PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE. Kabeli Transmission Project

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1 Project Name PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Kabeli Transmission Project Report No.: AB6289 Region SOUTH ASIA Sector Power (50%);Renewable energy (50%) Project ID P Borrower(s) Government of Nepal Implementing Agencies Nepal Electricity Authority Kabeli Corridor 132 kv Transmission Line Project Durbar Marg Kathmandu, Nepal Telephone: Facsimile number: Attention: Mr. Shyam Shrestha, Senior Manager Electronic mail address: neachpur@ntc.net.np Alternative Energy Promotion Centre Khumaltar Heights, Lalitpur P.O.Box:14237 Kathmandu, Nepal Telephone: , Facsimile number: Attention: Dr. Narayan Prasad Chaulagain, Executive Director Electronic mail address: narayan.chaulagain@aepc.gov.np Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared January 25, 2011 Date of Appraisal February 9, 2011 (anticipated) Authorization Date of Board Approval May 31, 2011 (anticipated) 1. Country and Sector Background 1. Nepal s level of development with respect to energy is low by global and even South Asia regional standards. An estimated 88% of the country s total primary energy demand is met by traditional (non-commercial) forms of energy, and more than half of Nepal s population does not have access to reliable sources of electricity (grid and off-grid), with a significant disparity between access levels in urban Nepal (around 90%) and rural Nepal (around 30%). 2. Nepal s total grid-connected generation capacity amounts to a meager 698 MW (with actual available capacity at any moment considerably less) and, with a peak demand of about 885 MW, the supply-demand gap has grown sharply in recent years. Load-shedding (rationing of electricity to grid-connected consumers) has long been a facet of the hydro-dependent power system in Nepal, where protracted conflict and weak institutions and finances have discouraged investment and hampered the addition of generation capacity. Moreover, the Nepal power

2 system lacks adequate storage to capture the wet season surplus water that could be used to boost generation in the dry season. 3. Hydropower Development in Nepal. Nepal s significant hydropower potential is well known, as are the many challenges to developing this potential. While the efforts of the Government and its agencies, developers and other sector stakeholders to address these many obstacles are slowly bringing results, the large-scale development of Nepal s hydropower potential will clearly be a long-term process. 4. World Bank Group support to the energy sector in Nepal. The World Bank Group is supporting energy sector development in Nepal through existing IDA and IFC investments. The ongoing IDA-funded Power Development Project (PDP) includes support to new transmission and distribution system strengthening; rehabilitation of existing generation capacity; and technical assistance for institutional strengthening at the Nepal Electricity Authority (NEA). The PDP also supports the Government s microhydro village electrification program and includes technical assistance to the Ministry of Energy. IFC has investments in two private hydropower projects and is expanding its portfolio of investments in hydropower in Nepal. The World Bank also proposes to finance the Nepal-India Electricity Transmission and Trade Project and the Kabeli A Hydroelectric Project, which would utilize the Kabeli Corridor transmission line. Rationale for Bank Involvement 5. Project identified as priority in Government of Nepal s Electricity Crisis Management Plans. In response to the dramatic worsening of electricity supply that took place in 2008, the Government of Nepal formulated an Electricity Crisis Management Action Plan which is currently under implementation with support from IDA for some specific investments. The Plan includes a focus on developing new transmission corridors to facilitate the development of new generation projects which require transmission capacity to evacuate their power to the national grid. The Kabeli Corridor is one of five priority transmission corridors identified in the Action Plan. 6. The project is included in the joint IDA/IFC Interim Strategy Note for Nepal (FY10-11). The ISN recognized the direct relationship between the years of under-investment in infrastructure, particularly in the power sector,) and the current low level of economic development. The ISN articulates a role for IDA and IFC in supporting new hydropower generation and associated investments in power sector infrastructure. The proposed lending instrument is a Specific Investment Loan (SIL) 2. Description 7. The proposed transmission line will extend from Kabeli Bazaar in north of Panchthar District, to Damak in the Tarai, in Jhapa District, both in eastern Nepal. Substations will be built in the vicinity of Kabeli Bazaar and at the towns Phidim, Ilam and Damak. The project s location is significant from the perspective of the strategic development of the Integrated Nepal Power System as it will open up the extreme east of Nepal for power sector development and will shorten the distance required to transmit electricity to the country s main industrial center at Biratnagar.

