Report and Recommendation of the President to the Board of Directors

Transcription

1 Report and Recommendation of the President to the Board of Directors Project Number: August 2010 Proposed Grant and Administration of Technical Assistance Grant Nepal: Detailed Engineering Study for the Upper Seti Hydropower Project

2 CURRENCY EQUIVALENTS (as of 26 July 2010) Currency Unit Nepalese rupee/s (NRe/NRs) NRe1.00 = $ $1.00 = NRs75.10 ABBREVIATIONS ADB Asian Development Bank ADF Asian Development Fund JICA Japan International Cooperation Agency MW megawatt (1,000 kilowatts) NEA Nepal Electricity Authority PAM project administration manual PPTA project preparatory technical assistance TA technical assistance NOTE In this report, "$" refers to US dollars. Vice-President X. Zhao, Operations 1 Director General S. H. Rahman, South Asia Department (SARD) Director A. S. Guha, Office-in-Charge, Energy Division, SARD Team leader Team members Peer reviewer K. Ogino, Senior Energy Specialist, SARD Md. S. Parwez, Programs/Projects Implementation Officer, SARD S. Sasaki, Environment Specialist, SARD K. Takebayashi, Energy Specialist, SARD J. Versantvoort, Counsel, Office of the General Counsel A. Maxwell, Energy Specialist, PARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 CONTENTS Page I. THE PROPOSAL 1 II. THE PROJECT 1 A. Rationale 1 B. Impact and Outcome 2 C. Outputs 3 D. Investment and Financing Plans 3 E. Implementation Arrangements 4 III. TECHNICAL ASSISTANCE 5 IV. DUE DILIGENCE 5 A. Technical 5 B. Economic and Financial 5 C. Governance 6 D. Poverty and Social 6 E. Safeguards 6 F. Risks and Mitigating Measures 7 V. ASSURANCES AND CONDITIONS 7 VI. RECOMMENDATION 8 APPENDIXES 1. Design and Monitoring Framework 9 2. List of Linked Documents 13

4 I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on (i) a proposed grant to Nepal for the Detailed Engineering Study for the Upper Seti Hydropower Project, and (ii) proposed administration of technical assistance (TA) for Preparing Hydropower Development for Energy Crisis. II. THE PROJECT A. Rationale 2. For the past several years, Nepal has been experiencing acute power shortages, particularly in the dry winter season. During the 2008/09 winter, the country had no electricity for 16 hours per day. In December 2008, the government declared a national energy crisis and approved the National Energy Crisis Fixation Program. Under this program, the government approved immediate, midterm, and long-term measures to deal with the worsening electricity situation in the country. Subsequently, it announced that the Upper Seti Hydropower Project, one of three critical projects for the country, would be the project of national pride The potential of Nepal's hydropower is huge; it could sustain the country's economy and social life as well as meet the demands of neighboring countries through power export. Of the country's theoretical hydropower potential of 83,000 megawatts (MW), 43,000 MW are considered economically viable. Currently, Nepal has a total installed generation capacity of 689 MW (i.e., only 1.6% of the economically viable potential). During the dry winter, this decreases to 260 MW peak demand is 800 MW resulting in acute shortages. Peak demand has been growing by 10% every year and the domestic power deficit has been expanding rapidly. In Nepal, peak demand is recorded during the winter when the country has its lowest generation capacity. About 85% of total generation capacity relies on run-of-river hydropower plants, where the river-water flows for generation are significantly reduced during the dry (winter) season. In 2008/09, hydropower plants operated at 49% capacity on average due to lack of water storage needed to compensate for seasonal flows. The serious power outages cripple economic activities, social services, and daily life in Nepal. Significant load shedding has resulted in a large decline in productivity and huge economic losses for the country The country partnership strategy identifies Nepal s power sector as the most severe infrastructure constraint on economic growth. 3 In addition to power shortage, electricity coverage is limited to about 56% of all households. 4 To meet the country's development priority, in November 2009 the Asian Development Bank (ADB) approved the Energy Access and Efficiency Improvement Project. This project is extending transmission and distribution to improve energy access and efficiency in urban and rural areas. 5 To supply more power to these network systems and address fundamental issues in the energy crisis, the government intends 1 The other two national projects are the Kathmandu Nijgad Fast-Track Road Project, and the Hulaki Sadak Road Project. 2 Summary Sector Assessment (Appendix 2). 3 ADB Country Partnership Strategy: Nepal, Manila. 4 Government of Nepal, Central Bureau of Statistics Nepal Labour Force Survey (2008). Nepal. 5 ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan and Administration of Grants to Nepal for the Energy Access and Efficiency Improvement Project. Manila.

