ASIAN DEVELOPMENT BANK

PPA: NEP 24003

PROJECT PERFORMANCE AUDIT REPORT

ON THE TOURISM INFRASTRUCTURE DEVELOPMENT PROJECT (Loan 1156-NEP[SF])

IN

NEPAL

December 2000

CURRENCY EQUIVALENTS Currency Unit Nepalese Rupee/s (NRe/NRs) At Appraisal (September 1991) $0.0237 NRs42.20 At Project Completion (December 1997) $0.0161 NRs62.00 At Operations Evaluation (March 2000) $0.0145 NRs68.81

NRe1.00 $1.00

= =

The Nepalese rupee is pegged to the Indian rupee (Re) at NRs1.00 to Re1.00, and is fully convertible on all current account transactions.

ABBREVIATIONS ADB BME CAAN DOA DOR DOT IA KMTNC MOT OEM NATHM NTB PCR PMU SSTA TA TSC UNDP Asian Development Bank benefit monitoring and evaluation Civil Aviation Authority of Nepal Department of Archeology Department of Roads Department of Tourism implementing agency King Mahendra Trust for Nature Conservation Ministry of Tourism Operations Evaluation Mission Nepal Academy of Tourism and Hotel Management Nepal Tourism Board project completion report project management unit small-scale technical assistance technical assistance tourist service center United Nations Development Programme

NOTES (i) (ii) The fiscal year (FY) of the Government ends on 15 July. In this report, $ refers to US dollars. Operations Evaluation Office, PE-559

CONTENTS Page BASIC DATA EXECUTIVE SUMMARY ii iii

MAP I. BACKGROUND A. B. C. D. E. F. II. Rationale Formulation Purpose and Outputs Cost, Financing, and Executing Arrangements Completion and Self-Evaluation Operations Evaluation

vi 1 1 1 2 3 3 3 4 4 6 6 7 8 8 11 12 12 13 13 13 14 14 14 15 15 15 15 16 16 17 17 18 18 20

PLANNING AND IMPLEMENTATION PERFORMANCE A. B. C. D. Formulation and Design Cost and Scheduling Consultant Performance, Procurement, and Construction Organization and Management

III.

ACHIEVEMENT OF PROJECT PURPOSE A. B. C. D. Operational Performance Performance of the Operating Entity Economic Reevaluation Sustainability

IV.

ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS A. B. C. Socioeconomic Impact Environmental Impact Impact on Institutions and Policy

V.

OVERALL ASSESSMENT A. B. C. D. E. F. G. Relevance Efficacy Efficiency Sustainability Institutional Development and Other Impacts Overall Project Rating Assessment of ADB and Borrower Performance

VI.

ISSUES, LESSONS, AND FOLLOW-UP ACTIONS A. B. C. Key Issues for the Future Lessons Identified Follow-Up Actions

APPENDIXES

BASIC DATA Tourism Infrastructure Development Project (Loan 1156-NEP[SF])

Project Preparation/Institution Building TA No. TA Name 1137 Tourism Development Program 1428 Tourism Development 1662 Tourism Development Study 1663 Environmental Protection Study of Phewa Lake, Pokhara Key Project Data ($ million) Total Project Cost Foreign Exchange Cost Local Currency Cost ADB Loan Amount/Utilization ADB Loan Amount/Cancellation Amount of CofinancingUNDP Type A&O PP A&O A&O Person-Months 21 6 14 32 As per ADB Loan Documents 14.60 5.60 9.00 10.401 3.02 Amount ($) 460,000 100,000 295,000 440,000 Approval Date 13 Mar 1989 3 Dec 1990 16 Jan 1992 16 Jan 1992

Actual 8.93 2.36 6.57 8.062 2.812 0.0

Key Dates Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness Project Completion3 Loan Closing Months (effectiveness to completion)

Expected

Actual 11-23 Aug 1991 29 Oct-1 Nov 1991 16 Jan 1992 20 Mar 1992 25 Jun 1992 31 Dec 1997 22 Jun 1998 66

18 Jun 1992 31 Dec 1996 30 Jun 1997 54

Key Performance Indicators (%) Economic Internal Rate of Return Pokhara Conservation Area Upgrading, Lakeside Footpath and Garden Pokhara Serankot Road Improvement Pokhara Airport Upgrading Ecotourism and Circuit Trekking Gorkha Conservation Area Upgrading NATHM Upgrading Kathmandu Tourist Service Center Pokhara Tourist Service Center Financial Internal Rate of Return Pokhara Airport Upgrading Borrower Executing Agency Mission Data Type of Mission Appraisal Project Administration Review Project Completion Operations Evaluation

Appraisal 13.4 17.7 14.2 21.4 12.3 13.8 15.4 15.2

PCR 26.0 14.0

PPAR 6.0

Government of the Kingdom of Nepal Department of Tourism No. of Missions 1 13 1 1 No. of Person-Days 52 252 26 38

= not calculated, A&O = advisory and operational, ADB = Asian Development Bank, NATHM = Nepal Academy of Tourism and Hotel Management, PCR = project completion report, PP = project preparatory, PPAR = project performance audit report, TA = technical assistance, UNDP = United Nations Development Programme.
1 2 3

Equivalent to SDR7,611,000 at the time of loan approval. At the time of loan closing, total loan disbursements amounted to SDR5,580,851, while total loan cancellations amounted to SDR2,030,149. According to the PCR, the tourist information center in Pokhara was still to be completed.

EXECUTIVE SUMMARY

The Tourism Infrastructure Development Project aims to increase foreign exchange earnings. Tourism is perceived as one of the few areas where Nepal enjoys a comparative advantage and has scope for further development to meet this goal. The Project was designed to increase the average length of stay and spending by tourists in Nepal. The specific project outputs underlying this purpose are (i) an expansion in the number of attractive tourist sites by improving five existing sites principally around Pokhara, but also in Gorkha; (ii) improved accessibility of Pokhara by air through upgrading Pokhara airport; (iii) upgraded capability of the Nepal Academy of Tourism and Hotel Management (NATHM) to provide trained human resources; (iv) improved tourism promotion; and (v) enhanced public sector institutional capabilities. Two advisory technical assistance projects were provided to support the Project. The Projects initiatives are expected to encourage tourists to visit additional places, principally in Pokhara, and hence to stay longer while at the same time catalyzing private sector investment in facilities such as accommodation, travel agencies, guide services, cafs, restaurants, and souvenir shops to cater to the tourists and capture the increased tourist spending. The Projects detailed design also gave importance to improving environmental protection, building public-private sector linkages, and involving communities in the development process. In parallel with the Project, the Government was to improve the policy framework for tourism development, and so had established an action plan for this prior to the start of project implementation. Project implementation started in 1992 and was substantially complete by the end of 1997, one year later than expected. Significant events during implementation were the withdrawal of the United Nations Development Programme (UNDP) and its cofinancing of $3.2 million because of disagreement with the Government over autonomy for NATHM; delays in setting up the project management unit and awarding contracts; and failure of a civil works contractor for one subcomponent. At the time of completion, the majority of the non-UNDP-financed inputs had been provided as planned. The main exceptions are one of the tourist sites and one of the two centers to be used for improving tourism promotion, both of which are incomplete and nonoperable. The quality of the completed works is sufficient for the type of service expected. The cost of the implemented Project is $8.93 million, which is only 61 percent of the expected amount because of cost savings and the withdrawal of UNDP support. There are loan savings equivalent to $2.81 million. The Projects objective and concepts are highly relevant to the development objectives of both the Government and the Asian Development Bank (ADB). Nevertheless, the design of the Project did not give adequate attention to several important aspects, which limits the relevance of the outputs to the broader purpose and goal. Important design weaknesses are the deletion of preappraisal proposals to market the tourist sites, inadequate arrangements to involve the private sector during the detailed planning stages of the tourist sites, failure to recognize constraints within the institutional arrangements of the private sector that limit its ability to represent all members and link with the public sector, and a poorly conceived tourist promotion component. Apart from their inadequate coverage of aspects related to the last three weaknesses, the feasibility and project identification studies, which preceded appraisal, were comprehensive and adequate. Deletion of tourist site marketing was an added weakness introduced during appraisal. Substantial increases in tourist visits have occurred at only one of the sites improved under the Project. Another site showed modest increases; two of the other tourist sites were improved and may attract more tourists and commercial activity in the future, but have not done so yet; and the fifth site is unlikely to have any impact on tourism. Private sector commercial activity has increased at only one site, but not all the increase is incremental. More effective involvement of the private sector in project planning and implementation may have improved efficacy and efficiency of this component. By 1999, the number of passengers using Pokhara airport had almost doubled to about a quarter of a million compared with the early 1990s. In 1992, a new law allowed additional airlines to operate domestically, which stimulated a rapid increase in the number of flights and passenger throughput. Without the Projects airport improvements, the continuation of this increase in numbers would not have been possible, and the airport component was effective in improving tourist access to Pokhara. However, the available statistics do not show how much of the increased airport throughput represents incremental tourism at the national level, as opposed to just a redistribution of tourists within the country. At a broader level, accommodation and tour service businesses in Pokhara have significantly increased in number over the past few years. It is possible that this has been a response to the greater number of arrivals through the airport, as well as other project activity. However, utilization is low and, for example, hotels have occupancy rates of only about 25 percent, implying significant economic inefficiency.

The Projects investments in NATHM have enabled it to maintain its intake of students in short-term courses and add a new three-year degree course. Graduates appear to be readily employed and this component has contributed in the manner expected. Two tourist service centers (TSCs) were built under the tourism promotion component and aimed to provide information to encourage tourists who had already arrived in Nepal to visit other sites and stay longer, as well as provide general support to the industry. The Pokhara TSC was not completed and does not yet operate, although the Government plans to finish the facility. The Kathmandu TSC is some distance from the main tourist areas of Kathmandu, and few tourists use it. It supports tourism in other ways, but these functions could have been provided at lower cost by alternative arrangements. With UNDPs withdrawal, the Project had limited ability to effect planned institutional change. Nevertheless, important change did occur under a replacement UNDP program and with support from a second ADB project in the tourism sector. The public sector is now more appropriately structured to support tourism but still requires the transfer of some functions to the newly created, autonomous, and independently funded Nepal Tourism Board. Change on the public sector side has revealed weaknesses within the private sector structure with representative organizations being politicized and not representing their members equally. The average length of stay by tourists in Nepal and their spending over the past 15 years have been relatively constant, and the available statistics do not show any significant impact attributable to the Project. The number of tourists visiting Nepal has increased over this time, and more particularly since before the start of the Project, and it is possible that the Project contributed to such an increase, even though this was not a stated project aim. However, partly due to ineffective project monitoring, data are not available to establish directly what part, if any, of the national increase in tourist numbers is attributable to the Project. Apart from tourism, the Project is also providing significant social benefits to local people in the form of improved urban amenities, such as drainage, sewerage, and pedestrian access in parts of Pokhara and Gorkha; road access in Sarangkot; electricity and kerosene supply and public water faucets for villagers in the ecotourism development area; and better airport services for local travelers using Pokhara airport. The number of beneficiaries is significant in each case. Other impacts have been less significant. The environmental impact has been mainly positive with the ecotourism concept suitable for supporting increased tourism in rural and forested areas. Institutional and policy changes under the Project have been relatively minor. The two technical assistance projects contributed to the formulation of projects to improve regional airports and the control of pollution in Phewa Lake and are rated as successful. Sustainability is uncertain for three of the tourist sites because of limited resources and capability of local government units to maintain and operate the urban facilities, and because of the inexperience and limited resources of the Department of Archeology for operating the palaces at Gorkha. Overall, the Project is rated less than successful. The Project is relevant to development objectives, but while the airport upgrading and NATHM components worked well, the other three components had significant shortcomings in efficacy and/or efficiency. Questions over the sustainability of several components also limit the success of the Project. The Projects socioeconomic impacts are moderate. The largest weakness of the Project was its poor linkage with the private sector, despite a stated aim to improve this. This weakness meant that the improvement, of e.g., tourist sites, was made largely without private sector participation, and the latters efforts have led to overinvestment in some areas. Both the Government and the ADBs Water Supply, Urban Development and Housing Division West consider the Project successful, however, particularly in view of the achievements of the Pokhara airport upgrading component. The major issues concerning tourism are the lack of resources and capabilities of the municipal governments in maintaining the urban infrastructure created under the Project and similar facilities; and the lack of work in restoring the environmental quality of Phewa Lake despite the many studies that have already been completed, including some under the Project. Key lessons include the following: (i) community involvement in design and implementation can enhance subsequent operations, but such involvement may cost more and cause implementation delays; (ii) a clear view of the type of service to be provided is needed when designing facilities such as the TSCs; (iii) the private sector will not automatically respond to the opening up of new tourist sites and such sites should be actively marketed; (iv) the private sector can play an important role in the design of tourist sites to ensure that they are practical from a tour operators perspective; (v) ecotourism can work, but community lodges need to be subject to full feasibility and marketing studies before construction; (vi) where there are many inexperienced implementing agencies, the early and complete formation of a project management unit is needed to avoid delays and other problems; and (vii) monitoring requires specific attention from project supervisors at an early stage of implementation.

