Nepal - The Karnali Preparation (Phase I) Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3737-NEP REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 10.2 MILLION TO THE KINGDOM OF NEPAL FOR THE KARNALI PREPARATION PROJECT - PHASE I March 1, 1984 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 EQUIVALENT Currency Unit Nepalese Rupee (NRe) US$1 = NRs 15.65 NRe 1 US$0.06 FISCAL YEAR July 16 - July 15 PRINCIPAL ABBREVIATIONS ADB - Asian Development Bank Cc - Coordinating Committee Chisapani - Karnali (Chisapani) Multipurpose Project CIDA - Canadian International Development Agency ED - Electricity Department GOI - Government of India HMG - His Majesty's Government of Nepal CK - Committee on Karnali NEA - Nepal Electricity Authority NEC - Nepal Electricity Corporation NK - Nippon Koei Co. Ltd. SMHA - Snowy Mountains Hydroelectric Authority WEC - Water and Energy Commission UNITS AND MEASURES 1 kilowatt (kW) - 1000 Watts 1 Megawatt (MW) - 1000 Kilowatts 1 Gigawatt (GW) - 1000 Megawatts 1 kilowatt-hour (kWh) - 1000 Watt-hour 1 Gigawatt-hour (GWh) - 1,000,000 kilowatt-hour  FOR OFFICIAL USE ONLY NEPAL KARNALI PREPARATION PROJECT - PHASE I CREDIT AND PROJECT SUMMARY Borrower: Kingdom of Nepal Beneficiary: Ministry of Water Resources Amount: SDR 10.2 million (US$ii.U million equivalent) Terms: Standard Proiect Objectives The main objective of the proposed project would be to and Description: assess the economic justification and technical viability of the Karnali (Chisapani) Multipurpose Project on the Karnali River in Nepal. The studies under Phase I would be carried out over about two and a half years and would include the following components: (a) preparation of the feasibility study for the Karnali (Chisapani) Multipurpose Project. The project has a power potential of about 3600 MW; (b) prefeasibility of a smaller hydroelectric project upstream of Chisapani; and (c) provision of consulting services to HMG in the form of general advice on all aspects related to the studies being undertaken by the main consultants. Benefits and Risks: The project's main risk is that the future physical works might not be economically justifiable or techni- cally viable. However, previous studies indicate that the project is very attractive and technically possible and that further studies are justified. To minimize this risk the studies are being phased, and only phase I is being proposed now. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Cost: Item US$ Millions Foreign Local Total 1. Consulting Services (a) For the Studies 5.6 1.2 6.8 (b) HMG Advisors 0.6 0.1 0.7 2. Equipment and Tools 0.5 0.3 0.8 3. Miscellaneous Construction 2.3 0.8 3.1 4. Operation Expenses Project Office 0.1 0.4 0.5 Base Costs 9.1 2.8 11.9 Contingencies Physical 0.9 0.2 1.1 Price 0.8 0.2 1.0 Net Total Cost 10.8 3.2 14.0 Taxes and Duties 0.6 0.6 Gross Total Cost 10.8 3.8 14.6 Financing Plan: US$ Millions Foreign Local Total IDA 10.8 0.2 11.0 RHMG 3.6 3.6 Es timated Disbursements: US$ Millions IDA FY 1985 1986 1987 1988 Annual 4.5 5.0 1.0 0.5 Cummulative 4.5 9.5 10.5 11.0 RaLte of Return: Not applicable St;aff Appraisal Report: None a: IBRD 17021  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE KINGDOM OF NEPAL FOR THE KARNALI PREPARATION PROJECT - PHASE I -- 1. I submit the following report and recommendation on a proposed development credit to the Kingdom of Nepal of SDR 10.2 million (US$11.0 million equivalent) on standard IDA terms to help finance a Karnali Preparation Project - Phase I. PART I - THE ECONOMY 2. The most recent economic report, Nepal: Recent Developments and Selected Issues in Trade Promotion (Report No. 4663-NEP), was distributed to the Executive Directors on October 14, 1983. The principal features and recent performance of the economy are described below. Country data are shown in Annex I. 3. Nepal is one of the least-developed countries in the world. Per capita income is estimated at US$150 (1981) and health and education standards are below the average fcr South Asia: life expectancy at birth is only about 45 years; infant mortality, about 148 per thousand; and adult literacy, only 20%. The population, estimated to be 15.0 million (1981), grew at a rate of about 2.6% per year during 1971 and 1981. About 95% of the population live in rural areas. 4. Population density with respect to arable land (356 per sq km) has reached very high levels, and cultivation has been extended onto marginal lands and forests. Forests have been further denuded to meet the growing demand for fuelwood, on which Nepal depends for over 90% of its energy consumption, mostly for household cooking and heating. On account of deforestation and excessive grazing on the hills and mountains, with high rainfall, there is accelerated soil erosion leading to silting of rivers, downstream flooding and loss of agricultural productivity all along. 5. Agriculture, largely rainfed, still accounts for nearly 60% of Nepal's GDP and 80% of merchandise exports, and provides the main source of livelihood to over 90% of the population. Crop production accounts for about 60% of agricultural output, livestock for 30%, and forestry for 10%. Paddy is the principal food crop (planted on about half of the total cropped area), followed by maize, wheat, millet and barley. Cash crops (oilseeds, jute, sugarcane and tobacco) are grown on about 10% of the cropped area. About 15% of total rural incomes rise from nonagricultural activities, of which cottage industries are one of the more important and engage over one million people on a part-time basis.  -2- 6. Apart from agricultural land, Nepal's only other important exploitable resources are hydropower and tourist attractions. The exploita- tiorn of the vast hydropower resources beyond that required to satisfy the courLtry's own power demand, however, will depend crucially on Nepal's ability to enter complex financial, exploitation and export agreements with neighbor- ing countries. The tourism sector, based on Nepal's mountain environment and its rich cultural heritage, has been dynamic, though it accounts for only abouLt 1% of GDP. Tourism now provides about 20% of the country's foreign exchange earnings. About 60% of earnings from tourism are retained in Nepal. 7. Following centuries of self-imposed isolation, efforts to develop the economy of Nepal began in the mid-1950s against extremely heavy odds. The counitry had virtually no physical infrastructure, an ancient administrative system, and limited educational and health services. The resource base is relatively narrow and its development hindered by the difficult topography and landlocked position. Against this background, Nepal's primary develop- ment objective for twenty years, between 1955 and 1975, was to build basic infrastructure and lay the groundwork for future economic growth. The country has made good progresis in pursuit of that objective. It now has a basic road network linking mainy economic centers. Kathmandu and a few other town's have basic utilities and public transport. Schools have been built for almost half of the primary school age children and there are a number of high schools and a national university. A rudimentary hospital system, including rural health posts, has been built. Some progress has also been made in establishing the institutional framework for agricultural and industrial development, including extension and research activities, financial institu- tions and industrial enterprises. Yet in all these areas, the country has a long way to go to achieve a level of development comparable to other develop- ing countries: thus, for example, the public and private institution in Nepal must continue to expand and upgrade essential physical facilities, acquire the necessary expertise in handling economic and financial affairs, build up adequate technical and managerial cadres, and establish merit-based systems of personnel managemenit. 8. The Fifth Plan (1975/76-1979/80) marked a shift in development objectives, with increased emphasis being placed on acceleration of economic growth, employment creation, and raising the living standards of the population. These objectives have been reiterated in the Sixth Plan (1980/81-1984/85). Moreover, the stated strategy of the Sixth Plan quite appropriately (a) accords higlh priority to developing agriculture, small- scale industries and Nepal's abundant water resources; (b) stresses soil conservation and population control; and (c) emphasizes full utilization of existing infrastructure and alleviation of absorptive capacity constraints, including human resource deveLopment. The development strategy also calls for increased involvement of the private sector in agriculture, manufacturing, trade, tourism, construction and transport operations. Investment expenditures, supported by growing foreign assistance, have increased rapidly over the last two Plans, from US$146 million (9% of GDP) in 1974/75 to about US$390 million (15% of GDP) in 1981/82, and there have been substantial shifts in the composition of spending away from transport to  -3- agriculture, power and social services. GDP growth, however, has barely kept up with that of population. 