Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 27813

IMPLEMENTATION COMPLETION REPORT(IDA-30080 PPFI-P8010 PPFI-P8012 PPFI-P8011)

ON A

CREDIT

IN THE AMOUNT OF SDR17.00 MILLION (US$23.5 MILLION EQUIVALENT)

TO THE

KINGDOM OF NEPAL

FOR A

MULTIMODAL TRANSIT AND TRADE FACILITATION PROJECT

March 18, 2004

Energy and Infrastructure UnitSouth Asia Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective September 30, 2003)

Currency Unit = Nepalese Rupees (NRs.) NRs.1.00 = US$ 0.013

US$ 1.00 = NRs.77.3

FISCAL YEARJuly 16 July 15

ABBREVIATIONS AND ACRONYMS

ACIS Advanced Cargo Information SystemACRAP Acquisition, Compensation, and Rehabilitation Action PlanASYCUDA Automated Systems for Customs DataBPIP Borrower's Project Implementation PlanBPMS Border Pass Monitoring SystemCAS Country Assistance StrategyCIF Cost, Insurance & FreightCMU Country Management UnitDCA Development Credit AgreementEA Environmental AssessmentERR Economic Rate of ReturnGOI Government of IndiaHMGN His Majesty's Government of NepalICB International Competitive BiddingICD Inland Container DepotICR Implementation Completion ReportIDA International Development AssociationISO International Organization for StandardizationLC Letter of CreditMOICS Ministry of Industry, Commerce, and SuppliesMTTFP Multimodal Transit and Trade Facilitation ProjectNEFFA Nepal Freight Forwarders AssociationNITDB Nepal Intermodal Transport Development BoardNTTFC Nepal Transport and Trade Facilitation CommitteePAP Project Affected PeoplePIU Project Implementation UnitQAE Quality at EntryQAG Quality Assurance GroupRAP Resettlement Action PlanSTC Standard Trading ConditionsTEU Twenty Foot Equivalent UnitsTMC Terminal Management CompanyUNCTAD United Nations Conference on Trade and DevelopmentVAT Value Added Tax

Vice President: Praful C. PatelCountry Manager/Director: Kenichi Ohashi

Sector Manager: Guang Z. Chen Task Team Leader: Fabio Galli

NEPALMULTIMODAL TRANSIT AND TRADE FACILITATION PROJECT

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 55. Major Factors Affecting Implementation and Outcome 136. Sustainability 157. Bank and Borrower Performance 168. Lessons Learned 189. Partner Comments 1910. Additional Information 19Annex 1. Key Performance Indicators/Log Frame Matrix 20Annex 2. Project Costs and Financing 21Annex 3. Economic Costs and Benefits 24Annex 4. Bank Inputs 27Annex 5. Ratings for Achievement of Objectives/Outputs of Components 30Annex 6. Ratings of Bank and Borrower Performance 31Annex 7. List of Supporting Documents 32Annex 8. Borrower's Evaluation 33

Project ID: P010509 Project Name: MULTIMODAL TRANSITTeam Leader: Fabio Galli TL Unit: SASEIICR Type: Core ICR Report Date: March 18, 2004

1. Project DataName: MULTIMODAL TRANSIT L/C/TF Number: IDA-30080; PPFI-P8010;

PPFI-P8012; PPFI-P8011Country/Department: NEPAL Region: South Asia Regional

Office

Sector/subsector: General transportation sector (75%); Roads & highways (14%); Central government administration (11%)

Theme: Export development and competitiveness (P); Infrastructure services for private sector development (P); Regional integration (S)

KEY DATES Original Revised/ActualPCD: 11/10/1992 Effective: 01/31/1998 02/04/1998

Appraisal: 06/06/1996 MTR: 12/31/1998 02/07/1999Approval: 11/25/1997 Closing: 12/31/2001 09/30/2003

Borrower/Implementing Agency: HIS MAJESTY'S GOVERNMENT OF NEPAL/MINISTRY OF INDUSTRIES; COMMERCE & SUPPLIES