A number of recommendations have been made to enhance the Project. These include increasing promotion of the tourist sites, early opening of the palaces at Gorkha under viable operating arrangements, and designing short treks to improve utilization of the lodges in the ecotourism area. Also required are reestablishing the parking lot and turning circle at the top of the Sarangkot access road, providing additional equipment to NATHM and upgrading some of its courses, providing for sullage disposal in Pokhara, and improving the cleanliness of Pokhara airport.

I.

BACKGROUND

A.

Rationale

1. The Tourism Infrastructure Development Project was formulated in the context of the Governments goal of increasing foreign exchange earnings. Being a landlocked country with often difficult terrain, Nepal has few comparative advantages to exploit in earning foreign exchange. Tourism is one area in which the country enjoys a comparative advantage, and potential exists to expand tourism. While tourism has frequently been considered a private sector activity, the Project recognized that the private sector needed public sector support in the form of transport infrastructure, development of public areas to enhance the appeal of less visited tourist attractions, tourism promotion, human resources development, and regulation. 2. At the time of project formulation, the Asian Development Bank (ADB) country operational strategy, which focused on agriculture and industry, was only broadly in line with tourism development. Subsequently, however, the strategy was refined to incorporate tourism in view of its comparative advantage and the limited alternatives within Nepal. Through the selection and design of its components, the Project was viewed as a suitable mechanism for fostering private sector growth and introducing poverty reduction and environmentally sustainable arrangements into development, all of which were, and remain, consistent with ADBs objectives.

B.

Formulation

3. Appraisal of the Project was completed in 1991 and was preceded by a feasibility study under an ADB4 financed small-scale technical assistance (SSTA). The SSTA selected and tested the economic feasibility of nine subprojects, and packaged these into a form suitable for ADB financing. The nine subprojects were selected from 50 potential subprojects prepared in 1990 under the Tourism Development Program study financed by ADB technical 5 assistance (TA). The SSTA, drawing extensively from the earlier study, provided a comprehensive description of the tourism sector and the rationale and target market for each subproject. The SSTA and earlier TA study appear to 6 have fulfilled their terms of reference and provided a suitable basis for project appraisal. The appraised project follows the SSTA proposal, except that one of the nine subprojects was deleted, the different target markets were coalesced with the loss of important detail, and much less emphasis was placed on tourism marketing (para. 15). 4. This was the first ADB-financed tourism project in Nepal; but in 1996, prior to its completion, ADB financed 7 the Second Tourism Development Project. At the time of the Operations Evaluation Mission (OEM), a TA for the 8 formulation of a possible further project was in process.

C.

Purpose and Outputs

9

5. The Projects purpose was to increase the average length of stay and spending by tourists. To achieve this, the outputs to be generated by the Project comprised (i) an expansion in the number of attractive tourist sites through improvement to five existing sites principally around Pokhara, but also in Gorkha; (ii) improved accessibility of Pokhara by air through upgrading Pokhara airport; (iii) upgraded capability of the Nepal Academy of Tourism and 10 Hotel Management (NATHM) to provide trained human resources; (iv) improved tourism promotion; and (v) enhanced public sector institutional capabilities. The Projects initiatives were expected both to encourage tourists to
4 5 6 7 8 9

10

TA 1428-NEP: Tourism Development, for $100,000, approved on 3 December 1990. TA 1137-NEP: Tourism Development Program, for $460,000, approved on 13 March 1989. Institutional memory and records are insufficient to enable further evaluation of these TAs. Loan 1451-NEP(SF): Second Tourism Development Project, for $17.2 million, approved on 2 July 1996. TA 3332-NEP: Ecotourism, for $500,000, approved on 10 December 1999. The Project predated the requirement for a logical framework. The outputs-purpose-goal hierarchy of objectives used in this project performance audit report was derived from the appraisal report, particularly the project focus, design, and rationale section, the objectives, and various parts of the background. Formerly named the Hotel Management and Tourism Training Center.

visit additional places, principally in Pokhara, and hence to stay longer, and to catalyze private sector investment in facilities such as accommodation, cafs, restaurants, and souvenir shops to cater to tourists. The selection and design of the project components also aimed to preserve the scenic qualities of tourist sites and improve environmental protection, build public-private sector linkages, and involve communities in the development. In parallel with the Project, the Government was to improve the policy framework for tourism development, and so had established an action plan for this. 6. The project inputs were organized into three parts. Part A provided for infrastructure development at six sites. Five of these were tourist sites, and the sites and work involved the following: (i) at the Pokhara conservation area, improved sanitation, footpaths, and streetlighting to enhance the attractiveness of the historic main street of Pokhara; (ii) at Phewa Lake, one of the scenic attractions of Pokhara, a new footpath and garden; (iii) at Sarangkot, repair and surfacing of the access road to facilitate tourist travel to this elevated viewpoint near Pokhara; (iv) in the ecotourism area in the Annapurna conservation area near Pokhara, two tourist lodges, three serviced campsites, two micro-hydroelectricity schemes, two kerosene depots and visitor centers, water and sanitation facilities, as well as training and community awareness campaigns to expand and improve ecotourism; and (v) at the Gorkha conservation area, a road, footpath, lighting, water, sanitation, and landscape upgrading around the lower palace and in the core tourist area of Gorkha township. The sixth site was Pokhara airport, where facilities and improvements to upgrade airport safety, aircraft operations, and passenger amenities were made. Under part B, the capability of NATHM was to be improved by (i) rehabilitation of existing buildings and providing a new water source, access road, and equipment; and (ii) continuation of the expert services, equipment, and other services aimed at both expanding the centers capacity and providing community training in the rural and hill areas, as provided by the United Nations Development Programme (UNDP). The focus of part C was tourism support services, institutional strengthening, and implementation assistance for the Department of Tourism (DOT) comprising (i) establishment of tourist service centers (TSCs) in Kathmandu and Pokhara; (ii) continuation of UNDP support for womens entrepreneurial training and institutional strengthening in the DOT and the Ministry of Tourism (MOT) to improve capability for program management; and (iii) implementation assistance, including establishment of the project management unit (PMU), consultants, equipment, logistical support, and incremental operating expenses. 7. Two TAs accompanied the Project. The Tourism Development Study provided for the evaluation of a proposal to establish a cultural display center for tourists in Kathmandu, and the identification of the institutional, operational, and infrastructure requirements for improving tourism-related air services in Nepal. The Environmental Protection Study of Phewa Lake, Pokhara aimed to identify current pollution levels and sources; and appropriate policies, strategies, and measures to control pollution in Phewa Lake.
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D.

Cost, Financing, and Executing Arrangements

8. The appraised cost of the Project was $14.6 million, of which $9 million comprised local currency costs (Appendix 1). On 16 January 1992, ADB approved a loan from its Special Funds resources of SDR7.611 million, then equivalent to $10.4 million, for the Project. UNDP was to provide parallel grant cofinancing of $3.02 million to cover ongoing technical support which was incorporated under three of the project components. The $1.18 million balance of the project cost was to be financed by the Government. Part of the ADB loan was to be onlent to the King Mahendra Trust for Nature Conservation (KMTNC) to help finance the construction of lodges and alternative energy sources as part of ecotourism development in the Annapurna conservation area. 9. The Executing Agency was DOT. The Project had seven implementing agencies (IAs), namely, the PMU of 12 DOT, Civil Aviation Authority of Nepal (CAAN), NATHM, KMTNC, Department of Archeology (DOA), Department of Roads (DOR), and the Department of Housing and Urban Development in association with the Pokhara Town Development Committee. A national Tourism Development Coordination Committee; a field level committee, the Pokhara Tourism Development Committee; a Project Implementation and Coordination Committee; and a PMU within DOT were established to assist implementation.

11

12

TA 1662-NEP: Tourism Development Study, for $295,000, approved on 16 January 1992; and TA 1663-NEP: Environmental Protection Study of Phewa Lake, Pokhara, for $400,000, approved on 16 January 1992. Formerly the Department of Civil Aviation.

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E.

Completion and Self-Evaluation

10. Implementation was to take five years, commencing in early 1992. However, the Project was completed one year later than expected, at the end of 1997. The project completion report (PCR) was circulated to the Board in April 1999. 11. The PCR describes the Projects implementation and attempts to evaluate the key expected project impacts. The PCR rated the Project as generally successful. The PCRs evaluation is weakened by the lack of data to support the estimates of benefits claimed to be already occurring at the time. The lack of supporting data reflects the inadequate database on tourism in Nepal. Without such information, a credible without-project scenario cannot be created and changes in the limited available tourism statistics cannot be attributed to the Project with any confidence. The PCR estimates and conclusions appear optimistic as a result, and a qualified conclusion would have been more appropriate. The PCRs economic analysis generally follows the methodology used at appraisal, but is not based on credible without-project assumptions and cannot be supported by the OEM.

F.

Operations Evaluation

12. This project performance audit report presents an assessment of the Projects efficacy and efficiency in achieving its purpose, the relevance of the Project to current Government and ADB objectives, other benefits generated, and the sustainability of operations. It discusses issues of current relevance to the sector, and presents lessons learned from the experience. The results and discussion are based on the findings of an OEM to Nepal in March 2000; on a review of the PCR, the appraisal report, ADB files, and government, executing and implementing agency records; and discussions with ADB staff, the Government, the executing and implementing agencies, tourists, and tourist facility operators. Copies of the draft project performance audit report were provided to the Borrower, the Executing Agency, and ADB staff for review and comments. Comments received were taken into consideration in finalizing the report.

II.

PLANNING AND IMPLEMENTATION PERFORMANCE

A.

Formulation and Design

13. The Project and its design were broadly consistent with the objectives and strategy of both the Government and ADB at the time of formulation, and remained so at OEM. At the time the Project was prepared, Government and 13 ADB support for tourism was not explicitly reflected in planning documents. For example, direct public expenditure on tourism accounted for less than 1 percent of the then Seventh Five-Year Development Plan. ADB strategy statements focused on agriculture and industry, the latter not explicitly covering tourism. The limited direct support to tourism by both the Government and ADB was because tourism was perceived as a private sector activity. Nevertheless, at the time, some people in the Government and ADB were aware that tourism was one of the few areas where Nepal enjoyed a comparative advantage that could be further exploited to increase foreign exchange earnings. Moreover, it was beginning to be realized that the private sector required public sector support for it to be able to take advantage of the potential for tourism. These changes in awareness found expression in the 1992 revision of ADBs operational strategy for Nepal where tourisms potential is outlined and its development incorporated as part of the operational strategy. The development objectives of both the Government and ADB as reflected in the new operational strategy also focused on poverty reduction, environmental conservation, and placing production in the hands of the private sector. The Project was designed in accordance with these objectives. 14. With the exception of the withdrawal of UNDP support, the Project was essentially constructed as planned (Appendix 2). A review of the Projects operations (chapter III) reveals several shortcomings that resulted from design weaknesses and inadequate understanding of their importance at appraisal.

13

The ADB strategy is outlined in An Operational Strategy of the Bank for Nepal, April 1988.