9. Part of the explanation for this stagnation lies in factors beyond Nepal's control such as, for example, the difficult topography and the poor resource base. But factors within Nepal's control have also contributed to the stagnation. Severe project implementation problems have been encountered by Government and donors alike in most sectors of the economy, thereby lower- ing the rate of growth of capital formation. In addition, the expected returns on those investments which took place often did not materialize largely because necessary complementary investments or current spending were lacking, and because of managerial deficiencies. A good example is the agriculture sector. In the past, insufficient attention was paid to bringing water down to the farm level and this was compounded by inadequate support services such as extension and research, by the lack of timely supplies of improved seed, fertilizer and other inputs such as credit, by the lack of farm-to-market roads, and by very low producer margins. Future development of irrigation and agriculture would therefore need to emphasize complementary investments, improvements in agricultural input supplies and adequate producer margins. 10. The shortage of funds for current spending needs to be addressed by further efforts at domestic resource mobilization. In recent years, Nepal's efforts at resource mobilization have focussed on tightening income tax assessment and collection; on discretionary measures largely in the area of indirect taxes; and on reducing subsidies to public enterprises. While there has, as a result, been a steady increase in revenues, the tax structure remain inelastic. Some scope exists for increasing Nepal's tax elasticity by shifting items on the indirect tax schedules from specific to ad valorem basis. There also seems to be scope for increasing yields from the land tax, urban property taxes and income taxes. 11. Over the past two years, several positive steps have been taken to strengthen public sector management. These steps have included increases in the traditionally very low civil service salaries, establishment of public service training facilities, simplification of budgetary procedures accom- panied by stricter enforcement of expenditure accounting, and granting of more autonomy to public enterprises in matters concerning personnel and pricing policies. The implementation of these administrative reforms would have to be pursued by a high-level monitoring of important administrative issues such as appointment of competent staff, job security and decision- making authority. Also, public enterprise reform needs to be pursued by measures aimed at reducing costs and increasing efficiency. In this regard, the Government has taken initial steps, subjecting public enterprises to increased competition from the private sector through liberalization of licensing in industry, transport and small-scale hydropower generation. At the same time, in September 1983, the Government announced its intention to involve the private sector in the ownership and control of public enterprises through the sale of some public enterprise shares to private investors.  -4- 12. Because of slow economic growth, Nepal's balance of payments has been characterized by widening trade deficits, partly offset by surpluses from invisibles. The current account deficit (averaging US$100 million annually durinig 1979/80-1981/82) has traditionally been more than matched by inflows of official grants and concessional loans (averaging US$128 million annually during 1979/80-1981/82), leading to surpluses inL the overall balance of payments in most years. Nevertheless, foreign exchange reserves have declined from being equivalent to about one year of imports in the early 1970s to s:Lx months in 1982, and four months in mid-1983. 13. To sustain and further develop its economy, Nepal must therefore mobiLize additional free foreign exchange through export promotion and effi- cient: import substitution. Improving agricultural production, rural incomes and food distribution within the country is a major way of doing so, if only to avoid the need to import and distribute large quantities of foodgrains in the iuture. Agricultural development also remains the key to a gradual expansion of Nepal's traditional merchandise exports. In addition, develop- ment of energy resources is a major means to strengthening the balance of payments by reducing the need to import fuel and opening up an export potential. Recently, Nepal has legislated a wide range of fiscal and administrative incentives for industrial investors and exporters, par- ticularly in the private sector. The implementation of these incentives, and the alleviation of the severe transport and transit constraints facing the country's trade sector, must constitute essential elements of a trade promotion strategy for Nepal. 14. Nepal is faced with highly challenging prospects and tasks in addressing its multiple long-term development problems. While it attempts to mobilize domestic resource to finance about 40-50% of development expenditures, external assistance, at concessional terms, will continue to be a vital factor in financing investment and effecting economic growth. In the last three years, aid commitments to Nepal have averaged about US$250 million per year, almost entirely in tlhe form of grants and concessional credits with grant elements in excess of 70%. Aid disbursements have grown from about $110 million in 1979/80 to an estimated US$175 million in 1982/83. Nearly 70% of total aid disbursements have come from members of the Nepal Aid Group, formed in 1976 and now comprising eight DAC countries and four multilateral agencies. 15. As of December 31, 1982, Nepal's official foreign debt outstanding was US$297 million, of which US$251 million was due to multilateral agencies. As virtually all loans have beten concessional, debt service payments, includ- ing payments to the IMF, have remained small in relation to exports of goods and services. In 1982/83, debt service payments were about US$15 million, equivalent to 7% of exports of goods and services. Over the medium term, these payments are projected to remain at less than 10% of Nepal's exports of goods and services.  -5- PART II - BANK GROUP OPERATIONS IN NEPAL 1/ 16. Bank Group operations in Nepal began in FY70 with an IDA credit of US$1.7 million equivalent for a telecommunications project. Since then, 32 additional credits have been approved, bringing total IDA assistance to Nepal to US$369.5 million equivalent, net of cancellations. In view of Nepal's many development needs, this assistance has been for projects in a wide variety of sectors. Six of these sectors account for about 86% of IDA credits by amount: irrigation/agriculture (US$170.0 million for twelve projects); water supply and sewerage (US$46.8 million for three projects), power (US$40.8 million for one project); telecommunications (US$21.7 million for three projects); highways (US$19.2 million for two projects); and rural development (US$19.0 million for two projects). The proposed credit would be the second in FY84, the first being Second Forestry Project for a credit of US$18.0 million equivalent which was approved by the Executive Directors on July 12, 1983. It will bring the total amount of IDA assistance to Nepal to US$380.5 million equivalent, net of cancellations. No Bank loans have been made to Nepal. IFC made its first investment in Nepal (US$3.1 million) in a hotel project in Kathmandu in FY75. In addition, IFC approved a loan of US$6.23 million equivalent to Nepal Orind Magnesite (Private) Limited (i.e. a private company) on March 16, 1982. The loan was to help finance a US$24.9 million project to mine and process magnesite ore. 17. Bank Group lending to Nepal has so far been at a modest level com- pared to the country's need for external assistance. The international community has shown considerable interest in Nepal's economic development and, to date, the shortage of funds has not been a major bottleneck. The main constraint on the utilization of increased aid has been Nepal's limited absorptive capacity, affecting the pace of project preparation and implementation. The Bank Group has provided assistance to the Government in project preparation through a Technical Assistance Credit (Credit No. 659-NEP) and by acting as Executing Agency for a number of technical assis- tance projects financed by UNDP. Furthermore, the present Resident Representative in Kathmandu has had a significant impact in improving project implementation performance. As a result, the rate of disbursements is improving; during FY82 and FY83, US$28.5 and US$37.4 million equivalent, respectively, was disbursed compared to an annual average disbursement of about US$17 million during the previous five years. Project completion reports have been prepared for five projects--First Telecommunications (Credit No. 166), First Highways (Credit No. 223), Tourism (Credit No. 291), Birganj Irrigation (Credit No. 373) and Settlement Project (Credit No. 505). All five projects experienced delays in implementation, and institutional improvements were less than anticipated; however, all five generated accept- able rates of return. 