5 2 to expand generation capacity, with urgent emphasis on year-round power supply using domestic clean energy sources In 2006/07, the Japan International Cooperation Agency (JICA) conducted a feasibility study to develop the Upper Seti Hydropower Project (127 MW) with water storage to meet domestic consumption demand, in particular for the dry season. 7 While the feasibility study report assesses the project to be viable socially, environmentally, financially, and economically, it identified requirements for thorough geological and hydrological studies and due diligence works. To undertake these development activities, ADB and the government include two separate activities for project preparatory support in the 2010 country program: (i) detailed engineering studies, and (ii) other due diligence and preparatory works for the anticipated 2012 Upper Seti Hydropower Project. 6. ADB and JICA jointly financed the Kali Gandaki A Hydroelectric Project (144 MW), which was commissioned in While this, Nepal s largest run-of-river power plant, has mainly sustained the country's power requirements, the only reliable sources of hydropower generation in the dry season are the Kulekhani storage hydropower plants (92 MW in total, funded by JICA), owned by the Nepal Electricity Authority (NEA). Independent power producers have only small run-of-river plants. 9 Continued focus on exploiting hydropower without accompanying water storage infrastructure will perpetuate highly seasonal power generation and will not address dry season power outages. The country diagnostic studies determine that focus needs concentrate on developing generation capacity that is available year-round. 10 B. Impact and Outcome 7. The expected impact from the detailed engineering study (the Study) for the Upper Seti Hydropower Project is increased generation capacity for the country to sustain inclusive economic growth. Additional power generation capacity of 127 MW will help alleviate the power crisis, which has significantly hampered the country's economy and social life. The outcome will be the financing and implementation of the proposed ensuing physical project for Upper Seti hydropower development, based on sufficient project preparation and effective design. The delivery of the follow-on project is expected to promote development of clean hydropower generation for mitigating climate change While an option to increase the generation capacity would be to install additional diesel-fired thermal power plants, the recurrent costs for fuel and transportation would be burdensome. Another immediate option would be to import more power from India where coal-fired thermal plants dominate. These options would have adverse impacts on climate change. The development of domestic hydropower resources is considered critical in terms of the country's energy security. 7 JICA Upgrading Feasibility Study on Upper Seti (Damauli) Storage Hydroelectric Project in Nepal. Tokyo. JICA selected the proposed project from more than 100 potential sites and upgraded the feasibility study. 8 ADB Completion Report: Kali Gandaki "A" Hydroelectric Project. Manila. The project is rated successful based on a review of its relevance, efficacy, efficiency, sustainability, and impact on institutional development. 9 Seventeen independent power producers contribute 158 MW installed capacity, an average of less than 10 MW per producer. 10 ADB, Department of International Development of the United Kingdom, and International Labour Organization Country Diagnostic Studies Highlights of Nepal: Critical Development Constraints. Manila, London, and Geneva. 11 The ensuing investment project is expected to reduce carbon dioxide emissions, which are estimated at about 400,000 tons/year, based on the saving of potential alternative resources from the existing diesel-fired thermal plants and power import from India.