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15. During project appraisal, the marketing of the tourist sites to be improved under the Project, originally included as a component in the design prepared under the SSTA and TA studies, was deleted to the detriment of the Project (para. 27). The reasons for this included government reluctance to use foreign exchange loan funds for such purposes and ADB unwillingness to become involved in supporting the marketing of tourist sites since that was considered a private sector responsibility. Faced with these problems, the Appraisal Mission proposed bilateral aid financing for tourism marketing, but this aid did not materialize. The institutional support that was provided under the UNDP component of the Project was broad in scope and could have been used to overcome this gap in the Projects design. However, full implementation of UNDP inputs was contingent on renewal of the preexisting agreement between UNDP and the Government shortly after the start of the Project. As it turned out, they did not renew it because of an issue concerning autonomy for NATHM, and UNDP withdrew from the Project. Marketing issues also broadly came under the terms of reference of the project management consultant to be attached to the PMU. However, the input from this consultant was reformulated to fill part of the gap in institutional support to NATHM following UNDPs withdrawal, and the available resources were insufficient to provide for tourism marketing as well. 16. The Project was intended to enhance public-private sector linkages. However, the private sector did not respond well to the developments under the Project, leading to underutilization of the improved tourist sites (para. 27). Partly, this was because of insufficient consultation between project designers and implementors during the project design stage, partly because of weaknesses within the private sector representative groups involved during project implementation, and partly because of the absence of any direct marketing of the tourist sites. Thus, many private tour operators were unaware of some of the developments, or when the sites were opened, or were skeptical about the ability of the tourist sites to deliver the expected services. In the case of the lodges in the ecotourism area, such skepticism was appropriate as the envisaged trek was impractical (Appendix 2, para. 11). Greater involvement of the private sector in the planning of the developments may have avoided such impracticalities and may have facilitated the inclusion of newly finished sites into tour itineraries as soon as they were ready. A major limitation in the public-private sector linkage appears to be that the private sector was not involved during project design, but only after project implementation had started. In addition, the private sector was involved through the various subsector associations, such as the Hotel Association, the Trekking Guides Association, and the Travel and Tour Operators Association. Although this might be a suitable structure for private sector representation, such organizations are not yet well developed and are subject to bureaucratic inefficiencies and political infighting. Not all members appear to have been equally represented and information does not appear to have been freely shared among all members. Officers with businesses in the Kathmandu Valley dominate the apex organization, and business operators in Pokhara where most of the Project was being implemented are not as well represented. In retrospect, it was unrealistic to expect these private organizations to fulfill their expected roles without first being strengthened. While the intention to build stronger public-private sector linkages was laudable, project preparation and appraisal do not appear to have adequately assessed the capabilities of the private sector organizations, or made adequate arrangements for involving the private sector during the early planning stages. 17. The project component for tourism promotion was not well designed. As envisaged, the availability of information to tourists who had already arrived in the country was to be improved so as to encourage them to visit extra places and stay longer. However, the usefulness of such a service is limited and is beneficial only to tourists who are not on a fixed schedule. Tourists on a fixed schedule constitute a significant proportion of the upper-income non-Indian tourists targeted under the Project. Nevertheless, some demand for the envisaged service exists. The main issue concerns the type of facilities required and where they should be located. Two large buildings were constructed to house information counters as well as offices, auditoriums, shops, cafeterias, and other facilities in 14 locations away from the main tourist centers in Kathmandu and Pokhara (para. 30). The facilities far exceed what is needed and are unlikely to be fully utilized as expected; they are of an overall high standard, even for the areas accommodating back-office support services. The locations were selected because large land areas were needed to accommodate the large buildings, and the selected sites were the best large vacant sites available. Separation of the various functions between those which tourists would directly come into contact with and the support services could have led to the former being housed in smaller buildings for which sites closer to the tourist areas might have been found, and the latter being housed in more modest accommodation.

B.

Cost and Scheduling

18. The actual project cost was $8.93 million, about 61 percent of the expected amount (Appendix 1). Final works for several subcomponents that were incomplete at OEM will increase the total cost, but this increase is expected to be small. The largest incomplete subcomponent was the TSC in Pokhara. Half the cost underrun was
14

In comparison, a third, modest building of appropriate size was built, not under the Project, but as part of the associated Gorkha palace rehabilitation project of DOA to provide tourist information services.

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due to the withdrawal of UNDP TA support of $3.02 million. Significant savings also occurred in all components with the exception of upgrading at Pokhara airport. Savings were due to changes in exchange rates, lower than expected unit costs, and incompleteness of works. At loan closing, SDR2.03 million of the original loan of SDR7.61 million was not spent and was cancelled. The loan savings were equivalent to $2.81 million. 19. Although several small subcomponents were unfinished at the time, the Project was deemed complete in December 1997, about one year later than expected. All facets of the Project were delayed, mainly due to excessively long times for prequalification, bidding, contract award, and mobilization of consultants and contractors, 15 as well as slow performance by some contractors. The tendering process typically took over 10 months per contract despite the use, in some cases, of the Governments list of prequalified contractors, and a predominance of local competitive bidding contracts. Both these elements were expected to speed up the process. Another critical factor in the overall delay was the slowness in forming the PMU, appointing a PMU project manager, and providing sufficient staff, resources, and logistical support for the PMU. The PMU was important because of the large number of relatively inexperienced IAs (para. 23). The need to ensure active and meaningful community involvement under the Pokhara conservation area, Gorkha conservation area, and the ecotourism components also required more time than expected. As a result of the implementation delays, most components had only recently commenced operations at OEM, and some were still to commence, thus delaying benefits. However, the upgraded Pokhara airport became operational earlier than anticipated, in 1996.

C.

Consultant Performance, Procurement, and Construction

20. The Project engaged 11 consultants and 15 civil works contractors. All but the international consultant to support NATHM were local. The domestic consultants were engaged for implementation supervision. The use of domestic consultants and contractors was appropriate for the size and nature of the work. Modification of ADBs procedures was necessary to accommodate the very small contracts under the ecotourism component, but this did not materially affect the outcome. 21. The international consultant performed satisfactorily. This led to the establishment of a diploma course at NATHM. The performance of the other consultants and contractors was mostly satisfactory, with seven out of the 10 local consultants and 12 out of the 15 contractors performing adequately. The contracts of two contractors were terminated for poor performance, and the contractor for one of the community lodges under the ecotourism trekking trail component had to completely rebuild the lodge. The major weaknesses of the consultants were in contract administration and contractor supervision, while the main areas of weakness of the civil works contractors were 16 financial and project management, and lack of appropriate equipment and logistical support. Noncompletion of the TSC at Pokhara was a direct result of poor performance, which led to termination of one civil works contract. Other instances of poor performance contributed to delays. 22. The completed civil works and equipment supplied under the Project are of adequate standard for the intended functions. Nevertheless, the OEM noticed a marked difference between the high standard of finish of the Kathmandu TSC and that of the buildings at NATHM. The quality of the finish of the Kathmandu TSC exceeds that of many buildings within Kathmandu and may be of an excessive overall standard given that a large part of the building merely provides office space. The construction works for the NATHM buildings took only 27 months compared to an expected period of 42 months because of the need to overcome earlier delays.

D.

Organization and Management

23. The incompleteness of some parts of the Project and the delays attest to management weaknesses. These were in part due to a large number of IAs and their lack of experience. Only DOR and CAAN had suitable project implementation experience. DOT lacked suitable project execution experience. MOT itself was undergoing a process of internal reorganization, especially during the latter stages of the Project, and this also served to weaken its direct involvement in the Project. 24. A PMU to support project implementation was provided as part of the Projects organizational design and could have compensated for some of the weaknesses of the IAs. However, the formation of the PMU was delayed and provision of resources and logistical support to the PMU never reached appraisal expectations at any time during
15 16

Further detail is given in paras. 16-22 of the PCR. Discussed in detail in paras. 23-31 of the PCR.

13

the project period. Moreover, the PMU was not accorded a sufficiently high status and lacked the necessary authority to influence the IAs, which were largely ministries and departments. The transfer of international consultant support for the PMU to fill the gap created by the withdrawal of UNDP support further weakened the PMUs capability. 25. Various committees were formed to enable involvement of other stakeholders, principally private sector tourism operators, in the Project. However, as discussed in para. 16, the private sector representative groups were inadequately developed for the role intended. 26. ADBs administration of the Project would have been better if it had monitored and encouraged greater private sector involvement in planning, and if more attention had been given to how the private sector was to be linked in an ongoing manner to the Project. The number of supervision missions was adequate, but these were mostly concerned with implementation progress and did not adequately review progress toward achievement of the development objectives.

14

III.

ACHIEVEMENT OF PROJECT PURPOSE

A.

Operational Performance

1.

Tourist Sites

27. Of the five tourist sites improved under the Project, only two, Sarangkot access road and the ecotourism area, resulted in increased tourist visits and increased private sector tourism activity (Appendix 2, paras. 1-16). Visitors to Sarangkot appear to have doubled to 40,000 per year compared with before the Project, while the number 17 using the ecotourism trekking trail, opened in 1993, was 1,750 in 1999. All the private activity in the ecotourism area comprising operation of campsites, kerosene depots, and lodges was established under the Project, while at Sarangkot, some of the increase in the number of souvenir shops and cafs was offset by a decrease in the number of active lodges. Also, the souvenirs offered to tourists at Sarangkot are no different from those offered at other outlets in Nepal. Of the three other sites, the Pokhara conservation area upgrading satisfactorily improved the attractiveness of the street, but did not result in either an increase in tourist visits or private sector tourism activities. This could be a result of insufficient marketing of the area as few tourists or tour operators are aware of the sites attractions. The site may be caught in a cycle: too few tourists to warrant private sector investment in cafs and shops, and insufficient interest by tourists/tour operators because of the lack of shops and cafs. The land- and 18 street-scaping of the Gorkha conservation area have been completed to a satisfactory standard. However, the major attraction of the area, the adjacent palace, is not yet open to the public as the renovations have yet to be finished. The Gorkha district also suffers from peace and order problems. Relatively few tourists visit the Gorkha conservation area and increased private sector activity in tourism in Gorkha over the past few years has been directed at other sites. Nevertheless, the two palaces in the area have the scale and associated history to become major tourist attractions, to which the Projects output would contribute. In contrast to the above sites, the Phewa lakeside footpath and garden are incomplete, and because they are located away from the main tourist areas and tourists have closer alternatives, they may not be utilized unless substantial improvements to the nearby parkland are made. Thus, at OEM, only two of the five tourist site developments produced the desired types of results, but a further two have some potential to do so.

2.

Access to Pokhara

28. Between the start of the Project in 1992 and 1999, passenger throughput at the airport increased by 170 percent and flight movements by 190 percent (Appendix 2, Table A2.1 and paras. 17-18). In 1999, about 246,000 passengers passed through the airport. Most of the growth in passenger throughput occurred in 1993-1994 and 1997-1999. The 1993-1994 growth coincided with an increase in airline capacity as a result of a change in government policy that allowed new entrants to operate. The period 1997-1999 appears to be a continuation of the earlier growth, which had been temporarily stopped by construction works at the airport (which disrupted but did not cancel flights). The previous terminal facilities could not have accommodated such increases in passenger numbers, and the Project improved access to Pokhara as intended.

3.

Human Resources Training

29. As a result of the Project, NATHM has been able to maintain its short courses and outreach activities at a level of about 900-1,000 students per year and has added the three-year degree course for which it has a first-year intake of 32 students (Appendix 2, paras. 19-23). However, NATHM needs additional equipment to maintain a regular
17

18

For comparative purposes, in 1999 the number of visitors to Nepal was 484,120 while the number of non-Indian visitors to Pokhara was 105,586. In the same year, about 67,371 trekkers used the trails in the Annapurna conservation area in which the ecotourism trail is located. Some minor works await completion.

15

intake of both first-year degree students and the short-course students in cooking and related courses. The private sector considers most of NATHMs courses as suitable to its needs but has expressed a need to improve the content and length of training in some of the short courses. Despite some defects in the courses, NATHM reported that surveys carried out in 1991 and 1995-1996 indicate that about 75 percent of its graduates are employed in tourismrelated activities. Another survey in 1996 showed that 14 percent of the staff of the three- to five-star hotels in Nepal were graduates of NATHM. Graduates were also reported as being well sought after for employment in the hotel industry in the Middle East.

