Nepal - Second Highway Project

Donmmet of The World Bank FOR OFFICIAL USE ONLY Report No. 6296 PROJECT CONPLETION REPORT NEPAL SECOND HIGHWAY PROJECT (CREDIT 730-NEP) June 20, 1986 South Asia Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OMCI4L U.SE ONLY TNf WORLD SANK Wah.nSton. D.C 20433 U.S A OWit. f DIMINvCOM&I Opq tuw It,htuslnl June 20, 1986 MEMORAUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Nepal Second Highway Project (Credit 730-NEP) Attached, for information, is a copy of a report entitled "Project Completion Report on Nepal Second Highway Project (Credit 730-NEP)" prepared by the South Asia Regional Office. Under the modified system for project performance auditing, further evaluation of this project by the Operations Evaluation Department has not been made. Yves Rovani by Otto Maiss Attachi.ent Thts document has a rstricted distrntsuon and may be usd by recipients on)) _ the performance of theit official duties Its contents r.ay not otherwise be disclosed without Woi: Bank authorization.  no OnVUIAL U ONLY ABBREVIATIONS AND ACRONYMS AADT * Average Anntial Daily Traffic CIDA * Canadian International Development Agency DoR * Department of Roads FY * Fiscal Year GDP * Gross Domestic Product "MG * His Majesty's Government of Nepal ICB International Competitive Ridding ILO * International Labor Organization LC8 - Local Competitive Bidding MWT a Ministry of Works and Transport NTC a Nepal Transport Corporation UNDP * United Nations Development Program USAID - United States Agency for International Development TOR - Terms of Reference GOVERNMENT OF NEPAL FISCAL YEAR mid-July to mid-July ThI documet hss a rIcted dibutibn V may be mod by rcipent onIy nd h Peformanc of ther oflke dutie. Its cntes Ma no othefW be dbid wihou Wo ak 0batrI.  PROJECT COMPLETION REPORT NEPAL SECOND HIGHWAY PROJECT (CREDIT 730-NEP) TABLE OF CONTENTS Page No. Preface .............. ........... .... ...... ..... .*..... i**** ******** Basic Data Sheet ....................................i CHAPTERS I. INTRODUCTION ............................... 1 II. HIGHLIGHTS ........ 2.................................... . 2 III. PROJECT PREPARATION AND APPRAISAL ........... ........... 4 IV. PROJECT IMPLEMENTATION ......... .. ........... 7 Feeder Road Construction ............................ 7 Main Highway Improvement ............................ 12 Five-Year Road Maintenance Program .................. 14 Consulting Services ....... . . . . . . . . 16 Training of Heavy Equipment Mechanics ............... 18 Project Cost ........... ............................. 19 Project Schedule ................. ........ ..... . 22 Project Disbursements ....... ..... ................... 22 Conditions and Covenants ............................ 23 Performance of Consultants .......................... 23 Performance of Contractors .......................... 24 Performance of Suppliers ............................ 24 V. INSTITUTIONAL DEVELOPMENT .............................. 25 VI. ECONOMIC EVALUATION ...... ............... 26 Background ....................... ............ ...... 26 The Dang Valley Feeder Road ......................... 26 The Thankot-Naubise Main Road ....................... 28 The Road Maintenance Program ........................ 31 Overall Conclusion .................................. 33 VII. THE ROLE OF THE IDA .......................... . 33 VIII. CONCLUSIONS ...C........... .CCC...... 34 ANNEX 1 Feeder Road Analysis ..... ................ 37  TABLES A-1 Production Area - Paddy ................................ 42 A-2 Production Area - Maize ................................ 43 A-3 Production Area - Wheat ................................ 44 A-4 Production Data -Oilseed .............................. 45 1 Nepal Highway Expenditures (DOR Budget) ................ 46 2 Feeder Road Contract Details ........................... 47 3 Feeder Road Contractor Prequalification Data ........... 48 4 Road Construction Equipment Procurement ................ 49 5 Main Highway Improvement - Contract Details ............ 50 6 Road Maintenance Equipment Procurement ................. 51 7 Details of Five-Year Maintenance Program ............... 52 8 Actual and Appraisal Estimates of Project Cost ......... 53 9 Actual and Appraisal Estimates of Project Completion ... 54 10 Schedule of Estimated and Actual Disbursements ......... 55 11 Compliance with Credit Agreement Covenants ............. 56 12 Estimated and Actual Traffic Volumes ................... 