1/ As of September 30, 1983.  -6- 18. The Bank Group's current lending strategy places major emphasis in assisting the Government in its efforts to contain the high level of popula- tion growth, address major constraints in the country's development of human resources and promote agricultural development. Selected infrastructure mostly in transport and power will be undertaken to alleviate serious development constraints. In population, a project is being prepared with Government and other donor interest to cofinance it has already been expressed. For the development of human resources, in addition to the propcised project in primary education, other projects under preparation include an agricultural manpower project, engineering education, vocational education and a secondary education project. For agriculture, the basic strategy is to assist Nepal maintain overall foodgrain self-sufficiency, where possible promote exports of agricultural products and encourage afores- tation efforts. Projects under preparation would extend the assistance provided so far in building the irrigation infrastructure in the Terai mainly to increase paddy production, helping reduce the food deficits in the Hills both through rural development projects which emphasize increasing food production and through specific Hill food projects. PART III - THE ENERGY SECTOR 19. Nepal's energy resources consist mainly of hydroelectric potential estimated to be around 83,000 MtfW of which only 113 MW have been developed. Traditional fuels, primarily wood, represent around 95% of Nepal's total energy use. Commercial energy, which accounts for 5% of total use (coal, petroleum, and electricity), supplies industry, commerce, transport, and residential users in the capital city of Kathmandu and other major towns. Coal and petroleum products are imported as there is no domestic production or known reserves of fossil fuels in Nepal. The lower Subsector 20. About 5% of the total population in Nepal has access to electricity and the annual per capita generation is about 18 kWh compared to 36 kWh in Burma, 29 kWh in Bangladesh, and 170 kWh in India. In 1982 the total energy generated in Nepal was 229 GWh and another 55 GWh were imported from India. Of the 122,000 consumers registered in 1982, 89% were residential, most of whom are located in the major towns of the Kathmandu valley. These consumers used about 49% of the electricity whereas industry used 32% and commerce and others 19%. 21. The installed capacity operated by the utilities in Nepal amounts to 138 MW of which 82% (113 MW) are hydro and the remainder (25 MW) are  -7- diesel. There are some 12 MW operated privately. Current plans for expan- sion up to 1993 include the addition of 313 MW of hydro power. 1/ Nepal is administratively divided into five regions: Eastern, Central, Western, Mid-Western and Far Western. The Central Region system is interconnected at 66 kV and there is a 132 kV single circuit line connecting the central system with Pokhara (150 km to the west of Kathmandu) and one more under construc- tion that will connect the Central and Eastern Regions by 1985/86. The distribution system is overloaded and poorly maintained. Consequently elec- tricity losses are high (30-35% compared to a desirable 10-15%) and service interruptions are frequent. HMG has undertaken a program for loss reduction and upgrading of the distribution system under the auspices of the ADB and the World Bank. The plan was prepared with the assistance of external con- sultants and is being implemented successfully. 22. Despite the constrained supply of electricity, total sales grew at an annual rate of around 18% in FY71-78 and at 9% during the last five years. In an effort to improve the living conditions in the rural areas and to control the rapid deforestation of the country, the Government has promoted rural electrification of small villages; and it is expected that this program would add to the demand of electricity in the near future. Total demand is expected to grow through 1991 at an annual rate of about 14.7%. 23. In spite of this growth in demand, Nepal will not be in a position to use a substantial amount of its hydropower potential in the coming 40 to 50 years. Due to the limitations of the local market, Nepal has been building small projects (up to 60 MW) at high unit costs. On the other hand, the construction of medium- and large-size hydropower projects with lower produc- tion costs is not possible unless Nepal can export a substantial portion of the electricity generated to India, the natural customer for it. Electricity exports would not only reduce the cost of internal consumption through the economies of scale but also would generate foreign exchange to support development efforts in Nepal. Under these circumstances, Nepal recently started its planning actions to a more systematic analysis of hydropower development considering both its internal needs as well as export possibilities. 24. India's electricity is sulpplied through five regional systems, one of which is the northern system serving the area adjacent to Nepal. The Government of India is planning to interconnect the regional systems in the coming decade through a 400 kV transmission grid. The northern system is the biggest in terms of installed capacity, being about 10,266 MW as of March 1983 (of which 43% is hydro). There are plans to substantially increase this capacity from 1984 to 1995 by adding about 22,000 MW of which 63% would be hydro. This region has had shortages in recent years, both in energy as well 1/ Devighat, 14 MW, 1984; Kulekhani II, 30 MW, 1985; Marsyangdi, 69 MW, 1987; and Sapt Gandaki, 100 MW in 1991, and 100 MW in 1993.  -8- as in capacity terms, which are expected to continue at least until 1990. Regional demand is growing annually at about 13%. Although the region has attractive hydro sites under study and an abundant supply of coal, the large potential of the Karnali River in Nepal and the relative low cost of gener- ation make it a very attractive source of electricity for the Northern region, as well as for the country when interconnected. Chisapani, with 3,600 MW installed capacity could contribute a significant portion of the region's electricity requirements around the year 2000. Institutional Aspects 25. Electricity planning and development in Nepal are the responsibility of the Ministry of Water Resources. Electricity development programs are integrated into the five-year plans through the Planning Commission. To assist in the planning of water and energy sectors the Government created in 1976 the Water and Energy Commission (WEC) and in 1978 retained consultants financed by the Canadian International Development Agency (CIDA) to help WEC in the development of planning capabilities. Power sector planning is only in its early stages in Nepal and has been limited during the last one or two years to the preparation of demand forecasts and to the identification and ranking of potential hydropower projects. Preparation of a long-term power expansion program is planned as a next step but it may take long before it is available. 26. There are two authorities involved in the construction and operation of power projects in Nepal: (a) Electricity Department (ED) of the Ministry of Water Resources; and (b) Nepal Electricity Corporation (NEC). 