4.

Tourism Promotion

30. Few tourists (under 15 per day) visit the Kathmandu TSC because it is neither well promoted nor located conveniently to any of the main tourist areas. Arrangements to have the TSC included in tour itineraries have not been implemented. Compared with the 25,000 arrivals at Kathmandu airport in January 2000, the TSC received 70 foreign tourists. There are many alternative private tour agents and operators, conveniently located in tourist areas, which can provide tourists with information and services of the type expected from the TSCs. Useful basic information is also given to visitors on arrival at Kathmandu airport. The Pokhara TSC is incomplete and does not function. Overall, the TSCs have had little impact that could not have been achieved in alternative ways at lower cost (Appendix 2, paras. 24-29). The TSCs were intended to be more than just information centers, and the Kathmandu TSC in fact supports the tourism industry in other ways: it provides office space for the Nepal Tourism Board (NTB), helps provide information to tour operators and agents, and provides a meeting room and auditorium for the private sector and for other tourism sector needs. However, the Kathmandu TSC is relatively expensive due to its design and the quality of its finish, and for the office space and some of the less-visible supporting facilities, a lower-cost building could have been built or found elsewhere.

5.

Public and Private Sector Institutional Arrangements

31. Clarity of public institutional functions and improved linkage with the private sector were to be important outputs of the Project and the parallel action plan of the Government. With the withdrawal of UNDP from the Project, the direct inputs to create improvements within MOT were no longer provided. However, UNDP subsequently embarked on a separate program, a significant result of which was the formation of the NTB as an independent entity dominated by the private sector to promote and develop tourism. Formation of the NTB was a requirement of ADBs Second Tourism Development Project. Although some functions are still managed by MOT, the NTB has taken over most functions from DOT, which is to be abolished. While not under the Project, this change has clarified the basic institutional arrangements within the public sector and established a better platform on which linkages with the private sector can be formed (Appendix 2, paras. 30-32). However, the private sector institutional arrangements require strengthening for them to respond to the improved opportunities for public-private sector linkages (para. 16). 32. Planned improvements in management arrangements and accounting practices in NATHM and CAAN were not implemented.

6.

Overall Impact on Tourism

33. The Projects purpose was to increase the average length of stay of tourists and their average daily spending. The national statistics (Figure and Appendix 3) show that these parameters have changed little over the 19 past 15 years. Tourist activity and income from tourism has increased over the period under discussion due to a rise in tourist numbers and it is possible that the Project contributed to this, even though this was not a stated project objective. Unfortunately, the available data are insufficient to establish any relationship between tourist numbers and the Project. While the data on passengers passing through Pokhara airport suggest an increase in the number of tourists, and two of the improved tourist sites registered an increase in visitors, it cannot be established that these increases are incremental at the national level. The possibility exists that the visits to Pokhara and the project tourist sites were in exchange for visits to other areas; that is, the number of visitors to Nepal would have been the same without the Project. To establish a causal relationship with the Project requires more detailed information than is
19

Despite the lack of long-term change, important short-term changes, both up and down, have occurred in the length of tourist stay and spending per tourist-day, which help to explain situations such as 1993 when foreign exchange earnings increased even though tourist numbers declined sharply.

16

currently available. Similar information is needed to establish links between the other project components, namely the TSCs and NATHM upgrading, and measured changes in tourism.
Source: Data from Appendix 3.

Nepal Tourism Statistics

120

100

80 Index

60

40

20

0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Year Number of visitors Average number of days of visit Total foreign exchange earnings (in constant 1999 $) Average foreign exchange earnings per visitor-day (in constant 1999 $)

17

34. The town of Pokhara, where four of the Projects five tourist sites and the airport are located, has experienced a rapid rise in the number of private hotels, restaurants, travel and trekking agencies, travel services, souvenir manufacturing, and souvenir shops (Appendix 4). The growth in souvenir shops and restaurants around Sarangkot is due to the Projects road improvements, and much of the increase in other tourist facilities and services within Pokhara may have been stimulated by the airports upgrading and increase in passenger arrivals. However, this increase in facilities in Pokhara has not resulted in any apparent increase in length of stay in either Pokhara or Nepal, or in average spending. For spending, the converse may have happened as, for example, the increase in the number of hotels in Pokhara has resulted in a low average occupancy rate, which is currently some 25 percent, and reduced prices. Low utilization leads to economic inefficiency and jeopardizes the sustainability of many businesses. There also is the possibility of economic loss as a substantial amount of the resources needed to establish and service tourist accommodation is imported. Similar overcapacity was reported in some other types of business. It is also noteworthy that the souvenirs offered in Pokhara, including those from around Sarangkot, do not differ from those available elsewhere in Nepal, limiting the ability of the industry to gain incremental sales or higher prices.

B.

Performance of the Operating Entity

35. Many entities are involved in operating the facilities constructed under the Project. Except for Pokhara airport, financial analyses of the facilities and entities involved were not undertaken, but the capability of each entity and broad financial arrangements in each case were reviewed. Operational weakness is likely to be encountered in maintaining the urban facilities in both the Pokhara and Gorkha conservation areas, and the palaces associated with the Gorkha conservation area. The local governments in Pokhara and Gorkha and DOA, which is to operate the palaces, have very limited financial and technical resources and may not be able to operate and maintain the facilities properly. The situation in Pokhara will soon be subsumed within the much-enlarged local government responsibility to operate and maintain the urban infrastructure and waste management services created under ADBs Second Tourism Development Project. Although this project provides for training of local government staff, provision is limited and may not be able to adequately address the broad aspects of municipal management needed to cope with the increase in 20 staff, finances, resources, and responsibilities. 36. DOR has sufficient experience in maintaining roads and, up to OEM, had provided adequately for the maintenance of the Sarangkot access road, including its resurfacing. Given the local importance of the road to tourism, it is probable that maintenance will be sustained. Similarly, the operation of Pokhara airport is well within the experience and capability of CAAN. CAAN also recoups sufficient income to operate and maintain the airport. Financial analysis shows that Pokhara airport generates a positive financial rate of return of 6 percent (Appendix 5). At OEM, routine maintenance, particularly the cleanliness of toilets and floors, needed improvement. The adequacy of airport maintenance is also subject to the demands put on CAAN to use funds derived from profitable airports, such as Pokhara and Tribhuvan, to support other loss-incurring airports. The facilities in the ecotourism area are being operated and maintained by the communities. With the exception of the mini-hydroelectric plants, the operation and maintenance demands of these facilities are well within the communities capabilities. Assistance for the repair and maintenance of the mini-hydroelectric schemes is arranged by KMTNC. Income is being earned from the use of the campsites and the one operational lodge, and from the sale of hydroelectricity. The campsites and associated rubbish dumps utilize appropriate technology, and with the fees generated are likely to be sustained. The operational lodge is insufficiently utilized to generate a positive net return, and unless a different trekking arrangement is established to improve the use of the lodges, they will not generate profits for the communities. The communities and the kerosene depot operators are repaying part of the costs of the facilities to KMTNC. Repayment rates are typically above 80 percent, even with the lodge, despite the fact that income from operations is insufficient. This is because the local community has available cash resources from other sources. The payments for electricity are insufficient to cover the eventual cost of replacement of the mini-hydroelectric plants.

C.

Economic Reevaluation

37. In the absence of information on which to establish the incremental portion, if any, of recent increases in tourist numbers and expenditure attributable to the Project, an economic reevaluation, such as was done at appraisal, was not completed. The PCR reworked the appraisal analyses for the airport and tourist sites by assuming that, without the Project, tourist numbers passing through Pokhara airport would grow by 5 percent per year. All increases
20

Added support is provided under the German-aided Urban Development Through Local Efforts Project and Urban Development Training Center Program.

18

in tourist numbers above this level were deemed incremental and 10 percent of the money spent by these incremental tourists was assumed as a net benefit attributable to the Project. On this basis, the PCR recalculated the economic internal rate of return to be 26 percent. The OEM could not verify the PCRs assumptions. 38. The Project was reviewed from the point of view of cost-effectiveness and efficiency related to the implementation timetable. While the OEM did not apply a rigorous least-cost analysis, it appears that the Sarangkot access road, works for the Pokhara and Gorkha conservation areas, Pokhara airport expansion, and NATHM upgrading were completed at reasonable cost in relation to their individual output targets. Implementation delays, particularly for the Gorkha conservation area, reduced the efficiency of these investments, however, by extending the time when realization of benefits began. The various physical elements in the ecotourism area were established at reasonable cost, but the overall cost of this component was high because of the community development aspects. The expenditure on community development was necessary, however, and may bring added benefits in the future. The Kathmandu TSC is much larger and of much higher standard than needed to achieve its objectives, and cannot be said to be cost-effective. The incompleteness of the Phewa lakeside footpath and garden, and the Pokhara TSC, renders them cost-ineffective.

D.

Sustainability

39. The main impact of the Project on tourism has been at Sarangkot and the ecotourism trekking trail, and through investment at Pokhara airport. The facilities involved in these components are likely to be sustained because of their importance and because of the experience and/or nature of the operating entity. In the immediate future, sustainability is an issue for the public infrastructure in the Pokhara and Gorkha conservation areas because of the limited capability of the local governments, at the overall tourist site at Gorkha because of the uncertain arrangements for maintenance of the palaces and surrounding landscaped areas, and at the lodges on the ecotourism trekking trail because of limited patronage. In the longer term, Pokhara airport will become congested due to the limited size of the terminal and because the runway must also be used as the taxiway, which limits the number of flights that can be accommodated each day. While substantial scope still exists for managing the timeliness of arrival and departure for maximizing use of the existing airport, an alternative site will become necessary at some stage. Also of longer-term concern is the deteriorating quality of Phewa Lake and the negative impact that pollution in the lake can have on tourism in Pokhara. The lake is a major reason for people to come to Pokhara, as other towns offer mountain viewing and access to trekking trails.

IV.

ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

A.

Socioeconomic Impact

40. Significant social benefits, unrelated to tourism, are being derived by local people associated with the Pokhara and Gorkha conservation areas, ecotourism area, Sarangkot access road, and Pokhara airport. These benefits include improved living conditions for residents in the Pokhara and Gorkha conservation areas from the drainage systems, street lighting, and paved footpaths plus, for the Pokhara area, a new sewerage system. Development in the ecotourism area brought electricity for lighting and small appliances (e.g., radios) for four villages, some improved village water supply, increased kerosene availability, and localized trail improvements. Households in the catchment of the Sarangkot access road now have regular bus services because of the Project. The passengers using Pokhara airport include Nepalese travelers who benefit from the improved airport conditions and aircraft. In each case, the number of beneficiaries is also significant: 6,000 for drainage in Pokhara, 1,200 for improved sewerage in Pokhara, 500-1,000 for improved urban conditions in Gorkha, up to 5,000 local residents served by the Sarangkot access road, 800 households receiving electricity in the ecotourism area, and an estimated one third of the passengers using Pokhara airport. There are no social benefits from Phewa lakeside footpath and garden since they are incomplete, while the TSCs and NATHM were not designed to generate such benefits. 41. In contrast to the improvement in living conditions and services for local people within poorer groups, the Projects impact on income distribution has been less marked. Apart from the effects of increased employment, the best achievements have been at Sarangkot and in the ecotourism area. At Sarangkot, a small number of new businesses have been established to give a total of about 65 businesses serving the tourist trade. Most of these businesses are small cottage-level enterprises. The campsites and related facilities in the ecotourism area provide

19

income for the community groups who manage them. However, trekkers buy little else other than cold drinks and biscuits from the villagers along the trailtypically all requirements for the trek are brought in by the trek organizers. In the Pokhara and Gorkha conservation areas, tourism and tourist outlets have not yet developed and local residents have yet to benefit from increased income from tourism.

B.