59 13 Estimates of Economic Vehicle Operating Costs by Road Type .... ..................................... 60 14 Reestimate of Benefit and Cost Flows - Feeder Road ..... 61 15 Reestimate of Benefit and Cost Flows - Main Road ....... 62 16 Reestimate of Benefit and Cost Flows - Road Maintenance Program ..... ........................... . 63 17 Summary of Overall Project Benefits and Costs .......... 64 CHARTS 1 Construction Equipment Availability at Feeder Road Site ...........99999999..999..999..9..9999. 65 2 Organisation Chart for Department of Roads ............. 66 3 Planned and Actual Disbursements and Procurements ...... 67 4 Cumulative Expenditure (Cost) by Loan Category ......... 68 MAPS 1 Nepal Road Network 2 IBRD, Second Highway Project, Project Locations 3 Traffic Volumes on Selected Links - 1984  PROJECT COMPLETION REPORT NEPAL SECOND HIGHWAY PROJECT (CREDIT 730-NEP) PREFACE This is a Completion Report of the Second Highway Project funded through IDA Credit 730-NEP. The Credit was signed on October 19, 1977 in the amount of US$17.0 million and was closed on December 31, 1984. The Credit amount was disbursed in full by August 1985. This Project Completion Report was prepared in part by the Canadian consultant, N.D. Lea, on behalf of the Transportation Division of the South Asia Projects Department and follows a country visit of Highway Engineer and a Transport Economist from that firm. The costs of their services were met from the credit. The Report is based upon information provided by the Department of Roads - Government of Nepal, the World Bank resident mission in Kathmandu, the records of consultants who participated in the various components of the Project, and records held at World Bank headquarters in Washington. The Report has been prepared in accordance with the procedures outlined in the World Bank document "Guidelines for Project Completion Reports for Transport Sector". In accordance with the revised project performance reporting procedures this report has been read in the Operations Evaluation Department (OED) but the project was not audited by OED staff. The draft Completion Report was sent to the Borrower for comments; however, none were received.  - It - P7OJUCT COMPLETIO REPORT NEPAL SECOND RIGUIAY PROJECT (CREDIT 7301-U) BASIC DT SURE KR.Y PRnlIPCT nATA Appr.l A1 I I tem Expectation Actual Total Project Cost (USR Million, pn.n 19.1 Underrun or Overrun (t) 4.5 Credit Amount (US$ Kllion) 17.n( 17.0 Disbursed ) - 17.0 Cancelled ) - - Repaid to ) 12/31/R4 - _ Outstanding to ) _ _ Date Physical Components Completed Dec 82 Dec R4 Proportion Completed by Above Date (0.) 10 76 Proportion of Time llnderrun or Overrun (%) - + 40 Economic Rate of Return (2) 28 32 Financial Performance Fair Fair Institutional Performance Fair Fair original Item Plan Revisions Actual First mention in Files or Timet-ihle - - 02/17/71 Government's Application - Negotiations 05/77 Board Approval 07/07/77 Credit Airement Date 10/19/77 Effectiveness Date 12/23/77 Closing Date 12/31/R2 1?.l!!$A 12/31/84 Borrower Kingdom of Nepail Executive Agency Department of Roads Fiscal Year of Borrower 16 .1uly - 15 Julv Follov on Project Natmo Third Highway Project Credit Number 1515-NEP mount (US$ Million) SD R44.7 Miltion (VS5 47.5 Millinni Credit Agreement Date 08/28/84  - iii - MISSION DATA Month No. of No. of Date of Item Year Weeks Persons Manweeks Report Identification May 73 1.8 1 1.8 May 71 Preparation Preapraisal Mar 76 1.8 2 3.6 May 76 Appraisal Nov 76 2.8 2 5.6 Nov 76 Total: 6.4 11.0 Month No. of No. of Man- Date of Item Year Weeks Persons Weeks Relport Super- vision 1 Dec 77 1.2 2 2.4 01/06/78 2 Jan 78 1.0 1 1.0 - 3 May 78 1.0 2 2.0 06/29/78 4 Sep 78 2.0 2 4.0 09/10/79 5 Nov 78 1.4 1 1.4 11/30/78 6 Mar 79 1.4 1 1.4 03/21/79 7 May 79 3.4 1 3.2 02/07/79 8 Oct 79 2.2 2 4.4 11/26/79 9 Jan 80 2.0 2 4.0 02/27/80 10 May 80 2.0 1 2.0 05/30/80 11 Jan 81 1.4 1 1.4 02/24/81 12 Apr 81 1.4 1 1.4 - 13 Aug 81 1.0 2 2.0 09/17/81 '4 Nov 81 2.6 2 5.2 01/26/82 ~.5 May 82 1.0 2 2.0 06/15/82 16 Nov 82 1.8 3 5.4 12/15!8? 