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Document of The World Bank For Official Use Only
Public Disclosure Authorized
Report No: 74861-NP
PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT
Public Disclosure Authorized
Public Disclosure Authorized
IN THE AMOUNT OF SDR 18.20 MILLION (US$ 27.26 MILLION EQUIVALENT) TO NEPAL FOR A KALI GANDAKI A HYDROPOWER PLANT REHABILITATION PROJECT April 9, 2013
Sustainable Development Department Nepal Country Management Unit South Asia Region
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
CURRENCY EQUIVALENTS (Exchange Rate Effective April 9, 2013) Currency Unit NPR 87 US$0.67
= = =
Nepalese Rupees (NPR) US$1 SDR I
GOVERNMENT OF NEPAL FISCAL YEAR July 15 July 14 ABBREVIATIONS AND ACRONYMS ADB CAS CERC DflD
DoED EA EMP ERR ESMU ESSD FM FY GAP GoN GWh ICB IDA IFC IPP INPS kWh LDC LPPOM
Asian Development Bank Country Assistance Strategy Contingent Emergency Response Component Department for International Development (UK) Department of Electricity Development Environmental Assessment Environmental Management Plan Economic Rate of Return Environmental and Social Management Unit Environmental and Social Science Division Financial Management Fiscal Year Governance and Peace Action Plan Government of Nepal Gigawatt-hour International Competitive Bidding International Development Association International Finance Corporation Independent Power Producer Integrated Nepal Power System Kilowatt-hour Load Dispatch Center Large Power Plants Operation & Maintenance Department
MoF MW NCB
Ministry of Finance Megawatt National Competitive Bidding
NGO
Non Governmental Organization
NEA NIETTP NR NPV OAG OEM
Nepal Electricity Authority Nepal- India Electricity Transmission and Trade Project Nepali Rupee Net Present Value Office of the Auditor General Original Equipment Manufacturer
O&M
Operation & Maintenance
ORAF
Operational Risk Assessment Framework
PCC PDP PIU PPA
Project Coordination Committee Power Development Project Project Implementation Unit Power Purchase Agreement
PPM
Parts Per Million
PSC SAP SIA SIL US$ VCDP
Project Steering Committee Social Action Plan Social Impact Assessment Specific Investment Loan US Dollars Vulnerable Community Development Plan
Regional Vice President: Country Director (Acting): Sector Director: Sector Manager (Acting): Task Team Leader:
Isabel M. Guerrero Salman Zaheer John Henry Stein Jyoti Shukla Pravin Karki
ii
NEPAL KALI GANDAKI A HYDROPOWER PLANT REHABILITATION PROJECT TABLE OF CONTENTS Page I.
STRATEGIC CONTEXT .................................................................................................
1
A. Country Context ......................
1..........................
B. Sectoral and Institutional Context.........
II.
...............
................
C. Higher Level Objectives to Which the Project Contributes...................
5
PROJECT DEVELOPMENT OBJECTIVES ...........................................................
6
A. PDO........................................................
6
B. Project Beneficiaries
6
.................................................
C. PDO Level Results Indicators......................6.... III.
............ 6
PROJECT DESCRIPTION ......................................................................................... A. Project Components B. Project Financing
..................................... .....................................
6 ........
D. Alternatives considered and Reasons for Rejection................
B. Results Monitoring and Evaluation C. Sustainability V.
12 ........
....................
.....
....................................
14 15
.................................................
15
KEY RISKS AND MITIGATION MEASURES......................................................16 A. Risk Ratings Summary Table ...................................... B. Overall Risk Rating Explanation
VI.
13 14
IM PLEM ENTATION .................................................................................................. A. Institutional and Implementation Arrangements
9
............. 11
C. Lessons Learned and Reflected in the Project Design.....................
IV.
2
..............................
17 ......
APPRAISAL SUMMARY ......................................................................................... A. Economic and Financial Analyses
..........................
18 18
......... 18
B. Technical ....................................................
21
C. Financial Management.....................................
......
D. Procurement
....... 22
...........................................
E. Social ......................................................
iii
21
23
24
F. Environment................................................. G. Other Safeguards Policies Triggered
..................................
Annex 1: Results Framework and Monitoring ....................................................................
27 29
Annex 2: Detailed Project Description..................................................................................34 Annex 3: Implementation Arrangements .............................................................................
47
Annex 4: Operational Risk Assessment Framework (ORAF).............................................69 Annex 5: Implementation Support Plan ................................................................................
74
Annex 6: Governance and Peace (GAP) Action Plan...........................................................77 Annex 7: Economic and Financial Analyses.........................................................................85 Annex 8: Financial Restructuring Plan of NEA...................................................................93 A nnex 9: M ap ..............................................................................................................................
iv
96
PAD DATA SHEET Nepal Kali Gandaki A Hydropower Plant Rehabilitation Project PROJECT APPRAISAL DOCUMENT South Asia SASDE
Basic Information Date:
April 9, 2013
Sectors:
Energy and Mining / Hydropower
Country Director (Acting):
Salman Zaheer
Themes:
Economic Management / Water Resource Management
Sector Manager (Acting)/Director:
Jyoti Shukla / John Henry Stein
EA Category:
B - Partial Assessment
Project ID:
P132289
Lending Instrument:
Specific Investment Loan (SIL)
Team Leader(s):
Pravin Karki
Does the project include any CDD component? No Joint IFC: No Borrower: Government of Nepal Responsible Agency: Nepal Electricity Authority (NEA) Contact:
Rameshwar Yadav
Title:
Managing Director
Telephone No.:
+ 977 1 4227725
Email:
[email protected]
Project Implementation Period:
Start Date: June 30, 2013
End Date: June 30, 2017
Expected Effectiveness Date: June 30, 2013 Expected Closing Date: June 30, 2017
Project Financing Data(US$M) ]
Loan
[ ]
Grant
X]
Credit
[]
Guarantee
[ ]
Other
For Loans/Credits/Others Total Project Cost :
(US$M): 30.36
Total Bank Financing:
Total Co-financing:
(US$M): 3.10
Financing Gap:
Financing Source
(US$M): 27.26
Amount(US$M)
BORROWER/RECIPIENT
3.10
IBRD
-
IDA: New
-
IDA: Recommitted
27.26 -
Others
-
Financing Gap Total
30.36
V
Expected Disbursements (in US$ Million) Fiscal Year
2013
2014
2015
2016
2017
Annual
1.00
11.00
13.00
1.50
0.76
Cumulative
1.00
12.00
25.00
26.50
27.26
Project Development Objective(s)
The objective of the proposed project is to improve the reliability of power supply of Kali Gandaki A Hydropower Plant through rehabilitation and safety measures and to improve the response capacity of Nepal in case of an emergency. Components Component Name
Cost (US$ Millions)
Component A: Civil Works
9.09
Component B: Electro-Mechanical Works
16.60
Component C: Technical Assistance and Capacity-Building
4.67
Component D: Contingent Emergency Response
0.00
Compliance Policy Does the project depart from the CAS in content or in other significant respects?
Yes [
]
No [X]
Does the project require any exceptions from Bank policies?
Yes [
No [X]
Have these been approved by Bank management?
Yes [
Is approval for any policy exception sought from the Board?
Yes [
] ] ]
Does the project meet the Regional criteria for readiness for implementation?
Yes [ X]
Safeguard Policies Triggered by the Project
Yes
Environmental Assessment OP/BP 4.01
No [X] No [X] No
No
X
Natural Habitats OP/BP 4.04
X
Forests OP/BP 4.36
X
Pest Management OP 4.09
X
Physical Cultural Resources OP/BP 4.11
X
Indigenous Peoples OP/BP 4.10
X
Involuntary Resettlement OP/BP 4.12
X
Safety of Dams OP/BP 4.37
X
Projects on International Waters OP/BP 7.50
X
Projects in Disputed Areas OP/BP 7.60
X
Legal Covenants Name
Recurrent
Description of Covenant
vi
Due Date Frequency
Team Composition Bank Staff Name
Title
Specialization
Unit
UPI
Drona Raj Ghimire
Environmental Specialist
Environment
SASDI
251759
Parthapriya Ghosh
Senior Social Development
Social Development
SADS
292426
Specialist Sunita Gurung
Program Assistant
Team Support
SASDO
163120
Minneh Mary Kane
Lead Counsel
Legal
LEGES
18728
Pravin Karki
Senior Hydropower Specialist
Team Lead
SASDE
337339
Luis Alejandro Lara Lopez
Program Assistant
Team Support
SASDO
190072
Bigyan B. Pradhan
Senior Financial Management Specialist
Financial Management
SARFM
20092
Gregory Scopelitis
Consultant
Finance
SASDE
421916
Rabin Shrestha
Senior Energy Specialist
Energy, Planning
SASDE
333025
Jie Tang
Lead Energy Specialist
Energy, Hydropower
SASDE
221704
Shambhu Prasad Uprety
Procurement Specialist
Procurement
SARPS
359093
Chaohua Zhang
Lead Social Development
Social Development
SASDS
86742
Specialist Non Bank Staff
Name
Title
Specialization
City
Hari Bhattarai
Social Specialist
Social Development
Kathmandu
Bertrand Chanzy
Mechanical Engineer
Electromechanical
Paris
Peter Meier
Economist
Economics & Finance
Glasgow
Hari Shrestha
Civil Engineer
Civil
Kathmandu
Locations Country
First Administrative Division
Location
Nepal
Western Region
Pashchimanchal
Vii
Planned
Actual
X
Comments
Syangja
I.
STRATEGIC CONTEXT A. Country Context
1. Nepal is a land-locked country that is transiting from conflict to peace and facing major development challenges. Nepal attained the first Millennium Development Goal (MDG), to halve extreme poverty, ahead of time. In 2011, Nepal ranked 157 in the world in the Human Development Index. With 26.5 million people, Nepal has a per capita income of US$ 735. Of the population, 24.8 percent live on less than US$ 1.25 per day, and 82 percent of the population live in rural areas. Poverty is much more severe in rural areas (27 percent) compared to urban areas (15 percent) and particularly severe in mountainous areas (42 percent). 2. While Nepal is making progress on consolidating peace and transitioning to a new political system, there have also been setbacks on this ambitious agenda. Nepal is still emerging from a 10-year armed conflict that ended in 2006. It is currently passing through a prolonged political transition. This transition entails two interrelated processes: promulgation of a new constitution and the completion of the ongoing peace process. While Nepal has made good progress on the peace process-notably by formally concluding integration of ex-combatants into the armed forces in August 2012-the country's political transition is taking longer than expected. The Constituent Assembly, in effect since 2008 and tasked with drafting Nepal's new constitution, was dissolved in May 2012 without completing the constitution. 3. While the Constituent Assembly was unable to deliver the promised new constitution, it has been a first step away from the exclusionary political institutions of the past toward a more inclusive political system. The 2008 Constituent Assembly was the product of two historical compacts. The first was the Comprehensive Peace Agreement of November 2006 signed between the State and the Maoist rebels to formally end the decade-long civil war in Nepal. The second was the Interim Constitution that followed, which continues to remain in force today. Both compacts, plus the Madhesi uprising of 2008 that thrust the issue of federalism centerstage, established peace-building and constitution-drafting as the twin drivers behind the transition to peace and stability. Despite its failure to deliver a constitution, the Constituent Assembly managed to create-for the first time in Nepali history-a political forum to address differences across a wide and representative spectrum of Nepali society. On March 14, 2013 a deal between the major political parties appointed the Chief Justice to head the interim government mandated to hold elections for a new Constituent Assembly by June, 2013. This was welcomed as a positive step in building a more inclusive and effective state. 4. While the country has reaped some dividends of peace, the economy is yet to move towards its full growth potential. Going forward and in the absence of new endogenous sources of growth, economic activity will remain dependent on consumption (supported by remittances) and attributed to weather conditions and external developments. Real gross domestic product growth is expected to slow down to 3.8 percent for 2011/12.1
World Bank Database as of January 29, 2013
1
B. Sectoral and Institutional Context Energy Sector Background 5. Nepal's energy sector development is low by global and South Asia regional standards. An estimated 88 percent of the country's total primary energy demand is met by traditional (noncommercial) forms of energy, reflecting the overwhelmingly rural distribution of the population in Nepal and the virtual absence of relatively clean, commercialized forms of energy outside the urban areas. This heavy reliance on traditional energy sources brings with it problems of limited opportunities for rural economic development, environmental degradation, inefficiency in provision of energy services, and impacts on health particularly, for women. As per national census published in 2013, about 75 percent of the population in Nepal is estimated to have access to electricity (grid and off-grid), with a significant disparity between access levels in urban Nepal (around 90 percent) and rural Nepal (around 30 percent). Individual consumption remains very low at about 70 kWh per capita, even for urban Nepal, compared to 733 kWh for India and 2,600
kWh for China. 6. Nepal's grid-connected generation capacity is low. Total installed capacity is 714 MW, of which 660 MW is based on hydropower. Since the hydropower capacity is essentially run-ofriver, the available capacity for power generation is affected by hydrological variability. In Nepal 80 percent of rainfall occurs in the monsoon months of June, July, August and September, coinciding with glaciers melting. During winter, the water available can support only 35 percent of the hydropower capacity to generate power. Thus, the available generating capacity is the highest in summer when demand is low, thereby creating an electricity surplus, which currently can be neither stored nor used for domestic consumption, nor exported because of the lack of a transmission infrastructure link to India. Therefore, storing water during the wet season and producing during the dry season is critical for balancing the power system and ensuring its viability, as well as ensuring a year-round power supply. However at present, no major storage projects have advanced beyond a preparation stage, so Nepal needs to explore other options in the short and medium term. These solutions can include imports from India, run-of-river projects and/or local generation, and rehabilitation of existing plants. Even with the planned addition of around 1,375 MW of hydropower capacity by 2017 (based on Power Purchase Agreements (PPA) concluded projects and projects under construction) a capacity deficit of around 900 MW in the dry season is expected by 2017. The real deficit could be much higher, since the demand growth projection is significantly suppressed because of constrained supply and the lack of a secure electricity supply horizon. 7. Demand for electricity has been growing at close to 9 percent per year over the last decade, boosted by economic growth and increasing access to electricity. Supply has not been able to keep up with demand, leading to an average 12 to 18 hours load-shedding per day in winter - when demand peaks at about 1,025 MW and generation is at its lowest. Electricity shortages are a severe impediment to growth in Nepal where 75 percent of firms cite it as the top barrier to doing business in the country2 . Delivering the gross domestic product growth targeted by the government for the coming years will translate into a significant increase in energy use and further deepen the need for additional generation capacity. Nepal imports about Rs 75 billion 2
More and Better Jobs in South Asia, World Bank, 2012.
2
(US$900 million) of petroleum products per year. A significant part of these imports is for captive fuel-based power generation which is a drain on the economy. In the long term, peak demand is expected to reach close to 4,000 MW by 2028 which will require a major scale-up of Nepal's generation capacity. 8. Nepal's hydropower resources. To meet with these challenges, Nepal can only rely on a single natural resource - water. Since large parts of the country are mountainous and rich in water, the country has a huge techno-economically feasible hydropower potential estimated at some 43,000 MW. Nonetheless, Nepal has only been able to develop less than 1.5 percent of this potential to date compared to an average of 29 percent in neighboring countries. MoE issues licenses for new hydropower capacity from projects of various sizes. Ninety-one percent of these licenses awarded so far went to the private sector, but most of these projects are struggling to reach financial close or the construction stage. In fact, only 92 MW of new capacity has been commissioned by the independent power producers (IPP) since 2001, and no new major IPP has been added to the Integrated Nepal Power System (INPS). Today, IPPs represent 25 percent of the country's installed capacity, and two-thirds of the IPPs were funded exclusively through foreign direct investments. Generation capacity development is facing significant barriers, because of the long9. lasting political instability, the lack of institutional capacity of the policy and regulatory institutions, the remoteness and difficulty of the terrain, the lack of necessary infrastructure (roads and transmission lines), the speculative outlook of many of the license holders, weak financial capacity of Nepal Electricity Authority (NEA), and the lack of an alternative market for the electricity, especially in view of the economies of scale required by the large hydropower schemes. 10. Nepal's political instability continues to hamper investments. The frequently changing governments and volatile political situation cause policy inconsistencies and shifts in priority of the government. Most political parties share a common understanding of hydropower as a leading sector to bring about economic transformation in Nepal, but IPPs remain skeptical about government commitment. 11. The need to accelerate the development of large infrastructure projects recently led the Government of Nepal (GoN) to establish the Nepal Investment Board in an attempt to address these issues, and appoint international advisors funded by the Department for International Development (DflD) to support it. In addition, international donors (including the World Bank) are making parallel efforts to strengthen Nepal's institutions, including in the power sector, and to assist in the technical review of four of the large hydropower projects sponsored by private developers. The government has also taken action to address the level of speculation in hydropower licenses. However, in general these institutional challenges persist and continue to lead to delays in development. 12. Access to sites and the market is often difficult in Nepal's mountainous countryside, which causes project development to be costly and to take a long time in many cases. Given the limited size of the domestic electricity market, any large hydropower development will have an export component to larger neighboring markets such as in India. Improvements to the
3
transmission and distribution network within Nepal and transmission links between Nepal and India are needed to support the financial viability of investments in hydropower generation in Nepal. The Nepal-India Electricity Transmission and Trade Project (NIETTP) has started to address this issue and received funding from the International Development Association (IDA), GoN and Government of India. This transmission link is expected to be commissioned in 2015. It would provide 1,000 MW of transmission capacity for both import and export. 13. Financing major hydropower scale-up remains a major challenge. Estimates indicate that approximately US$12 billion is needed to realize all the 6,000 MW of hydropower projects under planning. Additional funding of about US$ 5 billion would be needed for transmission infrastructure. Attracting sufficient investments in Nepal is difficult, since the local market is of limited size and pays low tariffs. Despite recent increases, technical and non-technical losses average 26.3 percent, revenue collection rate is low, and operating costs are increasing. No one type of investor or financier is likely to be able to mobilize such financing for Nepal. Therefore, creative combinations of private investments, sovereign guaranteed financing (such as from the World Bank/IDA, and Asian Development Bank), non-sovereign financing (such as from the International Finance Corporation (IFC), bilateral financiers, and commercial banks), and export PPAs will need to be found. 14. Given this challenging context, maintaining current generation assets is extremely important for the country. Projects often lack proper Operation and Maintenance (O&M) strategies and are deprived of adequate resources for repair and maintenance. Existing assets are operated at full capacity due to the high demand for continuous generation, making it challenging to respond to early warnings for overhauling, repair and maintenance, which in turn are increasing the risks of major outages and the continuation of the precarious energy situation in Nepal. Kali Gandaki A is a prime example of this predicament. Institutional Context 15. The electricity sector falls under the responsibility of the MoE, which is in charge of sector policy formulation and regulation as well as overseeing planning, investment, and development of the power sector. The MoE is also responsible for issuing licenses for electricity generation, transmission and distribution and is supported by the Department of Electricity Development (DoED) in these areas as well as in technical issues related to hydropower and electricity. In addition, the Investment Board was established in November 2011 and entrusted with the responsibility of facilitating the development of large infrastructure projects including hydropower projects above 500 MW. The Board is a one-window access for large, national priority projects and is hoping to attract more than US$6 billion in investments into such projects. The IB is now playing an active role in the development of five potential large hydropower projects that would serve both the domestic market and the export market in India. 16. The NEA was formed in August 1985, under the Nepal Electricity Authority Act 1984 as a vertically-integrated government-owned utility responsible for generation, transmission and distribution of electricity in Nepal. The NEA's mandate also includes formulating policy recommendations to the Government on power sector development, sector regulation and tariffs. The NEA owns a generation capacity of 531 MW (90 percent hydropower), equivalent to 75
4
percent of the country's total installed capacity, and holds 1,087 MW of survey licenses for new hydropower generation. For domestic consumption the NEA serves as single buyer for a large part of the power generated by the IPPs. 17. Payments from municipalities, government offices and public institutions are difficult to collect, since they in turn are operating with limited financial resources. This financial constraint limits the investment capacity for new generation facilities, or distribution and transmission infrastructure. It also undermines the credibility of the national utility as a reliable off-taker for IPPs, especially as the NEA did not meet its payment obligations to the GoN in 2010/11. The GoN took some measures to improve the financial viability of the sector, including a 20 percent tariff increase in July 2012, which was the first in 11 years. The World Bank is also helping strengthen the financial management, accounting system and internal control system of the utility. 18. To address these sectoral and institutional issues, a variety of actions are under discussion at the GoN with the support of the World Bank. These actions include plans for adding generation and transmission capacity as well as a Financing Restructuring Plan (FRP) of the NEA covering operational aspects, in addition to tariffs and financial management. Details are provided in Annex 8. These actions will take a few years to be implemented and yield results. In the short and medium terms, Nepal will remain under severe energy constraints and will have to optimize the use of its existing assets such as Kali Gandaki. C. Higher Level Objectives to Which the Project Contributes 19. Nepal is facing a severe energy crisis. Dialogue with the Government is ongoing to help Nepal solve its current energy crisis in the medium and long term to improve the stressed financial situation of the sector. This project is critical for Nepal, since it proposes to rehabilitate a 144 MW hydropower plant that is providing 40 percent of the electricity to the country's only national power utility or 25 percent of the country's total power production. This rehabilitation project is highly time-sensitive and any damage to this asset could cause extensive disruptions of power supply in the country. Rehabilitating this asset is both necessary and highly challenging for the country, since rehabilitation works must be conducted while meeting the current energy needs of the country. 20. The proposed project contributes to several higher level objectives, particularly including economic growth and human development. It will help rehabilitate a power plant that supplies 25 percent of the country's grid-connected power system and will strengthen its long-term sustainability and reliability. Thus, industries and households will benefit from more reliable electricity supply from the proposed project, promoting growth and employment, and helping to achieve social objectives. The project will both strengthen Nepal's domestic electricity supply and develop the country's future capacity in operations and maintenance of hydropower plants in high sediment conditions. 21. Rationale for Bank Involvement. The proposed project is fully consistent with the strategy of the GoN to address security of the supply of electricity. The proposed project is also fully consistent with the Bank's Interim Strategy (2009-11), which has three pillars; pillar 1 includes
5
increased access to electricity, and enhancing connectivity and improved reliability of power supply. 22. The ongoing and planned projects in the pipeline of IDA supported energy portfolio are aligned with this pillar, addressing the key sectoral issues stated above. IDA is currently providing financing through components of the following projects - Power Development Project (PDP), Kabeli Transmission, Kabeli-A Hydropower Project, and the first cross-border highvoltage transmission line project, the NIETTP. 23. Rehabilitating this asset as soon as possible is urgent for Nepal. The involvement of the World Bank would both ensure that high quality and sustainable rehabilitation work is implemented, and that the dire financial constraints of the energy sector do not hinder the rehabilitation works. II.
PROJECT DEVELOPMENT OBJECTIVES A. PDO
24. The objective of the proposed project is to improve the reliability of power supply of Kali Gandaki A Hydropower Plant through rehabilitation and safety measures and improve the response capacity of Nepal in case of an emergency. B. Project Beneficiaries 25. Project beneficiaries comprise: (a) the electricity consumers in Nepal who would be protected from further shortage of power and, (b) the NEA and other existing IPPs that would benefit from broad capacity strengthening in hydropower in Nepal and would learn from sediment-guided operations in Nepal based on real-time sediment monitoring. C. PDO Level Results Indicators 26. The key indicators for the proposed project will track the reduction in generation losses from unplanned outages, the design and operationalization of a dam safety plan, and the rehabilitation of the generation capacity. III.