Environmental Impact

42. The ecotourism component had a positive impact on the environment through establishing electricity and kerosene supply for villagers, both of which have reduced the need to cut trees for fuelwood. Although surveys on flora and fauna have not been completed, the Nepal National Parks and Wildlife office has an optimistic view of the benign nature of the ecotourism component on the natural environment based on recent sightings of indicator animal species and observations by its staff. Conversely, by failing to adequately address the disposal of sullage by households in the Pokhara conservation area, the Project missed an opportunity to improve the quality of storm water draining into Phewa Lake. However, this component did not increase lake pollution, since sullage was being produced and drained into the lake via other routes before the Project. 43. Safety at Pokhara airport was improved by the construction of a fence, which now prevents people from straying onto the airport. Relocation of the control tower also improved safety for air traffic control staff.

C.

Impact on Institutions and Policy

44. The Project was to have a direct impact on tourism institutions, policy, and the private and public linkages relating to tourism. Because of the withdrawal of UNDP consultant support, very little was directly achieved under the Project in this area. Significant changes occurred under the UNDP-implemented replacement program, however. Improvements within CAAN and NATHM did not materialize. 45. The Project has increased financial and administrative burdens for the local governments of Pokhara and Gorkha, which are responsible for operating and maintaining the improved urban infrastructure in their areas. While this was known at appraisal, the lack of resources and capacity of the local governments was underestimated. 46. Two TAs accompanied the Project (footnote 8). The TAs were sufficient for the purposes intended, and the terms of reference were adequately addressed by the consultants (Appendix 2, paras. 33-35). Part A of TA 1662NEP made recommendations for the establishment of a cultural display center, but these were not acted upon. Part B of the TA reviewed civil aviation as it related to tourism. Several of the recommendations have been implemented, including under the Second Tourism Development Project. As shown by the results of the Pokhara airport upgrading, civil aviation improvements are necessary to facilitate the strong growth in air travel occurring in Nepal. TA 1663-NEP identified 13 projects for addressing pollution in Phewa Lake. However, the study appears to have underestimated the capability of the national and local institutions to implement the projects, and did not sufficiently involve the private sector in the design phase. One of the projects was included under the Second Tourism Development Project, but the others have not been acted upon despite the serious nature of pollution in the lake (para. 57). Overall, the TAs are rated as successful.

V.

OVERALL ASSESSMENT

A.

Relevance

47. The Project is highly relevant to both the Governments development strategy and ADBs country operational strategy. Tourism is one of Nepals few areas of comparative advantage and offers development potential. Although a public sector investment, the Project had an ultimate focus on private sector growth. The Project also aimed to foster environmental conservation and the involvement of local communities in development. However, despite strong overall relevance, weakness in the Projects design, which has delayed the realization of benefits, indicates lower relevance of the outputs to the broader purpose and goal. The Project overall is, therefore, rated relevant.

20

B.

Efficacy

48. The available data do not show the Project to have had a clear and significant impact on length of tourist stay and average tourist spending, the main aspects that the Project was expected to change. The impact on the number of tourists, a parameter not targeted by the Project, but one that has also to be considered, is not clear. At the output level, the upgrading at Pokhara airport and NATHM components are producing as expected, but the effectiveness of the other three major components is mixed. Only two of the five improved tourist sites have attracted more tourists, although a further two could do so in the future. The tourist promotion and institutional improvement components were not very effective. Overall, the Projects effectiveness in achieving its stated purpose is rated as less efficacious.

C.

Efficiency

49. Six of the eight major components of the Project were completed with a reasonable degree of cost efficiency in generating outputs, but delays did occur. The lakeside footpath and garden and the Pokhara TSC were incomplete at OEM. The Kathmandu TSC was built to an excessively high standard overall and included facilities of marginal utility, and is not considered very cost-effective compared with its objective. Of greater concern, however, in assessing the efficiency of the Project is the delay in realizing benefits. Several subcomponents may produce an effect only in the long term. Overall, the Project is rated as less efficient.

D.

Sustainability

50. The sustainability of the Projects achievements is likely in many cases. The major exceptions stem from the limited capacity of the local municipal governments to maintain the urban infrastructure created in the Pokhara and Gorkha conservation areas, and DOA to maintain the Gorkha palaces. Despite these reservations, a rating of likely for sustainability is appropriate.

E.

Institutional Development and Other Impacts

51. Very little of the expected institutional improvements were achieved under the Project. Nevertheless, significant achievements in restructuring the public sectors responsibilities in tourism and building linkages to the private sector through the NTB were achieved in parallel with the Project. Accounting and management systems at NATHM and in CAAN still require improvement, and the private sector representative organizations ought to be strengthened. The increased burden on the municipal governments of Pokhara and Gorkha constitute a negative institutional impact not adequately addressed under the Project. 52. The Project stimulated or created small but significant increases in private tourism activities through the Sarangkot access road and ecotourism components. Many of these businesses are small and contribute to increased income for people in low-income groups. The urban infrastructure created in Pokhara and Gorkha; the electricity, kerosene, and public amenities in the ecotourism area; and the added capacity and comfort of the airport, have enhanced social conditions for local residents.

21

F.

Overall Project Rating

53. The Project is rated less than successful. The rationale behind this rating is outlined in paras. 46-51 and presented in quantitative terms in Table 1. In summary, the Project is relevant to the development objectives of the Government and ADB and is considered to be capable of achieving a significant part of its purpose in time, as well as other socioeconomic benefits. However, it has some major shortfalls in its achievements compared with those expected, and weaknesses in terms of efficiency and sustainability that prevent it from being classified in more 21 successful terms. Table 1: Overall Project Rating Criterion Relevance Efficacy Efficiency Sustainability Institutional Development and Other Impacts Overall Rating Assessment Relevant Less Efficacious Less Efficient Likely Moderate LS Rating (0-3) 2 1 1 2 2 Weight (%) 20 25 20 20 15 100 Weighted Rating 0.40 0.25 0.20 0.40 0.30 1.55

Assessment Ratings: Relevance: 3 = highly relevant; 2 = relevant; 1 = partly relevant; 0 = irrelevant. Efficacy: 3 = highly efficacious; 2 = efficacious; 1 = less efficacious; 0 = inefficacious. Efficiency: 3 = highly efficient; 2 = efficient; 1 = less efficient; 0 = inefficient. Sustainability: 3 = most likely; 2 = likely; 1 = less likely; 0 = unlikely. Institutional Development and Other Impacts: 3 = substantial; 2 = moderate; 1 = little; 0 = negligible. Overall Rating: HS = highly successful S = successful LS = less than successful U = unsuccessful 2.5 < HS 3.0 1.6 S 2.5 0.6 LS < 1.6 < 0.6

G.

Assessment of ADB and Borrower Performance

54. The Government was slow in setting up the PMU and did not adequately staff the PMU in its early years. Insufficient resources and authority of the PMU and the delay in setting it up limited its ability to help the many inexperienced IAs in avoiding problems. Other than those relating to the establishment of the PMU, the loan covenants were adequately complied with. The Government attended to most of the parallel action plan, but with delay. Several important institutional improvements in CAAN and NATHM are still to be undertaken. The overall performance of the Borrower is assessed as satisfactory. 55. ADBs appraisal could have been better, particularly in assessing the need to market the tourist sites, addressing the capacity of the local governments to manage the new urban infrastructure in Pokhara and Gorkha, assessing private sector institutional capacities and the requirements to promote tourism to the already-arrived tourists, and retaining the detail about the target market presented in the feasibility studies. The number of implementation supervision missions was adequate, but they could have given more attention to benefit monitoring and evaluation at the early stage of implementation. Overall, however, ADBs performance was satisfactory.

21

The Government and ADBs Water Supply, Urban Development and Housing Division West consider the Project successful, particularly in view of the achievements of the Pokhara airport upgrading component. While the Operations Evaluation Office recognizes the achievements of the airport (and other components), these achievements cannot be shown to be incremental from the national perspective, and must be viewed in the context of the whole project which has areas of significant underachievement. Overall, the main objective of the Project, namely an improvement in the average length of tourist stay and spending was not achieved.

22

VI.

ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

A.

Key Issues for the Future

1.

Municipal Government Capabilities for Operation and Maintenance

56. The operation and maintenance of services and facilities in the Pokhara and Gorkha conservation areas and the Phewa lakeside footpath and garden were correctly identified as local government responsibilities at appraisal. Moreover, tourism in general in the Gorkha and Pokhara townships is intertwined with the maintenance of clean and orderly urban environments. Polluted and unsightly surroundings discourage tourism. The good performance of the Pokhara and Gorkha municipal authorities in urban management, therefore, is necessary to maintain the urban infrastructure created under the Project and to encourage tourism in general. However, these two institutions have limited capability and resources, aspects that were not adequately addressed by the Project. The capacity of the Pokhara municipal government is being addressed under ADBs Second Tourism Development Project, but support from this Project has been delayed and is unlikely to be sufficient with training limited to the project period and no attention given to broader aspects of management, including financial management. Further strengthening of the municipal governments in Pokhara and Gorkha will be required to ensure that project benefits can be realized and to enhance the tourism appeal of the towns.

2.

Phewa Lake

57. Phewa Lake is one of Pokharas major natural tourist attractions. However, it has become progressively more polluted over time. Many studies have been done on the lakes condition and the causes of pollution, including some by the Project, yet little has been done to correct environmental degradation. The issue of pollution in the lake has been addressed indirectly in ADBs Second Tourism Development Project through a public environmental education program; specific drainage, sanitation, and solid waste management improvement initiatives; and urban management capacity-building measures within the municipality. Nevertheless, at best these will slow down the rate of pollution without improving existing pollution levels. In view of the importance of the lake to tourism and of tourism to Pokhara, further action is of high priority.

23

B.

Lessons Identified

58. As shown by the Pokhara conservation area and the ecotourism trekking trail components, community involvement in design and implementation can enhance community support for operations. However, involving communities may cause delays and flexible project timetables are required. 59. In designing centers, such as the TSCs, it is necessary to maintain a clear view of the type of service that needs to be provided and the appropriate location for sites to deliver such a service. 60. The promotion of improved tourist sites is important and should be built into projects designed to improve or establish tourist sites as tourists will not come otherwise, nor will private operators automatically include the sites on their itineraries or set up tourist facilities at the improved site. Further, the design of tourist sites should involve tour operators so that the site is operationally feasible for tours. 61. Weaknesses in poorly performing public-private sector linkages frequently occur on the side of the public sector and, as a result, many projects focus on enhancing public sector capabilities. However, as shown by the Project, the private sector also may suffer from institutional weaknesses and may require strengthening to effectively participate in development partnerships. In addition, project experience shows the need to fully involve the private sector from the early stages of project planning and implementation. 62. Ecotourism, as implemented under the Project, can work. However, each enterprise, such as lodges, should be subject to rigorous financial and marketing feasibility assessment. The Project has brought out the difficulty of establishing community lodges as viable enterprises in view of the need to establish a sufficient number of functioning lodges at appropriate places along the trekking circuit. The community development operations under the Project required large resources, which will limit the scale at which such development can be replicated. 63. Sullage disposal in urban areas is normally into storm water drainage systems and specific attention to the disposal of this waste is needed in the design of drainage and sanitation projects. 64. Where there are many inexperienced IAs, the PMU assumes added importance and careful consideration of the strength and status of PMU personnel is needed in project design. An understafffed PMU may not be able to give adequate attention to the soft parts of a project in view of the often more immediate demands of implementing the hard components. The permanent status of personnel is also important in order to improve continuity. The early establishment of the PMU is necessary to avoid delays. 65. To be successful, benefit monitoring and evaluation needs specific attention from project supervisors at an early stage in project implementation.

C.

Follow-Up Actions

66. Several low cost actions could be taken to improve the utilization of the project-improved tourist sites. These include increasing promotion of the sites; opening the Gorkha palaces and ensuring that sustainable arrangements are put in place by the DOA for operating the palaces; and designing short treks for the ecotourism trekking trail that will enable the lodges to be used independently of each other. The Government could give responsibility for these follow-up actions to either the PMU for the Second Tourism Development Project or the NTB (or both). However, it is essential that the private sector representative organizations, such as those for trekking guides and tour operators, be involved in the design of the short treks (with KMTNC) and the arrangements for operating the palaces (along with DOA). Involvement of the private sector will help ensure that the arrangements are viable from the tourists and tour operators perspective, and that the sites are likely to be included in tour itineraries. It should be possible to complete these arrangements, including the preparation of promotional material, by the end of the first quarter of 2001. 67. Action also should be taken by DOR to formulate a proposal for the reconstruction of the parking area and turning circle at the top of the Sarangkot access road. This proposal should be formulated in conjunction with the local residents and the local government authority in order to avoid the conflicts of interest which had arisen over the original design. It would be opportune to have a proposal ready and funded by the end of 2001 so that construction could be done during the dry season of 2001/02.

