Nepal - Third Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY F Report No. 4 7 6 3 --NEP STAFF APPRAISAL REPORT NEPAL THIRD HIGHWAY PROJECT August 9, 1984 Power and Transportation Division South Asia Projects Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS* Currency Unit = Nepalese Rupee (NR) US$1.00 = NR 15.8 (May 1984) NR 1.00 = US$0.063 NR 1 million = US$63,290 * The exchange rate is floating; the rate used in this report is as above. WEIGHTS AND MEASURES Metric System Metric British/US Equivalent 1 meter (m) 3.28 feet (ft) 1 kilometer (km) 0.62 miles (mi) 1 metric ton (m ton) 2,204.6 pounds (lb) 1 hectare (ha) 2.47 acres (ac) ABBREVIATIONS AND ACRONYMS ADB = Asian Development Bank ADT = Average Daily Traffic CEDA = Center for Economic Development and Administration CIDA = Canadian International Development Association DOR = Department of Roads ERR = Economic Rate of Return FCC = Finance Comptroller-General GDP = Gross Domestic Product HMG = His Majesty's Government of Nepal ILO = International Labor Organization IR = Indian Railways MWT = Ministry of Works and Transport NTC = Nepal Transport Corporation ODA = Overseas Development Administration (Great Britain) PIU = Project Implementation Unit RNAC = Royal Nepalese Airlines Corporation SFD = Saudi Fund for Development UNDP = United Nations Development Program USAID = United States Agency for International Development GOVERNMENT OF NEPAL FISCAL YEAR Mid-July to mid-July  FOR OFFICIAL USE ONLY NEPAL THIRD HIGHWAY PROJECT Table of Contents Page No. I. THE TRANSPORT SYSTEM ......................... .1 A. General ..... 1 B. The Transport System .. . 2 Hill Trails ........... 3 Civil Aviation . . 4 Railroads ................ 4 Ropeways ........ .......... 5 Waterways and Maritime Transport ............... 6 C. Transport Coordination ............................ 6 D. Organisation and Regulation ....................... 6 E. Previous Transport Sector Operations . . 7 II. THE HIGHWAY SECTOR .......................... . . ...... . 8 A. The Network . ............. . . 8 B. Traffic .......... .... 8 C. Administration ......... .................... . .. 9 D. Training .................................. 9 E. Planning .. .......... 10 F. Financing .. .......... 10 G. Engineering ....... ......... 11 H. Construction . . .11 I. Maintenance ... 12 III. THE PROJECT ....................................... 14 A. Objectives .................. 14 B. Description ...... 14 East-West Highway Construction ................. 14 Feeder Road Construction .16 Rehabilitation/Improvement of the Kathmandu-Birgunj Road ........ .............. 16 Procurement of Equipment ....................... 17 Technical Assistance and Training .............. 18 C. Engineering . ................ 5 ...................... 18 East-West Highway ...... 18 Highway Rehabilitation .19 This report has been prepared by Mrs. Inai Bradfield (Economist) and Mr. Robert Mulligan (Engineer). 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.  Page No. D. Cost Estimates .................................... 19 E. Financing ......................................... 20 F. Project Execution, Supervision and Reporting ...... 23 Land Acquisition ............................... 23 C. Procurement and Disbursement ...................... 24 Procurement .................................... 24 Disbursement ................................... 25 H. Accounting and Auditing ........................... 26 I. Environmental Impact .............................. 27 IV. ECONOMIC EVALUATION ............................... 28 V. RECOMMENDATIONS .35 TABLES 1. The National Highway Network and Estimated Growth ... 36 2. Registered Motor Vehicles ........... .. .............. 37 3. Investment Plan Comparisons .......... .. ............. 38 4. Highway Expenditures .................. 39 5. Road Transport Revenue ............. .. ............... 40 6. Selected Design Standards ........... .. .............. 41 7. Detailed Cost Table .............. .. ................. 42 8. Estimated Costs and Benefits for Major Agricultural Schemes ....................... 43 9. Summary of Costs and Benefits ......... .. ............ 44 10. Summary of Results of the Economic Analysis of Bridge Replacement Proposals ......... ......... 45 11. Summary of Sensitivity Analyses ........ .. ........... 46 12. Summary of Economic & Sensitivity Analyses (Hetauda-Raxaul Road) ............ .. .............. 47 13. Summary of Reported Road Accidents (Naubise-Mugling Road) ........... .. ............... 48 14. Summary of Economic Analyses (Naubise-Mugling Road) 49 15. Summary of Sensitivity Analyses (Naubise-Mugling Road) ............ .. .............. 50  -iii- Page No. ANNEXES 1. Road Maintenance Equipment to be Procured ........ ... 51 2. Synopsis of Proposed Staff Training .............. ... 52 3. Composition of MRM Kohalpur Mahakali Construction Development Board (1983) ..... .................... 53 4. Project Implementation Schedule .................. ... 54 5. Land Acquisition Act 2034 (Extracts) ............. ... 55 6. Schedule of Estimated Disbursements ............... .. 57 7. Conservation Measures to be Enforced During and After Construction of Road Through Karnali Wildlife Reserve ...... ........................... 58 8. Assumptions for Agricultural Benefit ............. ... 59 9. Development Project Benefits in the Road Influence Areas ..... ........................ 64 10. Figures 1, 2, and 3 ...... ........................... 71 11. Economic Analysis: Other Quantifiable Benefits ...... 74 12. Economic Analysis of Bridge Replacement .......... ... 79 13. Project File ........ ................................ 85 CHARTS World Bank Chart No. 25147 86 MAPS World Bank Map No. 17132 R   NEPAL THIRD HIGHWAY PROJECT Credit and Project Summary Borrower: Kingdom of Nepal Amount: SDR 44.7 million (US$47.5 million equivalent) Terms: Standard Project The project would provide a means to integrate the far Description: western part of Nepal with the rest of the country through completion of an all-weather East-West Highway; to improve traffic conditions between Kathmandu and Birganj at the Indian border through selective rehabilitation of bridges and road pavements; and to strengthen the construction and maintenance capability of the Borrower. It would construct about 204 km of the East-West Highway including a bridge over Karnali (Chisapani) River and feeder roads, rehabilitate about 82 km of the Mugling-Naubise road, provide maintenance equipment, technical assistance and training. The major project benefits would be (a) the integration of the far western part of Nepal with the country's economy; (b) increased realization of benefits from investments in agricultural production in the western region; and (c) reduced cost of road maintenance and operation of vehicles through road rehabilitation on the major road link with India. Risks related to construction delays would be minimized through provision for construction supervision during all stages. Estimated Cost: a/ Item US$ Millions Foreign Local Total East-West Highway 42.6 15.3 57.9 Road Rehabilitation 10.7 3.8 14.4 Institution Building and Road Maintenance 4.8 - 4.8 TOTAL BASE COST 58.0 19.1 77.1 Physical Contingencies 5.9 2.1 8.0 Price Contingencies 23.0 7.9 30.9 TOTAL PROJECT COST 86.9 29.1 116.0 a/ Includes taxes and duties of about US$13.1 million equivalent.  Financing Plan: US$ Millions Foreign Local Total IDA 45.3 2.2 47.5 Saudi Fund for Development 27.1 3.7 30.8 ODA (UK) 14.5 5.2 19.7 HMG - 18.0 18.0 86.9 29.1 116.0 Estimated Disbursements: US$ Millions IDA FY 1985 1986 1987 1988 1989 Annual 3.98 7.38 13.14 13.35 9.65 Cummulative 3.98 11.36 24.50 37.85 47.50 Rate of Return: 16 percent Staff Appraisal Report: No. 4763-NEP, dated August 9, 1984 Ma p: IBRD 17132 R  NEPAL I. THE TRANSPORT SYSTEM A. General 1.01 Nepal is bordered by China (Tibet) to the north, and India, her main trading partner, to the east, south and west. The country's land area of 141,000 km2 is divided into three distinct physical regions which run in almost parallel bands from east to west across the country: (i) the relatively fertile Terai plains (23%) in the south, which has traditionally produced an agricultural surplus; (ii) the Hills (61%) including the important Kathmandu Valley in the center and (iii) the Himalayas (16%), the world's highest mountains, in the north. The central and northern regions are dissected by deep valleys running generally from north to south. 1.02 For more than a century prior to 1951, Nepal maintained a policy of isolation from the rest of the world. Partly as a result of this policy, but mainly because of the formidable difficulties of internal communications, the country is still in the early stages of economic development. There is little interdependence between the economies of the scattered valleys; the country produces few exportable commodities, and no significant exploitable natural resources other than hydroelectric power potential have been discovered. Such physical characteristics combined with the high costs of transport resulting from its mountainous terrain, have limited Nepal's opportunities to participate in the international economy. 1.03 Over the past ten years, GDP growth has hardly exceeded the 2.2% growth rate of the population. Per capita income is about US$157 (1982/83 prices), which is among the lowest in the world. The growth of the agriculture sector has been disappointing. What growth there has been in agricultural production (hardly above the rate of population increase) has primarily resulted from area expansion, the opportunities for which are now progressively decreasing. 1.04 The population of Nepal is now estimated at about 15.8 million (1982/83) and is increasing at a rate of about 2.6% per year. With an average of more than 90 persons per square kilometer, 1/ Nepal is one of the most densely populated mountainous countries in the world. About 34% of the population lives in the Terai region, while 58% live in the Hills and 8% in the Himalayas regions. About 95% of Nepal's population live in rural areas and for nearly all of them agriculture is the main source of livelihood. 1.05 The major development objectives of the Government are to raise the level of agricultural production, to increase employment opportunities for 1/ In the hills, the population is 1,500/km2 of arable land.  -2- the rural poor, to accelerate the country's export earnings, and reduce population growth. There is an urgent need to increase production of food grains to feed the growing population. Because of their isolation, the hills and mountain areas present particular difficulties in the achievement of such objectives. The scope for agricultural development is more favorable in the Terai, where there is still a potential for irrigation and where farm-holding sizes are large enough to enable a marketable surplus to be grown. Transporting surplus food to deficit areas in the hills and mountains, however, remains a serious problem. In the Far West of the country the planned development objectives are being frustrated by the lack of an all-weather route, and the area's integration with the rest of Nepal is not being realized. HMG therefore views the completion of the East-West Highway as the highest priority transport project in the area where planned development is being foregone through lack of permanent access. The present project addresses this major transport shortcoming. B. The Transport System 1.06 Historically, transport in Nepal has been by porters and, to a lesser extent, by pack animals. These means of transportation are still of great importance, especially, in the hills of central Nepal where the majority of the population lives. With the Government's relatively recent emphasis on infrastructure, it is only since the 1950's that the road network has begun to develop in the Terai to provide an east-west connection, and in the Kathmandu area to provide access to the Indian border in the south and to the Chinese border in the north. To complement this developing network, a number of airports and short take-off and landing (STOL) fields have been built in various parts of the country. Other transport modes such as railroads, ropeways and waterways play only a minor role within Nepal's transport system (Map 17132 R). 1.07 Nepal's daunting topography and climate are the major impediments to inexpensive and reliable transport; they create a set of adverse conditions that are unequalled in the world. As if the terrain were not obstacle enough, the many streams and rivers are seasonally swollen by the monsoon rains and make conditions for transport even more difficult, and conditions for road construction and maintenance exceptionally trying. Moreover, external trade is difficult and expensive. Nepal's dependence on routes through India entails lengthy delays and high costs for goods in transit. For example, the nearest ocean port, Calcutta, is over 1,000 km from Kathmandu. The movement of import/exports by land via Raxaul (Birganj) can entail several transhipments with the consequent high risk of loss and damage because of the frequent handlings. Clearance procedures are cumbersome and slow entailing laborious documentation. In an effort to improve the situation, HMG has had studies made by UNCTAD and ESCAP under UNDP financing. Principal recommendatibns fall under two broad headings: (i) capital works such as replacement of unsafe bridges on the Birganj/Kathmandu corridor (provided for in this proposed project), improved and expanded storage facilities at Tribhuvan airport (Kathmandu), Birganj and Calcutta, intermodal containers together with chassis and tractor vehicles, additional  -3-. wagons on the Indian Railways, and (ii) administrative and institutional improvements such as the streamlining of border formalities and customs procedures and better management and maintenance of existing facilities. It would appear that the greatest potential benefits may be realized from the containerization of Nepalese goods in transit, A recent IDA mission to Nepal prepared for HMG's comments the draft terms of reference for a study which would evaluate the benefits of intermodal container operations and determine the cost of an economically viable system, including the needed equipment, infrastructure and institutional improvements. Such a study, financed partly by UNDP and partly from an IDA Technical Assistance credit, would form the first in a series of investments to be undertaken subsequently to reduce Nepal's transit costs, and could provide the basis of a project suitable for international financing. 