PROJECT DESCRIPTION
Background 27. Kali Gandaki A hydropower project (Kali Gandaki A) is a 144 MW run-of-river plant with six hours of daily peaking capacity, located on Kali Gandaki river in the Syangja disrict. The dam is located below the confluence of Kali Gandaki and Andhi Khola rivers. The plant was largely funded by the Asian Development Bank (ADB) and commissioned in 2002 at a cost of US$453 million. Today it is the largest hydroelectric power station in Nepal, and it supplies nearly 40 percent of NEA's total annual electricity generation which represents a quarter of the country's total annual electricity generation. Kali Gandaki A is unique of its kind in Nepal offering both by its large capacity (144 MW) and its peaking capacity (6 hours).This important
6
plant is currently facing: low availability of generation capacity from erosion and cavitation leading to severe damage to its power generation equipment and safety management issues. 28. Severe Damages to Power Generation Equipment. Severe damage was found at critical plant equipment, including the main inlet valve, guide vane, and turbine runners caused by both erosion and cavitation. The erosion is caused by increased sediment concentration dominated by quartz particles in the water passing through these parts of the power generation units. Reduced efficiency of the sediment handling facilities at the headworks was identified as a significant cause of this increase in sediment concentration. In addition to erosion, the electromechanical equipment is affected by cavitation caused by decrease in the tail water level. The damage from erosion and cavitation is increasing, in turn reducing generation efficiency (2-3 percent) and reliability, and threatening the safety of the plant. For example in 2011, the production was recorded as 848 Gigawatt-hour (GWh), 8 percent lower than the maximum achievable production under the corresponding hydrological conditions. Expert advisers concluded that civil works at the headworks and tailwater areas are needed to address these issues. They also recommended that electro-mechanical equipment be retrofitted to avoid more severe damage and to enhance the performance of the equipment against silt erosion. Special coatings of turbines were also recommended. 29. Sediment Issues at Kali Gandaki. Both the Kali Gandaki and Andhi Khola Rivers lie in the middle mountains, a physiographic region of Nepal where increased erosion and sedimentation takes place. Sediment transport is a natural phenomenon in the Himalayas. Young geology causes high sediment loads in the rivers during the monsoon season, which carry increased sediments and floating debris to the plant. The abrasive sediment particles in high concentrations (above permitted limits) are transported into the flow passage of the power generation units, causing severe damage to the turbines. Unless sediment management is improved, wear and tear of the machinery will continue to be significant and will require unnecessarily long and frequent unscheduled shutdowns of the power generation units for repairs, subsequently further reducing the availability of this critical plant. In 2011, the maximum power delivered per unit was 46.4 MW, 3.3 percent lower than the 48 MW installed. 30. Floating Debris. As with suspended and bedload sediments, transport of floating debris in the rivers is a natural phenomenon. Emerging towns and increasing population along the Kali Gandaki and Andhi Khola Rivers introduce greater quantities of solid wastes including plastic and paper that contribute to the clogging of the intakes at Kali Gandaki. Poor control of the floating debris chokes the intake screen and reduces the efficiency of the sediment settling basins by introducing accelerated flows. The current trash rack raking machine cannot keep up with the debris accumulation and operations must be stopped regularly to clean the screen manually or through back-flushing, or both. For example, in the summer of 2012, NEA engineers had to back-flush the settling basin, resulting in a 13-hour plant shutdown and a generation loss amounting to 2 GWh or about US$174,000 when calculated at 8.7 cents per kilowatt-hour. The loss amounts to a staggering US$ 796,000 when considering diesel-based self-generation at 40 US cents/kWh. Only data from 2012 is presented here because extensive data from earlier years is not available for two reasons: (a) the NEA's automatic data recording systems are malfunctioning, and (b) in 2012 the NEA decided to collect detailed information for a comprehensive analysis.
7
31. The original designers of the plant had recommended continuous monitoring of sediments and shutting down the plant when the concentrations exceeded 10,000 parts per million (PPM). This has never been practiced in Kali Gandaki simply because the country is always suffering from a power deficit and cannot afford to close the plant during periods of high sediments during the summer months. Physical model testing was performed to assess the performance of headworks and sedimentation handling facilities, based on which, modifications to the headworks and the sedimentation handling facilities will be conducted under the project to improve the performance of the settling basins. 32. Cavitation. During maintenance, the dismantled runners, wicket gates and plates on the machine shop's floors show typical wearing due to cavitation rather than the action of sand alone. Field measurements have confirmed that the cavitation problems exist mainly due to the lowering of the tail water level under the action of water release at the exit of the power house. This issue cannot be left unaddressed, since it causes serious vibration in the powerhouse, which can damage all the equipment. Therefore, the project will physically increase the level of the tailwater to restore the suction head and pressure on turbine runners to design levels by installing a concrete sill at the junction with the river-bed. This simple solution causes a head loss of 1 meter, which is compensated by an expected turbine efficiency gain of 2-3 percent and a decrease in maintenance frequency. Indeed, the runner must be repaired every year or two, whereas experts estimate that combined with hard coating, the repairs could take place every fifth year. The observed cavitation causes vibrations that can negatively affect important equipment, including the runners, the wicket gates, guide bearings, and thrust bearings. It could lead to ultimate destruction of these parts if the problems are neglected. NEA is also considering air injection and coatings to address cavitation. 33. Safety Management Improvements. Kali Gandaki A was funded through the ADB, and major international firms designed and constructed the project. The Bank's assessment of the dam suggested construction works of good quality and no evidence of structural concern. However, the Bank identified the need to re-establish satisfactory dam safety management. Adequate instruments need to be re-installed and properly maintained and staff trained in monitoring the instruments regularly. For the NEA to regain control on dam safety management, the rehabilitation project will assist the NEA in creating a central cell to store among other things technical archives of Kali Gandaki and other projects. The NEA will also implement priority non-structural measures, such as an emergency preparedness plan and an instrumentation plan with the assistance of a consulting firm. If the firm identifies The proposed project will address three safety issues at Kali Gandaki A. First, the Main Inlet Valves (MIV) that function as safety devices for the power plant are currently damaged and need repairs. Sediment deposition in the lower part of the valves hinders complete closure of the MIVs, and headwork modifications proposed by the project will help reduce sedimentation in the MIVs. Second, the project will address some dam safety management issues consisting mainly of improper maintenance and negligence of dam instrumentation. Last, the control systems will be fixed to provide the operators with the emergency information necessary to maintain the plant. 34. The need to finalize the Operations Manual for the headworks including the dam. Although the plant was built in 2002, the draft Operations Manual for hydraulic and sedimentation aspects has still not been finalized. The draft manual clearly stated that "sediment
8
management in Kali Gandaki is one of the key elements in the project operation" and recommended sediment management strategies, such as regular flushing and shutdown of the plant when sediment concentrations reached threshold values. The plant has always been run according to the instructions of the Load Dispatch Center (LDC), which dispatches the electrical power supplied to the consumers, works towards maintaining balance between demand and supply, and tries to minimize power interruptions. This process is designed to meet consumer demand rather than to reflect plant conditions, such as sediment levels. As long as Kali Gandaki remains under pressure to generate regardless of its operating conditions, proper maintenance, safety and efficiency at Kali Gandaki will continue to be compromised. The project will be completed in 2017. By that time, new generation capacity is expected to come online. The project provides a good opportunity for the World Bank team to help the GoN, LDC, and NEA agree on optimal operating rules of Kali Gandaki in the medium and long term, based on the recommendations of the consulting firm hired for the project. A. Project Components 35. Component A: Civil Works (US$ 9.1 million) will address the main items related to civil works and will consist of the following sub-components. *
Sub-component Al: Headworks Modifications. Under this sub-component, modifications will be made to the headworks including the intake and the settling basins.
*
Sub-component A2: Improving Dam Safety Monitoring and Instrumentation. Under this sub-component, instruments installed in the project will be repaired and others added (including real-time sediment monitoring instruments), to meet state-of-the-art requirements.
*
Sub-component A3: Maintenance Works. Under this sub-component, maintenance of the headworks and the powerhouse areas will be done, including the stabilization of the slope in the headworks area and the modifications to the tailrace to address cavitation. NEA will retain an independent reviewer of the slope stability investigations and design.
36. Component B: Electro-Mechanical Works (US$ 16.6 million). This component consists of mechanical and electrical works divided into two sub-components. *
Sub-component Bl: Mechanical Works. Under this sub-component the mechanical parts in the powerhouse and the intake will be repaired and upgraded.
*
Sub-component B2: Electrical Works. The electrical works will repair and upgrade the control system of the power house and the dam.
37. Component C: Technical Assistance and Capacity-Building (US$ 4.7 million). This component consists of the following four sub-components. *
Sub-component Cl: Consulting Firm (Consulting Services for Dam Safety, Civil & Electro Mechanical works). Under this sub-component, technical advisory services will be provided to the NEA through a consulting firm, for overseeing all the three components of the project. The consultant will also provide the detailed technical design, help the NEA with
9
implementation and procurement, and help finalize the Operations Manual, Emergency Preparedness Plan and the Instrumentation Plan. Data collection, analyses and reporting methodologies and procedures will be strengthened. *
Sub-component C2: Asset Management. Under this sub-component technical assistance will be provided to the NEA to improve and upgrade its asset management systems.
*
Sub-component C3: Safeguard Implementation. This sub-component will provide support to NEA for the implementation of the Environmental Management Plan and the Social Action Plan, including the Vulnerable Community Development Plan, and in the monitoring and evaluation of such implementation, including necessary technical advisory services.
*
Sub-component C4: Capacity-Building. This sub-component will provide training to increase the NEA's capacity in asset management, sediment management, safeguard implementation, and operations and maintenance of specialized fields of electro-mechanical equipment and safety instruments.
*
Sub-component C5: Catchment Area Treatment Plan. This sub-component will address any work which may be needed to manage sediments affecting the long term sustainability of the project including channel restoration and flood management in the Setibeni area. The international consulting firm will assist the NEA to establish the scope of the works.
38. Component D: Contingent Emergency Response (US$ 0 million). Following an adverse natural event that causes a major natural disaster, the GoN may request the Bank to reallocate project funds to support response and reconstruction. This component would draw resources from the unallocated expenditure category and allow the GoN to request the Bank to re-categorize and reallocate financing from other project components to partially cover emergency response and recovery costs. This component could also be used to channel additional funds should they become available as a result of the emergency. By nature, this component does not have results indicator in the results framework. 39. Disbursements would be made either against a positive list of critical goods and/or against the procurement of goods, works, and consultant services required to support the immediate response and recovery needs of the GoN. All expenditures under this component, should it be triggered, will be in accordance with BP/OP 8.0 and will be appraised, reviewed and found to be acceptable to the Bank before any disbursement is made. 40. * * * * *
The proposed rehabilitation program will address five important issues: Improve the safety management of the dam. Decrease the total quantity of sediments entering the powerhouse. Reduce the cavitation in the turbine in the dry season. Improve the safety of the plant by improving the operation of the MIVs. Improve the safety of the plant by repairing the control systems.
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B. Project Financing Lending Instrument 41. The Bank's support will be through a Specific Investment Loan (SIL) of US$ 27.26 million from IDA. The GoN will provide counterpart financing of US$ 3.11 million. Project Cost and Financing 42.
Project costs and financing are summarized in Tables 1.1 and 1.2.
Table 1.1: Project Costs Project Cost by Component Component A: Civil Works Al Headworks (Intake) Modification Works A2 Improving Dam Safety Monitoring and Instrumentation A3 Maintenance Works Component B: Electro Mechanical Works B I Mechanical Works B2 Electrical Works Component C: Technical Assistance and Capacity Building Cl Consulting Services C2 Asset Management C3 Safeguard Implementation (EMP/SAP/VCDP) C4 Capacity Building C5 Catchment Area Treatment Plan Component D: Contingent Emergency Response Total Baseline Costs Physical contingencies Price contingencies Taxes, Duties Total Project Costs Interest During Construction Administrative Cost Total Financing Required
US$ 3,812,119 450,000 2,301,323 12,944,412 1,783,168 952,381 1,166,762 438,345 443,321 832,743 0 25,124,573 645,829 1,489,169 1,787,240 29,046,812 817,787 500,000 30,364,600
Table 1.2 Financing Plan Financing Plan Government of Nepal (IDC+ Taxes+Admin) IDA (Proposed Credit) Total Financing
US$ 3,105,027 27,259,573 30,364,600
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C. Lessons Learned and Reflected in the Project Design 43. Lessons from Energy Projects in Nepal. The NEA's recent experience with the PDP and the NIETTP in Nepal imparts several lessons on procurement and implementation capacity. a. ProcurementCapacity Closely managing procurement is critical to avoid the risks of allegations of corruption and to ensure a correct process. The NEA does not have a separate procurement department. Therefore, the quality of the procurement depends on the experience of the project manager. It is important that procurement guidance is available and that the NEA's project manager or coordinator is well versed in international and Bank procurement. Measures deployed under the proposed project include hiring an international procurement advisor to help the NEA in procuring the services of the consulting firm that will provide guidance in all aspects of the technical and procurement process, including the entire procurement process of the turbines from the original equipment manufacturer, which takes an estimated 22 months under a compressed timeline3 once the producing facility is committed. b. Implementation Capacity In Nepal, project implementation presents a range of challenges to the developer. These distinct but interlinked issues range from contracting and contract management to the need to manage the social dimensions of project implementation (including often heightened expectations of immediate benefits from the project); resistance or opposition to the project; and specific aspects of safeguard policies. The NEA has limited technical capacity and low reactivity in project management and an extended decision making processes. Experience from the ongoing PDP and NIETTP has demonstrated the importance of intense implementation support and of having a strong project coordinator on the NEA side, both technically and administratively, to anticipate potential internal issues and delays in decision-making, and to ensure that implementation problems are addressed in a timely fashion. More specifically, given the critical importance of Kali Gandaki for national electricity supply, any shutdown for repair needs to be well planned in order to minimize the outage. Anticipating issues that might arise during the plant shutdown is critical. A check-list of all the equipment needed should be carried out prior to opening the machinery, and should include additional spare parts. Issues, such as road access, need to be identified and dealt with well ahead of time, given the NEA's protracted decision making process. 44. In view of the above lessons and considering assistance to Nepal in designing and managing projects, the following measures have been taken to ensure implementation success for the proposed project: *
Significant assistance has been provided to the NEA in the preparation of the project with expertise in the following areas - electro mechanical equipment, sediment management, geology, and geotechnical.
3 Originally the Original Equipment Manufacturer required 30 months to deliver the equipment.
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*
*
*
A specific project management structure and team have already been created to ensure that the project benefits from a smoother decision process and staff with the right skills and experience. The dedicated project team will ensure appropriate planning and project management to move the project forward internally and avoid delays in implementation. An experienced procurement advisor has been recruited to help the NEA procure the services of a consulting firm that will provide technical and procurement services. Close coordination between NEA procurement staff and the consulting firm will be necessary. Limiting the number of actors involved in planning and managing procurement will help effective coordination. Most of the major procurement processes will be over by July 2014. The project includes funds for hiring a consulting firm for engineering and supervision services to assist the NEA in the implementation of the project. The Terms of Reference (TOR) for the consulting firm were prepared in consultation with the Bank team.
D. Alternatives considered and Reasons for Rejection Alternatives to rehabilitating Kali Gandaki A 45. Nepal currently has no greenfield alternative that could be commissioned by 2016-17 and or provide 144 MW. A greenfield project of this size would take a long time to develop and would require much larger investments than the proposed rehabilitation project. 46. The NEA has no other rehabilitation project as urgent or where the need is as important as in Kali Gandaki. Other power plants need repair, such as Trishuli (24MW) and Modi (14MW), but they are of a much smaller scale and do not require the immediate action or involvement of the World Bank. The NEA will finance the repair of Modi under its own budget this year, and the NEA identified some donors interested to finance the repairs of Trishuli. 47. The no-project alternative was rejected, since the power system would run risks of serious breakdown in case of a catastrophic event at Kali Gandaki A, until the current NEA and other IPP projects under construction are commissioned. Addressing cavitation, erosion, and safety management issues was assessed as necessary for the sustainability of the plant. Further building capacity in hydropower in Nepal as proposed by this project is critical given the upcoming hydropower scale-up in the country. Design Alternatives 48. In the case of Kali Gandaki, while studying the headworks modifications, various project designs were modeled to address the sediment and floating debris issues. The performance of these options was assessed related to two key issues that have a major impact on the project cost and benefits, and on plant operation: (a) changes in the operating levels of the reservoir, and (b) disturbance in generation time. The preferred option was chosen over the other ones for its cost efficiency, and its limited shutdown time, and because it left the operating levels of the reservoir unchanged.
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49. Unchanged operating levels of the Reservoir. Modeling demonstrated that headworks modifications increasing the operating level of the reservoir would increase generation but would also increase sediment deposition in the upstream portion of the reservoir. Higher sediment deposition upstream would in turn raise the water levels, thus negatively affecting the village of Setibeni. To avoid any negative impact on the communities and the holy site, the NEA rejected this alternative and opted for modifications that did not entail any change in the operating level of the reservoir. 50. Limited shutdown time. Kali Gandaki A currently supplies 25 percent of the nation's grid-based electricity. With load shedding totaling up to 12 hours a day in December 2012, any rehabilitation works involving prolonged shutdowns are ruled out by the LDC, under direction from the GoN. Thus, most of the proposed rehabilitation works in the powerhouse will be conducted during the winter time when two units are running while one unit is being repaired. However, certain repairs will require a total shutdown of the plant when both the headrace tunnel and the penstocks are drained out. The NEA estimates that, thanks to recommended innovative methods, including using pre-fabricated parts, maximum four stages (each stage involving ten days of continuous interruption) will be sufficient to carry out all the works. When the consulting firm has finalized the detailed design, it will provide a final estimate of time required for installation. IV.
IMPLEMENTATION A. Institutional and Implementation Arrangements
51. The NEA, the implementing agency, is a government-owned utility with whom the Bank has worked extensively. The Management of the NEA is entrusted to a board of directors comprising the chairman, a role currently played by the Minister, GoN, and other members, including the secretary, Ministry of Finance (MoF), and other power sector experts. 52. A Project Steering Committee (PSC) has been established to ensure oversight and coordination by the NEA's senior management under the managing director. The PSC has three members: (a) managing director; (b) general manager of the generation operation and maintenance; and (c) deputy managing director finance. 53. A Project Coordination Committee (PCC) dedicated to preparation and implementation of the proposed project is already in place and is functioning under the general manager, Generation. The PCC headed by a director and staffed with technical personnel. To address the delays encountered in procurement actions, including getting the necessary clearances from the Bank, an experienced procurement advisor was recruited. Tender documents for all the major components are at an advanced stage of preparation. 54. A project implementation unit (PIU) dedicated to the implementation of the proposed project at site is already in place. The PIU will be responsible for the monitoring activities and is headed by a project manager and this role is taken by the Kali Gandaki plant manager.
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B. Results Monitoring and Evaluation 55. The PIU will include dedicated personnel for M&E, with an administrative officer from Large Power Plants Operation & Maintenance (LPPOM) in charge of this activity. The PIU will submit monthly reports in an agreed format to the PCC for submission to GoN and the Bank no later than 1 week after the end of each month. The monthly report will cover the progress and expected completion dates for works and equipment supply contracts, progress on institutional components, implementation of safeguards instruments such as the Social Action Plan (SAP) including the Vulnerable Community Development Plan (VCDP), Environmental Management Plan (EMP), Governance and Peace Action Plan (GAP), relevant intermediate results indicators, comparison of budget to actual, training and studies. 56. The PIU will also prepare annual reports, commencing April 31, 2013, to be delivered to the PCC for submission to the Bank no later than the end of each fiscal year of project implementation. The report will cover: (a) the progress of each component, implementation of key features of the safeguards instruments (EMP, SAP, and VCDP); key performance indicators including actions agreed in the GAP and results framework indicators, operation of project facilities, and financial statements; and, (b) the Annual Work Plan for implementation, an updated disbursement profile, planned actions for mitigating negative effects during construction, and target indicators for the coming year. A mid-term review of the project would be undertaken by December 31, 2014. A Project Completion Report would be submitted to the Bank no later than three months after the project completion. 57. Project Implementation Period. With these arrangements, a project implementation period of 48 months is planned, starting from the expected date of effectiveness of September 30, 2013. The target date for completion of the rehabilitation works is December, 2015. The Credit Closing Date is June 30, 2017. The project implementation schedule is described in Annex 3. C. Sustainability 58. There is high demand for the power produced, since 25 percent of the grid connected load of the country depends on this plant. The proposed project aims at improving the long-term sustainability of Kali Gandaki A, as well as of the hydropower sector in Nepal at a time when the country is entering an era of large investments in hydropower. Improved Practices. The expected outputs from the project, including the improved sediment management, operational conditions for the MIV and turbines, dam safety, O&M procedures are expected to ensure smoother functioning of the project and enhance the long-term sustainability of the project. However, future sustainability of the project depends heavily on how the plant is run based on sediment-guided operations. These operational decisions will decide the life of both the machines and the reservoir, which are affected by sedimentation. In this respect, the NEA will hire an international consulting firm with experience in operating sediment-laden rivers, and together with NEA engineers, finalize the Operations Manual for the headworks and suggest new operating procedures based on sediment-guided operations, underpinned by rigorous economic and financial analyses. This consulting firm will help the NEA establish the operating rules and O&M strategy for Kali Gandaki A in order to ensure long-term sustainability of the project.
15
Technology Introduction. To enable a successful implementation of these improved practices, the project will bring new sediment monitoring technologies. This technology will provide realtime data that will allow the NEA to be reactive in its operations. In that regard, Kali Gandaki can be perceived as a pilot whose experience will benefit upcoming IPPs that will face sediment issues. Implementation Capacity. Training NEA staff on better operational practices and the use of the sediment monitoring technology is essential for successful long-term implementation, as well as broader sustainability improvement in the hydropower sector. Managing the Catchment Area. Kali Gandaki A has a catchment area as large as 7,618 square kilometers. A recent visit by a World Bank consultant revealed that sediments affecting Kali Gandaki A mostly come from several hundred kilometers upstream, outside the catchment area. Upland erosion and downstream sedimentation is one of the issues of concern in the Himalayas. To minimize the effects of erosion and sedimentation, there is a need of basin wide identification of the vulnerable areas and activities that result in erosion and subsequent sedimentation in the basin. As of the date there are no such studies in the Kali Gandaki basin. The NEA with the help of the international consulting firm will conduct a basin wide study for the identification of the key erosion prone areas and activities that are likely to enhance erosion and sedimentation in the future. Based on such study, a catchment area treatment plan will be drawn for the basin. This study will also form a basis for responsibility sharing between the various development agencies including the NEA for minimization of the erosion and sedimentation in the reservoir area. Policy Dialogue. Implementing these measures entails a significant change in the approach to hydropower in Nepal and requires the various stakeholders to cooperate on implementing sustainable practices. Increasing knowledge and capacity on sediment management, reservoir sustainability and dam safety management and supervision, is all the more critical that Nepal is planning on a series of important hydropower investments. Pacing and framing evolution on these issues is critical for long term sustainability of the sector. For instance, building-capacity in dam safety management is critical and is proposed by the project, but an independent third party review or a regulator that would check that operators do respect dam safety rules is essential as the number of power plants increases. Nepal does not currently have a dam safety regulator, and the MoE and the NEA supported the idea of using this project as a stepping stone to kick-start a process leading to setting up a dam safety regulation and oversight body for Nepal. The DoED has issued dam safety guidelines in the past. The MoE expressed its interest in building onto the experience and knowledge gathered at Kali Gandaki during the upcoming work with the consultant on dam safety, in order to extract rules that could be used sectorwide, especially for the issuance of new licenses. V.
KEY RISKS AND MITIGATION MEASURES
59. The overall implementation risk of the operation is considered to be "Substantial". A detailed Operational Risk Assessment Framework (ORAF) has been prepared and is provided in Annex 4. The following paragraphs summarize key risks that support this evaluation. 60. Unexpected Works. Preliminary design has been established for the project. Nonetheless, as for any rehabilitation project of this sort, some uncertainty remains about the 16
need for additional works that might be discovered once the turbines are actually opened. The NEA and the contractors will have to keep some margin of flexibility in their approach to this rehabilitation work. 61. Absence of a Dam Safety Regulator. Nepal does not have a central dam safety regulator that would check the implementation of safety rules. Such a regulator would strengthen the longterm sustainability of Kali Gandaki and of the sector. The project will serve as a vehicle to start raising this critical issue with the government in view of setting up this regulator. 62. Implementation Capacity. A consulting firm will be assisting the NEA for implementation support. The contracts to be awarded under this project are sizeable in relation to the NEA's approval process. Efficiency and transparency in procurement and financial management are considered a challenge, as in most projects of similar size and complexity in Nepal. Project activities will mitigate this risk with measures to strengthen the NEA's capacity in project management through technical and procurement services provided by a consulting firm for technical and procurement services. The Bank team will also visit the project site on a regular basis, particularly in the first phase, to provide implementation support, such as monitoring the project planning, implementation program for construction activities, communication strategy, and EMP, SAP (including the VCDP) activities. 63. Design. Technical solutions have been established but as is the case for most rehabilitation projects, some uncertainty remains about how effectively the problems will be solved and how much of the expected results the rehabilitation will actually deliver. This uncertainty renders important the allocation of responsibility on delivery of results which will be a matter of negotiation between the NEA and its contractors. Additionally, there is a risk of inadequate technical designs and engineering works, leading to failure or poor performance. The NEA is concerned about any changes to an existing power plant, so to provide additional comfort in ensuring the design of the headworks modifications is robust, the NEA will recruit an internationally renowned consultant to design the works. 64. Governance. The current severe energy crisis in Nepal is a top political agenda item for most parties. Political pressure and interference in the NEA often weaken its governance. The board is strongly involved in the management of the NEA. A project steering committee including one board member was created to ensure a smooth project management, and the bank team will remain closely involved with the NEA and will ensure that the staff is engaged in transparent procurement and financial management. A. Risk Ratings Summary Table Risk
Rating
Stakeholder Risk
Moderate
Implementing Agency Risk Substantial
- Capacity -
Substantial
Governance
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Project Risk - Design
Moderate
- Social and Environmental
Moderate
- Program and Donor
N/A
-
Delivery Monitoring and Sustainability
Overall Implementation Risk
Substantial Substantial
B. Overall Risk Rating Explanation 65. The overall risk rating is "Substantial" given the high risk environment under which the project will be implemented. Although the engineering activities are straightforward, the preparation risk is "Moderate" and the implementation risk is "Substantial". VI.