6 3 C. Outputs 8. The Study will provide consulting services for each of two major engineering design specifications: (i) civil works on geological risk assessments, and (ii) facilities on technical and hydrological risk assessments. During 2006/07, JICA assessed the envisaged physical investment project as feasible while requiring technical investigation to refine the detailed project design. It is essential for hydropower development to clarify the project's uncertain factors and to incorporate preventive actions and risk mitigation measures in the project design, prior to financing decisions and implementation. To minimize project risks, the Study will focus on geological and hydrological assessments through rock tests and hydraulic model simulation to establish engineering design parameters. The results will be included in the design drawings to be attached to the tender documents. The design and monitoring framework is in Appendix 1. See Project Classification Summary and Contribution to the ADB Results Framework (Appendix 2). D. Investment and Financing Plans 9. The Study is estimated to cost $2.95 million, including consulting services, administrative costs, and contingencies. The investment plan is summarized in Table 1. The details are in the project administration manual (PAM). Item Table 1: Project Investment Plan ($ million) Amount A. Base Cost a 1. Consulting services Administrative costs Subtotal (A) B. Contingencies b Total (A+B) a In 2010 prices. b Contingencies computed at 16.0% for the consulting services cost. Source: Asian Development Bank estimates. 10. The government has requested a grant not exceeding $2.50 million from ADB's Special Funds resources to help finance the Study for consulting services and contingencies. The government and NEA will finance $0.45 million equivalent of local currency costs for the administrative costs through in-kind contribution and taxes and duties, in accordance with the cost-sharing ceiling principle. The financing plan is summarized in Table 2. Table 2: Financing Plan Source Amount ($ million) Share of Total (%) Asian Development Bank (ADF grant) a Government and NEA Total a Exclusive of taxes and duties imposed in Nepal. ADF = Asian Development Fund, NEA = Nepal Electricity Authority. Source: Asian Development Bank estimates. 11. While a detailed engineering design would normally need to be supported through a TA loan, a grant from Asian Development Fund (ADF) resources is being proposed for the Study

7 4 instead of a TA loan due to the country's present debt distress position, in accordance with the revised 2007 ADF grant framework. 12 E. Implementation Arrangements 12. NEA will be the executing agency with overall responsibility for execution of the Study. If a special project company is established under NEA, it will be an implementing agency. 13 The Study is expected to start in October 2010 and be implemented over 24 months. The government and NEA asked ADB for advance contracting for consulting services with a consulting firm or consortium of firms to be selected by ADB. 14 All procurement and consulting services to be financed under the ADF grant will be carried out in accordance with ADB s Procurement Guidelines (2010, as amended from time to time) and ADB s Guidelines on the Use of Consultants (2010, as amended from time to time). The implementation arrangements are summarized in Table 3 and described in detail in the PAM, which includes the implementation schedule, disbursements, audit, reporting, monitoring, evaluation, and outline terms of reference for consulting services under the Study. Table 3: Implementation Arrangements Aspects Arrangements Implementation period October 2010 September 2012 Estimated project completion date 30 September 2012 Project management (i) Oversight body Steering Committee: Chair: secretary, Ministry of Energy Members: joint secretary, Ministry of Finance; managing director; NEA; general manager, Engineering Services, NEA; general manager, Generation, NEA Nepal Electricity Authority NEA or a special project company if established (ii) Executing agency (iii) Key implementing agencies (iv) Project implementation unit Department of Engineering Services (at least six core staff ) Consulting services QCBS 45 person-months $2.5 million Advance contracting Consulting services Disbursement a The grant proceeds will be disbursed in accordance with ADB's Loan Disbursement Handbook (2007, as amended from time to time) and detailed arrangements agreed upon between the government and ADB. ADB = Asian Development Bank, NEA = Nepal Electricity Authority, QCBS = quality- and cost-based selection. a For guidance, refer to ADB Loan Disbursement Handbook. Manila; and ADB Technical Assistance Disbursement Handbook. Manila. Source: Asian Development Bank. 12 The ADB Operations Manual section on technical assistance describes TA loans for detailed engineering design (OM D12/BP, para. 44), but also notes that a TA for detailed engineering design may be financed by a grant from ADF resources depending on country circumstances (OM D12/OP, para. 6, footnote 8). The revised 2007 ADF grant framework also mentions that no sector restrictions will be placed on the use of ADF grants or hard-term ADF loans; and that the processing and fiduciary guidelines for both facilities will be the same as those for regular ADF loans (ADB Revising the Framework for Asian Development Fund Grants. Manila) 13 Whether a special project company should be established or not will be studied during implementation of an associated project preparatory TA for other diligence and preparatory works (para. 13). Setting up such a company may have advantages to promote financial structuring, private participation, and accountability. 14 Based on the written request from the government and NEA, ADB will undertake the consultant selection process for the design consultant; NEA will retain its responsibility for contract negotiations and signing, and supervision of consulting services.