17 Apr 83 2.4 1 2.4 - 18 Oct 83 2.0 1 2.0 12/01!83 19 Feb 84 1.n I 1.0 O2!28!84 20 Mar 84 1.8 1 1.8 0f5/1 '84 Nov 84 - - - - TOTAL: 34.0 50.4 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Nepali Rupees (NRs) Year: Appraisal Year Average Exchange Rate: US$ 1 - 12.45 Intervening Years Average USS I - 13.35 Completion Year Average USS 1 - 16.50  PROJECT COMPLETION REPORT NEPAL SECOND HIGHWAY PROJECT (CREDIT 730-NEP) I. INTRODUCTION 1.1 The development of transport infrastructure in Nepal was an important component of the first four Five-Year Plans from 1956 to 1976. During this period approximately 50% of total public capital expenditure was directed towards the transport sector. The objective of this investment was to integrate the many independent or loosely linked village economies scattered throughout Nepal, as well as to stimulate general economic development. A substantial amount of bilateral aid from the USA, UK, the Peoples Republic of China, the Soviet Union and Switzerland was directed toward establishing and improving the main highway network during this period. 1.2 Although the objective of more closely integrating the scattered village economies was largely achieved, it was found that this infrastructure development by itself did not stimulate extensive economic development. The emphasis in the Fifth Plan, from 1976-1980, and the current Sixth Plan is therefore on encouraging productive investments which can make use of this transport infrastructure. 1.3 The First IBRD Highway Project (NEP-223) was a small loan of US$2.5 million extending from 1970 to 1977. It recognized that the maintenance of the main highway network would become of greater importance in future years, and hence, provided for the construction of workshops as well as the provi- sion of essential road maintenance equipment. Several small road and porter suspension bridges were also provided by this project. 1.4 The appraisal of the Second Highway Project was carried out in November 1976 at the start of the Fifth Five-Year Plan (1976-1980). The main thrusts of this credit were: (a) to continue assistance for the maintenance of the highway network through provision of road maintenance equipment, institutional support, establishment of workshops and the training of mechanics; (b) to utilize the main highway network more efficiently by the construction of a feeder road linking the fertile Dang Valley to this net- wiork; (c) to improve the critical Thankot-Naubise section of the main highway which links the Kathmandu Valley with both India and the rest of Nepal; (d) to provide technical assistance in the implementation of the above components and to prepare further projects suitable for international financing. 1.5 The Second Highway Project, therefore, aimed at achieving two broad objectives, the first to support the Government's goal in the Fifth Plan by utilizing more effectively the main highway network through the construction of feeder roads, and the second to promote IDA's own objectives of strengthening the road maintenance capability throughout the country. 1.6 The credit agreement (NEP-730) for US$17.0 million was signed on October 19, 1977 for a project costing US$20.0 million. The closing date was December 31, 1982, but this was subsequently postponed to December 31, 1984.  -2- II. HIGHLIGHTS Objectives 2.1 The credit was intended to continue the support given under the First Highway Project in strengthening the institutional capability of the Depart- ment of Roads (DOR) to manage its road network (3.14). This assistance was provided through improved basic infrastructure - the construction of mechani- cal workshops in key locations; the acquisition of an inventory of equipment geared to DOR's deployment of maintenance resources, and through the training of personnel at the grass roots, especialLy heavy equipment mechanics. Through the inclusion of the construction of a 50 km gravel standard secon- dary road, the project alsr provided valuable "hands-on" training for at least 10 local contractors who were previously inexperienced at working to specification under a quality control regime. The project also provided for the purchase of construction equipment for DOR to on-lease to these contrac- tors (3.15). Implementation Experience 2.2 The project was expected to take about 5-1/2 years to complete, but the original closing date of December 1982 had to be pcstponed by two years. The extended period catered mainly for delays in implementing the feeder road component, where, quite apart from the contractors' relative inexperience, there were shortages of essential materials (4.7), Government was slow in making payments to them (4.17) - a serious constraint to under-capitalized firms - promised equipment did not arrive until two years late (4.25), and labour was seasonally lost in this rich agricultural area during the planting and harvest seasons (4.8). However, the end result was a road of acceptable quality, and some small contractors better fitted to manage contracts of a more equipment-intensive nature than before. 