APPRAISAL SUMMARY A. Economic and Financial Analyses
Economic 66. Nepal is currently facing a severe energy crisis with load-shedding, which in the dry season averages up to 12 hours per day. Of the estimated peak load of 1,025 MW, just 500 MW can presently be served. Load-shedding places a significant cost on the economy and it is vital for Nepal to minimize outages at Kali Gandaki which provides about 40 percent of NEA annual generation. 67. In August 2011, Kali Gandaki A was flagged in the MoE's study on optimization of the NEA's 17 operating plants as one of the priority projects to be rehabilitated. Given the damages observed at Kali Gandaki, the GoN requested assistance from the World Bank in rehabilitating this unique and critical asset that provides a quarter of the total annual generation of the country. Avoiding a deterioration of its quality that would lead to a decrease in generation, and improving its operational efficiency as much as possible are essential to the ongoing management of the Nepal grid. 68. Kali Gandaki has now been in operation for 10 years which offers important hydrology, actual generation and operation data to consider in this analysis. These data allow us to compare the annual generation that could have theoretically been produced with the actual generation of the past 10 years and the original generation baseline (842 GWh per year). Kali Gandaki appears to have produced less than the hydrology conditions allowed it. In addition to the failure of the NEA to evacuate power because of low demand or insufficient transmission capacity, records show that some combination of the following factors are considered to be responsible for this underperformance:
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* * * *
Actual turbine efficiency lower than expected, because of damages to the runner blades from erosion and cavitation. Assorted losses in the waterways. Higher-than-expected scheduled and unscheduled maintenance outages. Poor operating rules. The efficiency of Francis turbines is quite sensitive to deviations of head and discharge from the best efficiency point.
69. The economic analyses assessed the economic viability of the improvements expected in this project on each of these causes for underperformance. No Project Alternative 70. Without this rehabilitation project, Kali Gandaki-A runs high a risk of an event that would cause a major breakdown of the power system in Nepal. Therefore, rehabilitating this project is a priority for the government which asked the World Bank for support. If the project is not financed by the World Bank, the NEA would still have to undertake some time-sensitive rehabilitation works. Given its severe financial constraint, it would not be in a situation to appropriately finance the rehabilitation works to the extent necessary and with the long-term sustainability that is needed for Kali Gandaki A and the sector, which is proposed in this project. 71. In the absence of rehabilitation and of the proactive sediment management program that the project offers, operations will become increasingly disrupted by outages, and subject to greater risk of a catastrophic failure. Power generation and the availability of the power plant would deteriorate over time, in turn reducing revenues. The economic analysis compares the rehabilitation project with the situation that would prevail without the project. In so doing, it remains difficult to estimate the speed and extent of deterioration if the project is not implemented. Therefore the economic analysis conservatively assumes that generation conditions and risk of catastrophic event in the "no project alternative" remain constant instead of deteriorating. The high returns explained below show that the project outperforms economically and financially the situation where no rehabilitation work is done. Cost-Benefit Analysis 72. The economic benefits of the rehabilitation project are derived from additional electricity generation through reduction in the unplanned outages and improvements in the efficiency of the plant. This requires a comparison of generation in a "no project" baseline, that is, with the plant in its current state, with what is achievable in the rehabilitated plant, and an assessment of whether the rehabilitation project would allow Kali Gandaki to generate additional energy. This additional energy must then be valued, for which two avoided costs can be proposed: *
*
Border price of electricity (Indian imports): The levelized cost of this electricity including wheeling charges and transmission losses at the nearest substation (Dhalkebar) in Nepal is 8.69 US cents/kWh. This price is based on coal-based generation in Bihar. Cost of self-generation: At the margin, additional grid based power generation can be assumed to replace diesel-based self-generation, throughout the dry season (estimated at 32 US cents/kWh in 2013).
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73. Avoided greenhouse gas emissions and avoided local pollution (health cost) were estimated for the analysis. Avoided self-generation and avoided coal-based imports represent different avoided emissions per kilowatt-hour, which was accounted for. The basis for the carbon valuation in the economic analysis is the avoided social cost of carbon, taken here at US$30/ton/CO2. This at the low end of the range of valuation in the Stem report, a valuation that has been generally used for World Bank economic appraisals over the past two years. Economic Returns 74. The economic rate of return (ERR) is 22.5 percent and Net Present Value (NPV) of US$21.4 million. The 12 percent hurdle rate is reached in the 7th year of operation. Such good economic return is not unusual for rehabilitation projects where a few targeted interventions can have dramatic effects. When the avoided environmental costs associated with thermal generation are included, the economic returns increase. Just the avoided PM-10 emissions (from diesel selfgeneration) raise the ERR from 22.5 to 23.6 percent, and the avoided greenhouse gas emissions raise the ERR by a further 3.7 percent to 27.3 percent and NPV of US$ 31.9 million. 75. Sensitivity analysis confirmed the robustness of the project for cost overruns, oil price fluctuations (which affect the benefits from diesel self-generation), construction delays, reductions in benefits (lower efficiency gains), or greater impact from climate change (modeled by imposing declining dry season inflows over time). Economic rates of returns remain attractive for all cases analyzed. The most significant risk affecting the economic returns being a delay in the delivery of the repaired turbines: a one-year delay would reduce the baseline ERR to 20.6 percent4. One of the main reasons for the robustness of a hydro rehabilitation project, such as Kali Gandaki, is that many of these exogenous uncertainties (such as climate change and the flushing regime) would affect equally the no project alternative. 76. Probabilistic Risk Assessment. The sensitivity analysis was complemented with a probabilistic analysis using the Monte Carlo simulation, which showed that the probability of economic returns below the hurdle rate is very low at 4.7 percent. The Kali Gandaki rehabilitation is a sound project with high and robust economic returns. Financial Analysis 77. The financial analysis estimates the project financial return (that is excluding any leverage provided by the project financing) at 6.3 percent real (under the assumption that the FY2012 retail tariff is maintained in real terms). Since NEA load shedding is non-discriminatory, the incremental generation is valued at the average FY2012 tariff of 6.73 NRs/kWh, with generation adjusted for the total system loss of 26.4 percent. Key assumptions in this analysis include the domestic inflation rate (taken at the forecast rate of inflation in India to which the Nepali economy is closely tied, at 5 percent) used to calculate price contingencies, and an allowance for NEA administrative overhead.
Depending on the proportion of the cost payable upfront as against balance payable on delivery, the actual impact (both on NEA cash flows and on economic returns, will be lower) 4
20
78. The sensitivity analysis for financial return shows that the most significant risk factors are a failure to maintain the current tariff in real terms, construction cost increases and construction delays. The switching value for construction cost increases (relative to NEA's real estimated Weighted Average Cost of Capital (WACC) of one percent) is 70 percent, which would be an unlikely increase for such rehabilitation project. The switching value construction delay is four years, which is also unlikely considering that the main risk of delay would be a late delivery of the equipment by the Original Equipment Manufacturer (OEM). An analysis of NEA cashflows under alternative financing assumptions shows good and consistent cash returns. B. Technical 79. From a technical point of view, the works included in this project are not overly complex or extraordinarily challenging. During the execution of the rehabilitation works, a critical challenge is to execute the construction works according to the planned schedule with minimum impact on the generation of the plant. For Kali Gandaki, it is not the implementation stage, but rather the O&M of the plant once it is rehabilitated, which is more challenging. Operationalization of a sediment-guided operation through revision and finalization of the Operations Manual and training for staff in how to implement this final Operations Manual will be critical. The NEA is constructing 500 MW and is planning another 500 MW to be added to the grid by the end of 2016. As power from these and other smaller IPP plants is eventually developed, it will relieve the burden of generation on Kali Gandaki, and the planned flushing operations to maintain the active storage may be implemented. 80. Strengthening the NEA's Generation Department. The Generation Operation and Maintenance Group is responsible for daily O&M of 17 existing hydropower stations and 2 thermal power plants owned by the NEA. The business group is headed by a general manager. The group looks after the periodic overhauling, major maintenance works, and rehabilitation projects of the generating stations. The following measures are being discussed with the NEA to strengthen the Generation Operation and Maintenance Department: (a) appointment of senior staff at power plants; (b) training and capacity building in asset management; (c) training in operations and maintenance; and (d) dedicated sediment management staff. C. Financial Management 81. The Financial Management (FM) capacity assessment of NEA has been carried out. The NEA has a long experience working with the Bank. Three ongoing projects include the PDP, Kabeli Transmission, and NIETTP. The overall NEA financial management is less than satisfactory. There is a need to improve in the institutional capability, and enhance sufficient controls. Efforts are under way to address the FM challenges at the entity level through the institutional development components of the PDP and NIETTP. The Bank team has been closely monitoring and discussing with the NEA management the urgency to show some results in FM performance. To address the qualified observations of the auditors and other systemic issues, the NEA is implementing an Action Plan agreed with and closely monitored by the Bank. 82. Flow of Funds under Contingent Emergency Response Component (CERC). After the immediate transferred allocation, for critical goods under the CERC, the Bank will reimburse expenditures made on the basis of (a) evidence of the purchase of critical goods (such as bills of
21
lading) certified by the recipient's customs department for imported goods and the Financial Comptroller General, as well as the implementing agency for locally procured goods; (b) evidence of payment for these critical goods (such as receipts or retirement documents with respect to letters of credit, and payment vouchers); and, (c) letters of comfort or affidavits from the implementing agency certifying the retroactive, current, or expected use of these critical goods for the carrying out of this part of the project, including details of the use of any of the critical goods consumed as of the date of such letters or affidavits. An ex post independent audit may be requested to be carried out by the Office of the Auditor General. The recipient will not use the critical goods financed under the component for military or paramilitary purposes. If the Bank determines at any time that the proceeds were used to make a payment for either: (a) ineligible expenditures; or (b) goods eventually used for military or paramilitary purposes, in which case the recipient shall reimbursed the Bank for the total amount of such payments or the costs of these goods. All amounts so refunded to the Bank shall be subsequently cancelled by the Bank. D. Procurement 83. The project coordination committee (PCC) established under the project will mainly perform the project procurement. The PCC housed in the NEA in Kathmandu is responsible for preparing procurement documents for the project, including the procurement plans, procurement of consultant services and overall project implementation. The PCC is headed by a project coordinator, who is the director of the Large Power Plant Operation and Maintenance Department. It is staffed with the account chief of the Generation Operation and Maintenance, three engineers including mechanical, electrical and civil. Although the engineers don't have procurement experience of the Bank-funded projects, they have general experience of managing procurement of government-funded projects under the NEA. Continued engagement of these staff members with the project is pivotal in ensuring adequate procurement capacity of the project. 84. An assessment of the capacity of the implementing agency to implement procurement actions for the project was carried out by the Bank in December 2012. The assessment reviewed the organizational structure for implementing the procurement under the project and also conducted interviews with the project's staff responsible for procurement. On the basis of overall assessment of the PCC and NEA in general, the overall procurement risk for the project has been rated "High" and the residual risk is "Substantial". After preparation and finalization of a checklist of procurement procedures, a procurement plan and a procurement advisor is in place to support the project staff in procurement management. 85. Procurement for this project will follow World Bank rules for International Competitive Bidding (ICB) except for the direct contracts with the OEM of the turbine. The World Bank has agreed to this approach, since a direct contract with the OEM to procure proprietary spare parts would avoid the risk of noncompliance of spare parts, and extensive procurement time as the OEM already requires 22 months to deliver the equipment. Additionally the OEM has extensive data from previous work done on the equipment for Kali Gandaki A. 86. The Bidding Documents and the Direct Contract were prepared by an international consulting firm with funding from the Power Development Project. The Bank engineers 22
reviewed these documents and provided comments to the NEA. The Bank further advises NEA to use Quality-Based method of selection for the international consulting firm after clearance of the Terms of Reference by the Bank. 87. Procurement under CERC. Disbursements would be made either against a positive list of critical goods and/or against the procurement of goods, works, and consultant services required to support the immediate response and recovery needs of the GoN. All expenditures under this component, should it be triggered, will be in accordance with BP/OP 8.0 and will be appraised, reviewed and found to be acceptable to the Bank before any disbursement is made. E. Social 88. The proposed project consists of rehabilitation work that will be restricted to the existing plant facilities and its immediate surroundings. The project does not trigger OP 4.12 on involuntary resettlement, since there is no involuntary land taking or loss of income. The adverse social impacts are largely related to construction operations, such as noise, dust and public health issues. There are indigenous communities in the project areas and Operational Policy 4.10 on indigenous people has been triggered. Consultations with the janjati (indigenous) and other vulnerable community members have been carried out to understand their views and concerns towards the proposed project and also to assess any possible adverse impact. 89. Impact screening and assessment: A social impact review was conducted to: (a) assess whether there are any outstanding issues from the implementation of the Social Resettlement Programs under the Kali Gandaki A Hydropower Project more than 10 years ago; (b) identify any social safeguard issues that may result from the proposed rehabilitation interventions under the proposed project; (c) assess views and expectations of the project from local communities, particularly the indigenous communities; and (d) propose measures to address the impacts and public expectations. The review indicates that the proposed project will not have social safeguard issues, except some impacts related to construction activities, such as noise, dust, and safety. The review has identified some outstanding issues from the Resettlement Program implemented under the Kali Gandaki A Hydropower Project. They include the transfer of land title to Bote community (fishermen) in their resettlement colony and the school, and construction of shed cremation platform and shed. The review revealed high expectations from local communities who expressed their request of support from the proposed project. The requested assistance includes flood protection measures, employment during construction, community infrastructure, and loans. 90. Social Action Plan (SAP) and Vulnerable Community Development Plan (VCDP): Based on the social assessment and consultations, SAP and VCDP have been prepared under the project. SAP aims to enhance the opportunities created by the project to improve the livelihood and condition of these communities as a result of project implementation. Likewise, it also plans to address the major issues faced by the vulnerable community. VCDP provides the necessary mitigation measures to address concerns raised by the vulnerable community. The VCDP aims at effectively promoting participation of vulnerable families throughout the project cycle. The general objective of the VCDP is the inclusion of vulnerable communities in the project in order to achieve the highest possible positive impact of the interventions to improve their quality of life. The specific objectives are to ensure that: (a) works are culturally appropriate, (b) works and 23
services provided do not inadvertently induce inequality by limiting project benefits to the elite elements of the community, and (c) the project engages with communities through a consultation process appropriate to the local cultural context and decision making process. 91. Gender: The women's status indicators (including those pertaining to health, literacy, work force participation, and spousal abuse) show that gender equity and empowerment remains a serious issue in Nepal. As part of the VCDP, a Gender Development Plan has been designed that will help to address the gender issues during the implementation stage of the project. Apart from gender disaggregated data, a gender plan will address the constraints on women's participation in project planning and implementation, as well as skill upgrading for self-employment. 92. Grievance Redress and Communication Strategy: The project will form a Grievance Redress Committee to monitor and address the local grievances arising during the implementation of the proposed works, as well as the implementation of VCDP and SAP programs. Grievances or feedback of any kind may be submitted through various mediums (such as direct calls to concerned officials, involvement of social mobilizers, or in written form) and will be addressed in a time-bound manner. The project will have a communication strategy focusing on efficient and effective usage of print and electronic media, information boards, posters, and adoption of any other method suited to the local context. Communities will be engaged through stakeholder consultations during the implementation stage. 93. Monitoring and Evaluation: Monitoring of the implementation of SAP and VCDP will be carried out internally by the project through the Environment and Social Management Unit (ESMU). The monitoring will ensure the attainment of the program's goals and objectives. Performance indicators that reflect the program's objectives will be the basis of monitoring. The project through an independent agency will also carry out mid-term and end-term evaluation of SAP and VCDP implementation. 94. Social Safeguards under CERC. As a condition for disbursement under the CERC, the CERC implementing agency will carry out a screening of the activities included in the CER implementation plan for any potential social impacts. Furthermore, any safeguard instruments required will be prepared, submitted to the Bank for review and approval, and thereafter adopted and locally disclosed by the CERC Implementing Agency prior to disbursements under the CERC. If this screening identifies any adverse social impacts, a Resettlement Impact Assessment and Vulnerable Community Development Plan will be prepared to address the social impacts. 95. Budget. The estimated budget for implementation of SAP and VCDP is US$0.32 million. F. Environment 96. The proposed rehabilitation project aims to address existing sediment management issues, and to repair electro-mechanical equipment (such as MIVs, dam safety instruments, repair of runner, and installation of monitoring instruments) with the purpose of improving the reliability of power supply from the existing plant. The rehabilitation works will be carried out within the existing territory of the Kali Gandaki plant. Hence it will not require additional land. There are no protected areas near the proposed project. No new additional ancillary facilities, such as access roads, camps, and transmission lines, will be required. The civil works to modify 24
the intake under the proposed project are minor. Small quantities of construction material such as sand and aggregates, will be sourced from licensed contractors to avoid opening new quarry sites or borrow pits. The proposed rehabilitation (a) will not change the existing dam height, (b) will not increase the water level in the upstream reservoir, and (c) will not reduce the minimum water release that was established during the original project. Hence, no new impact on forests, natural habitat, and land-use are expected from the proposed rehabilitation works. 97. Environmental Assessment (EA). The borrower has prepared an EA of the proposed rehabilitation project. The proposed project is located within the territory of the existing hydropower plant. The EA has identified environmental concerns in three groups: (A) issues that are outstanding from the original plant, (B) newly emerged issues in the area of the existing plan, and (C) potential impacts of the proposed rehabilitation project. 98. The EA confirms that a vast majority of mitigation measures were satisfactorily complied with in the original project funded by the ADB. However, a few environmental mitigation measures are outstanding. These outstanding issues include: (a) insufficient environmental flow (poor monitoring) and release of additional flows for religious purposes, (b) landscape restoration at the former contractor camp (in Mirmi) and disposal site of the original plant (at Thulobagar), (c) need for an assessment of the continued support for the fish hatchery and fish trapping and hauling program and duplication of a program supported by other donors, and (d) strengthening of the existing siren warning system. 99. The newly emerged environmental issues include: (a) sedimentation impacts in the reservoir area and water levels at Setibeni, (b) landslide on the existing access road to the dam, (c) catchment area watershed management, and (d) water boat transportation safety and pollution. 100. The potential impacts of the activities under the proposed rehabilitation project include: (a) temporary increase in flow releases below the dam during construction, (b) improper waste disposal during implementation by the contractor, (c) air and noise pollution during the implementation by the contractor, and (d) changes in water quality due to changed flushing regime during the operation phase. As noted earlier, the proposed rehabilitation works will take place within the area of the original plant. The rehabilitation works will engage about 60 persons during the peak construction period. They will be housed within the existing camps and housing of the original plant. 101. The EA has identified mitigations for all three categories of the impacts. The issues described above related to group A's outstanding issues and group B's newly emerged issues are existing issues that are not caused by the proposed rehabilitation project. However, the borrower has committed to implementing the mitigations identified by the EA. Mitigation measures for the impacts likely from the rehabilitation works typically include repair and maintenance of the existing siren system and dissemination of information to the communities. Contractor's contractual obligations include proper handling of construction material and littering, construction waste management, hazardous waste management, water sprinkling for dust control, controlling exhaust from vehicles and machines, noise control, and traffic measures (such as no honking of horns, control of night time noisy activity, and speed limits). The contractor will be
25
responsible for implementing most of the measures identified to mitigate the impacts expected from the rehabilitation project during the construction period. These measures will be included in the bidding documents and monitored during implementation. The construction period disturbances are likely to be limited and readily mitigated and manageable. Potential adverse impacts summarized above and described in EA are small in scale, limited to the territory of the original plant and manageable. Hence the proposed rehabilitation project is categorized as Category B. 102. Environmental Management. The draft final EA requires implementation of the identified mitigation measures, liaison and coordination with the local community and government agencies, and environmental monitoring and reporting. An Environmental Management Unit (EMU) will be established at the rehabilitation project site office under the technical supervision of the Environmental and Social Science Division (ESSD) of the NEA. EMU will carry out regular monitoring and data recording and prepare monthly briefs for joint review at the site by the project management, contractor, and EMU. ESSD will visit the project site every third month for internal monitoring and reporting. The NEA will also engage an external agency for external evaluation twice during the project implementation (during midterm and at the end of the project implementation). EMU will immediately report to the project management unit if there is any urgent issue that needs immediate attention or intervention. The environmental management cost estimated by the EA is US$166,000. 103. Local communities and stakeholders were consulted during the EA process, and relevant feedback has been incorporated in this EA/EMP, as well as in the social assessment and social action plan. The NEA has disclosed the draft final EA and SA with summaries translated into Nepali language through its public website. These documents are placed at the Kali Gandaki site office, project VDCs, and the central office of the NEA in Kathmandu. 104. Environmental Safeguard under CERC. The CERC may have certain environmental issues associated with activities that may be financed under the component, if it is triggered. As a condition for disbursement under the CERC, the CERC implementing agency will carry out an environmental screening of activities for any potential environmental impacts. The screening findings will be shared with the IDA for review. Environmental safeguard instruments as required by the screening will be prepared, submitted to the Bank for review and approval, and thereafter adopted and locally disclosed by the CERC implementing agency prior to disbursements under the CERC. Should this screening require a modification of the Environmental Assessment categorization of the project and/or the triggering of any additional Bank's safeguard policies, a restructuring will be carried out to record these changes and make applicable the attendant requirements. The activity under CERC may need to have its own EA or EMP.
26
G. Other Safeguards Policies Triggered Safeguards Policies Triggered by the Project Safeguard Policies Triggered by the Project Yes Environmental Assessment (OP/BP 4.01) [X] Natural Habitats (OP/BP 4.04) [X] Pest Management (OP 4.09) [] Indigenous Peoples (OP/BP 4.10) [X] Physical Cultural Resources (OP/BP 4.11 [X] Involuntary Resettlement (OP/BP 4.12) [] Forests (OP/BP 4.36) [] Safety of Dams (OP/BP 4.37) [X] Projects on International Waterways (OP/BP 7.50) [X] Projects in Disputed Areas (OP/BP 7.60) []
No
[] [] [X]
[] [] [X] [X]
[] [] [X]
105. Environmental Assessment (OP/BP 4.01) is triggered because the rehabilitation activities, although small scale and confined within the area of the original plant may have moderate adverse impacts on natural environment, human health and safety. Natural Habitat (OP/BP 4.04) is triggered because the project will support fish trapping and hauling program as an enhancement measure although rehabilitation activities will not have new or additional impacts on fish. Physical Cultural Property (OP/BP 4.11) is triggered because the project is implementing measures to protect and enhance the temples in Setibeni and Rudrabeni. 106. The project triggers OP 4.37 on Safety of Dams. Kali Gandaki A was designed and constructed by reputed international firms following international best practices under ADB funding. Reports held by the NEA indicate that the original ADB project was supported and monitored by an international panel of safety and technical experts during the construction and for some time after the completion of the project. Flood warning systems such as sirens are installed at site. The proposed project is a rehabilitation of an existing power plant involving the repair of machines with some modification of the intake, but not a rehabilitation of the dam. The team's expert assessment of the dam suggested high-quality construction works and no evidence of structural concern. The project itself includes a component on preparing a dam safety plan per the Bank's requirements, including (a) an Operations Manual for the headworks area; (b) an emergency preparedness plan; and (c) an Instrumentation Plan, as one of its objectives. The NEA will hire an international consultant to prepare the dam safety plan and will appoint an independent dam safety expert in case dam safety issues become evident from further detailed investigations and advice from the consultant. 107. The Bank's experts identified the need to re-establish a satisfactory dam safety management. Concerns regarding monitoring, improper maintenance and use of the existing of dam safety instrumentation installed at Kali Gandaki, need to be addressed. The control systems do not work in the plant and the operators do not get vital emergency information necessary to maintain the plant. Currently the plant operator is not recording data and reporting the results to the central office. To address this, the project will hire a consultant to assess the conditions of the instruments, to provide training to the staff on use and maintenance of the instruments. The NEA will also retain an independent reviewer of the slope stability investigations and design.
27
108. The project triggers Projects on International Waters, OP 7.50. The project is located on Kali Gandaki River, a tributary of the Narayani River, which flows into the Ganges River in India, which is an international river. The rehabilitation works will not adversely change the quality or quantity of water flows to the other riparians, and will not be adversely affected by the other riparians' possible water use. None of the activities involve diverting additional water from any river source. The proposed rehabilitation works (a) will not change dam height, (b) will not increase the water level in the upstream reservoir, and (c) will not affect the minimum water release downstream of the dam that was established during the original project. Based on these facts, a request for waiver from notification requirement under OP 7.50 was received from the Regional Vice President, SARVP.
28
Annex 1: Results Framework and Monitoring NEPAL:
Kali Gandaki A Hydropower Plant Rehabilitation Project
Project Development Objective (PDO): The objective of the proposed project is to improve the reliability of power supply of Kali Gandaki A Hydropower Plant through rehabilitation and safety measures and to improve the response capacity of Nepal in case of an emerge cy. Cumulative Target Values** Description Data Source! Responsibilit (indicator definition etc.) Unit of PDO Level Results a Baseline YR 1 YR 2 Frequency for Data Methodology Yorlecta YR5 (2017) YR4 (2016) I Measure Indicators* (2013) (2014) YR 3 Collection (2015)
Indicator One: Number of hours of nonscheduled outages reduced
Indicator Two: Dam Safety Plan approved and operationalized
E
year
312 hrs
312
P
Implementat ion Status
None
None
Hour
312
Prepared
perthis 312
300
270
Approved Operationalized Operationalized
Annual
NEA Reports
NEA
Annual
NEA Reports
NEA
Reduced hours of nonscheduled outages indicate higher availability and reliability of the power plant. In computing the value for indicator, the NEA will onlycreor cue A l only record cause and length of unscheduled outages related to trashrack cleaning, back flushing or sediment flushing or unscheduled repairs to the runners. Operationalized include: Training done, data is collected, recorded and anlyzed b eciied analyzed by a specialized staff, periodic reporting effective
Indicator Three: Hydropower generation capacity rehabilitated under the project
2
MW
0
0
0
48
144
29
144
Annual
NEA Reports
NEA
Rehabilitation of each turbine accounts for 48MW rehabilitated.