3 8. There are no national parks or otherwise protected areas in the vicinity of the transmission line, and no resettlement of affected people is anticipated. Safeguards risks are thus not significant and can be adequately managed through clear mitigation measures. 9. The project development objectives are: (i) to support the addition to the Integrated Nepal Power System (INPS) of new transmission capacity to evacuate power generated in the Kabeli Corridor in eastern Nepal; and (ii) to provide access to electricity to communities in the area of the Kabeli 132 kv transmission line. 10. The project has three components: (a) Component 1. Kabeli Corridor 132 kv Transmission Line Component (IDA funding $25 million). Under this component, a 90-kilometer 132 kv double circuit transmission line and four substations (of which three will be funded by IDA) will be constructed. Technical assistance to facilitate project implementation will also be provided under this component. (b) Component 2. Rural Electrification-Grid Extension Component (IDA funding $3.5 million). Under this component, NEA will extend the grid, where technically feasible, to presently unelectrified communities located within 2.5 kilometers of either side of the transmission line (creating a zone that is five kilometers in width). Technical assistance to facilitate project implementation will also be provided under this component. (c) Component 3. Off-Grid Rural Electrification Component (IDA funding $1.5 million). This component will provide funding for off-grid rural electrification of communities for which grid extension is not a feasible option. The funds of this component will scale up current IDA support under the PDP to AEPC s Rural Energy Development Program (REDP). Through a community mobilization model, REDP facilitates electrification of rural communities primarily but not exclusively through support to community-managed microhydro systems. Technical assistance to facilitate project implementation will also be provided under this component. 3. Financing Source: ($m.) BORROWER/RECIPIENT 6 International Development Association (IDA) 30 Total Implementation 11. Components 1 and 2 will be implemented by NEA and Component 3 will be implemented by Alternative Energy Promotion Center (AEPC). Both agencies have several years of experience implementing components of the ongoing IDA-funded Power Development Project that are similar to their respective components under the proposed project. 5. Sustainability

4 12. The sustainability of the investments supported by the proposed project is considered to be high. The Kabeli Corridor has been identified as a priority transmission corridor in the Government s Electricity Crisis Management Action Plan. NEA has demonstrated technical capacity to implement and maintain transmission lines of this voltage: the INPS already has more than 1,500 km of transmission lines at the 132 kv level which are owned and maintained by NEA. Power purchase agreements (PPA) between NEA and the several IPPs who are developing projects in the Kabeli Corridor will provide a formal legal framework that will be conducive to supporting the sustainability of the investment. The high value placed by households on reliable access to electricity will help ensure the sustainability of the rural electrification components. Early results from an ongoing IDA-funded study of the long-term sustainability of community-managed microhydro schemes indicate a high degree of sustainability of schemes that have been in operation for five years or more. 6. Lessons Learned from Past Operations in the Country/Sector 13. Procurement. The project design reflects the lessons of NEA s recent experience with contracts tendered through international competitive bidding (ICB) under the Bank s ongoing Power Development Project. The bid documents for the main transmission line contract of the proposed contract were issued well in advance of appraisal, and, as of January 2011, the proposals are under evaluation. NEA s procurement capacity will be further strengthened with the assistance provided by an international procurement advisor whose services will be funded under the ongoing PDP and who will provide assistance in the execution of the remaining contracts to be funded under the project components implemented by NEA. 14. Contract management. Following the successful experience of the Khmiti-Dhalkebar 220 kv transmission line (funded by the PDP) in which NEA engaged an Owner s Engineer to manage contract implementation, the project design includes funds for engineering and supervision services to assist NEA in the implementation of the project. 15. Responding to the implementation challenge of energy projects. The environment in Nepal today for implementation of large-scale energy projects presents a number of obstacles that generally fall on the developer to resolve. These distinct but interlinked challenges range from contracting and contract management to the need to manage social dimensions of project implementation (including often heightened expectations of immediate benefits from the project; resistance or opposition to the project; and specific aspects of safeguard policies. Experience from the ongoing Power Development Project has demonstrated the importance of intense field supervision to ensure that implementation problems are addressed in a timely fashion. Multisector teams comprising technical, safeguards and fiduciary experts are essential, for developers as well as for the Bank. In recent years, the Bank has significantly scaled up its incountry capacity for project management, including a significant addition to the energy team. Project developers, including NEA, have increasingly recognized the importance of incorporating in project teams professionals with a wide range of skills, as reflected in the project implementation arrangements for the proposed project. 16. Need for adequate benefits-sharing mechanisms. At present, many people living in the territory through which the proposed transmission line will pass do not have access to reliable