27. The Electricity Department under a Chief Engineer, is responsible for the investigation, engineering, construction and commissioning of new power facilities which upon completion are turned over to NEC for operation. However, because of the limited implementation capability on the part of ED and NEC, the construction of K(ulekhani Hydroelectric Power Project (para. 31) was managed by a separate Development Board. Similarly, another Development Board has been established for the management of the Construction of the proposed Marsyangdi Hydroelectric Power Project (para. 32). In addition, small hydropower stations, varying between 25 KW and 500 KW are presently being constructed and operated by a Small Hydro Development Board. 28. NEC is a government-owned corporation responsible for generation, transmission, and distribution of electricity throughout the country. It is the largest entity in the lpower sector. NEC also takes care of routine minor distribution expansions, extends supply to new customers and is respon- sible for metering, billing anad collections. 29. Currently, the Govermnent assisted by consultants is carrying out an institutional study financed by ADB. Phase I of the study has been  -9- completed. Based on its conclusions, ADB and HMG signed, in November 1982, a memorandum of understanding to form a single entity called the Nepal Electricity Authority (NEA), incorporating ED and NEC. This decision, when implemented, would improve considerably the coordination required for the sector expansion. Human Resources and Training 30. Nepal's shortage of qualified personnel and skilled labor as well as the lack of experience in planning, design, and construction of major projects makes it necessary to provide for intensive training and external assistance in the planning and execution of medium- and large-sized projects. HMG has undertaken to send 20 to 30 engineers each year to India with this purpose in mind. The first group is about to return to Nepal, and it is expected that some of the engineers will be retained to work on the proposed project studies. Local staff would be directly retained by the consultants or seconded from government agencies. Past Bank Experience in the Sector 31. The first Bank operation in the power sector in Nepal was an IDA credit in January 1976, of US$26.0 million (Cr. 600-NEP) for the construction of the Kulekhani Hydroelectric Project (2x30 MW units). The cost of the project was estimated at the time of appraisal in 1974 at US$68.0 million. The additional financing came from OECF-Japan (US$10.0 million), Kuwait Fund (US$15.9 million), UNDP (US$3.0 million), OPEC Fund (US$3.3 million) and the balance from HMG. The project, which cost US$120.8 million equivalent, represents by far the largest civil works ever undertaken under a single project in Nepal to date, with the participation of an unprecedented number of donors (five). It also introduced for the first time two donors (OECF- Japan and Kuwait Fund) who have since remained important sources of develop- ment assistance to the country. Moreover, it offered Nepalese officials and engineers an opportunity for practical experience with major civil works related to a hydropower scheme. 32. The project was inaugurated in December 1982, 1-1/2 years behind schedule. This delay, however, is not considered excessive when compared to projects of the same nature and technical complexity. In addition, the remoteness and conditions of the site made the construction even more difficult. The project had cost overrun of about 75% due to much higher than anticipated price escalation of unit costs and to a lesser degree quantities as well as some changes in design. Moreover, there was a substantial appreciation of the yen in dollar terms when a major portion of expenditures for equipment and consulting services were committed in that currency. On May 10, 1979, the Association approved a supplementary credit of US$14.8 million and a Special Action Credit (from the European Community Fund) of US$3.0 million to assist in the financing of the cost overrun. Other donors and lending agencies involved, as well as HMG, met the balance. IDA appraised in November 1982, a second hydropower project, Marsyangdi (3x23 MW units), to assist in the supply of electricity through 1991. In addition, a Bank mission visited Nepal in November 1982 to carry out a comprehensive  -10- energy assessment. The report containing the findings and recommendations of the mission was discussed with HMG and subsequently issued in August 1983 (Report N-4474-NEP). Bank Lending Goals and Strategy 33. IDA's strategy for power development in Nepal comprises the following objectives: (a) to assist HMG in the supply of power required for industrial and agricultural development as well as for domestic uses; (b) to pursue, in coordination with HMG and other lenders, the necessary sectoral reorganization and improved efficiency in sector management and operations; and (c) to help upgrade local technical and managerial capabilities through technical assistance and on-the-job and formal training. PART IV - THE PROJECT Project Origin 34. In 1962, HMG obtained financial aid from UNDP for a survey of the Karrnali River potential. The studies, carried out by Nippon Koei Co. Ltd. (NK) of Japan between December 1962 and February 1966, identified ten sites with potentials ranging between 18 and 1800 MW. Out of these, two appeared especially promising for which the consultants completed more advanced prefeasibility studies. One was at the Chisapani gorge (with a high dam and a run-of-river alternative of 1800 MW and 75 MW, respectively) while the other was Lakarpata, a run-of-river site (360 MW) upstream from Chisapani. The consultants recommended consideration of the Chisapani high dam alterna- tive as the first option for future development due to its relatively low unit cost and its advantageous location in regard to the main load centers in northern India. The project :is located about 45 km north of the Indian border (see map). 35. The studies and recommendations of NK were reviewed by the Snowy Mountains Hydroelectric Authority (SMEA) of Australia in 1968 who were employed by HMG with funding iErom UNDP. They agreed with the general conclusions of NK but recommended an increase in the installed capacity of Chisapani to 3600 MW and a gravel fill dam instead of a concrete arch gravity dam proposed by NK. In 1976 IIMG hired two firms, Norconsult from Norway and Electrowatt from Switzerland, to review both recommendations and resolve the differences. Both firms concurred with the SMHA recommendation and proposed further studies for final designs of the Karnali (Chisapani) multipurpose project, the main features of which were construction of a gravel fill dam of about 35 million cubic meters,, two power houses of 6 x 300 MW units each totalling 3600 MW and the necessary substations and transmission lines. The  -11- construction period was to be 12 years with an estimated cost of about US$3.0 billion in 1983 prices. 36. In view of the results of the studies, HMG and the Government of India (GOI) established a Committee on Karnali (CK) to promote bilateral discussions on Chisapani. 1/ The Committee met in 1978, 1979, 1981, and February 1984. At the first meeting, the Committee agreed to review the consultant's reports and the economic and financial aspects of the proposed project. In addition, it agreed to form separate groups in each country to study the use of power from the project as well as flood and irrigation consequences downstream of Chisapani for both Nepal and India. At a meeting in January 1981 in Kathmandu, CK agreed in principle to pursue the studies for Chisapani under joint supervision, mutually agreed terms of reference, and jointly selected consultants. Subsequently, IDA was invited to propose draft terms of reference (TOR) for the studies of Chisapani. The draft TOR were completed in September 1981 and were reviewed by both Governments. After receiving comments from both sides, an IDA mission visited Kathmandu in June 1982 to assist in the preparation of a revised draft. This draft was the basis for the appraisal of the proposed project. At the meeting of February 1984, CK approved TOR for the Chisapani studies, and the powers, functions and responsibilities of the Coordinating Committee (CC) (para. 42), as agreed during negotiations. 37. The proposed project was appraised in February-March 1983. GOI sent a team of four representatives to Nepal during appraisal to work together with HMG's and IDA staff, and the proposed TOR for the execution of the study related to Chisapani were agreed upon. Negotiations for the credit took place May 26-30, 1983. HMG's delegation was led by Mr. M. Dhakal, Secretary, Ministry of Water Resources. There is no separate Staff Appraisal Report. A supplementary data sheet is attached as Annex III. Project Obiectives 38. The main objective of the proposed project would be to assess the economic justification and technical viability of the Karnali (Chisapani) Multipurpose Project on the Karnali River in Nepal. The project would also assess the prefeasibility of a smaller hydropower project upstream of Chisapani. The findings of the feasibility studies on Chisapani would form the basis on which the two countries would decide whether or not to undertake the next phase which would include detailed engineering, design and the preparation of bidding documents. Project Description 39. The project consists of: 1/ Karnali (Chisapani) Multipurpose Project.  -12- (a) preparation of the final feasibility study for Chisapani including all the necessary engineering work to confirm the technical and economic feasibility of the scheme; (b) prefeasibility of a proposed smaller project upstream of Chisapani; and (c) provision of consulting services to HMG for general advice on all aspects related to the project. In order to carry out the services mentioned above, the proposed Credit includes financing for special equipment, materials, vehicles, instruments necessary for field investigation and office work, and minor construction works, including temporary housing and office facilities at the project sites, rehabilitation of about 45 km of access roads and the small aircraft runway of about 2 km and related airport facilities at Chisapani, construc- tion of a small heliport at Karnali bend, and about 800 meters of exploratory tunnels. Arrangements for Project Execution 40. The studies under the project would be carried out by consultants selected and retained accordLing to IDA guidelines. The project is expected to be completed by June 1988. The studies for Chisapani would be carried out in accordance with TOR approved by CK in its February 1984 meeting and satisfactory to IDA. The feasibility for the smaller project upstream of Chisapani would be executed under TOR satisfactory to IDA. 41. The Ministry of Water Resources would be the agency responsible for the administration of the project. HMG has appointed a Project Director, whose qualifications, experience and terms of reference are acceptable to IDA.. The Project Director, who would report to the Secretary of Water Resources, would be the Chief Executive for the project, and would take care of the day-to-day administrative matters. He would provide the necessary logistic support to the consultants and would serve as liaison between the parties involved in the project. He would have the necessary staff to assist him in discharging his duties including disbursements and payments, procure- ment and supplies, project accounting, housing, and transport. The respon- sibilities of the Project Director were agreed upon during the appraisal of the project. 42. The Coordinating Committee (CC), established with equal numbers of technical staff appointed by both Governments, is considerably smaller than CK and would advise CK on technical matters regarding the execution of the Chisapani studies. Powers, functions and responsibilities of the CC have been approved by CK during its February 1984 meeting. 43. At present, Nepal does not have the capability to properly execute projects of the size and complexity of Karnali and it is necessary to provide for adequate technical assistance to HMG. HMG would retain, under the project, consultants acceptable to IDA and independent from the main  -13- consultants, to serve as general project advisors to HMG. The consultants, who would be employed under IDA guidelines, would station in Kathmandu a lead advisor, with broad experience in similar projects, who would report to the Secretary, Ministry of Water Resources. The consultants would also provide for specialized staff as needed. The advisory services would cover, among others, general management, contract administration, review and analysis of the main consultant's proposals and recommendations, assistance in preparing for discussions with the Chisapani consultants or within the committees and review of approach and staffing proposed by the consultants for the main contract. Project Cost and Financing 44. Total project cost is estimated at US$14.0 million net of taxes and duties, of which US$10.8 million (77%) are foreign exchange costs. The base costs of US$11.9 million have been estimated at end 1983 prices. It is estimated that about 440 man-months of consulting services would be necessary for the feasibility studies and about 50 man-months for the advisory services to HMG. The cost of the services is estimated at US$11,500 per man-month of senior staff and US$9,500 for other staff. These figures include salaries, fringe benefits, and overhead. Allowances have been included in project costs for reimbursable expenditures. In accordance with HMG's desire for local staff training and participation, it is also estimated that some 150 man-months of local staff would be used by the consultants in charge of the feasibility studies. Project costs provide for the purchase of equipment and instruments for field investigations estimated at about US$0.8 million. Necessary construction work estimated at US$3.1 million (base cost) is also included in the project costs. Physical contingencies for the project are estimated to average 10%; and an 8% price contingency over total costs has been provided. 45. The proposed IDA Credit of US$11.0 million would finance 79% of total project cost; the remaining 21% (US$3.6 million) would be provided by HMG. The IDA credit would finance 100% of the foreign exchange cost (US$10.8 million) and about US$0.2 million of local costs.  -14- Procurement 46. Proposed procurement arrangements are summarized below: Proiect Component Procurement Method Total Base Cost ICB LCB Other NA (US$ Million) Consulting Services 7.5 - - 7.5 (6.2) La Coastruction 3.1 3.1 (2.3) (2.3) Equaipment and Vehicles 0.1 0.7 Jb 0.8 (0.7) Operating Costs 0.5 0.5 - A(0.1) TotWal 7.5 3.2 0.7 0.5 11.9 La Figures in parenthesis represent IDA financing. lb Limited international bidding. 47. The consultants for the feasibility studies and the general advisors to HMG would be recruited in accordance with IDA guidelines (estimated to cost US$7.5 million or 54% of the project cost). In view of the specialized nature of the equipment and parts required for the engineering work, procure- ment of these goods (except vehicles), would be through limited international biidding according to IDA guidelines, after obtaining bids from at least three sources (estimated cost of this item totals US$0.7 million). Contracts for the supply of other non-specialized goods such as vehicles would be procured through local competitive bidding procedures acceptable to IDA (estimated at US$0.1 million). Due to the nature and small size of the construction works international competitive bidding is not justified and it is proposed that civil works be contracted on the basis of local competitive bidding proce- dures acceptable to IDA. Holwever, foreign contractors would be allowed to participate (construction work is estimated at US$3.1 million or 22% of total project costs). All contracts for procurement of goods having an estimated cost of more than US$100,000 equivalent each or contracts for civil works having an estimated cost of imore than US$300,000 equivalent each would be subject to IDA's prior review. Disbursements 48. The credit would be ,disbursed against 100% of foreign expenditures for: (a) consulting services for the feasibility studies; (b) consulting services of the general advisors to HMG; (c) materials, equipment (including vehicles) and instruments necessary to carry out the project; (d) miscel- laneous construction works; and (e) costs of travel and operation of the  -15- Project Director's office and of the Coordinating Committee. The credit would also finance 65% of local expenditures on imported instruments, materials or equipment (including vehicles) locally procured. Disbursements would be fully documented and are expected to begin during the first quarter of FY85 and be completed by December 31, 1988. Project Justification and Risks 49. Preliminary studies indicate that the Chisapani Project would be able to produce abundant electricity at low cost (around US$0.02 per kWh) compared to current costs in Nepal (US$0.14-0.17 per kWh) and in India (some US$0.03 per kWh) which makes it a very attractive power generation source for both countries. The advantageous location of Chisapani and the natural conditions of the site make it unique in facilitating the supply of electricity to the northern part of India at a relatively low cost. Chisapani also has the potential to become a good source of foreign exchange to Nepal. In addition to Chisapani, there may be other projects of a similar nature suitable for joint development to the benefit of both Nepal and India, and Karnali can serve as an initial step and model to establish an appropriate approach and to resolve many of the issues that are common to such projects. The proposed Phase I project would provide an opportunity to enhance the technical and managerial skills of the local staff through direct association with the consultants, which will facilitate the learning of techniques to explore and identify new projects needed in Nepal. 