INTERMEDIATE RESULTS
Intermediate Level Results Indicators*
if
__________
Unit of a0,
Cumulative Target Values**
_____
Baseline YR 1 (2013)
, Measure
YR 2 (2014)
YR 3 (2015)
YR4 (2016)
YR5 (2017)
Frequency
Data Source/
Responsibility
Description
Methodology
for Data Collection
definition etc.)
(dicator
Intermediate Result (Component A): Civil Works Headworks Modified
Improved uniformity of the velocity distribution in the desander basin (Baseline Data verified from the hydraulic model test report)
Dam Instrumentation (including RealTime Sediment Monitoring) installed and operationalized
Maintenance Works
F
Status
None
Final design Approved
Contractor selected
Works Done
Done
Done
Annual
NEA Reports
NEA
E
ratio
3.7
3.7
3.7
3.7
3.7
1.8
Annual
NEA Reports
NEA
F
Number of instrument s
0
0
0
1
2
2
Annual
NEA Reports
NEA
F
status
None
Designed
Approved
Completed
Completed
Annual
NBA Reports
NBA
Sthat
30
Installation of a curtain wall at the intake and deflector at the desander basin Lower ratio indicates better uniformity of the flow from surface to bottom of the basin, and in turn better velocity condition in the desander and better efficiency of the desander. Measurement are taken at 60 meters from the intake. Repair and rehabilitation of 2 existing dam safety instrumentation; installation of Real-Time Sediment Monitoring Instruments. Designed means the consultant
Intermediate Level Results Indicators*
e
Baseline
o
Q
Cumulative Target Values**
Unit of Measure
Data Source/
Responsibility
Description
Methodology
for Data Collection
(indicator etc.) definition
Frequency YR 1 (2013)
YR 2
(2014)
YR 3
(2015)
YR4
(2016)
YR5
(2017)
undertaken: Slope stabilization, rock scour rehabilitation below dam and Tail race improvements
delivered the final design of the work. Approved means that NEA approved the final designed and the start of the works. Completed means that the approved designed has been implemented and completion assessment by NEA Iwas satisfactory.
Intermediate Result (Component B): Electro-Mechanical Works Main Inlet Valves modified, repaired and operational
Trash rack raking machine supplied and fitted
E
Number of units
0
0
0
0
3
3
Annual
NEA Reports
NEA
E
Number of units
1
1
1
2
2
2
Annual
NEA Reports
NEA
Output Indicator leading to increased Safety. Operational MIV means they can be fully closed and opened when needed. Faster trash rack raking machines will help a smoother inflow into the desander.
Maximum water level difference between intake and desander
Meters
3.0
3.0
3.0
2.8
1
during the
1
Annual
NEA Reports
NEA
Cleaner trash rack will reduce the water level difference between Ithe intake and the
31
Intermediate Level Results Indicators*
if
U Unit of a0, Baseline , Measure
________
Cumulative Target Values**
Data Source/
YR 1
YR 2
YR 3
YR4
YR5
(2013)
(2014)
(2015)
(2016)
(2017)
Frequency
Methodology
Responsibility for Data Collection
monsoon decreased
Description (dicator definition etc.) desander and in turn improve the efficiency of the desander
Intermediate Result (Component C): Technical Assistance and Capacity-Building Final Operations Manual designed and implemented
Designed means that the consultant delivered the final Operations Manual. Approved means that NEA approved the final designed and its
F
Number of NEA employees trained for hydropower operations and management
i Status
None
Designed
Approved
lpe lized
10
30
60
pezed
Oimplementation. Annual NEA Reports
NEA
Annual
NEA
Number of
E
0
0
60
NEA Reports
Operationalized means that the approved designed Manual is implemented in operations, staff is trained, and monitoring and reporting is effective. 60 Employees will be trained in asset management, operations, management of electro-mechanical equipment, and Enterprise Resource Planning
32
Intermediate Level Results Indicators*
e
Baseline
o
Q
Cumulative Target Vle**
Unit of Measure
YR 1 (2013)
Siren system extended and operational
Data Source/
Responsibility
Description
Methodology
for Data Collection
(indicator etc.) definition
Frequency YR 2
(2014)
YR 3
(2015)
YR4
(2016)
YR5
(2017)
Number
E
Boats and fishnet handed over to Bote communities
ofn
Number of boats
0
0
3
3
3
3
Annual
NEA Reports
NEA
0
0
0
2
2
2
Annual
NEA Rprs
NEA
The Siren system is a key element of the Community Support Program & Vulnerable Community Development Plan Supply of boats to the Botes is a key element of the Community Support Program &
Vulnerable Community Development Plan
Fish Hatchery scaled-up with water filtration unit
E
Number of ponds
0
0
0
1
4
onstructed
4
Annual
NEA Reports
NEA
Additional ponds means a scaling-up of the fish hatchery including supply of silt free water for fish breeding. It is a key measure of the EMP.
33
Annex 2: Detailed Project Description NEPAL: Kali Gandaki A Hydropower Plant Rehabilitation Project Background 1. River systems of Nepal and Hydropower Generation. The country's three biggest river systems - the Kosi, Gandaki and Karnali - originate in high-mountain glaciers and eventually flow into the Ganges river system. The abundant water resources and the suitable topography are the two parameters that make Nepal a prime location for hydropower development. The most commonly cited figures for Nepal's theoretical and economic hydropower potential are 83,000 MW and 43,000 MW, respectively and are concentrated mainly in the three main river basins and to a lesser extent in the southern river systems. These potentials are obsolete estimates dating back to the sixties. Re-optimization of power production for the emerging markets in the region could yield higher potentials. Various barriers to hydropower development have held back the development of new generation projects including political instability; difficult terrain and limited infrastructure to access project sites; deficiencies in the coordination of generation planning by the MoE with transmission planning by the NEA; a shortage of investment funds; the high financing costs faced by developers of generation projects and the difficulty of coming to financial closure; uncertainty in the process of negotiating PPAs between private power producers and the NEA; the NEA's weak financial condition, and; time-consuming processes of review and clearance by Government ministries and agencies. While the efforts of the Government and its agencies, developers and other sector stakeholders to address these many obstacles are slowly bringing results, the large-scale development of Nepal's hydropower potential will clearly be a challenging and a long-term process. 2. Large dams are a new development in Nepal. Most of the hydropower projects in Nepal do not involve large dams and large impounded areas for several reasons: (a) such dams are costly; (b) they may require submergence of forest and agricultural land; (c) in the middle mountains where sedimentation is more severe, reduction of reservoir capacity is a problem. The majority of the hydropower plants in Nepal to date are run-of-river, but in the future, there may be a need to build more large dams to overcome seasonality. Under the National Electricity Crisis Resolution Action Plan in 2008, the government had asked Japan International Cooperation Agency to prepare a nationwide master plan for storage-type power projects in the country to cope with the ongoing power outages. The Agency identified ten projects: Dudh Koshi (300 MW), Kokhajor 1 (111.5 MW) and Sunkoshi 3 (536 MW) from the Eastern River Basin; Chera-1 (148.7 MW), Lower Jhimruk (142.5 MW), Madi (199.8 MW), Nalsyagu Gad (400 MW) and Naumure (245 MW) from the Western River Basin, and Lower Badigad (380.3 MW) and Andhi Khola (180 MW). The projects were shortlisted from 67 financially and technically feasible projects. Future storage projects will benefit immensely from the long term experience of relatively smaller storage projects like the Kali Gandaki where sedimentation has been at the forefront of the various challenges. 3. Sedimentation issues in the Himalayas. Sediment transport is a natural phenomenon that can be aggravated by anthropogenic influences. "Young" geology combined with excessive silt is a serious challenge to the water users, including hydropower. The three regions in the world with the most extensive hydro-abrasive wear are: the Andes in South America, the Alps in
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Europe and the Himalayas in Asia. Both run-of-river and storage hydropower facilities face sedimentation problems. The frequent inability of desilting facilities adequately to reduce sediment concentrations in water flowing through turbines can result in significant deterioration of hydro machinery, including turbines in run-of-river facilities. Power production is also effected by cavitation problems and a combination of erosion and cavitation can produce a drop of efficiency and power production. Storage facilities suffer from reservoir sedimentation which reduces their ability to store water and supply power. Understanding and solving sediment issues requires a holistic approach. For hydropower projects with hydro-abrasive erosion, the optimum operation is achieved by analyzing the impact on the whole power plant configuration and not just the turbines. All factors should be considered from the beginning of the planning stage with the aim of reducing damage by hydro-abrasive erosion. Important factors to consider include the intake configuration, design parameters for desanders, and the choice of turbine type. The maintenance-friendliness of the plant should also be specifically considered to minimize outage time when repairing hydro-abrasive damage. In recent years significant advances have been made in understanding and treating sedimentation problems affecting hydropower facilities and Kali Gandaki and other projects should be able to benefit from these advances. 4. Climate Change. Research on climate change including analyses of the long-term hydrological, meteorological and glaciological data reveals that the climate in the Nepalese Himalayas is changing faster than the global average. Climate change increases the seasonal imbalance - too much water during rainy season and too little of it during dry seasons. The projected physical impacts of climate change on water resources would have substantial socioeconomic implications for Nepal. There is very little research and data on the impacts of climate change on sediments. Experience shows that generally sediments increase with flows but this may not be always true. In absence of better guidance on climate change, continuous monitoring of sediment concentrations and grain size distribution through a Real-Time Sediment Monitoring system is practical. The number of hydro power plants affected by hydro-abrasive erosion is increasing in the world. There are a growing number of new projects on rivers with high particle concentrations, and existing projects have been affected by deteriorating watershed conditions that increases sediment yield and related problems due to climate change. The current project will try to address the climate change issues in three ways: (a) monitor concentration and grain size distribution of the sediments in real time so that early warnings can be issued for both the project; (b) monitor the sediment buildup through real-time sediment monitoring and bathymetric data to see how the vulnerable communities at Setibeni can be protected; (c) monitoring naturally occurring floods in the river for early warnings. 5. Institutional structure. The electricity sector falls under the responsibility of the MoE, which was split from the Ministry of Water Resources in 2011. The MoE is in charge of sector policy formulation and regulation as well as overseeing planning, investment, and development of the power sector. The MoE is also responsible for issuing licenses for electricity generation, transmission and distribution and is supported by the DoED in these areas as well as regarding technical issues related to hydropower and electricity. 6. The NEA is a vertically-integrated government-owned utility responsible for generation, transmission and distribution of electricity in Nepal. The NEA's mandate also includes formulating policy recommendations to the Government on power sector development, sector
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regulation and tariffs. The NEA's board of directors is chaired by the Minister from the MoE, and includes members from the MoF and MoE, commerce, industry or financial sector, consumers group, electricity sector outside the Government, and Managing Director acting as the Member Secretary. The NEA owns a generation capacity of 531 MW (90 percent hydropower), equivalent to 75 percent of the country's total installed capacity, and holds 1,087 MW of survey licenses for new hydropower generation. For domestic consumption the NEA serves as a single buyer for a large part of the power generated by IPP representing 25 percent of the country's power supply. The NEA's power plants are handled by its Generation Business Group. 7. Generation Business Group. Generation Operation and Maintenance Group is responsible for daily O&M of existing 17 hydropower stations and two thermal power plants owned by NEA. The business group is headed by a General Manager. The Group looks after the periodic overhauling, major maintenance works and rehabilitation projects of the generating stations. Kali Gandaki A falls under the responsibility of the Generation Operation and Maintenance Department. Project Description 8. Kali Gandaki A Hydropower Plant is a peaking 144 MW run-of-river plant, located on Kali Gandaki River in Syangja, 180 kms west of Kathmandu. The dam is located below the confluence of Kali Gandaki and Andhi Khola rivers. The plant was largely funded by the ADB and commissioned in 2002 at a cost of US$ 453 million. Today, it is the largest hydroelectric power station in Nepal, and it supplies nearly 40 percent of the NEA's total annual electricity generation which represents a quarter of the country's total annual electricity generation. This important plant is facing the following problems: * * * * * *
Damage caused by sediments Low availability of the generation capacity Poor sediment management Safety risks Cavitation Need for a final Operations Manual
9. Severe Damages to Power Generation Equipment. Severe damages were found at critical plant equipment, including the MIV, guide vane, and turbine runners caused by both erosion and cavitation. The erosion is caused by increased sediment concentration dominated by Quartz particles in the water passing through these parts of the power generation units. Reduced efficiency of the sediment handling facilities at the headworks was identified as a significant cause in this increase in sediment concentration. In addition to erosion, the electro-mechanical equipment is affected by cavitation caused by decrease in the tail water level. The damages from erosion and cavitation are increasing, in turn reducing generation efficiency and reliability, and threatening the safety of the plant. International consultants concluded that civil works at the headworks and tailwater areas are needed to address these issues. They also recommended that electro-mechanical equipment be retrofitted to avoid more severe damage and to enhance the performance of the equipment against silt erosion.
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10. Low Availability of Generation Capacity. Between 2002 and 2006, energy generation potential of Kali Gandaki A was not fully utilized (only up to 75 percent) by the NEA system based on the demand projection at that time. The plant did not generate to its full capacity until 2012 last year due to different factors: (a) in the initial years system demand was low and NEA gave priority to the IPP plants as its PPA is based on take or pay arrangement, (b) when the system demand increased, there was transmission congestion in mid-section of the Nepalese power system which resulted in a constrained flow of power to the eastern load centers of the NEA, (c) due to transformer capacity limitations, power could not be evacuated in western load centers of the NEA, and (d) frequent repairs and shutdowns have caused reduced levels of generation. 11. Sediment issues at Kali Gandaki. Both Kali Gandaki and Andhi Khola rivers lie in the middle mountains, a physiographic region of Nepal where increased erosion and sedimentation takes place. The mineralogical composition of the sediments is dominated by Quartz which is highly abrasive. Poor control of the floating debris chokes the intake screen and reduces the efficiency of the sediment settling basins. Instead of settling, the highly abrasive sediment particles in high concentrations (above 4,000 PPM) are transported into the flow passage of the power generation units, causing severe damage to the hydro machinery. Cavitation also causes abrasion and drop in efficiency. Unless these problems are addressed, there will be perpetual wear and tear of the machinery and needs for shutting down the power generation units for repairs, and subsequently further reduction in the availability of this critical plant. 12. Lowering sediment concentration of the water within the limits through proper settling before the water passing through the power generation equipment and solving the problem of cavitation are the keys to keep the damages to the equipment within acceptable range. The original designers had recommended monitoring sediment concentrations and shut down the plant when the concentrations exceeded total suspended sediment concentration of about 10,000 PPM in the river, equivalent to a sand concentration of about 4,000 PPM in the river at discharges of about 2,000 m3 /S. This has not been practiced in Kali Gandaki simply because the country is always suffering from a power deficit and could not afford to allow the station to shut down. The highest sediment concentration ever recorded was 20,000 PPM in the river and 9,000 PPM at the turbines on July 12, 2012. Physical model testing was performed to assess the performance of the headworks and sedimentation handling facilities. Based on these physical model tests, options were proposed for modifications of the headworks and the sedimentation handling facilities to improve the performance of the settling basins. NEA engineers have carefully studied these modifications and the management opted for one of the options. The NEA will hire an international consulting firm to help finalize the detailed design. A floating boom to arrest debris is being tested at site. 13. Safety Management Improvements. Kali Gandaki A was funded through ADB and major international firms designed and constructed the project. The Bank's assessment of the dam suggested good quality construction works and no evidence of structural concern. However the Bank identified the need to re-establish a satisfactory dam safety management. Adequate instruments need to be re-installed and properly maintained and staff trained in monitoring the instruments regularly. For the NEA to regain control on dam safety management, the rehabilitation project will assist the NEA in creating a central cell to house amongst other things
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technical archives of Kali Gandaki and other projects. NEA will also implement priority nonstructural measures such as an emergency preparedness plan and an instrumentation plan with the assistance of a consulting firm. The proposed project will address three safety concerns at Kali Gandaki A. First, the MIVs that function as safety devices for the power plant are eroded and need repairs. Loss of pressure balance at both sides of the MIV hinders complete closure of the MIVs. Headwork modifications proposed by the project will help reduce erosion of the MIVs. Secondly, the project will address some dam safety management issues consisting mainly of improper maintenance and lack of use of dam instrumentation. Lastly, the deficient control systems will be fixed in the plant to provide the operators with vital information necessary to maintain the plant. 14. Cavitation. Cavitation problems become evident as the dismantled runners, wicket gates and plates on the machine shop's floors show typical wearing due to cavitation. The cavitation impacts can easily be observed on the runners, confirming the opinions of the experts that the wear and tear is not caused by the action of sand alone. Experts confirmed that the required submergence was 1.5m greater than the available submergence. It was confirmed that due the low tailrace level during the dry season, there is a permanent prevailing situation of cavitation. This issue cannot be left unaddressed as it causes important vibration in the powerhouse which can damage all the equipment. As per the expert advice, the cavitation problem may be addressed by physically increasing the level of the tail water by a meter installing a concrete sill at the junction with the river bed, by air injection and by applying suitable coatings technology. This sill solution causes a permanent head loss of 1.5 meter but represents only 1.2 percent of the head during the dry season. The loss which is compensated by the gains in turbine efficiency, lower maintenance costs and some gains in availability. Indeed, during the flood season, the production is about 10 percent lower than the calculated value for half of the operating time. The drop in efficiency is more pronounced at higher flows and velocities. At no point do the turbines reach their maximum capacity of 48 MW, which they should. The turbines peak at 46 to 47MW. At lower flows in the dry season the drop in efficiency is about 2-3 percent. Besides the lowering of the efficiency, cavitation increases the frequency of dismantling and overhauling of the turbines to change and repair the runners. Every year at least 6 weeks are needed to replace a runner and the associated parts like the wickets gates and plates. These repair works are carried out during the winter season when only one unit is generating. Such repair is commonly expected to be needed every 3 years. 15. The need to finalize the Operations Manual for the headworks. Since the construction of the plant 12 years ago, there have been no attempts to finalize the draft Operations Manual that was left by the original designers of the project who had recommended finalizing the Manual based on data available after several years of experience of running the plant. The draft manual clearly stated that "Sediment Management on KGHP is one of the key elements in the project operation" and recommended sediment management strategies such as regular flushing and shutdown of plants when sediment concentrations reached threshold values. In reality the plant has always been run under the strict command of the LDC, located in Siuchatar, Kathmandu. The LDC controls the INPS and it supervises and maintains the quality of the electrical power supplied to the consumers, works towards maintaining balance between demand and supply, and tries to minimize the power interruption. Such supervision and monitoring is done through computer based SCADA system, connected to all the plants including Kali
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Gandaki. However operations are run based on the demand and not site conditions, especially sediment levels. Ideally Kali Gandaki should have been allowed certain days in the year stoppage time for flushing but the generation demand restricts from doing so. The power deficit is severe in the country. As long as Kali Gandaki remains under pressure to generate regardless of its operating conditions, ensuring proper maintenance, safety and efficiency at Kali Gandaki A will remain a challenge. Although the current project provides the opportunity for serious discussions between the LDC and plant operators on an optimized solution, in the current context, it is ultimately a political decision in the trade-off between maximizing generation to reduce load-shedding and managing the generating assets safely and appropriately. As long as Nepal is affected by serious power shortages, NEA management is not convinced that the optimized approach will have sufficient political support. This is usually the case for majority of countries where there is a serious deficit in generation. Sustainability 16. There is high demand for the power produced as 25 percent of the grid connected load of the country depends on this plant. The proposed project aims at improving the long term sustainability of Kali Gandaki A as well as of the hydropower sector in Nepal at a time where the country is entering an era of large investments in hydropower. 17. Improved Practices. Sediment transport and the heavy sediment load is a natural phenomenon in the Himalayan Rivers, including Kali Gandaki. Every year nearly 38 million tons of sediments are transported to the Kali Gandaki reservoir. Repair and maintenance will remain a recurring need for Kali Gandaki A given the sediment conditions in the Himalayans. The cavitation can be addressed in a definitive manner but erosion and sedimentation issues can only be managed better. Improving sediment management in the reservoir and through the facilities and operating the dam in a sediment-sensitive manner are key measures to maintain the power plant's long term generation potential and its environmental and social sustainability. 18. Sedimentation in the reservoir depletes the reservoir volume, and in turn the peaking capacity, and causes the buildup of sediments along the river channel. This phenomenon can adversely affect the intake weir that controls the sediment entry with the power flow, and access to the Holy Stone in Setibeni. Contrary to the designers' recommendations and the Draft Operations Manual, the reservoir has rarely been flushed. Measurements show that the Kali Gandaki reservoir has lost about 4 million m3 in 10 years of operation which is about 51 percent of the original capacity of the reservoir and 7 percent of the total live storage capacity. The original designers estimated that flushing the reservoir to lower the river bed all the way to the religious site takes no less than 3 days without generation. This time may be improved with experience from operations but flushing will remain a sensitive issue given the current load shedding of up to eleven hours per day in Nepal. In order to identify the long term sedimentation effects on the reservoir and the river channel, a sediment transport model is being considered for Kali Gandaki. 19. Technology Introduction. Improving the sustainability of the Kali Gandaki A requires sediment-guided operations. The designers and the draft Operations Manual recommend shutting down the power house when sand concentration exceeds a certain threshold. Without adequate
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sediment monitoring, this recommendation proved challenging to implement. Therefore, Kali Gandaki A will benefit from laser-guided Real-Time Sediment Monitoring instruments that will be able to measure both concentrations and grain size distributions in real time, giving the plant operators an opportunity to decide whether to shut down for a few hours or keep on generating. International experience and best practices will help to revise and finalize the Operations Manual and recommend new operating procedures for sediment-guided operations. If implementation will remain challenging the current context of energy crisis, better information will help a fruitful dialogue with the LDC on sustainable operations of Kali Gandaki A. 20. Implementation Capacity. Training NEA staff on better operation practices and the use of the sediment monitoring technology is essential for successful long term implementation, as well as broader sustainability improvement in the hydropower sector. 21. Managing the catchment Area. Kali Gandaki A has a catchment area as large as 7,618 square kilometers. A recent visit by a World Bank consultant revealed that sediments affecting Kali Gandaki A mostly come from far upstream, outside the catchment area. The international consulting firm will investigate this question further and prescribe mitigation measures if needed. 22. Policy Dialogue. Implementing these measures entails a significant change in the approach to hydropower in Nepal and requires the various stakeholders to cooperate on implementing sustainable practices. Increasing knowledge and capacity on sediment management, reservoir sustainability and dam safety management and supervision, is all the more critical that Nepal is planning on a series of important hydropower investments. Progressive evolution of the sector on these long term sustainability issues needs to be paced and framed over a few years. For instance, building capacity in dam safety management is critical for Kali Gandaki A, and is proposed by the project. Nonetheless, an independent third party review or a regulator that would check that operators do respect dam safety rules is essential for the sector as the number of power plants will increase. Nepal does not currently have a dam safety Regulator and this project will serve as a stepping stone to kick-start the dialogue leading to setting up a dam safety oversight mechanism in a few years. Project Description 23.
The project consists of the following components.
Component A: Civil Works (US$ 9.09 million). This component consists of the following four sub-components. *
Sub-component Al: Headworks modifications.