24

68. Although there is a Curriculum Reviewing Committee, established to review the curricula of NATHM, several private operators have indicated a need for changes, including upgrading of certain courses and lengthening of the rafting-guide course to include practical training. An important issue is how well all the various sector interests are covered by the Curriculum Reviewing Committee and channeled into the review process. A broad review of the courses by NATHM through wide canvassing of all interested tourism participants would appear appropriate. Consideration could also be given to strengthening the certification arrangements of graduates, perhaps with greater involvement of private sector organizations in testing and certification, in order to enhance the usefulness of the certificates. A plan to address these issues could be drafted during an initial meeting between NATHM and the relevant private sector groups. Such a meeting could take place in the first quarter of 2001. 69. Action is needed in Pokhara by the local municipality and the Directorate of Housing and Urban Development to ensure that sullage is disposed of properly rather than into the storm water drainage system, which is having a detrimental effect on the environmental condition of Phewa Lake. The solution will require households to be encouraged to install soakage pits, which may take time. However, the preparation of a plan to address the problem could be prepared by mid-2001.

25

APPENDIXES

Number Title

Page

Cited on (page, para.)

1 2 3 4 5

Project Cost Achievement of Project Outputs Selected Tourism Data for Nepal Statistics on Private Sector Tourism Facilities Pokhara Airport Financial Reevaluation

21 22 32 33 34

3, 8 4, 14 10, 33 11, 34 11, 36

21

Appendix 1

PROJECT COST ($'000) Project Output/Component Tourist Attractions Pokhara Conservation Area Phewa Lakeside Path and Gardens Sarangkot Road Gorkha Conservation Area Ecotourism Trekking Trail Subtotal Upgrading Pokhara Airport Upgrading of Nepal Academy of Tourism and Hotel Management Physical Works Technical Assistance Subtotal Tourism Promotion Tourist Service Center, Kathmandu Tourist Service Center, Pokhara Subtotal Improved Public Sector Capabilites Project Support Service Charge Total
a b

Appraisal

Actual

1,126 108 668 858 900 3,660 1,606

1,112 29 683 536 634 2,994 1,926

2,458 1,700 4,158

1,920 250 2,170

2,209 325 2,534 1,320 997 331 14,606

1,052 155 1,207 0 473 160 8,930

Incomplete at the time of operations evaluation. United Nations Development Programme assistance replaced by consultant inputs budgeted at appraisal under project support.

Source: Operations Evaluation Mission estimates based on the appraisal report and data from the project management office for the Second Tourism Development Project.

22 Appendix 2, page 1 ACHIEVEMENT OF PROJECT OUTPUTS A. Expanded Number of Tourist Attractions 1. General Assessment

1. The attractiveness for tourism of four of the five sites addressed under the Project has been substantially improved. The fifth site, the Phewa lakeside footpath and garden, was not completed and is not functional. However, at the time of the Operations Evaluation Mission (OEM), not all parts of the four completed subprojects were in operation and, in some cases, additional inputs from other projects were needed to complete the development. At Sarangkot, as a result of the Projects improvement of the access road, both the number of visitors and the commercial activity of private souvenir stalls and cafs have increased. Tourist use of the ecotourism trekking trail has commenced and is significant in all areas except lodges. Local communities are involved in maintaining the services. At the other sites, however, significant increases in either tourist numbers and private sector tourism activity are not yet apparent. 2. Pokhara Conservation Area

2. The Project aimed to upgrade the attractiveness to tourists of the historic streets of Ganesh Tole and Ram Krishna Tole. Many of the buildings along the street are old traditional two-story brick and tile shop-houses. An important temple is located at the end of Ganesh Tole. The Project established most of the physical works planned for the street, including drainage along the sides of the streets, a sewerage system utilizing communal septic tanks, footpath paving in stone that matches the character of the buildings, litter bins, and street lighting. Although not part of the Project, the local government sealed the roadway, which was previously only partially sealed and unsightly. The uncompleted work comprised the outfall of the drainage system, which was left to drain into Phewa Lake without any mechanism to settle out solid material. An arrangement to overcome this deficiency is planned under the Asian Development Bank (ADB)-financed Second Tourism Development Project. 3. The street appearance was improved under the Project. The facilities also benefit local residents in the form of drainage for 6,000 persons, sewerage for about 1,200 persons in 250 households and safer pedestrian movement from the improved footpaths and street lighting. Nevertheless, several operational aspects were either not achieved or required improvement. The litter bins by themselves were inadequate to encourage improved solid waste collection and cleanliness along the street. This is being rectified under the Second Tourism Development Project, which has a program for building community awareness of solid waste collection and tidiness of the street and improving municipal waste removal services. That program was succeeding at OEM, as evidenced by the common presence of private litter bins and the cleanliness of the street. The design of the drainage and sewerage systems failed to adequately recognize the need to collect and treat kitchen and bathroom sullage separately from both sewerage and storm water runoff. Soap within the sullage interferes with the operation of the septic tanks so sullage has been excluded from the sewerage system. Most households drain their sullage into the storm water drainage system installed by the Project. The result is that this sullage drains untreated into Phewa Lake, contributing to the high levels of pollution in this important tourist attraction. 4. Benefit monitoring and evaluation (BME) surveys were done in 1996 and 1997. These surveys do not quantify the change in tourism in the area, but indicate an increase in the number of commercial premises and business activity in the street over the one-year period.

23 Appendix 2, page 2 Responses from street residents and tourists interviewed by the OEM, however, suggest that the increase in businesses and business activity is due to domestic trade and that tourist traffic and tourist trade have not appreciably changed. Very few tourists visit the area, and trade with tourists comprises the occasional sale of cold drinks. Along the street, there are no shops, cafs, or other establishments catering specifically to tourists. One possible reason for the lack of tourist visits is the absence of any concerted effort to market the site. In general, tourists are unaware of the area, and tour operators are not aware that the site has been upgraded and can offer additional sightseeing opportunities for tourists. The lack of specialized tourist shops and cafs also limits the appeal of the area. 3. Phewa Lakeside Footpath and Garden

5. The component aimed to develop an attractive landscaped garden and footpath in an existing park adjacent to Phewa Lake and the site of the tourist service center (TSC), also to be established under the Project. Most of the footpath was completed with the exception of the sections joining either end to existing roads and pathways. Essentially, the footpath exists but at one end entry to it is blocked by a wall, while at the other end, the entry is not very obvious, the entry being separated from the roadway footpath by a grassy strip. A slum area exists nearby the middle section of the footpath and a large section in the same area has collapsed; these conditions impose limitations on the attractiveness and usefulness of the feature. The garden was not established. 6. Few people, let alone tourists, use the footpath. The park through which the footpath passes is itself not very attractive, lacking shade trees and areas of interest other than the adjacent lake. Tourists can access the lake at many other sites making a visit to the park for this purpose unnecessary. The park is located near the site of the dam forming the lake, but the main tourist area has developed several kilometers further down the lake. The footpath will likely only be used if the park is made attractive to tourists. Currently, the municipal government is discussing upgrading the park with officials from its sister city in Japan. 4. Sarangkot Access Road

7. The Project improved and sealed the vehicular access road to the Sarangkot Hill viewpoint. Apart from some subsidence of the roadway in a short section (about 20 meters) traversing a saddle between ridges, the road is of a satisfactory standard. It was completed in mid-1995. The turning circle and parking area at the destination end of the road have been covered by spoil from land-leveling activities of local residents. The issue is politicized and difficult for the Department of Roads to correct by itself. The loss of the turning circle and parking area reduces safety during peak tourism periods. Two maintenance men are engaged on a regular basis to do most of the routine maintenance; the Department of Roads also sends a maintenance crew to attend to the larger maintenance works once every year. Four retaining walls have been built since completion of the road and preparations are under way to reseal the road over several years and to reconstruct the subsided section. The arrangements for maintenance appear adequate for the type and level of traffic. 8. As a result of the road, the number of tourists visiting Sarangkot Hill has increased, particularly older tourists. Previously, the only visitors were those prepared to hike up and down the hill, a full-day excursion. Visits from Pokhara now can be made in a few hours, including time spent at the viewing platform. BME surveys did not quantify the number or change in the number of tourists visiting Sarangkot. OEM estimates based on interviews with those manning a tollgate on the road and the viewing platform suggest that currently, Sarangkot attracts around

24 Appendix 2, page 3 40,000 visitors per year, whereas before the road was completed, less than half this number visited. The increased tourist traffic has stimulated an increase in the number of souvenir shops and cafs in the area. Between 1996 and 1997, the BME surveys registered a 20 percent increase in the number of commercial establishments in the area, and an increase in the net value of monthly commercial sales and annual income among households with commercial interests. Sample interviews and surveys carried out by OEM confirmed this overall increase in commercial activity.1 However, the income of hotels and guesthouses has declined as a result of a reduction in the number of hikers visiting the site and staying overnight. About one quarter of the 16 hotels and guesthouses appear to have closed. It was not possible to determine the net effect of the increase in souvenir and caf sales on the one hand, and the loss from reduced accommodation on the other. Another group benefiting from the increase in tourist numbers is the taxi operator group, which has another destination to bring tourists to. 9. In addition to facilitating increased tourist traffic, the road has benefited local residents by shorter travel times, lower freight costs, and availability of regular bus services. The local population comprises about 5,000 people in two villages. 5. Ecotourism

10. The Project established a new trekking trail in the Annapurna conservation area. Campsites, kerosene depots, garbage disposal arrangements, riverbank stabilization, paved pathways and footbridges, forestry plantations, an information center, a small museum, and two lodges were established to encourage both organized trekkers with camping equipment and those without. Local community groups, particularly womens groups, manage and maintain the facilities, apart from the kerosene depots, which are owned and operated by individuals, and collect fees from users. As part of the development and to encourage greater support from the local population in maintaining the environment, public water faucets, two mini-hydroelectric schemes and transmission lines to connect these, and another scheme for four villages were also established. 11. At OEM, the Dhiprang lodge had been in operation for about six months, but the one at Sikles was not yet operational. The Sikles lodge was poorly constructed and was rebuilt by the contractor, causing a delay. The problem at Sikles was not repeated at Dhiprang as the community was engaged to construct the lodge. The lodges were poorly conceived as the trek between the lodges is longer than one day, and there is no alternative accommodation in between. That means all trekkers will have to bring camping equipment with them to be able to use the trail, diminishing the likelihood that the lodges will be used. The community groups borrowed funds to construct the lodges; from the preliminary data on income and expenses, it is probable that the lodges will not be commercially viable. The Dhiprang community appears willing and able to repay the loans from other sources, including money remitted by family members serving in the Ghurka military forces. The other facilities of the trekking trail are being used, and community management is adequate. Counting the numbers of trekkers along the trail started only in January 1999. For the 12 months of 1999, a total of 1,125 trekkers used the trail. The number of trekkers using the 10-bed Dhiprang lodge was 23 for the five-month period of September 1999 to February 2000. Apart from fees for the use of the campsites and related garbage disposal, and kerosene sales, the trekking trail does not bring any other significant business into the area. Almost all trekkers come in groups organized by tour operators. The
1

In 2000, the OEM counted, between the roadhead and the viewing platform, 31 cafs and hotels, 22 permanent souvenir shops, and 12 temporary souvenir stallsa total of 65 establishments. The 1997 BME survey reported 70 commercial establishments, including those along the trekking trail.

