Completion Report

Project Number: 29471-013

Loan Number: 1732
December 2011

Nepal: Rural Electrification, Distribution, and

Transmission Project
 CURRENCY EQUIVALENTS

Currency Unit – Nepalese rupee/s (NRe/NRs)

At Appraisal At Project Completion

1 November 2003 30 December 2008
NRs1.00 = $0.0146 $0.0143
$1.00 = NRs68.70 NRs70.00

ABBREVIATIONS

ADB – Asian Development Bank

DPC – district profit center
EIRR – economic internal rate of return
FIRR – financial internal rate of return
IEE – initial environmental examination
NEA – Nepal Electricity Authority
NFA – net fixed assets
OFID – OPEC Fund for International Development
SFR – self-financing ratio
T&D – transmission and distribution
WACC – weighted average cost of capital

WEIGHTS AND MEASURES

kWh – kilowatt-hour (1,000 watt-hours)

GWh – gigawatt-hour (1,000 megawatt-hours)
kV – kilovolt (1,000 volts)
kVA – kilovolt-ampere
km – kilometer
MVA – megavolt-ampere
MW – megawatt (1,000 kilowatts)

NOTES

(i) The fiscal year (FY) of the government and the Nepal Electricity Authority ends
on 15 July. FY before a calendar year denotes the year in which the fiscal year
ends, e.g., FY2008 ends on 15 July 2008.

(ii) In this report, "$" refers to US dollars.

Vice-President X. Zhao, Operations 1
Director General S. Hafeez Rahman, South Asia Department (SARD)
Director Y. Zhai, Director, South Asia Energy Division

Team leader S. Janardanam, Finance Specialist (Energy), SARD

Team member C. Roque, Project Officer, SARD

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.
 CONTENTS

Page
BASIC DATA i

I. PROJECT DESCRIPTION 1
II. EVALUATION OF DESIGN AND IMPLEMENTATION 2
A. Relevance of Design and Formulation 2
B. Project Outputs 3
C. Project Costs 7
D. Disbursements 7
E. Project Schedule 7
F. Implementation Arrangements 8
G. Conditions and Covenants 8
H. Consultant Recruitment and Procurement 9
I. Performance of Consultants, Contractors, and Suppliers 10
J. Performance of the Borrower and the Executing Agency 10
K. Performance of the Asian Development Bank 10
III. EVALUATION OF PERFORMANCE 11
A. Relevance 11
B. Effectiveness in Achieving Outcome 11
C. Efficiency in Achieving Outcome and Outputs 11
D. Preliminary Assessment of Sustainability 12
E. Impact 12
F. Social Assessment 13
IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13
A. Overall Assessment 13
B. Lessons 13
C. Recommendations 14
APPENDIXES
1. Project Framework 15
2. Cost Breakdown by Project Components 17
3. Project Financing Plan 18
4. Projected and Actual Disbursements of Loan Proceeds 19
5. Implementation Schedule 20
6. Status of Compliance with Major Loan Covenants 21
7. Financial and Economic Evaluation 23
 BASIC DATA

A. Loan Identification
1. Country Nepal
2. Loan Number
ADB 1732-NEP(SF)
OFID 825 P
3. Project Title Rural Electrification, Distribution, and
Transmission Project
4. Borrower Government of Nepal
5. Executing Agency Nepal Electricity Authority
6. Amount of Loan
ADB SDR36,213,000
OFID $10 million
7. Project Completion Report Number 1290

B. Loan Data

1. Appraisal
– Date Started 12 September 1999
– Date Completed 17 September 1999
2. Loan Negotiations
– Date Started 10 November 1999
– Date Completed 12 November 1999
3. Date of Board Approval 21 December 1999
4. Date of Loan Agreement 13 July 2000
5. Date of Loan Effectiveness
– In Loan Agreement 12 October 2000
– Actual 14 March 2002
– Number of Extensions 2
6. Closing Date
– In Loan Agreement 30 June 2005
– First Revision 30 June 2007
– Second Revision 31 December 2008
– Actual 19 December 2008
– Number of Extensions 2

Asian Development Bank Loan

7. Terms of Loan
– Interest Rate 1.0% during grace period, 1.5% thereafter
– Maturity (number of years) 32 years
– Grace Period (number of years) 8 years
8. Terms of Relending
– Interest Rates 8% for rural electrification and off-grid
distribution, 12% for all other components
– Maturity (number of years) 25 years
– Grace Period (number of years) 8 years
– Second-Step Borrower Nepal Electricity Authority
ii

OPEC Fund for International

Development Loan
9. Terms of Loan
– Interest Rate 1.0%
– Maturity (number of years) 12 years
– Grace Period (number of years) 5 years
10. Terms of Relending
– Interest Rate 12% (Part D)
– Maturity (number of years) 25 years
– Grace Period (number of years) 5 years
– Second-Step Borrower Nepal Electricity Authority
ADB = Asian Development Bank, OFID = OPEC Fund for International Development, SDR = special drawing right.

11. Disbursements
a. Dates

Initial Disbursement Final Disbursement Time Interval

9 September 2003 19 December 2008 63 months

Effective Date Original Closing Date Time Interval

14 March 2002 30 June 2005 40 months

b. Amount (SDR’000)

Original Partial Last Revised Amount Undisbursed

Category Allocation Cancellation Allocation Disbursed Balance
01A Equipment & materials for parts A,B, & C 20,884 (3,146) 17,794 17,565 229

01B Supplies for part E 695 (46) 2,282 1,737 545

01C Turnkey contracts for parts A & C 4,406 (395) 3,811 3,677 134

01D Turnkey contracts for part D 2,149 155 2,304 1,610 694

01E Subloans for Part B 724 (724) 0 0 0

02 Consulting Services 1,021 (223) 798 630 168

03 Interest Charge 724 0 724 318 406

04 Unallocated 5,610 (4,121) 0 0 0

a
Total (SDR'000) 36,213 (8,500) 27,713 25,537 2,176
Total ($'000) 50,000 (12,125) 37,875 38,164 3,338
a
The undisbursed balance was cancelled at loan closing on 19 December 2008.

C. Project Data
1. Project Cost ($’000)

Cost Actuala
Foreign Exchange Cost 44.23
Local Currency Cost 12.86
Total 57.09
a
Foreign costs include the OPEC Fund for International Development loan of $6.07 million.
 iii

2. Financing Plan ($ million)

Cost Appraisal Estimate Actual
Implementation Costs
Borrower Financed 35.5 12.8
ADB Financed 37.5 37.7
Other External Financing 10.0 6.1
Total 82.0 56.6
IDC Costs
Borrower Financed 0.0 0.0
ADB Financed 12.5 0.5
Other External Financing 0.0 0.0
Total 94.5 57.1
ADB = Asian Development Bank, IDC = interest during construction.

3. Cost Breakdown by Project Component ($ million)

Appraisal Estimate Actual
Project Costs Foreign Local Total Foreign Local Total
Rural electrification 18.40 6.20 24.60 31.79 7.38 39.17
Distribution for isolated 2.00 0.80 2.80 0.00 0.00 0.00
power projects

Distribution system 15.50 3.40 18.90

reinforcement
Transmission 11.30 6.20 17.50 8.55 4.61 13.15
development
Computerized billing 1.20 0.30 1.50 3.04 0.35 3.39
systems
Other institutional 0.80 0.40 1.20 0.38 0.52 0.90
strengthening
Taxes and duties 0.00 2.40 2.40 0.00 0.00 0.00
Subtotal Base Cost 49.30 19.70 69.00 42.76 12.86 56.61
Contingencies
1. Physical 4.90 2.00 6.90 0.00 0.00 0.00
2. Price 4.40 1.70 6.10 0.00 0.00 0.00
Subtotal 9.30 3.70 13.00 0.00 0.00 0.00

Interest During 1.40 11.10 12.50 0.48 0.00 0.48

Construction
Total 60.00 34.50 94.50 44.23 12.86 57.09
a
In actual costs, parts A and C are combined.

4. Project Schedule
Item Appraisal Actual
Estimate
Date of Contract with Consultants
Part D Feb 2000 Feb 2004
Part E Sep 2000 May 2003
Part F Sept 2000 June 2004
Completion of Engineering Designs May 2001
Civil Works Contracts Nov 2003

Date of Award Dec 2000 Sept 2003

 iv
Completion of Work Dec 2003 June 2011
Equipment and Supplies
Dates
First Procurement Dec 2000 Feb 2004
Last Procurement Jan 2001 Aug 2006
Completion of tests and commissioning Dec 2003 June 2011

5. Project Performance Report Ratings

Ratings
Development Implementation
Implementation Period Objectives Progress
From 31 Mar 2002 to 31 Dec 2002 PS S
From 1 Jan 2003 to 31 Dec 2003 PS S
From 1 Jan 2004 to 31 Aug 2004 PS S
From 1 Sep 2004 to 31 Dec 2004 S S
From 1 Jan 2005 to 31 Dec 2005 S S
From 1 Jan 2006 to 30 Apr 2006 S S
From 1 May 2006 to 31 Dec 2006 PS S
From 1 Jan 2007 to 31 Dec 2007 PS S
From 1 Jan 2008 to 31 Dec 2008 PS S
PS = partly satisfactory, S = satisfactory.

D. Data on Asian Development Bank Missions

No. of No. of Specialization
Name of Mission Date Persons Person- of Members
Days
Project review 1 13–24 Nov 2000 1 12 b
Project review 2 30 Aug–4 Sept 2001 1 5 b
Project review 3 24–28 Feb 2002 1 5 b
Project review 4 19–21 June 2002 1 3 b
Project review 5 (midterm) 8–16 Apr 2003 3 24 b, c, e
Project review 6 1–9 Dec 2003 1 9 b
Project review 7 3–9 March 2004 1 7 b
Project review 8 6 Aug–2 Sep 2004 1 8 b
Project review 9 9–15 March 2005 2 14 b
Project review 10 6–9 Sept 2005 3 12 b, c, e
Project review 11 18–19 Jan 2006 1 2 b
Project review 12 24–30 May 2006 2 14 b, f
Project review 13 20–24 Nov 2006 3 15 c, e
Project review 14 27–30 Mar 2007 2 8 e
Project review 15 30 Jul–6 Aug 2008 1 8 b
Project review 16 20–26 Nov 2008 1 7 b
Project completion 1–6 Sep 2011 2 12 c, e
a = project specialist, b = energy specialist, c = financial specialist, d = project engineer, e = project analyst, f =
consultant.
 I. PROJECT DESCRIPTION

1. Years of underinvestment in electricity generation and its transmission and distribution

(T&D) in Nepal left chronic shortages and network bottlenecks, prompting the government to
initiate a comprehensive plan to improve sector efficiency, service quality, and governance. The
government adopted its hydropower development policy to develop Nepal’s large hydropower
potential and export energy to generate revenues. Its Ninth Five-Year Plan, 1997–2002 aimed
to reduce economic and social inequality and expand electricity supply.