2.3 Reconstruction of a section adjacent to Kathmandu of the main road to Iuidia encountered more problems. The work was divided in such a way that one contractor was responsible for earthworks and sub-base and another for base course and surfacing (4.33). This sequential method of working resulted in considerable delays, friction between contractors and a generally less than satisfactory end product. 2.4 The institutional assistance to the Department of Roads was also dogged by delays. Deliveries of the first tranche of road maintenance equip- ment dragged out from late 1979 to mid-1982 and for the second tranche to mid-1983 (4.41). Ttre workshops were not completed until mid-1982 and remained idle through lack of equipment and personnel (4.44). In the case of the latter, the training program for mechanics was supposed to have helped redress the shortfall of artisan staff, but the start of this program was also delayed until almost the end of the project period through late delivery of training equipment. The shortfall of workshop equipment is being met from a Third Highway Project allocation.  -3- 2.5 CIDA was providing technical assistance to the DOR through a Roads Department Support Services Project which involved recommendations for a Five-Year Road Maintenance Program. The consensus of those concerned with reviewing their proposals was that they seemed geared to conditions in countries more developed than Nepal, and were overly optimistic (4.45). Results 2.6 Continuing delays have been a feature of the project, but in spite of these the feeder road has been satisfactorily completed, giving a positive impact on development in this previously isolated valley, and the main road section has been rehabilitated and is carrying the heavy traffic for which it w3s designed. The contractors who built the feeder road have profitted from their experience of working to specification under close supervision. 2.7 The equipment purchased for on-leasing to contractors arrived late and only some took advantage of it. The equipment for road maintenance also arrived late. However it has now been deployed to the districts and is having a positive impact on the standard of road maintenance. 2.8 The training program for heavy equipment mechanics, long delayed through lack of equipment and personnel changes has finally started, but too late to have an impact on the manning levels needed for the new workshops. However, the Third Highway Project, which also caters for this training component now has a flying start. Sustainabitity 2.9 Nepal's road network is relatively new, and many of the recently built links are having their teething troubles. Traffic levels are low, but given the unstable nature of much of the terrain, road maintenance is a much more demanding task in Nepal than in many developed countries. DOR's inten- tions to meet this challenge are confirmed in the commitment now being given to training of personnel begun under this Second Highway Project but expanded under the Third, and recognition that traditional labour-intensive methods must now give way to mechanical equipment if the network is to be kept viable. Some maintenance tasks can be carried out by contract, and the development under the feeder road component of a core of small entrepreneurs who now know how a contract should function could be a valuable resource. Given budgetary support, DOR is on the right lines to manage its network effectively. The Bank's Third Highway Project also promotes this objective. Findings and Lessons 2.10 The main lesson from this project is that longer lead times for procurement and other vital actions should be allowed for than is customary in the sector. It would save HMGN commitment charges if as much preparatory  -4- work as possible up to but short of contract award could be carried out prior to credit signature. 2.11 The project highlights the dangers inherent in the inclusion of an ill-prepared road component whereby the problems arising from an outdated method of contract division persist to the present day in the form of unresolved contractual claims before the courts. III. PROJECT PREPARATION AND APPRAISAL 3.1 The content of the Second Highway Project was first discussed in February, 1971, when IDA expressed interest in funding those roads, then under study by the UNDP with the UN as Executing Agency, which showed high economic priority. The UNDP studies were monitored by IDA throughout 1971 and 1972, and reservations were expressed concerning the methodology of economic evaluation and the apparently high design standards chosen. In November 1972 a tentative timetable for the Project was suggested calling for appraisal in May 1974 and presentation to the Board in FY1975. 