50. The main risk of the Phase I project is that the future physical works might not be technically viable or economically justifiable. However, given the amount of information provided by the previous studies, it appears that Chisapani is very attractive and technically possible and that further studies are warranted. To minimize this risk further and to keep it at an acceptably low level the engineering work has been phased, and only phase I is being proposed now. Another risk concerns future implementation. Although there cannot be a formal commitment of Nepal and India at this stage to execute the future physical works, formation of CK, and the establishment of the CC indicate the interest of both countries in the project. Implementation of future physical works requires substantial financial resources as well as binational agreements on power prices and other related issues. The proposed studies are geared to confirm the competitiveness of Chisapani as a low-cost source of energy to facilitate the agreements leading to project construction. PART V - LEGAL INSTRUMENT AND AUTHORITY 51. The Draft Credit Agreement between the Kingdom of Nepal and IDA and the recommendation of the Committee provided for in Article V, Section 1 (d), of the Articles of Agreement are being distributed to the Executive Directors separately. There are no special conditions.  -16- 52. I am satisfied that the proposed credit would comply with the Art:Lcles of Agreement of the Association. PART VI - RECOMMENDATION 53. I recommend that the Executive Directors approve the proposed credit. I A.W. Clausen President By Ernest Stern Attachments March 1, 1984 Washington, D.C.  - 17 - Annex I T A B L E 3A Page 1 of 5 NEPAL - SOCIAL INDICATORS DATA SHEET NEPAL REFERENCE GROUPS (WEIGHTED AVERAGES) la MOST (MOST RECENT ESTIMATE) /b lb RECENT /b LOW INCOME MIDDLE INCOME 1960- 1970- ESTIMATE- ASIA & PACIFIC ASIA & PACIFIC AREA (THOUSAND SQ. KM) TOTAL 140.8 140.8 140.8 AGRICULTURAL 35.3 36.8 41.2 GNP PER CAPITA (US$) 60.0 80.0 150.0 276.7 1028.6 ENERGY CONSLUPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 3.0 15.0 13.0 398.4 792.8 POPULATION AND VITAL STATISTICS POPULATION,MID-YEAR (THOUSANDS) 9447.0 11355.0 15029.0 URBAN POPULATION (% OF TOTAL) 3.1 4.9 6.4 21.5 32.9 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILL) 24.2 STATIONARY POPULATION (MILL) 73.3 YEAR STATIONARY POP. REACHED 2155 POPULATION DENSITY PER SQ. 10M. 67.1 80.6 104.0 161.7 260.7 PER SQ. KM. AGRI. LAND 267.4 308.6 355.7 363.1 1696.5 POPULATION AGE STRUCTURE (%) 0-14 YRS 39.1 42.0 42.4 36.6 39.4 15-64 YRS 57.4 55.0 54.6 59.2 57.2 65 AND ABOVE 3.5 3.0 3.0 4.2 3.3 POPULATION GROWTH RATE (X) TOTAL 1.3 1.8 2.5/c 1.9 2.3 URBAN 4.4 6.3 5.0 4.0 3.9 CRUDE BIRTH RATE (PER THOUS) 43.6 45.5 43.6 29.3 31.3 CRUDE DEATH RATE (PER THOUS) 26.5 23.7 19.8 10.9 9.6 GROSS REPRODUCTION RATE 2.7 3.0 3.1 2.0 2.0 PFAMILY PLANNING ACCEPTORS, ANNUAL (THOUS) .. 37.4 146.0/d USERS (X OF MARRIED WOMEN) .. 0.7/f 4.3e,f 48.1 46.6 FOOD AND NUTRITION INDEX OF FOOD PROD. PER CAPITA (1969-71=100) 106.0 101.0 82.0 111.4 125.2 PER CAPITA SUPPLY OF CALORIES (X OF REQUIREMENTS) 94.0 94.0 86.0 98.1 114.2 PROTEINS (GRAMS PER DAY) 51.0 51.0 45.0 56.7 57.9 OF WHICH ANIMAL AND PULSE 9.0 9.0 8.0/e 13.9 14.1 CiiILD (AGES 1-4) DEATH RATE 32.6 27.8 22.5 12.2 7.6 HEALTH LIFE EXPECT. AT BIRTH (YEARS) 37.6 40.5 44.6 59.6 60.2 INFANT MORT. RATE (PER THOUS) 194.5 172.5 147.7 96.6 68.1 ACCESS TO SAFE WATER (%POP) TOTAL .. 2.0 8 O/B 32.9 37.1 URBAN 47.7 53.0 81.07jj 70.8 54.8 RURAL .. .. 5.07i 22.2 26.4 ACCESS TO EXCRETA DISPOSAL (X OF POPULATION) TOTAL .. 1.0 1.0/h 18.1 41.4 URBAN .. 14.0 14.07W 72.7 47.5 RURAL .. .. .. 4.7 33.4 POPULATION PER PHYSICIAN 73800.0 51380.0/i 30060.0/e 3506.0 7771.9 POP. PER NURSING PERSON .. 70530.07o 33420.07e 4797.9 2462.6 * POP. PER HOSPITAL BED TOTAL 8290.0 6940.0 6390.0 1100.6 1047.2 URBAN 290.0 390.0 450.0 298.4 651.1 RURAL .. .. .. 5941.6 2591.9 ADMISSIONS PER HOSPITAL BED .. .. .. .. 27.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. 5.5 URBAN 5.4 .. RURAL .. .. AVERAGE NO. OF PERSONS/ROOM TOTAL .. .. URBAN 2.0 .. RURAL .. .. ACCESS TO ELECT. (X OF DWELLINGS) TOTAL .. .. URBAN 30.2 .. RURAL .. .. ---------------------------------- - ------------------------------------____---- _ __----------------------------------___  - 18 - Annex I T A B L E 3A Page 2 of ; NEPAL - SOCIAL INDICATORS DATA SHEET NEPAL REFERENCE GROUPS (WEIGHTED AVERAGES) /a MOST (MOST RECENT ESTIMATE) /b RECENT LOW INCOME MIDDLE INCOME 19601-- 1970b- ESTIMATE-L ASIA & PACIFIC ASIA L PACIFIC EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 10.0 26.0 91.0 96.1 101.2 MALE 19.0 43.0 126.0 107.8 106.0 FEMALE 1.0 8.0 53.0 82.9 97.5 SECONDARY: TOTAL 6.0 10.0 21.0 30.2 44.9 MALE 11.0 16.0 33.0 37.3 50.0 FEMALE 2.0 3.0 9.0 22.2 44.6 VOCATIONAL (Z OF SECONDARY) 0.2 5.8 6.8/e 2.3 18.5 PUPIL-TEACliR RATIO PRIMARY 33.0 22.0 38.0 34.4 32.7 SECONDARY 32.0 .. 31.0 18.4 23.4 ADULT LITERACY RATE (1) 8.8 14.3 19.0 53.5 72.9 CONSUMPION PASSENGER CARS/THOUSAND POP 0.1 0.4 .. 1.6 9.7 iWDIO RECEIVERS/THOUSAND POP 3.O/ 4.8 20.5 96.8 113.7 1'V RECEIVERS/THOUSAND POP .. .. .. 9.9 50.1 NEWSPAPER (-DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 0.7 2.4 7.3/g 16.4 54.0 CINEMA ANNUAL ATTENDANCE/CAPITA .. .. .. 3.6 3.4 LABOR PORCE TOTAL LABOR FORCE (TILOUS) 4875.0 5537.0 7140.0 FEMALE (PERCENT) 40.5 39.2 39.0 33.3 33.6 AGRICULTURE (PERCENT) 95.0 94.0 93.0 69.0 50.9 INDUSTRY (PERCENT) 2.0 2.0 2.0 15.8 19.2 PARTICIPATION RATE (PERCENT) TOTAL 51.6 48.8 47.5 42.5 38.6 MALE 61.5 58.8 57.6 54.4 50.7 FEMALE 41.8 38.6 37.3 29.8 26.6 ECONOMIC DEPENDENCY RATIO 0.8 0.9 1.0 1.0 1.1 INCOME DLSTlIBUTION PERCENTr OF PRIVATE INCOME RECEIVED BY HIGHEST 5% OP H0USEHOLDS .. .. 35.3/ 16.5 22.2 HIGHEST 201 OF HOUSEHOLDS .. .. 59.27i 43.5 48.0 LOWEST 20% OF HOUSEHOLDS .. .. 4.67j 6.9 6.4 LOWEST 40D OF HOUSEHOLDS .. .. 12.6LL 17.5 15.5 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 95.0 133.9 194.5 RURAL .. .. 45.0 111.6 155.0 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. .. 178.0 RURAL .. .. 41.0 .. 164.8 ESTIMATED POP. 8ELOW ABSOLUTE POVERTY INCOME LEVEL (Z) URBAN .. .. 55.0/e 43.8 24.4 RURAL 61_,___ 61.0 51.7 41.1 NOT AVAILABLE NOT APPLICABLE N 0 T E S /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the iadicators depends on availability of data and is not uniform. /b Unless otherwise noted, "Data for 1960" refer to any year between 1959 and 1961; "Data for 1970" between 1969 and l971; and data for "Most Recent Estimate" between 1979 and 1981. /c Estimated annual growth rate for 1972-79 is 2.6%; /d 1978; /e 1977; /f Government program only; /g 1976; /h 1975; 'i Personnel in government services only; /i 1963. May 1983  - 19 - Annex I DEIN tIN OF001CIA INDlCATOgRS Page 3 of 5 Notes : Although the data ave druonf tr so.r.e. generally lodged the mos auhorttieand reliable, ishould a'lso hanoted that they .uy not ha toont oal comprable hetoseat of hs tacoo nooel dfnton n oset sd hy' diffeetotatie nto oIogn the dot. The Iota art, no-theles,s- tlt desoibe ordole otf agitde Odiooto troth, and oh.arooteri_a aertial ma Jor dittereorri hot_tenoouorlt,i.. t111 Th. seec rop o t ohj e-tuotounty groo sO the muhimot -osutryood Ill avoaory groop otho so_ohet highoraeaetreehooaootygopo h sahj-otooaoryC-ovep far h Ing .os. 111 Oi opExrters" gooey shere "Middle loooNrhIrt tdNdl ue sooe-Rtoae of 5 trogo sooa-oSloopufal h affiotionl to te:reereta- goay data the a-tsg- a.ro. topatiot asighe s Nths Ioso areottdiu n,aoovl ahed ajrit o tg t_ t atootte t geou hat data to that ledhoano. ilse the _e Rge otfoore ..a.ogSthe todo,oor depends vo the avolahjbli-t at .tut -ol isntaltr,ruo oth e,erite, to re1tuog --gerao of 000 indloator to another. Th... a-eages aen otly a-etl in loumoia gte,ao t n eiotrtaleamo h aonanr Total - ytlnroete oyran adoe o lool etes 1960, phPiiosPalrldtos ataedoa dsohool a, t -blept tonpattl. 