2. At appraisal in 1999, Nepal’s per capita electricity consumption of 48 kilowatt-hours per

year was the second lowest in the region. The Nepal Electricity Authority (NEA), the vertically
integrated power utility, produced only 314 megawatts (MW) against peak demand of 326 MW,
with annual energy sales amounting to 1,053 gigawatt-hours (GWh). Only 14.6% of the
population had access to electricity, mostly in towns and cities. T&D losses were estimated at
24.5% in 1999, caused by lack of investment and technical and commercial losses. Thus, power
shortages, poor quality of supply, and frequent load shedding across the country undermined
industrial competitiveness and agricultural potential. Demand growth was estimated at 8.5% per
annum in 1999. Peak demand for electricity was estimated to be 3,679 MW by fiscal year 2027–
2028 (FY2028),1 requiring that power generation and T&D facilities be augmented.

3. On 21 December 1999, the Asian Development Bank (ADB) approved the $50 million
Rural Electrification, Distribution, and Transmission Project to expand rural electrification,
reinforce distribution systems in existing service areas, expand transmission in the Kathmandu
Valley, and connect with the grid in India. The project, covering the eastern, central, and
western development regions of the country, was designed to promote economic growth and
improve standards of living in rural areas by improving access to electricity and supporting the
implementation of Nepal’s Agricultural Perspective Plan. The project aimed to develop the
NEA’s T&D system, evacuate power from existing and upcoming hydropower plants, extend the
NEA distribution system to more rural communities, accommodate increased loads and new
consumers in existing service areas, reduce losses and improve the efficiency of NEA's
operations, and develop a transmission system in the Kathmandu Valley. It further aimed to
improve the NEA’s operational efficiency, shift it toward more commercial orientation, and lease
some district distribution operations to independent operators. Agreement was reached to
improve the NEA’s financial performance, including introducing a semiautomatic process for
more frequent tariff revisions.2

4. The project loan3 was to assist the Government of Nepal and the NEA in improving the
quantity and quality of power supply, meeting peak demand and reducing system losses. It
included six components: (i) part A: expansion of NEA’s interconnected grid for rural
electrification in the eastern, central and western regions; (ii) part B: electricity distribution
system extensions for isolated power projects not connected to the integrated grid; (iii) part C:

1
Nepal Electricity Authority. 2010. A Year in Review—Fiscal Year 2009/10. Kathmandu.
2
The absence of tariff increases since 2001, coupled with poor power supply, prompted the government to
investigate in FY2005 the financial restructuring of the NEA to reduce its operating and financial costs. In 2010, a
financial restructuring plan for the NEA was submitted for approval and included (i) a tariff increase, (ii) a write-off
of accumulated receivables, (iii) capitalization of 50% for certain projects, and (iv) a reduction of the interest rate at
which NEA reborrows from 8% to 5%.
3
ADB has implemented three technical assistance (TA) projects to prepare the feasibility studies relevant for the
project. The power system Master Plan for Nepal (TA 2614-NEP), completed in August 1998, included preparing a
transmission system master plan. The Rural Electrification and Distribution Improvement Project (TA 2911-NEP),
completed in March 1999, prepared the detailed plan for those project components. And the transmission plan for
the Kathmandu Valley was prepared under TA 3193-NEP completed in October 1999.
2

reinforcement of the NEA’s distribution system in existing service areas at 33 kilovolts (kV) and
lower voltage levels in the eastern, central and western regions; (iv) part D: transmission system
development in the Kathmandu Valley and a new transmission interconnection to India; (v) part
E: nationwide implementation of computerized billing systems for the NEA; and (vi) part F: other
institutional strengthening for the NEA, including assistance with revaluating fixed assets and
formulating the detailed design of a plan to establish district profit centers (DPCs). The foreign
costs of the project were funded by project loans from ADB and the OPEC Fund for
International Development (OFID), 4 and local costs were funded from the resources of the
government and the NEA. During implementation, additional works to reinforce grid substations
were included in part D under ADB and OFID funding, to use budget originally provided for part
B, which was cancelled in March 2005 as no suitable subprojects for part B could be identified.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. The project was highly relevant to government sector strategies at both appraisal and
completion. It was consistent with government policies to expand and diversify Nepal’s power
system to provide power to more residents in both urban and rural areas, supply the affordable
electricity required for economic growth, and improve standards of living and economic
development in rural areas. The government’s hydropower development policy adopted in 1992
aimed to (i) promote private sector participation, (ii) expand T&D systems, (iii) improve the
quality and reliability of power supply and reduce system losses, (iv) develop hydropower and
district-level projects, and (v) rationalize tariffs. The Ninth Five-Year Plan, 1997–2002 prioritized
rural electrification to improve equality in electricity distribution. A long-term goal of the
government is to reorient the power sector from domestic supply to significant exports. The
project was consistent with ADB’s strategy for NepaI’s energy sector, which at appraisal was to
support the policy of improving governance and efficiency, expanding rural electrification to
enhance the outcomes of rural development projects, and promoting a more commercial
approach to power supply and increased participation by the private sector. Moreover,
improving the performance and governance of the NEA has been an underlying objective of
ADB operations in the sector.

6. The project was realistically and comprehensively designed to address key development
needs in Nepal’s power sector. It was conceived at a time when, owing to stagnant and
insufficient tariffs, NEA’s financial position was deteriorating quickly and prolonged
underinvestment rendered the NEA unable to meet rising demand for power or stem declining
power supply quality and reliability. The project was formulated in close coordination with, and
with support from, the NEA, the government, and the then Ministry of Water Resources,
covering part of an investment plan to be implemented over 5 years. It was highly relevant as it
focused on (i) expanding T&D systems to accommodate increased generating capacity, (ii)
expanding the availability of power in urban and rural areas, (iii) reducing NEA T&D losses, and
(iv) improving sector efficiency. The project incorporated several covenants designed to
strengthen the long-term sustainability of the sector in general and of the NEA in particular such
as (i) strengthening the financial performance and self-financing of the NEA through improved
tariffs and procedures; (ii) improving accounting, auditing, and the recording of fixed assets; (iii)
helping establish DPCs and performance incentives; (iv) establishing computerized billing
systems; (v) designing and implementing an action plan to reduce nontechnical losses; and (vi)
enacting the Electricity Theft Control Act. These considerations remained equally relevant at

4
OFID’s funding was an untied loan administered by ADB.
 3

project completion. ADB has encouraged the government to (i) improve governance and private
sector participation, (ii) achieve improved efficiency and sustainability through commercialization,
and (iii) electrify poor rural areas. By strengthening and expanding T&D systems, the project
loan helped increase the national electrification ratio from 14.6% in 1999 to 42% in 2008 and
56% in 2011.
B. Project Outputs

7. The project loan (i) expanded electricity supply coverage in rural areas of the eastern,
central, and western regions, (ii) strengthened the T&D system by constructing transmission
lines and constructing and upgrading substations, (iii) improved efficiency by computerizing the
billing and collection systems in half of the collection centers nationwide, (iv) institutionally
strengthened the NEA by revaluating and physically verifying its fixed assets, and (v) developed
a performance-based management system for DPCs. It also helped the NEA achieve
institutional and financial reforms.

8. Appendix 1 compares project performance with the project framework in the report and
recommendation of the President. The project largely succeeded in (i) improving service
coverage, particularly in poor rural areas; (ii) contributing to an improved transmission network;
(iii) improving the capacity of distribution systems, including in the Kathmandu Valley; and (iv)
improving management efficiency and revenue collection.

9. After the ADB loan account closed in 2008, the NEA completed the remaining works
using its own resources. By the end of FY2011, when all the remaining works were completed,
an estimated 119,000 new consumers had been connected to the grid. Of 22 substations
constructed or upgraded under the project, 4 have been further upgraded in response to high
demand and 12 are running at full capacity. The remaining 6 substations are currently running
at 70% of their installed capacity.

10. The original scope of part A: rural electrification was to expand the NEA’s rural grid in
the eastern, central, and western regions. This consisted of (i) newly supplying rural areas in 22
districts with 13 rural electrification schemes in the plains and 9 in hill districts and (ii)
constructing new 33 kV lines and substations. The rural electrification component served 240
village development committees; connected 154,000 rural households, or 860,000 residents of
poor rural areas; and constructed 9 new 33/11 kV area substations, 694 11 kV/low voltage
distribution transformers, 1,150 kilometers (km) of 11 kV lines, 117 km of 33 kV lines, and 1,314
km of low-voltage lines. The component was expected to increase the number of NEA
customers by 22% and improve the electrification ratio from 14.6% to about 18.0%.

11. Part B extended electricity distribution systems for isolated power projects not connected
to the integrated grid. In March 2005, this component was cancelled mainly for lack of suitable
subprojects. The funding provided for this component was used instead to upgrade the capacity
of transformers in three 132kV substations as follows: (i) One new 132/33 kV, 30 megavolt-
ampere (MVA) 3-phase transformer and a control and protection panel were installed in
Anarmani substation, including bay extension at 132 kV and 33 kV. Upon completion of this
work, one 132/33 kV, 15 MVA 3-phase power transformer was relocated to another substation.
(ii) One new 132/11 kV, 30 MVA 3-phase transformer was installed in Pokhara substation,
including bay extension at 132 kV and the replacement of one section of six existing 11 kV
switchgear panels. Upon completion, one 132/11 kV, 7.5 MVA 3-phase transformer was
relocated to another substation. (iii) One set of new 132/66 kV, 3x12.6 MVA transformers (a
4

bank of three single-phase transformers), a control and protection panel, and 132 kV power
cables were installed in Siuchatar substation, which included bay extension at 132 kV and 66 kV.

12. This subcomponent commenced on 21 June 2006 and was completed successfully and
commissioned on 19 January 2008, with a delay of 8 months. The performance of the contractor
was satisfactory. ADB partly administered the OFID loan.5 Special arrangements were made to
use the commitment procedure for two project contracts cofinanced by OFID, in which ADB
advanced payment of the OFID portion and was subsequently reimbursement by OFID. This
component contributed to enhancing the quality and reliability of the sub-T&D system of Mechi
zone in eastern Nepal, improved the 11kV distribution capacity of Pokhara substation, and
increased the power transforming capacity of Siuchatar substation.

13. Part C comprised distribution system reinforcement at 33 kV and below in existing NEA
service areas in the eastern, central, and western regions. This component was intended mainly
to bring distribution systems up to a satisfactory standard to reduce losses, rehabilitate facilities,
improve reliability, improve voltage control, and serve expected load growth over the next 5
years by upgrading or rehabilitating substations and distribution systems, thereby improving the
efficiency of NEA operations. The component (i) built 9 new 33/11 kV area substations and
upgraded 11 other area substations, (ii) built 74 km of new 33 kV lines and built or upgraded
998 km of 11 kV lines, (iii) installed a new or replaced 481 distribution transformers with a
combined capacity of 63,200 kilovolt-amperes, and (v) built or replaced 545 km of low-voltage
lines. The aim was to reinforce existing distribution systems for 28 schemes in 27 districts.

