Third highway project
Report No: ; Type: Report/Evaluation Memorandum ; Country: Nepal; Region: South Asia; Sector: Highways; Major Sector: Transportation; ProjectID:
                                                                  P010206


    The Implementation Completion Report (ICR) on the Nepal Third Highway project (Credit 1515-
NEP, approved in FY85), prepared by the South Asia Regional Office, with Appendix B contributed by
the Borrower, was reviewed by the Operations Evaluation Department (OED). The credit, in the amount
of $47.5 million equivalent, was approved on August 28, 1984 and closed on June 30, 1995, five years
behind schedule. A balance of US$5.2 million (SDR 3.46 million) was canceled. The credit was co-
financed by the governments of India and the United Kingdom. No comments were received from the co-
financiers.

      This project was the third Bank-supported operation to assist in improving Nepal's road system. The
project's main objectives were: (i) to integrate Nepal's far western territories with the rest of the country;
(ii) to improve traffic conditions to the South of Kathmandu up to the Indian border; and (iii) to strengthen
the operation and administration of the Department of Roads, in particular their capability to implement
and monitor road construction and road maintenance of the country's road system. To achieve these
objectives, project components comprised: (a) completing construction of the East-West Highway's
western section ending at the Indian border, and building some 60 km of feeder roads south of this road;
(b) rehabilitation and maintenance of about 82 km of the Kathmandu-Birjanj road; and (c) equipment for
road maintenance, notably material testing and site inspections, and related technical assistance and
training.

    The physical objectives were substantially achieved. The East-West Highway was essentially
completed, as were the feeder roads (52 km were built); as a result, the country's western region has been
linked to the national road network, and nearby agricultural areas now have better access. However, short
sections of the East-West Highway are incomplete, and impassable for brief periods during the rainy
season. The full benefits of this road will only be realized when a number of bridges currently under
construction (financed by Indian bilateral assistance) are completed. Improvements to the
Kathmandu-Birganj Road substantially upgraded the quality and reliability of the connection between
these two cities. Project implementation suffered major delays stemming from difficulties in meeting
effectiveness conditions and with procurement.

    The institutional objectives were attained as intended. Substantial local and overseas training for
highway agency personnel were carried out, and resulted in a clear improvement in the agency's
capability to implement and monitor road maintenance and road construction investments such as these
implemented under this project. The project also strengthened the capacity of private local contractors
and consultants in the road sector. Road maintenance equipment was purchased and allocated to regional
highway offices throughout Nepal, and has been especially valuable for use in emergency maintenance
and repairs required by flood damages.

 The economic rate of return for the Kathmandu-Birganj Road is estimated at 30 percent, substantially
higher than the appraisal estimate of 18 percent, due to greater traffic growth than anticipated. The return
on the East-West Highway was not reestimated for lack of information required to update appraisal data.

    OED rates the project's outcome as satisfactory, its institutional development impact as substantial,
sustainability as uncertain (because a considerable part of the Nepal's road system is in poor condition,
and there is no evidence that maintenance performance is improving), and Bank performance as
satisfactory. These ratings are in line with those of the ICR.

     The main lessons of this project are: (i) high-level coordination between the Ministries responsible
for roads and for finance could have helped improve implementation procedures and prevent most of the
project delays, and (ii) the project design that sought to minimize investment in flood management
facilities proved inadequate and resulted in the need to build additional bridges.

    The ICR is of satisfactory quality, and contains a plan prepared by the Borrower for the future
operation of the project.

    No audit is planned.