Hydraulic Model Studies. Based on advice from international consultants, a physical model of the Kali Gandaki headworks at a scale of 1:40 was constructed in Kathmandu and (refer to Figure 2.4) hydraulic model studies were performed. Based on the preliminary review, the following main areas for improving performance of the headworks were identified: (a) by improving the intake hydraulics which in turn would improve the performance of the settling basins with respect to their ability to trap suspended sediment and thus reduce the amount of sediment which is passed on to the turbines; (b) by making the trash passage system more
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effective, it would help in reducing the amount of trash entering the intake. Such improvements would help to improve the overall performance of the intake and settling basins and also to reduce the head-losses at the headworks; (c) modify the reservoir operation strategy which could potentially increase the power generation. The consultant suggested various alternatives to improve the hydraulic performance of the headworks. These alternatives were carefully selected with the view of setting aside relatively shorter time for implementation in the prototype, and thus reducing the shutdown time. Modification B2 (see Figure 2.5) comprised of a siphon type forebay inlet arrangement which draws water over the existing forebay wall. The minimum reservoir operating level was proposed at an elevation of 521m. In a second alternative termed as C2 (see Figure 2.6), the existing forebay wall was trimmed down by 3 meters to maintain the water level at 518m as prescribed by the original designers. HEC RAS model tests supported this alternative as the water levels would not pose a threat of increased flooding in Setibeni 5.5 kms upstream. The NEA will recruit an international firm in the first year of the project implementation to verify the alternatives and prepare a detailed design, bidding docs and assist in procuring the most qualified contractor to carry out the work. * Sub-Component A2: Improving Dam Safety Monitoring and Instrumentation (including Real-Time Sediment Monitoring). Kali Gandaki A was designed and constructed by reputed international firms following international best practices. As concerns regarding maintenance and use of these safety instruments arise, the project will help maintain and upgrade the instruments. Under this sub-component, instruments installed in the project will be repaired and others added (including Real-Time sediment monitoring instruments) to meet state of the art requirements. Real-Time Sediment Monitoring. The sustainable future operations of Kali Gandaki A depend on proper sediment monitoring. This will be required for three purposes: (a) to measure the sediment content of the river flow, (b) to evaluate the performance of the project components such as the forebay pond and the desander basins and, (c) to monitor morphological changes upstream and downstream of the diversion dam. As a result of this monitoring, changes may be made in the operation policy and corrective measures may be introduced. While prescribing the criteria for project operation, the original designers warned in the draft Operations Manual from 2001 that the operation of the power plant should be guided by the measured sediment concentration, particle size distribution and discharge. In reality as with most of the plants on sediment laden rivers, operators struggle to monitor sediments in real time. In Kali Gandaki, the project will reap benefits from the recent development of laser-based sediment measuring instruments that will be able to measure both concentrations and grain size distributions in real time, providing the plant operators an opportunity to decide whether to shut down for a few hours or keep on continuing generation. * Sub-Component A3: Maintenance Works. This includes the following works: (a) slope stability in the reservoir area including the landslide on the left bank access road; (b) rock scouring below the dam; (c) modifications to the tailrace area to stabilize cavitation; (d) minor maintenance works of the office space and equipment, and of the guesthouse facilities for project implementation.
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Landslide on Left Bank Access Road. A landslide is located on the left bank of the Kali Gandaki River upstream of the intake and close to the confluence of the Kali Gandaki and the Andhi Khola rivers. First indications of landslide activity were experienced as early as 2001 during the commissioning time of Kali Gandaki A. In 2009 minor landslide movement occurred and in 2012 the NEA reported major landslide movements in response to heavy rainfall and high river flows. Expert advice concluded that the slope in its current configuration has not been subjected to the maximum daily rainfall event recorded in this area over the last 50 years. It is also highly susceptible to failure even under modest earthquake loads. If no remedial works are carried out, the risk of failure is significant, although it is not possible to quantify this in probability terms. The consequences of any failure are likely to be severe rather than catastrophic. The geometry of the slide mass is such that it is likely to cause only a partial blockage of the river with ensuing disruption to power generation from a major increase in sediment load near the intake. Slide failure is unlikely to result in formation of a full landslide dam with complete blockage of the river and associated hazards of the landslide dam breach. The NEA will carry out additional geological investigations and detailed design of remedial measures. The NEA will retain an independent (from the consultant, and from the owner) reviewer of the slope stability investigations and design. Component B: Electro-Mechanical Works (US$ 16.60 million). This component consists of the mechanical and electrical works. * Sub-Component Bl: Mechanical Works. This sub-component will consist of the following packages: (a) direct contract with the OEM for the supply of generator spare parts with coolers, turbine and MIV parts; (b) supply, repair and hard coating of turbine parts; (c) supply, delivery, installation and commissioning of trash rack machine; and (d) supply of spare parts and equipment for power house and dam auxiliary system. As part of the direct contract, the OEM will refurbish the MIVs that control the flow of water to the turbines. In Kali Gandaki A, the MIVs are damaged by sediments. The rehabilitation of the 3 MIVs will increase the capacity of the servo motors activating them, and by modifications to the lubrication mechanism. The MIVs involve some modifications in the greasing system and the servomotors to ensure proper closing and opening operation. The turbine parts mainly the runners, wearing rings, facing plates and the wicket gates suffer from cavitation and abrasion caused by sediments dominated by Quartz particles. Records prove that special hard coatings like High Velocity Oxygen Fuel (HVOF) have prolonged the life of the turbine parts. The job involves repairing damaged runners by welding and gridding and then applying the hard coating. Kali Gandaki River travels more than 200 km from start point Muktinath, Mustang to Kali Gandaki Plant. Numerous emerging towns along Kali Gandaki and Andhi Khola rivers feed plastic and human waste into the river that ends up in the Kali Gandaki reservoir. Combined with other natural floating debris like logs and branches, heavy chocking and blocking of the trash rack occurs at the intake. Most of the time, choking of trash rack causes a level difference between the intake forebay side & the desander (settling) basins, leading to accelerated velocities inside of the settling basins. This defeats the purpose of the settling basins where a reduction in velocity is supposed to trap the sediments. In reality the high velocities do not allow the sediments to settle in the basins and as a result the sediments are transported into the headrace
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tunnel and then into the power house. In such cases, the available single Raking Machine (cleaning machine, which is not continuous service type) is not sufficient to clean/remove the debris/ trashes accumulated on the trash rack. Currently the operators also practice back-flushing, a process that involves shutting down the power plant in order to use water to flush back the trapped debris at the trash racks. This leads to generation loss. The project will address this issue by installing a curtain wall to improve the evacuation of floating debris, and by purchasing more efficient trash rack cleaning machines. * Sub-Component B2 Electrical Works. The electrical upgrading works are basically identified in the control system of the generator units, station and auxiliary supply, 132 kV switchyard, 12 kV local distribution, surge shaft, gateway and intake at various geographic locations. The upgrading works also encompasses the replacement of level sensors and procurement of spares. Under this sub-component the following works are considered: (a) repairing the existing system with spare card and modules; (b) upgrading of the controllers and system software, and (c) other spare parts, such as the power supply cards, inverters, and sensors. At present, the control system in Kali Gandaki A has problems with the controllers and the networking system. This has largely limited the communication between devices and operator station. The operators are not trained to operate that system and they are unable to monitor many of the parameters of the waterway, such as the position of the radial gates at intake, position of the radial gates at the desander basins. Level in the surge shaft, position of the head race valve, position of the MIVs, tail race water levels. Important monitoring parameters such as level of vibration, temperature of thrust and guide bearing metal and oil Temperature of cooling system. A combined program including hardware and software upgrading and training of the operators will be launched. Component C: Technical Assistance and Capacity-Building (US$ 4.67 million). This component consists of the following five sub-components. * Sub-Component Cl: Consulting firm. (Consulting Services for Dam Safety, Civil & Electro Mechanical works) Provision of technical advisory services to the NEA, through a consulting firm, for overseeing all the three components of the project. The consulting firm will help the NEA establish a Dam Safety Plan as per the Bank's dam safety policy 4.37, which requires an Instrumentation Plan, including an Emergency Preparedness Plan. It will provide the detailed design of the recommended civil works and work with the NEA to re-establish the proper care and maintenance of the headworks, including finalizing the Operations Manual, and recommend additional instrumentation if needed. Data collection, analyses and reporting methodologies and procedures will be strengthened. The consultant will inspect existing instrumentation and put back in service what can be made good of the resources available on site (such as open type piezometers, benchmarks for global movement survey, seepage monitoring devices). The Consultant will also assist the NEA in preparing technical specifications, bill of quantity and cost estimates for any new instrumentation that NEA may need to purchase and help train operators in its use. Furthermore, the Consultant will conduct a Potential Failure Mode Analysis (PFMA) workshop according to the methodology developed by Federal Energy Regulatory Commission (US FERC). * Sub-Component C2: Asset Management. The following works are to be included under this sub-component: 43
i) ii) iii)
iv) v) vi)
Technical archives and Electronic systems for data storage, retrieval and use to be housed centrally in a newly created cell in the NEA head office. Preparation of powerhouse operators' instruction manuals and maintenance guidelines, preferably in Nepali. Adaptation of NEA's existing software to implement computer-based scheduling and recording of maintenance and equipment history, and assisting stepwise integration of these measures to other power-plants. Organization of a central cell for asset management and equipment maintenance. Integration with the Enterprise Resource Planning at NEA to include a component on Operation & Maintenance/Asset Management. Organization of a local as well as central sediment management cell. Table 2.1 Technical Archive of the Project, typical contents
Design Design reports and basic studies Hydrology Performance parameters for structural and hydraulic analysis Panel of Expert review of design Construction As built drawings Panel of Expert reports Geotechnical reports (such as slope stability and foundation mapping) Quality control during construction Records of major events (such as floods, suspension of works, and extreme meteorological conditions) Technical report on tests of gates and energy dissipation works Technical report on first reservoir filling Instrumentation Plan Operation and Maintenance Plan Emergency Preparedness Plan Operation Hydrological records (such as rainfall, river flows, and sediment concentration) Gate operation records Instrumentation records Bathymetric surveys and scouring measurements Extraordinary maintenance works or repairs Sediment data Sub-Component C3: Safeguard Implementation. This sub-component will provide support to NEA for the implementation of the Environmental Management Plan and the Social Action Plan, including the Vulnerable Community Development Plan, and in the monitoring and evaluation of such implementation, including necessary technical advisory services. Although no major social issues are anticipated since most of the physical activities will be carried out within the existing plant facilities, this component will provide support should any issue emerge during implementation. This sub-component will support implementation of the SAP, including M&E.
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* Sub-Component C4: Capacity-Building. This sub-component will provide training to the NEA's staff to increase the NEA's capacity in asset management, dam safety instruments maintenance and use, O&M, sediment management, safeguard implementation, and operations and maintenance of specialized fields of electro-mechanical equipment such as governor, hydraulic system, and programmable logic controller system. * Sub-Component C5: Catchment Area Treatment Plan. This sub-component will address any work which may be needed to manage sediments affecting the long term sustainability of the project including channel restoration and flood management in the Setibeni area. NEA will work with the international consulting form to establish the scope of the works. The work will be carried out in collaboration with the local government bodies. Component D: Contingent Emergency Response Component (US$0 million). Following an adverse natural event that causes a major natural disaster, the GoN may request the Bank to reallocate project funds to support response and reconstruction. This component would draw resources from the unallocated expenditure category and/or allow the GoN to request the Bank to re-categorize and reallocate financing from other project components to partially cover emergency response and recovery costs. This component could also be used to channel additional funds should they become available as a result of the emergency. Disbursements would be made either against a positive list of critical goods and/or against the procurement of goods, works, and consultant services required to support the immediate response and recovery needs of the GoN. All expenditures under this component, should it be triggered, will be in accordance with BP/OP 8.0 and will be appraised, reviewed and found to be acceptable to the Bank before any disbursement is made.
Figure 2.1 Distorted Google map showing the reservoir stretch from the dam site up 5.5 km to Setibeni
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Figure 2.2 Setibeni and Holy Stone (Kali Gandaki is flowing right to left)
-
Settlng basins
Gadaki
(only river side
River
-Dam
Diversion dame and spillway
Proposed curtain wall
gass
Foebay
F y
wagg sub.nerged fdake weir
Proposed barrier
Figure 2.3 Kali Gandaki headworks prototype. Exting wBir at 514 m
Figure 2.4 Kali Gandaki headworks model.
F~aing debris
Bo
· W.-=
524 in
LI-e. t2p of en6ri~ wall to 516 mn
2Nk~W
inMG Wä=t Levwi
Le 1~
= 518.4
El- 516
Leval =512.1.4
G" urtån wallB ~\VE FORLEI3AY
DESMIDEf
IVRFORE
Figure 2.5 showing Altemative B2 featuring a curtain wall to deflect floating debris away from the trash rack at the intake.
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BAY
Figure 2.6 showing Altemative C2 (right) showing the existing wall trimmed down by 3 meters up to elevation 516.
Annex 3: Implementation Arrangements NEPAL: Kali Gandaki A Hydropower Plant Rehabilitation Project Project Institutional and Implementation Arrangements Project Administration Mechanisms 1. The NEA is the implementing agency for the Kali Gandaki Rehabilitation Project. The NEA is a vertically integrated electric utility operating about 531 MW of generation capacity and building an additional 300 MW. The NEA was created on August 16, 1985, under the Nepal Electricity Authority Act 1984, through the merger of the Department of Electricity of Ministry of Water Resources, Nepal Electricity Corporation and related Development Boards. The NEA is the main player in the Nepalese electricity sector. It is the largest generator of electricity in Nepal (approximately 60 percent of the total output). It is responsible for system operation and it is the largest transmission and distribution grid owner in Nepal. The NEA also acts as a single buyer of bulk electricity in Nepal. The company is entirely owned by the State of Nepal. Its Board of Directors is chaired by the Minister of Energy and otherwise consists of one representative from the MoE, one from the MoF, one consumer representative, two power sector experts from nongovernment sector, and three representatives from industry, commerce and financial sector. All eight members of the Board of Director including the Managing Director are nominated by the GoN. The NEA's primary mission is to generate, transmit and distribute adequate, reliable and affordable power by planning, constructing, operating and maintaining all generation, transmission and distribution facilities in Nepal's power system both interconnected and isolated. In addition to this, the NEA's major responsibilities are: (a) to recommend to the GoN, long- and short- term plans and policies in the power sector; (b) to recommend, determine and implement the tariff structure for electricity consumption with prior approval of the GoN; and (c) to build capacity for skilled manpower in generation, transmission, distribution, and other sectors. The NEA faces several key challenges. First the gap between supply and demand of power is growing. Second, the NEA must provide the necessary transmission services both inside the country and across borders. Constraintsin project implementation 2. The NEA's Leadership. After a prolonged gap of almost one year without a Managing Director, the GoN finally filled in the position at the NEA. Decision making on sector policy and reform is weak. Since the proposed project is purely a technical intervention at a specific hydropower power plant and well within the technical capacity of the NEA, the impact on the proposed project is minimum. 3. Financial Performance of the NEA. The NEA is facing difficulties, with internal cash flows unable to service existing debt or fund any capital expansion without significant support from external sources. Without rapid implementation of reforms, the company would continue the downward spiral of increasing costs, decreasing revenues and chronic under-investment. The first substantial tariff hikes in Nepal since 2001 were implemented in June 2012 as part of a larger financial restructuring plan of the NEA being implemented (see Annex 8). In addition to a tariff increase, this plan covers operation losses and revenue collection, as well as financial management and balance sheet restructuring. 47
4. Technical Capacity and Project Team. The NEA's Generation Operation and Maintenance Business Group headed by the General Manager and supported by a team of experienced electric, mechanical and civil engineers is responsible for daily O&M of existing power plants owned by the NEA. The same group will be responsible for the proposed project. A project team will be appointed for implementation of the proposed project. It will consist of a director as the project coordinator operating from the NEA headquarters. The plant manager of Kali Gandaki based at site will act as the project manager for the implementation of the project at site. 5. Financial Management Capacity. The NEA has already undertaken several Bankfunded projects and is familiar with Bank policies and procedures for financial management. These projects provide opportunities for the NEA's financial management staff to strengthen their capacity in financial management of Bank-funded projects. Specific staff will be allocated to the financial management of the proposed project, and training would be provided if needed during the project preparation. 6. Procurement Management Capacity. The NEA has benefited from the on-going Bankfunded projects for capacity building in procurement following Bank's procurement policies and procedures. Given the nature of the investment activities under the proposed project, external support will be needed to support the NEA in preparation of detailed technical specifications, realistic cost estimates and bidding documents with appropriate slicing and packaging arrangement. Training will be needed for the project team to better understand Bank's procurement policies and procedures to ensure efficiency in procurement processing. 7. Safeguards Management Capacity: The Environmental and Social Unit (ESSD) in the NEA has been providing environmental and social support to NEA projects. The ESSD's main tasks are (a) to prepare safeguard documents and also to supervise the implementation of Environmental and Social Impact Assessment and mitigation actions (for new hydro power projects, where, due to high expected impacts, specialized Consultants are employed for the EIA and Social Impact Assessment (SIA) process; (b) to produce environmental and social due diligence for projects with lower expected impacts; (c) to monitor ongoing operations (to a lesser extent); (d) to ensure overall corporate compliance in environmental and social issues; and (e) to advise and report to NEA management. ESSD consists of a limited number of environmental and social specialists who have reasonable experiences and capacity in preparing safeguards documents for transmission lines and run-of-river projects. ESSD staff has gained experience with Bank safeguard requirements under the ongoing PDP and Kabeli Transmission Line Project. ESSD was involved in the Kali Gandaki 'A' project earlier during original project construction, and ESSD had also carried out a post-construction Environmental Impact Study, operation phase environmental and social monitoring activities of the project for two year (200506) and prepared an Environmental and Social Operation Manual for the project. 8. However, there is room for improving implementation effectiveness, compliance monitoring and auditing to ensure timely and effective implementation of the identified mitigation measures. In current practice of safeguard management during implementation, ESSD signs an MOU with project and under the MOU assigns some staff to field offices at project
48
sites. Lack of clarity on the organizational responsibility/mandate, and deficiency in coordination between projects and the ESSD have affected mitigation and monitoring activities in the past. 9. Project Implementation. Responsibility within NEA shall rest with the General Manager, Generation O&M Business, who is a member of the Project Steering Committee (PSC), directly under the Managing Director of the NEA. The PCC, headed by a director, will liaise between the Bank and the NEA. It will coordinate the project activities between the NEA headquarters in Kathmandu and the project site. The PIU based at site will be headed by the plant manager of Kali Gandaki who will act as the project manager. The key units, functions and responsibilities for the PCC and PIU jointly are: (i)
Project Administration and FinancialManagement Unit will be responsible for all management and operation of all project-related accounts including financial management, disbursement and financial reporting. This unit will also be responsible for general administration of the PIU.
(ii) Engineering Unit will be responsible for design and construction supervision matters. Further, the unit will be responsible for the overall management of project construction. (iii) Procurement Contract Management and Reporting Unit will oversee the entire procurement process, monitor and evaluate project progress and performance. Through the PCC it will liaise with the Bank and be responsible for preparing annual programs and implementation reporting. For civil works contracts, the project manager will serve as the Employer, and the consulting firm will serve as the Engineer for construction supervision. (iv) Safeguards (Environmental,Social) Monitoring Unit in Kali Gandaki A project will supervise compliance with the safeguard instruments (EA including the EMP, SAP, and the VCDP). The implementation of social and environmental safeguard measures will be the responsibility of NEA through its Environmental and Social Science Division (ESSD). The implementation will be monitored by project level ESSD staff and periodic evaluation will be carried out by an independent consulting firm. An Environmental and Social Management Unit (ESMU) will be established within the Kali Gandaki Rehabilitation Project site office under the technical supervision of ESSD. ESMU will carry out regular/ day-to-day monitoring and data recording and prepare monthly briefs for joint review at site by the project management, contractor and ESMU. ESSD will visit the project site every threemonth for internal monitoring and reporting. Apart from day to day internal monitoring, the NEA will also engage an external agency for external evaluation twice during the project implementation (during mid-term and at the end of the project implementation). The ESMU will immediately report to the project management and the NEA ESSD, if there are any issues that need immediate attention or intervention.
49
(v) Communications and Public Relations Unit will be responsible for implementing the communications strategy and managing relations with the public and media. (vi) Monitoring and Evaluation Unit will monitor the activities of the Project throughout its duration and evaluate the achievement of Project Development Objectives, Results Framework and Implementation Progress. In addition, a consulting firm, which will be a reputable international firm will support the PIU. 10. Project Implementation Period. The project will be implemented over a period of 48 months. The target date for completion of all construction is December, 2015 and the Credit Closing Date will be June 30, 2017. The estimated delivery time of the OEM parts is 22 months. Keeping the time difference between signing of this contract and the Board date, the team has been engaged in discussions with GoN regarding the advance payments coming out of GoN's budget and retroactive financing. The Project implementation schedule is given in Table 3.1 and the organizational chart in Figure 3.1.