14. Detailed feasibility studies for the components on rural electrification and distribution
system reinforcement were undertaken in 1998, and bids were invited in 2001. However, as
loan covenants could not be complied with within the stipulated time, these two components
could not be started until 2004. The NEA was compelled to carry out several activities in the
interim, including increasing substation capacity as electricity loads had risen substantially in the
selected areas. Thus, in March 2005, parts A and C were combined, and the scope for the rural
electrification and distribution system reinforcement components revised to 24 schemes in 22
districts, 277 village development councils, 123,400 household connections, 8 new 33/11 kV
area substations, 543 11/0.4 kV distribution transformers, and 2,522 km of lines comprising 107
km of 33 kV lines, 495 km of 11 kV lines, 495 km of composite lines, and 1,425 km of low-
voltage lines. All these components were completed, and 119,000 new connections made.

15. The construction of new rural electrification and distribution system reinforcement
substations has helped expand electricity supply to targeted households, as well as strengthen
and enhance NEA’s distribution system in urban and rural areas. This contributed to system
reliability and loss reduction. The components were highly successful in meeting demand
growth in targeted areas. Of 22 substations constructed or upgraded under the project, 4 have
already been further upgraded to meet high demand and 12 are running at full load. The
remaining 6 substations are currently running at 70% of their installed capacity.

16. Part D strengthened transmission systems in the Kathmandu Valley and constructed an
interconnecting transmission line to the Indian border. At appraisal, this component comprised (i)
expanding existing 132 kV substations at Bhaktapur, Patan, Balaju, and New Chabel; (ii)
constructing a 26 km 132 kV transmission line from Bhaktapur to Thankot, as well as a new

5
Under partial administration, ADB was responsible for (i) reviewing withdrawal applications and advising
OFID to make the requested payments and (ii) procuring supervision services. Upon receipt of
clearance, OFID directly paid recipients and/or suppliers of goods and services.
 5

substation at Harisiddhi and a new switching station at Thankot; and (iii) constructing a 23 km
double-circuit 132 kV transmission line from Butwal substation to the Indian border. In March
2005, the scope was revised to (i) expand the existing substation at Patan and drop the New
Chabel substation as it was already constructed using NEA’s funds; (ii) construct 28.5 km of 132
kV double-circuit and 4-circuit transmission line from Mathathirta in Thankot to Bhaktapur via
Harisiddhi, a new switching station at Matathirta, and a new substation at Harisiddhi; and (iii)
construct a connecting transmission line from Parwanipur to Birgunj in lieu of the double circuit
132 kV transmission line from Butwal substation to the Indian border, which had to be cancelled
because of the India–Nepal Power Exchange Committee’s slow progress in reaching agreement
to proceed with constructing the line.

17. The transmission line was originally designed to run through rural areas but, prior to loan
effectiveness, was redesigned to go through urban areas to reduce cost. The following two
packages were tendered for execution: (i) the construction of the 28.5 km 132kV transmission
line from Matatirtha in Thankot to Bhaktapur substation and (ii) the expansion of the existing 132
kV substation at Balaju and construction of a new substation at Harisiddhi and a new switching
station at Matatirtha. The transmission line package included constructing 300 meters of loop-in
loop-out on the existing Kulekhani II–Siuchatar 132kV transmission line into Matatirtha switching
station; constructing the 132 kV double-circuit transmission line from Matatirtha switching station
to Katunje tap-off point at Bhakatpur via the proposed Harisiddhi substation; and constructing
the 132 kV four-circuit transmission line from the Katunje tap-off point to the existing 132/66 kV
Bhaktapur substation, replacing the existing double-circuit 66 kV transmission line. The supply
and installation of optical ground wire from Siuchatar to Bhaktapur substation was included.

18. In response to opposition from residents of Lalitpur District, the transmission line could
not be completed. Similarly, land issues raised by residents of Harisiddhi prevented the
construction of the Harisiddhi substation, though the equipment had been delivered. The 132/11
kV, 18/22.5 MVA transformer and associated bay equipment intended for Harisiddhi substation
was installed in Matatirtha substation, and two sets of 132kV line bay equipment remain unused.

19. The contractor commenced transmission line works on 31 January 2005. However, a
dispute with the NEA caused the contractor to cease works from April 2008 to December 2010,
resuming them from 5 January 2011 only to construct the loop-in loop-out works at Matatirtha.
The contract for the substation component was signed on 31 April 2007 and completed on 31
December 2010 with a time extension. The works completed so far are the construction of 300
meters of loop-in loop-out on the existing Kulekhani II–Siuchatar 132kV transmission Line into
Matatirtha switching station, enabling the charging of Matatirtha substation; the expansion of the
existing 132 kV substation at Balaju and Bhaktapur; and the construction of Matatirtha
substation. Of 96 towers to be constructed, only 56 have been constructed, and conductor
stringing has not begun. Although the Thankot–Chapagaon transmission line could not be
completed, enhanced substation capacity in the Kathmandu Valley has improved the quality and
reliability of its 11kV distribution system.

20. Part E was to implement nationwide computerized billing systems for the NEA, providing
the computer hardware, software, and consulting services required to computerize 15 of the
NEA’s larger distribution branch offices in Kathmandu and throughout Nepal, which accounted
for more than two-thirds of its revenue. The NEA decided to expand the coverage of this
component to 20 distribution centers, accomplished by rearranging old areas and creating new
areas in 15 distribution centers to make revenue management, including billing and collection,
more efficient. There were two phases. In the first phase, consultants were to assist in preparing
a strategy for the NEA’s development of a computerized accounting and financial management
6

information system and subsequently in selecting an appropriate Oracle-based billing system.

The consultant was to help the NEA procure the computerized billing software and hardware for
20 large distribution systems and implement them in four pilot branches. In the second phase,
the NEA was to implement the same software in an additional 24 distribution centers and
associated sub-branches, including procuring hardware and software. In addition, handheld
meter-reading devices and software were to be procured and implemented on a pilot basis in 26
centers, and an interactive voice-response system was to be procured and implemented in five
offices.

21. This component was delayed and unable to adhere to the implementation schedule
outlined above because of political instability and security issues; the lack of trained manpower
and computer literacy; the time required to perform data and system analysis in various
branches and reconcile customer bill-collection data and input it from ledgers; and the delayed
procurement of hardware and software caused by amendments, retendering, and clarifications.
Consultants commenced work on 4 June 2004 and extended it until 27 September 2007. At
appraisal, the consultant inputs were estimated at $0.29 million, which was revised to $0.23
million at midterm. Consultant inputs for procuring billing software and installation it in four pilot
distribution centers were extended because of delayed project implementation. Savings were
used to cover an additional 24 branches and 20 sub-branches. The system helped improve
revenue collection, the quality and accuracy of bills, nontechnical losses, consumer satisfaction,
and the timely collection of management information. Handheld metering devices reduced
human error in meter reading. This component enhanced the NEA’s ability to implement
complex information technology projects. By FY2011, the computerized billing system had been
implemented in 54 branches and sub-branches of the NEA that account for 67% of its revenue.
Handheld meter-reading devices have been deployed at 26 locations across Nepal.

22. Part F assisted with revaluating fixed assets and detailed planning to establish
distribution DPCs.

(i) Revaluating NEA fixed assets. Consulting services were provided to strengthen
the NEA's institutional capacity to revalue fixed assets using a computerized
database. Assistance helped the NEA (a) establish a computerized register of
fixed assets, (b) improve accounting procedures to resolve issues raised by
auditors relating to the revaluation of fixed assets, (c) design an appropriate
interim formula for annually revaluing fixed assets, and (d) physically verify and
revalue its fixed assets. Consultants worked with NEA counterpart staff during
implementation. The physical verification of major assets was undertaken by the
consultants, with the remaining assets verified and inspected by the NEA.
Methodologies for revaluation were developed and NEA counterpart staff were
trained. The computerized recording of fixed assets was developed but not
implemented, leaving the NEA to record fixed assets manually. The consultants
assisted the NEA to revalue its fixed assets, and built NEA capacity in regard to
its system of valuating fixed assets. However, revaluation has not been
incorporated into account books, which continue to be maintained on historical
costs. Consultants commenced work on 7 November 2003 and were expected to
finish in April 2005. Work was extended to December 2008 in response to the
poor security situation, frequent changes in management, and the difficulty of
reconciling the revalued assets with historical costs. The NEA has received the
final revaluation report from the consultants.
 7

(ii) Establishing district profit centers. Consultants helped (a) conduct an in-depth
review and analysis of distribution system operations and management and
prepare plans for each center; (b) determine performance indicators, targets, and
benchmarks for each center; (c) review the NEA’s bulk transfer prices computed
for each center; (d) improve the NEA’s and DPCs’ financial accounting system; (v)
determine appropriate operational and management authority for DPC managers;
(e) establish performance incentive schemes to improve efficiency at each
branch; (f) review the NEA’s loss-reduction plan; and (g) develop performance
monitoring and evaluation criteria for each DPC. Unfavorable political and
security conditions delayed consulting work. Initially, the NEA implemented the
scheme in only a limited number of DPCs. The scheme is now being revised and
expanded, incorporating some of the consultants’ recommendations, and is
proposed for a rollout across all the distribution centers. The NEA is confident
that this will improve the efficiency of district center management, the quality of
service delivery, and the handling of consumer grievances.

C. Project Costs

23. At appraisal, the cost of the project was estimated at $94.5 million equivalent, $60.0
million in foreign currency (63.5%) and $34.5 million equivalent in local currency (36.5%). At
completion, project expenditure was $57.1 million, $44.2 million in foreign currency and $12.9
million in local currency provided by the NEA and the government. The ADB loan was $50
million,6 of which $38.2 million (76.3%) was used. The OFID loan was $10 million, of which
$6.07 million (60.7%) was used. Appendix 2 compares estimated project costs with actual
project costs. Appendix 3 compares projected and actual financing. ADB’s share of financing
increased from 52.9% to 66.9%, and government funding decreased from $35.4 million to $12.9
million.

24. Foreign exchange cost savings of $16 million reflect (i) the deletion of part B and $2
million in ADB financing, (ii) cost savings in parts A and C thanks to bids being lower than
expected, and (iii) savings from unused contingency funding of $13 million. These savings were
used instead to cover the expanded scope of parts A, D, and E. The local currency cost
decrease of $4 million equivalent reflects the deletion of the 27 km transmission line in part D.
Part of the loan of $50.0 million was cancelled, with total disbursement amounting to $38.2
million. Similarly, $3.93 million of the OFID loan was cancelled at loan closing. At project
completion, government and NEA funds were used to meet the costs of parts A, C, D, and E.