Other Partners: United Nations Conference on Trade and Development (UNCTAD)

STAFF Current At AppraisalVice President: Praful C. Patel Joe WoodCountry Director: Kenichi Ohashi Hans RothenbuhlerSector Manager: Guang Zhe Chen Jean Francois BaeurTeam Leader at ICR: Fabio Galli Harald HansenICR Primary Author: Binyam Reja

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: U

Sustainability: L

Institutional Development Impact: SU

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: Yes

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:

Background. Land-locked Nepal's trade route depends on access to India's transportation system, where 90% of its foreign trade transits through. The nearest seaport, Kolkata, is located 1056 kilometers away in India. As a result, Nepalese tradable goods face one of the highest transportation costs in the region, impeding the country’s ability to improve the competitiveness of its export goods and expand foreign trade. This in turn has constrained economic growth and poverty reduction efforts. Reducing the transportation costs of Nepal’s tradable goods has therefore been a long priority for His Majesty’s Government of Nepal (HMGN). The Nepal Multimodal Transit and Trade Facilitation Project (NMTTFP) was conceived to support of HMGN’s effort to reduce the transportation costs of tradable goods and facilitate trade and transit for Nepal's third-country trade (i.e., trade with countries other than India), and had the following development objectives.

Project Development Objectives. The principal development objective of the project was to reduce transport costs associated with Nepal's imports and exports. A second set of project objectives was to streamline trade and transit procedures and to improve the efficiency and organization of transit trade documentation and data exchange.

Relevance of Project Development Objectives. Besides supporting HMGN's goal for reducing the transportation and transaction costs of foreign trade, the project objectives were relevant to the Bank Group's Country Assistance Strategy (CAS) and related sector strategies when the project was appraised. In addition, the objectives remain relevant to the current CAS (2004-2007), which emphasizes broad-based economic growth through, among other things, expanding trade and private sector investment. The International Development Association (IDA) report on Trade Competitiveness Study (August 2003) also recommends the reduction of transportation costs in order to make Nepalese exports more competitive with regional and global markets.

Clarity of Project Development Objectives. The objectives were clear and measurable. The project benefits and the targeted groups were clearly identified during project preparation, and a project monitoring and evaluation system was developed to track implementation progress and achievement of development outcomes.

3.2 Revised Objective:

The project development objectives were not revised.

3.3 Original Components:

A. Inland Container Depot (ICD) Civil Works and Equipment Components

(1) Construction of ICD at Sirsiya (Birgunj) (US$18.0 million). This component included the construction of a modern ICD in Sirsiya (Birgunj) with supporting rail/road links, storage, and customs facilities. The civil works included site preparation, earthwork, pavement, lighting, fencing, warehouse space construction, goods shed construction, administrative office building, truck scale, electrical systems, and utilities suitable for modern multimodal transfer terminal. This component also supported activities related to the Resettlement Action Plan (RAP), excluding land acquisition.

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In parallel, the Government of India (GOI) through Grant Funding to Nepal committed to build a 5-km rail spur line to link the current terminus of Raxaul in India with the Sirsiya (Birgunj) ICD in Nepal.

(2) Improvements to road ICDs at Biratnagar (US$2.0 million), and Bhairahwa (US$1.9 million). This component included civil works for major improvements and additions to the existing road-based ICD in Biratnagar (eastern region) and Bhairahwa (western region). The ICDs were designed to transfer cargos between International Organization for Standardization (ISO) containers and trucks; to inspect and interchange container equipment; and to store cargos, as well as provide facilities for customs inspection and cargo clearance at the terminals.

(3) Procurement of equipment for ICDs (US$2.0 million). This component included the procurement of four reach stackers for the Sirsiya (Birgunj) facility and one reach stacker each for Biratnagar and Bhairahwa ICDs.

(4) Supervision consultants (US$0.8 million). The component included financing internationally experienced supervision consultants to supervise the construction, and improvement of the three ICDs.