8 5 III. TECHNICAL ASSISTANCE 13. A separate project preparatory TA (the PPTA) will be attached to the Study mainly to promote project structuring and safeguard requirements as the Study covers only technical aspects. To improve overall project preparedness for complex hydropower development, the PPTA will conduct thorough due diligence and concrete preparatory works mainly for financial structuring, institutional setup, safeguard planning and advance actions, and bid documentation. 15 For the purposes, country partnership strategy programs the PPTA for Preparing Hydropower Development for Energy Crisis, indicating the envisaged loan project for The PPTA will be financed by a $2.0 million grant from the Japan Fund for Poverty Reduction, funded by the Government of Japan. The PPTA will be implemented concurrently with the Study. 16 The government and NEA asked ADB to provide advance contracting for the PPTA to facilitate project preparatory works in parallel with the Study. IV. DUE DILIGENCE 14. The proposed ensuing investment project will be carefully assessed and prepared based on the two-track due diligence and preparatory approaches of the Study and the PPTA. 17 The Study will mainly conduct technical due diligence while the PPTA's approach will scale up focuses on sustainable hydropower development with particular attention to safeguards, financing, partnerships, governance, and capacity building. While the Study and the PPTA will carefully review and prepare the project design, the government has been informed that approval of the Study and the PPTA does not commit ADB to finance any follow-on project. A. Technical 15. The accessibility and location of the proposed ensuing project are considered good; it is about 7 kilometers from the major highway near Pokhara (about 120 kilometers away from Kathmandu). The transmission line to evacuate power generated from the plant is 39 kilometers from the nearest substation. Following JICA's feasibility study assessment, the Study will examine geological and hydrological conditions. To assess the least-cost design and solid structure, meticulous material tests will be conducted. A hydraulic model will be used to establish the optimal technical design to ensure maximum generation capacity and minimum impacts of sediments and backwater in engineering and environmental terms. 18 This exercise will help develop a least-cost solution by improving accuracy of the cost estimates. Identifying uncertain technical risks will make bid prices more competitive and resultant benefits are expected to outweigh the study costs. B. Economic and Financial 16. The Study will not directly generate financial and economic returns; financial and economic internal rates of return will not be applicable. 19 The proposed ensuing project's financial and economic viability will be examined under the PPTA, based on the suitable project 15 The Study will assess detailed engineering design parameters, on which the PPTA will finalize the bidding documents defining the general qualification and technical specifications. The work scope between the Study and the PPTA is provided in Due Diligence and Project Preparation Process (Appendix 2). 16 Outline Terms of Reference and Cost Estimates of Technical Assistance (Appendix 2). 17 Due Diligence and Project Preparation Process (Appendix 2). 18 The recent technological change in hydropower development has been less environmental intrusive, through improved technologies such as hydrokinetic systems and hydraulic model tests. 19 For the ensuing physical project, JICA's feasibility study report indicates a base case financial internal rate of return of 10.3% and economic internal rate of return of 12.3%, and assesses the project to be financially and economically viable even under sensitivity analyses.

