Nepal - Third Technical Assistance (Pancheswar) Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15654 IMPLEMENTATION COMPLETION REPORT NEPAL THIRD TECHNICAL ASSISTANCE (PANCHESWAR) PROJECT (CREDIT 1902-NEP) May 20, 1996 Energy and Infrastructure Operations Division Country Department II South Asia Region 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 AND EQUIVALENTS I Nepalese Rupee (NR) = 100 Nepalese Paise Fiscal Year Averages: US$ 1.00 (FY84) = 15.6 NRs US$ 1.00 (FY86) 19.9 NRs US$ 1.00 (FY88) = 22.8 NRs US$ 1.00 (FY90) = 28.4 NRs US$ 1.00 (FY92) 40.2 NRs US$ 1.00 (FY94) = 47.9 NRs MEASURES I kilovolt (kV) = 1,000 volts I kilowatt (kW) = 1,000 watts I megawatt (MW) = 1,000 kilowatts I gigawatt-hour = 1,000,000 kilowatt-hours ABBREVIATIONS ADB - Asian Development Bank EdF - Electricite de France International HEP - Hydroelectric Project HMG - His Majesty's Government KfW - Kreditanstalt fir Wiederaufbau NEA - Nepal Electricity Authority PA - Performance Agreement PSEP - Power Sector Efficiency Project TA - Technical Assistance ToR - Terms of Reference FISCAL YEAR Ending July 15  FOR OFFICIAL USE ONLY NEPAL THIRD TECHNICAL ASSISTANCE (PANCHESWAR) PROJECT (CREDIT 1902-NEP) IMPLEMENTATION COMPLETION REPORT Table of Contents PREFACE EVALUATION SUMMARY ............................................1i The Project and its Objectives ...............................1,.i Project Outcome and Sustainability of Benefits .......................................,1,,,,.,,.,.,..i Lessons ............................................... 11 Other Findings . ii PART I: PROJECT IMPLEMENTATION ASSESSMENT ............................................1....I A. Evaluation of Project Objectives .......................1,.,.,.l Project Context ..............1.,. . ... . Objectives and Content ............................2 B. Achievement of Objectives .........................3 C. Major Factors Affecting the Project .....................................5 Factors Generally not under Government Control ......................................,.,,,.,.,.5 Factors Generally under Government and/or Sector Control ,.,. ..5 D. Sustainability ............. . . . . ....6 E. IDA Performance ................ ... ....6 F. Borrower Performance .................. . ... . . 7 G. Assessment of Outcome ................... . 7 H. Lessons ........................... .7....... ,.......... 7 I Other Findings ............,..,,,,,,,,,,,,,,7 PART II. STATISTICAL TABLES Table I: Summary of Assessments Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan/Credit Disbursements; Cumulative (Estimated and Actual) Table 5: Key Indicators for Project Implementation Table 6: Key Indicators for Project Operation Table 7: Studies Included in Project 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.  PART II. STATISTICAL TABLES (cont'd) Table 8A: Project Costs Table 8B: Project Financing Table 9: Economic Costs and Benefits Table 10: Status of Legal Covenants Table 11: Compliance with Operational Manual Statements Table 12: Bank Resources; Staff Inputs Table 13: Bank Resources; Missions Appendix A: Aide Memoire of the ICR Mission Appendix B: Comments Provided by KfW Appendix C: Summary of Results of the NEA-EdF Twinning Arrangement  NEPAL THI[RD TECHNICAL ASSISTANCE (PANCHESWAR) PROJECT (CREDIT 1902-NEP) IMPLEMENTATION COMPLETION REPORT Preface This is the Implementation Completion Report (ICR) for the Third Technical Assistance (Pancheswar) Project in Nepal for which Credit 1902-NEP in the amount of SDR 10.6 million was approved on 04/26/88 and made effective on 01/26/89. The credit was closed on 06/30/94 compared to the original closing date of 06/30/92. The credit was fully disbursed and the final disbursement took place on 04/27/93. Co-financing was provided by Kreditanstalt fur Wiederaufbau (KfW) of the Federal Republic of Germany. The ICR was prepared by Mr. R. A. Ribi (Consultant) and Mr. Argun Ceyhan (Task Manager) of the Energy and Infrastructure Operations Division of Country Department II, South Asia Regional Office (SA2EI). It was reviewed by Mr. Jean-Francois Bauer, Division Chief, SA2EI and Mrs. Kazuko Uchimura, Project Adviser, SA2. The present ICR is based on material in the project file, interviews with IDA personnel involved in project implementation and the results of discussion with the Borrower and the Beneficiary that took place during the 11/95 ICR mission to Nepal and are reflected in the aide- mrmoire attached to the present ICR. (Appendix A). Comments received from KfW have been incorporated in the ICR and are given in Appendix B.   NEPAL THIRD TECHNICAL ASSISTANCE PROJECT CREDIT 1902-NEP) IMPLEMENTATION COMPLETION REPORT Evaluation Summary The Project and its Objectives i. The first objective of the Third Technical Assistance Project (TA III) was to support HMG in further developing one of Nepal's main resources, its large hydroelectric potential. To this effect TA III included (i) the field investigations in Nepal for the Pancheswar development on Nepal's western border with India, (ii) the detailed engineering (financed by the Federal Republic of Germany) of the Arun III project and (iii) the study of the evacuation of the power from Arun III inter alia to India. The project's second broad goal was the implementation of high priority studies and other technical assistance (TA) measures in irrigation, agriculture, power (especially for strengthening