1.08 In the past, transport demand has been local in nature, limited mainly to commerce between adjacent villages and rural areas in the hill terrain. However, increased settlement of the Terai region assisted by the eradication of malaria has helped promote expanded trade with India, and transport demand has oriented in a predominantly north/south direction. Exports to India, mainly rice, cross the border at many points, but most imports (largely manufactured goods) from India and other countries enter Nepal through the border at Raxaul/Birganj and increasing trade is destined for Kathmandu. More recently, as a result of HMG's emphasis on integration of the country and the consequent development of the East-West Highway system, transport demand is starting to develop laterally along the Terai. Hill Trails 1.09 Although it is difficult to estimate the total length of the hill trails, they are assumed to be about 15,000 to 20,000 km. These trails not only serve to link many villages but also play a vital role in unifying the country as there is often no other means of access. During the monsoon flooding of the numerous rivers which dissect the mountains, swift currents make their crossings difficult or impossible, so that many villages are isolated for several months of the year. 1.10 The Government has been anxious to make the movement of people and goods easier in the hills and, to achieve this objective, has been taking a number of measures, including construction of porter trail suspension bridges (five of which were financed under the First Highway Project, Credit 223-NEP). To further assist the suspension bridge program, German Consult (Germany) carried out a UNDP financed, Bank-executed study of 66 proposed sites. The Swiss Government and USAID have also played an active role in supporting Government efforts to improve road access. USAID is now financing the construction of those suspension bridges found feasible in the UNDP-financed study. The Government is also receiving assistance from the World Food Program to upgrade four major north-south trails for use by mules, one of which will also be useable by jeeps. IDA is similarly assisting the  -4- Government in improving trails in the Far Western Region under the Second Rural Development Project (Credit 939-NEP). Civil Aviation 1.11 To provide access to remote and otherwise inaccessible parts of the country, Government has given a high priority to communications by air. Adequate air transpert is not only a convenient, if high cost, means of integrating the courtry, but is also essential if tourism is to develop. Commercial air transport began in 1950 with services by Indian Airlines between Kathmandu and Patna. India. In 1955 the first domestic airline company was formed and now the Government-owned Royal Nepalese Airlines Corporation (RNAC), serves eight international airports (Bangkok, Calcutta, Colombo, Delhi, Dhaka, Hong Kong, Patna, Rangoon) and 25 domestic air fields by scheduled services and an additional eight landing strips by charter flights. 1.12 Despite past domestiC traffic growth, the potential of civil aviation for integrating the country by linking remote and otherwise inaccessible areas has not been fully realized. STOL aircraft could be used more extensively to provide social services in areas difficult of access by surface transport. However, many factors, including shortages of equipment and spare parts, poor navigational and landing facilities and the monsoon rains, have had the combined effect of closing more than half the domestic airports during the monsoon season (June-October) and contributing to unreliable services all year round. 1.13 Even at its main base in Kathmandu, RNAC's facilities are sadly deficient, adversely affecting the airline's passenger operations, with potentially serious consequences for the growth of the tourist trade. Improvements in physical facilities, however, need to be matched by corresponding increases in operational efficiency. As the Sixth Five-Year Plan (1980/81-1985/86) acknowledges, RNAC could benefit from experienced management assistance to: (i) undertake forward planning; (ii) set targets for production, investment and employment; (iii) establish indicators by which its performance could be measured; and (iv) better maintain its physical assets. A basic tool in improving management and efficiency must be the systematic collection of statistical data on operations. Railroads 1.14 There are three short, separate, narrow gauge railroad lines in Nepal: the Janakpur line (53 km), built in 1927; the Nepal Railroad line (8 km); and the Kosi line (35 km). The Janakpur line, which is an extension of the Indian Railways (IR) network from Janakpur, principally caters to a growing number of pilgrims (1.5 million in 1982) from India who visit the shrines in Janakpur, to which there is no alternative land transport, but also meets a significant local demand. The Nepal line, which no longer operates, is also an extension of the IR, extending from Raxaul to Birganj, built mainly to transport bulk cargoes. Because of the long delays at Indian  -5- and Nepalese customs checkpoints, railroad trans-shipment costs are often said to be higher than comparable trucking costs. The Kosi line, originally built to transport construction materials to the Kosi River Barrage, now operates only seasonally to transport materials for its maintenance. 1.15 The Janakpur line is operated by the Nepal Transport Corporation (NTC). It has been able to cover operating expenses, but not enough to cover depreciation or replacement of capital. At present, consideration is being given to the purchase of some secondhand equipment for the Janakpur line and the conversion of the Nepal Railroad line to meter gauge to avoid the cumbersome trans-shipment of international goods at Raxaul in India. The Government is also considering extending the Janakpur line by 14 km (Bizalpura-Sarlahi) to connect with the East-West Highway. 1.16 Proposals for the development of various rail lines 1/ have been advanced from time to time. In general they stem from the Government's desire to promote electric traction (railways, ropeways and trolley buses) to utilize the country's great hydro-electric potential, helping to conserve the scarce foreign exchange now expended on importing costly petroleum, about three-quarters of which is consumed by road transport. There is certainly some merit in this argument, given the steep gradients and tortuous alignments that characterize, for example, the Rajpath between Kathmandu and Birganj entailing high vehicle operating costs and high fuel consumption. However, the energy factor, despite its importance, is only one of many (e.g., total costs, including sidings, management, operational efficiency, volume of traffic) that must be carefully analyzed before railroad investments are made. Moreover, the viability of using alternative transport modes should also be considered, since it is doubtful that there would be sufficient traffic to justify the construction of new rail lines in the near future. Studies conducted by the Bank several years ago found that even the gauge conversion of the existing line would be uneconomic because of the low volume of traffic and the high investment costs estimated at that time. Ropeways 1.17 Apart from porterage, the first ropeway, built in 1928 to serve the Kathmandu corridor, was for many years the only means of transporting freight to and from the Kathmandu Valley. The present ropeway between Kathmandu and Hetauda, which was opened in April 1964, has a length of 42 km and a design capacity of nearly 22 tons per operating hour. (Practical annual operating capacity of 70,000 tons has been estimated by NTC). Transport charges on the ropeway are generally lower than on the competing road system; however, when 1/ Kathmandu-Birganj line; East Terai line linking to the Siwalik Hills and Mahabharat; West Terai line (paralleling the East-West Highway) and various north-south lines serving some towns and villages.  -6- storage, pilferage and trans-shipment costs are taken into account, the ropeway is competitive only for the transport of large bulk shipments. For other types of traffic the private sector prefers trucks. 1.18 Until 1981, traffic on the ropeway was declining. However, in 1981 the ropeway was rehabilitated, and now, under a dynamic new management it is recapturing an increasing volume of traffic in bulk commodities, at present about 30,000 - 40,000 tons annually. An UNCTAD/ESCAP project team is at present studying the feasibility of ropeway operations in other parts of the country. Waterways and Maritime Transport 1.19 Because of the nature of Nepal's mountainous topography, the seasonality of rainfall, fast-flowing rivers with severe draft restrictions, the use of waterways as a mode of transportation is limited. A few rivers in the Terai area are navigable by small craft and some movement of grain by this means takes place to and from India. Also, in central Nepal, rivers are sometimes used to transport logs from the hills to the Terai region. In 1968, in response to a request for a license to establish a private shipping company, the Government established the legal and administrative procedures for maritime shipping. Since then, two private shipping companies have been established. However, only one ship has been chartered for one journey. C. Transport Coordination 1.20 All modern modes of transport are regulated and/or operated by the Ministry of Works and Transport (MWT). Within MWT there is no specific agency to coordinate the various modes. In the 1970's, some assistance in transport planning was provided by a transport economist financed by the UNDP. However, in practice, because of the relative infancy of the transport system and the dominant position of roads, problems of inter-modal competition are minimal. Proposed investment plans are reviewed by the Planning Commission and final approval for implementation is given by the Ministry of Finance. D. Organization and Regulation 1.21 There are few restrictions on the licensing of trucks and buses, and there is an abundance of truck and bus operators plying the Kathmandu-Birganj route. The Government-owned NTC sets passenger fares which are periodically reviewed and revised upward, but road freight rates are not regulated. There are no regulations governing vehicle weights and dimensions due to the absence of a legal framework. Although vehicle dimensions are not regulated, the rugged terrain has in the past limited the operation of vehicles to not much larger than the 5-8 ton nominal capacity trucks. The recent opening of the Narayangarth-Mugling link, however, has provided a flatter, though longer, import route from the south to Kathmandu, and vehicle weights are seen to be increasing. HMG is presently drafting legislaticn which would limit axle loads and vehicle dimensions and will take into  -7- account the findings of the ADB study on the Road Transport Industry (para 2.24). 1.22 NTC provides truck services throughout the country in direct competition with the private sector. Most of NTC traffic is Government cargo carried between Kathmandu and the major transport crossings from India. Because of past neglect and inadequate management, NTC's truck operations had been impaired but under a new dynamic management (para 1.18) efforts are now being made to effect improvements through a UNDP-financed Road Transport Development Project. In addition to the Kathmandu-Hetauda Ropeway and the minor railroads, NTC also operates a trolley bus service in the Kathmandu Valley. This facility, which was installed by the Republic of China, commenced operations in 1976 on a 13-km route between Kathmandu and Bhaktapur, and is popular. Its passenger traffic increased from 1.5 million in 1975-76 to 3.5 million in 1981-82. 1.23 Over the past two years, NTC's operations have improved (paras 1.18 and 1.22) and its financial losses have been reduced. However, there is room for further improvement. In order to pinpoint specific problem areas, NTC has been asked to collect detailed operating statistics in accordance with the format suggested by an IDA mission. The forthcoming containerization study scheduled to commence in the fall of 1984 (para 1.07) will examine the problems of NTC with the objective of defining its role and finding means to strengthen its staff and improve financial/operational performance. E. Previous Transport Sector Operations 1.24 The proposed credit would be the third IDA operation for transport in Nepal, the previous two also being for roads. The first, Credit 223-NEP (US$2.5 million), effective in February, 1971, financed the replacement of five narrow, understrength road bridges, the construction of five pedestrian suspension bridges for porter traffic, a four-year road maintenance program and consulting services and technical assistance. The project was satisfactorily completed in June 1977 but not without considerable delays due to shortages of materials and inefficiencies in administration (Project Performance Audit Report No. 2016 of April 7, 1978). 1.25 The second, Credit 730-NEP (US$17.0 million), still in progress, is anticipated to close on December 31, 1984. It comprises the upgrading of about 18 km of a mountainous section of the main road from India to Kathmandu, the construction of about 50 km of feeder roads, the Drocurement of construction equipment for use by the feeder road contractors, consultancy services for technical and economic studies of further roads and a training program for mechanics. The civil works component is virtually completed. All the equipment has been procured and is in use, and the consultants' studies have been made, some of which form the basis of the presently proposed project. The only element which has been temporarily delayed is the training program for mechanics. This is discussed in para 2.06.  II. The Highway Sector A. The Network 2.01 The highway network currently totals about 5,546 kilometers, of which 2,484 km are paved, 830 km are gravel and 2,232 km are unimproved earth roads (see Table 1). All of the surfaced roads and a large proportion of the earth roads are the responsibility of the Roads Department (DOR) of the Ministry of Works and Transport; the remainder are under the jurisdiction of the panchayats or local governments. The three main national roads are: (i) the north-south road from the Indian border at Birganj to Kathmandu and then on to the Chinese (Tibet) border; (ii) the north-south road connecting Bhairawa near the Indian border with Pokhara which is connected with Kathmandu to its east; and (iii) the East-West Highway located in the Terai which, when completed in about 1989, will traverse the entire breadth of the country (1040 km). A number of local roads in the Terai are not linked to the basic system. Vast areas of the hills and mountains as well as parts of the Far Western Terai are not served by roads at all. 2.02 The principal highway connection with India is a paved road extending from Kathmandu southwards to Birganj near the border and thence southeastwards along the Gandak and the Ganges Rivers. Other roads extend into northern India from the Terai cities of Biratnagar and Bhairawa. A road running northeastward from Kathmandu to the border town of Kodari provided the only surface link with China before sections of it were washed out during the 1981 monsoon. The damaged sections of this road are now being repaired under Chinese supervision and financing. B. Traffic 2.03 Available vehicle registration statistics in Nepal indicate that there are at present about 36,000 registered vehicles, with nearly 50Z trucks and buses (Table 2). However, no information on the numbers of scrapped vehicles is available, and it is probable that only about two-thirds of those registered are operating. While the majority of private trucks are owned by Nepalese, long-distance hauling is generally done by vehicLes from India. 