50
Table 3.1 Implementation Chart 2013
Item Component A: Civil Works Al: Headworks Modifications A2: Improving Dam Safety Monitoring &
Q1
Q2
2014
Q3
Q4
Q1
Q2
2015
Q3
Q4
Q1
Q2
2016
Q3
Q4
Q1
Q2
Q3
Instrumentation
A4: Maintenance Works Component B: Electro Mechanical works 131: Mechanical Works B2 Electrical Works Component C: Safeguards Implementation Cl: Consulting Firm C2: Asset Management C3: Safeguard Implementation C4: Capacity-BuildingEl
Figure 3.1 Organizational Chart
NEA GM(B
NEAG6M[B)1
ProjectSee~frinmitteeC)
Generation,Operation, and Maintena-
NEADrector[,D) LargePowerOpeaotion& MaintenanceDepartmen
MD, GM[Generation,O&MI,
L,jcCorinto
e
u r cts Cn zmntnlCnrat
Poe
Comm ita-E)
Coordinator:DirorLPPOMD, Members Finace Gieneration,Mechanical8/7, Elecrical8/1,Civl
Projectl mplementation UnitProject Manage r: KGA Plant Chief I
MEngin-ring
DMD Finane
dAdisto
ad
naemntni inncalMmtUnt KG
C- nsultingFirm(Internatinlrr Ml the nt * r
E
MonitoringUnit Oro5me1tac fce
ss
c
CAdM dP
6A
Monitoring-nd Evlu-tion r i o
-n nd
niatonn
2017
Q4
Q1
Q2
Financial Management, Disbursements and Procurement Country Financial Management Environment 11. The Nepal Country Financial Accountability Assessment (CFAA) that was conducted jointly by the GoN and IDA in 2002 and subsequently updated in 2005, concluded that the failure to comply with the legal and regulatory fiduciary framework makes the fiduciary risk in Nepal "High", but the risk is similar to that in most developing countries. The situation has not significantly changed. The Public Financial Management (PFM) Review (May 2007) has reaffirmed that the PFM system in Nepal is well designed but unevenly implemented. The PFM benchmarks established in 2008 based on the Public Expenditure and Financial Accountability framework led by the government with Technical Assistance of the World Bank have endorsed the continuing "High" fiduciary risk with several PFM indicators rated on the low end. Joint DflD and World Bank progress reviews carried out in September 2008 and later in February 2009 have revealed little progress on implementation of the PEFA Action Plan. Some of the prevailing country level risks include deteriorating control environment, insufficient monitoring, increasing threat of collusion, intimidation to bidders, weakening oversight agencies with the absence of institutional leaders which include the Auditor General and the Chief Commissioner of the CIAA. These have a wider impact on the country's accountability environment including at the sectorial or project level. 12. While these challenges prevail, improving the overall financial accountability framework remains a high priority of the Government. Frequent transition of political leadership in the Government has been the main cause of slow movements in accelerating PFM reforms as envisaged by the PEFA Action Plan. Some of the actions undertaken during the challenging transition period such as, promulgation of the Public Procurement Act and Public Procurement Regulations in 2007, amendment to the Financial Administration Regulations in 2007, and the self-assessment of various PFM Indicators as per PEFA Guidelines in 2007, are examples of Government's continued commitment. Implementation of these frameworks through an integrated PFM reform package through a set of mutually supportive actions that are realistic and can generate positive impacts is critical to mitigate fiduciary risks. Such a package has been reflected in the PFM Strategy Document prepared by the Government. A high-level steering committee chaired by the Finance Secretary provides the necessary forum for close monitoring of implementation with continuation of collaborative support from development partners. Financial Management Assessment of Implementing Agency (NEA) 13. The World Bank is supporting the energy sector development in Nepal through the ongoing PDP, NIETTP, Kabeli Transmission projects where the NEA is a major beneficiary of the IDA funds. The overall project Financial Management (FM) in the ongoing projects is less than satisfactory. Efforts are underway to address the financial management issues under the NEA Institutional Strengthening Project. The NEA has prepared an Action Plan which has been agreed with the Bank. The Bank is closely monitoring the implementation of the Action Plan. 14. The NEA has recently recruited a consulting firm, to support strengthening of financial management. The consultant has begun work to help the NEA to: (a) introduce reform in accounting framework of the NEA; (b) develop and implement new Financial Accounting System; (c) revise the accounting policy and manual based on International Financial Reporting
52
Accounting Standards (IFRAS); (d) provide training to NEA staff; (e) assist in clearing backlog of irregularities pointed out in the auditors' reports; (f) preparation of job description of Finance and Accounts staff; and, (g) computerization of financial management system in the NEA. These interventions are expected to substantially mitigate the risks currently observed at the entity level. The implementation of the Action Plan is being supported by the institutional development component of the PDP. Due to delay in initiating the implementation of agreed Action Plan, several of the issues and challenges raised in the earlier audit reports are likely to continue in the next one or two audit reports - but the auditor's comments/objections are showing improvement. 15. At the project level, the implementation experience of the ongoing PDP indicates "substantial" risk. A few deficiencies observed at the project level by the IDA team that relate to the internal control system and the maintaining of books of accounts are being addressed through the specific Action Plan agreed during implementation support missions. At the project level in the NEA, it has been agreed that a dedicated Finance Officer will be deployed. 16. Planning and Budgeting. The proposed operation will follow NEA procedures. Annual budgets will be prepared by the NEA, prior to the beginning of each new fiscal year, in line with the entities annual budgeting program. The budget will include details for the investments financed under IDA. These budgets would be monitored by the NEA on a trimester basis and reported through the Financial Monitoring Reports. A separate identifiable budget already exists in the Government's "Red Book" which will be used for this Project. This will enable the program implementation to be tracked and monitored. 17. Project Financial Accounting, Reporting and Internal Controls. In order to ensure that project financial statements are consolidated, the NEA will ensure that separate books of accounts are maintained for the project and accounts are prepared on an accrual basis. The NEA will prepare trimester Implementation Progress Reports which will include the Financial Monitoring Report. Accounting information will be regularly updated to timely to generate financial reports. The NEA will maintain required ledgers including the Designated Account Ledger and Grant register. The internal control process of the NEA will be applied to monitor the progress of the Project in accordance with sound accounting practices. The accounting systems contain the following features: (a) application of consistent accrual accounting principles for documenting, recording, and reporting its financial transactions; (b) a well-defined chart of accounts that allows meaningful summarization of financial transactions for financial reporting purposes; (c) maintenance of various ledgers including the Designated Account Ledger and Grant register; (d) maintenance of the asset register; (e) monthly closing and reconciliation of accounts and statements; and, (f) the production of annual financial statements. 18. Financial Reporting. As part of project progress reporting, the NEA will submit the Implementation Progress Report on a trimester basis. The interim financial report of the Project which is included in the Implementation Progress Report will report total investments to be separated by specific category and/or component so that total investments as envisaged can be tracked and monitored. The financial monitoring report will include: (a) transfers of funds to and from the Designated Accounts; and, (b) expenditure statements against each budget head by detail classification according to the chart of accounts, as funded for the Project. 19. Final Audit. The Office of the Auditor General (OAG) is responsible for auditing the accounts of the NEA through a qualified and experienced private auditing firm appointed by the
53
OAG. The audit reports for FY2011/12 for three ongoing projects - PDP, Kabeli, and NIETTP which include project financial statements and NEA financial statements were due on January 15, 2013. To address the issue of delays in the submission of audit reports, it is recommended that the NEA proactively plan the audit process closely with the auditors to reduce the time lag from the existing levels of delay. The following audit reports will be monitored in the Audit Report Compliance system (ARCS): Implementing Agency
Audit
Auditors
Audit Due Date
NEA
Project Financial Statements
Qualified and Experienced Audit Firm appointed by the OAG
6 months after the end of each fiscal year
NEA
Entity (NEA) Financial Statements
Qualified and Experienced Audit Firm appointed by the OAG
6 months after the end of each fiscal year
20. Disclosure of Information and Corporate Governance. Disclosure requirements under the proposed Project are expected to be transparent and all information readily available for public disclosure (refer Annex on GAAP). Implementing agencies will post on their website all available guidelines, procedures, and other key information related to the Project in line with Nepal's Right to Information laws. The NEA has agreed to disclose the following through its website: Trimester Implementation Progress Reports (approved versions); and Annual Audited Financial Statements. 21. Supervision. Intensive supervision of financial management will be undertaken by the Bank which will include follow-up on the implementation of the agreed Action Plan for financial management improvement at the NEA among other things. The FM rating will be reviewed periodically and assess the progress. A detailed FM review will be carried out on a trimester basis to ensure that agreed actions are on track. 22. Allocation of financing proceeds. Disbursement under proposed financing will be made as indicated in the following table, which indicates the percentage of financing for different categories of expenditures of the project. It is expected that IDA funds will be disbursed over a period of four years. The Closing Date of the financing is June 30, 2017. Allocation of Financing Proceeds Category
Amount of the Credit Allocated (expressed in US million)
Percentage of Expenditures to be Financed
Goods and works, Consultants' services, and Training and Workshops, Incremental Operating Costs
27.26
100 percent
Contingency for Emergency Response under Component D of the Project
0
100 percent
TOTAL AMOUNT
27.26
54
23. Disbursement Arrangements. Applicable disbursement methods include: Reimbursement, Direct Payment, Advance and Special Commitment. Disbursements from IDA will be made based on full documentation for contracts above the Prior Review threshold or SOEs. To facilitate disbursements, a Designated Account will be established. Payments against eligible expenditures may be made through the advance made to the Designated Account. For small expenditures such as, small procurement, training and workshop, the NEA will pre-finance and once the accounts are consolidated and approved the funds will be transferred from the Designated Account to the NEA's accounts. For large value contracts, the direct payment or Special Commitment methods may be used. 24. Retroactive Financing. The retroactive financing provisions will be made for all expenditures incurred after January 1, 2013 not exceeding the limit of US$500,000. 25. Use of Statements of Expenditures (SOEs). SOEs will be used for the expenditures of the contracts that are not subject to the Association's prior review. During supervision, the Bank will closely review SOE claims to ensure that funds are utilized for the intended purposes. Any ineligible expenditure identified during such reviews will need to be refunded to IDA. 26. Designated Accounts. A Designated Account in US Dollars will be established at the Nepal Rastra Bank for utilization of IDA's share of project expenditures, on terms and conditions satisfactory to IDA. The authorized allocations for Designated Account will be US$3.0 million. The designated account will be operated under joint signatures of the Project Director and the Finance to be designated from the Coordinator's Office to be based at the NEA, Kathmandu. 27. The NEA will ensure that the bank/cash books are reconciled with bank statements every month. They will separately submit applications documenting the expenditures from the previous advance and requesting for additional advance based on cash forecast to be deposited in the Designated Accounts on a trimester basis. The withdrawal application will be accompanied by reconciled statements from the bank in which the account is maintained, showing Designated Account transactions. Supporting documentation will be maintained by the NEA for at least one fiscal year after the year in which the last disbursement from the project took place, and will be available for review by IDA staff and independent auditors. 28. Flow of Funds under CERC. After the immediate transferred allocation, for critical goods under the CERC, the Bank will reimburse expenditures made on the basis of (a) evidence of the purchase of Critical Goods (such as bills of lading) certified by the recipient's customs department for imported goods and the Financial Comptroller General as well as the implementing agency for locally procured goods; (b) evidence of payment for said Critical Goods (such as receipts or retirement documents with respect to letters of credit, and payment vouchers); and, (c) letters of comfort or affidavits from the Implementing Agency certifying the retroactive, current, or expected use of said Critical Goods for the carrying out of said Part of the Project, including details of the use of any of said Critical Goods consumed as of the date of such letters or affidavits. The Recipient will not use the critical goods financed under the component for military or paramilitary purposes. If the Bank determines at any time that the proceeds were used to make a payment for either: (a) ineligible expenditures; or (b) goods eventually used for military or paramilitary purposes, the recipient shall reimbursed the Bank for the total amount of
55
such payments or the costs of these goods. All amounts so refunded to the Bank shall be subsequently cancelled by the Bank. Procurement Arrangements 29. Procurement for the proposed operation under the Project will be carried out in accordance with the World Bank's "Guidelines: Procurement of Goods, Works and Nonconsulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers" published by the World Bank in January 2011 ("Procurement Guidelines"), in the case of goods, works and non-consulting services; and "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers" published by the World Bank in January 2011 ("Consultant Guidelines") in the case of consultants' services, and the provisions stipulated in the Legal Agreement. For each contract to be financed under the Credit/Grant, procurement methods or consultant selection methods, the estimated costs, prior review requirements, and time frame will be agreed between the Borrower and the Bank in the Procurement Plan (which is under preparation by the borrower and will be reviewed by the Bank prior to the negotiations of the Project). The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 30. All expected procurement of goods, works and consultants' services will be listed in the project's General Procurement Notice (GPN). Overall procurement arrangements with tentative amounts are given in Table 3.1. 31. Assessment of Agency's Capacity to Implement Procurement. The NEA has been preparing the cross-border transmission line project and has gained considerable knowledge of working according to the Bank's procurement rules. Continued engagement of these staff members with the Project will be pivotal in ensuring adequate procurement capacity of the NEA. The procurement function will be handled by the PCC established under the Project. The Bank will hold a procurement training session for procurement staff as soon all the relevant staff is recruited. 32. A procurement capacity assessment was carried out by the Bank procurement staff in December 2012. On the basis of this assessment, the overall procurement risk for the project has been rated "High", and the residual risk is "Substantial" after preparation and finalization of a checklist of procurement process and procurement plan and a procurement advisor/consultant is in place to support the project staff in procurement management. Detailed procurement assessment is available in project files. The report of procurement risk assessment for the Project including identified risks and suggested mitigation measures is available in the project files. 33. Procurement of Works. Most of the Project's works will be implemented using International Competitive Bidding (ICB) procedure. The works will be divided in several contracts. Some contracts will be awarded under National Competitive Bidding (NCB). The PCC will be responsible for evaluation of bids and recommendation of the award for major contracts. 34. The works contracts estimated to cost up to US$ 3,000,000 equivalent will be procured through NCB Procedures while contracts estimated to cost more than US$ 3,000,000 will be procured through ICB procedures. Minor works estimated to cost up to US$50,000 equivalent
56
per contract may be procured through shopping procedures. The PIU/PCC will validate the authenticity of the quotations provided by suppliers under this procedure. Force Account may be resorted to for procurement of small works, if rendered necessary by the absence of private contractors in the particular area due to various reasons, provided it satisfies the provisions of the Procurement Guidelines with the concurrence of Bank on an exceptional basis. 35. Procurement of Goods. Goods procured under this Project include: turbine parts, trash rack raking machines. ICB procedures will be followed for each Goods contract estimated to cost more than US$400,000 equivalent. Domestic Preference will be allowed to local manufacturers on ICB contracts. Goods estimated to cost up to US$400,000 per contract may be procured through NCB procedures acceptable to the Bank. Vehicles and small value off-the-shelf goods, etc. estimated to cost up to US$50,000 equivalent per contract may be procured following Shopping procedures in accordance with the Bank's procurement guidelines. Direct Contracting for procurement of items which satisfy the provisions of the Procurement Guildelines may be carried out with the concurrence of Bank on an exceptional basis. 36. Procurement of Consulting Services. Contracts with consulting firms will be procured in accordance with Quality and Cost Based Selection procedures or other methods given in Section II of the Consultants' Guidelines. For contracts with consulting firms estimated to cost less than US$100,000 equivalent per contract, the shortlist of consultants may comprise entirely of national consultants in accordance with the provisions of paragraphs 2.7 of the Consultant Guidelines. Other selection methods like Quality Based selection, Fixed Budget Selection, Selection based on Consultant Qualification, Least Cost Selection, Selection of Individual Consultants, and Selection through Sole Source can be considered with the concurrence of the Bank. 37. Incremental Operating Costs. The Project will support operational costs such as for O&M of vehicles, vehicle and office rentals, rentals for information technology (IT) services such as internet connection, utilities, and office consumables required for the day-to-day running of the PIU. 38. In order to ensure economy, efficiency, transparency and broad consistency with the provisions of Section 1 of the Procurement Guidelines, the following exceptions to local procedures shall apply in the case of National Competitive Bidding: * * *
bid documents shall be made available, by mail or in person, to all who are willing to pay the required fee; foreign bidders shall not be precluded from bidding and no preference of any kind shall be given to national bidders; bids shall be opened in public in one place, immediately after the deadline for submission
of bids; *
*
qualification criteria (in case pre-qualifications were not carried out) shall be stated in the bidding documents, and if a registration process is required, a foreign firm declared as the lowest evaluated bidder shall be given a reasonable opportunity of registering, without let or hindrance; evaluation of bids shall be made in strict adherence to the criteria disclosed in the bidding documents, in a format and specified period agreed with the Association and contracts shall be awarded to the lowest evaluated bidders; 57
*
*
re-bidding shall not be carried out without the prior concurrence of the Association; Extension of bid validity shall not be allowed without the prior concurrence of the Association (A) for the first request for extension if it is longer than four weeks and (B) for all subsequent requests for extension irrespective of the period; There shall not be any restrictions on the means of delivery of the bids.
39. Procurement Planning. The Procurement Plan for the key contracts for goods, works and consultants' services expected under the Project is under preparation by the PCC. Whenever possible, procurement of works, goods and services would be packaged into large packages to attract good contractors. Bidding documents for the first year's procurement have been prepared and submitted to the Bank. Procurement under the project will be carried out in accordance with the Procurement Plan. Procurement plans will be closely monitored and updated as required. No procurement, regardless of the value, will be done by the implementing agency unless it has been included in the procurement plan cleared by the Bank. Any change in the estimated cost of any contract will promptly be conveyed to the Bank for its clearance. No changes will be accepted after bidding documents have been made available to bidders. The Procurement Plan will also be available on the NEA's website (www.e-nea.org.np) and in the Bank's external website. 40. Prior Review. The Procurement Plan shall set forth those contracts which shall be subject to the Association's prior review. All other contracts shall be subject to Post Review by the Association. 41. Post Review. All other contracts will be subject to Post Review by the Bank. The PIU will send to the Bank a list of all contracts for Post Review on a quarterly basis. Post Reviews as well as implementation reviews would be done quarterly for the first 18 months or until the Credit disbursements reach US$5 million and there after bi-annually. Such review of contracts below threshold will constitute a sample of about 15-20 percent of the contracts. 42. Frequency of Procurement Supervision. Bank supervision would be carried out every six months and more frequently in the early stages of Project implementation.
58
Table 3.1 Procurement Arrangements Goods
Contract Description
1
2
ZW
3
4
5
6
7
1
Supply and delivery of turbine and generator spare parts with coolers,(KGAHPRP/G/DC-1)
Prior
2,360,974
DC
WB
2
Supply and delivery of turbine spare parts and repair of turbine. (KGAHPPRP/G/DC2)
Prior
2582048
DC
WB
3
Supply and delivery of turbine spare parts and repair of turbine. (KGAHPPRP/G/ICB-3)
Prior
ICB
WB
29-Jul-13
4
Supply, delivery and installation of trash rack cleaning machine. (KGAHPPRP/G/ICB-4)
Prior
977592
ICB
WB
29-Jul-13
5
Supply and delivery of spare parts for power house auxiliary system(KGAHPPRP/G/ICB-5)
Prior
2,314,478
ICB
WB
29-Jul-13
Prior
52500
ICB
WB
16-Jun-14
6
Supply and repair of control system with spare cards and modules(KGAHPPRP/G/ICB-6)
7
Supply and upgrading of the controllers and the system software (KGAHPPRP/G/ICB-7)
Prior
1,680,000
ICB
WB
16-Jun-14
8
Supply and delivery of spare parts as power supply cards(KGAHPPRP/G/ICB8)
prior
158,550
ICB
WB
16-Jun-14
9
Supply and delivery of real time sediment monitoring instrument for dam safety (KGAHPPRP/G/ICB-9)
prior
330,750
ICB
WB
16-Jun-14
10
Dam safety instrumentation with software modification, installation, repair and maintenance (KGAHPPRP/G/ICB-10)
prior
165,375
ICB
WB
16-Jun-14
59
Extension of siren warning system below )prior dam (KGAHPPRP/G/ICB- 11)
da1KAHPP1IC-
23,529
shopping
WB
16-Jun-14
12
Improvement in electricity supply at Setibeni (KGAHPPRP/G/ICB-12)
post
14,118
shopping
WB
16-Jun-14 1
13
Supply and delivery of boats to the Bote comnty(GHPR//JB1) community (KGAHPPRP/G/ICB-13)
post
32,941
shopping
WB
16-Jun-14
14
Supply and delivery of computers, laptops, printers, UPSs, furniture and other office equipment(KGAHPPRP/G/NCB-14)
Post
11,150
shopping
WB
24-Nov-13
Works
o
Contract Description
1
2
3
4
5
6
7
Slope stability in the reservoir area including the protection of landslide (KGAHPPRP/W/ICB-2)
prior
1,800,594
ICB
WB
19-Sep-14
Protection of right bank rock scouring beo3h am(GHPP//C-) below the dam (KGAHPPRP/W/NCB-3)
prior
720,000
NCB
GoN
19-Sep-14
4
Modifications of the tailrace area to stabilize cavitation (KGAHPPRP/W/NCB4)
prior
600,000
NCB
GoN
19-Sep-14
5
Construction of fish hatchery ponds and improvement of existing hatchery system (KGAHPPRP/W/NCB-5)
post
166,002
NCB
GoN
19-Sep-14
Intake modification work (curtain wall, 1
2
gate on ogee shaped weir, flow deflectors with desander lining with high strength concrete (KGAHPPRP/W/ICB-1)
60
Thermodynamic testing to determine the efficiency of turbine and monitoring (KGAHPPRP/W/NCB-6)
6
post
210,000
NCB
GoN
15-Oct-13
176,471
NCB
GoN
15-Oct-13
35,294
NCB
GoN
15-Oct-13
Removal and erection of the MIV work
APPPWNC-)post
7
8
Maintenance works atSetibeni Sheela (KAPR//C-)post (KGAHPPRP/W/NCB-8)
9
Bank protection at Rudrabeni temple and Setibeni market Area(KGAHPPRP/W/NCB-9)
post
58,824
NCB
GoN
15-Oct-13
10
Improvement of irrigation scheme and water supply in Beltari (KGAHPPRP/W/NCB-10)
post
35,294
NCB
GoN
15-Oct-13
37,647
NCB
GoN
15-Oct-13
post
941,000
NCB
GoN
15-Oct-13
Maintenance of Bote houses and primary scol11APRPWNBschool (KGAHPPRP/W/NCB- 11))post
12
Catchment area treatment plan of RPWNB1) aignai(GH Kaligandaki (KGAHPPRP/W/NCB-12)
Consulting Services
Description of Assignment
1
2
3
4
5
6
7
1
Consulting services (firm) for civil, mechanical and electrical upgrading works and dam safety (KGAHPPRP/S/QCBS-1)
Prior
1,003,540
QCBS
WB
11-Nov-13
2
Consulting services for asset management, support logistics, software and training (KGAHPPRP/S/QCBS-2)
Prior
892,035
QCBS
WB
11-Dec-13
3
Consulting services for integration with Enterprise Resource Planning (KGAHPPRP/S/QCBS-3)
Prior
463,644
QCBS
WB
11-Dec-13
61
4
Consulting services for training and visits for staff for capacity building (KGAHPPRP/NS/QCBS-4)
Prior
5
Hiring of experts (procurement/technical) (KGAHPPRP/S/IND/SSS-5)
Post
6
Hiring of expert to monitor the SAP and EMP (KGAHPPRP/S/SSS-6)
Post
11,765 11,765
3
4
5
6
7
200,000
NS
GON
TBD
22,353
NS
GON
TBD
300,000
111,504
QCBS
WB
11-Dec-13
IND/ SSS
WB
TBD
Non Consulting Services
Description of Goods or Works & Contract ID No.
1
2
1 1 Training and visiting to officers in abroad KAHPPri-1 (KGAHPPRP/NS-1)
3
Administrative cost of the project for monitoring and implementation of SAP and EMP (KGAHPPRP/NS-3)
or
prior
Environmental and Social (including safeguards) 43. The project carried out the social impact assessment in order to (a) review and identify any resettlement legacy issues from Kali Gandaki A; (b) review and identify any resettlement issues that may emerge from the proposed interventions; (c) carry out public consultations over their views, expectations and recommendations from the project; and (d) identify the vulnerable communities, carry out consultations, assess their support for the project and bring out their expectations and recommendations for the project. 44. The SIA did not identify any adverse social impact due to the proposed project other than dust and noise, pressure and disturbances on community infrastructure and resources due to influx of workforce during the construction period. However, SIA identified some outstanding issues as well as some that has emerged recently. The outstanding issues that need to be addressed include (a) release of 2 cumecs of water from the dam during the important cultural
62
and religious festivals as per the EIA provision to facilitate the people downstream of headwork to take 'holy bath' at Kali Gandaki River; (b) transfer of ownership of land and houses to the Bote families; (c) transfer of school land to school management; and (d) upgrading the siren warning system to cover at least up to 13 km dewatered stretch at Rudrabeni to warn and inform the people regarding the emergency and/or sudden release of water downstream of dam and associated risks during operation. Certain issues that emerged post implementation of social measures include (a) maintenance of Setibeni Saligram Sheela and (b) poor maintenance of Bote houses. 45. In order to address the outstanding issues as well as those which have emerged recently, project has prepared a Social Action Plan (SAP) including VCDP. The SAP aims to enhance the opportunities created by the project to improve the livelihood and condition of vulnerable communities as a result of project implementation. The SAP consists of a numbers of activities and is an integral part of the project which will be implemented in conjunction with VCDP and Gender Action Plan. Group Discussion, interviews and field based observation have been used to arrive at the community level activities to be taken up under SAP. 46. The SAP draws its plan and program based on the interaction and group discussion with the local people community leaders. There are large numbers of expectation of vulnerable people regarding the project as noticed during the field survey. The field observation and interaction revealed following major issues, concerns and expectations of the vulnerable community; * * * * *
Employment priority to the members of vulnerable community of the project area Implementation of income generating activities and skill training program. Renovation of houses Renovation of the school building Legal ownership of land
47. The SAP aims to enhance the opportunities created by the project to improve the livelihood and condition of these communities as a result of project implementation. Likewise, it also plans to address the major issues faced by Vulnerable Community. Thus, the SAP and VCDP proposed following measures to address their concerns and specific requirements. InfrastructureSupport The development of infrastructure is a prerequisite for overall development of any region or communities. In order to address the needs of the vulnerable community, infrastructure support in following area will have positive and effective result in enhancing socio-economic condition of the members of the Vulnerable Community as well as the local area: * Drinking water facilities; * School renovation; * Renovation of resettled houses Economic Support The VCDP propose following activities to support economic aspects of the vulnerable community:
63
* * * * *
Occupational training and initiation of income generation activities based on locally available resources; Capacity building program for NGO, VDC, DDC staff. Operation of a community boat transportation for Bote community Training for fishing in reservoir for Bote families Legal transfer of land ownership of houses and school
Other Community Demands * Protection work of Setibeni Sheela; * Bank protection at Rudrabeni Ram Temple; * Rural electrification * Construction of cremation platform * Drinking water facilities, irrigation and electricity facilities from the project; and * Extension of siren warning system to downstream areas 48. The SAP includes a Gender Action Plan which seeks to address the various genderrelated issues through a set of activities and programs. The implementation mechanism specifying the roles of different institutional players, the indicators for further assessment and the means of verification have been specified. To make the gender development plan a time-bound initiative, a time frame for implementation of each activity has also been specified. The Gender Action Plan has a specific budget NRs 0.3 million whereas other activities will also cover women specific expenses. Income generating program will be designed to ensure that women derive a reliable income by engaging in activities that are within their capacity, taking into account the availability of resources and the type of enterprises that they are already engaged in. Capacity enhancing assistance will be provided that improve the access of women to skills training for off-farm employment such as tailoring and weaving, small goods shops; marketing buying and selling local produce; processing of locally produced products. Social awareness campaigns and training opportunities will be organized to increase women's integration into social and economic mainstream. Project will strengthen Women's Community based and nongovernmental organizations by providing training and advisory supports once during construction period. 49. The implementation of SAP and VCDP will be the responsibility of Project Manager. The project manager will be assisted by ESSD. ESSD will set up an Environment and Social Management Unit (ESMU) at the project level. The ESMU will comprise of one Social Development Officer (SDO) with adequate experience of hydro projects. The SDO will be assisted by two social mobilizers. ESSD will hire these mobilizers from the locally qualified persons. One of the mobilizers will be woman. For day to day operations, the SDO will directly report to the Project Manager. The ESMU will be responsible for planning and designing of project information campaigns, group based and individual income generating activities, and community mobilization for implementation of SAP and VCDP. As and when required, ESMU will hire the services of local NGOs or firms for the implementation of project information campaigns, poverty alleviation and income-generation activities, especially the formation of selfhelp groups (SHGs).