9 6 structure. The PPTA will promote financial structuring with the experienced private and public development partners through credit enhancements with emphasis on ADB's catalytic role Significant load shedding, particularly in the dry winter period, has generated significant economic losses for the country. The additional generation capacity is essential for the country's economy, representing national energy security. 21 C. Governance 18. Nepal s regulatory framework for the power sector is inadequate. As a result, private sector investment is limited and the country experiences major generation capacity constraints. To create an enabling framework to overcome these constraints, ADB has been implementing a capacity development TA for Promoting Private Sector Participation in the Power Sector, 22 and programs subsequent technical assistance for capacity building for energy institutions in In line with this TA implementation, the PPTA aims to develop suitable options for financial structuring and an institutional framework in collaboration with other public and private development partners, to make demonstration effects for subsequent projects ADB s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and NEA. The specific policy requirements and supplementary measures are described in the PAM (Appendix 2). D. Poverty and Social 20. The Study will not have direct poverty and social impacts. For due diligence on poverty, social, and gender issues of the proposed ensuing project, the PPTA will carry out full-scale social surveys and poverty and social analyses, and integrate findings into various social and gender action plans. See Initial Poverty and Social Analysis (Appendix 2). 24 E. Safeguards 21. Because the work entails consulting services with no civil works, the Study's safeguard categories are rated "C" for environment, involuntary resettlement, and indigenous peoples. JICA's feasibility study report assesses that the envisaged investment project will be feasible socially and environmentally. 25 Nevertheless, environmental and social safeguard measures will be carefully reviewed and strengthened through the Study and the PPTA to prepare appropriate safeguard plans in accordance with ADB s Safeguard Policy Statement (2009). 26 To ensure preparedness and smooth implementation of the follow-on project, the PPTA will carefully design and implement public consultations with affected people with emphasis on effective 20 Development Coordination (Appendix 2). 21 Country Economic Indicators (Appendix 2). 22 ADB Technical Assistance to Nepal for Promoting Private Sector Participation in the Power Sector. Manila. 23 The PPTA will also study the project structuring options including public private partnership. 24 The summary poverty reduction and social strategy will be developed during implementation of the PPTA. 25 The installed capacity of 127 MW is relatively smaller than other reservoir-type hydropower projects with hundreds and thousands of megawatts in the Himalayan region. Because of the natural topography with a narrow river and deep valley, the overall size of the potential reservoir is relatively limited. JICA's feasibility study report indicates that 86 households will need to be relocated (among them, relocation of 40 households is due to inundation). It also indicates that 948 households will be fully or partially affected in total. For the comparison, the Kali Gandaki A Hydroelectric Project affected 1,468 households, including 217 households that were displaced or relocated. 26 The safeguard category for the PPTA and its ensuing project will be assessed during TA implementation. Under the PPTA, a resettlement plan will be formulated and an indigenous peoples development plan prepared if needed.

10 7 communication strategies and concrete advance actions for social safeguards. 27 Social and environmental mitigation programs, including community development plans, will be prepared in partnership with nongovernment organization(s) and/or civil society. 22. During the Study, a hydraulic model will be tested with computer simulations to analyze the impacts of sedimentation and environmental mitigation measures. The Study will specify the design to protect riverbanks and to install early warning systems, paying attention to climate change adaptation design. The PPTA will strengthen disaster risk management for local flood management and ecosystem management, including fish hatcheries, implemented by the Kali Gandaki A Hydroelectric Project. F. Risks and Mitigating Measures 23. The Study's major implementation risk will be lack of consultant experience. The consultant selection criteria will include a requirement for adequate experience in similar detailed engineering studies. The Study's output quality will also determine the PPTA's input value. While the Study and the PPTA have clearly demarcated responsibilities for the consultants, the coordination mechanism between the two consultants needs to be clarified. Considering the input output relationship, the consultant's engineering assessment under the Study will be reviewed and guided by the PPTA consultant who will finalize the cost estimates and tender documents. This will be assured in the consulting services contracts for the Study and the PPTA. 24. Adequate provision for contingencies will mitigate the risk of fund shortage for further studies. The risk of implementation delay will be mitigated by advance contracting and close supervision of ADB and the steering committee. The successful implementation of the two-track project preparatory works through the Study and the PPTA will reduce the processing and implementation risks of the ensuing investment project. Major risks and mitigating measures are summarized in Table Table 4: Summary of Risks and Mitigating Measures Risks Lack of the consultant's technical performance Lack of coordination between the consultants for the detailed engineering study and the PPTA Lack of funding for further investigation Mitigating Measures Provision in the consultant selection criteria for adequate similar technical experience Provision in the contracts defining supervision of the PPTA consultant Adequate provision of contingencies Delay in implementation Advance contracting and close supervision of the steering committee and ADB ADB = Asian Development Bank, PPTA = project preparatory technical assistance. Source: Asian Development Bank. V. ASSURANCES AND CONDITIONS 25. The government and NEA have assured ADB that implementation of the Study will conform to all applicable ADB policies including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the PAM and grant documents. The government and NEA have agreed with ADB on certain covenants for the Study, which are set forth in the grant and project agreements. 27 JICA and NEA conducted public consultations. 28 Risk Assessment and Risk Management Plan (Appendix 2).

11 8 26. Anticorruption policy. ADB reserves the right to investigate, directly or through its agents, any violations of the Anticorruption Policy relating to the Study. All contracts financed by ADB shall include provisions specifying the right of ADB to audit and examine the records and accounts of the executing agency and all program contractors, suppliers, consultants, and other service providers. Individuals and/or entities on ADB's anticorruption debarment are ineligible to participate in ADB-financed activities and may not be awarded any contracts under the Study. To support these efforts, relevant provisions are included in the grant agreements for the Study. 27. Consulting services, procurement, and disbursement guidelines. All consultants will be recruited according to ADB's Guidelines on the Use of Consultants. The procurement of goods, related services, and works financed by the grant will follow procedures outlined in ADB's Procurement Guidelines if any. The grant proceeds will be disbursed in accordance with ADB's Loan Disbursement Handbook (2007, as amended from time to time). 28. Counterpart funding. The government and NEA will ensure adequate counterpart funding to complete the Study. Any shortfall of funding required will be assured by the government and NEA. 29. Grant effectiveness condition. As a condition to grant effectiveness, the government shall execute a subsidiary grant agreement with NEA upon terms and conditions satisfactory to ADB. The Ministry of Finance shall have obtained all necessary approvals from the government to enter into such subsidiary grant agreement, and shall have executed and validly entered into such subsidiary grant agreement. VI. RECOMMENDATION 30. I am satisfied that the proposed grant would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve (i) (ii) the grant not exceeding $2,500,000 to Nepal, from ADB s Special Funds resources, for the Detailed Engineering Study for the Upper Seti Hydropower Project, on terms and conditions that are substantially in accordance with those set forth in the draft grant and project agreements presented to the Board; and the administration by ADB of technical assistance not exceeding the equivalent of $2,000,000 to the Government of Nepal for Preparing Hydropower Development for Energy Crisis to be provided by the Japan Fund for Poverty Reduction on a grant basis. Haruhiko Kuroda President 05 August 2010

12 Appendix 1 9 DESIGN AND MONITORING FRAMEWORK Design Summary Impact Performance Targets and Indicators with Baselines Data Sources and Reporting Mechanisms Assumptions and Risks Assumptions Increased generation capacity for the country to sustain inclusive economic growth The winter power shortage alleviated by 2019 (from load shedding of 16 hours in 2008) Carbon dioxide emissions reduced by at least 400,000 tons per year by 2019 NEA annual reports UNFCCC registry Government s high policy priority for project development Adequate financing arrangements and timely implementation for the proposed ensuing project Continued upgrades for transmission and distribution network for reliable power supply Continued capacity building of NEA for project implementation Risks Exogenous economic and political shocks Undue security situation Outcome Assumptions The ensuing physical project for the Upper Seti hydropower development financed and implemented A least-cost project design adopted by ADB, the government, and NEA by 2012 Financial closure by 2012 Validated project design document for Clean Development Mechanism Loan agreements Construction contracts United Nations Framework Convention on Climate Change registry Government commitment to the proposed ensuing project Adequate financing sources including cofinancing and counterpart funding by the government and NEA Outputs Assumptions 1. Detailed engineering studies (DES): Project progress reports Satisfactory consultant performance Design specification for civil works (dam and waterways) Accurate geological evaluation, including appropriate mitigation measures from at least 25 boring tests completed by NEA Back-to-office reports of ADB review missions Minutes of tripartite meetings Availability of engineering data investigated by NEA Appropriate and timely stakeholder consultation and coordination

13 10 Appendix 1 Design Summary Performance Targets and Indicators with Baselines Data Sources and Reporting Mechanisms Assumptions and Risks Design specification for facilities (powerhouse and transmission) Detailed engineering design parameters and drawings 2. Attached PPTA: Financial and economic assessment Optimal hydrological assessment including appropriate mitigation measures from hydraulic model tests by 2012 Design reports including drawings and bills of quantity agreed by 2012 Financial and economic viability assessment by 2012 Consultant reports Tender documents Bid evaluation reports Timely environmental and social safeguard clearance process Risks Consultants lack adequate experience Lack of coordination between consultants who conduct detailed engineering studies and PPTA Financial structuring including cofinancing with public and private cofinancers by 2012 Institutional arrangements Setup of project management unit or separate special purpose vehicle by 2012 Public private partnership setup and contractual arrangements (e.g., institutional setup, power purchase) if applicable, by 2012 Environment and social safeguard assessment and feasible planning for implementation Environment assessment agreed by 2012 Environment management plan agreed by 2012 Project design document to apply for Clean Development Mechanism Resettlement assessment and plan agreed by 2012 Indigenous peoples assessment and development plan agreed by 2012 if appropriate