3.2 In 1973 the Project was identified as comprising three feeder roads totalling 200 km in length and connecting with the East-West Highway, and the procurement of road maintenance equipment. The total cost was estimated at US$27 million with a loan component of US$18 million. The need for com- plementary investments in agriculture for the feeder roads component was recognized in May 1974, but the initial proposal for such investments at US$9 million was considered unrealistic. An amount of US$1 million was considered to be more practical, given likely implementation constraints. 3.3 In 1974 the Project was reduced in scope by eliminating two of the feeder roads because the agricultural benefits they might generate appeared uncertain. Design standards of the remaining feeder road were also reviewed with a view to reducing the high construction costs of US$120,000/km. 3.4 The UNDP had previottsly agreed to finance a Support Services Techni- cal Assistance Project for the Roads Department. However, in August 1975, the UNDP advised IDA that funds for this purpose were no longer available. The Government of Nepal subsequently negotiated an agreement with CIDA for this financing. 3.5 There was considerable bureaucratic delay in selecting a consultant for the Tulsipur feeder road feasibility study and design work (the contract was not signed until December 1975 although proposals were submitted in June 1974). The Pre-appraisal Mission visited Nepal in March 1976 and identified the construction of the Tulsipur feeder road, procurement of maintenance equipment, construction of suspension bridges and consulting services as Lhe main compvnents of the project. It was then recognized that the project would slip into FY1977.  -5- 3.6 Further refinement of the Project's composition was made in 1976. The complementary investments in agriculture and the construction of suspen- sion bridges were deleted in November when USAID agreed to finance those components. Tho Project was appraised in November 1976 and the Issues meet- ing took place in December. The total Project cost at this time was estimated at US$17 million. 3.7 The November 1976 appraisal mission considered that HMG's budgetary allocations for maintenance were not sufficient to maintain properly the rapidly expanding road network. HMG and IDA therefore agreed that further assistance to increase the DOR's maintenance capability was essential. An outline Five-Year Program for road maintenance was agreed with HMG and incor- porated in a Side Letter to the Credit Agreement. The network has grown rapidly since 1976, confirming the correctness of emphasizing maintenance activities in this Second Highway Project (refer to Table 1). 3.8 At the time of appraisal most maintenance activities were labor-intensive although some bulldozers were used to clear landslides, trucks were used for transporting materials and steel wheel rollers were used for compaction. The equipment maintenance base workshops at Kathmandu and Hetauda, which were set up in the First Highway Project, were in operation. Maintenance activities had been controlled by two DOR branches in the East and West of the country for many years prior to the appraisal but in November 1976 the increase in the length of the road system forced the DOR to reor- ganize into four regional offices (Far Western, Western, Central and Eastern) in order to carry out maintenance activities more effectively. 3.9 As both of the base workshops previously established were located within the Central Region, two additional workshops, one each in the Eastern and Western Regions, were included in the newiproject to give a more balanced coverage of the road network. Equipment for the new workshops was also to be provided. An analysis of existing usable equipment as well as overall needs was made by the Appraisal Mission and recommendations regarding the type and number of total units deemed necessary were made. The recommended procure- ment of heavy equipment (175 units) almost equalled the existing inventory of usable equipment (157 units) and would thus double the resources of the DOR. 3.10 Because of this two-fold increase in the heavy equipment fleet and the patent inexperience of the department's mechanics to maintain it, provi- sion was also made in the project to establish a Heavy Equipment Mechanics' Training School. The UNDP agreed to provide funding, and the ILO sub- sequently agreed to provide two experts to set up and run the school. 