D. Disbursements

25. ADB loan disbursements totaled $38.2 million, or 76.3% of the projected amount of
$50.0 million. The initial disbursement under the loan was on 9 September 2003, and the final
disbursement was on 19 December 2008, 63 months later. As disbursements were mainly for
goods and consulting services, direct payment and letter of credit payment procedures were
used. The NEA expressed satisfaction with ADB disbursement procedures. Projected and
actual disbursements are in Appendix 4.

6
In December 2005, $12.12 million was cancelled from the ADB loan. In December 2008, $3.3 million was finally
cancelled at loan closure.
8

E. Project Schedule

26. The loan was approved on 21 December 1999 for implementation over 60 months to 31
December 2004, but it became effective only on 14 March 2002. The project suffered
implementation delays of 3.5 years because of failure to meet loan effectiveness conditions, the
slow recruitment of consultants and procurement, resistance from residents to the construction
of a high-voltage transmission line, and political disturbances. Once the contracts were
awarded, implementation generally proceeded smoothly, except that one component had
difficulty acquiring land for a substation and distributing compensation for the transmission line
right-of-way. It should be noted that, during most of the project period, the country was in
political turmoil, adversely affecting all aspects of project implementation from fielding
consultants to construction.

27. The original scope of the project to be funding with foreign exchange was completed in
June 2008. The original schedule is compared with actual implementation in Appendix 5. The
first contract under the transmission component, part A, was awarded in 11 May 2005, against
the scheduled date in November 2004, as the NEA required time to prepare bid documents. In
response to delays, the NEA requested two loan extensions, from 30 June 2005 to 30 June
2007 and again to 31 December 2008. Foreign costs under ADB and OFID financing were
completed at loan closing, after which the NEA and the government financed the remaining
work using their own resources.

F. Implementation Arrangements

28. The NEA was the executing agency. Implementation arrangements were the same as
envisaged at appraisal, and ADB found them to be adequate. The NEA set up a project
coordination office headed by a project coordinator, who was assisted by a team of full-time
project managers for each component. The managers also reported to their superiors in the
NEA. In addition to coordination, the project coordination office was responsible for monitoring
and reporting on day-to-day project implementation to the divisions concerned in the NEA. The
office served as the main contact point for ADB. To the extent feasible, land acquisition and
environmental clearances were planned and executed in advance to avoid delays.

G. Conditions and Covenants

29. Compliance with four conditions was required for the loan agreement to become
effective: (i) a rate of return of 6.0% per annum on revalued net fixed assets in service; (ii) an
average self-financing ratio of 23% of 3 years of capital expenditure, (iii) a debt-service ratio of
1.2 times debt service, and (iv) accounts receivable at less than 3 months. Effectiveness was
delayed until the NEA met the conditions, and ADB declared the loans effective on 14 March
2002.

30. No covenants were modified, suspended, or waived during implementation. The status
of compliance with covenants is in Appendix 6. The NEA was unable to fulfill the financial
covenants in general, though it complied with conducting a detailed revaluation of its fixed
assets. The revaluation was not incorporated in the accounts. It has not been possible for the
NEA to comply with the covenant on an annual rate of return of 6.0% on revalued assets, as the
tariff remained unrevised for the entire duration of the project. The situation in the country made
the covenant unrealistic, as there was very strong opposition to timely tariff revisions. The NEA
was unable to comply as well with the covenant to bring down its T&D losses to 20.00% by
FY2003, with losses still at 25.27% in FY2009.
 9

31. The NEA has failed to comply with, or only partly complied with, all four financial
covenants, as no tariff increases have been approved since FY2001, despite energy and other
operating costs showing an increasing trend.7 At the end of FY2009, the NEA incurred a loss of
NRs4.95 billion and had outstanding accounts receivable in excess of NRs5.39 billion, equal to
4 months’ invoicing. The last 5 years’ performance is in Table 1.

Table 1: Compliance with Key Financial Covenants

Covenant Target 2005 2006 2007 2008 2009

Return on average 6.0 4.3 2.8 6.1a 1.3 (3.8)
NFA (%)
Debt-service ratio 1.2 0.9 0.8 1.1 1.0 0.6
3-year average SFR 23.0 26.3 18.7 47.4 12.4 18.8
(%)
Accounts receivable 3.0 3.5 3.7 4.3 4.8 4.0
(months)
NFA = net fixed assets, SFR = self-financing ratio.
a
Includes revaluation of yen loans. If excluded, the return on average NFA is 5.1%.
Source: Audited accounts of the Nepal Electricity Authority.

32. Covenants relating to project implementation and the operation and maintenance of
project-supported facilities were met satisfactorily. There were some delays in the submission of
unaudited and audited financial statements, which ADB pointed out to the NEA. They were
caused by higher authorities’ delays in approving audited financial statements.

H. Consultant Recruitment and Procurement

1. Consultants

33. At appraisal, $1.41 million was allocated to consulting services for project
implementation. The project engaged international and domestic consultants for part D:
transmission; part E: computerized billing; and part F: fixed asset revaluation and DPCs. At
completion, the amount disbursed for consultant services was $0.94 million. The consultants
were extended for part E to help the NEA complete implementation in four pilot branches. For
part F, consultants were extended mainly because political disturbances affected the completion
of work. The DPC component was carried out on a pilot basis by the NEA.

2. Procurement

34. In general, the NEA carried out the procurement of ADB-financed contract packages in
accordance with ADB’s Procurement Guidelines (2010, as amended from time to time). The
NEA was tasked with preparing detailed designs and bid documents for all packages covering
parts A, C, and D during project implementation, with consultants preparing preliminary designs
for part D. ADB helped the NEA achieve important milestones by expediting needed approvals.

7
Achieving a self-financing ratio of 23% has also proved difficult. The debt-service ratio of 1.2 was generally met until
2002. Since 2003, the NEA has been unable to meet this covenant. It has faced considerable difficulty maintaining
accounts receivable at less than 3 months of sales, which increased to 4.8 months in FY2008. This is because
many government agencies and municipalities do not pay. Eliminating street lighting arrears in FY2008 would bring
accounts receivable down to 3.2 months of sales as of that date.
10

I. Performance of Consultants, Contractors, and Suppliers

35. Consultant recruitment was slow, contributing to early delays in accomplishing parts E
and F. In total, 105 person-months of consultant services, 47 international and 58 domestic,
were required for these components. The consultants were not fielded until 7 December 2003
and completed their assignment only in December 2008. Consultant selection was delayed by (i)
failed bids because proposals had higher costs than estimated at appraisal, (ii) revisions to the
terms of reference, (iii) procedural delays caused by the executing agency, and (iv) political
disturbances and security issues during implementation. However, the consultants’ performance
was generally satisfactory. No major issues arose regarding project design or the quality of
service provided by consultants. To avoid delays, requests for proposals for consultants should
be prepared before loan effectiveness.

36. The NEA reported that the performance of all contractors was generally satisfactory. All
goods and services under the ADB-financed portion of the project were procured in accordance
with ADB’s procurement guidelines. Bidding documents were prepared to ensure maximum
competition under international competitive bidding, through which packages that cost $1 million
or more were awarded. Some complex components under parts A, C, D, and E were procured
on a design–build–turnkey basis. Contractor performance was generally satisfactory, except
regarding one contractor that provided services for part D, mainly because of difficulty in getting
the right-of-way for constructing transmission lines. Significant delays affecting civil works were
caused by political disturbances, design modifications, right-of-way and resettlement issues,
and insurgency.

J. Performance of the Borrower and the Executing Agency

37. The performance of the NEA as the executing agency was satisfactory. All parts of the
project were completed successfully, though there was an overrun of 3.5 years in completing
the ADB- and OFID-financed portion of the project, until December 2008, because of initial start-
up delays caused by failure to comply with conditions for loan effectiveness and delays in
completing construction. The project contributed to a substantially improved rate of
electrification from 14.6% in 1999 to 42.0% in 2008. A major outcome of the project was
expanded access to reliable electricity supply in 27 districts in the western, eastern, and central
regions; improved revenue management using computerized billing systems; and the NEA’s
improved financial management system. The NEA has satisfactorily demonstrated its capacity
to formulate and carry out engineering, procurement, and construction according to approved
standards and to the satisfaction of ADB. It performed the required tasks of detailed design,
procurement, and the installation of goods and works with the support of consultants. These
actions demonstrated its commitment and capability to undertake such projects.

38. The performance of government as the borrower was satisfactory. It completed

institutional arrangements for project management including appointing key staff before the loan
became effective. Although ADB’s insistence on compliance with conditions for loan
effectiveness improved the NEA’s financial position, institutional arrangements for timely tariff
revision through the Electricity Tariff Fixation Commission failed as the commission did not
approve any tariff increases during the project.

K. Performance of the Asian Development Bank

39. ADB’s performance is rated satisfactory. It monitored the project closely and regularly
and provided guidance on project management. ADB fielded review missions frequently and
 11

visited project sites. It promptly acted on proposals to change project scope and for partial
cancellation, reallocation, and extending the loan closing date. ADB’s performance in jointly
administering the project with OFID was satisfactory. The steps taken by ADB toward starting
and implementing the project were very encouraging. On the one hand, ADB's insistence on
compliance with conditions for loan effectiveness helped initially improve the financial health of
the NEA, but on the other hand this contributed to a substantial delay in project implementation.
ADB's was effective as the fund administrator for OFID loan.

III. EVALUATION OF PERFORMANCE

A. Relevance

40. The design of the project was highly relevant to the sector objectives of the government
and the NEA, as well as to ADB’s country and sector strategies for Nepal. Since the government
initiated power sector reforms in the 1990s, policy reforms had been on its agenda. The power
sector had deteriorated to such an extent that it seriously limited economic growth. Because of
the country’s poor financial condition and regulatory environment, the NEA was unable to
improve power supply. The government then embarked on policy reforms and physical
investments in the sector to strengthen T&D, enhance energy efficiency, and develop the
country’s hydropower potential. At completion, ADB’s strategy for the power sector in Nepal was
in harmony with the Ninth Five-Year Plan aim to develop infrastructure toward economic growth
and poverty reduction. ADB’s present strategy for the sector is to (i) promote clean and
renewable energy, (ii) optimize T&D systems, (iii) support sector reforms, (iv) strengthen
institutions, (v) promote private sector participation, (vi) encourage energy efficiency and rural
electrification, and (vii) ensure environmental and social sustainability. Project outputs
contributed to achieving these objectives.