197t and 19110 d~ata.l. PoaaiopeNrl0Pran-i- -h-lato Itrddb oao-- ar at eael to Agrioult-vl - OEtis.e orf agio.ltsoral artautd teolp-sltly or peAesarnly sesed oao graat -o t Paet.ia. tantnodeds, pruotloloer.e.ao to -rpo poots,P aud ho on tthngado or to lie ta1los; 19106urIn uolirtts. noPr_ 1901 and 1920 date. Povolatlet per~~~~~~. Hospltel Sod - toal, -rha., and raraI - Poyalatiot Itotal, ITA WE G11 per bapit eatir. a or en- -b..atha, and rurall diotded hy tha r roPeottu "olhe at hospital beds -!iP PItt baylh _tAg - ON pt aupteh ittd at -rr k-mr piloes, a-iloble Tho~ alosdpiaegnrl and ope_tialiard hosital aed oa60otla7ed hy iee ~ danetia meho .a ard Baok Atllt 11919-81 bosh); rehabiiitatiooant-r-. Rfosyltal are so hiabmets pnrmpooei itaffed -ueao at datld. R-arl hotploal, hocro nlade hel1th and ffNE11Y CggSWtgt igg yoo CAtITd - dAtonal appareartsaplv toorta eta aoanroo pyaen ynatd yapygIa (btyaedta prImary eongy laval and ligoine, petroleas, nerli ga t yr- ola slta,ore lot,ot)oitotri-ain oodto n odgohral eletotaiity) l kloden at coal 1egatoa11lotd proapi;p tdaliorrug of neiat Oll iotenby . Pyootatititoa porposes 19611 19011. and 19911 data. oridoo hospitals toloo nt of eooalnti etlo is td orat,h n hasptal, lcalor ura h.tpit,a isad sodioal aod _aterltiy ace TPtPll1 P0100 i. dae l dL -yosqoh-ci A o jl IParlaitoad bomyitala ar i-onlded only yuder total. tos.oulto,Md-er(hasos s tdl ; 19601, 1970, and 1911 dAtasiont2 - par opical too - Total . taben at udiuni- to or dlsoharght data. ti Prom -- ttotpitsltton;dtlided by te -ouser ofbhedt. * dlfleeao dotlotions oturban aeas may at _rt anporahility ot dat fttA 00mgaveets;190 19700, and 1981 data. Herg in ffeshldUnna'erboeod -ttl ran"n ua Popolatl in Projaoo 20D Gte,ppI- Ah ---ebold ..oositot atagoyofidodul tooare liolgqatr Poiatonin bea a00 -n Coretpooaoo proeoitts are. hed 00 1911adh nrmi rl.Ihodro ogrryor maY not ho ilotdald to ltotal poplato yaeso e o hsroeaiyadttility tbhba. hod fra s,totttotal parp.an.. "atet -PPujotto areoeo u vtllprtes.f,"l" t . o.n. 'ie oto .be oeAge, bra esn e 00tnl ra,udrra1aeaeos tapito ne10.0cr...ee, Aod tmslr life enpeoteany itabilielog a, 77.b5ollg,ruaonl.Poiooncarnopoaetsrrom n Yeart. gTh lpirne_tert tar terofl ity rate~ also hay three Itollm anoo""Iad ptotnp..et r-tI n ao dein doIor in ter tll .yaaaodd g to teoue Iovol And paut family AreotllorPlatoy erao taelngl-ttlYrhn n no ploia peoaoe. Mchtantep I tea asmigoed 000 ofthibese seirnett,o ds-lliogi Jtit elea-ioty to ljiotg quartrs. a pera-oaga toohinattoos of moetatiry ond Perotlity t~~enods for prajaotiao puro` e. f o al, ro,adrcldelnnrtptio Stationary gpulontioo - to s tonlioaary -lpabtto thee toeo-gos strnob ieh ae t e qaul nothe dat~ah pate,"end,a,no the age EDUCATIONs adcultcert. eepin a,oooso.' ti alodonyAuter teotil toy eate dose nlontRto d ..it lto - th o.e aelae eo _ea ot _oi _oenrpodoln ae te r-aynhol-ra,cl aol te sCroom oo-a1. sole nod tonale oath ti geeoi-o ota ovoti d ropnas toe ntl.Tesat t no no talt onIhefpnar l.oo. an ...to.. ett r'et eov yoAlaloleeo haed anOhbhsis nt the poajorted hore-Primay nha-g ocain nor-elly includes ahMl- detaed hj-li- Cttot of tbrP"I:1 pou ii n l te, ea 20t0, and tho rlat at dorline atyanboojaoof itro lotta rar dcto O teroitoz,y rats to oeLacoeotleo. au btle djith e oro-ta dferentloeoa pre ay eaeed lt1n feorn tnrntior apo ,l ola Isl~ acae roya oesttor ioeoe PPaytt are hbol or ahoro hoh ttt.oi~at n_booI age yoenlatio leniy odttorqle a es oryarefapoe riayisraio Por n. tnn.~j~ - Nd-yea loylahlo peragnar kilvoete 11110 hbrata-) on pcoid-i geone-ral , voaioa,o tece -teen pi-tirc ioot- br total area; 1910. 1970, and 1q811 deta. yalt salya 2 o1 reoat a g clarrtpnd~ io--icn- aore Pt, no. ha. ogrfolur - ad - teePatod at abaoe fa.aolalar 1lud gPtPraly 1-1 of12ta1c...laded.11pd-eoo ~o osly; 1960, 1970 aod 1980 daoa. Vocational et-lei (rcaodcadrl-tadoa nolain 6op4ato A`o SOtroone C oco hildreo Il-ti yeet) , -krhog-age 115- tnatodetcocl.itotil,a onho prgr-ot-lao pets -depod ho Aae n oodesired F1-5yearn and over) an portentagroomid-year anIY or at deparoi --soodary J-iasitaos ynuain 911, 19701, aod 19111 data. tplnahrti-osr,aentody-Ocloaeosrinde,and Posata rao gn goto I -totl - Aonn-1 freth ranot ot total sid- ynorods_odr eat lie.O.u.c a otes otecr 'Ps polttot foe 19151-_, 11161_7I and 1970-fl, r -pu dir -boots. 1- PPoolatioo ronh Rato I Pcra-oi - oobao - dAnna rahrnia ra dl Ieayet Ipeoroto I- - 1 itlerat adlsbblyoro and.oro_)e pnyulati. Eoo .ta 19b0-6t, 1960-Pt, and 1910-111. aLocaarottlaatpriottl loagdo 15 b00 and 00cr Crode Booth Rauto Par hoboaad ) - -'-tIa Ioo bIrths Per tbe-cd ef nil- pl-g iItlaotppL,-.. 5yah.d-."" Cyear yPuPlstinm; 1910, I970, aod Ihftd"ata CONSUMPTION bad-e Path late I per ihootuod) - Isorol deaths per tho-nad at mid-ya-ssne aaIe hsudpplale esoe ascoru o Pnyo1atite; 1960, 1970, and 19111 toos ....erosutin lPest th..andsgh perso-ins; F recludo - aop_aoeo _srns loots geprdoetipon Rteta- Aperageaibor atf daoohto-sAoat ilbert molt nar lria,1 let. l,-l.-ab,-1,h a n he-oralrprlotn peridifthe _voeriencrro . present s Pohlritt Oidlo RetlosIpntosn aoaoo -altoo oooo a ao fnrtility pales'; usuaIY tflaY-ya -oo-age ending to 19i0, L970, And h"'roada-- t gP:'ral -abli p2eo tc o tpplatIn llr eon; -oc..do. an,-d 19111. iren, tedeonr to autPts nd_ ysrs.o1oourdiontrdi tomiy P","n-aopos,aoi thuodal- aanl ober of ecoeptoosn a inttt,otaa etc or a a ho topeabn oeat atof t-sorl e notcder ustplen of oatiooa1 fanily pluo. nlg cosroorietabboliuprd Oioicvuiog. prgrTVe .0.Oooeionr 6 per ihaomaod popuILatloo - rTVeae-e- too b-oadtant to OsIlly Pano1lesInrearot of erled a-ano) - Percentge otfapo sca alayotoor ooltc:ecue oitodf racr on etirhild-bearlggel-h aenohourbr-coedcinaIrctan nodit-at phpnrecc.o-a-1ao-th-1itucad OTVC-eit- al uoe ome i, l tuage hono. h'opuefacl-so yr-.uou -ylalo -1T dbaotbn.r le toed ad.in on ralendur year baut .... in.Ooollsca oePfondo leg. Itnom -Ioa Aot-daneprtyt ye u-aodn tooshro c-lte aol toe.aed a of dd) agegat prdutlt t...aoopieshiloalfn da ta.I 1.0001171 n 1~ AO FO00E per canto toypiy- at ra'lori I mln eoieet I-touedtn oal Labor PotF Iocc- ds tca -oOall -cin.e .e.a. -, ioclod-ogoo-d toergy eqlaeaof 000 toed aupl letollable ooo-uotry yen raia par fare- sod anevyloyrdhaenltu -asooe ydeo-o cIt., t--oing day. hallebl aupylon coseine dsestl pcadcotioo, inpanslos populatIonfa sit aget tinilo oacuoo-nnir areoa naoots,md ragmin tooth leepyll,a esalade anOeal trd,sods ctyrule; 1960, 1910 and 1981 data, qoanttle viedot fatol oroio,and Jl_ste i _I ltibuotoo. re-lb I per-e- - F ..als labor force 00percootuor at total lahar tarc- tmqaieenentsa.rorestisuted by tAt hate.d at pTyioytlogiaal seeds tar to-l ago io-larIpota I-Labur, farce o in tanog,trtoy, Ootto and arcrly sod1 health ao-iiderina e-io-eoetnl temp..t. nhoy ergft ishiog as perct- age at total Iabar torte 1961. , 1911aol 81911data ag:o;ti lrtu loo ooatn o atco tpretfr asettaoolrce 1-LberrrI oaoni cc9aorrra97,euoctvoario * ~~~~~at household heoel; 1961-65, 1900 end190 data, tod -letlci ,miral10aupcote oe o-iul lbohr Cart;nlR960, Per capita~ -oplyfadrti Irt e ayl Petlo aneotatbper aspita 1101ado 1911 data,., oct nuyt of Iodprdy e upy at tod i letnn soaae Pollaio ueIretn - vt-l , nab , vol tesole -PaIrtic lpio or Rsqtreetnto ala vonreaesbithdh tiAd peavid to nlnlnon aolagl_potes are cpctod an toteI, male, antdret .-arft aa al1oa-orn atit rn n2 oa6yoe0 a i Aol 20 ge-s utaoinal and pec ota fna totel, oIe aold tfs-le yapula tian t OOag-ureorrto ly; P"is proteto oP bhth It geasssoadh aia p,etto 19sei6f, 1970, aol 1981 Iot,- ooTh ar bu-d an IlO's utopttop e standard ar love than those at 1' gr...s .t ftotalp pco'teio aol 03 foa- Ieteaia age-too t h of a the ypolpoc-n, and long tine tred.A * at~~~~~o soime protin as -oaveag far the srld, toyase, by FAt io the oetsaiare ora -alaoal scn Third oold oa P. ne; 161-5" 10 97and 1110date E.ot.e. ilDepeodocy ot - Rtett at PoPulotio- -ode 15 -od 6t ao ao- to Per cpo poooeio oply ty aoioal and I"s-Pro'tnis n-pply ot food teoala-no force derived tram otasand pulses to grams yer day; 1961-65, 19t0 aol 19077 data. INCOdEt DISTRIBUTION Child luees 1-41 teath gate t" te hon-uo - Anonal d-atho per thousad to Per-ntnuge at Pyvae toc-- (hoah io -oh oat cicl - ROetlnd by 1ichoth 5 ag r -4 yers, tooldren in this Aog Sroop; tar mat droelaplog Perct olhet 002 rco,p--0050 peret and pup-to 40 yreot or tooriem data derIved tram life tablet; 11160. 1900 aol 19811 dana. hoasead. HEALTH1 POVERTY TARiET GROUfPt tinegorotaco e RIit yeas I-Aier-geo nanh- at year of lite rouuo h ol oa u ae re vey' ppvan to-Ilrctpooty lelarl . cd at birth; 1960, 1970 aol 1911 laeer sh1old ha aorpeod aith tonodorablecotio Intnt orolty Rate leer tbhosa-d A i.o.al deatht of ifaotuotloder ase tut isated Abolato I'onety Ivane evl 01 percail - boha aol ooral- ye:ar ot _age 1pe thuad oln hlech; 1960, 1900 and 1981 da. Alaue -aety booty Icol isii tha .na.s leant hbla ahot a miatal Attest of ate aetec peroent a payclatlol - ovoal,urban, and ruoul - varlioa..el lydoqoate diet plu.... esorlo -0-tu-d ranir_oeo it not Ntber of peopleItal arbao, aolnsd l a~tlot na_oablearcene to sate eftodll. zeate .spply (incllods treated -arlae outers yr aooeetnl hubotota nlo Paor2tl Intoan level 1000 pan capitel - arh- aol.. rarl- un-oo i-latn saty oah as that ftoys pr-ternd boreholcs, spriegs, and oRa1 rclatl- povert itoom level is aoe-thrld atavraee aspita osooay cells) an p-eeccaotae of their r-peotive papuluto.