3.11 The Amile-Tulsipur feeder track was selected for construction in the UNDP study of 1970 and its feasibility was confirmed in 1973 by the same study team. This track was a link to the fertile Dang Valley of about 42,000 arable hectares and a population of about 110,000 from Nepalgunj accessible only during the dry season. The extension of the East-Wes; Highway from  -6- Butwal to Nepalgunj was underway at the time of appraisal (see Map 1) and the construction of a feeder road from this highway to the Dang Valley would therefore link the valley with the main highway network. 3.12 However, there were some doubts about which route into the valley should be upgraded, as the Koilabas-Lamahi-Ghorahi route seemed to be traf- ficked more by porters, pack animals and trucks in the dry season than the Amile-Tulsipur link. Consultants were therefore engaged to examine the feasibility of alternative access roads into the valley. The Study TOR also required the consultants to examine the extent of agricultural development benefits which would derive from the road and the complementary investments in agriculture needed to maximize these benefits. 3.13 During the appraisal HMG made a strong case for including the improvement of the Thankot-Naubise section of the main highway (Tribhuvan Rajmarg) to India in the Project. The poor physical condition of this link and its closures due to Landslides frequently isolated Kathmandu from the rest of Nepal and cut its link with India. The Chief Engineer, DOR, also urged that his department be given the opportunity to carry out the design work for this upgrading without the assistance of consultants, and that it deal directly with the contractors during the construction period. 3.14 The Project was a logical extension of the First Highway Project, emphasising the strengthening of road maintenance activities through equip- ment procurement, workshop construction, training of mechanics and technical assistance. There was also provision for limited main road improvement and the construction of a feeder road. 3.15 The main components of the Project are: (a) construction of a 50 km all weather gravel feeder road from Lamahi on the East-West Highway to the fertile Dang Valley in the Inner Terai. The road passes through Ghorahi, the main commercial town of the valley, and Tulsipur, the Government zonal headquarters, and ends at the Dang airport, the district's main air field (Maps 1 and 2). The estimated cost of this component at the time of appraisal, including contingencies, was US$4.8 million; (b) procurement of construction equipment for hire to local contractors building the above feeder road, estimated to cost US$1.32 million; (c) improvement of a 17.5 km section of the main highway between Thankot and Naubise. The improvement consisted of pavement widening (from 3.5 m to 6.0 m), pavement strengthening and stabilization of adjacent slopes. The cost of this work was estimated at US$1.78 million (refer to Maps 1 and 2); (d) improving DOR's road maintenance capability through the provision of road maintenance equipment, spare parts and workshop tools, at an  -7- estimated cost of US$7.4 million. (In parallel with this effort, a team of specialists financed by CIDA was providing technical assistance in this field); and (e) provision of consulting services for: - feasibility studies, design and construction supervision for the feeder road in (a) above; - prefeasibility studies, feasibility studies and detailed design of the 190 km uncompleted section of the East-West Highway in the far west of Nepal. (The UNDP also provided funding to the extent of US$707,000 for these studies for which IDA was the Executing Agency); and - other minor technical assistance. IV. PROJECT IMPLEMENTATION Feeder Road Construction 4.1 The feasibility and design of this 50 km long feeder road was carried out between January and November 1976, funded retroactively from the credit, and provided information for project appraisal. After studying several different improvement options the study recommended that a 5.0 m wide all-weather access gravel road be constructed. It also recommended the construction of one major bridge, 60 m long to cross a steep valley in the hilly section, and 10 low cost floodways over the wide but shallow riverbeds in the Dang Valley. 