B. Effectiveness in Achieving Outcome

41. The project achieved its immediate objectives of (i) extending the NEA distribution
system in rural areas to provide service to more rural communities and to improve their
economic and living conditions, (ii) developing the T&D system of the NEA to accommodate
increased loads and new consumers in existing service areas, and (iii) reorienting the NEA
toward more commercial operations and improved revenue management by introducing
computerized billing systems and handheld meter-reading devices for better consumer services.
NEA has also established a limited number of district profit centers under the project. However,
one of the expected outcomes, improving the financial and operational performance of the NEA,
could not be achieved as no tariff increases were effected during the entire project, which
adversely affected the NEA’s financial performance, and T&D losses could not be brought down
to 20% by FY2003.

42. The NEA was able to (i) meet peak demand of 721 MW in 2008 (and 946 MW in 2011),
more than double peak demand of 327 MW in 1999, and (ii) improve collection efficiency from
97% in 2004 to 105% in 2009 (more than 100% with the receipt of some arrears from the
government).8 The project achieved most of the physical targets at appraisal using savings and
increased government funding. The project is rated effective. All substations are already running
at 70% of capacity or higher, with some already further upgraded to meet higher demand. This
demonstrates that the investments are being fully utilized.

8
In 2010, collection efficiency was 93%, as the government had not paid other arrears to the NEA.
12

C. Efficiency in Achieving Outcome and Outputs

43. The milestones of the project were achieved close to the revised target dates. Some
remaining works in transmission, rural electrification, and distribution system reinforcement were
completed after loan closing. The project is rated efficient. It was implemented efficiently, and all
its parts have operated from the date of commissioning. Of 22 substations constructed or
upgraded under the project, four have already been further upgraded to meet high demand, and
12 are running at full load. The remaining 6 substations are currently running at 70% of their
installed capacity. The NEA has rolled out computerized billing systems in additional revenue
centers, which has enhanced its capability to implement complex information technology
projects.

44. The financial internal rate of return of all project parts was well above the NEA’s
weighted average cost of capital of 1.18% for the rural electrification component and 3.27% for
all other components. The economic internal rate of return of all parts was reevaluated at more
than 12%. The financial and economic analyses were made using the world price numeraire.
Major assumptions used in the financial and economic evaluation and the detailed calculations
of rates of return are in Appendix 7.

D. Preliminary Assessment of Sustainability

45. A preliminary assessment of the project shows positive indications of its long-term
sustainability. The design of all parts and the technology adopted were robust and suitable
given the technical parameters and the requirements of Nepal’s power sector. Power demand in
Nepal is projected to grow substantially, ensuring the full use of project investments. All outputs
are expected to be used optimally. Project investments are likely sustainable. Important
requirement for sustainability include concerted action by NEA to bring down T&D losses, and
support from the Electricity Tariff Fixation Commission through regular tariff increases.

E. Impact

46. The NEA has installed the computerized system developed by the project in 54
branches and sub-branches that account for 67% of its annual billing volume. It has found the
system important for improving revenue management and is planning to roll it out across all its
branches in due course.

47. The project aimed to contribute positively to Nepal’s economic development by ensuring
sufficient electricity supply in rural areas. Electricity has displaced conventional sources of
energy such as kerosene for lighting and diesel for small industry and irrigation. It became an
important calculation in decisions to establish small industries in rural area and improve the rural
quality of life. Most potential impacts on environment are considered beneficial, and no adverse
impacts were identified. Adequate safety measures and periodic monitoring were in place.

48. In accordance with Ministry of Environment and Environment Act, 1997 guidelines on
environmental clearance, power lines passing through ecologically sensitive areas require
approval. The routes were finalized in consultation with authorities to ensure minimal damage to
forests and wildlife. An environmental impact assessment was required only in one project area,
in Kaski District’s Annapurna Conservation Area. This was approved by the ministry.

49. Transformers and other equipment used in the project are free of polychlorinated
biphenyl. No transformer oil spill was allowed, and batteries and scrap were collected and
 13

disposed of in compliance with the Environment Act, 1997 and with ministry rules and
regulations. Most distribution lines under the project were constructed along roads with minimal
infringement on agricultural land, pastures, and other green areas.

F. Social Assessment

50. The project is gender neutral with regard to beneficiaries. All electricity consumers derive
benefits from improved power reliability. Annual per capita consumption doubled from 48 kWh in
1999 to 100 kWh in 2008. Other benefits include job creation.

51. The NEA chose the routes of power lines to avoid human dwellings, threatening the
survival of vulnerable communities, and common property resources. Of 15 new substations,
the NEA already held land for 1 and leased barren land from the government for 2 others. Land
for all other substations was purchased from the local people, who were compensated to their
satisfaction.

52. Parts A and C displaced no people, so no resettlement plan was required. The
resettlement plan for the transmission component, part D, identified 100 project-affected people
who needed to be compensated for the right-of-way. Funds for acquiring land for towers and
right-of-way compensation were processed in accordance with the prevailing legal requirements
and deposited with the district administration concerned. Public consultations were carried out
involving local officials, community leaders, and affected groups. As the compensation amount
could not be mutually agreed in Lalitpur District, one portion of the transmission line, from
Thankot to Chapagaon, could not be completed.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

53. The project substantially achieved all its physical outputs despite its implementation
being adversely affected throughout by political uncertainty and turmoil. However, the policy
objective of ensuring the long-term financial sustainability of the NEA could not be achieved
because of the failure, for the duration of the project, to revise tariffs and because of mounting
T&D losses. Project design was consistent with ADB's country and sector strategy and with the
NEA's objectives of developing a T&D system capable of providing power reliably. The
performance of the NEA, government, and contractors was satisfactory. Project implementation
was achieved with the full involvement of both the government and the NEA. The project is
rated highly relevant, effective, efficient, and likely sustainable. It has generally met its
objectives and is rated successful.

B. Lessons

54. The NEA has not been able to increase tariffs since 2001, which seriously constrains its
operations. As its financial condition is particularly serious, addressing financial issues is key to
successful reform. The lack of resources arising from a stagnant tariff has hampered the NEA’s
ability to invest adequately in expanding and maintaining its generation and T&D network.
Consequently, the NEA is caught in a vicious circle of high T&D losses (28.91% in FY2010) that
exacerbate its poor financial position. Investments under future ADB projects should directly
target reducing such losses, system strengthening, and developing institutions to ensure
sustainability in the sector. Impractical and unrealistic loan effectiveness conditions should be
14

avoided. Environmental management and resettlement plans should be prepared, and project
sites and the routing of transmission lines should be designed to avoid densely populated and
ecologically sensitive areas.

55. Successful implementation amply demonstrates that, if appropriate institutional support

is provided, the NEA can adequately carry out such a project. Most project works were
completed without consultants. The NEA took advance action to acquire land and clear other
statutory hurdles, which eased implementation. In earlier ADB-assisted power projects, land
acquisition and environmental issues often caused delays. The NEA’s experience and
familiarization with ADB procedures, timely support from ADB, and the NEA’s willingness to
adopt recommended practices facilitated project implement. The NEA and the government fully
supported the project.

C. Recommendations

56. Future monitoring. Various steps taken by the government in implementing reforms
were well received by all stakeholders. There is a consensus among stakeholders in Nepal on
the need for sector reforms. ADB will continue to engage in dialogue with the government to
facilitate the early implementation of the financial restructuring plan for the NEA, including
regular tariff revision. The next loan (para. 60) has covenants toward this objective. The NEA
has had a good track record in maintaining the system, so no further monitoring by ADB is
required.

57. The NEA should continue to improve governance, accountability, and coordination for
sustainability. A particular need is to develop efficient management systems in the NEA and
strongly enforce existing monitoring mechanisms. Appropriate institutional and regulatory
mechanisms should be established to effectively monitor the performance of the NEA. Targets
should be set annually to improve sector performance and ensure periodic tariff adjustments.

58. Covenants. Most covenants were complied with, except for the financial covenants and
the covenant on reducing T&D losses. ADB will continue to work closely with the NEA and the
government to facilitate the achievement of these covenants.

59. Further action or follow-up. As all parts of the project were successfully implemented
and disbursements have been completed, no follow-up is required.

60. Additional assistance. The government and the NEA have developed a sector
investment program for 2009–2020 estimated at $2.2 billion. On 27 November 2009, ADB
approved a $65 million loan 9 to help the NEA provide reliable and energy-efficient power,
expand access, and improve operational efficiency. Moreover, the new Electricity Transmission
Expansion and Supply Improvement Project has been approved in 2011.

61. Timing of the project performance evaluation report. A mission may be undertaken
at any time in 2012 or later to prepare a project performance evaluation report.

9
ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Nepal for the
Energy Access and Efficiency Improvement Project. Manila.
 Appendix 1 15

PROJECT FRAMEWORK

Performance Monitoring Assumptions Actual

Design Summary
Goal
Promote economic
growth and a higher
standard of living in rural
and urban areas through
improved access to
electricity.
Meet growing demand for
electricity supply in
existing service areas.
Improve the financial and
operational performance
of Nepal Electricity
Authority (NEA) and its
governance.
Indicators/Targets Mechanisms and Risks Achievement
Assumption
Increase the national Socioeconomic A satisfactory The national
electrification ratio from surveys at periodic second stage electrification ratio
14.6% to 18.0%. times tariff increase will increased from
be required as a 14.6% in 1999 to
Enable the NEA’s total NEA annual reports condition for loan
sales to growth at 9% 42.0% in 2008.
effectiveness.
per year.
The NEA’s total
Ensure the NEA a sales grew at an
regular annual tariff average of 12.8%
increase to achieve a from 1999 to 2008.
6% rate of return and
23% self-financing ratio. The self-financing
ratio decreased to
12.4% in 2008
from 23.0% in
1999.

Purpose Assumption
Load growth
Expand and strengthen Strengthen distribution Project benefit Consumers are reached 164 MW
the NEA’s distribution systems for load growth monitoring and able to pay for in 2009.
and transmission of about 145 MW over evaluation reports new connections
systems. the next 4 years. and energy T&D losses were
Action plan and consumption.
Reduce NEA Reduce T&D losses to progress reports 26.52% in 2008
transmission and less than 20%. prepared to
distribution T&D losses. implement profit Six pilot
Establish distribution centers distribution profit
Support institutional district profit centers. centers were
strengthening in the NEA established; the
and its concepts were
commercialization. implemented in all
distribution
centers
nationwide.
Outputs Assumptions
By 2011, 119,000
Extend the distribution Make 154,000 new rural Quarterly project Counterpart new rural
system in rural areas, connections with a peak progress reports funds are connections were
both on grid and off. load of 35 MW. available. achieved, with
Loan review
Reinforce distribution in Make 5,000 new missions Rights-of-way 123,400 to be
existing service areas. distribution connections are acquired for reached by 2012.
off grid. Project completion a 132 kilovolt
Strengthen the report transmission line The off-grid
transmission system. Strengthen distribution in the component was
strengthening with Kathmandu cancelled.
Establish computerized 1,070 kilometers of 33
customer billing centers. Valley, with
kilovolt and 11 kilovolt satisfactory By November
Establish distribution lines. compensation. 2010, 2,522
district profit centers. Strengthen transmission kilometers of 33
in the Kathmandu kilovolt and 11
Valley and build another kilovolt lines were
interconnection to India. installed.

The transmission
line from Thankot
16 Appendix 1

Performance Monitoring Assumptions Actual

Design Summary Indicators/Targets Mechanisms and Risks Achievement
to Bhaktapur is
under
construction.

The Matathirta
switching station
was constructed
as a substation in
2008.

Three substations,
at Anarmani,
Pokhara, and
Siuchatar, were
upgraded in
January 2008.
Activities Risk
Consultants were
Appoint consultants. Quarterly progress Main activities contracted for
reports are delayed. parts D, E, and F
Do detailed planning and
design. ADB review and Assumptions who successfully
approval of tender completed the
Procure materials and documents, contract Counterpart required
equipment. awards, and funds are assistance.
disbursements available.
Construct physical
assets. Review missions NEA staff are
adequate for
Test and commission Project completion detailed
assets. report. planning, design,
and construction
supervision
Inputs
$44.5 million in
$60 million in foreign foreign currency
exchange and $29 million and $12.9 million
in local currency in local currency
Consulting services for
four tasks, comprising 39 47 person-months
person-months of of international
international services and consulting
58 person-months of services and 58
domestic person-months of
national.
 COST BREAKDOWN BY PROJECT COMPONENTS
($ million)

Appraisal Last Revised Allocation Amount Canceled Net Amount Available Actual
Component
FC LC Total FC LC Total FC LC Total FC LC Total FC LC Total
I. Base Costs
A&C. Rural Electrification and Distribution
System Reinforcement
33/11 kV substation 6.20 1.54 7.74 5.96 2.09 8.05 0.09 0.00 0.09 5.87 2.09 7.96 5.56 1.95 7.52
Line construction (33 kV, 11 kV, 0.4 kV) 27.71 8.00 35.71 34.99 14.47 49.46 0.02 0.00 0.02 34.97 14.47 49.44 26.23 5.43 31.66
Subtotal (A & C) 33.91 9.54 43.45 40.95 16.56 57.51 0.12 0.00 0.12 40.84 16.56 57.40 31.79 7.38 39.17
B. Distribution for Isolated Power Projects 2.00 0.80 2.80 0.00 0.00 0.00 2.00 0.80 2.80 0.00 0.00 0.00 0.00 0.00 0.00
D. Transmission Development
132 kV transmission line, Bhaktapur–Thankot 2.34 4.58 6.92 0.00 0.00 0.00 0.00 0.00 0.00 2.34 4.58 6.92 1.51 0.90 2.41
132 kV trasmission line, Social and Environmntal cost 2.49 2.49
132 kV transmission substation in Harisiddhi 1.96 0.39 2.35 0.00 0.00 0.00 0.00 0.00 0.00 1.96 0.39 2.35 0.67 0.33 1.00
132 kV transmission switching station in Thankot 1.65 0.41 2.06 0.00 0.00 0.00 0.00 0.00 0.00 1.65 0.41 2.06 0.84 0.28 1.12
Other substations expansion in Kathmandu Valley 2.88 0.45 3.33 0.00 0.00 0.00 0.00 0.00 0.00 2.88 0.45 3.33 2.65 0.25 2.90
Change of scope in switching station in Thankot 0.59 0.04 0.63
132 kV transmission line, Butwal to Indian Border 2.19 0.39 2.58
Consulting services 0.30 0.00 0.30 0.29 0.29
Grid system reinforcement - 0.00 0.00 2.73 0.28 3.01 0.00 0.00 0.00 2.27 0.40 2.67 2.27 0.32 2.59
Subtotal (D) 11.32 6.22 17.54 2.73 0.28 3.01 0.00 0.00 0.00 11.10 6.23 17.33 8.82 4.61 13.42
E. Computerized Billing Systems
Desktop computers and printer 0.39 0.00 0.39 2.12 2.12 0.00 0.00 0.00 2.12 0.00 2.12 1.67 0.22 1.89
Billing system software 0.30 0.00 0.30 0.34 0.34 0.00 0.00 0.00 0.34 0.00 0.34 0.25 0.01 0.26
Consulting services 0.29 0.00 0.29 0.23 0.23 0.00 0.00 0.00 0.23 0.00 0.23 0.28 0.00 0.28
Other miscellaneous 0.27 0.30 0.57 0.91 0.91 0.00 0.00 0.00 0.91 0.00 0.91 0.71 0.09 0.80
Relational database management systerm - 0.00 0.00 0.13 0.13 0.00 0.00 0.00 0.13 0.00 0.13 0.13 0.03 0.16
Subtotal (E) 1.25 0.30 1.55 3.73 0.00 3.73 0.00 0.00 0.00 3.73 0.00 3.73 3.04 0.35 3.39
F. Other Institutional Strengthening
Fixed Asset Revaluation 0.52 0.26 0.78 0.00 0.00 0.00 0.00 0.00 0.00 0.52 0.26 0.78 0.19 0.40 0.59
Distribution profit center project 0.30 0.15 0.45 0.25 0.15 0.40 0.05 0.00 0.05 0.20 0.15 0.35 0.19 0.12 0.30
Subtotal (F) 0.82 0.41 1.23 0.25 0.15 0.40 0.05 0.00 0.05 0.72 0.41 1.13 0.38 0.52 0.89
Taxes and Duties - 2.40 2.40
Total Base Cost 49.30 19.66 68.96 47.67 16.99 64.66 2.16 4.19 2.96 56.39 23.20 79.59 44.03 12.86 56.89
II. Contingencies
Physical 4.90 2.00 6.90
Price escalation 4.40 1.70 6.10

Appendix 2
Interest during construction 1.40 11.10 12.50 0.20 0.20
Total 60.00 34.46 94.46 47.67 16.99 64.66 2.16 4.19 2.96 56.39 23.20 79.59 44.23 12.86 57.09
FC = foreign currency cost, kV = kilovolt, LC = local currency cost

17
18 Appendix 3

PROJECT FINANCING PLAN

($ million)

Item Appraisal Estimate Actual

Source Foreign Local Total Foreign Local Total
ADB 50.00 0.00 50.00 38.16 0.00 38.16
OFID 10.00 0.00 10.00 6.07 0.00 6.07
NEA retained earnings 0.00 25.90 25.90 0.00 12.86 12.86
Government 0.00 8.60 8.60 0.00 0.00 0.00
Total 60.00 34.50 94.50 44.23 12.86 57.09
ADB = Asian Development Bank, NEA = Nepal Electricity Authority, OFID = OPEC Fund for International Development.
 Appendix 4 19

DISBURSEMENT

Table A.1: Projected and Actual Disbursements of Loan Proceeds

($ million)

Calendar Projecteda Actual

Year For the year Cumulative For the Year Cumulative
2003 0.08 0.08 0.07 0.07
2004 2.47 2.55 2.21 2.28
2005 12.34 14.89 11.04 13.32
2006 14.58 29.47 13.05 26.37
2007 6.23 35.70 5.57 31.94
2008 6.96 42.65 6.22 38.16
a
Projections are made in Asian Development Bank’s Loan Financial Information System (LFIS).
Source: ADB’s LFIS.

Disbursement Details
45
40
35
30
$  m illio n

25
20
15
10
5
0
Year
2003 2004 2005 2006 2007 2008
Asian Development Bank projection Actual
 20
IMPLEMENTATION SCHEDULE

Appendix 5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Project Components
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
Part A: Rural Electrification
Part C: Distribution System Reinforcement

Planning and preliminary design

Procurement of line materials

Detailed design and construction mgmt.

Supply and construction of substations

Part D: Transmission Projects

Construction of 132 kV transmission line

Construction of 132 kV and 66 kV substations

Grid system reinforcement

Part E: Computerised Billing Project

Part F1: Fixed Assets Revaluation

Part F2: Distribution District Profit Centers

Legend: Projected: 1: Jan...March

Revised: 2: Apr...June
Actual: 3: July...Sept.
Beyond Loan Closing Date: 4: Oct...Dec.
 Appendix 6 21

STATUS OF COMPLIANCE WITH MAJOR LOAN COVENANTS

Reference in Loan Status of Compliance

Loan 1732-NEP (SF) Covenant Documents
1. A rate of return of at least 6 percent on net revalued Schedule 6, Clause C-11 Partially complied. Rate of
fixed assets in service every year commencing Fiscal Return is 4.01 in 2009/10
Year 2001 and thereafter, a minimum self financing
ratio of at least 23 percent every year commencing
Fiscal Year 2001 and thereafter and debt-service
coverage ratio of at least 1.2 times the maximum
debt-service requirements in any year on all debt
incurred by NEA.
2. The average residential tariff shall be no less than the Schedule 6, Clause C-12 Not complied. Tariffs have
average retail tariff for sales in Nepal, the first line been maintained at 2001
block for residential consumers shall be limited to 20 levels.
kWh/month and the lifeline tariff rate shall be at least
60% of the average residential tariff rate.

3. GON shall ensure and cause NEA to ensure that for Schedule 6, Clause C-15 Not complied. Tariffs have
timely execution of NEA's annual application to ETFC been maintained at 2001
for an approved tariff adjustment, to be effective from levels.
the beginning of each fiscal year.
4. ETFC and NEA shall require, through the Schedule 6, Clause C-16 Not complied, as tariffs
amendment to the ETFC rules (referred to in have not been revised
paragraph 6.01(c) of this Loan Agreement) to review since 2001.
tariffs every 6 months after the date of the last tariff
adjustment and adjust tariffs on a semi-automatic
interim basis, if necessary, based on a formula to be
agreed between the Borrower, ETFC and the Bank.

5. NEA shall conduct a detailed revaluation of its fixed Schedule 6, Clause D-17(a) Complied.
assets approximately every five years. NEA shall
appoint international consultants no later than 31
March 2000 to assist it with a detailed revaluation of
its fixed assets in service.

6. NEA shall also revalue its fixed assets annually, by a Schedule 6, Clause D-17(b) Not Complied. Assets
formula satisfactory to the Bank, in those years when continue to be accounted
no detailed asset revaluation is conducted. on historical cost basis.