Nepal Electricity Authority (NEA) which had started operations in FY86) and other infrastructure sectors. Accordingly, TA III included studies of (i) a ten-year transmission and distribution plan, (ii) the long-run marginal cost of supply and NEA's tariffs, (iii) an institutional development plan for NEA, and (iv) a rural electrification plan. The studies in other sectors were to be specified in the course of implementation. However, ultimately all additional studies were in, or closely related to, the power sector. Project Outcome and Sustainability of Benefits ii. The TA III project by-and-large achieved its objectives. However, following IDA's withdrawal from the Arun III project and the at times difficult relations between Nepal and India make the sustainability of the benefits from the studies concerning Arun and Pancheswar uncertain, at least for the short and medium term. In view of the January 1996 agreement between the two countries for the multipurpose development of the Mahakali river, on which Pancheshwar would be built, chances of realization of the latter have improved. It is therefore likely that in the longer term a substantial part of the benefits will accrue. The sustainability of the benefits from the studies and other TA measures concerning the power sector and aiming at strengthening the sector's institutions, especially NEA, is uncertain too. Successful implementation would have required further management consultants support under following projects. As the sustainability of its benefits is uncertain, the Project's overall outcome is rated as unsatisfactory. However, it is also noted that some of the original objectives were overtaken by events (e.g., IDA's above mentioned withdrawal from the Arun III Hydroelectric Project).  - 11 - Lessons iii. To assure optimum utilization of the results of the TA measures of the Project, further TA (in the form of management consultants to implement the results) should be considered in the follow up projects. This was partly done under IDA's Power Sector Efficiency Project (PSEP - Credit 2347-NEP) and was planned to be done (still partly) under the Arun III project. iv. The Terms of Reference (TOR) for the NEA-Electricite de France International (EdF) twinning arrangement were too ambitious and the Borrower, NEA, the financiers (IDA and ADB) and the consultants did not have the same understanding of what NEA's institutional development plan should include. In future, IDA should ensure that TOR for such a substantial institution building effort are not beyond what the borrower and implementing agancy can accept; i.e., IDA should ensure borrower and implementing agancy ownership of the proposed TA measure. Other Findings v. Many of the institutional issues remain outstanding. HMG, IDA and other major potential donors of the then proposed Arun III HEP did not agree with EdF recommendations that the next step in institutional development of the Nepal power sector and NEA would be a performance management contract with an outside contractor. Instead they concentrated on strengthening NEA's institutional capacity, without adequate technical support. HMG and IDA may have missed an opportunity to take the first steps towards private sector involvement in NEA. vi. The Pancheswar multipurpose project as recommended as a result of the studies conducted under the Project (installed capacity: 7,200 MW, dam height: 330 m; cost: over US$4 billion or US$555/kW at a rather low 20% plant factor) is very large, quite expensive and therefore unlikely to attract financing in the short term. The above mentioned January 1996 agreement for the integrated multipurpose development of the Mahakali river, could improve the chances of realization of the Pancheshwar development in the longer term.  NEPAL THIRD TECHNICAL ASSISTANCE (PANCHESWAR) PROJECT (CREDIT 1902-NEP) IMPLEMENTATION COMPLETION REPORT PART I: Project Implementation Assessment A. Evaluation of Project Objectives Project Context 1. The two principal sources of energy in Nepal are forests and river systems. The former are already overused. In contrast, the development of the large hydropower potential is still at an early stage, though, for a long time it has been one of the main objectives of His Majesty's Government (HMG). In the short run, it was aimed at meeting internal demand, but, in time, it was also seen as a basis for future large scale exports providing revenues in foreign currency. In the long run it may also contribute to stop forest depletion. The Marsyangdi Hydroelectric Project (Marsyangdi HEP) supported by Credit 1478-NEP of US$107 million equivalent, approved in 1984 was aimed at meeting domestic demand. In the mid-1980s when the Third Technical Assistance Project - TA III - (the Project) discussed here, was under preparation, the 400 MW Arun III project was already identified as the next facility in the country's least cost generation development program. At that time, it was expected that the plant would allow Nepal to (i) meet domestic demand until the year 2005 and (ii) start exporting substantial quantities of energy to India (President's Report - para. 4). The two next candidates for providing large quantities of energy for export - and at a much larger scale - were Chisapani on the Karnali River (in excess of 10,000 MW) in Western Nepal for which IDA was helping finance the feasibility study through Credit 1452-NEP of US$1 I million equivalent approved in 1984 and Pancheswar (with, at the time, an envisaged capacity of 2,000 to 3,000 MW) at Nepal's western border with India for which the studies were still at a preliminary level. In 1984, Nepal and India agreed that each country would undertake field investigations for the Pancheswar project on its own side of the border under the guidance of a Joint Group of Experts. 2. Thus, in 1988, on the basis of a major diplomatic effort, inter alia of IDA's top management, a general program for further development of Nepal's hydro power in the framework of a bilateral approach emerged. The plan envisaged in a first phase the preparation for implementation of Arun III, the finalization of the IDA supported Karnali feasibility study, and the preliminary investigations for the Pancheswar development; a second phase was to cover (i) the implementation of Arun III, (ii) detailed design, development of the organizational, legal, and financial setup for the implementation of Karnali, and, (iii) the feasibility study for Pancheswar; the third stage would then see the construction of Karnali started and the preparation of Pancheswar finalized.  - 2 - 3. After the start of the Marsyangdi HEP, IDA became quickly aware of the fact that the institutional project component needed expansion and, in part, more specificity. In particular, (i) the newly created NEA did not have the capability to develop as quickly as to be able to implement the institutional measures included in that project and according to the corresponding timetable, and (ii) some of the measures (e.g. training) had not been defined in sufficient detail to lead quickly to action. E.g. the project called for the installation of training facilities which could not be defined without a training plan, which itself depended on the availability of a manpower development program; but at the time Marsyangdi was started, such a program did not exist. These deficiencies contributed to induce the Asian Development Bank (ADB) and IDA to carry out in 1987 the joint Power Subsector Review, which provided many of the bases for the Project. 4. NEA followed up on the Review's recommendations by entering into a twinning agreement with Electricite de France International (EdF), in October 1989. The services by EdF were funded under the Project (Paras 9-1 1). The primary objective of the twinning arrangement was to transfer the know-how needed for NEA to stand on its own. The arrangement called for providing engineering, technical, financial and organizational assistance across the board, while emphasizing improvements in NEA's management and corporate planning functions. The assistance was provided through a team of on-site resident experts of EdF with support of another team based in France. The EdF team followed the terms of reference (TOR) which included the conduct of a diagnostic study of all the key NEA departments (i.e. finance, accounting, personnel, generation, transmission, distribution, operations and maintenance), development of an action plan designed to improve NEA's performance, agreement with NEA on a priority list of actions and assistance in the implementation of the actions agreed with monitoring of the progress. During implementation, the twinning team's activities were broadened to technical and other institutional and organizational areas (Appendix C). Objectives and Content 5. The objectives of TA III (approved in 1988) were to assist HMG in (i) furthering the development of Nepal's hydroelectric potential for meeting domestic and export demand and (ii) carrying out high priority studies and other technical assistance (TA) measures in irrigation, agriculture, power (especially for strengthening Nepal Electricity Authority - NEA - which had started operations in FY86) and other infrastructure sectors. 6. To pursue the first of the above objectives, TA III included (i) the field investigations in Nepal for the Pancheswar development, (ii) the detailed engineering (financed by the Federal Republic of Germany) of the Arun III project and (iii) the study of the evacuation of the power from Arun III inter alia to India. The Project intended to help achieving the second set of objectives through studies of (i) a ten-year transmission and distribution plan, (ii) the long-run marginal cost of supply and NEA's tariffs, (iii) an institutional development plan for NEA, and (iv) a rural electrification plan. The studies in other sectors were to be specified in the course of implementation. 7. The objectives of TA III were in line with IDA's general policies for the power sector and its broad country objectives in effect in 1988, when the Project was approved. They also  - 3 - complemented those pursued by the contemporaneous IDA projects in the sector (Seconrd Technical Assistance, Karnali Preparation, and Marsyangdi; Table 2). B. Achievement of Objectives 8. TA III achieved the first objective (para. 5) with (i) the handing over to the authorities of the report on the field investigations (including inter alia extensive drilling, exploratory excavations and the preliminary environmental impact studies) for the Pancheswar development on the Nepal side of the border in 03/91, i.e. about one year later than anticipated in the President's Report, (ii) the completion of the engineering for Arun III in 1990, i.e. on schedule (addenda covering mainly the environmental studies were submitted in 1992), and (iii) the submission of the study of the evacuation of Arun III power in 08/90, i.e. about on schedule, too. 9. NEA's twinning arrangement with EdF consolidated the studies and TA measures in support of NEA' s institutional development, and provided for expertise in all aspects of power utility practices with special emphasis on assisting NEA to develop a corporate plan and improve operations management. After, ADB and IDA rejected a first version of the diagnostic study of NEA's institutional development plan, they accepted a second proposal, but called for further development of the overall implementation plan, which delayed the start of implementation by about 18 months. Some findings and recommendations of the twinning, such as, the establishment of Human Resources and Rural Electrification Directorates, each one headed by a Director reporting directly to NEA's Managing Director, and appointment of accounting consultants to separate NEA's rural electrification accounts, so that HMG would reimburse NEA for annual losses incurred in rural electrification, were included under the subsequent Power Sector Efficiency Project (PSEP - Table 2). NEA and EdF developed a performance improvement plan which was incorporated into a Performance Agreement (PA) between the Government and NEA, the first of which was signed in October 1992, as a condition of effectiveness of PSEP. IDA was consulted along the process. The terms of the PA required annual reviews. In addition, NEA developed a preliminary three-year rolling Corporate Plan. 10. At the end of the twinning, EdF concluded that within the environment prevailing in 1992, a twinning arrangement was not a form of intervention strong enough to be successful; its impact would take too long to effectively address the serious short-term problems of the Nepal power sector. EdF recommended that the next step in the institutional development of the Nepal power sector and NEA would be a performance management contract to an outside contractor who would be in charge of NEA's day-to-day operation. Its primary goals would be to take short- term and mid-term actions to improve the personnel's productivity, lower the level of customer accounts payable and better oversee working capital requirements. The performance management contract would stipulate upfront the improvement objectives to be achieved. The contractor would bring its own staff in key management positions and would have the required autonomy to take the decisions needed. Its compensation would be tied to the performance obtained: it would include a fixed payment and a variable remuneration based on actual performance. 11. However, during the preparation/ appraisal/ negotiations of the then proposed Arun III HEP, HMG and IDA did not agree with the last recommendation (which could have been seen as  a first step towards private sector involvement in NEA) and concentrated, in addition to above mentioned Performance Agreement and updating of NEA's Corporate Plan, on strengthening NEA' s institutional capability with actions and conditionality on the following: annual revisions and reviews of the Performance Agreement, NEA Corporate Plan, Commercialization Plan, Materials Management Plan, Accounting Action Plan, Receivable Action Plan, Insurance Action Plan, Loss Reduction Program, three-year rolling Investment Plan and Annual Capital Investment Program; plan of action for NEA's computerization of its consumer accounts, and actuarial valuation of NEA's liabilities for staff pensions, and financing plan for these liabilities. In retrospect, it is seen that the adequate management support to prepare and implement satisfactorily in a sustainable way, all these actions were not considered in the Arun III project. With IDA's withdrawal from the Arun III hydroelectric project, progress has been slow and many of the institutional issues remain outstanding. 12. The transmission and distribution plan as well as the tariff study were completed in the second quarter of 1991, i.e. about one year late. Together with complements financed by ADB, these studies were part of the basis for the PSEP project. The long-run marginal cost and tariff study is still one of the main bases for NEA's planning. The rural electrification plan became available in late 1990, i.e. at about the time foreseen at appraisal. It led to the inclusion under the PSEP of the implementation of a test scheme in the Marsyangdi catchment. However, most of these studies were hampered by the lack of pronipt response by NEA, which was manifest e.g. in the late reactions to the draft studies. 13. Project items not specified at the start of TA III came to include: (i) the design of the upgrading of the Trisuli Devighat hydroplant (the study covering also the environmental impact assessment and the bidding documents formed the basis for the implementation of the project under the PSEP); (ii) complementary environmental investigations, as well as risk, procurement, and transportation studies for Arun III, (iii) the funding of the Panel of Experts that accompanied in particular the preparation of the Arun III project, and (iv) consultants' services for the improvement of the Mungling-Marsyangdi road, which provides inter alia the access to the Marsyangdi hydropower plant. /1 14. The results of the Project were used in the definition of the 1992 PSEP, further preparation of the Arun III project and the project definition study for Pancheswar2. The strengthening of the sector and NEA was carried out in the context of the various reports prepared under the twinning arrangements between NEA and EdF, but the consultant's principal recommendation (performance management contract) was not pursued by the HMG and IDA. /I Funding for the physical work on the road came, in part, out of Credit 1478-NEP for the power plant proper. i2 Detailed engineering studies for the Pancheshwar project were carried out by consultants funded under grants from the Canadian International Development Agency (CIDA) and the Italian Trust Fund (ITF). The World Bank was the executing agency for the ITF grant. Consultants final report is being reviewed by the Government.  C. Major Factors Affecting the Project Factors Generally not Under Government Control 15. The studies concerning Pancheswar were heavily dependent upon a reasonably working relationship between the two countries involved, in particular at the working level (i.e. essentially the Joint Group of Experts). During the studies, the arrangement seems to have worked reasonably well. However, since the completion of the investigations, the Pancheswar development has not advanced much, in part, because of the persistently difficult relations between Nepal and India. These also determined to an extent the fate of the Arun III project, which, in the early 1990s, was transformed from a venture that would allow substantial power exports to India into a project to meet practically only internal demand in Nepal. When, in August 1995, IDA decided to withdraw from the Arun III project, the credit for TA III was already closed. In January 1996, Nepal and India signed an agreement for the integrated multipurpose development of the Mahakali river, on which the Pancheswar project would be built3. In February 1996, they also signed an umbrella agreement to increase the power trade between the two countries. On February 19, 1996, the 132 kV Duhabi (Nepal) - Kataiya (India) transmission line was commissioned, thus permitting transfer of larger amounts of power between the countries4. These developments within the last few months set the stage for larger scale power imports from India in the short term and exports to that country in the longer term and, improve the chances of realization of the Pancheswar multipurpose development. 16. The TA for strengthening the sector suffered from the fact that ADB and IDA did not have the same understanding as Electricite de France (EdF) of what NEA's institutional development plan should include. Further, the sector had to carry out the institutional studies and to implement their conclusions at the same time as it was constructing the largest hydro power plant (i.e. Marsyangdi HEP) in the country, which clearly overtaxed management, leading to the assignment by the Borrower of lower priority to the measures aiming at institutional strengthening. Only a less ambitious overall development plan and/or an earlier implementation of the twinning with a foreign utility could have improved and accelerated the impact of the institutional component of TA III, provided the twinning could have been based from the start on a full and detailed common understanding of the approach by all parties involved. Factors Generally under Government and/or Sector Control 17. Ownership by the Borrower of the measures included in TA III was uneven, definitely weaker for those aiming at institutionally strengthening NEA and highest for the studies of future investment, in particular in generation. Further, the lack of local funds (closely related to inadequate cash generation in the sector), at times, slowed down implementation of the Project, t3 IDA informed HMG: (i) that in case both Governments requested, the Bank would be ready to assist both governments, with its technical input, in advancing their dialogue on the subject; and (ii) that for the Bank to follow up the preparation of the project with further technical and financial assistance, the Bank believed that the said dialogue should be advanced to a commercial commitment level. 4 In March 1996, NEA transferred 20 MW from Kataiya (Bihar, India) to its system.  -6 - again, especially that of the Project's institution-building component. HMG opted at giving priority on NEA's institutional development (without proper management constancy support) rather than implementing the recommendation for a performance management contract with an outside contractor. D. Sustainability 18. The sustainability of the benefits to be reaped from the studies that aimed at developing large hydroplants mainly for power export to India hinges at the present stage on the relations between the two countries both at the political and the technical level. In the past decade these were at times quite difficult. Even if the future brings improvements (para 15), the above sustainability must be qualified as uncertain. This also applies to the investigations on Arun III, as the future of this project is unclear after its recent postponement. 