14 Appendix 1 11 Design Summary Performance Targets and Indicators with Baselines Poverty and gender assessment and related action plans agreed by 2012 Data Sources and Reporting Mechanisms Assumptions and Risks Community development plan agreed by 2012 Asset valuation for compensation and compensation rates agreed by 2012 Sector assessment Sector development road map for generation Policy and institutional development road map Tender documents Tender documents (for civil works and electromechanical works, including turbines and transmission lines) floated and evaluated by 2012 Final cost estimates and implementation schedule agreed by 2012 Activities with Milestones 1. Submission of inception reports to ADB and executing and implementing agencies (1 month after assignment) 1.1. Assessment of issues and strategy (DES, PPTA) 1.2. Initial assessment of environmental and social survey (PPTA) 1.3. Adjusted work plan and schedule (DES, PPTA) 2. Submission of first midterm report to ADB and executing and implementing agencies (7 months after assignment) 2.1. Evaluation of material test results (DES) 2.2. Interim assessment of hydraulic model test (DES) 2.3. Initial assessment of cost estimates (PPTA) 2.4. Financial structuring options (PPTA) 2.5. Institutional action plans (PPTA) 2.6. Initial social analysis (PPTA) 2.7. Asset valuation profiles (PPTA) 2.8. Final environment management plan (PPTA) Inputs Grant from ADF and JFPR a ADB: $4.5 million Item Amount ($ million) Detailed engineering study 2.5 PPTA for project structuring 2.0 a JFPR is funded by the Government of Japan and administered by ADB. Government: $0.81 million Item Amount ($ million) Detailed engineering study 0.45 PPTA for project structuring 0.36

15 12 Appendix 1 Activities with Milestones 3. Submission of second midterm report to ADB and executing and implementing agencies (15 months after assignment) 3.1. Final geological assessment (DES) 3.2. Final hydrological assessment (DES) 3.3. Basic detailed engineering design (DES) 3.4. Design for sedimentology (PPTA) 3.5. Design of generation scheme (PPTA) 3.6. Final assessment of cost estimates (PPTA) 3.7. Interim financial structuring plan and commercial arrangement (PPTA) 3.8. Financial and economic assessments (PPTA) 3.9. Setup of compensation related committees (PPTA) Social and poverty action plan (PPTA) Social action programs and community development plans (PPTA) 4. Submission of draft final report to ADB and executing and implementing agencies (22 months after assignment) 4.1. Final implementation schedule (PPTA) 4.2. Financial and economic viability assessments (PPTA) 4.3. Final financial plans (PPTA) 4.4. Social and environmental clearances (PPTA) 4.5. Agreed compensation framework (PPTA) 4.6. Final design specification and drawings (DES) 4.7. Bid documents (PPTA) 5. Submission of final report to ADB and executing and implementing agencies (24 months after assignment) ADB = Asian Development Bank, ADF = Asian Development Fund, DES = detailed engineering study, JFPR = Japan Fund for Poverty Reduction, NEA = Nepal Electricity Authority, PPTA = project preparatory technical assistance. Source: Asian Development Bank.

16 Appendix 2 13 LIST OF LINKED DOCUMENTS 1. Grant Agreement 2. Project Agreement 3. Summary Sector Assessment 4. Project Administration Manual 5. Project Classification Summary 6. Contribution to the ADB Results Framework 7. Development Coordination 8. Country Economic Indicators 9. Risk Assessment and Risk Management Plan 10. Outline Terms of Reference and Cost Estimates of Technical Assistance 11. Initial Poverty and Social Analysis 12. Due Diligence and Project Preparation Process