7. GON and NEA shall ensure that all necessary action Schedule 6, Clause G-22 Not Complied. Accounts
is taken so that NEA's total accounts receivable is receivable is 4.0 as of FY
maintained at a level that does not exceed the 2009.
equivalent of three months sales revenue for any
Fiscal year.
8. GON shall cause NEA to furnish the Bank for review Schedule 6, Clause H-24 (a) Complied.
and comment a draft NEA corporate plan covering
the subsequent six years setting forth NEA's
development plans and investment requirements
including (i) NEA load forecast; (ii) NEA's
development plans and investment requirement for
generation, transmission and development;(iii) NEA's
financial projections.
9. NEA shall take necessary action to reduce Schedule 6, Clause I-27 Not complied.
transmission and distribution system losses, including
NEA's self- consumption, to a level not exceeding 23
percent of total energy available in Fiscal Year 2000,
and 22 percent in Fiscal Year 2001, and 21 percent
in Fiscal Year 2002; and 20 percent in each
subsequent Fiscal Year.
22 Appendix 6

Reference in Loan Status of Compliance

Loan 1732-NEP (SF) Covenant Documents
10. NEA shall implement a commercialization action plan Schedule 6, Clause J-28 Complied.
based on recommendations of a commercialization
study report agreed with the bank. This
commercialization action plan shall include
establishment of distribution district profit centers with
employee performance incentives in NEA's 15 largest
branches.
 Appendix 7 23

Financial and Economic Evaluation

1. The major assumptions used in the financial and economic evaluation of the investment
project are discussed in this appendix.

A. Financial Evaluation

2. The financial evaluation of the investment project was carried out based on cost and benefit
streams realized by each component. All costs and revenues are expressed in constant 2011 prices.
Capital costs include goods, services, and interest charges during construction.

3. The cost of capital is calculated for the project as a whole. The project is financed by foreign
debt in the form of loans from the Asian Development Bank (ADB) and the OPEC Fund for
International Development (OFID). The Nepal Electricity Agency (NEA) received the ADB loan from
the Government of Nepal at an interest rate of 8% for rural electrification and off-grid distribution and
12% for other components. The weighted average cost of capital (WACC) was calculated for the
project and was compared with the project’s financial internal rates of return (FIRRs) to ascertain
financial viability. Financial viability was examined by comparing the incremental costs and benefits of
the scenarios with the investment and without it. The WACC was calculated based on the financing
sources of the projects as follows: (i) the government’s equity contributions and foreign loans; (ii) the
cost of equity calculated as the government’s long-term bond rate and a margin; (iii) the ADB loan
passed on from the government to the NEA in Nepalese rupees, with the interest rate including
allowance for the government’s foreign exchange premium; and (iv) the foreign inflation rate taken as
8% and the domestic inflation rate at 8%. Tables A7.1 and A7.2 show that the WACC is 1.18% for the
rural electrification component and 3.27% for all other components.

Table A7.1: Weighted Average Cost of Capital for Rural Electrification

($ million)

Nominal Weighted
Source Amount Cost (%)
ADB Loan 17.24 8.0 81.8
Government equity 3.83 15.0 18.2
Weighted average
cost of capital 1.18
ADB = Asian Development Bank.
Source: Project completion report mission estimates.

Table A7.2: Weighted Average Cost of Capital for Parts C and D (Other Components)
($ million)

Nominal Weighted
Source Amount Cost (%)
ADB loan 44.51 10.5 77.6
Government equity 12.86 15.0 22.4
Weighted average
cost of capital 3.27
ADB = Asian Development Bank.
Source: Project completion report mission estimates.
 24 Appendix 7

1. Capital Cost

4. All components have been completed and begun to yield benefits. No salvage value has been
assumed at the end of the useful life of components. A total cost of $57.4 million is used.

2. Sales Revenue

5. Part A: rural electrification. A noticeable increase in revenue collection has occurred under
the rural electrification component. The increase in revenue is attributable to expanded access and
electricity connections in rural areas under the project. The number of consumers is expected to
reach 123,400 households by 2015 from 68,500 in 2008, or an estimated 700,000 rural residents, as
well as industrial and commercial consumers.

6. Parts C and D: distribution system reinforcement and transmission. Benefits that accrue
to this component are expected to result from additional savings because of investments, the greater
availability of input energy, higher sales volumes and loss reduction, and other improvements to
system efficiency. At least 10% of the incremental benefits in the system are assumed to be
attributable to ADB funding. For these components, incremental income is based on actual benefits
(incremental revenues) accrued in supplying additional power with increased load in the system. It is
assumed that electricity sales will increase by 9% annually during the projection years.

3. Tariff

7. Revenues corresponding to incremental power sales are computed assuming an actual

average retail tariff from 2004 to 2009. For the projection years, the tariffs are assumed to remain
constant in 2010–2030, pending the government’s decision to increase tariffs. The same set of tariffs
is assumed for estimating the benefits under parts C and D.

4. Operating Cost

8. The annual operating cost has been assumed to be 1.5% of total capital costs for parts A, C,
and D.

5. Financial Internal Rate of Return

9. For part A: rural electrification plus associated transmission and generation, the FIRR was
estimated at appraisal as 2.71%, which was lower than the WACC of 3.4% in real terms. The FIRR at
project completion is estimated to be 3.73%, which is higher than the revised WACC of 1.18% at
project completion in real terms. For parts C and D: NEA power system development, the FIRR is
estimated as 11.2% at completion, up from 7.1% at appraisal. The FIRR of parts C and D is 11.2% is
higher than the WACC of 3.27% at project completion. A summary comparison of FIRRs at appraisal
and project completion is in Table A7.3. Detailed financial evaluation of the 22 rural electrification
schemes is in Table A7.5, and of the power system development program in Table A7.7.

Table A7.3: Financial Internal Rate of Return of Project Components

FIRR at Appraisal FIRR at Project Completion
Project Component (%) (%)
Part A: rural electrification 2.71 3.73
Parts C & D: NEA power system
development 7.10 11.17
FIRR = financial internal rate of return, NEA = Nepal Electricity Authority.
Source: Project completion report mission estimates.
 Appendix 7 25

6. Economic Evaluation

10. The economic analysis was carried out on the basis of economic benefits of power
consumption to end-users, represented by their willingness to pay as applicable. The economic
analysis used the world price numeraire. Economic costs were derived from the financial costs,
deducting taxes and duties. The costs were separated into foreign exchange and local currency
costs. Local costs were further separated and a conversion factor of 0.95 was used for unskilled
labor. Labor costs were assumed to be 10% of the local currency costs, and unskilled labor costs
were assumed to be 35% of the labor costs.

11. The economic evaluation of residential consumers (part A) is based on the economic benefits
arising from (i) the alternative economic costs of kerosene that would be used for lighting in the
absence of electricity and (ii) valuing the additional energy consumption at the estimated average
willingness to pay based on the weighted average of alternative kerosene costs and current tariffs.
For industrial users, the economic benefits are estimated based on the cost of alternative diesel-
fueled generation. For parts C and D, economic performance cannot be readily isolated for
evaluation. An economic evaluation of the NEA’s total investment program was therefore carried out
for additional power supply from 2004 to 2030. The economic internal rate of return (EIRR) for part A
is estimated at 17.4%, against 13.9% at appraisal. For parts C and D: distribution system
reinforcement and transmission, the EIRR is estimated at 23.4%, against 14.8% at appraisal. A
summary of the comparison of EIRRs at appraisal and project completion is in Table A7.4. Detailed
economic evaluation of the 22 rural electrification schemes is in Table A7.6, and of the power system
development program in Table A7.8.

Table A7.4: Economic Internal Rate of Return of Project Components

EIRR at Appraisal EIRR at Project Completion
Project Component (%) (%)
Part A: rural electrification 13.9 17.4
Parts C & D: distribution system
reinforcement and transmission 14.8 23.4
EIRR = economic internal rate of return.
Source: Project completion report mission estimates.
 Table A7.5: Financial Evaluation of 22 Rural Electrification Schemes of the Nepal Electricity Authority, 2004–2030

26
Annual Energy Sales (MWh) Bulk Supply Actual Additional Annual Costs
Total Annual Net Annual
Year Required @ Connected Customers Capital Cost O&M Cost 33kV Supply Total Cost

Appendix 7
Benefits ($) Benefits ($)
Residential Industrial Commercial Irrigation Total
33kV (MWh) Customers Each Year ($) ($) Cost ($) ($)
2004 0 0 0 0 0 0 0 0 0 1,110,834 16,663 0 1,127,496 (1,127,496)
2005 0 0 0 0 0 0 0 0 6,598,440 115,639 0 6,714,079 (6,714,079)
2006 0 0 0 0 0 0 0 0 0 7,159,452 223,031 0 7,382,483 (7,382,483)
2007 6,942 2,346 431 622 10,341
12,277 977,505 26,400 26,400 2,869,549 266,074 626,104 3,761,727 (2,784,222)
2008 14,431 4,877 896 1,292 21,496
25,520 2,031,986 52,800 26,400 2,794,387 307,990 1,301,512 4,403,888 (2,371,903)
2009 18,423 6,226 1,144 1,650 27,443
32,580 2,594,164 66,000 13,200 265,802 311,977 1,661,593 2,239,372 354,791
2010 21,572 7,290 1,340 1,932 32,134
38,149 3,037,582 75,172 9,172 278,732 316,158 1,945,608 2,540,498 497,084
2011 24,982 8,442 1,552 2,237 37,213
44,179 3,517,695 84,696 9,524 0 316,158 2,253,126 2,569,284 948,411
2012 28,706 9,701 1,783 2,570 42,760
50,764 4,042,044 94,696 10,000 0 316,158 2,588,978 2,905,136 1,136,908
2013 32,612 11,021 2,026 2,920 48,578
57,672 4,592,072 104,696 10,000 0 316,158 2,941,278 3,257,436 1,334,636
2014 36,719 12,409 2,281 3,288 54,696
64,388 5,170,384 114,696 10,000 0 316,158 3,283,798 3,599,956 1,570,427
2015 39,488 13,344 2,453 3,536 58,821
69,244 5,560,317 123,346 8,650 0 316,158 3,531,452 3,847,610 1,712,707
2016 39,488 13,344 2,453 3,536 58,821
68,656 5,560,317 123,346 0 316,158 3,501,453 3,817,611 1,742,706
2017 39,488 13,344 2,453 3,536 58,821
68,068 5,560,317 123,346 0 0 316,158 3,471,454 3,787,612 1,772,705
2018 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
2019 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
2020 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
2021 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
2022 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
2023 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
2024 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
2025 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
2026 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
2027 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
2028 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
2029 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
2030 39,488 13,344 2,453 3,536 58,821
67,644 5,560,317 123,346 0 0 316,158 3,449,855 3,766,013 1,794,304
Input Data 43,064,846 FIRR 3.73%
Average rural electrification tariffs ($0.10/kWh)
Residential 10.28
Industrial 8.17
Commercial 9.63
Irrigation 4.92
Average tariff' 9.45
O&M Costs 1.50%
Losses 24.70%
Cost of 33 kV supply $0.051/kWh at 2.7% interest rate
FIRR = financial internal rate of return, GWh = gigawatt hour, kV = kilovolt, kWh = kilowatt-hour, MWh = megawatt-hour, O&M = operating and maintenance.
Sources: Project completion report mission estimates.
 Table A7.6: Economic Evaluation of 22 Rural Electrification Schemes of the Nepal Electricity Authority, 2004–2030