5 sources of electricity. While it would generally not be economic to distribute power directly from the transmission line to households in the project zone (given low population densities and low levels of consumption of electricity by rural households), the experience of similar development projects indicates the importance of incorporating in project design adequate measures for sharing benefits with communities in the project zone. Community-level consultations confirmed general support for the project with the proviso that the benefit of electricity be shared. Accordingly, the project design includes support for rural electrification (through grid extension, where feasible, and otherwise through off-grid forms of electricity generation). This is particularly important in Nepal today, when expectations of inclusive growth are high. 7. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X ] [ ] Natural Habitats (OP/BP 4.04) [ ] [ X] Pest Management (OP 4.09) [ ] [ X] Indigenous Peoples (OP/BP 4.10) [ X] [ ] Physical Cultural Resources (OP/BP 4.11) [ ] [ X] Involuntary Resettlement (OP/BP 4.12) [ X] [ ] Forests (OP/BP 4.36) [X ] [ ] Safety of Dams (OP/BP 4.37) [ ] [ X] Projects on International Waterways (OP/BP 7.50) [ ] [ X] Projects in Disputed Areas (OP/BP 7.60) * [ ] [ X] 17. No population displacement. The proposed project traverses through the territory of 25 Village Development Councils (VDCs) of four districts in eastern Nepal. It entails no population displacement or resettlement. The physical components of the project that will lead to direct physical impacts involve construction of substations, erection of approximately 300 towers, establishment of transmission lines, camps and storage. NEA has completed a Social Impact Assessment (SIA) and developed a Resettlement Action Plan (RAP) for the angle towers whose final locations have been fixed, and a Social Management Framework (SMF) for the rest of the towers and other project components whose final siting can be determined only during project implementation based on site-specific construction considerations. The SIA, RAP and SMF have been disclosed through the NEA Web site. 18. Under the rural electrification grid extension component, the exact alignments of the rural distribution lines are not known at this stage. Detailed site investigations are planned for later in the implementation stage and will determine whether grid extension or off-grid electrification is the optimal form of electrification for rural settlements in the zone. The nature of the potential environmental issues of the low-voltage distribution lines in the 5 km zone around the transmission line is expected to be similar to that of the transmission line (described below), with reduced scale and severity. The follow measures will be adopted to identify and manage the potential environmental impacts of the rural electrification grid extension investments: (i) the * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas

6 exact location of investments will give priority to environmental considerations (the alignment of distribution lines and the positions of distribution transformers will avoid/minimize impacts on forests, avoid/minimize erosion/landslide risk, etc); (ii) each rural electrification proposal will be screened for potential environmental impacts; and (iii) site-specific Environmental Mitigation Implementation Plans will be prepared. Compliance monitoring will be carried out for activities under this component as in the case of the transmission line component. 19. For the off-grid rural electrification component, AEPC will prepare Vulnerable Community Development Plans for each village in which microhydro schemes are installed, in keeping with the practice established under the ongoing Power Development Project. 20. No protected area affected. In November 2010, NEA completed an Initial Environmental Examination (IEE) of the transmission line and substations. An Environmental Management Plan (EMP) was prepared on the basis of the IEE. There is no protected area or known conservation site in and around the project area including the transmission line alignment and substation sites. The identified environmental risks are limited to the vicinity of the transmission line and the substations and can be mitigated through simple mitigation measures that have been incorporated into the EMP. The IEE and EMP have been disclosed on the NEA Web site ( The obligations of the contractor for the transmission line and substations with respect to environmental mitigation activities as envisaged in the EMP are included in the bidding documents/contract. 21. For the off-grid rural electrification component, AEPC will follow the Environment Assessment Guidelines for Community-owned and Managed Micro Hydro Schemes that are in use under the ongoing Power Development Project. The guidelines provide checklists of potential environmental issues related to the siting of micro hydropower plants and construction and operation activities together with potential mitigation measures as well as a sample matrix for environmental assessment. Each micro hydropower scheme s Detailed Project Report (DPR) contains findings of the EA of the scheme and project-related mitigation measures are internalized. 22. Manageable environment impacts. The main adverse environmental impacts of the transmission line and substations as described in the IEE include: (i) impacts on forest and wildlife (33 km of the transmission line pass through community, government and private forests); (ii) increased soil erosion and slope instability and landslides due to vegetation clearance and excavation activities, particularly in the fragile Siwalik hill and steep sections of the Midhills; (iii) occupational health and safety (OHS) of workers working on the towers, at cable stringing, excavation on difficult hilly terrains, and electric shocks as well as health and safety of communities that could be impacted by workers poor sanitation practices, HIV/AIDS risks from outside workers, and disposal of hazardous wastes; and (iv) impacts resulting from the substations and hazardous wastes generated there. 8. List of Factual Technical Documents 1. NEA. Feasibility Report. Kabeli Corridor 132 kv Transmission Line. June 2010.

7 2. NEA. Kabeli Corridor Transmission System Development Feasibility Study. January Social Impact Assessment of the Kabeli Corridor 132 kv Transmission Project. December Resettlement Action Plan for Angle Towers of the Kabeli Corridor 132 kv Transmission Project. December Social Management & Entitlement Framework of the Kabeli Corridor 132 kv Transmission Project. December Contact point Contact: Michael Haney Title: Senior Energy Specialist Tel: (202) For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) pic@worldbank.org Web: