Third technical assistance (Pancheswar) project
 Report No: ; Type: Report/Evaluation Memorandum ; Country: Nepal; Region: South Asia; Sector: Other Power & Energy Conversion; Major
                                        Sector: Electric Power & Other Energy; ProjectID: P010306


Nepal: Third Technical Assistance (Pancheswar) Project (Credit 1902-NEP)

The Implementation Completion Report (ICR) on the Nepal Third Technical Assistance (Pancheswar) Project
(Credit
1902- NEP, approved in FY88), was prepared by the South Asia Regional Office and reviewed by the Operations
Evaluation Department (OED). An IDA Credit in the amount of SDR 10.6 million was approved on April 26,
1988, and closed on June 30, 1994, two years after the original closing date. The credit was fully disbursed.
Cofinancing was provided by the German Kreditanstalt f■r Wiederaufbau (KfW). The ICR includes comments
from the KfW, but not from the Borrower.

The main objectives of the project were to: (i) support the development of Nepal's large hydroelectric potential; (ii)
strengthen the planning and institutional capacity of the power sector; and (iii) address the issue of poor
productivity in food grain production. The project comprised: (i) field investigations for the Pancheswar
multipurpose dam project; (ii) detailed engineering studies for the Arun III Hydroelectric Project; (iii) studies for
power sector planning and institutional development, rural electrification, tariffs, and corporate consolidation and
development; and (iv) studies on potential projects, policies, technologies and institutional strengthening needed
for more efficient irrigation development, and other studies to be specified in the course of implementation.

Most of the power sector studies were successfully completed, but the project's objectives of increasing the power
sector's planning and institutional capacity were largely unmet. The Pancheswar multipurpose dam, as it emerged
from the studies, was proposed to have an installed capacity of 7,200 MW at a cost of over US$4 billion, and its
implementation would require the continued close cooperation between Nepal and India. The studies on the Arun
Project were completed, but the Bank later concluded that this project was too large and complex in relation to
Nepal's institutional and economic capabilities. The planning and institutional development studies for the power
sector were completed, but progress in the implementation of their recommendations has been slow, and many
institutional issues remain outstanding. Finally, the project financed a number of other studies (not specified at
appraisal) that supported the implementation of the Marsyangdi Hydro Power Project (Credit 1478-NEP) and the
preparation of the Power Sector Efficiency Project (Credit 2347-NEP). None of the initially expected studies
related to food grain production were carried out.

Like the ICR, OED rates the outcome of the project as unsatisfactory, the sustainability (of the institutional
development components) as uncertain, the institutional development impact as moderate, and the Bank's
performance as satisfactory.

As discussed in the ICR, the institutional development program supported by this project was too ambitious, and
the Borrower, the implementing agency, IDA and the consultants did not have the same understanding of the
priorities. As a result, the Borrower's ownership of the studies appears to have been inadequate, and their
recommendations were not fully accepted. The basic lesson here is the need for the Bank, the Borrower and the
implementing agency to reach a common understanding of the strategy and priorities for the sector before
embarking on a program of studies.

The ICR is satisfactory; however, it would have been useful for the ICR to have explained why the studies on food
grain production were not carried out. No audit is planned.