Annual Energy Sales (MWh) Bulk Supply Actual Additional Annual Costs
Total Annual Net Annual
Year Required @ Connected Customers Capital Cost O&M Cost 33kV Supply Total Cost
Benefits ($) Benefits ($)
Residential Industrial Commercial Irrigation Total
33kV(MWh) Customers Each Year ($) ($) Cost ($) ($)
2004 0 0 0 0 00 0 0 0 1,044,184 16,663 0 1,060,846 (1,060,846)
2005 0 0 0 0 00 0 0 6,202,534 115,639 0 6,318,173 (6,318,173)
2006 0 0 0 0 00 0 0 0 6,729,885 223,031 0 6,952,916 (6,952,916)
2007 6,942 2,346 431 622 10,341
11,892 2,405,609 26,400 26,400 2,697,376 266,074 1,314,051 4,277,502 (1,871,893)
2008 14,431 4,877 896 1,292 21,496
24,720 5,000,655 52,800 26,400 2,626,724 307,990 2,731,581 5,666,295 (665,640)
2009 18,423 6,226 1,144 1,650 27,443
31,559 6,384,157 66,000 13,200 249,854 311,977 3,487,312 4,049,143 2,335,014
2010 21,572 7,290 1,340 1,932 32,134
36,954 7,475,397 75,172 9,172 262,008 316,158 4,083,396 4,661,561 2,813,835
2011 24,982 8,442 1,552 2,237 37,213
42,795 8,656,940 84,696 9,524 0 316,158 4,728,807 5,044,965 3,611,974
2012 28,706 9,701 1,783 2,570 42,760
49,174 9,947,346 94,696 10,000 0 316,158 5,433,685 5,749,843 4,197,503
2013 32,612 11,021 2,026 2,920 48,578
55,865 11,300,947 104,696 10,000 0 316,158 6,173,082 6,489,240 4,811,707
2014 36,719 12,409 2,281 3,288 54,696
62,900 12,724,155 114,696 10,000 0 316,158 6,950,502 7,266,660 5,457,495
2015 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 8,650 0 316,158 7,474,686 7,790,844 5,892,925
2016 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 316,158 7,474,686 7,790,844 5,892,925
2017 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2018 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2019 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2020 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2021 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2022 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2023 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2024 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2025 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2026 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2027 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2028 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2029 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
2030 39,488 13,344 2,453 3,536 58,821
67,644 13,683,769 123,346 0 0 316,158 7,474,686 7,790,844 5,892,925
Input Data EIRR 17.39%
Unit Economic Benefits (Usc/kWh)
Residential 25.4

Appendix 7
Industrial 18.8
Commercial 25.4
Irrigation 15.3
O&M Costs 1.50%
Losses 24.70%
Cost of 33 kV supply $0.1105/kWh at 13.9% interest rate
EIRR = economic internal rate of return, kV = kilovolt, kWh = kilowatt hour, MWh = megawatt hour, O&M = operating and maintenance.

27
Sources: Project completion report mission estimates.
 Table A7.7: Financial Evaluation of the Power System Development Program of the Nepal Electricity Authority, 2008–2030

28
Actual Projected
Basis of Accounts
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021-28

Appendix 7
Generation and Sales
Peak load (MW) 515 558 597 603 648 813 885 967 1057 1163 1272 1387 1510 1640 1770 1907 2052 23080
Additonal load (MW) 44.87 42.33 39.47 6.28 45.11 164.11 72.78 81.72 90 106 109 115 123 130 130 137 145 1627
Total energy generated 1355 1537 1585 1761 1802 1849 2119 2545 2786 3072 3365 3678 4011 4367 4720 5094 5492 62343
Total energy available (GWh) 2381 2643 2781 3052 3186 3131 3689 4431 4851 5349 5860 6404 6984 7604 8219 8870 9563 108552
Electricity sales in Nepal (GWh) 1654 1854 1936 2127 2250 2158 2603 2837 3093 3371 3674 4005 4365 4758 5187 5653 6162 74077
Increase over FY2004 804 1004 1086 1277 1400 1308 1753 1987 2243 2521 2824 3155 3515 3908 4337 4803 5312 67277
Tariff (NRs/kWh) 7.33 6.95 6.74 6.75 6.68 6.70 6.96 6.96 6.96 6.96 6.96 6.96 6.96 6.96 6.96 6.96 6.96 56
Average tariff ($/kWh) 0.098 0.095 0.092 0.096 0.099 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093
Additional Revenue from Nepal sales ($ million) 78.5 95.0 99.7 122.9 139.0 121.7 162.7 184.5 208.2 234.0 262.1 292.8 326.3 362.8 402.5 445.8 493.1 6244
Operating Expenses ($ million)
Fuel 1.0 1.8 2.5 2.2 1.8 1.9 2.7 2.9 3.2 3.5 3.9 4.3 4.7 5.2 5.7 6.3 6.9 87
Power purchases from IPPs 72.2 78.4 87.0 96.6 110.6 106.9 130.0 133.9 138.0 142.1 146.4 150.8 155.3 159.9 164.7 169.7 174.8 1601
Salaries, wages & allowances 18.4 19.4 24.2 25.6 32.1 34.8 40.8 44.1 47.6 51.5 55.6 60.0 64.8 70.0 75.6 81.6 88.2 1013
Operation and Administration 23.5 30.6 31.2 37.5 38.7 39.4 44.7 49.2 54.1 59.5 65.4 72.0 79.2 87.1 95.8 105.4 115.9 1458
Less Electricity Exports to India (9.0) (8.3) (7.9) (6.9) (5.4) (4.1) (8.1) (8.9) (9.8) (10.7) (11.8) (13.0) (14.3) (15.7) (17.3) (19.0) (20.9) (263.3)
Net Operating Costs 106.0 122.0 136.9 155.0 177.8 178.8 210.2 221.3 233.1 245.8 259.4 274.0 289.7 306.5 324.5 343.9 364.8 3895
Increase over FY1996 85.5 101.5 116.4 134.5 157.3 158.3 189.7 200.8 212.6 225.3 238.9 253.5 269.2 286.0 304.0 323.4 344.3 2754
Capital Expenditures ($ million)
Generation, transmission, and distribution (without 101.4 121.9 118.5 129.7 110.1 112.4 69.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
equity investment)
REDTP 2.9 14.3 17.1 10.6 11.7 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Subtotal Capital Costs 104.3 136.1 135.5 140.3 121.8 112.9 69.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Annual Financial Benefits ($ million) (111.4) (142.6) (152.2) (151.9) (140.1) (149.5) (96.1) (16.3) (4.5) 8.7 23.2 39.3 57.1 76.8 98.5 122.4 148.8 716.5
Financial Rate of Return 11.17%
Key Assumptions: 25 year projection period, 10% increase in fuel cost, 8 % increase in salaries, 3% increase in fuel prices, 10% increase in operating and administration, and 0% increase in tariffs.
FIRR = financial internal rate of return, FY = fiscal year, GWh = gigawatt hour, IPP = independent power producer, kWh = kilowatt hour, MW = megawatt, NRs =
Nepalese rupees, REDTP = Rural Electrification, Distribution, and Transmission Project.
Sources: Project completion report mission estimates.
Table A7.8: Economic Evaluation of the Power System Development Program of the Nepal Electricity Authority, 2008–2030
Actual Projected
Basis of Accounts
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021-28
Generation and Sales
Peak Load (MW) 515 558 597 603 648 813 885 967 1057 1163 1272 1387 1510 1640 1770 1907 2052 23080
Additonal Load (MW) 45 42 39 6 45 164 73 82 90 106 109 115 123 130 130 137 145 1627
Total Energy Generated 1355 1537 1585 1761 1802 1849 2119 2545 2786 3072 3365 3678 4011 4367 4720 5094 5492 62343
Total Energy Available (GWh) 2381 2643 2781 3052 3186 3131 3689 4431 4851 5349 5860 6404 6984 7604 8219 8870 9563 108552
Electricity sales in Nepal (GWh) 1654 1854 1936 2127 2250 2158 2603 2837 3093 3371 3674 4005 4365 4758 5187 5653 6162 74077
Increase over FY2004 150 350 432 623 746 654 1099 1333 1589 1867 2170 2501 2861 3254 3683 4149 4658 62045
Operating Expenses ($ million)
Fuel 1.0 1.8 2.5 2.2 1.8 1.9 2.7 2.9 3.2 3.5 3.9 4.3 4.7 5.2 5.7 6.3 6.9 87
Power purchases from IPPs 72.2 78.4 87.0 96.6 110.6 106.9 130.0 133.9 138.0 142.1 146.4 150.8 155.3 159.9 164.7 169.7 174.8 1601
Salaries, wages, & allowances 16.5 17.5 21.8 23.1 28.9 31.3 36.8 39.7 42.9 46.3 50.0 54.0 58.3 63.0 68.0 73.5 79.4 912
Operation and administration 21.2 27.5 28.0 33.8 34.9 35.5 40.2 44.2 48.7 53.5 58.9 64.8 71.2 78.4 86.2 94.8 104.3 1312
Less Electricity Exports to India (9.0) (8.3) (7.9) (6.9) (5.4) (4.1) (8.1) (8.9) (9.8) (10.7) (11.8) (13.0) (14.3) (15.7) (17.3) (19.0) (20.9) (263.3)
Net Operating Costs 101.8 117.0 131.4 148.7 170.7 171.4 201.6 211.9 222.9 234.7 247.3 260.8 275.3 290.8 307.4 325.2 344.4 3648
Increase over FY2004 91.8 107.0 121.4 138.7 160.7 161.4 191.6 201.9 212.9 224.7 237.3 250.8 265.3 280.8 297.4 315.2 334.4 3568
Capital Expenditures ($ million)
Generation, transmission, and distribution (without 101.4 121.9 118.5 129.7 110.1 112.4 69.1 0.0 0.0 0.0 0.0
equity investment)
REDTP 2.9 14.3 17.1 10.6 11.7 0.5 0.0 0.0 0.0 0.0 0.0
Subtotal Capital Costs 104.3 136.1 135.5 140.3 121.8 112.9 69.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Appendix 7
Net Annual Economic Benefits ($ million) (158.1) (154.3) (147.4) (121.0) (93.3) (108.5) 18.0 136.2 190.0 248.8 313.1 383.5 460.5 544.6 636.6 737.2 847.0 5194
Economic Rate of Return 23.39%
Based on Economic Benefit of $0.254/kWh at a discount rate of 12%, a standard conversion factor of 0.9, 10% increase in fuel cost, 8% increase in salaries, and 10% increase in operating and administration
cost.
EIRR = economic internal rate of return, GWh = gigawatt hour, IPP = independent power producer, kWh = kilowatt hour, MW = megawatt, REDTP = Rural

29
Electrification, Distribution, and Transmission Project.
Sources: Project completion report mission estimates.