64
50. At the project level a grievance redress mechanism will be established to allow community to appeal against any disagreeable decisions, practices and activities; technical and general project-related disputes. The community will be made fully aware of their rights and the procedures for doing so verbally and in writing during project information campaign and consultations. Grievance Redress Committee will be formed much in advance in order to address the grievances of aggrieved community member. Prior to approaching Grievance Redress Committee, complaints of the community member on any aspect of the project shall in first instance be settled in written form in field based project office. The complaint can be discussed in an informal meeting with the community member by the Social Development Officer and Social Mobilizers of ESMU and representative of the Project Manager to settle the issues at the local level. The community consultation may also facilitate the process in this regard. All the grievances will be reviewed and the GR Committee will assist in settling the disputes to the complaining party within two weeks of receipt of the complaint. Any complaining party can exercise its constitutional right to approach the court of law at any time if he/she chooses to do so. 51. The borrower carried out the Environmental Assessment (EA) of the proposed Rehabilitation Project, which is located within the territory of the original Kali Gandaki 'A' HEP and lies outside any national parks and conservation areas. The rehabilitation works will not require new additional ancillary facilities such as access roads, engineer's camps, construction camps, transmission lines and construction power. The proposed rehabilitation project will not: (a) change the dam height, (b) increase the water level in the upstream reservoir, and (c) reduce the minimum water release that was established during the original project. Hence no new impact on forests, natural habitat, and land-use is expected from the proposed rehabilitation works. The existing facilities of the original project will be utilized for the construction camps and waste/spoil management. 52. The EA identified environmental impacts and suggested mitigation measures in three broad categories, namely: (a) key Outstanding environmental issues from the original project, (b) newly emerged environmental issues in the area of the existing project, and (c) potential impacts of the proposed rehabilitation project. 53. Outstanding environmental issues identified are (a) insufficient environmental flow (monitoring) and additional flow for religious purposes, (b) landscape restoration at former contractor camp and disposal site of the original Kali Gandaki construction, (c) Continued support for the fish hatchery and fish trapping and hauling program, and (d) strengthening of the existing siren warning systems. The newly emerged environmental issues identified are: (a) sedimentation impacts and water levels at Setibeni, (b) landslide on the existing access road to dam, (c) catchment area watershed management, and (d) water boat transportation safety and pollution. The environmental impacts of the proposed rehabilitation project works identified are: (a) temporary increase in flow release below the dam during construction, (b) improper waste disposal and (c) potential air and noise pollution. The EA has identified measures to mitigate these impacts. 54. The proposed rehabilitation project's EA contains an EMP and monitoring mechanism to ensure that the recommended environmental mitigation measures are implemented. Mitigation approach include: implementation of EA recommended mitigation measures, liaison with local community as well as local and central government agencies, coordination, and environmental 65
monitoring & reporting. Kali Gandaki Project will have direct overall responsibility for the implementation; management and monitoring of environmental safeguard measures. An Environmental and Social Management Unit (ESMU) will be established within the rehabilitation project site office under the supervision of the ESSD of the NEA for the construction phase monitoring of the proposed rehabilitation project. Internal monitoring will be done by the ESSD and the ESMU. The ESMU will be monitoring and recording data/information on regular basis, and prepare monthly brief on the environmental status, performance and compliance, which will be discussed during monthly review. Any matter that needs urgent attention will be reported by ESMU to the proposed rehabilitation project, the NEA and the ESSD immediately. The ESSD will prepare internal reports quarterly (three-monthly) during the entire period of Kali Gandaki rehabilitation project. The report will be submitted to proposed rehabilitation project office and to the World Bank as well as will be shared with the concerned GoN line agencies at central and local level. The ESSD will prepare a detailed monitoring plan prior to start of the implementation in agreement with the Project. The NEA will engage an independent agency for external monitoring and evaluation, which will be done twice during the implementation of the rehabilitation project: first at the mid-term, providing input to the mid-term review and second at the end of the project completion. 55. Environmental Safeguards under CERC. The CERC may have certain environmental issues associated with activities that may be financed under the component, should it be triggered. As a condition for disbursement under the CERC, the CERC Implementing Agency will carry out a screening of activities for any potential environmental impacts. Furthermore, any safeguards instruments required under the Environmental and Social Screening and Assessment Framework will be prepared, submitted to the Bank for review and approval, and thereafter adopted and locally disclosed by the CERC Implementing Agency prior to disbursements under the CERC. Should this screening require a modification of the Environmental Assessment categorization of the Project and / or the triggering of any of the Bank's safeguards policies, a restructuring will be carried out to record these changes and make applicable the attendant requirements. 56. Social issues under CERC. As a condition for disbursement under the CERC, the CERC Implementing Agency will carry out a screening of the activities included in the CER Implementation Plan for any potential social impacts. Furthermore, any safeguards instruments required under the Environmental and Social Screening and Assessment Framework will be prepared, submitted to the Bank for review and approval, and thereafter adopted and locally disclosed by the CERC Implementing Agency prior to disbursements under the CERC. Should this screening require a modification of the Environmental Assessment categorization of the Project and / or the triggering of any of the Bank's safeguards policies, a restructuring will be carried out to record these changes and make applicable the attendant requirements. Social and Environmental Management Costs 57. The total estimated social and environmental management cost for the proposed project is approximately US$ 0.5 million.
66
Table 3.2: Details of Social Implementation Costs S. No.
Measures
US$
1
Extension of siren warning system & operation for five years
23,529
2
Maintenance works at Setibeni Sheela
35,294
3
Bank protection at Rudrabeni temple and Setibeni Bazar
58,824
4
Improvement of irrigation scheme and water supply in Beltari
35,294
5
Improved electricity supply at Setibeni Bazaar
14,118
6
Consulting Services for third party monitoring and evaluation of both EMP and SAP
13,529
7
Livelihood support for Bote
5,882
Sub Total (A) 8
Maintenance of resettled Bote houses
186,470 25,882
9
Maintenance of Bote primary school
11,765
10
Administrative cost of transfer of land to Bote families and School
11
Support for affected Bote for operation of a community Boat transportation and fishing nets for fishing in reservoir
32,941
Sub Total (B)
76,470
12
5,882
SHG formation for women headed households and other women
3,529
Subtotal (C)
3,529
13
Staff cost of implementation agency (ESSD / NGO)
23,529
14
Office and field equipment/ furniture
17,647
15
Training program for capacity building of implementing agency and line departments
16
Vehicles, travel and Per Diem
11,765
Subtotal (D)
55,294
Total A + B + C+D
2,353
321,763
Table 3.3: Details of Environmental Implementation Costs S. No.
Measures
US$
1
Construction of three ponds
78,529
2
Fencing for existing system
7,271
3
Improvement of inlet/outlet cannel
26,435
4
Installation of Rapid Sand Filter
25,883
5
Improvement of lab facility
1,412
6
Assessment of the safety and pollution risks from the steamer boat
5,883
7
Information dissemination to the downstream riverline communities
4,706
8
Placing hoarding boards in the critical locations
4,118
9
Cost for institutional arrangement
11,765
Total
166,002
67
Table 3.4: Total of Safeguards Implementation Costs US$ 1
Social Implementation Costs
321,763
2
Environmental Implementation Costs
166,002
TOTAL
487,765
Monitoring & Evaluation 58. Monitoring exercise will be undertaken internally in the project. The Social Development Officer of ESMU will carry out on a monthly basis the project's internal monitoring. An independent external agency will be appointed for the evaluation of the implementation of the Environmental Management Plan and the Social Action Plan. The external agency will conduct midterm and end term evaluation of the project implementation. 59. Internal Monitoring. The social development officer of ESMU will carry out regular monitoring. The internal monitoring will cover physical factors such as, number of works done, number of person benefited, and infrastructure facilities provided, etc. and other financial aspects, such as amount spent on infrastructure, expenditure on social cell, training, income generation process, and grievance mechanism. The internal monitoring must be simultaneously carried out with the implementation of the SAP and VCDP. 60. External Evaluation. After the midterm and at the end of implementation, an independent agency will conduct an evaluation study to determine whether or not the objectives of the project in terms of generation of incomes, benefit accrued, infrastructure created and maintained and improved living standards of the community have been achieved. The methodology for the evaluation study should be based on the follow-up socio-economic survey to determine the impact of the project on income levels and living standards of the community. Social and economic assessments of the results of delivered entitlements and a measurement of the income and standards of living of the community before and after the project implementation are integral components of this activity. Should the findings of the study indicate that the objectives of the project have not been achieved; the consultant should propose appropriate additional assistance that may be necessary to achieve the stated objectives.
68
Annex 4: Operational Risk Assessment Framework (ORAF) NEPAL: Kali Gandaki A Hydropower Plant Rehabilitation Project Stage: Negotiations
1. Project Stakeholder Risks Description: 1. The original designers carefully chose the dam height and the operating level of Kali Gandaki A to ensure that the water levels did not inundate the religious "Holy Stone" and the Setibeni Market at the end of the backwater zone, some 5.5 km upstream of the dam site. Any changes now
Rating Moderate Risk Management: 1. The impacts of the rehabilitation works on Setibeni Bazaar and the Holy Stone was carefully assessed by both technical and safeguards teams. Results from the numerical hydraulic modeling using HEC RAS advised not to raise the water level as this would increase the chances of flooding in Setibeni, primarily due to sediment accumulation in the riverbed in the Setibeni area.
to the operating level of the reservoir have to be studied carefully so that
Consultations with the local communities were carried out during the project preparation process to
it does not have negative impacts on Setibeni. 2. Some form of resistance may arise from the Government or some political parties if the project entails shutting down the power plant for extended period of time, requires too much public financial participation or increased allocation of the country's IDA resources. 3. Timeline for supply of equipment from the Original Equipment Manufacturer is critical to the project as manufacturing takes at least 1215 months. Kali Gandaki may not be a priority for the Original Equipment Manufacturer. Additionally, the contract needs to be signed before financing is secured. Price negotiations, contracts and timely delivery of quality equipment will require some degree of flexibility by the original equipment manufacturer. 4. As the Kali Gandaki plant supplies 25 percent of the load in Nepal, the LDC in Kathmandu has been traditionally resisting any shutdowns from Kali Gandaki. This has been in contradiction with flushing of the reservoir that requires about 3 days of shutdown. Flushing is required to maintain the active storage of the reservoir, one of the key long term sustainability of the project. Unless there are more power generators in the country, it will be difficult to shutdown Kali Gandaki A for
provide them with the findings of the assessment and their concerns have been documented and addressed. Resp: Client Stage: Preparation and Due Date: June Status: In Progress Implementation (Both) 2. The Government is supportive of the project since Kali Gandaki A is an essential asset for the country, providing 25 percent of the country's generation. Every year, the Government has been allocating budget for O&M and will continue to do so. Resp: Client Stage: Implementation Due Date Status: In Progress Risk Management: 3. The NBA has been holding talks with the OEM to ensure they understand the timeline and the national importance of the project. Nepal is seen as a good market for hydro equipment manufacturers so the OEM may consider NEA's request for earlier delivery. The relatively small size of the project allows the OEM to have sufficient comfort that the Government could honor it and the World Bank would provide retro-active financing of the upfront payment at signing. Resp: Client Stage: Implementation Due Date : 2016 Status: In Progress Management: sdnRisk 4. It is hoped that generation will increase in the future through the construction of both hydro & diesel plants. The planned Nepal India cross-border transmission lines will also help in increasing
69
maintenance purposes. Four shutdowns of ten days durations is envisaged but the timing will be coordinated with the LDC, based on the energy situation of the country. 5. Cooperation with ADB is necessary to make sure that the potential legacy issues from the original project are well identified and communicated. 6. The NEA commissioned a consultant in Kathmandu to test the modifications in a physical model. The final design will be approved by NEA Engineers and the Consultant. There may be some difference of opinion between these parties.
power supply in the count. Once this happens, the LDC will be in a better position to cooperate on improving the operations of Kali Gandaki A. The team will also work closely with NBA Generation Department to discuss these issues with the LDC and the MoB officials. Resp: Client Stage: Implementation Due Date Status: In Progress Risk Management: 5. The World Bank team has informed senior ADB officials about the legacy issues and future
Resp: Bank Stage: Preparation Risk Management:
D
aeM
Status: Completed
6. The team shall ensure proper communication and discussions between NBA, Consultant and Hydrolab to ensure that the most appropriate design is selected. Resp: Clit Stage: Preparation and Due Date: Status: In Progress Res: Bth Implementation (Both) 2015
3.1.
Capacity
Rating:
Substantial
T
StatsnPors
Description : 1. The NBA is managed professionally. However, the utility has been
Risk Management: 1. The project is largely an intervention within the technical capacity of the NBA and the NBA
facing significant challenges, mainly due its financial situation. This has created severe capacity constraints and delays in operational delivery, timely financial management issues, etc. There are several generation, transmission and access projects in preparation. The NBA needs to
remains competent and committed. Capacity-building is a strong component incorporated into the project design. Hiring of international consultants and contractors in the project will help ensure quality delivery. On-going Bank-funded projects further build the NBA's capacity in procurement, safeguard, FM, contract management and monitoring and evaluation.
enhance its management capacity to face its growing operation and maintenance challenges. 2. The NBA's capacity in project management, FM, and procurement needs to be improved. The protracted decision-making process could delay implementation
Resp: Client Stage: Implementation Due Date: Status: In Progress Risk Management: 2. The project team will coordinate with other Bank-ftnded projects to monitor the outcome of the TA and capacity-building support to streamline and implement best practices in the NBA's operations. The ongoing support under the PDP & NIBTTP on institutional development and
3. Coordination and capacity issues within the NBA increase risks of delays in the implementation of the project. 4. Unions are very active and influential in the NBA. Strikes are common and the political uncertainty in the country fuels union activism. Delays
capacity building-FM, procurement, and safeguard--will continue. Through the assessment of the NBA's implementation capacity to be carried out during the project preparation, specific risks related to procurement and FM have been identified and mitigation measures agreed on with the Borrower will be implemented.
5. The NEA is missing some of the technical branches necessary for the project, including sediment management or turbine engineering. 6. The sEves Generation Department needs to be strengthened by appointing senior staff at power plants; trainings in asset management, operations and maintenance; and dedicated sediment management staff
Resp: Both Stage:ImpleResp:aBoth Status: In Progress Due Date: B Risk Management: 3. Additional external consultants will be hired to increase project staff as needed in order to deliver efficiently. Project staff and other stakeholders will receive capacity-building trainings in various areas of project management including procurement, contracts, bids, fiduciary
These measures are challenging to implement given the fast staff rotation. Operation management staff at site is technically solid but generally young and received fast promotions. Staff is also under-trained in using
management, etc. Senior Bnergy Specialist based in the count office will liaise with the counterparts and the client on a regular basis. Due Date: Status: In Progress Resp: Both IStage: Implementation
the measurement control system to guide operations.
Risk Management: 4. The NBA management maintains close relationship with unions and both staff and management are aware of the importance of this project for the country. Further communication with the staff and union representatives about the project might be needed to ensure support of the unions to the success of the project.
and disruption might happen.
70
Resp: Client
Stage: Implementation
Due Date:
Status: In Progress
Risk Management: 5. The World Bank has been assisting the NEA on the technical side, bringing international experts to advise them on the best practices. Stage: Preparation and Due Date: June Imlmnain(oh 07Status: In Progress Implementation (Both) 2017 Risk Management: 6. The World Bank team will raise awareness of the senior management of the NEA on the importance of these actions, and ask them to commit to increase the managerial experience of the team. Appropriate technical trainings will be provided under this project. Resp: Stage: Preparation and Due Date Du ae: Satus: In Progress Both Implementation (Both) Rating: Substantial Risk Management: The World Bank will maintain close relationship with the NBA's management to ensure good coordination and raise awareness about important issues to be decided on. The Implementation arrangement includes a Steering Committee (including one Board member) to streamline the project decision process. Due Date: May 2013 Risk Management: The counterpart financing details have been carefully discussed with MoB and MoF. The proposed counterpart financing of about 6 percent of US$30 Million seems to be more manageable during the uncertain times in Nepal when the national budget is being debated.
Resp:
3.2. Governance Description : 1. The NEA's Governance is weakened by political interference, the political uncertainty in the country that can trigger conflicts within the NEA. In this situation, the Board is strongly involved in the management decisions which can delay or block important decisions and reduce the NEA's capacity to act independently. 2. Political uncertainty, including upcoming elections and constitutional process may increase political interference and delay decisions and funding allocation. Other Bank funded projects are struggling with counterpart funding.
Both
Resp: Both Resp: Client
Stage: Preparation
Due Date : May
Status: In Progress
Stage: Preparation and
Due Date
Status: In Progress
2013
Implementation (Both) 4. Project Risks 4.1. Design
Rating:
Description :
Risk Management:
Moderate
1. Since the plant has been operating for some time, project design is
1. Design and construction for both civil and electro-mechanical works will be implemented
challenging. The NBA Staff will need to be confident in the proposed
though international firms procured competitively. The headworks modification concept will be
modifications of the plant. Consultants might come up with a different
tested in a hydraulic laboratory and verified by an independent party. The design will be done by an
solution and the NBA management may take time to decide which could delay the project. 2. The proposed rehabilitation may interrupt generation of the plant and have major impacts to the electricity supply in Nepal since the project provides nearly 25 percent of the country's total annual electricity supply.
international firm for quality purposes. Sediment management will be driven by laser guided realtime sediment monitoring systems to assist in the design and operation of the projects. Resp: Client Stage: Implementation 2 Status: In Progress
3. The implementation window is short and if missed, the NBA will have to wait one year until the next dry season which raises safety risks and
2. The repair works of the equipment and the civil works to modify the head works will be programmed in accordance with planned outages, at winter time when some of the units have to be
increases costs. 4. Risks of landslide into the reservoir area were recently identified. Such event could damage the assets and results of the technical assessment
shut down due to limited water flow. Therefore disruption of the power supply by Kali Gandaki A will be avoided or minimized. Safety margin on time needed for unexpected issues during the repairs and modification works will be included when scheduling the rehabilitation program, and
Risk Management:
71
might change the scope of the project. 5.Some element of uncertain always remain regarding the generation and efficiency improvements that the modifications may yield: the severity of sediment conditions remain difficult to manage and real-time sediment monitoring might entail more shutdown time than the current baseline since knowledge on sediment conditions will be improved.
will be reviewed by NEA's dispatch and electricity supply departments. A spare runner will be procured to prevent interruption of power generation caused by extended time for repairs. Due Date: June 2017 Risk Management: 3. Close supervision of the project by consultants will be necessary to make sure that the timeline is kept closely. Status: Not Yet Due Date Stage: Implementation Resp: Client
Due
Risk Management: 4. The World Bank provided technical assistance recruiting an international consultant to assess the risks and necessary measures to stabilize the slope and minimize the risks to the assets. Resp: Bank
Stage: Preparation
Due Date: May
Status: Completed
Risk Management: 5. Extensive research was conducted and will be reviewed by the NEA's engineers to ensure the appropriateness of the modifications. Resp: Client
4.2. Social & Environmental Description : The Project is a category "B" project. The project is not expected to have any significant environmental impacts (biodiversity, forests, soil erosion, etc.) in the reservoir area. The project has certain outstanding issues such as reinstatement of waste disposal and camp sites, transfer of land ownership to resettled Bote families; lack of water in the river during cremation and religious occasions and construction of cremation site. . Further, the inhabitants of Setibeni Bazaar have concerns about the way the plant is operated and its effect on water levels, particularly regarding the submergence of the holy stone at Setibeni because of flood waters. 4.3. Program & Donor Description : There are no donors involved in this project. 4.4. Delivery Monitoring & Sustainability Description : 1. Factors external to the project challenge the sustainability of the project and include: severity of sediment conditions which will continue climate change that can deteriorate the operating conditions. 2. Lack of cooperation with the LDC is a risk to the sustainability of the project: implementation of better operation practices is key to the sustainability of the project and depends on changing the approach to the trade between more generation and revenues versus more load-shedding and better safety of the assets. 3. New plans might not be implemented and budget constraint can reduce
Stg:PeaainadDue Date : Status: In Progress Implementation (Both) Rating: Moderate Risk Management: An assessment was carried out to examine possible social environmental impacts under the proposed project. Implementation of the social and environment programs completed under the old Kali Gandaki A project have been reviewed to identify the outstanding social and environmental issues. Necessary mitigation measures and community support program has been designed and will be implemented under this project. The implementation will be monitored and periodically evaluated. Implementation risks of such interventions are considered to be low. Consultations with various stakeholders will be carried out during the project preparation and implementation. Stage: Preparation and Due Date Resp: Client Implementation (Both) Rating: N/A Risk Management: Resp:
Stage:
Rating: Substantial Risk Management: 1. The project was designed to go beyond replacing and repairing equipment, and to improve the sedimentation before the water enters the system. Extensive modeling in laboratory was done for that purpose, informed by 10 years of operation and data collected. Some element of uncertainty will remain though and adjustment during operations will be necessary. Due Date: June R C 2017 Risk Management: 2. The NEA's cross-border transmission project financed by the World Bank and other generation project should help reduce pressure to generate on Kali Gandaki A and offer more room for better
72
the capacity to implement them. 4. Fast rotation of the staff within NEA reduces the institutional retention of operational experience and knowledge and can challenge monitoring
and sustainability. 5. If
n
elya
threatens the sustainability of the project in the long term,
operations. Resp: Client Stage: Implementation Risk Management:
Rs
Due Date:
Status: In Progress
aaeet
3. Trainings will be provided under this project and the World Bank team will communicate with the NEA senior management and the MOE on the importance of implementation measures. Resp: Both Stage: Implementation Due Date: Status: In Progress Risk Management: 4. The World Bank team will ask the NEA's management to commit to a stable project and operation team. The project will include setting up an asset management database to centralize and retain information. The NEA is also developing and implementing with Deloitte and Enterprise Resource Planning system that will be extended to the operations and will help retain information. Kali Gandaki A could be a pilot project on the operation side.
Due Date :June Resp: Client
Stage: Implementation
2017
Status: In Progress
Risk Management: 5. The project will conduct a study on sediment accumulation in the reservoir to identify the appropriate measures to be taken by NEA. Resp: Both
73
Stage: Implementation
Due Date:
atus: Not Yet
Due
Annex 5: Implementation Support Plan NEPAL: Kali Gandaki A Hydropower Plant Rehabilitation Project Strategy and Approach for Implementation Support 1. The strategy for implementation support (IS) has been developed based on the nature of the proposed Project. It would aim at making the support to the client for implementation more flexible and efficient and focus on the implementation of the risk mitigation measures as defined in the ORAF. * Procurement: There are four large ICB contracts, three electro mechanical and one civil works packages and one Direct Contract and other smaller packages. The Bank team has been providing and will continue to provide implementation support through: (a) technical, management and procurement expertise; (b) training to members of the PIU; (b) reviewing procurement documents and providing timely feedback to the procurement committee; (c) providing detailed guidance on the Bank's procurement guidelines to the PIU; and (d) monitoring procurement progress against the detailed procurement plan developed by the NEA. * Financial Management: Supervision will review the Project's financial management system, including but not limited to accounting, reporting and internal controls. Supervision will also cover contracts on a random sample basis. * Environmental and Social Safeguards: The Bank Team will supervise and provide support to the NEA for the implementation of the agreed EMP, SAP and VCDP. * Governance and Peace Action Plan: The Bank Team will supervise and help in the implementation of the agreed procurement and GAP. * Technical Aspects: The Bank Loan will bring in specialists as and when needed in fields of electro mechanical engineering, geotechnical engineering, sediment management, dam safety, procurement and contracts management. Implementation Support Plan 2. Some of the Bank Team members are based in the Country office, some in Washington and others in country offices in the region to ensure timely, efficient and effective implementation support to the client. Timely monitoring and support to the NEA would be mainly provided by the team members in the country offices of the region, especially for the first 18 months. Formal supervision and field trips would be carried out semi-annually or as often as needed for smooth implementation of the Project. 3.
Detailed inputs from the Bank Team are outlined below: * Technical inputs. Geotechnical, sediments and electro-mechanical equipment expertise is required to review bidding documents to ensure fair competition through
74
proper technical specifications in the bidding documents and fair assessment of the technical aspects of the bids. The Bank Team would contract individual consultants for these skills. Specialist and high level procurement skills are required for review of the major works contracts as well as the two consulting services and Consultant. During construction and commissioning, technical supervision is required to ensure contractual obligations are met on technical grounds. Field visits by the team's geotechnical, sediments and electro-mechanical engineer would be conducted on a semi-annual basis throughout Project implementation. * Fiduciary requirements and inputs. The Bank's Financial Management and Procurement specialist will provide training to the NEA. An international Procurement Advisor has been recruited by the NEA to advise on procurement matter. The team would also help the NEA identify capacity building needs to strengthen its financial management capacity and to improve procurement management efficiency. Both financial management and procurement specialists would be based in the Country office to provide timely support. Formal supervision of financial management would be carried out semi-annually, while procurement supervision would be carried out on a timely basis as required by the client. * Safeguards. Inputs from an environmental and a social specialist are required, though the Project's social and environmental impacts are limited and the client capacity is generally adequate through ESSD. Training is required on environmental monitoring and reporting. On the social side, supervision would focus on the implementation of the agreed SAP. Field visits are required on a semi-annual basis. Both social and environmental specialists are Country office based supported by seniors in HQ. 4.
The main focus of implementation support is summarized below: Time First Year of the Project Or 18 months
Focus Technical review, procurement review, site review, bidding documents Procurement training, FM training SAP/VCDP implementation Environmental supervision Institutional and capacity building of the NEA, Financial and strategies issues. Hydro-power generation
Resource Estimate Hydropower, hydraulic structures (with Procurement exp.) Electro-mechanical Engineer (with Procurement expertise.) Procurement Specialist Procurement and FM Specialists
Staff Weeks 4
Social Specialist
2
Environmental Specialist
3
Institutional Specialist Financial Specialist
4 4
Hydropower specialist
3
system Sediment Management
3 6-7 5
3
75
Time
Remainder of the Project SWs per year
*
Focus Specialist Team Leader Project construction
Environmental and social monitoring Financial Management, disbursement and reporting Institutional arrangements, capacity building of NEA Task leadership
Resource Estimate
Staff Weeks
Team Leader Dam, hydraulic structures Engineer Electro-mechanical Engineer Procurement and Contract management Environmental Specialist Social Specialist FM Specialist, Disbursement Specialist
8 4 3 4
Institutional Specialist
3
Team Leader
8
2 2 4
The staff skills mix required is summarized below Number of Staff Weeks
Skills Needed
Number of Trips
Comments
Fields trips as required. Field trips as required
International
Fields trips as required.
Country office based
Procurement Specialist
5/8 SWs annually 4 SWs annually
Social Specialist
2 SWs annually
Fields trips as required.
Country office based
Environmental Specialist
2 SWs annually
Country office based
Financial Management Specialist
3 SWs annually
Fields trips as required. Fields trips as required.