4.2 The route chosen to provide all weather access to the Dang Valley was from Lamahi, on the East-West Highway, across the Churia Hills (a rise of 250 m) to Ghorahi in the Dang Valley and then on to Tulsipur and the Dang airport. This alignment was found to yield a greater economic return than the Amile-Tulsipur route previously chosen in the UNDP country-wide study of 1970. The alignment of an existing earth track was generally followed except for a bypass around the town of Ghorahi and a diversion in the mountainous section which followed a river and which eliminated a rise and fall of about 60 meters. 4.3 The road, bridge and floodway construction was divided into 10 con- tracts, each of about US$300,000 in value, so that local contractors could participate. This division of the work was adopted as the project as a whole was considered too small and too remote to attract foreign bidders. A fur- ther contract was offered for the construction camp at Ghorahi, making eleven in all. The construction of culverts at the junctions of access roads to the feeder road was included in one of the roadway contracts.  -8- 4.4 Prequalification data for local contractors was requested by December 14, 1976 but, due to the poor initial response, the submission date was postponed to January 20, 1977. Twenty contractors submitted requests, of whom 16 were recommended for prequalification. 4.5 Tenders were invited in June 1977 and were opened on August 31, 1977. Although bid prices were within 5% of the engineer's estimate (refer to Table 2) HMG took nearly eight months to sign eight of the eleven contracts and a further seven months to sign the remaining three. 4.6 In consequence, further delays occurred in mobilization because the date of award (May 1978) coincided with the beginning of the monsoon season when access to the Dang Valley by road became impracticable until the rains ended in December. Most construction camps and offices were set up in 1979. 4.7 Construction progress was slow in the first year (1979) because of shortages of diesel fuel, cement, reinforcing steel, explosives and construc- tion equipment. Actual completion reached only 19% at the end of the year. DOR's procurement of the construction equipment which was to be hired to the contractors was delayed and most equipment did not arrive on site until early 1980 (refer to Chart 1). 4.8 Construction activity in subsequent years generally peaked in Decem- ber-April and slowed down or stopped during the monsoon season. This was because most construction work was labor-intensive and laborers left the project for agricultural work during the June to November monsoon. Moreover, construction supplies could only be brought in from necember onwards as access into the Dang Valley was only possible after the monsoon. 4.9 Progress was steady but slow in 1980 and 1981 reaching, respectively, 45% and 78% of that planned. No contract was completed on time but there were sound reasons for extensions of time d e to shortages of materials and equipment and, to some extent, to the increased value of works. Six of the eleven contracts (2, 4, 5, 6, 9 and 10) were substantially complete by the end of the extended time period in mid-1982, but about one to one and a half years later than the original contract completion dates. 4.10 There was little progress on contracts 1 and 8, both awarded to the same contractor who was having problems with his joint venture partner. These two contracts were eventually sub-contracted to others, and progress slowly picked up. They were finished about the middle of 1983. Another contractor who had two contracts, that for the camp and No. 7, also performed poorly. The camp contract was eventually terminated and re-awarded and the road contract was subcontracted. These were all completed in mid-1983, about two and a half years behind schedule. 4.11 The construction period was therefore about four years for six of the 11 contracts and five years for the remaining five. This compares with the  -9- two and a half years specified in the contract document, the three and a half years assumed in the Appraisal Report and the normal four to five years on highway construction projects of a similar nature in Nepal. 