------- --------------- NEPAL REFERENCE COUNTRIES (19701 TOTAL 140.E MOST RECENT AGRIC. 40.0 1960 1970 ESTIMATE AFGHANISTAN BOLIVIA TURKEY** GNP PER CAPITA (US$) 50.0* 70.0* 120.0*/a 100.0* 220.0* 500.0* POPULATION AND VITAL STATISTICS _______________________________ POPULATION (MID-YR, MILLION) 9.3 11.3 12.9/a 12.3 4.9 35.6 POPULATION DENSITY PER SQUARE KM. 66.0 80.0 92.0/a 19.0 4.0 46.0 PER SQ. KM. AGRICULTURAL LAND 243.0 284.0 323.0/a 86.0 17.0 65.0 VITAL STATISTICS CRUDE BIRTH RATE (/THoU. AV) 46.3 44.7 42.9 48.7 44.4 40.6 CRUDE DEATH RATE (/THOU,AV) 27.8 24X6 20.3 27.8 19.7 14.4 INFANT MORTALITY RATE (/THOU) .. 200-3 .. .. 154.0 153.0/a LIFE EXPECTANCY AT BIRTH (YRS) 35.6 40.6 43.6 37.B 45.3 54.4 GROSS REPRODUCTION RATE 3.0 3.0 2.9 3.4 2.8 2.6/b,c POPULATION GROWTH RATE (%) TOTAL 1.5 2.1 2.1 2.2/a 2.6 2.5 URBAN 6.5 3.9 5.4 5.2 4.2 4.9 d URBAN POPULATION (% OF TOTAL) 3.4 4.1 4.8 t0.7 34.6 38.7 AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 39.9 .. 40.5/b 43.2 41.9 41.7 15 TO 64 YEARS 57.0 .. 56.47r 54.2 54.6 54.0 65 YEARS AND OVER 3.1 3.1 7 2.6 3.5 4.3 AGE DEPENDENCY RATIO 0.8 .. 0.8/b 0.8 0.8 0.9 ECONOMIC DEPENDENCY RATIO 1.0 .. 1.2/b *- 1.0/a 1.1/e FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) .. 86.5 378.6 USERS (% OF MARRIED WOMEN) .. .. 13.7 .. .. B.2 EMPLOYMENT TOTAL LABOR FORCE (THOIJSAND) 4300.0 .. 4900.0/b *- 2300.0 14500.0/f LABOR FORCE IN AGRICULTURE (%) 94.6 *- 94. 7b 65.0/b 67.0 UNEMPLOYED (% OF LABOR FORCE) .. .. .. .. 16.0- 4.01g INCOME DISTRIBUTION % OF PRIVATE INCOME REC D BY- HIGHEST 5% OF HOUSEHOLDS .. .. .. .. 36.0/C 32.6/h HIGHEST 20% OF HOUSEHOLDS .. .. .. ..60 LOwEST 20% OF HOUSEHOLDS .. .. .. .. 4.0/C 2.9/h LOWEST 40% OF HOUSEHOLDS .. .. .. .. IS.J 9-4/h DISTRIBUTION OF LAND OWNERSHIP =____________________________ % OWNED BY TOP 10% OF OWNERS .. .. .. .. .. 53.0 % OWNED BY SMALLEST 10% OWNERS .. .. .. .. ..09 HEALTH AND NUTRITION POPULATION PER PHYSICIAN 72000.0 49770.0/a 36000.0 14600.0 2300.0 2250.0 POPULATION PER NURSING PERSON .. 35600.*_j17430.0/C 21080.0 2730.0 1770.0 /i POPULATION PER HOSPITAL BED 7000.0/a 6750.0 5 800.t- ,. 490.0 500.0 PER CAPITA SUPPLY OF - CALORIES (% OF REQUIREMENTS) 92.0 94.0 95.0 80.0 77.0 110.0 PROTEIN (GRAMS PER DAY) 51.0 52.0 50.0 58.0 48.0 78.0 -OF WHICH ANIMAL AND PULSE 9.0/b t1.0 9.2 11.0 14.0/d 22.0J DEATH RATE (/THOU) AGES 1-4 .. .. .. .. 7.4 14.7/k EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 10.0 26.0 59.0/d 21.0/b 68.0 109.0 SECONDARY SCHOOL 6.0 . 4/e80 ~2. YEARS OF SCHOOLING PROVIDED 6. 14__7le 6 07j;b 2B o (FIRST AND SECOND LEVEL) 10.0 10.0 10.0 12.0 12.0 11.0 VOCATIONAL ENROLLMENT (% OF SECONDARY) ADULT LITERACY RATE (X) 10 0 14.0 l9:2l 1 0. 40401/e 55.0/1 HOUSING PERSONS PER ROOM (URBAN) 2.0/C 1.9 OCCUPIED DWELLINGS WITHOUT PIPED WATER (%) 52.0/C .. .. 97.0/c . 64.0 ACCESS TO ELECTRICITY (% OF ALL DWELLINGS) 30.0/c 41.0 RURAL DWELLINGS CONNECTED TO ELECTRICITY (%) .. .. .. .. ..8.0 CONSUMPTION RADIC RECEIVERS (PER THOU POP) 1.0 5.0 6.0 21.0 288.0 89.0 PASSENGER CARS (PER THOU POP) 0.2/d 0.4 0.7 3.0 4.0 4.0 ELECTRICITY (KWH/YR PER CAP) 1.0 6.0 10.0 32.0 160.0 247.0 NEWSPRINT (KG/YR PER CAP) 0.1 1.0 07