25 Appendix 2, page 4 operators bring all requirements with them and only purchase kerosene along the way. This is understandable in view of the need to ensure that everything promised to the trekkers is available during the trek, a guarantee that may not be met if the organizers rely upon local supply, given the variable nature of both supply and demand. 12. The four kerosene depots are operating satisfactorily and, with one exception, funds loaned to the operators as working capital have been largely repaid. 13. The two mini-hydroelectric schemes were satisfactorily established and appear to be operating well, serving 270 households at Tanting and Ghalekharka. The transmission lines from the preexisting mini-hydroelectric plant at Sikles provided connections for 535 households. Payments by users were reported by the King Mahendra Trust for Nature Conservation (KMTNC) to be 80 percent or better, and repayment of the loans contracted by the communities for the mini-hydroelectric plants and transmission lines was already substantial at OEM. 14. The Project successfully established a new trekking trail. The trail facilities are managed by the communities and are bringing in small amounts of regular income. The lodges are unlikely to be a commercial success. The kerosene depots are working satisfactorily and will benefit the individuals operating them. Infrastructure in the form of water supply, foot trails and footbridges, and mini-hydroelectricity plants was also established for the benefit of local communities. Measurements on the environment have not been made, but the Nepal National Parks and Wildlife office considers the type of development undertaken by the Project as having potential to achieve its ecofriendly objective. Despite the problems with the lodges, the overall objectives appear on the way to being achieved. Nevertheless, development has been expensive. About 72 percent of the cost of mini-hydroelectric schemes was subsidized, the cost of the campsites and other trail facilities was subsidized 50-80 percent, the other infrastructure was provided as grant, and KMTNC employed as many as 26 staff in the area to encourage and develop the communities. 6. Gorkha Conservation Area Improvement

15. Under the Project, areas around the historic lower palace at Gorkha were landscaped and the adjacent street in the old commercial area was paved with stone and provided with sealed footpaths, lighting, and litter bins. A public toilet and steps for community use were also provided. The Project supported the ongoing renovation by the Department of Archeology (DOA) of the lower and upper palaces, which are to become a significant tourist attraction between Kathmandu and Pokhara. At OEM, some of the landscaping was yet to be finished, although the works were in progress, and DOAs renovations were approaching completion. DOA is planning to construct a small museum within the lower palace before opening it to the public, expected some time in 2001. All works are of a satisfactory standard. 16. In the past two years (1998-1999), two new hotels have been established and an increase in the number of tourists to Gorkha has been noted. This rise could be part of a general increase in tourism as the area has several trekking trails that appear to be the main focus of the visitors. No information indicates that the Project has increased tourism activities so far. The lower palace is not yet open, and there are no specialized tourist shops around the palaces. Tourists spend one or two hours wandering around the old commercial area, but reportedly buy little other than cold drinks. Conversely, there is little else to buy.

26 Appendix 2, page 5 B. Improved Accessibility of Pokhara

17. The planned works under the Project to increase the capacity and safety of Pokhara airport were satisfactorily completed. A new airport terminal was constructed, the runway was sealed, and the airport enclosed with perimeter fencing. During the course of implementation, but before construction of the new terminal started, civil aviation policy changed to enable airlines other than Royal Nepal Airways to operate. As a result of this and the consequent immediate registration of many new airlines, the terminal was redesigned to cater for six airlines. Currently, it caters for 12 airlines. At the same time, the design was changed to incorporate a new control tower, which was previously located on the other side of the runway, constituting a safety issue. Some congestion occurs in the passenger check-in and waiting areas, and in the aircraft standing areas; but this is because of the concentration of most air movements into two short periods in the morning and afternoon. The problem could be overcome through management arrangements, such as by the use of differential charges to encourage use at other times. Some expansion of the airport facilities, including the aircraft standing apron, will be carried out under the Second Tourism Development Project. The standard of construction was generally satisfactory. Repairs to structural joints in the terminal building, which leaked, have been completed. The standard of routine daily cleaning and maintenance, especially of public toilets and the check-in and departure areas, needs improvement. 18. Between the start of the Project in 1992 and 1999, passenger throughput at the airport increased by 170 percent and flight movements by 190 percent (Table A2.1). In 1999, about 246,000 passengers passed through the airport, slightly more for departure than arrival. The previous terminal facilities, which are still standing, could not have accommodated such an increase. Airport staff estimated that about two thirds of passengers were local. The number of passengers passing through Pokhara airport has been increasing since the mid-1980s, but with three periods of rapid growth: 1987-1988, 1993-1994, and 1997-1999. The 1993-1994 period corresponds to the increase in the number of airlines operating as a result of the change in Government policy. The period 1997-1999 appears to be a continuation of the earlier growth, which had been temporarily stopped by the construction works at the airport. For example, during construction, aircraft movements were constrained due to the necessity to close parts of the runway for surfacing. Table A2.1: Pokhara Airport Throughput
Year
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Total Aircraft Movements (no.)

3,110 2,933 3,180 4,158 4,682 4,846 6,384 8,838 11,191 10,701 12,401 13,761 14,671 18,562

Arrivals
19,424 11,280 26,697 36,124 36,405 39,367 44,293 55,906 68,541 70,365 72,752 89,226 96,968 118,068

Passenger (no.) Departures

20,757 11,380 28,348 36,919 38,847 42,695 46,257 60,525 77,674 74,000 81,756 96,162 110,906 127,507

Total
40,181 22,660 55,045 73,043 75,252 82,062 90,550 116,431 146,215 144,365 154,508 185,388 207,874 245,575

Cargo Handled (t)

135 159 199 263 88 66 89 247 486 346 283 199 299 1,639

= no data available, t = ton. Source: Civil Aviation Authority of Nepal.

27 Appendix 2, page 6

C.

Upgraded Training Capability of NATHM

19. The Project upgraded existing buildings and the water supply system and provided new buildings and equipment to the Nepal Academy of Tourism and Hotel Management (NATHM).2 The focus of the works was to improve the quality of the training facilities with limited expansion. 20. Unexpected additional civil works in the form of reconstructing, as opposed to renovating, one building were required. The quality of the finish of the completed buildings is low when compared with the Kathmandu TSC, but is comparable to other buildings in Kathmandu and is of adequate standard for the operations required. In retrospect, sturdier electrical fittings would have been more appropriate given the often careless operation of the electrically operated facilities by some students. Dust control and cleanliness will be an ongoing problem, as the environment is very dusty and the buildings were designed to blend with the existing palace architecture rather than to minimize maintenance. Less equipment was supplied than expected due to delays caused by the added construction works and insufficient budget releases by the Government. The equipment was of adequate quality and problems have not been encountered with its use. 21. The complementary technical assistance (TA) to be provided by the United Nations Development Programme (UNDP) was withdrawn and only partially compensated for by the reallocation of 12 person-months of consultant time from project management to the support of NATHM. This reallocated consultant time enabled the creation of a new three-year degree course, which was initiated in mid-1999. However, other expected improvements including the formulation of a strategic plan for NATHM, revision of its organizational structure, and upgrading of its accounting system were not achieved because of the lack of technical support. 22. As a result of the Project, NATHM has adequate classroom space and functional curricula. NATHM has maintained its short courses and outreach activities at a level of about 900-1,000 students per year and has added the three-year degree course for which it has a first year intake of 32 students (Table A2.2). However, NATHM lacks equipment to enable it to maintain a regular intake of both first-year degree students and the short-course students in cooking-related courses. The improvements in accounting and management are still to be undertaken.

Formerly called the Hotel Management and Tourism Training Center.

Table A Nepal A 2.2: cadem of Tourismand Hotel Managem Graduates y ent

Training Course 1972/1987 1987/1988 1988/1989 1989/1990 1990/1991 1991/1992 1992/1993 1993/1994 1994/1995 1995/1996 1996/1997 1997/98 Hotel Tours and Travel Trekking Others Subtotal Outreach Courses Total 1,254 638 482 67 2,441 255 2,696 146 173 78 53 450 347 797 172 107 130 26 435 583 1,018 161 123 101 0 385 40 425 315 62 100 0 477 207 684 213 31 112 14 370 199 569 306 90 397 0 793 231 1,024 309 64 102 22 497 170 667 220 70 164 56 510 208 718 222 192 300 75 789 414 1,203 476 312 189 281 1,258 237 1,495 312 450 288 297 1,347 258 1,605 1998/99 279 213 272 126 890 183 1,073

28

Source: Nepal Academy of Tourism and Hotel M anagement.

Appendix 2, page 7

29 Appendix 2, page 8

23. The private sector considers most of NATHMs courses as suitable to its needs but has expressed a desire to see improvement in the content and length of training in some of the short courses. The private sector is represented on NATHMs board, and was involved in a revision of the syllabus in 1996. However, not all the private sectors needs for improving courses appear adequately met. The opinion of the OEM is that this shortcoming is related more to the way in which the private sector is structured, rather than the arrangements at NATHM. Despite some shortcomings in the courses, NATHM reported that surveys done in 1991 and 1995-1996 indicate that about 75 percent of its graduates are employed in tourism-related activities. Graduates were also reported as being well sought after for employment in the hotel industry in the Middle East. D. Improved Tourism Promotion 1. General Assessment

24. Improvements in the promotion of tourism focused on tourists who had already arrived in Nepal so as to increase their length of stay. To help achieve this, the Project was to build TSCs in Kathmandu and Pokhara. A parallel action plan being undertaken by the Government provided for the rationalization of administrative functions relating to tourism to establish clear responsibilities for promotion, development, licensing, and quality assessment. Institutional strengthening under the UNDP TA component of the Project supported the action plan. 25. The Kathmandu TSC was established as planned, but is much larger than required to achieve its objectives (paras. 26-27). Few tourists, under 15 per day, visit the Kathmandu TSC because it is not well promoted and is not located conveniently to any of the main tourist areas (paras. 27-28). Compared with the 25,000 arrivals at Kathmandu airport in January 2000, the TSC received 70 foreign tourists. There are many alternative private tour agents and operators, conveniently located in tourist areas, which can provide information. Useful basic information is also given to visitors on arrival at Kathmandu airport. The Pokhara TSC is incomplete and does not function (para. 29). The TSCs have had negligible direct impact on improving the information flow to tourists. The Kathmandu TSC supports the tourism industry in other ways by providing office space for the Nepal Tourism Board (NTB), helping provide information to tour operators and agents, and through the use of its meeting room and auditorium by the private sector. However, the Kathmandu TSC is relatively expensive due to its design and the quality of its finish, and lower cost office space and supporting facilities could have been built or found elsewhere. Functional arrangements within the sector were improved with the formation of the NTB (para. 30). However, the main focus of the NTB is on promotion to tourists before they arrive in Nepal. Overall, the Project has had little impact on tourism that could not have been achieved in alternative ways at lower cost. 2. Tourist Service Center: Kathmandu

26. The TSC in Kathmandu was built according to plan. It is a large structure with superior quality design and finish compared with many buildings in Kathmandu. Some construction defects, such as leaks, had to be rectified but overall construction quality was satisfactory. About half the building provides office space to the Nepal Tourism Authority and the Department of Tourism (DOT). The remainder of the building supports a small tourist information room and a large amount of ancillary tourism facilities such as an auditorium, meeting room, display room, foyer, cafeteria, and shop spaces.