4.12 An analysis was carried out to determine whether stricter pre- qualification screening might have eliminated the poorer performing contrac- tors (refer to Table 3). No pattern could be observed, with the ranking of both good and poor contractors scattered over the full spectrum of the pre- qualification marking. It is conjectural that the reduction in the numbers of bidders by the elimination of some of the lower ranked firms might have stimulated some of the bigger contractors to bid, as some of the latter were prequalified but did not take out tender documents when invited to do so. Provision to "package" contracts might have offered an inducement for the larger firms to bid. 4.13 DOR had overall responsibility for supervision of the work, with quality control, reviews of design changes and the checking of progress payments and claims being handled by consultants. Achieving satisfactory quality of concreting operations, earthwork compaction and gravel surfacing operations was difficult and some training of the contractors in these activities was necessary to reach the required standards. However, earthwork excavation and culvert and retaining wall construction were generally of a much higher standard. 4.14 In most cases the quality of construction was as good as had been anticipated. Furthermore, it is likely that the contractors benefited greatly from having to work to modern specifications enforced by consultants who also provided much practical training. In particular, the quality of the 60 meter reinforced concrete bridge was of high standard. 4.15 Some minor design changes were needed during construction. More retaining walls were needed in the hilly sections, more culverts for irriga- tion channels were required in the Dang Valley, and some alignment changes were found necessary in the steeper sections where there was also more rock excavat.ion than inticipated. Some problems were experienced with scour of the concrete surfacing of the floodways and downstream of the aprons. Repairs involved increasing the concrete surfacing from a 6 cm to a 10 cm thickness, and placing gabions along the downstream edge of the aprons. 4.16 The overall construction cost, excluding escalation payments, totalled 20% more than the original contract sums of NRs 40.1 million (refer to Table 2). The major increases were due to the increased number of retain- ing walls (WRs 2.1 million), extra rock excavation (NRs 1.4 million), extra culverts (NRs 1.0 million) and overhaul payments (NRs 1.3 million). 4.17 Payments to contractors were slow, particularly those in respect of price escalation, and IDA supervision missions frequently had to press HMG to expedite them. DOR's reluctance in this respect was due mainly to lack of  -10- familiarity with the processing of this type of payment as few if any con- tracts in Nepal contained escalation clauses. 4.18 In summary, a road of generally good quality was achieved using Nepali contractors despite construction awards being delayed by about one year and delays in construction operations of between one and two and a half years. The originally specified gravel surfacing is causing concern as it is presently very rough and in places now below the required thickness through attrition by heavy bus, truck and tractor traffic. In addition, because some over-size material was used during construction, the surface is now bumpy and travel speeds have been reduced to 30-35 km/hr, much lower than the design speed. Very little improvement to the pavement condition can be expected because of low maintenance allocations coupled with the likely increases in traffic. Moreover, the gravel surfacing in some of the steeper sections (8-10% grades) is eroding badly from stormwater during the monsoon season, and a consistent maintenance effort is needed to prevent this. 4.19 Bituminous surfacing is the only reasonable long-term solution to these problems and there is already considerable local pressure for this work to be done. The volume of traffic using the road now is greater than anticipated at appraisal and the economic benefits deriving from the road and the complementary investments are correspondingly higher than estimated (para 6.15). 4.20 There is, moreover, further extensive feeder road construction already completed and in progress in the area which is generating even more traffic for the project road. Additionally, the completion ef the East-West Highway east of Lamahi will provide all weather access from the Dang Valley to Kathmandu. The upgrading of the gravel pavement to a 5.0 m bitumen sur- face would probably cost about US$1.5-2.5 million but the benefits fro