2.04 With the exception of the Kathmandu Valley, roads are not heavily trafficked. One of the more heavily used is that between Birganj and Hetauda (north-south), with an Average Daily Traffic (ADT) of about 500, and the Thankot-Naubise-Kathmandu section, with an ADT of 700; for all other rural roads traffic figures are low, probably ranging from 100 to 150 ADT. The volume of traffic on the Birganj - Hetauda - Naubise - Kathmandu route has grown at an average annual rate of 8% since 1973, the year when the baseline data were established during the ADB-financed feasibility studies for the Hetauda-Narayangarh project. A systematic collection of traffic data on other roads is now being undertaken (para 2.09).  -9- C. Administration 2.05 The Roads Department of the Ministry of Works and Transport is responsible for the construction, maintenance, administration, and planning of all national roads. Recognizing the Department's increasing limitations to oversee and administer bilateral and multilateral projects scattered throughout the country, and resulting from a UNDP-financed institutional improvement study, the Department has been decentralized with a phased expansion planned to match network growth. Government salaries are low compared with what can be earned in the private sector. As long as the compensation of civil servants remains out of line with the responsibilities they carry and with what they could earn elsewhere, and as long as the present policy of frequent reassignment continues, it would be optimistic to expect efficient and energetic staff performance. Revision of the policies governing remuneration and reassignments would greatly assist in providing job security and the incentives needed for a more dynamic administration. During negotiations the subjects of staff compensations and reassignment policy were discussed. In the past IDA has taken up these matters with HMG from time to time with some success (e.g., proposed primary education project) but substantial increases in compensation cannot be expected in the near future in view of the very limited fiscal resources. The compensation issues will be the subject of a continuing discussion with HMG. On the Government's reassignment policy, HMG gave an assurance that the key personnel assigned to the execution of the Project will be retained in the DOR until the completion of the Project. D. Training 2.06 With the growth of the Department's activities, there is a clear need for a greater number of qualified professional staff to plan, program, and manage road development projects and for trained personnel at the "grass-roots" level such as supervisors, equipment operators and mechanics to ensure that the expanding road network is soundly maincained. Apart from additional recruitment, difficult under the present compensation framework, such a need can only be met by improving the capabilities of existing staff by training. At the operational level, the UNDP has a project being implemented by ILO to train mechanics, and under the Second Highway Project (Credit 730-NEP), IDA is financing the specific items of equipment needed to complement this training effort. The UNDP-financed experts from ILO responsible for the mechanics' training have identified additional needs for professional and artisan training, including the training of road overseers and equipment operators. The current UNDP project to train mechanics, although considerably behind schedule, has commenced with a first intake in December 1983 of potential trainers. The project had been dogged by slow progress in the conversion of existing buildings to administrative offices, classrooms and workshops, and the delayed arrival (some in damaged condition)  -10- of training equipment. This component, however, is now making satisfactory progress. 2.07 The British Government, through its Overseas Development Administration (ODA), has financed the construction of two road sections in Nepal. One, a portion of the East-West Highway between Narayangarth and Butwal (113 km), and the other, a 51-km spur northwards through precipitous terrain between Dharan on the far eastern section of the East-West Highway, and Dhankuta. In order to assist DOR in ensuring both road sections remain in sound condition, ODA has agreed with HMG to set up and finance for three years a Roads Remedial Works Unit (RWU) which will undertake such major repair works on these two road sections as are presently beyond the capacity of DOR. Consultants will implement the project and their services will be complemented by counterpart staff from DOR. Field staff would also be drawn from DOR. Thus, this project will serve as an invaluable venue for practical in-service training in maintenance procedures for DOR staff at the operational levels. The training component of the proposed Project (para 3.15) should complement the efforts ODA is making in this field. E. Planning 2.08 Planning in the highway sector (excluding Panchayat roads) is the responsibility of DOR, the National Planning Commission, and the Ministry of Finance. Priorities are dictated firstly by the desire for national integration (i.e., completion of the East-West Highway), then on the need to give access to the hill areas. 2.09 The DOR's planning branch undertakes alignment investigations and feasibility studies and carries out the appropriate economic and technical analyses of all proposed projects in the subsector. Traffic counting is now being undertaken in a systematic way. The acquisition of a micro-computer under the proposed project will facilitate traffic and transport studies. The training element proposed under the project (para 3.14) will also help strengthen DOR's capabilities for economic planning and project evaluation. F. Finance 2.10 DOR's budget is based on the annual allocation under the Five-Year Plan 1/ and for fiscal '83 was NR 910 million (US$58 million equivalent) (Table 4) including funds from bilateral and multilateral agencies. The budget included NR 25 million for routine road maintenance, a 25% increase over the previous years's allocation, the largest increase in recent years where annually about 4-5% has been the pattern. The budget allocation fcr 1/ A comparison of allocations under the Fifth Plan (1976-80) with those under the Sixth Plan (1980/81-1985/86) is shown in Table 3.  -11- periodic and emergency maintenance in the same year was NR 141.2 million, which was double the amount expended in the previous year. 2.11 Revenues derive mainly from customs duties on vehicles and fuels, vehicle taxes, licenses and road cess (Table 5). Revenues are not earmarked, but they would meet recurrent expenditures and a good proportion of the non-aid budget for construction. G. Engineering 2.12 Generally, the design section of DOR is well equipped to handle the hill roads program and minor projects. Major projects including the proposed Project are designed by foreign consultants under contract to Government. Geometric design standards for main and feeder roads were formulated by the DOR in 1970 and are satisfactory (Table 6). Pavement design is based on the number of repetitions of a standard 18,000 lb (8,200 kg) axle loading to be sustained over the life selected (in the case of the main project road, 15 years), and is formulated in line with the procedures of the UK Transport and Road Research Laboratory's Road Note No. 31. Structures are designed in accordance with the "Standard Specifications for Highway Bridges" adopted by the American Association of State Highway and Transportation Officials (ASSHTO), 12th Edition 1977. Both the foregoing design procedures are in common use and are accepted standards. H. Construction 2.13 There has been some development of the local contracting industry; indeed, one of the objectives of the Second Highway Project (Credit 730-NEP) was to foster such development. However, success has been patchy. Some small contractors have risen to the occasion and performed reasonably well, but others, ill-prepared and with cash-flow problems have performed haltingly at best. A number of key problems relating to Nepal's domestic construction industry have been identified and improvement measures proposed in the Bank's report prepared in 1978 and updated in late 1983 (para 2.15). 2.14 The National Construction Corporation of Nepal (NCCN), a parastatal organization, has tended to dominate the local market for civil engineering works, principally through its award of contracts after negotiation. As a result, contracting firms in the private sector have had only a minor share of the market. NCCN's experience has been primarily in the construction of buildings where its record has been satisfactory. The Corporation's record in road works has been less fortunate. Delays, slow progress, and in one instance cessation of work have dogged its contracts, although recently there have been improvements in both management and performance. In order to develop the needed skills in work planning and management, it would be useful experience for NCCN to joint-venture with or subcontract road works from a foreign contractor of the calibre that would prequalify for the contracts under the proposed project.  -12- 2.15 The findings of an assessment of Nepal's construction industry remain unchanged. To promote a more viable local industry the report's principal recommendations are: a consistent flow of appropriately "packaged" contracts, reducing the number of negotiated contracts with NCCN; easier lending requirements for guarantees; easier access to credit facilities for approved contractors and the availability of an adequate pool of equipment for hire. DOR, constrained principally by the limited and varying allocations of funds for capital works from year to year, is exploring how best to utilize funds available through KFW (Federal Republic of Germany) for technical assistance to the industry, including NCCN. 2.16 Larger projects attract the interest of foreign firms with a preponderance from India. However, as the prequalification of contractors carried out for the proposed Babai Irrigation Project indicates, the present world economic climate is stimulating the interest of contractors from other more distant countries in projects in Nepal. 2.17 Force-account works are generally limited to emergency repairs and minor works. Only exceptionally does DOR execute its projects in this way, and in consequence the resources maintained for these purposes are small. 2.18 Supervision of construction works is carried out either by DOR's engineers or, for major works by consultants (normalLy the consultant responsible for design). Such arrangements have proved satisfactory. I. Maintenance 2.19 There are few road networks in the world more difficult to maintain than that of Nepal. Some roads traverse tropical plains in extremes of heat and monsoonal flooding, some are perched on mountainsides subject to the opposite climatic extremes of ice and snow. The steep, unstable slopes often give way to landslides, another hazard for both the road builder and user. The network is also expanding (Table 1) increasing the maintenance work load of DOR. 2.20 A consequence of originally poor pavement designs and DOR's past inability to cope with maintenance work effectively has been the deterioration of such key roads as that from Kathmandu to Birganj to the state where particular sections cannot be restored to good condition by routine maintenance procedures and are in need of the extensive rehabilitation/reconstruction proposed in the project. 2.21 Moreover, although DOR is decentralising its maintenance operations and is deploying most of its organization to the regional offices, there remain two critical shortages - equipment and skilled manpower. Historically, Nepal has carried out road maintenance labor-intensively. Now, with the availability of labour subject to wide seasonal fluctuations, DOR  -13- must have the productive capacity of mechanical methods if it is to keep on top of its maintenance work load. Additionally, operational staff at all levels from road ganger, equipment operator, supervisor to planning engineer, need to be brought current with modern practices elsewhere in the world if they are to utilize equipment and funds to the best advantage; the proposed project takes account of both these critical issues in specific components for equipment procurement and technical assistance. 2.22 The issue of adequate funding for road maintenance is also addressed under the project. On first inspection (Table 4), the sums allocated in recent years for routine maintenance appear inadequate for the needs despite a recent 25% increase. In general, the condition of the network supports the need for higher budgetary allocations to be utilized to the best advantage if expensive rehabilitation works are to be avoided in future. In recognition of this need, during credit negotiations an understanding was reached that HMG would allocate NR 40 million in the fiscal 1985 budget for routine maintenance of the network, representing the amount that DOR's basic maintenance organization can, with its present capability, meaningfully utilize. More significantly, to ensure that adequate funds are allocated in future, it was also agreed that by March 31 each year HMG would discuss with the Association the proposed allocation of funds for the following fiscal year and take into account the Association's comments, if any. However, the allocations for routine maintenance do not present the whole picture. The nature of much of the network, as previously described, renders it vulnerable to seasonal disruption by landslides and flooding. Funding for such emergency works has been provided, as Table 4 illustrates, and DOR's force account resources (para 2.17) are mobilized to execute the needed repairs. 2.23 As vehicle sizes are just beginning to increase to take advantage of the easier geometry of the new road and HMG is contemplating new transport legislation at this time, the opportunity should be taken now to devise a means to retrieve from the operators a proportion of the costs of the increased wear and tear the heavier vehicles inflict on the road pavements. To this end a policy of taxing heavy vehicles annually according to unladen weights should be considered for all operators, with suitable arrangements made to capture revenues from foreign truckers in order to strike an approximate balance between the charges so levied and the costs of maintaining the network. Such a policy, favoring vehicles with better load distribution, could provide incentives to a more optimal use of the network as well as a fairer incidence of charges on transport operators for such use. 2.24 The Asian Development Bank at present has under review current road user charges, methods of collecting them, payments by different vehicle types in relation to axle weights, and the relationships between road revenues and expenditures. When the findings of the ADB-financed study are available, a tripartite review will be undertaken by HMG, ADB and IDA to determine how best to carry out a follow-up study on appropriate levels and structure of charges, and improved collection methods.  -14- III. The Project A. Objectives 3.01 The main objectives of the project are: (a) to provide, through completion of an all-weather East-West Highway, a dependable means of integrating the Far West of the country into the economy; (b) to improve traffic conditions between Kathmandu and the Indian border at Birganj by the selective rehabilitation of bridges and road pavements; and (c) to strengthen the operations and administration of the Department of Roads (DOR), in particular, to improve their capability to implement and monitor both road maintenance and the project components by providing them with technical assistance, equipment and training. B. Description 3.02 The project comprises: (a) the completion of Nepal's East-West Highway through the construction of approximately 204 km of the final western section from Kohalpur to the border with India at the Mahakali River, including the construction of a major bridge across the Karnali river at Chisapani; (b) construction of about 60 km of feeder roads linking main areas of agricultural production in the influence areas of the Karnali river northwards to the project road; (c) the rehabilitation/maintenance of about 82 km of the Kathmandu-Birganj road, including selected bridges; (d) the procurement of equipment for road maintenance and a materials laboratory, office equipment and inspection vehicles; and (e) technical assistance and training. East-West Highway Construction (204 km) 3.03 The East-West Highway, when completed with a length of about 1,040 km, will span the whole breadth of Nepal (Map 17132 R). The completion of this last section from Kohalpur to the Mahakali river at the border with  -15- India will open the Far West of the country with all-weather access to Kathmandu, and will provide the single tangible means of integrating that region into the economy as a whole. At present, access in the dry season is either by air or by jeep track fording the many intersecting rivers flowing south from the Siwalik range. In the monsoon season, flights to the STOL airports are unreliable and are often cancelled because of weather conditions, and the rivers crossing the jeep track are impassable. Then the only reliable surface access is through India. Thus, for the inhabitants of the Far West, the comparative ease of north/south travel has conditioned them to regard India as a more logical focus of trade and commerce than Kathmandu. Clearly, the construction of a reliable all-weather road linking them with the rest of the country is a basic need and is HMG's priority project in the transport sector (para 1.05). 3.04 About 850 km of the highway has already been built with assistance from the Soviet Union, India, Great Britain and the United States. In the westernmost section so far almost completed under financing from India, one bottleneck remains. A major bridge over the Rapti river (Map) was irreparably damaged by flooding during construction and work was suspended by the contractor. Work has recently commenced on an adjacent site by a new contractor, but it is important that this bridge be completed during the period of the project road contracts otherwise the concept of an all-weather road to the west will not be realized. During credit negotiations, HMG agreed that work on this bridge would be finished by the time the East-West Highway contracts are completed. 3.05 For the first 48.5 km from the Indian border eastwards to Ataria most of the embankment earthworks for the new road have been completed by HMC and the work under contract will comprise construction of the pavement layers and twelve bridges. The remainder of the project road will be constructed in full. The road alignment skirts to the north of the fertile plain of the Terai, following in general, the line of the Siwalik foothills. It will cross the Karnali river, one of Nepal's largest, at the Chisapani gorge by a major bridge for which detailed engineering is being undertaken. Below the gorge, the Karnali fans out into a maze of meanders, and although possible sites for bridges and ferries can be found, substantial training works upstream would be needed to try to retain the streams in the beds which are bridged. In view of the intensity of flooding (the ten-year flood is estimated at 20,000 cu.m/sec, the 100-year flood nearly 31,000 cu.m/sec), the training works needed would have to be substantial indeed; it was deemed prudent, therefore, to cross near the gorge mouth where the bed is stable and the abutments can be protected from flood damage by scour or transported material. 3.06 For about 15 km immediately east of the Karnali river, the alignment crosses the Karnali Wildlife Reserve, an area of about 90,000 ha, which, before the advent of the proposed road, would have remained remote from disturbance. Now with a main road, albeit lightly trafficked, crossing  -16- it, HMC is aware that resolute conservation and protective measures will need to be taken if the environment is not to be seriously impaired. An adequate action plan involving such controls as entry and exit posts, limitation on night-time travel, etc., has been agreed between the Roads Department and the National Parks and Wildlife Conservation Office, and will be enforced also during construction of the road (paras 3.34-3.36). Feeder Road Construction 3.07 West of the Karnali river, the proposed alignment of the main road skirts the foothills on the north of the cultivated Terai. In order to ensure that there is adequate access to the new road from the populous areas more to the south, and in particular, the fertile fan of the Karnali delta, the project provides for approximately 60 km of feeder roads. They would have a gravel wearing course only, and as they would be aligned approximately north-south, they would not cross any major streams and could be built at relatively low cost. Rehabilitation/Improvement of the Kathmandu-Birganj Road 3.08 Nepal's principal land link with the south runs from its border with India at Birganj northwards to the junction with the East-West Highway at Hetauda, west along that route to Narayangarth, north to Mugling and then east to Kathmandu via Naubise and Thangkot (Map). The condition of different sections of the road varies widely. For example, the road between Hetauda and Narayangarth is newly constructed and paved under financing from the Asian Development Bank (the last contract was completed in June 1983). Northwards, the section from Narayangarth to Mugling has also been completed recently with aid from the Republic of China. Between Naubise and Thangkot the road was reconstructed recently under the IDA Second Highway Project (Credit 730-NEP). 3.09 The surface (6.Om paved width) of the 56 km Birganj-Hetauda road is in poor condition, and in many places is broken and deformed. However, it is on a good alignment and is well drained. DOR is carrying out selective reconstruction/repair works to bring it back to maintainable condition. The six single-lane bridges on this route (including one on the border with India) were built to lower design standards than are now appropriate. Some are more than 50 years old and their replacement is long overdue. The project provides for the reconstruction of all except the one on the border. HMG intends reaching agreement with the Government of India on a program for the reconstruction of the border bridge and when such agreement is obtained, will arrange for its construction. 3.10 In worse condition than the road from Birganj to Hetauda is that between Naubise and Mugling (82 km). The pavement of this road is not only structurally deficient, but its paved width of only 3.5m is inappropriate to the volume and mix of traffic now using it. Consequently, the proposed  -17- rehabilitation works include widening of the road to 6 m where topography permits and the provision of shoulders of at least 1 m width. For about 10-15% of its length the present alignment is characterized by steep side cuts; in many places widening would entail such large volumes of earthwork that the major construction efforts involved would exceed the scope of this project. Therefore it is proposed that widening would be carried out selectively and where practicable, in sections of sufficient length so that, commensurate with road safety, the user is not confronted with a series of rapid changes of section. Because of poor subgrade conditions, special attention needs to be paid to drainage of the road, in particular, to ensure that the irrigation needs of frontage properties are not met by interference with the road drainage system. Fortunately, good construction materials are available from the bed of the river which parallels the road. The bridges on this road are of full width and in conformity with Nepal's current design standards. 3.11 Not so, however, are two bridges on the adjoining Thangkot-Naubise section, the pavement of which was rehabilitated under Credit 730-NEP, the Second Highway Project. The bridges were not included in that project because of lack of funds. These single-lane bridges were built about 30 years ago to an eight-ton design loading. This design loading is being grossly exceeded by heavy transport vehicles, mainly from India, and their continued use in this way is fraught with risk. Not only are they structurally inadequate, but the approaches to them are on such sharp, tight curves that larger vehicles are often obliged to back and fill in order to pass between the through-trusses without obstruction. The end members of the trusses have been damaged and distorted by vehicle collisions. The reconstruction of these two bridges is without doubt the highest priority work of the project. Procurement of Equipment 3.12 In order to provide DOR with the means of implementing road maintenance effectively, the project provides for the procurement of particular items of equipment needed for the repair of paved roads. The composition of the list of the equipment needed (Annex 1) was discussed and finalized at credit negotiations. Assurances were obtained from HMG that the list as then finalized will be procured in accordance with the provisions of the Credit Agreement. In addition, so that the quality of materials and the procedures adopted in rehabilitation/maintenance works may be monitored and controlled effectively, the equipment needed for a materials laboratory dealing with soils, bituminous mixtures and concrete testing is also included in the project. A suitable building for use as a laboratory is available in Kathmandu. 3.13 Some routine tasks to which the DOR is unable to devote sufficient resources, could be handled more efficiently by computer. For example, the initial recording and subsequent updating of the road inventory is a tedious  -18- and time consuming task. Excellent computer programs now exist to handle this work, but in such a way that priority sections for remedial works may be instantly identified. Similarly, inventories may be kept of materials, spare parts, etc. In addition to fact-recording capabilities such as these, where a computer not only relieves the tedium of repetitive work, but instead, spices it with interest, such a machine can be of material assistance in the design office. Accordingly, the project provides for such a computer for DOR headquarters. Technical Assistance and Training 3.14 The assistance given in the past by a technical advisor to DOR has proved to be of great value, largely due to the calibre of the person selected. Free from the pressures of administration, this individual has been able to devote himself fully to the technical, project-related matters that line management could not deal with in the same depth. The administrative work load has not diminished, nor has the number of line staff to cope with it increased. Hence, with the proposed Third Highway Project giving the road subsector an unprecedented surge in work load, DOR now needs more than before the support of an experienced advisor. The project therefore provides for 36 man months of such services. In addition to such direct technical assistance, the project provides expatriate training for the younger professional of DOR in: (a) the planning, evaluation and programming of projects; (b) the design and construction of projects; and (c) modern workshop practices and equipment operation. In all, 265 man-months of training period would be provided in eight specializations under the three broad categories listed above (Annex 2) between 1985 and 1988. Some of the courses would be at University level; others would be in-service with appropriate organizations or government departments overseas. During credit negotiations, HMG gave its assurances that the training program would be implemented as scheduled. 3.15 Additionally, the training of mechanics, initiated under the Second Highway Project (Credit 730-NEP) will be continued with the objective of training about 200 such personnel in courses of six months duration. However, the scope of training would be broadened to include firstly, courses in preventive maintenance for equipment operators, and later, courses in maintenance practices and techniques for supervisory personnel concerned with road maintenance. The training of these field personnel will be integrated with the RWU project being implemented by ODA (para 2.07). C. Engineering East-West Highway 3.16 Based on the findings of their feasibility study, the engineering of the East-West Highway was carried out by Norconsult (Norway) in accordance with the design standards of Table 6, which are satisfactory. The eastern 46  -19- km of the highway, from Kohalpur to the Babai river, was designed to the same standards by McDonald and Partners (UK) in parallel with their design of the Babai Irrigation Project, also prepared for IDA financing. This arrangement was made because at that time it was felt that the Babai Scheme would be implemented considerably in advance of the proposed Third Highway Project, and 30 km of the highway would be needed to provide access to the main irrigation canal works (they both share a common LOOm right-of-way over that 30 km length). The design of the Karnali bridge at Chisapani is being prepared by the U.S. consultant Steinman, Boynton, Gronquist and Birdsall whose proposal for the design was adjudged the most appropriate. Highway Rehabilitation 3.17 The preliminary engineering and economic studies which defined the road and bridge rehabilitation component of the project were prepared by N.D. Lea (Canada), to the standards detailed in Table 6, which are satisfactory. The final engineering and bidding documents are being prepared by consultants appointed by O.D.A. D. Cost Estimates 3.18 The estimated cost of the project is shown in Table 7 and is summarized below: Project Cost Summary Rupees Million US$ Million Foreign Base Local Foreign Total Local Foreign Total Exchange Costs A. East-West Highway 241.6 672.3 914.4 15.3 42.6 57.9 74 75 B. Road Rehabilitation 39.6 168.4 228.0 3.8 10.7 14.4 74 19 C. Institution Building & Road Maintenance 1.0 75.5 76.5 0.1 4.8 4.8 99 6 Total Baseline Costs 302.2 916.7 1,212.7 19.1 58.0 77.1 75 100 Physical Contingencies 33.1 92.5 125.6 2.1 5.9 8.0 74 10 Price Contingencies 124.2 363.9 488.2 7.9 23.0 30.9 75 40 Total Project Costs 459.5 1,373.2 1,832.7 29.1 86.9 116.0 75 150 3.19 For the East-West Highway, construction cost estimates are based on quantities from the final engineering design, coupled with unit rates at end-1983 derived from cost factor inputs and from recent and current construction contracts. The preliminary cost estimate for the bridge at Chisapani is derived from the costs of similar structures elsewhere.  -20- 3.20 The costs of road rehabilitation and bridge construction are similarly based on designs derived from field studies and traffic projections prepared by both DOR and consultants. The costs of equipment are based on current manufacturers' prices including cif charges (end-1983 prices). The estimates of training costs are based on information provided by the International Road Federation and the UK Crown Agents. Cost estimates of consulting services are based on the man-months needed and rates applicable at end 1983. 3.21 Price escalations of the foreign exchange and local cost components have been calculated on the following basis: Fiscal Year 1984 1985 1986 1987 1988 1989 1990 Local Escalation % 9.0 8.0 7.0 7.0 7.0 6.5 6.5 Foreign Escalation % 0.10 5.8 8.5 9.0 9.0 8.2 6.7 A 10% physical contingency has been included to allow for unforseen increases in quantities except for the road and bridge rehabilitation works, where, because of the more preliminary nature of the designs, 15% has been allowed. During credit negotiations the project cost estimates were discussed and agreed with the Government. 3.22 The foreign exchange component of the civil works has been estimated at 74% assuming the work to be executed by foreign contractors with some subcontracting to local firms. This factor was determined from a detailed analysis of the costs of a recently completed comparable project, (the ADB-financed section of the East-West Highway) executed in a similar way. The 81% foreign exchange component for supervision and 99% foreign exchange cost for technical assistance are based on the similar services provided in the Second Highway Project. During credit negotiations, the project cost estimates were discussed and confirmed with HMG. E. Financing 3.23 The Borrower would be His Majesty Government of Nepal. The proposed IDA credit of US$47.5 million would finance about 55% of the project's foreign costs or 40% of total costs. HMG will provide US$18.0 million, or about 62% of the project's local costs. The shortfall of US$50.5 million in project costs will be met in part by the Saudi Fund for Development (SFD) who will finance the two western contracts out of the four for the East-West Highway construction, and the British Government, which through ODA, will meet the costs (US$19.7 million equivalent) of the Road Rehabilitation component (Table 3). The Saudi Fund has already signed its loan agreement for an amount of Saudi Ryals 106 million (US$30.8 million equivalent) with HMG. Effectiveness of the Saudi Fund Loan would be a  -21- condition of effectiveness for the proposed IDA credit. The co-financing arrangements agreed will be in parallel and not jointly with IDA, each agency assuming responsibility for separate, economically viable project components as illustrated in Table 3.2. During credit negotiations, the financing plan was discussed and confirmed with HMG which gave its commitment to meet its share of local costs, including possible over-runs in project costs.  -22- Table 3.2 NEPAL APPRAISAL OF A THIRD HIGHWAY PROJECT Project Financing Plan (US$Million) Source of Funds Project Component Cost IDA SF ODA HMG East-West Highway Contract 1 11.7 9.8 1.9 Contract 2 19.5 16.4 3.1 Contract 3 15.2 11.7 3.5 Contract 4 17.0 13.1 3.9 Supervision 5.4 4.6 0.8 Chisapani Bridge 15.0 11.6 3.4 Feeder Roads 2.0 1.5 0.5 Supervision 0.8 0.7 0.1 Road Rehabilitation Thangkot-Naubise Bridges 0.5 0.5 Naubise-Mugling Pavement 17.0 17.0 Supervision 2.2 2.2 Birganj-Hetauda Bridges 3.0 2.3 0.7 Supervision 0.2 0.1 0.1 Equipment 4.0 4.0 Technical Assistance & Training 2.5 2.5 TOTAL 116.0 47.5 30.8 19.7 18.0 SF = Saudi Fund for Development ODA = Overseas Development Administration (UK) HMG = His Majesty's Government of Nepal  -23- F. Project Execution, Supervision and Reporting 3.24 The DOR would be responsible for project implementation. Direct supervision of the four road construction contracts comprising the East-West Highway would be undertaken by consultants selected in accordance with the procurement conditions of the Saudi Fund for Development from a number of firms on the basis of their proposals for the works. To provide overall project management HMG has constituted the Mahendra Rajmarg (MRM) Kohalpur Mahakali Construction Development Board, the composition of which is listed at Annex 3. However, to ensure the maximum training impact on DOR staff from executing the project works, the Chief Engineer has required the consultant to utilize the services of Roads Department engineers and technicians who will form part of the Project Implementation Unit (PIU) for which an organization chart is attached (Chart). Key personnel should be assigned to the PIU towards the end of 1984 about the time the credit is expected to become effective; the appointment of the project manager is a condition of credit effectiveness as is the selection of consultants to supervise the East-West highway construction. However, at the date of this appraisal report both the foregoing conditions have been met; an experienced engineer from the staff of DOR has been appointed as project manager, and the Canadian consultant N.D. Lea, has been selected to supervise the construction works. Supervision of the construction of the bridge across the Karnali river at Chisapani will be carried out by the consultant responsible for the design work. Again, this work will be carried out under the aegis of the Project Implementation Unit. Consultants for the supervision of Chisapani Bridge construction, the Birganj-Hetauda bridges and for strengthening DOR's administration and operations will be financed under the proposed IDA Credit and in accordance with IDA guidelines. 3.25 For the ODA-financed road and bridge rehabilitation works, supervision will be exercised by UK-based consultants selected in accordance with the terms and conditions of Britain's grant agreement with HMG. 3.26 The PIU together with the supervisory consultants will prepare quarterly and annual reports on the progress of the project for Government, the Saudi Fund and IDA. The PIU will also prepare the Project Completion Report in due time. During credit negotiations, the following matters were discussed and confirmed with HMG: (a) the composition of the PIU; (b) the project reporting arrangements; and (c) the project implementation schedule (Annex 4). Land Acquisition 3.27 HMG has the legal authority to expropriate the right of way needed for roads, and in situations when compensation to owners is involved, to permit contractors' entry on such land whilst compensation is being  -24- negotiated. Annex 5 details the steps to be taken by DOR to obtain the land needed for the road. During credit negotiations HMG confirmed that all land needed for road construction could be obtained within three months of notice being served on the occupants, and in any case by June 1985, well in advance of contractors' mobilization. C. Procurement and Disbursement Procurement 3.28 Procurement arrangements for the project components are illustrated in Table 3.3. Table 3.3 Procurement Method Project Element ICB LCB Other Total Cost 1. Civil Works (a) East-West Highway 32.24 31.18 63.42 (24.82) (24.82) Chisapani Bridge 14.96 14.96 (11.52) (11.52) Feeder Roads 2.00 2.00 (1.54) (1.54) Supervision of 6.21 6.21 Construction (0.63) (0.63) (b) Road Rehabilitation Thangkot-Naubise Bridges 0.46 0.46 Naubise-Mugling Pavement 17.01 17.01 Birganj-Hetauda Bridges 3.00 3.00 (2.31) (2.31) Supervision 2.44 2.44 (0.18) (0.18) 2. Equipment 3.9 0.10 4.00 (3.9) (0.10) (4.00) 3. Technical Assistance and 2.50 2.50 Training (2.50) (2.50) TOTAL 54.10 2.00 59.90 116.00 (42.55) (1.54) (3.41) (47.50) NOTE: Figures in parentheses are the respective amounts financed by the Association.  -25- In respect of the East-West Highway construction, the two western contracts will be financed by the Saudi Fund for Development (Table 3.2), and will be awarded after bidding among prequalified contractors in compliance with the Credit Agreement with SFD; for the remainder as well as for the bridge at Chisapani, in accordance with Bank's "Guidelines for Procurement". Contractors prequalified for the work under IDA Credit will be allowed to bid for one or more contracts up to the limit of their prequalifications, and awards will be made after an evaluation which demonstrates the arrangement of contracts most advantageous 1/ to Government. The contracts for the Naubise-Mugling road rehabilitation and the Thangkot-Naubise bridge reconstruction works of the Birganj-Kathmandu road will be awarded, after a separate contractor prequalification, in accordance with the provisions of the agreement between Britain's ODA and HMG whilst the reconstruction of the Birganj-Hetauda bridges will be in compliance with the Bank's "Procurement Guidelines". 3.29 Equipment for road maintenance would also be procured by international competitive bidding in accordance with the Bank's "Guidelines for Procurement" with the proviso that items of an individual value of less than US$20,000 may be purchased by prudent shopping up to an aggregate value of US$150,000. 3.30 All contracts for civil works, consultants' services and equipment being financed by IDA would be subject to review by IDA prior to award. A preference of 7-1/2% for domestic contractors would be given in respect of civil works contracts. Disbursement 3.31 Disbursements from the proceeds of the IDA credit would be made on the following basis: (a) 77% of total expenditures for the construction of the East-West highway, the feeder roads, the bridge over the Karnali river at Chisapani, and the five bridges of the Birganj-Hetauda road; (b) 100% of foreign expenditures for the road maintenance equipment, spare parts, and other equipment and materials for DOR; or 100% of local expenditures (ex-factory cost) for locally manufactured goods; and 90% of local expenditures for goods procured locally (off-the-shelf); and 1/ Award will be made to the lowest evaluated bidder for the combined con- tracts or the lowest evaluated bidder for each contract.  -26- (c) 100% of expenditures for consultants' services, technical assistance and training of DOR staff. 3.32 A schedule of estimated disbursements has been prepared (Annex 6) and in summary is as follows: Fiscal Year '85 '86 '87 '88 '89 Cumulative Disb. US$ 3.98 11.36 24.50 37.85 47.50 The disbursement period of about five years is based on past experience in Nepal. Although the published disbursement profiles for all projects in Nepal reflect a ten-year drawn-down period but with the curve being almost asymptotic over the last two to three years, recent experience in highways indicates a shorter implementation period. Credit 730-NEP which financed the Second Highway Project became effective at the end of 1977 and will close at the end of 1984. The main civil works component was almost two years late in starting due, among other things, to delays in bidding, problems in evaluation, and the works were undertaken throughout by local contractors, some of whom had been quite unfamiliar with road works (para 2.13). Despite these problems of unfamiliarity coupled with short construction seasons and the prolonged start-up period, the project works will be completed within a five-year construction period. The current proposed project, on the other hand, starts with prequalified contractors of international standing, will be supervised by consultants selected on the basis of a rigorous evaluation, and who are moreover, familiar with the country. On this basis, therefore, a five-year construction period is proposed. The expected Closing Date is thus June 30, 1990. H. Accounting and Auditing 3.33 A recent review by consultants indicated that HMG's accounting procedures, whilst generally adequate, left some room for improvement, particularly in relation to IDA financed projects. As a result, the consultants assisted the Finance Comptroller General (FCG) in the drafting of a Project Accounting Manual specifically to regularize accounting procedures for all IDA funded projects so that FCG would be presented with project accounts prepared in standard format for monitoring project expenditures. The new procedures are already being implemented satisfactorily on three IDA-financed projects and it is proposed that the proposed project be included as a fourth. The Department of the Auditor-General is adequately staffed and competent to handle the audit of project accounts. During credit negotiations HMG agreed that separate accounts for the project would be kept, that they would be audited annually, and the audit report submitted to the Association not later than nine months after the close of the year in question.  -27- I. Envirunmental Impact 3.34 The construction of the first section of the East-West Highway will impinge on the environment. Firstly, it will superimpose a fresh and additional traffic pattern on the region, at right angles to the traditional north-south flows. Secondly, it will expose hitherto isolated conservation areas to the easy access of all. In particular, the main project road traverses for about 15km the Royal Karnali Wildlife Reserve (para 3.06). In order to mitigate the effects of this exposure and severance, HMG proposed measures which will be incorporated into the road's construction, and others to be enforced by the National Parks and Wild Life Office both during and after construction (Annex 7). 3.35 Because of the presence of elephants in the Reserve, the possible parallel fencing of the road has been deemed impracticable. However, where the new road is intersected by the tracks used by the Wildlife Reserve personnel, fences and gates will be provided to prevent unauthorized access. To minimize physical disruption, no road-building material may be taken from sources outside the road width within the Reserve, or excess materials dumped there. 3.36 In addition to these infrastructure provisions, the Park warden will continue to man the entrances and exits to the Reserve on a 24-hour basis, monitoring traffic in and out, and, if needed, restricting traffic to the hours of daylight. The National Parks and Wildlife Conservation Office has the necessary legal authority to regulate traffic through the Reserve, and during credit negotiations, HMG agreed that the boundary gates would be manned both during road construction and afterwards for the project life. Evidence that HMG has in fact adopted the conservation measures described above as well as the regulations, permits, etc. providing for the construction of the 15 km of road within the Wildlife Reserves, will be a condition of credit effectiveness. 3.37 The rehabilitation works proposed on the Birganj-Kathmandu road will not detract from the environment. Rather, by expediting traffic flows and eliminating rough, broken sections of roadway, the environment, particularly of the travelling public, will be enhanced.  -28- !V. EC j MIC EVALUA TION A. Kchalpur-Mahaka1i Highway (East-West Highway) General 4.01 The 7ar 14estern Region of Mepal, where the ProCject road is located, has no direct surface i1nk to the rest of Nepal, and the east-west traveller must utilize Lndian roads or railways to traverse thie country. The absence of a surface link with .he administrative and marketing centers to the east resulted in high costs of transit for one-third of the population and difficulties in administration and development. Completion of the East-West Highway network is, therefore, a prerequisite for promoting the country's political and economic integration. The network would provide access to the fertile plains known as the Terai which has Nepal's greatest agricultural potential and to the hill people who would be able to purchase agricultural products and trade in market tcwns which are expected to spring up along the East-West Highway. Socio-Economic Characteristics 4.02 The road would service about 550,000 people in the Terai, largely engaged in subsistence agriculture and earning US$100 equivalent annually. If the hill population is included (para 4.01), the road would serve about one million people. The latest census (1981) has shown that the population growth rate in the Terai has been 4.6% p.a., which is almost double the national rate of population increase. The non-rural population is mainly concentrated in Mahendranagar, Dangarhi and Nepalgani, with populations of l0,000-30,000 where small and medium light industries are developing. Traditionally, because of the absence of east-west road connections, trade consists of the south-north movement of commodities and manufactured goods from India to the Terai and the hills, and a north-south movement to India of surplus agricultural products which mainly originate in the Terai. The large hill population has little surplus produce to sell except ghee and some spices in return for imported sugar, salt and clothing from India. Farming is focussed on paddy rice supplemented by wheat, maize and pulses. Cropping intensity is relatively low at 1.2 per year as compared with 2 in the neighboring states of India. The potential for increased production is, therefore, large, and the Government has initiated several major irrigation, power and rural development projects. These efforts are, however, severely hampered by the lack of road connections. The project addresses this critical need.  -2 9 Problems of Transportation 4.03 Several major projects 1/ in the Far West are encountering serious implementation problems largely due to difficult access. These difficulties are typified by the Kumbher Cotton Project, where extension workers find it difficult to provide adequate supervision during the critical planting and growing seasons; laborers are unwilling to settle in the area because of transportation problems leading to serious labor shortages; marketing the product is costly in the absence of all weather roads; and other problems include prolonged administrative and logistic delays in getting equipment and spare parts, shortage of fuel supplies and slow work by local contractors. 4.04 Without the project, access to the Far West hill regions is confined to porter and mule trails with costly airlifting of equipment and materials to the hills as the only alternative to land transport. The project road together with the feeder roads would, by assisting in increasing agricultural production, benefit the food deficit hill and mountain regions, help overcome food shortages in the country, and make a major contribution to assuring the viability of the substantial investments already made and planned in irrigation and agricultural development in the Far West. Analytical Approach 4.05 The economic evaluation was undertaken by integrating the total costs and benefits of major irrigation, agricultural and other development projects in the road influence areas with those of the project road. Since the changes in the agricultural production system were expected to take place as a result of the project road and the complementary investments in irrigation, agricultural extension and on-farm development, an integrated analysis was undertaken in quantifying the project's benefits. The total agricultural costs and benefits have been quantified year-by-year and crop-by-crop based on the analysis of crop areas, yields, production costs, ex-farm prices, marketed output and locaL consumption. The increased agricultural production forms the first group of benefits. 4.06 Similarly, for the five major investment projects in the road influence areas, i.e., (i) livestock development and milk production, (ii) paper mill, (iii) power distribution project, (iv) leather processing industry, and (v) the solvent plant, annual expenditures and corresponding benefits for each investment have been calculated since these investment 1/ Notably, Mahakali, Mohana and Khutia irrigation projects; integrated rural development projects in the Mahakali Hills, Karnali-Bheri and Seti; Kumbher Cotton Project; and preparation work for Babai and Jamuar Nala Irrigation and Chisapani hydropower projects.  -30- projects are interdependent of the project road. The net benefits of these investments form the second group of benefits. 4.07 The third group of benefits include: (a) the avoidable cost of airlifting food to the hills; (b) potential savings to the national airline, RNAC; and (c) earnings potential from tourism. 4.08 Rate of return on the entire package of interdependent investments was calculated by comparing the total costs and benefits of all major investment projects mentioned above. Quantification of Benefits (a) Agricultural Benefits 4.09 The evaluation of economic benefits is based on the incremental value of agricultural production, induced and made possible by the road in the areas where specific irrigation and agricultural development schemes are either being implemented or planned. The estimated cost and benefit streams of these investment projects in accordance with the expected implementation schedules were set out in Table 8. The major irrigation and agricultural schemes analyzed are: Mahakali, Mohana, Khutia, Jamnar Nala, Babai and Kumbher Cotton projects. 4.10 The net agricultural benefits obtainable from subsistence farming with the project road were estimated in accordance with the assumptions and methodology contained in Annex 8. It was assumed that extension services and other necessary farm inputs would be provided gradually, resulting in a 1% increase in yields in 5 years on existing cultivated land and a 2% increase on newly cleared forest land. The net benefit stream is shown in Table 9. (b) Benefits of major development projects in the Road Influence Areas 4.11 In addition to the agricultural benefits, an analysis of five major development projects (livestock, paper mill, transmission line, leather processing factory and the solvent plant) was undertaken since these investment projects would not be viable without the project road. In the case of the livestock project, the collection and delivery of milk and milk products would be severely constrained; the paper mill would have to import raw materials for paper production at higher costs, instead of exploiting local resources available along the project road; the power transmission project would have to incur additional costs of clearing the bushes and providing access roads for maintenance and operation; the operation of the leather processing factory would be greatly hindered in the absence of the  -31- project road which would link the factory and the important livestock area supplying skins and hides; and the solvent plant in Dhangarhi incurs high costs of transporting raw materials and suffers from idle capacity due to the limited collection of raw materials. Annex 9 contains details of these investments. (c) Avoidable Costs of Airlifting 4.12 The volume of food grains and other essential commodities which have to be airlifted into the hill areas of the western region has averaged about 3,000 tons per year. The demand for these goods in the hills would be higher if transport costs were lower and services more frequent. The estimated costs of airlifting range from NRs 5,000 to NRs 12,000 per ton, with a weighted average of NRs 6,000, and those by truck on the presently unimproved north-south roads from NRs 400 in the dry season to NRs 2,000 during the wet season. The replacement ofE airlifting by truck transport on routes between the Terai and various points in the mid-hills would yield annual savings of NRs 8 million. 1/ The project would greatly assist in the collection of the surplus grain in the Terai and its distribution northwards and, together with feeder roads, would remove the need to airlift goods to the hills as this movement would be replaced by truck transport. (Annex 10). (d) Savings to the National Airline, RNAC 4.13 Another source of savings could be obtained from better utilization of aircraft operating out of Dhangarhi. At present, flights between Dhangarhi and hill areas operate below capacity in order to carry extra fuel as there are no refuelLing facilities west of Nepalganj. Analysis of the monthly seat allotment charts and flight schedules showed that RNAC is losing NRS 100,000 a week, or NRS 4 million p.a. Only 40 weeks were counted instead of 52, due to the three-month monsoon period. 4.14 The project road would enable this loss to be eliminated since fuel could be distributed from Nepalganj to Dhangarhi by road. The Nepal Oil Corporation indicated their willingness to set up the necessary refuelling center at Dhangarhi. It has refrained from doing so in the past because of the transport problems. (e) Earnings Potential from Tourism 4.15 The project area contains one of the country's richest wildlife areas at Karnali (Map). Inaccessibility has prevented any development of the area to date. if the road is completed, tour operators and other commercial 1/ The savings are based on the difference between the cost of air transport and the maximum cost by truck.  interests plan to establish a three-center tour comprising the popular Tiger Tops (Chitwan)-Karnali-Jumla,l/ by combining the special wildlife attractions of the Terai with those of the mountain lake scenery around Jumla in the Himalayas. Based on experience of similar operations in Nepal the benefits in terms of net foreign exchange earnings is judged to be from NRs 5 million in the first year of operation rising to NRs 14 million after ten years. (f) Other Quantifiable Benefits 4.16 The other benefits were quantified but were not included in the rate of return calculations since the amounts were relatively small, and the available data were sketchy. These include: (i) savings in time and expenses incurred by government administrators; and (ii) avoidable costs of transit through India (See Annex 11). 4.17 The ERR on the entire package of interdependent investments including the road is 14% (Table 9). If the road construction costs increase by 15%, the ERR would decrease to 13%, and if the construction costs increase by 25%, the ERR would further decrease to 12%. If the benefits increase by 15%, the ERR would increase to 15%. If the costs go up by 15% while the benefits go down by the same amount, the ERR would decrease to 12%. The base ERR is, however, over the opportunity cost of capital, estimated at 10% in Nepal, demonstrating an economically acceptable project. B. Road/Bridge Rehabilitation (Kathmandu-Birganj) 4.18 The Kathmandu-Birganj corridor is Nepal's principal trade route to India, and the main supply line of i.mports to the country. The volume of traffic has grown steadily over the years and has reached the highest level in the country at 500-700 v.p.d. (Annex 12)e The road sections are, however, so badly deteriorated that they cannot be maintained by routine procedures. The Hetauda-Birganj section, built long ago, was designed to accommodate much lower traffic volumes and loadings than at present. The bridges included in the project were also designed for 8-ton loads as against the current loads of 15-20 tons. Moreover, their apprcaches on sharp, tight curves create hazardous driving conditions. L/ The project road would follow the existing alignment of a forest road through the reserve for about 15 km. It is feared that traffic on this road would disturb the natural habitat unless strict protection measures are observed during and after construction. Experiences with similar situations (e.g., the Santhiana Forest Reserve in India just south of Dhangarhi) show that a road can be acceptable provided the reserve is controlled properly and policed effectively. This example showed that with careful planning and implementation the wildlife environment can be preserved and bring additional benefits to the project area.  -33- 4.19 The objectives of the project are, therefore, to: (i) reduce vehicle operating costs and accidents; and (ii) restore a smooth running surface through rehabilitation/reconstruction so that routine/periodic maintenance can be perEormed by DOR. The technical assistance and training components included in the project are intended to upgrade DOR's maintenance capabilities. (a) Bridge Rehabilitation/Replacement 4.20 An economic evaluation was carried out for 20 river crossings between Thankot and Raxaul. The quantifiable benefits attributable to the replacement of the bridges are the avoidable costs of: (i) providing and maintaining a temporary crossing after a bridge failure; (ii) traffic disruption caused by a structural collapse; and (iii) congestion on the heavily travelled single lane structures at Birganj-Rexaul. The estimated benefits from each source, based upon the assessed remaining life of the individual structure, plus the cost of providing a permanent structure at a later date, were compared with the proposed bridge rehabilitation cost. The economic analysis indicated that only 8 bridges out of 20 examined would be economically justified. The investment in the remaining 12 bridges would have to be postponed until later date. Out of the 8 economically viable bridges, however, the border bridge between Birganj and Raxaul has been deleted from the project since additional time is required to reach an agreement with India on cost sharing formula, maintenance responsibility, and institutional arrangement for project execution. The ERRs on the 7 bridges range from a high of 23% for the Naubise Bridge to a low of 14% for Chure (Table 10). Sensitivity analyses of costs and benefits show that even in the most unfavorable cases where costs are 15% greater than estimated and benefits, 25% lower, ERRs yield from 9% to 16% (Table 11). (b) Rehabilitation of Hetauda-Birganj Road 4.21 In 1982/83, the average annual daily traffic (AADT) on this road was 565, of which 83% were heavy vehicles. The overall traffic growth rate has been from 6% to 7% in the past decade. For the economic analysis 6.5% p.a. growth was assumed until 1993 and 5% p.a' thereafter. The quantifiable benefits are: (a) savings in maintenance costs; and (b) reduced vehicle operating costs resulting from a smoother running surface with the project. The ERR for this component is 15% (Table 12). A surmmary of the sensitivity analysis shows that if the cost increases by 25%1, or the benefits decrease by 25%, the rate of return is 12%. If the cost increases by 25% and the benefits decrease by 25% at the same time, the ERR would be reduced to 9%. The benefit calculations are conservative, since they do not include reduced travel times resulting from an. improved road surface, or accident reductions likely to result as the need to avoid potholes and poor road sections is eliminated.  -34- (c) Naubise-Mugling Road 4.22 In 1983, the traffic volume (AADT) on this road was 435, with 80% trucks and buses. The quantifiable benefits were derived from savings in vehicle operating and maintenance costs and reduced accidents (Table 13). Only reductions in the cost of damaged or destroyed vehicles have been quantified based on experiences in Nepal. Losses of human lives and cargo, known to be considerable, have not been quantified. The ERR for this component is 18% (Table 14). The benefit stream is particularly sensitive to the growth in traffic (Table 15). Nevertheless, even under the adverse condition of a 25% increase in costs and 25% decrease in benefits, this component would still yield an ERR of 12%. The benefits are understated to the extent that they do not take into account generated traffic or travel time savings. 4.23 The overall weighted average ERR of the East-West highway construction and ancillary investments in agriculture and other interdependent development projects together with the road/bridge rehabilitation component is 16%, demonstrating a viable project.  -35- V. Recommendations 5.01 During credit negotiations, the following principal agreements were reached with HMG: (a) that on March 31 each year commencing on March 31, 1985, HMG will inform the Association of the allocations proposed in the following fiscal year for the purpose of maintaining the DOR's road network, and taking into account the Association's comments, if any, ensure that adequate funds are provided for that purpose (para 2.22); (b) that the major bridge being constructed over the Rapti river on a section of the East-West highway outside this proposed project and being financed from other sources, will be finished by the time the proposed project contracts are completed (para 3.04); and (c) that all measures needed will be taken to minimize the environmental effects on the Karnali Wildlife Reserve of the construction and subsequent utilization of the 15 km section of project road which passes through it, and that the National Parks and Wildlife Conservation Office will be entrusted with the responsibility for enforcing such measures (paras 3.06, 3.34-3.36). 5.02 Conditions of effectiveness of the proposed credit would be: (a) that all conditions of effectiveness of the Saudi Fund have been met (para 3.23); (b) that the Project Implementationi Unit has been duly established and the Project Manager appointed (para 3.24); (c) that the consultants to supervise construction of the East-West Highway have been selected (para 3.24); and (d) that all licenses, permits and regulations providing for the construction of about 15 km of road within the Karnali Wildlife Reserve have been adopted and are legally binding (para 3.36). 5.03 The conditions 5.02 (c) and (d) have been met. Subject to the remaining conditions 5.02 (a) and (b) having been met, the project constitutes a suitable basis for an IDA credit of US$47.5 million on the usual terms.  -36- TABLE 1 NEPAL THIRD HIGHWAY PROJECT The National Highway Network and Estimated Growth (Kilometers) Year Total Length Department of Roads Department17f Roads Panchat Bitumen Gravel Earth- Earth- 1965 1,826 289 147 300 1,090 1967 2,430 536 344 320 1.230 1969 2,750 661 408 360 1,321 1971 2,810 934 486 206 1,184 1972 2,951 1,115 475 186 1,175 1973 3,016 1,356 318 166 1,176 1974 3,900 1,456 150 640 1,654 1975 4,179 1,540 219 800 1,620 1976 4,199 1,568 160 850 1,621 % Average Annual Growth Rate (1966-76) 8.2 15 0 16 1977 4,238 1,568 170 1,0002/ 1,600 1978 4,595 1,851 593 2,151 1979 4,691 1,916 685 2,090 1980 4,940 2,044 564 2,332 1981 5,021 2,167 703 2,151 1982 5,270 2,322 719 2,229 1983 5,546 2,484 830 2,232 % Average Annual Growth Rate (1976-83) 3.8 6.8 28.5 17.4 1/ Many earth roads are only tracks. Earth roads are not shown on maps. 2/ Notional only--likely to increase gradually. Source: Department of Roads and Mission Estimates April 1984  TABLE 2 -37- NEPAL THIRD HIGHWAY PROJECT Registered Motor Vehicles (1964-81)k/ Year Jeeps and Cars Trucks Buses Total 1964 2,362 1,352 290 4,004 1965 N.A. N.A. N.A. N.A. 1966 3,761 1,834 426 6,021 1967 4,411 2,150 497 7,058 1968 5,142 2,534 561 8,237 1969 6,008 2,993 578 9,579 1970 6,649 3,072 541 10,262 1971 7,215 3,258 652 11,125 1972 7,810 3,627 713 12,150 1973 8,768 4,109 919 13,796 1974 9,611 4,612 1,021 15,244 1975 9,684 4,651 1,223 15,558 1976 11,526 5,848 1,484 18,858 1977 12,679 6,608 1,662 20,949 1978 14,201 7,987 2,001 24,189 1979 15,621 9,984 2,402 28,007 1980 17,183 11,980 2,882 32,045 1981 18,557 14,376 3,314 36,247 Average Annual Growth Rates in % 1964-75 13.6 11.9 14.0 13.1 1970-75 7.8 8.6 17.4 8.7 1975-80 12.2 20.8 22.1 18.4 1980-81 8.0 200() 15.0 13.1 1/ The number of vehicles registered in a given year is obtained by taking the total in the previous year and adding the new vehicles registered during the given year. No account is taken of scrapped vehicles. Source: Department of Roads, 1983  -38- TABLE 3 NEPAL THIRD HIGHWAY PROJECT (NRs millions) Investment Plan Comparisons Fifth Highway Investment Planl/ Sixth Highway Investment Plan Fifth Plan Sixth Plan (1976-80) % (1980-81 - 1985-86) % Trunk Highway 642.5 56.8 1,127.802/ 37.34 Feeder Roads 267.5 23.6 601.902/ 19.93 Rural Integrated Development Project 206.707 6.84 Urban Roads 35.0 3.1 30.00 0.99 Maintenance (Routine) 59.5 5.3 110.345 3.65 Bridges 22.2 2.0 173.002/ 5.73 Suspension Bridges 47.9 4.2 457.002/ 15.13 Hill Trails 30.0 2.6 82.50 2.73 Road Development Study & Survey 33.39 1.10 Road Maintenance Equipment 100.00 3.31 Miscellaneous 27.5 2.4 97.448 3.25 121321 7:100.0 .3,020.000 100.00 1/ Minimum Allocation 2/ Includes Periodic Maintenance and Emergency Repairs. Source: The Government's "Fifth Plan (1975-80)". The Government's "Sixth Plan (1980/81-1985/86) April 1984  NEPAL THIRD HIGHWAY PROJECT Highway Expenditures (NRs millions) 1978/ 1979/ 1980/ 1981/ 1982/ Item 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1979 1980 1981 1982 1983 Administration 4.1 4.1 2.6 2.6 1.6 1.0 1.1 2.9 3.7 3.2 3.6 9.6 10.2 12.5 12.0 18.6 Routine Maintenance 3.0 3.0 2.5 3.5 3.9 6.0 8.0 14.7 19.5 22.3 24.5 17.0 18.0 19.0 20.0 25.0 Periodic and Emergency Maintenance 19.8 36.2 26.2 13.9 70.2 141.2 Construction 343.1 495.5 527.2 505.0 452.0 725.8 Subtotal (Periodic Maintenance and Construction) 78.5 84.8 105.3 216.6 163.0 168.4 180.2 210.2 251.4 170.7 362.9 531.7 553.4 518.9 522.2 867.0 TOTAL 85.6 91.9 110.4 222.7 168.5 175.4 189.3 227.8 274.5 196.2 391.0.558.3 581.6 550.4 554.2 910.6 Source: Department of Roads and Ministry of Finance Budget Estimates August 1984  NEPAL THIRD HIGHWAY PROJECT Road Transport Revenue- Item 1974 1975 1976 1977/78 1978/79 1979/80 1980/81 1981/82 Road Cess 6,2 6.9 7.6 15.8 17.1 Vehicle Tax 1.1 1.8 2.0 2.3 2.1 1.9 1.8 2.3 Customs from Vehicles 1,4 4.3 2.5 34.9 38.0 Customs from Petroleum 25.7 28.5 15.6 32.8 44.76 Customs from Diesel 16.9 17.1 909 Route Licenses (1.2)-/ 1.3 1.4 52.5 59.9 39.0 1/ Gross receipts. 2/ Assumed - data not available. Source: Department of Custom and Department of Taxation. April 1984 U'  -41- TABLE 6 NEPAL THIRD HIGHWAY PROJECT Selected Design _St.andards East-West Highway Road Rehabilitation Flat Hilly Flat Hilly Design Speed (kph) 100 80 100 80 Width of Right of Way (m) 50 50 50 50 Formation Width (m) .7.5 7.5 8 l/ 8 Paved Width (m) :3.5 2/ 3.5 6 1/ 6 Ruling Gradient (%) 5 6 6 8 Stopping Sight Distance (m) :L20 120 120 120 Min. Radius Horizontal Curves (m) 475 210 90 50 Structural Design: "Standard Specifications for Highway Bridges" (The American Association of State Highway and Transportation Officials) Loading HS 15 1/ Where this can be achieved. 2/ First stage of ultimate 6.Om paved width. Source: Department of Roads April 1984  -42- Table 7 NEPAL THIRD HIGHWAY PROJECT Summary Accounts by Project Component (NRs million) Institution Physical Building and Contingencies East-West Road Road Highway Rehabilitation Maintenance Total Z Amount Investment Costs a) civil works 914.4 228.0 - 1,142.4 11.0 125.6 b) equipment - - 47.9 47.9 0.0 0.0 c) technical assistance - - 28.6 28.6 0.0 0.0 Total Baseline Costs 914.4 228.0 76.5 1,218.9 10.3 125.6 Physical Contingencies 91.4 34.2 125.6 0.0 0.0 Price Contingencies 362.1 99.7 26.3 488.2 9.4 45.9 Total Project Costs 1,368.0 361.9 102.8 1,832.7 9.4 171.6 Taxes 164.2 43.4 - 207.6 9.9 20.6 Foreign Exchange 1,004.8 266.9 101.5 1,373.2 9.2 126.2 May 22, 1984  NEPAL THIRD HIGHWAY PROJECT Estimated Costa and Benefits for Major Agricultural Schemes in the Project Area (NRs million) - In 1981 Prices MAHAIKALI HOHANA RIVER KHUTIA RIVER JANUAR NALA BABAI KUMBHER ---- TOTAL- ---------Irrigation Scheme--- --- Irrigation Irrigation Irrigation Irrigation Stage I Stage II Stage III Scheme Scheme Scheme Scheme Cotton Scheme Net Costs Benefits Costs Benefits Costs Benefits Costs Benefits Costs Benefits Costs Benefits Costs Benefits Costs Benefits Costs Benefits Benefits 1983 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.40 3.50 15.40 3.50 -11.90 1984 10.00 0.00 0.00 0.00 0.00 0.00 7.00 0.00 10.00 0.00 0.00 0.00 0.00 0.00 6.40 6.80 33.40 6.80 -26.60 1985 31.50 0.00 0.00 0.00 0.00 0.00 11.00 1.10 24.00 2.00 0.00 0.00 21.00 0.00 4.60 8.50 92.10 11.60 -80.50 1986 23.50 1.20 0.00 0.00 0.00 0.00 13.10 3.90 26.10 8.10 0.00 0.00 103.20 0.00 5.60 12.10 171.50 23.30 -148.20 1987 22.30 7.40 43.70 0.00 0.00 0.00 15.20 7.50 19.20 10.30 0.00 0.00 141.20 1.52 7.40 17.00 248.00 43.72 -205.28 1988 20.80 18.80 31.20 9.70 0.00 0.00 7.20 11.30 10.30 15.10 0.00 0.00 98.40 6.08 9.20 21.90 177.10 80.68 -96.42 1989 2.30 24.10 31.70 21.90 0.00 0.00 7.20 14.80 10.30 20.10 0.00 0.00 59.20 14.58 13.70 32.20 124.40 127.46 3.06 1990 9.30 30.10 17.40 36.90 0.00 0.00 7.20 18.40 10.30 24.30 43.90 0.00 56.00 26.08 16.00 38.30 160.10 174.08 13.98 1991 11.10 34.80 20.80 42.20 0.00 0.00 7.20 21.50 10.30 29.00 66.70 0.00 94.40 40.00 14.00 38.30 224.50 205.60 -18.90 1992 12.50 37.40 24.30 47.70 0.00 0.00 7.20 21.50 10.30 29.00 66.70 0.00 144.80 57.12 14.00 38.30 279.80 231.02 -48.78 1993 13.40 38.70 27.90 53.40 50.20 0.00 7.20 21.50 10.30 29.00 26.20 3.70 145.60 79.12 14.00 38.30 294.80 263.72 -31.08 1994 15.60 39.00 31.50 58.90 63.90 24.90 7.20 21.50 10.30 29.00 30.40 10.00 114.40 106.08 14.00 38.30 287.30 327 88 40.38 1995 13.90 39.00 33.90 62.70 57.80 36.00 7.20 21.50 10.30 29.00 35.80 18.90 80.00 135.36 14.00 38.30 252.80 380.76 127.96 1996 13.90 39.00 35.10 64.40 55.20 50.50 7.20 21.50 10.30 29.00 42.70 30.40 80.00 163.36 14.00 38.30 258.40 436.46 178.06 1997 13.90 39.00 35.90 65.00 29.80 66.10 7.20 21.50 10.30 29.00 28.30 46.80 80.00 189.76 14.00 38.30 219.40 495.46 276.06 4, 1998 13.90 39.00 36.30 65.70 34.70 74.80 7.20 21.50 10.30 29.00 35.30 58.00 80.00 208.58 14.00 38.30 231.70 534.86 303.16 1999 13.90 39.00 36.20 66.30 39.60 83.90 7.20 21.50 10.30 29.00 42.40 71.60 80.00 221.36 14.00 38.30 243.60 570.96 327.36 2000 13.90 39.00 36.50 67.00 44.30 92.30 7.20 21.50 10.30 29.00 48.00 82.30 80.00 228.24 14.00 38.30 254.20 597.64 343.44 2001 13.90 39.00 37.00 67.70 48.00 88.80 7.20 21.50 10.30 29.00 52.10 90.20 80.00 230.56 14.00 38.30 262.50 615.06 352.56 2002 13.90 39.00 37.50 68.30 50.90 103.10 7.20 21.50 10.30 29.00 54.70 95.20 80.00 230.56 14.00 38.30 268.50 624.96 356.46 2003 13.90 39.00 38.20 69.10 51.90 104.60 7.20 21.50 10.30 29.00 54.70 95.20 80.00 230.56 14.00 38.30 270.20 627.26 357.06 2004 13.90 39.00 38.10 69.70 52.50 105.60 7.20 21.50 10.30 29.00 54.70 95.20 80.00 230.56 14.00 38.30 270.70 628.86 358.16 2005 13.90 39.00 38.40 70.40 52.30 106.70 7.20 21.50 10.30 29.00 54.70 95.20 80.00 230.56 14.00 38.30 270.80 630.66 359.86 2006 13.90 39.00 38.70 71.20 52.70 107.80 7.20 21.50 10.30 29.00 54.70 95.20 80.00 230.56 14.00 38.30 271.50 632.56 361.06 2007 13.90 39.00 39.60 71.80 53.10 108.90 7.20 21.50 10.30 29.00 54.70 95.20 80.00 230.56 14.00 38.30 272.80 634.26 361.46 2008 13.90 39.00 39.90 72.80 54.00 109.90 7.20 21.50 10.30 29.00 54.70 95.20 80.00 230.56 14.00 38.30 274.00 636.06 362.06 2009 13.90 39.00 39.90 73.30 54.80 111.00 7.20 21.50 10.30 29.00 54.70 95.20 80.00 230.56 14.00 38.30 274.80 637.86 363.06 2010 13.90 39.00 40.40 74.00 54.80 112.20 7.20 21.50 10.30 29.00 54.70 95.20 80.00 230.56 14.00 38.30 275.10 639.76 364.66 2011 13.90 39.00 40.70 74.80 55.00 113.30 7.20 21.50 10.30 29.00 54.70 95.20 80.00 230.56 14.00 38.30 275.80 641.66 365.86 2012 13.90 39.00 41.00 75.60 56.10 W14.40 7.20 21.50 10.30 29.00 54.70 95.20 80.00 230.56 14.00 38.30 277.20 643.56 366.36 2013 13.90 39.00 41.40 76.10 56.70 115.50 7.20 21.50 10.30 29.00 54.70 95.20 80.00 230.56 14.00 38.30 278.20 645.16 366.96 SOURCE: Project Reports and Study Estimates.  NEPAL THIRD HIGHWAY PROJECT Summary of Costs and Benefits Kohalpur-Mahakli Highway (East-West Highway) (NRs Million) Livestock Power Paper Leather Avoidable Subsis- Road Con Road Agricultural Development Development Mill Processing Solvent Cost of Savings Tourism tence -struction Maintenance Total Total Net Benefits Project Project Project Industry Industry Airlifting to RNAC Earnings Farminug Costs Costs Benefits Costs Benefits 1983 -11.90 0.00 0.00 0.00 0.00 2.80 0.00 0.00 0.00 0.00 0.00 0.00 -9.10 0.00 -9.10 1984 -26.60 0.00 0.00 0.00 0.00 2.80 0.00 0.00 0.00 0.00 83.00 0.00 -23.80 83.00 -106.80 1985 -80.50 1.40 0.00 -5.70 0.00 2.80 0.00 0.00 0.00 0.00 288.60 0.00 -82.00 289.60 -370.60 1986 -148.20 1.40 0.00 -22.90 -6.10 8.70 0.00 0.00 0.00 0.00 345.60 0.00 -167.10 345.60 -512.70 1987 -205.28 1.40 0.00 -28.60 -6.80 8.70 0.00 0.00 0.00 0.00 218.40 0.00 -230.58 218.40 -448.98 1988 -96.42 6.00 -55.70 46.30 7.00 8.70 5.60 4.00 4.50 0.00 0.00 1.66 -70.02 1.66 -71.68 1989 3.06 6.00 -55.70 61.80 18.90 8.70 5.70 4.20 5.40 0.00 0.00 1.72 58.06 1.72 57.34 1990 13.98 6.00 -55.70 77.20 24.70 8.70 6.80 4.40 6.40 3.60 0.00 1.80 95.08 1.80 93.28 1991 -18.90 8.30 28.40 77.20 28.70 8.70 5.90 4.60 7.30 4.30 0.00 1.89 154.50 1.89 152.61 1992 -48.78 10.60 Z8.40 77.20 Z8.70 8.70 6.00 4.80 8.30 4.80 0.00 1.94 128.72 1.94 126.78 1993 -31.08 12.90 28.40 77.20 28.70 8.70 6.10 5.00 9.20 5.20 0.00 1.95 150.32 1.95 148.37 1994 40.38 15.20 28.40 77.20 28.70 8.70 6.20 5.20 10.10 5.70 0.00 1.96 225.78 1.96 223.82 1995 127.96 17.50 28.40 77.20 28.70 8.70 6.30 5.40 11.10 6.10 0.00 5.17 317.36 5.17 312.19 1996 178.06 19.60 28.40 77.20 28.70 8.70 6.40 5.60 12.00 6.50 0.00 5.45 371.16 5.45 365.71 4- 1997 276.06 21.70 28.40 77.20 28.70 8.70 6.50 5.80 13.00 7.00 0.00 5.71 473.06 5.71 467.35 1998 303.16 23.80 28.40 77.20 28.70 8.70 6.60 6.00 14.30 7.40 0.00 6.03 504.26 6.03 498.23 1999 327.36 25.90 28.40 77.20 28.70 8.70 6.70 6.20 15.70 9.40 0.00 6.38 534.26 6.39 527.87 2000 343.44 28.00 28.40 77.20 28.70 8.70 6.70 6.40 17.30 8.30 0.00 2.01 553.14 2.01 551.13 2001 352.56 30.10 28.40 77.20 28.70 8.70 6.80 6.60 19.00 8.70 0.00 2.07 566.76 2.07 564.69 2002 356.46 30.10 28.40 77.20 Z8.70 8.70 6.90 6.80 20.90 9.20 0.00 2.12 573.36 Z.12 571.24 2003 357.06 30.10 28.40 77.20 28.70 8.70 7.00 7.00 20.90 9.70 0.00 2.17 574.76 2.17 572.59 2004 358.16 30.10 28.40 77.20 28.70 8.70 7.10 7.20 20.90 10.10 0.00 2.22 576.56 2.22 574.34 2005 359.86 30.10 28.40 77.20 28.70 8.70 7.20 7.40 20.90 10.50 0.00 2.27 578.96 2.27 576.69 2006 361.06 30.10 28.40 77.20 28.70 8.70 7.30 7.60 20.90 11.00 0.00 2.32 580.96 2.32 578.64 2007 361.46 30.10 2S.40 77.20 28.70 8.70 7.40 7.80 20.90 11.40 0.00 5.70 582.06 5.70 576.36 2008 362.06 30.10 28.40 77.20 28.70 8.70 7.50 8.00 20.90 11.80 0.00 5.45 583.36 5.45 577.81 2009 363.06 30.10 28.40 77.20 28.70 8.70 7.60 8.20 20.90 12.30 0.00 5.71 585.16 5.71 579.45 2010 364.66 30.10 28.40 77.20 28.70 8.70 7.70 8.40 20.90 12.70 0.00 6.03 587.46 6.03 581.43 2011 365.86 30.10 28.40 77.20 28.70 8.70 7.80 8.60 20.90 13.20 0.00 6.38 589.46 6.39 583.07 2012 366.36 30.10 28.40 77.20 28.70 8.70 7.90 8.80 20.90 13.60 0.00 2.01 590.66 2.01 588.65 2013 366.96 30.10 28.40 77.20 28.70 8.70 8.00 9.00 20.90 14.00 -280.70 2.07 591.96 -278.63 870.58 NOTE: ERR - 14% H9 a  -45- Table 10 NEPAL THIRD HIGHWAY PROJECT Summary of Results of the Economic Analyses of Bridge Replacement Proposals Assumed Internal Net Present Remaining Economic Rate of Value Break Life Cost (i) Return (NR '000) Benefit-Cost Ratio Even(ii) Bridge (Years) (NR '000) (%) 10% 8% 10% 12% Year Khatripauwa 5 1,846 21.0 743 1.60 1.48 1.38 1993 Naubise 5 1,619 22.7 767 1.69 1.57 1.46 1994 Sambhari 3 12,373 15.9 1,352 1.18 1.13 1.08 1S987 Chure 5 4,768 13.6 592 1.24 1.15 1.07 1990 Amlekhgunj No. 4 5 3,991 14.9 669 1.30 1.20 1.11 19I90 Jitpur 5 2,619 16.3 578 1.37 1.27 1.17 1991 Combined Baghjhora Amlekhgunj No. 3 (ALT.B) - 5,424 14.7 1,512 1.53 1.34 1.18 -- Notes: (i) Includes design, construction and supervision. (ii) Represents the latest year in which a structure could become unseviceable and still yields a positive net return on the investment proposed.  -46- Table 11 NEPAL THIRD HIGHWAY PROJECT Summary of Sensitivity Analyses Costs 15% Greater Costs 15% Benefits 25% and Benefits 25% ----- Base----- ---Greater ---- -----Lower- Lower NPV @ NPV @ NPV @ NPV @ Bridge IRR (%) 10% IRR (%) 10% IRR (%) 10% IRR (%) 10% Khatripauwa 21.0 734 17.0 514 18.5 557 14.6 328 Naubise 22.7 767 18.6 564 19.9 581 15.9 337 Sambhari 15.9 1352 9.2 -191 15.4 1214 8.7 -328 Chure 13.6 592 10.0 -4 12.4 377 8.7 -219 Amlekhgunj No. 4 14.9 669 11.1 170 13.4 454 9.7 -45 Jitpur 16.3 578 12.6 251 14.6 409 10.9 82 Combined Amlekhgunj No. 3 and Baghjhora (ALT.B) 14.7 1512 12.4 845 11.1 334 9.0 -333 Notes: (i) The cost of the permanent replacement after a structure becomes unserviceable (which is treated as a benefit in the analysis) has not been reduced by 25% as it is directly related to the capital cost of the project. (ii) Net Present Values (NPV) expressed in NR '000.  NEPAL THIRD HIGHWAY -ROJECT Summary of_Economic & Sensitivity Analyses Improvement on Hetauda-Birganj Road Road Section Internal Net Present Value (NR Millions) Benefit - Cost Ratio Road S c i nRate of _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Return (X) 8% 10% @ 12% 0 8% e 10% @ 12% Hetauda - Birganj 15.4 65 40 20 1.73 1.46 1.25 Capital Cost Benefits 25% Capital costs 25% Road Section Base 25% Greater BeGreater and Benefits 25% Greater Lower ~~~~25% Lower IRR (%) NPV 0 10% IRR (%) NPV e 10% IRR (%) NPV @ 10% IRR (X) NPV @ 10% Hetauda - Birganj 15.4 65 12.1 18 12.1 15 9.2 - 7 i 1-3 0 I-a  TABLE 13 -48- NEPAL THIRD HIGHWAY PROJECT Summary of Reported Road Accidents Naubise-NIugling Road vear Reported Accidents Total No. of Vehicles Seriously *ear Accidents With Deaths Deaths Damaged or Destroyed 1980 9 6 16 10 1981 13 9 12 16 1982 14 11 16 15 Source: Zonal Police Office (Bagmati) - Kathmandu.  _ 49- TABLE 14 NEPAL THIRD HIGHWAY PROJECT Summary of Economic-Analyses Naubise-Mugling Road Improvement Internal Net Present Value Benefit - Cost Ratio Proposal Rate of (NR Millions) -- Return (%) @ 8% @ 10% @ 12 - 8% @ 10% @ 12%' Alternative A * Without Diverted Traffic Benefits 16.8 134 84 47 2.05 1.70 1.41 * With Diverted Traffic Benefits 16.9 136 86 49 2.06 1.71 1.42 Alternative B * Without Diverted Traffic Benefits 17.8 184 119 71 2.24 1.84 1.53 * With Diverted Traffic Benefits 18.1 191 125 75 2.29 1.88 1.56  NEPAL THIIRD HIGHWAY PROJECT Sutmnary of Sensitivity Analyses _aubise-Mugling Road Base Traffic Growth 5% Capital Costs 25% Throughout 25% Greater 25% Lower Benefits 25d Lower IRR (%) NPV @ 10% IRR (%) NPV @ 10% IRR (%) NPV @ 10% IRR (%) NPV @ 10% IRR (%) NPV @ 10% Alternative B No Diverted Traffic Benefits 17.8 184 16.0 84 14.8 84 14.7 67 12.0 31 Note:. Net present value expresed in NR millions. For entire road length.  NEPAL PROPOSED THIRD HIGHWAY PROJECT Breakdvwn of Road Maintenance Equipment l1oldings and Requirements Serial 33 Dist. 11 Zonal 6 Mech. 11 Mech. 5 Regional. Total Present No. Unit Cost Total No. 1 Description Offices Offices Divisions Sections Offices Needs Holdings Needed US$ Cost 1 Wheel Dozer (175 hp) 11 .i 5 6 65,000 390,000 2 Motor Grader (120 hp) 11 11 8 3 45,000 135,000 3 Mobile Crane (10-ton) 6 6 2 4 70,000 280,000 4 Lowloader 6 6 2 4 45,000 180,000 5 Flat Bed Truck (16/20-ton) 6 6 2 4 30,000 120,000 6 Flat Bed Truck (7-ton) 11 11 4 7 17,000 119,000 7 Tipper Trucks (5 cyd) 99 11 110 102 8 22,000 176,000 8 Water Tanker (6000 1) 22 22 15 7 25,000 175,000 9 Flat Rollers (8-10 ton) 33 33 27 6 26,000 156,000 10 PT Rollers (8-16 ton) 11 11 7 4 30,000 120,000 11 Vibrating Rollers S/P (4-ton) 5 5 - 5 30,000 150,000 12 Hand Compactors 33 33 4 29 1,500 43,500 13 Portable Drills 33 33 31 2 1,500 3,000 14 Small Dumpers (1 cyd) 33 33 10 23 5,000 115,000 15 Pick-up with Crew Cab 33 1.1 6 11 61 42 19 9,000 171,000 16 Inspection Vehicle 4wd 15 15 3 12 10,000 120,000 17 Motorcycle (125 cc) 132 6 6 144 106 38 1,000 38,000 d 18 Mobile Workshop 6 6 - 6 60,000 360,000 1 19 Service Vehicle 6 6 - 6 40,000 240,000 20 Vibrating Roller (ped) 22 22 11 11 6,500 71,500 21 Bitumen Distributor (5000 1) 6 6 4 2 26,000 52,000 22 Bitumen Heater 11 11 6 5 5,500 27,500 23 SSB Transceivers 11 5 16 - 16 3,500 56,000 24 Generators 5KUA 22 22 14 8 2,000 16,000 25 Concrete Mixers 14110 11 11 - 11 8,500 93,500 26 Poker Vibrators 22 22 - 22 500 11,000 27 Water Pumps 4" 11 11 - 11 750 8,500 1 TOTAL 3,427,500 Materials Laboratory Miscellaneous Workshop Tools and equipment and microcomputer 52,500 TOTAL 3,500,000 I-  -52- ANNEX 2 NEPAL THIRD HIGHWAY PROJECT Synopsis of Proposed Staff Training The proposed training components have the objectives of upgrading -DOR staff concerned with: (i) planning, programming and evaluating projects; (ii) design and construction; and (iii) workshop practices and equipment cperation. Estimates of the numbers of staff to be trained and their specialities follow: a) Highway Prolect Management for Senior Staff in construction planning and management, probablv for about four months. Three candidates, 12 man-months b) Quality Control Techniques for graduate staff in setting up and operating materials laboratories, testing procedures and interpretation and application of results. Courses of six months for 15 candidates, 90 man-months c) Bridge and Foundation Design for assistant and executive engineers, assuming a basic knowledge of Theory of Structures Soil Mechanics. Trainees should learn modern construction and design techniques, probably through attachment to a large design office, plus short specialist courses over a six-month period. Six candidates, 36 man-months d) Traffic Engineering for executive or assistant engineers, which should cater for methods and practices appropriate to Nepal. A one-vear M.Sc. course might be suitable such as those offered by Leeds or Birmingham Universities in England. Five candidates for 12 months, 60 man-months e) Transport Planning to give a working knowledge of transport planning, transport costs and transport economics at graduate level. Three trainees for one year each, 36 man-months f) Mechanical Inventory Control and Spares MIanagement for staff at technician level in planning, management and operation of the procurement of equipment and spare parts, and inventory control. A period of two months' attachment to an operational organization should suffice. Five trainees for two months 10 man-months g) Workshop Management and TechnologS for mechanical engineers at graduate level in the operation and management of servicing and maintaining a plant and vehicle fleet. In-service training probably for three months. Five trainees for three months, 15 man-months h) Construction Equipmnent Management for graduate mechanical/civil engineers in the organization and utilization of mechanical equipment on work sites and its proper maintenance. Two trainees for three months each, 6 man-months  -53- ANNEX 3 NEPAL THIRD HIGHWAY PROJECT MRM Kohalpur Mahakali Construction Road Published on 21 Nov. 1983 at Nepal Rajpatra (Gazatte) Name of the Board:- Mahandra Raj Marg (Kohalpur-Mahakali) Construction Development Board 1983. BOARD MEMBERS (A) Hon. Minister, Works and Transport Chairman (B) Hon. Asst. Minister, Works and Transport Deputy Chairman (C) Meembers of Rastiya Panchyat & District Panchvat Chairmen of four concerned districts Member (D) Secretary, Ministry of Works & Transport Do (E) Chief Engineer, D.O.R. Do (F) Representative (equivalent to Joint Secretary) Ministry of Finance Do (G) Representative (equivalent to Joint Secretary) Ministry of Law & Justice Do (H) Representative (equivalent to Joint Secretary) National Planning Commission Do (I) Zonal Engineers of two Regions Do (J) Project Manager Member cum Secretary  NEPAL APPRAISAL OF A THIRD HIGHWAY PROJECT Implementation Schedule CAIENDARWAR 1 1984 S 1985 _ 1987 18 _ _ 19a3t 1985 1986 1987 1968 19S9 1990 IDA FISC YEAR 9 QUARlER -m r _ 4 _, _ _ _ . -._____ 1 2j 3 4 2 3 4123412 [34_2 _ 4 __L12 Evaluate Prequal. & Invite Ide-edis Bidding A Eota,Wst Highway Construction Fvaluate & Award Contracts Mobilize Construction ___I Rectualltv Controctors Chisaioonl Bm-Jg Consucinr Btdn Evolucste & I Award' Mobilize Construction Design Bid Docurnents I B. Road Rehclitaflon Evaluate & Award Constnuction Prepare Specs & Bid Documents C. Equ prent Procurement Evaluate Bids & Award Procurement Arrange Programs D. Technical Assistance and Training implement Word Bank - 25169  -55- ANNEX 5 Page 1 of 2 NEPAL THIRD HIGHWAY PROJECT Land Acquisition Act 2034 (Extracts) 1. His Majesty's Government can acquire any land for its use after paying compensation. 2. The Project Manager must take preliminary action after decision is taken by the Government. 3. Preliminary Action Notice for the acquisition to be published at public places, Panchyat offices, on compound walls and houses (those to be acquired). 4. Three days after such notice, the officer can enter into the premises for drawings, maps, fix boundaries, take sample, etc. required for acquisition. 5. The officer has to fix the compensation for damage done to the existing houses, walls, trees, crops, etc. in addition to the land. 6. If owner is not satisfied, he can make a claim to the local authority (CDO) within 15 days. 7. Within 15_days the Project Manager has to submit the report of his preliminary action to the C.D.O. including the compensation of damage to standing properties. 8. C.D.O. on receipt of the preliminary action report will take action as under: a) Notice to be issued to local offices, land reform office, CDO offices, Panchyats etc. about the acquisition, its purpose, land or houses, location, orientation, etc. b) The owner must produce their legitimate documents about ownership of the property within 15 days. c) The period within which the owner is required to take his belongings like crops materials, etc. 9. The owner is entitled to lodge protest against the decision as above within 7 days. 10. The Anchaladish is entrusted as judge and must decide the case with 15 days.  -56- ANNEX 5 Page 2 of 2 Hand Over of Land 1. On completion of the above procedure, the local authority will acquire land and hand over the same to the concerned office and report HMG accordingly. 2. If owner of the property has to vacate his house, 50% of the compensation fixed has to be handed over to him before he is asked to leave. Compensation Committee 1. Chief District Officer 2. Land, Reform Officer or Revenue Officer 3. Project Manager 4. District Panchyat Representative Normal period required for the full process: 3 months.  NEPAL APPRAISAL OF A THIRD HIGHWAY PROJECT Schedule of Estimated Disbursement |Calendar I Fiscal I East-West Highway TA & Year and Year and incl. Feeder Roads Chisapani Bridge Road Rehabilitation Equipment Tr aining Cumulative Disbursements jQater % SF% IDA HMG Total % ODA IDA HMG Total % IDA % IDA SF IDA ODA HMG Total 11984 1 1984 3 2 4 3 19115 1 11985 1 3 2 4 15 4.60 3.98 2.06 10.641 I I J 4.60 3.98 2.06 10.64 3 11986 1 20 6.14 5.31 2.74 14.19 4 6 0.151 6.14 5.46 2.74 14.34 4 1 2 1 25 7.68 6.63 3.43 17.741 1 10 1.97 0.23 0.07 2.271 j 12 0.30 7.68 7.16 1.97 3.50 20.31 11986 1 1 3 1 30 9.22 7.96 4.11 21.291 1 15 2.96 0.35 0.10 3.411 15 0.621 18 0.45 9.22 9.38 2.96 4.21 25.77 I 2 4 35 10.75 9.28 4.81 24.841 1 18 3.55 0.42 0.12 4.091 25 1.031 25 0.631 10.75 11.36 3.55 4.93 30.59 3 1987 1 40 12.29 10.61 5.48 28.381 15 1.81 0.54 2.351 24 4.74 0.55 0.17 5.461 35 1.441 31 0.781 12.29 15.19 4.74 6.19 38.41 4 2 45 13.82 11.94 6.17 31.931 20 2.41 0.72 3.131 30 5.92 0.69 0.21 6.821 45 1.851 37 0.931 13.82 17.82 5.92 7.10 44.66 11987 1 1 3 1 50 15.36 13:26 6.86 35.481 25 3.01 0.90 3.911 37 7.30 0.85 0.26 8.411 55 2.271 43 1.081 15.36 20.47 7.30 8.02 51.15 2 4 60 18.43 15.92 8.23 42.581 30 3.61 1.08 4.691 45 8.88 1,04 0.31 10.231 65 2.681 50 1.251 18.43 24.50 8.88 9.62 61.43 3 1988 1 65 19.97 17.24 8.91 46.12 35 4.21 1.26 5.47 55 10.86 1.27 0.38 12.51 75 3.091 56 1.401 19.97 27.21 10.86 10.55 68.59 4 2 1 75 23.04 19.90 10.28 53.22 40 4.82 1.44 6.26 66 13.03 1.52 0.46 15.01 85 3.50 62 1.55 23.04 31.29 13.03 12.18 79.54 1988 1 3 80 24.58 21.22 10.97 56.771 50 6.02 1.80 7.821 78 15.40 1.80 0.54 17.74 95 3.91 68 1.701 24.58 34.65 15.40 13.31 87.94 2 4 85 26.11 22.55 11.66 60.321 60 7.22 2.16 9.38 90 17.77 2.08 0.62 20.471100 4.12 75 1.881 26.11 37.85 17.77 14.44 96.17 3 1989 1 90 27.65 23.88 12.33 63.861 70 8.43 2.52 10.95 92 18.16 2.13 0.63. 20.921 4.12 81 2.031 27.65 40.59 18.16 15.48 101.88 4 2 95 29.48 25.20 13.03 67.411 80 9.63 2.88 12.51 95 18.75 2.19 0.66 21.601 4.121 87 2.181 29.18 43.32 18.75 16.53 107/82 11989 1 3 97 29.80 25.73 13.30 68.83 90 10.84 3.24 14.08 98 19.34 2.26 0.68 22.28 4.12 93 2.33 29.80 45.28 19.34 17.19 111.64 2 4 100 30.72 26.53 13.71 70.961100 12.04 3.60 15.64 100 19.74 2.31 0.69 22.741 4.121100 2.501 30.72 47.50 19.74 18.00 115.96  -58- ANNEX 7 Nooerve Isues. - lobsliur - Mahakali Section of RX.1. An per letter' 1. 2704/040 dt, 2040/12/7 froa Xithaandu Wild Life Read 0fflee an &S POT the resolutious taken at a settin belt oa 24th February 1983 in the office of the Roaurable Minister of State, Ministry of Works and Transport, protestive eeaurs to be taken ia te Karnali Wildlife Conservation area d#uazinc read aoentretion are as uasers- (1) light of way requoaid for construction of the road to be kept to the minimum. (2) Minima number of trees to be felled. (3) Uathr fer embaskeent fillings to be transported frm outaite the Wildlife area. (4) Conataetion works to be Iisited between dawn te tuwk. (5) Se "aps fer labourers and offices to be pemitted within the beerwe area. (6) Ne usnerpassee is required on the igbvay sine. free movesent for anisals will be allowed on Highways. However, right of war for -anial and birs will be maintained iaside Reserve Area. (7) Te prevent paohting and other damaging activities, training am scholarships uqu.valet1e to Ke.ters degree in Wild Life ub e4ot is proposed to further strengthen the exsting trained manpower. (8) Protective measures like Ban on night driving, upoed liit ate. to be *eforee& (9) lesettlemnt of Aaaini village to some other place by paing dua eempema-tion and to casmro no future pontamous eclonisation withln boundaries of the Reserve. (10) go feaning Ls required excspt st sast of Rabal where the "rd alignment coincides with the boundary of the Rseaerv. (11) Apart frm a connesting "ad between Asraini, Thakurdwars and rothiyahat (near Indian Border) radio comunimatiot aonogt all ontry and