Dam Safety
4 SWs annually
Electro-mechanical Engineer
3 SWs annually
Procurement Specialist
Institutional Specialist
Task Team Leader
.Field
4 SWs annually
8 SWs annually
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International
International
trips as
ried required Fields trips as
rqie
required
Country office based
Intemnational Intemational/Country ae based
Annex 6: Governance and Peace (GAP) Action Plan NEPAL: Kali Gandaki A Hydropower Plant Rehabilitation Project I.
Introduction
1. The project preparation team has developed the GAP to address critical operational concerns related to the management and implementation of the Kali Gandaki A Hydropower Plan Rehabilitation Project. The GAP Action Plan seeks to ensure good governance, conflictsensitivity, transparency and accountability, and inclusion in the management of project activities. The Action Plan is based on Nepal's existing governance and policy framework, and elements of World Bank's social, governance and access to information policies have also been incorporated into this document. Further, the Action Plan is also informed by the governance and peace workshop, social assessments, that are conducted during project preparation, as well as lessons learned from other Bank-funded projects in Nepal and elsewhere. The GAP Action Plan will be a living document and will be strengthened, as necessary, based on lessons learned during the implementation of the project. II.
Key governance issues
Institutionalarrangements 2. The NEA will be the main agency responsible for the overall implementation of the project. NEA often experiences considerable institutional hurdles. Often the organization is run by an acting Managing Director with limited delegation of power from the Board of Directors. As a result, important decisions remain pending until the next Board meeting which does not meet frequently and is also susceptible to political interferences. This state of affairs will demand significant efforts at field supervision, a strong Project Coordinator on the NEA side, and multisector teams comprising technical, safeguards and fiduciary experts. Similarly, capacity enhancement of the PSC, the PIU and other key units such as the Procurement and Contract Management Unit, Project Administration and Financial Management Unit, Safeguards Monitoring Unit, Monitoring and Evaluation (M&E) Unit, and the Public Relations and Communications Unit will have to be emphasized. Transparencyand accountability 3. With the enactment of the Right to Information Act in 2007, government agencies in Nepal are required to disclose information on their businesses except for pre-defined 'sensitive' transactions. Thus far, the enforcement of the Act has remained weak, which is perhaps reflected in the growing number of complaints filed with the Information Commission formed under RTI. There are three basic challenges: (a) public officials tend to be too cautious in disclosing information within their jurisdiction (an RTI-inconsistent attitude), (b) there are skills gaps in terms of handling information, and (c) logistical problems (such as physical facilities) stand in the way of effective management of information. These challenges need to be addressed to improve enforcement. Improved transparency is also needed for the project to be consistent with the World Bank's recently adopted access to information policy.
77
4. Despite the GoN's intention to promote Managing for Development Results (MfDR) across the board, many agencies are struggling to put this into effect. Defining "results" has been a challenging task; agreeing on time-bound indicators for them has also been a difficulty. This limits the effectiveness of whatever monitoring arrangements are in place. Conflict and peace-building 5. The current transition to peace and democracy in Nepal has been marked by political instability and frequent changes of government. As a result, decisions on development policies and programs are likely to be delayed while major reforms are unlikely. Physical insecurity in different parts of the country together with localized, regional and nation-wide shutdowns/strikes (known as bandhs), is likely to hamper the timely preparation and implementation of the project. Further, at the local level, project activities are likely to attract the attention of stakeholders promoting peace or aggravating conflict depending upon how implementation processes are defined. Despite these political hurdles, in the energy sector at least, the four different governments over the last two years, including the presiding one, have reiterated their support to the development of hydro-sector thus improving the prospects for a smooth implementation of the project, at least at the central level. Gender and social inclusion 6. The project is expected to contribute to inclusive economic growth and human development by rehabilitating the Kali Gandaki A Hydropower Plant. In particular, it is expected that industries and households will benefit from the secure electricity delivered through the proposed project and hence promote growth and development. 7. The Project can nevertheless invite localized conflict which may create hindrance for the project. These conflicts could take the form of: increased expectations from the locals for employment and business opportunities; tensions arising from intrusion of outsiders in the community; local demands for additional benefits from the project; and outstanding legacy issues from the past in the form of land/resettlement, religious/cultural environment and Indigenous People. To ensure that the local communities, including the poor and marginalized groups realize the expected benefits from the project, it is essential they receive appropriate information about the project and are able to act upon it. III.
Objectives of GAP Action Plan
8. The objective(s) of the GAP Action Plan is to contribute towards strengthening governance, peace and social cohesion in NAFSP activities. It will achieve these objectives by helping: *
Ensure that resources allocated by the GoN and the Bank are spent for the intended purposes and directed to the beneficiaries of the project;
*
Develop mitigation measures accountability, and inclusion;
to
address
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risks related
to conflict,
governance,
IV.
*
Strengthen coordination between different GoN agencies and other stakeholders; and
*
Improve feedback mechanisms between beneficiaries and service providers. Scope
9. Several areas for governance improvement have been identified: political environment, organizational arrangements, inclusion, monitoring, and accountability arrangements. The GAP Action Plan proposes actions for each of these issues, timeline for each action, and responsible agency for implementation. There are also some 'early warning indicators' which, if monitored properly, would enable timely actions for course correction. V.
Monitoring arrangements
10. The GAP Action Plan will be monitored regularly against agreed actions which will be reflected in the project's periodical progress reports and aide-memoires. The PIU will include dedicated personnel for M&E, with an administration officer from the LPPOM in charge of this activity. The PCC will submit quarterly reports which will cover the progress on GAP Action Plan. Similarly, the PCC with inputs from the PIU will also prepare annual reports which will include (a) progress on key performance indicators and actions agreed in the GAP and results framework indicators and other project relevant information; and, (b) the Annual Work Plan for implementation including, planned actions for mitigating negative effects during construction, and target indicators for the coming year. 11. If any irregularities or action is triggered, the PIU will initiate enhanced supervision through specific third-party audits, reviews by sector experts, training workshops, and joint interim missions with the Bank. If the investigation confirms corrupt, fraudulent or collusive practices at any stage of the project, appropriate sanctions will be applied depending on the nature of the case. 12. The key person in charge of this GAP will be the General Manager, Generation Operation and Maintenance. This action plan will also be monitored as part of the implementation support missions.
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Governance and Peace (GAP) Framework Issues
Focus areas
Actions
Responsible agency
Timeline
Institutional arrangements Capacity building of implementing agencies
Enhancing the effectiveness of PCC and PIU
*
*
Improving institutional capacity of NEA
*
*
*
The PSC will meet every three months to review project performance and provide policy guidelines on project activities. NEA will prepare a plan for institutional strengthening covering aspects of: staffing capacity and skills, work processes, monitoring, and communications. Training needs assessments will be carried out to work out a staff development plan. Relevant provisions of Administration Regulations of NEA will be enforced to retain project staff and use their skills acquired through training and observation. At least 75 percent of all staff positions in the project will remain occupied at any given point in time.ing
Pee NEA
NEA
I" meeting within 1 month of effectiveness Within 18 months' 6 months after effectiveness 6 months after effectiveness
NEA 6 months after effectiveness NEA
3 months of effectiveness Transparency and accountability Access to Improving people's access to information information about project activities
*
*
All project information will be available on project website. Other media, including newspapers and electronic media, will also publicize project information. Right to information -consistency of
PCC
project operations will be assessed every
PJU
As far as possible, within 3 months after the end of the fiscal year.
80
PCC/PIU
3 months, regular updating e 3 months, ongoing 6 months for finalization and
Early warning indicators
Issues
Actions
Focus areas
Responsible agency
Timeline
Early warning indicators
* * Effective Project Monitoring
Establishing a robust monitoring mechanism to monitor progress
Conflict and Peace building Conflict/Peace Exclusion of locals from sensitivity reaping project benefits
*
*
Conflict between locals and outsiders over intrusion by the outsiders
*
*
* Emergence of legacy issues related to Kali Gandaki A
*
six months. An Information Officer will be designated to facilitate public's access to information Monitoring and Evaluation Unit will monitor the activities of the Project and evaluate the achievement of Project Development Objectives, Results Framework and Implementation Progress.
Information dissemination strategy will developed, especially to inform the locals about the project Eligible locals will be given preference for employment opportunity and this will be reflected in the bidding documents Effective communications strategy will be developed to mitigate localized risks SIA and EIA will be undertaken to assess outstanding issues from Kali Gandaki A during project preparation. Mitigation measures will be developed based on the findings of the assessment A grievance handling system with tracking system will be put in place for actions on public grievances/suggestions, and also timely corrective actions, if required.
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PIU
PIU
PIU
PIU
PIu
PIU, ESSD
1 year for implementation Every 6 months Within 6 months of effectiveness Within 3 months of effectiveness Ongoing
Within 6 months of effectiveness Project preparation
Gender and Social Inclusion Stakeholder Responding to community participation and needs and suggestions consultation
*
*
*
Local demands and expectations
Managing community expectations and demands for project benefits
*
*
Consultations will be carried with local communities on their needs, preferences and expectations from the project A grievance handling system will be put in place with tracking mechanisms for actions on public grievances/suggestions Accountability relationships between project entities at different levels will be defined clearly Consultations will be carried out with local communities on their needs, preferences and expectations from the project Village level plan to identify ways to benefit local communities will be developed during preparation. Self-help group formation for women headed households and other women members.
PJu
Every 6 months
PJU, ESSD
Within 6 months after effectiveness Within 6 months after effectiveness
PCC,PJU
PJU, ESSD
Every 6 months
Plu
months of project effectiveness
NEA
Most of the staff has already been on board,
Procurement Need to strengthen capacity to handle large volume procurement.
Financial management, contract management communications, and monitoring functions,
*
Establish a Project Coordination Committee (PCC) within the General Manager's office with competent staff, assisted by the independent international Procurement Advisor * Retain Procurement Advisor for support and overseeing the procurement of major contPacts * Increase frequency of Bank supervision mission to review, including more supervision early in the Project.
82
Delays in procurement, execution of major contracts for electro mechanical works including the direct contract with the OEM.
Reduce Risk of Procurement
Bidding and contracting
*
* *
*
*
Enforce ICB procurement guidelines for documentation, timelines and transparency. Establish and maintain website Enhance the complaints recording and reporting mechanisms and follow up according to the guidelines. Addition of clause in bidding documents that the bidders, suppliers and contractors shall permit, and shall cause their subcontractors, agents, personnel, consultants, and service providers to permit, the Bank to inspect the site and/or all accounts and records and other documents relating to submission of bids and contract performance (whether in electronic or hard copy format), and to have them audited by auditors appointed by either of them, following their respective policies and procedures. Addition of clause in bidding documents in the context of Instruction to Bid (ITB) clause 3 concerning fraud and corruption, that the bidders would certify that: (i) to the best of their knowledge and belief, they, and any person or entity acting for them or on their behalf, have not engaged in any of the conduct defined in that clause; (ii) they will not indulge in such practices in competing for or in executing the contract; and (iii) any agent acting for them is aware of the ITB clause 3 and has committed in writing to comply with its requirements and to not engage in the conduct defined therein.
83
PCC/NEA/ and Bank
Ongoing
At the time of issuing /clearing bidding documents
Procurement red flags in prior and post reviews
Potential for or reduce risk of conflict of interest among participants in procurement
Conflict of interest
*
*
Declaration of no conflict of interest by NEA personnel and members of the technical evaluation committee and bidders, Require bidders' statements concerning agents and other possible connections to persons involved with procurement.
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NEA
NEA by Effectiveness, bidders on submission.
NEA/Bank
At bidding stage
Annex 7: Economic and Financial Analyses NEPAL: Kali Gandaki A Hydropower Plant Rehabilitation Project Background 1. Nepal currently faces a severe energy crisis with load shedding which in the dry season average up to 18 hours per day. Of the estimated peak load of 1025 Megawatt (MW), just 500 MW can presently be served. Load-shedding bears an important cost on the economy and it is important for Nepal to minimize them. Hydropower is the single largest clean energy resource available to Nepal but developing this potential takes time and to face this crisis Nepal needs to make sure the existing capacity is well maintained and operated at best efficiency to, and look for alternative such as imports or expensive diesel-based generation. 2. Given the damages observed at Kali Gandaki, it appears critical to rehabilitate this asset that provides a quarter of the total annual generation of the country. Avoiding a deterioration of its quality which would lead to a decrease in generation, and improving its operational efficiency as much as possible are essential to avoid the energy crisis to deepen yet further. Methodology 3. The economic benefits of the rehabilitation project are derived from additional electricity generation. This requires a comparison of generation in a "no project" baseline with that achievable in the rehabilitated plant. To derive reliable estimates of the additional generation requires that the various factors affecting plant performance be decomposed, which are some combination of the following factors: * * * *
*
4.
Changes in hydrology (inflows could in fact be higher as well as lower than expected) Operating rules at points distant to the so-called best efficiency point (BEP) (turbine efficiency is a function of head and discharge and the sediment content of the water) Waterway head losses (clogged trash racks and the like) Turbine outages due to unscheduled maintenance (though if these are of short duration, and the reservoir is not full, the "lost" generation can be recovered when the outage is restored) Loss of turbine efficiency due to erosion of runner blades (as may be caused by cavitation or by higher than expected abrasion from sediment loads) This additional energy must be valued, for which two avoided costs can be proposed:
*
Border price of electricity (Indian imports): In the past, the NEA has been importing electricity from India on an ad hoc basis, based on a government-to-government power exchange agreement. Recently, NEA has agreed to import 150 MW of electricity on a long-term (25 years) contract with Power Trading Corporation (PTC) of India. The levelized cost of this electricity including wheeling charges and transmission losses at the nearest substation (Dhalkebar) in Nepal is 8.69 US cents/kWh. This is base load power generated in Bihar from coal.
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*
Cost of self-generation: at present there is extensive load-shedding in Nepal, which in the dry season extends up to 24 hours/day. Of the estimated peak load of 1025 MW, just 500 MW can presently be served. At the margin, additional power generation can be assumed to replace diesel-based self-generation, throughout the dry season. This is certainly the economic valuation that applies to the "no project" alternative, and to the dry season.
5. Avoided Greenhouse gas emissions and avoided local pollution (health costs) were estimated for the analysis. Avoided self-generation and avoided coal-based imports represent different avoided emissions per kWh, which was accounted for. The basis for the carbon valuation in the economic analysis is the avoided social cost of carbon, taken here at $30/ton/CO 2. This is the low end of the range of valuation in the Stern report, a valuation that has been generally used for World Bank economic appraisals over the past two years. Inflow hydrology and the potential impact of climate change 6. In some Himalayan watersheds, average river flows have increased over the last decade, consistent with the hypothesis that climate change has increased rates of ice and snowmelt. The most comprehensive review of the potential impacts of climate change on Nepal is the 2011 study by the Water & Energy Commission Secretariat. 6 According to this report, glaciers in the Nepal Himalayas have been retreating so fast that the hydro-potential will decrease by the end of the century by 6 percent even without any further warming. For Nepal as a whole, by 2030 the hydro-potential will increase by 5.7 percent, but then decrease by 28 percent by the end of the century. 7. The consensus of the various studies in the Himalayan region is that over the long term, one may expect a diminution of dry season inflows and a possible increase in wet season inflows subject to monsoonal rains. However, the latter may well come in a few more intense storms, which would not benefit a run-of-river project such as Kali Gandaki that has very limited active storage. In any event, the economic returns of the rehabilitation project will be determined in large measure by the benefits over the next 20 years: even large declines of hydrology 30-50 years out will have little effect on hydro projects now being planned. Moreover, such declines in inflow would equally affect the no project alternative (and the sensitivity analysis indeed shows that economic returns of rehabilitation are little affected by even fairly extreme changes in hydrology associated with "runaway climate change" scenarios. A detailed assessment of historical inflows and power generation shows that under 8. exactly the same assumptions as used to derive design estimate of 842 GWh, the average generation during the last five years of operation (at which time all the output is assumed to have been dispatched by the NEA) generation should have been 875 GWh - or 33 GWh higher than
Government of Nepal, Water & Energy Commission Secretariat, Water Resources of Nepal in the Context of Climate Change, Kathmandu, 2011. 7 N. P.Chaulagain, 2007. Impacts of Climate Change on Water Resources of Nepal: The Physical and Socioeconomic Dimensions. Shaker Verlag, Aachen, pp. 146. 6
86
the 842 GWh design estimate (Table 7.1).8 This is consistent with the hypothesis that increased rates of ice and snowmelt have increased inflows over the past few years. Table 7 1: Actual v. predicted genera tion
year calculated
actual Difference
2007 2008 2009 2010 2011
GWh 925.6 863.4 852.9 864.0 870.8
GWh 772 802 733 746 848
average
875.0
780
GWh 154 61 120 118 23
No Project Alternative 9. The rehabilitation work at Kali Gandaki A is necessary to avoid a major event that would create major breakdown of the power system. Further the components of this project are designed to enhance the sustainability of the power plant and of the sector. This project is a priority for NEA which asked the World Bank for support. If the project is not financed by the World Bank, NEA would still have to undertake some time-sensitive rehabilitation works. Given its severe financial constraint, it would not be in a situation to finance the necessary works. 10. In the absence of rehabilitation and of the proactive sediment management program that the project offers, operations will become increasingly disrupted by outage, and subject to much greater risk of a catastrophic failure. Power generation and reliability would deteriorate over time. The economic analysis compares the rehabilitation project with the situation that would prevail without the project. However, it is difficult to estimate the speed and extend of deterioration if the project is not implemented. As shown by the recent shutdown, the biggest risk in the continued absence of rehabilitation is major outages following equipment malfunctions - but these we have not modeled, so ensuring conservative estimates of economic returns. Even under conservative assumptions, the economic and financial returns of rehabilitation are compelling. Economic returns 11. For the baseline estimate of economic returns, we make a series of conservative assumptions regarding the incremental energy A flushing regime that results in the loss of 3 full days of generation in the wet season. Even in the absence of the project flushing will be required to prevent further loss of active storage: but since generation is higher with the project, the loss of power generation due to flushing is also higher.
In other words, the performance deficit given the actualrecent hydrology is even greater than suggested by Table 1.1 8
87
*
*
*
*
* *
*
A loss of generation due to a decrease in inflows attributable to climate change: this would affect the no project alternative as much as the rehabilitation case, but again the GWh loss is slightly greater because of its higher level of baseline generation. Total maintenance hours (scheduled and unscheduled) decline from 312 hours as estimated by NEA for the no rehabilitation case to 270 hours by 2017 with rehabilitation. Thereafter, total maintenance hours are assumed to increase by 1.5 percent per year in the absence of rehabilitation, by 1 percent per year with the project. 50 percent of the incremental generation is assumed to replace self-generation (valued at the avoided cost of diesel generation), the remainder is assumed to replace diesel generation. Efficiency degradation can also be expected to occur in both the with and without project cases. A "saw-tooth" pattern in turbine efficiency over time is assumed, reflecting unavoidable periodic repairs. The rate of loss of efficiency will be much greater in the no project alternative than in the rehabilitation case where hard-coating is used and cavitation is addressed. In the no project case we assume the average turbine efficiency degrades by 0.003 percent per year; in the rehab case, we assume the rate is half of this, i.e. by 0.0015 percent per year (so falling from the initial 94 percent to 92.7 percent by 2020). Turbine overhauls are assumed to occur at 3-year intervals in the no project case ($3million), at 5 year intervals with rehabilitation ($5million, since hard-coating is more expensive). An additional 18.3 GWh generation (about 2.2 percent) attributable to the correction of cavitation problems and operation at the best efficiency point. We assume that the construction schedule will be optimised in such a way that generation can begin in the wet season of 2015. This would enable 75 percent of the total annual generation in this year. A one-week complete plant shutdown required to modify the intake structures: the estimated loss of generation is 10 GWh (which is costed at the same value as additional energy is credited).
12. The baseline ERR is 22.5 percent (NPV US$ 21.4 million). The 12 percent hurdle rate is reached in the 7th year of operation. Such good economic returns are not unusual for rehabilitation projects where a few targeted interventions can have dramatic effects. When the avoided environmental costs associated with thermal generation are included, the economic returns increase. Just the avoided PM-10 emissions (from diesel self-generation) raise the ERR from 22.5 to 23.6 percent, and the avoided greenhouse gas emissions raises the ERR by a further 3.7percent to 27.3 percent (NPV US$31.9 million). 13. Sensitivity analysis confirmed the robustness of the project for construction cost overruns, oil price fluctuations (which affects the benefits from displaced diesel self-generation), construction delays, reductions in benefits (lower efficiency gains), smaller reduction in maintenance outage hours, or greater impact from climate change (modeled by imposing declining dry season inflows over time). Table 7.2 summarizes the switching values analysis. Economic rates of returns remain attractive for all cases analyzed.
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Table 7.2: Deterministic switching values Input variable
Unit
Baseline value
Switching value
$USm
27.8
55
As percent of baseline 200%
Capital cost (economic) Efficiency gains
GWh
18.3
-1
-3%
Completion delay Delay
Years
0
8
Maintenance outages
Hours/year
270
407
151%
World oil price Climate change, generation reduction by 2030
$/bbl
125 0
7 N/A
6%
[
]
Comments
Highly improbable To reach the hurdle rate, the impact of rehabilitation would have to be negative, not positive, and hence not plausible Highly improbable. Civil works are minor, and delivery delays would very unlikely exceed 1-2 years. Since the no project outage hours is 312, an increase over this level is not plausible. Even if there were no improvement n maintenance hours, the ERR falls to just 19.7percent 7$/bbl oil price is not plausible. Negligible impact, since lower inflow hydrology affect the unrehabilitated project almost as much as the rehabilitated project.
NA: not applicable
(1) in other words, project can be justified just on the basis of wet season generation at the avoided cost of base load imports
14. In Greenfield hydro-projects, the two main risk factors are generally construction cost increases and overestimates of generation. But in the case of Kali Gandaki, neither of these risks is significant. The most significant risk affecting the economic returns is not so much cost increases per se (since there are minimal civil works and no tunneling) as much as a delay in the delivery of the new turbines: a one-year delay would reduce the baseline ERR to 20.6 percent. And hydrology risk (including the risk of changes to inflow hydrology consequent to climate change) is not significant because the economic returns of a rehabilitation project are relative to the no project alternative, which would be equally effected by these risks.9 15. Clearly there is some risk that higher sediment loads than expected would cause in increase in the times at which output must be reduced to reduce erosion damage on the turbines (either by complete shutdown for flushing, or reduced output (and inflows to turbines) so that a greater fraction of sediments is captured in the desanders). However, such higher sediment loads would affect the no project alternative to the same (if not greater extent), so the economic returns to the rehabilitation project are robust with respect to such assumptions. The same would be true
Because the efficiency of the rehabilitated project is higher than the no project alternative, the loss of generation (say due to climate change) is in fact slightly greater than in the no project case: but the differential effect is small.
89
of unexpected degradation of the riverbed in the tail-water area (that might bring about a return to cavitation conditions if not properly monitored and corrected). Conservative assumptions and Accident In several respects the assumptions are quite conservative: * Self-generation: the assumption that only 50 percent of the incremental generation replaces diesel self-generation is extremely conservative; if all incremental generation replaces self-generation, the ERR increases to 32.8 percent.. * Accidents: in the absence of rehabilitation, there are serious safety concerns associated with the poor condition of the main inlet valves. The resulting loss of generation consequent to accidents is orders of magnitude greater than turbine efficiency differentials. * O&M costs: we claim no cost benefits in connection with the reduced maintenance hours. * Avoided local environmental impacts of self-generation: the only benefit claimed is for avoided PM-10. However, valuation of avoided NOx and SOx emissions would add to the benefit stream. Indeed, one way of thinking about this rehabilitation project is as an insurance policy against the large losses likely to be incurred as a result of accidents that are much more likely in the no project case. 16. We have noted the safety concerns associated with the deteriorating condition of the project absent rehabilitation. For example, the economic returns of the rehabilitation jump from 30 percent to 42 percent in the event that a powerhouse flooding accident in year 4 reduced generation by 50 percent (as would be the case of loss of 2 months of wet season generation) and incurred repair costs of $1Omillion. Risk assessment 17. Probabilistic Risk Assessment. The sensitivity analysis was complemented with a probabilistic analysis using Monte Carlo simulation, which showed that the probability of economic returns below the hurdle rate is very low at 1.2 percent. The Kali Gandaki rehabilitation is a sound project with high and robust economic returns. 18. Figure 7.1 shows the results of the Monte Carlo simulation, shown as the probability distribution of economic returns. The probability that returns fall below the hurdle rate is a very low 4.7 percent (i.e. the area under the curve to the left of 12 percent). Note that the mean of the ERR probability density function is lower than the ERR based on "most likely" values: 18.5 percent rather than the baseline ERR of 22.5 percent. This is a consequence of the asymmetry of the uncertainty around such "most likely" values: downside risks tend to be greater than the upside. " 10 This is also consistent with the findings of the recent IEG assessment of World Bank cost-benefit analysis that notes such "optimism bias" as one of the causes of the general over-estimation of economic returns. (Independent Evaluation Group, 2010. Cost-Benefit Analysis in World Bank Projects, World Bank, Washington
DC).
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Figure 7.1: Probability distribution of economic returns 0.2
-
-
hurdleERR=12%
nean median
22.5%
22.5%
Pr(FIRR