19. The sustainability of the benefits expected from the studies and other TA measures concerning the power sector and aiming at strengthening the sector's institutions, especially NEA, can again be qualified as uncertain. The sustainability would depend much on the adequacy and realism of the measures proposed, i.e. whether the sector's capability will be adequate to carry them out at the time their implementation becomes due. This degree of adequacy and realism has undoubtedly improved from the Marsyangdi operation to the Project, as the TA III studies were carried out on the basis of the lack of success of the measures considered earlier. 20. It is difficult to provide an overall standard judgment on the sustainability of the benefits of the TA III project, as the operation was made up of various components. The ICR considers that, on balance, it is to be characterized as uncertain. E. IDA Performance 21. Although in hindsight (eight years after appraisal) it appears that IDA did not ensure HMG and NEA's ownership of the institutional TA to NEA, in particular the twinning arrangement, in view of successful delivery of the other products of the Project, IDA's performance during identification/ preparation/ appraisal is rated satisfactory. 22. However, as many of the institutional issues remain outstanding, IDA's performance in supervising the technical assistance on institutional building cannot be rated satisfactory. IDA could have intervened in amending the TOR for TA to NEA to make them less ambitious, more realistic and more acceptable to HMG and NEA, thus ensuring better success of the TA services provided. Because of the importance of the institutional strength of NEA, IDA's overall performance in supervision is rated deficient. 23. IDA also continued to lead the way in fostering co-operation between Nepal and India for the further development of large hydropower plants which would generate energy largely for export to India. In this aspect the interventions at top management level were particularly laudable, though they ultimately did not have much lasting effect.  -7 - F. Borrower Performance 24. The Borrower's performance was, as could be expected, better in the context of the Arun III and Pancheswar studies where ownership in the country was and is strong and less so in connection with the TA aiming at improving sector performance which were less strongly owned by HMG and the sector. Taking into account the sector's limited capability, the Borrower's performance was, on balance, satisfactory. 25. A weakness of the Project was the fact that it consisted of many different components, to be carried out by different bodies (HMG for the Pancheswar component and various departments of NEA for the other items). Initially, the implementation of the Project's components under NEA's responsibility was by-and-large in the context of the twinning program between NEA and EdF and allowed a relatively easy follow-up reflected in the numerous supervision reports (7 in 3 1/2 years). In the meantime, however, it has become difficult to trace some of the Project items within NEA. G. Assessment of Outcome 26. The Project achieved most of its objectives (Section B). However, its outcome was overall unsatisfactory, because probably benefits from institution building measures would not be sustainable, and sustainability of benefits from power plant studies is uncertain. H. Lessons 27. To assure optimum utilization of the results of the TA measures of the Project, further TA (in the form of management consultants to implement the results) should be considered in the follow up projects. This was partly done under PSEP and was planned to be done (still partly) under the Arun III project. 28. The TOR for the NEA - EdF twinning arrangement were too ambitious and the Borrower, NEA, the financiers (IDA and ADB) and the consultants did not have the same understanding of what NEA's institutional development plan should include. In future, IDA should ensure that TOR for such a substantial institution building effort are not beyond what the borrower and implementing agency can accept; i.e., IDA should ensure borrower and implementing agency ownership of the proposed TA measure. 1. Other Findings 29. Many of the institutional issues remain outstanding. HMG, IDA and other major potential donors of the then proposed Arun III HEP did not agree with EdF recommendations that the next step in institutional development of the Nepal power sector and NEA would be a performance management contract with an outside contractor. Instead they concentrated on strengthening NEA's institutional capacity, without adequate technical support. HMG and IDA may have missed an opportunity to take the first steps towards private sector involvement in NEA.  - 8 - 30. The Pancheswar multipurpose project as recommended as a result of the studies conducted under the Project (installed capacity: 7,200 MW, dam height: 330 m; cost: over US$4 billion or US$555/kW at a rather low 20% plant factor) is very large, quite expensive and therefore unlikely to attract financing in the short term. The above mentioned January 1996 agreement for the integrated multipurpose development of the Mahakali river, could improve the chances of realization of the Pancheswar development in the longer term.  -9- NEPAL THIRD TECHNICAL ASSISTANCE PROJECT (CREDIT 1902 -NEP) IMPLEMENTATION COMPLETION SUMMARY PART H. Statistical Tables Table I: Summary of Assessments A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macroeconomic policies O E a Sector policies O * E l Financial objectives C C C U Physical objectives * C C C Povertv reduction C