- to an poat1 ioone of the -oonoy. Ufbao leve On donned foo tOe rorat -rbeafaaohOa taital ye stadpo- laad not.ear that 2It sento leve sIh edja--et tar higher cane af lIning to urban -a-rt trf ehous nay ha.c.ontdored as hlaog sItehlo rean...bl. ....r.m at that Entate Poo..lotIon tel A bsolot y-oeoty Ioo ee rret ra hos Jorura area rsaola ..s ',l im ly tht the h.ceIoo o ce ereto auatolca and c ral- ah ave 'abs-n tembers of the hoanhol *0oo on t pool dinproportio-ta part otfsa the dey in tetchig lbt tmiyseatec ods. acces to E-otct Dings- (perrot of ouato)- totai, orbat, And -oal - Nonorapoletotal. orbon, voa oe)neddhyart disosa an preootog- of thei to. eepevtine p-opoletlont.11 Puare11Tad1isposal may oolade the.vlsr aol dIsposal , ebb or atohuo -t-eraot, of Ea-tna aol SocIal iota Otnisn honaeo -na aol atte-oter by ost--bo-ne yst... or the use of pit ta.onaic -nlypOs and Poojectvon. lepart--t Prliro an utita imoI utoo May 1983  -20- ANNEX I Page 4 of 5 ECOUOMIC INDICATORS - NEPAL GNP PER CAPITA IN 1981: US$150 GROSS DOMESTIC PRODUCT IN 1981/82 ANNUAL RATE OF GROWTH, 1970-1981 a! (%, constant prices) US$ Mln. %__ GDP at Market Prices 2,514 100.0 2.1 Gross Domestic Investment 389 15.5 Gross Domestic Saving 216 8.6 Current Account Balance (exc. official grants) -120 -4.8 Exports of Goods, NFS 277 11.0 Imports of Goods, NFS 450 17.9 OUTPUT LABOR FORCE AND PRODUCTIVITY IN 1979/80 Value Added Value Added Labor Force b/ Per Worker US$ Mln. % Mln. % US$ Agriculture 1,065 57 6.9 93 155 Industry c/ 251 14 0.1 2 1,696 Services 543 29 0.4 5 1.468 Total/Average 1,859 100 7.4 100 251 GOVERNMENT FINANCE CENTRAL GOVERNMENT Rs. Mln. % of GDP 1979/80 1980/81 1981/82 1982/83 1982/83 Current Receipts 1,853 2,403 2,866 3,001 8.3 Regular Expenditures 1.055 1.264 1.589 2,025 5.6 Current Surplus 798 1,139 1,277 976 2.7 Development Expenditure 2,309 2,731 4,034 4,808 13.2 External Assistance (Net) 1,318 1,374 1,953 2,607 7.8 MONEY CREDIT AND PRICES 1979 1980 1981 1982 1983 (Million Rs outstanding mid-July) Money and Quasi Money 4,512 5,285 6,308 7,459 8,780 Bank Credit to Government 1,176 1,362 1,357 2,132 3,185 Bank Credit to Public Enterprises 436 501 668 618 981 Bank Credit to Private Sector 1,976 2,547 3,231 3,363 3,717 Money and Quasi Money as % of GDP 20.3 22.6 21.7 22.9 24.2 General Price Index (1974/75 = 100) 116.6 125.5 148.0 159.7 180.5 Annual Percentage Changes in: General Price Index 10.0 7.6 17.9 7.9 13.0 Bank Credit to Government 21.8 15.8 -0.4 57.1 49.4 Bank Credit to Public Enterprises 24.3 14.9 33.3 -7.5 58.7 Bank Credit to Private Sector 24.3 28.9 26.9 4.1 10.5 Note: All conversions to US dollars in this table are at the average exchange rate prevailing during the period covered. A/ World Development Report 1983. b/ Total labor force; unemployed are allocated to sector of their normal occupation. c/ Includes mining, manufacturing, construction and utilities. .. not available  -21- ANNEX I Page 5 of 5 TRADE PAYMENTS AND CAPITAL FLOWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS 1981/82 >) US$ Mln. X 1980/81 1981/82 1982/83 a/ (Millions Us$) Exports, f.o.b. c/ 134.4 115.4 67.3 Agricultural products 92.0 80.0 Imports, f.o.b. 5/ 352.6 363.6 408.3 Manufactures 23.0 20.0 Trade Balance -218.2 -248.2 -341.0 Total 115.0 100.0 Services, net 75.4 87.3 78.1 of which: Tourism 64.5 51.4 61.4 EXTERNAL DEBT. DECEMBER 31, 1982 USS Mln. Transfers, net 46.4 40.5 37.6 A of which: Private Remit. 38.9 34.5 .. Public Debt, inc. guaranteed 296.6 Indian Excise Refund 4.7 3.1 2.5 Non-Guaranteed Private Debt - Current Account Balance -96.4 -120.4 -225.3 Total Outstanding & Disbursed 296.6 (exc. grants) Official Grants 71.7 89.3 102.5 Official Capital, net 52.8 59.3 72.1 Private Capital, net -12.0 10.8 14.6 DEBT SERVICE RATIO for 1982/83 J1 Chanze in Reserves -16.1 -39.0 36.1 Public Debt, inc. guaranteed 7.0 (- = Increase) Gross Official Reserves (mid-July) 195.8 232.6 159.7 IBRD/IDA LENDING. September 30. 1983 (Millions US$) US$ Mln. IBRD IDA Outstanding & Disbursed - 175.1 Undisbursed - 194.4 Outstanding, incl. undisbursed - 369.5 RATE OF EXCHANGE From October 1975 From March 20, 1978 From September 19, 1981 From December 17, 1982 Tbrough October 1975 to March 20. 1978 to September 18, 1981 to December 16. 1982 to May 31. 1983 US$1.00 = NRs 10.56 US$1.00 - NRs 12.5 US$1.00 = NRs 12.00 US$1.00 = NRs 13.2 US$1.00 - NRs 14.3 NR 1.00 = US$ 0.095 KR 1.00 - US$ 0.08 NR 1.00 = US$ 0.083 NR 1.00 = US$ 0.076 NR 1.00 - US$ 0.070 a/ Estimate b/ Customs basis. c/ Payments basis. d/ Ratio of Debt Service to Exports of Goods and Services. not applicable not available South Asia Programs Department October 1983  -22- ANNEX II Page 1 of 2 STATUS OF BANK GROUP OPERATIONS IN NEPAL A. STATEMENT OF IDA CREDITS (as of September 30, 1983) /a US$ million (net of cancellations) No. Year Borrower Purpose IDA Undisbursed Eight credits fully disbursed 71.3 470 1974 Kingdom of Nepal Water Supply and 'Sewerage 11.8 1.3 617 1976 Kingdom of Nepal Rural Development 8.0 1.6 659 1976 Kingdom of Nepal Technical Assistanice 3.0 0.1 704 1977 Kingdom of Nepal Second Water Supply & Sewerage 8.0 2.5 705 1977 Kingdom of Nepal Industrial Dev. Corporation 4.0 0.8 730 1977 Kingdom of Nepal Second Highway 17.0 2.7 772 1978 Kingdom of Nepal Technical Education 5.7 3.0 799 1978 Kingdom of Nepal Telecommunications III 14.5 7.6 812 1978 Kingdom of Nepal Irrigation (Sunsari-Morang) 30.0 18.2 856 1978 Kingdom of Nepal Irrigation (Narayani Zone) 14.0 8.1 939 1979 Kingdom of Nepal Second Rural Development 11.0 10.0 1008 1980 Kingdom of Nepal Community Forestry 17.0 15.8 1055 1980 Kingdom of Nepal Irrigation (Mahakali) 16.0 14.6 1059 1980 Kingdom of Nepal Third Water Supply & Sewerage 27.0 17.5 1062Lc 1980 Kingdom of Nepal Grain Storage 6.2 4.6 1093/c 1981 Kingdom of Nepal Irrigation (Babai) 3.5 0.6 1100kc 1981 Kingdom of Nepal Agricultural Extension & Res. 17.5 8.8 1lOl1c 1981 Kingdom of Nepal ]Hill Food Production 8.0 5.2 1191/c 1982 Kingdom of Nepal Cottage & Small Industries 6.5 5.5 1198kc 1982 Kingdom of Nepal Second Education 14.3 13.1 1260kc 1982 Kingdom of Nepal Petroleum Exploration Promotion 9.2 7.5 1316kc 1983 Kingdom of Nepal Irrigation VII-Bhairawa-Lumbini 16.0 15.3 1339/C 1983 Kingdom of Nepal Cash Crop Development Project 6.0 6.0 1379Lc 1983 Kingdom of Nepal Second Technical Assistance Project 6.0 6.0 1400 1984 Kingdom of Nepal Second Forestry Project 18.0 18.0 Total, 369.5 194.4 of which has been repaid 0.2 Total now outstanding lb 369.3 Total now held by IDA 369.3 Total Undisbursed 194.4 /a No Bank loans have been made to Nepal. /b Prior to exchange adjustments. /c IDA 6th Replenishment Credits, principal amounts shown in U.S. dollar equivalent at date of negotiations, as shown in President Reports, and Disbursed amounts shown in US dollar equivalent at the rate of exchange for the SDR on September 30, 1983. NOTE: The status of the projects listed in Part A is described in a separate report on all Bank/IDA financial projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and Octboer 31.  -23- ANNEX II Page 2 of 2 B. STATEMENT OF IFC INVESTMENT (as of SeRtember 30, 1983) Amount ($ millions) Year Obligor Type of Business Loan Equity Total 1975 Soaltee Hotel (Pvt) Ltd. Hotel 2.7 0.4 3.1 1982 Nepal Orind Magnesite Mine and process 6.2 - 6.2 (Private) Limited magnesite ore 8.9 0.4 9.3 Total commitments now held by IFC 8.5 0.4 8.9 r  -24- ANNEX III NEPAL KARNALI PREPARATION POWER - PHASE I Supplementary Data Sheet Section I: Timetable of Key Events: (a) Time taken for the country to prepare the proiect: 4 years (b) The agenCY which has prepared the project: Ministry of Water Resources (c) Date of first presentation to the Bank and date of the first mission to consider the project: February 1981 June 1982 (d) Date of departure of the appraisal mission: February 18, 1983 (e) Date of Completion of negotiations: May 30, 1983 (f) Planned date of effectiveness: July 1984 Section II: Special Bank Implementation Actions: None SectioDn III: Special Conditions: None  0X< A =: =x 0 Cd,= =' , >C f / r ' izo o S , 'i' ' 0+.-~~~~~~~~~~~~~~~~~~~~~~~~~~] +o+tV 0g'%;3 ,, ,.,1, C., C w /, ' ',~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~5 S~~~~~ ~~ .,-fA ' ''', -4ls,ES.lB.;EC 00 - ; r+$gs;'5</ggg5j'X>0 >A - t:; - g0 ? @ == 850~~~~~~~~~~~~~'L 1 t;0SsX y :, ,a.5r t zo> ', T. 'i ' ' 5ID < 0 { . * 7 ~~~~~~~~~~~~~~~~~~~~~F S' - L it  I