30 Appendix 2, page 9 27. At OEM, the display room, cafeteria, and shop spaces were not yet operational, but the other parts of the building were well utilized although not always for the intended functions. Examples of the latter include the occupation of about half of the office space by DOT and the indirect rather than direct use of the auditorium and meeting room to enhance information flow to tourists. The tourist information room is well stocked with maps and brochures of relevance to tourists, but operates only during normal business hours and not on Sundays or public holidays. Counting of visitors began only in 2000. For the month of January 2000, TSC received 457 visitors, of whom 70 were foreign tourists and 387 were local tourist-trade personnel and staff of other organizations. The problems preventing the cafeteria from being operated were resolved in early 2000 and it is expected to open within the year. However, low tourist traffic will constrain the ability of the cafeteria to maintain an attractive service; it also is expected to cause the shop spaces to remain unused. 28. The Kathmandu TSC is built on the site identified at the time of project preparation and appraisal. The site was deemed suitable, as it is adjacent to the exhibition grounds and within a few kilometers of the major areas of tourist hotels and the important Durbar Square tourist site. Moreover, there was a lack of alternative large sites close to the main tourism areas available for development. Nevertheless, the TSC is not well promoted and the growth in traffic on surrounding roads makes it harder for tourists to find and access the center than was thought when the site was selected. 3. Tourist Service Center: Pokhara

29. At OEM, the Pokhara TSC was incomplete and not functioning. The building has been erected, but much of the internal fitting-out has not been done. The contract of the civil works contractor for the TSC was terminated because of poor performance. The Ministry of Tourism (MOT) plans to complete the facility using its own funds. The Pokhara TSC provides space for offices, an auditorium, display hall, information services, and restaurant. The building is interesting from an architectural perspective. The TSC is adjacent to the lakeside footpath and gardens, which were not completed either. Utilization of the TSC, footpath, and gardens may not meet expectations because they are not easily accessible or immediately visible from the main roads, and because they are poorly located in relation to the main areas of tourist activity that are much further to the north. E. Enhanced Institutional Capabilities

30. With the withdrawal of the UNDP TA from the Project, the direct inputs to create improvements within MOT were no longer provided. The improvements were to support the Governments action plan being implemented in parallel with the Project. However, UNDP subsequently embarked upon a separate program entitled Partnership for Quality Tourism, which included similar objectives to those under the Project. The new program operated until 1998. A significant output was the formation of the NTB as an independent, private sectordominated entity to promote and develop tourism. NTB has taken over most functions of DOT, which is to be abolished. 31. NTB is adequately funded by a 2 percent levy on tourist transactions. It has an office in the Kathmandu TSC. Its main focus is the promotion of Nepal as a tourist destination to foreign tourists and to tour operators and agents. Nevertheless, it is active domestically in obtaining information of tourist sites and services, analyzing tourism data, and maintaining contact with the private sector. With the formation of the NTB, Nepal potentially has a dynamic, adequately funded promoter of tourism with links to the private sector.

31 Appendix 2, page 10 32. Clarity of functions and improved linkage with the private sector were key aims of the Project under this component. The basic institutional arrangements within the public sector are now adequate to achieve this. There remain some issues about whether the NTB or the Government, through MOT, should have responsibility for accreditation of tourist facilities and the collection and analysis of tourism data. These issues are currently under review. The Project did not give adequate attention to the parallel institutional arrangements within the private sector, however. Each subsector grouping has a representative organization, for example, the Hotel Association of Nepal, the Nepal Association of Travel Agents, and the Nepal Association of Rafting Agents. However, each group has its own factions, while information flows between management and members, and on the changeover of officers, appear inadequate. Thus biases occur, for example, in favor of development around Kathmandu as against other areas, and not all members are adequately represented by their associations. F. Study on the Establishment of a Cultural Display Center in Kathmandu

33. The study comprised part A of TA 1662-NEP.3 The basic features of a cultural display center to be located at the exhibition grounds were outlined, and the main conclusion was that such a facility would be viable at a throughput of 150,000 visitors per year. However, the study recommended that the center should be implemented and operated by the private sector. It was noted that the concept had been supported by the earlier ADB-funded sector study, which recommended the center be located on the outskirts of Kathmandu City. This alternative site was not considered by the TA consultants. The study was responsive to its terms of reference. The recommendations were not acted upon. G. Domestic Civil Aviation Study

34. The study comprised part B of TA 1662-NEP. The study reviewed relevant aspects such as tourism and local travel patterns, changes in alternative road travel conditions, seat availability and load factors, airport and physical site conditions, government policies and the financial implications of those policies, and privatization issues. Various recommendations were made and subject to financial and economic evaluation. A number have been acted upon, including under the Second Tourism Development Project. This part of the TA appears to have adequately addressed its terms of reference and produced a useful output. H. Environmental Protection Study of Phewa Lake

35. Undertaken under TA 1663-NEP,4 the study identified 13 projects for a total cost of $6 million to improve the environmental conditions of Phewa Lake. These problems were seen as acute, and the projects were recommended for immediate implementation. No specific institutional development or change was identified. The projects fall into four main categories, namely (i) environmental and public health improvements; (ii) water quality management, pollution control, and sanitation; (iii) tourism development; and (iv) agriculture and economic development. The study fulfilled its terms of reference; however, it appears to have adopted an overoptimistic view of the institutional capability of the national and local governments to implement the identified projects. The study does not appear to have involved the private sector in the selection and design of the projects. One of the recommended projects was included under the Second Tourism Development Project. However, despite the acute nature of pollution, no other actions have been taken on the recommendations. Local residents and government officials continue to view the pollution of the lake as serious.
3 4

TA 1662-NEP: Tourism Development Study, for $295,000, approved on 16 January 1992. TA 1663-NEP: Environmental Protection Study of Phewa Lake, Pokhara, for $440,000, approved on 16 January 1992.

32

Appendix 3

SELECTED TOURISM DATA FOR NEPAL

Number of Visitors 180,989 223,331 248,080 265,943 239,945 254,885 292,995 334,353 293,567 326,531 363,395 393,613 421,857 463,684 484,120 Average Length of Stay (days) 11.30 11.16 11.98 12.00 12.00 12.00 9.25 10.14 11.94 10.00 11.27 13.50 10.49 10.76 Foreign Exchange Earnings Total ($ million) Per Visitor-Day ($) Current Constant 1999 Prices Current Constant 1999 Prices 39.19 59.15 19.16 28.92 50.84 65.09 20.40 26.12 60.23 70.21 20.27 23.62 63.50 69.00 19.90 21.62 68.34 74.78 23.74 25.97 63.70 65.97 20.83 21.57 58.59 59.35 21.62 21.90 61.09 59.33 18.02 17.50 66.34 64.61 18.93 18.43 88.20 82.87 27.01 25.38 116.78 101.45 28.52 24.77 116.64 105.97 21.95 19.94 115.90 110.75 26.19 25.03 152.50 151.58 30.57 30.38

Year 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

= not available. Source: Ministry of Tourism, except for Foreign Exchange Earnings per Visitor-Day which are Operations Evaluation Mission estimates calculated on the basis of other data presented in the table. Note that the number of visitors for 1999 is a preliminary estimate only.

33 Appendix 4

STATISTICS ON PRIVATE SECTOR TOURISM FACILITIES Item 1990 1995 1998 Annual Increase (%) 1990-1995 1995-1998 12.0 49.6 38.0 1.4 5.0 9.1 15.7 8.2 24.6 18.6 17.6 18.0

No. of Hotel beds in Kathmandu No. of Hotel beds in Pokhara No. of Hotel beds in Other Areas No. of Travel Agencies in Pokhara No. of Trek Agencies in Pokhara No. of Tourists Visiting Pokhara (excluding Indian tourists) No. of Tourists Visiting Pokhara (all tourists)

7,626 2 3 59,488 106,988

13,424 2,989 5,394 15 15 63,782 136,782

17,417 4,629 6,832 29 25 103,895 224,395

= not available. Source: Project management unit, Second Tourism Development Project.

34 Appendix 5, page 1 POKHARA AIRPORT FINANCIAL REEVALUATION 1. The financial internal rate of return (FIRR) was recalculated to assess the financial impact of the Pokhara airport component. The analysis compared with- and without-project scenarios and conforms with the Asian Development Banks Guidelines for the Preparation and Presentation of Financial Analyses. The basic data were derived from historical income and expenses and passenger throughputs supplied by the Civil Aviation Authority of Nepal (Table A5.1). All historical figures were converted to constant 1999 values by use of the implicit gross domestic product deflator for Nepal. 2. The analysis covered the 25-year period from 1993 when construction started to 2017, and a salvage value for the Project, equal to 50 percent of the capital investment, was assumed at the end of the period. The new facilities at the airport were completed in 1996, and it was assumed that with-project operations commenced in January 1997. 3. Airport revenues are derived mainly from passenger taxes and, to a lesser extent, fees on aircraft movements. The growth in revenues parallels the growth in passengers, with the exception that from the second half of 1998, there was a significant jump in the revenue stream due to the doubling of the airport tax and subjecting foreign travelers, who were previously exempt, to the tax. For the with-project scenario, actual revenues were available for the period up to 1999. For subsequent years, the with-project revenues were increased at the same rate of increase as passenger numbers (para. 4). For the without-project scenario, actual revenues were adopted up to 1996 and thereafter were increased at the same rate as the assumed increase in without-project passenger numbers (para. 4). For 1998 and 1999, the passenger tax component of the withoutproject revenue stream was further increased to reflect the changes in the tax system. The increases were 114 percent in 1998, and 38 percent in 1999. 4. Passenger numbers in the with-project scenario were available for the period up to 1999. For subsequent years, passenger numbers were increased at 10 percent per year for 5 years, then 5 percent per year until a ceiling of 500,000 passengers per year was reached. This is approximately double the 1999 figure. For the without-project scenario, actual passenger numbers were adopted for the period up to 1996, and for subsequent years the 1996 number was assumed to grow at 5 percent per year up to a ceiling of 250,000 passengers, which is about 100,000 more than the 1996 level but only half of the with-project ceiling. The ceiling numbers are believed attainable if flights are spread evenly throughout the day to reduce congestion in the terminal and on the aircraft parking apron. 5. Operating expenses also increase with rising passenger numbers, although not as strongly as passenger numbers. Actual operating expenses up to 1999 were taken for the with-project scenario, and up to 1996 for the without-project scenario. For subsequent years in each scenario, expenses were assumed to grow at half the rate of the relevant growth in passenger numbers. The runway was resealed in 1999 at a cost of NRs17.6 million. This cost is slightly higher than just for resealing as the works were also designed to strengthen the runway. Resealing will be required every five years and a cost of NRs15 million per time has been assumed. Without the Project, resurfacing and grading of the runway would also be needed, and this cost is built in as a regular annual cost plus a periodic cost every five years of NRs5 million. 6. Capital expenses include the final costs for the civil works and consultant contracts. The initial design works completed prior to 1993 were not included. Works under the Second Tourism Development Project in 1999 were also included. 7. The recalculated FIRR was 6 percent (Table A5.2).

Table A5.2: Pokhara Airport Projected Passenger Throughputs and Cashflows

Amount in NRs'000 (Constant 1999 Prices) Operating Expense Revenue WithoutWithIncremental WithoutWithProject Project Project Project 1,934 1,923 2,097 2,545 2,407 2,402 7,359 2,418 2,478 2,496 2,496 7,496 2,496 2,496 2,496 2,496 7,496 2,496 2,496 2,496 2,496 7,496 2,496 2,496 2,496 1,934 1,923 2,097 2,545 3,139 4,371 25,284 5,549 5,826 6,118 6,424 21,745 6,981 7,225 7,478 7,598 22,598 7,598 7,598 7,598 7,598 22,598 7,598 7,598 7,598 0 0 0 0 732 1,969 17,925 3,131 3,348 3,622 3,928 14,249 4,485 4,729 4,982 5,102 15,102 5,102 5,102 5,102 5,102 15,102 5,102 5,102 5,102 4,305 3,704 4,478 5,927 5,744 9,834 12,732 13,369 14,038 14,237 14,237 14,237 14,237 14,237 14,237 14,237 14,237 14,237 14,237 14,237 14,237 14,237 14,237 14,237 14,237 4,305 3,704 4,478 5,927 7,798 13,436 18,474 20,322 22,354 24,590 27,048 29,752 31,834 34,062 36,446 37,612 37,612 37,612 37,612 37,612 37,612 37,612 37,612 37,612 37,612

Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Passenger Throughput WithoutWithProject Project 116,431 146,215 144,365 154,508 162,233 170,345 178,862 187,805 197,195 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 116,431 146,215 144,365 154,508 185,388 207,874 245,575 270,133 297,146 326,861 359,547 395,502 423,187 452,810 484,507 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000

Capital Expense 408 10,510 57,865 27,902 23,206 0 0 536

Incremental 0 0 0 0 2,054 3,603 5,742 6,953 8,316 10,353 12,811 15,515 17,597 19,825 22,209 23,375 23,375 23,375 23,375 23,375 23,375 23,375 23,375 23,375 23,375 =

Net Incremental Cash Flow (408) (10,510) (57,865) (27,902) (21,884) 1,634 (12,183) 3,286 4,968 6,731 8,883 1,266 13,112 15,096 17,227 18,273 8,273 18,273 18,273 18,273 18,273 8,273 18,273 18,273 75,401 6%

36 Appendix 5, page 3

Financial internal rate of return