B. Trade and Transit Facilitation Component

(5) Technical Assistance for trade facilitation (US$1.1 million). This component included (a) simplification of documents and procedures; (b) modernization of carrier’s liability, multimodal transport and insurance provisions; (c) modernization of customs administration policies and operational procedures; (d) strengthening of freight forwarding and customs clearing agency standards and capacity; and (e) updating of foreign-currency regulations relating to transit trade.

(6) Installation of Automated Systems for Customs Data (ASYCUDA) (US$1.1 million). This

component included automation of customs data through the introduction of ASYCUDA to reduce the incidence of fraud and expedite the clearance of freight by allowing a greater degree of selectivity in customs examination.

(7) Installation of Advanced Cargo Information System (ACIS) (US$1.1 million). This component included the introduction and implementation of ACIS as a freight tracking information system.

Consistency of project components. The project components were adequately designed to meet both the primary and secondary objectives of the project. The construction and improvement of the ICDs were designed to shift the current break bulk traffic moving by road towards containerized rail freight movements to Sirsiya (Birgunj) ICD and containerized road traffic movements to Biratnagar and Bhairahwa ICDs. This shift was in turn expected to reduce the transport costs of Nepalese tradable goods. About 75% of foreign trade in Nepal passes through these facilities. Similarly, the implementation of the components related to trade and transit facilitation were designed to reduce the transaction costs of trading and custom clearance by improving the protocols related to the Trade and Transit Treaty with India, introducing legal and institutional changes to trading, customs, multimodal transport and liability insurance.

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Complexity of the project. The project, however, was complex. It took a long time (five years) to prepare, and 17 months between appraisal and Board approval. Its success depended on the outcome of bilateral negotiations between India and Nepal (which was exogenous to the project), implementation of several interrelated and interdependent components, and introducing a wide range of institutional and legislative reforms. However, the long preparation time was needed to deal with the complexity of the project and ensure project readiness for implementation. This included (a) getting demonstrated commitment by GOI to construct the rail spur line from Raxaul to the Sirsiya (Birgunj) ICD, without which the project would not be viable; (b) determining the optimal location for the new rail-linked ICD, and completing the pre-qualification of bidders for the civil works; (c) agreement by HMGN on the operational modality of the ICDs once constructed, which envisaged operation by private Terminal Management Companies (TMCs) selected through a competitive and transparent procedure; and (d) assessing the existing trading and transit environment, and developing sequenced institutional, policy and legislative reforms. In addition, a Project Implementation Unit (PIU) was established within the Ministry of Industry, Commerce, and Supplies (MOICS) and was staffed with the necessary skills and qualifications to implement the project. An international supervision consultant was hired to oversee construction and improvement of the ICDs, and United Nations Conference on Trade and Development (UNCTAD) was engaged to support the implementation of the trade and transit facilitation component, as it is uniquely qualified for these tasks.

3.4 Revised Components:

During the implementation of the project, some minor adjustments were made to the project components as follows:

Civil Works: (a) Rehabilitation of a road stretch linking the ICD, which was damaged, in part, by traffic associated with the ICD's construction, and (b) Construction of reach stacker shed, and construction of drain around the facility to collect storm water.

Reach stackers: The procurement of reach stackers for the Biratnagar and Bhairahwa was dropped because it was subsequently decided that the selected TMC should be responsible for procuring the equipment. This change is consistent with the project design of relying on private sector firms to operate the ICD.

These changes were effected through legal amendment to the Development Credit Agreement (DCA).

3.5 Quality at Entry:

There was no Quality at Entry (QAE) assessment done by Quality Assurance Group (QAG). The ICR rates QAE satisfactory on account of the relevance and clarity of the project objectives, consistency of the design of the project components, and arrangements made to handle the complexity of the project components. However, the assessment of the risks could have been less optimistic, and more comprehensive.

Risks and mitigation measures. The project was assessed as a “medium” risk project. However, it should have been assessed as a high-risk, high-return project, as its success depended on exogenous enabling environment, for which the project did not finance, and had limited control over. The enabling environment that were key for the success of the project included (a) timely conclusion of the bilateral negotiations between India and Nepal to get GOI to construct the rail spur line, and to develop a Rail Service Agreement to allow India Railways to provide service into the Sirsiya (Birgunj) ICD; and (b) HMGN selecting a TMC

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to operate the ICDs once constructed (in the case of Sirsiya (Birgunj)) and improved (in the case of Biratnagar and Bhairahwa).

Understandably, the main risk identified during project preparation was whether GOI would construct the rail link on time to make the project a success. This risk was sufficiently dealt with by ensuring that the bilateral negotiations between India and Nepal were concluded during project preparation so that GOI was committed to construct the rail link. However, the risk related to whether Nepal and India will jointly put the required enabling environment to allow Indian Railways to provide services into the Sirsiya (Birgunj) ICD was not adequately assessed and was to be dealt with during project implementation. The risk was underestimated, in part, because it was concluded during project preparation that since both GOI and HMGN were making substantial investments to construct the rail link and the ICD, both governments will put the required enabling environment to make the Sirsiya (Birgunj) ICD operational. Yet, the regional politics are such that the bilateral negotiations between HMGN and GOI on the Nepal-India Rail Service Agreement ended up being drawn out and became the Achilles' heel of the project. Similarly, leaving the TMC selection process outside of the project meant that IDA did not have adequate leverage to influence the selection process. Although the DCA stipulated that the TMC selection process would be done through a competitive tendering process and should be “satisfactory to IDA”, this was too broad, and an explicit selection process in the DCA would have minimized the risks associated with the TMC selection process.

Attention to fiduciary aspects. During project preparation, a financial management and procurement assessment was carried out. The PIU was staffed with a qualified Accounts Officer to handle disbursement of funds. As per HMGN rules, the Auditor General was responsible for carrying out audits of the project accounts. IDA assessed the adequacy of the Auditor General’s auditing procedures, and ensured that it met IDA's fiduciary requirements.

Management of Environmental and Social Safeguard issues. A social assessment was carried out during project preparation to identify and mitigate adverse social impacts resulting from the implementation of the project. The main social issue identified during project preparation was the acquisition of land to construct the ICD in Sirsiya (Birgunj) and the associated resettlement and rehabilitation of Project Affected People (PAP). A baseline social and economic survey was carried out during project preparation, and a Resettlement Action Plan, known as Resettlement Policy Framework and Acquisition, Compensation and Rehabilitation Action Plan (ACRAP), was prepared. In terms of the environmental impacts of the project, an environmental assessment (EA) was prepared during project preparation, and the project was assigned Category "B" for its moderate environmental impact. The EA determined that the project would mostly result in positive environmental benefits in reduced air pollution and reduced traffic congestion in Sirsiya (Birgunj). Nevertheless, an environment management plan for the construction phase of the project was prepared, and integrated in the design of the civil works.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:

Summary. The outcome of the project is unsatisfactory. Although, all project components, including the major project component to construct the ICD in Sirsiya (Birgunj), and the GOI-financed rail spur line from Raxaul were successfully completed, the delays in finalizing the Rail Service Agreement between India and Nepal and the selection of a TMC to operate the facility have delayed the start of operation in the Sirsiya (Birgunj) ICD. Since the majority (about 80%) of the expected economic benefits, and about 50% of the expected financial benefits from the project were to be generated from the operations of the Sirsiya (Birgunj) ICD, the overall economic and financial returns of the project are so far negligible.

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It should be noted, however, that since the Sirsiya (Birgunj) ICD is physically completed and is currently ready to receive rail container shipments from the port of Kolkata, if it becomes operational soon, the expected economic benefits would be realized, and the project outcome would become satisfactory. Yet, because the ICD in Sirsiya (Birgunj) is not operational at project exit, and there are further delays in the selection of a TMC to operate the facility, the project outcome is rated unsatisfactory. Had the ICD in Sirsiya (Birgunj) been operational with a TMC selected, the project outcome would have been rated highly satisfactory. The following assess the achievement of the project against the stated development objectives.

Reducing the Transportation Cost of Foreign Trade (Partially Achieved). The project was expected to result in a 15% reduction in the transportation cost of Nepal’s import and export goods, as shippers move from break bulk shipment to the cheaper and more competitive containerized shipment on rail to Sirsiya (Birgunj) ICD, as well as containerized truck shipment to the road-based ICDs in Biratnagar and Bhairahawa. Yet, because the rail-linked ICD in Sirsiya (Birgunj) is not operating, the primary outcome of the project could not be fully met by project closing. On the other hand, the road-based ICDs in Biratnagar and Bhairahawa are operating successfully and providing efficient service to users, as well as generating much needed financial revenue to HMGN from leasehold fees (see below).

Fifty percent of total foreign trade and seventy percent of third-country trade transits through the existing road-based Birgunj customs facility. For the rail-linked Sirsiya (Birgunj) ICD to attract this traffic, and generate the expected economic and financial benefits, two key enabling arrangements need to put in place: a Rail Service Agreement between India and Nepal needs to be negotiated and signed to allow Indian Railways to provide scheduled services to the ICD; and a private TMC needs to be selected through a competitive bidding process to operate the facility. However, at project closing, these two enabling arrangements were not put in place, although both governments subsequently signed the Agreement on November 8, 2003. At the time of writing the ICR, HMGN still had not selected a TMC to operate the facility. In fact, HMGN had decided to cancel the previously initiated competitive TMC selection process and invite fresh bids from potential terminal operators. The decision to cancel the previously started bidding process was in part because the signed Rail Service Agreement between India and Nepal had additional provisions that were inconsistent with contractual provisions under the previously started selection process. The net effect is, however, that the start of ICD operation will be further delayed by at least another year.

Foregone benefits from Sirsiya (Birgunj) ICD. Since the Sirsiya (Birgunj) ICD was physically completed three years ago, the delay in operating the ICD has cost the Nepalese economy dearly. For every year, the facility remains non-operational, the Nepalese economy loses about US$5.6 million a year in foregone savings from reduced transportation costs. In addition to the economic loss, HMGN loses up to US$1.0 million a year in potential revenue from leasehold fees, and spends about US$100,000 in maintaining the non-operational facility, and incurs about US$500,000 in the depreciation of the facility and equipment in the ICD. (NOTE: if the ICD had been leased out, HMGN would not be responsible for maintenance and depreciation of the facility, as these would be transferred to the selected TMC). In sum, HMGN has so far lost about US$4.8 million in financial revenues, and the Nepalese economy has lost about US$17.0 million in foregone economic benefits in the three years, the ICD in Sirsiya (Birgunj) has been non-operational.

Benefits generated from Biratnagar and Bhairahawa ICDs. Unlike the ICD in Sirsiya (Birgunj), the improvements of the road-based ICDs in Biratnagar and Bhairahawa were successful, and, as a result, private sector users and HMGN are benefiting from the improvements. The physical works were completed in January 2000 and April 2000 respectively for Biratnagar and Bhairahawa ICDs, and their

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management and operations were leased out in a competitive bidding process to the same private TMC under a ten-year leasehold contract. The contract was signed on March 20, 2002, and the TMC commenced operations on April 17, 2002. The delay between the finalization of the physical works and the leasing out of the facilities was due to, in part, the long bidding (and re-bidding) process to select the TMC, and the lack of experience by the Nepal Intermodal Transport Development Board (NITDB), the agency responsible for leasing out of the facilities to the private sector.

The leasing out of these ICDs is providing HMGN with NRs.21.5 million (about US$300,000) a year in financial revenues from leasehold fees. In addition, since the TMC took over the management and operation of the Biratnagar and Bhairahawa ICDs, the services provided to users in these facilities have improved. Traffic and parking management have improved, allowing truckers to go in-and-out of the terminals easily, and save up to an hour each time they enter and exit the facility. This translates to savings of about US$500,000 per year in reduced waiting time in the terminals (See para 4.3). Similarly, warehouse management has also improved. Goods stored in the warehouse awaiting customs clearance are safely stored in an orderly manner. Identification and retrieval of stored goods has been made easy, reducing confusion and loss of goods. In addition, security and safety has improved. The TMC has deployed security personnel, which has helped in the observed reduction of pilferage, theft, and damage to properties. Finally, the TMC has made an additional investment of about NRs.7.8 million (about US$100,000) to further improve the two ICDs. The TMC, among other things, has established a business and computer center for clients, constructed 100-ton capacity weigh bridge, and expanded sanitary and cooking facilities. The TMC also plans to buy cranes and forklifts to simplify cargo handling.

Reducing the Transaction Cost of Trade and Transit (Achieved). Although the achievement of this objective is not quantifiable by its nature, the successful implementation of the various components related to this objective suggests that trade and transit procedures are more efficient now, and that the transaction costs of foreign trade in Nepal have declined since the implementation of this project. This is supported by interviews conducted with freight forwarders and other stakeholders during the ICR mission. The following are the notable achievements:

Customs reform and modernization process has been undertaken, resulting in the implementation of the ASYCUDA system in four custom points covering about 80% of Nepalese foreign trade. The ASYCUDA has improved revenue control, and the production of customs and trade statistics. In addition, a Single Administrative Document, based on the UN layout key, was adopted as Customs Declaration Forum. However, for ASYCUDA to generate its full benefit in terms of reducing the time it takes to clear customs and associated transaction costs, the following second-stage reforms (not part of the project design) need to be implemented: (a) different modules of ASYCUDA need to be introduced; (b) Risk Management and Selectivity needs to be adopted; and (c) the existing manual system needs to be phased out. Without these, ASYCUDA’s impact on customs clearance will remain marginal. HMGN is currently in the process of taking the necessary actions to enhance the effectiveness of ASYCUDA. HMGN also plans to rollout ASYCUDA in three other custom points, and thus covering virtually all foreign trade in Nepal.

Trade facilitation measures were adopted and have streamlined trading procedures. With support from the project, several major policy documents and recommendations were prepared and adopted by HMGN for streamlining trade procedures. This included abolishing the requirement of a cumbersome foreign exchange control document (document BBN1), deregulating Cost, Insurance & Freight (CIF)/Cost & Freight (C&F) terms and allowing importers to purchase FOB and other terms, introducing one time requirement of enterprise and tax registration certificate (instead of requiring each time for opening an import letter of credit (LC)), allowing banks to amend customs entry point from land to air and air to land as agreed clauses of LC without requiring separate letter from Department of Commerce.

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Multimodal transport system has been initiated. With the technical assistance from the project, the Nepal Freight Forwarders Association (NEFFA) drafted and adopted a Standard Trading Conditions (STC) and developed a procedure for customs clearance and export cargo in ISO containers. In addition, members of the Association received extensive training under the project, which exposed them to modern multimodal transport system. Finally, the use of container transport was promoted during the project, and has resulted in an increase in the use of containerized transport for export and import goods. Between 1996 and 2000, there was a 20% increase in the use of containers for shipping import and export goods.

4.2 Outputs by components:

Construction of ICD at Sirsiya (Birgunj). The civil works related to the construction of the Sirsiya (Birgunj) ICD were completed within budget, and to a good construction quality. The total cost of this component was about US$12.0 million, versus the appraisal estimate of US$14.8 million (excluding contingencies).

The main ICD facility was completed in December 2000. The ICD covers an area of 38-hectare land, and is located in Sirsiya near the border town of Birgunj. It has a railway yard, comprising six full-length and one dead-end siding for detaching sick wagons. A 640 sq. m. administrative complex was built to house the customs office, freight forwarding agents, shipping lines offices, banks, post office, and other service outlets for traders and transporters. In addition, the Sirsiya (Birgunj) ICD contains a container stacking and handling yard, container warehouse that can store 231 Twenty Foot Equivalent Units (TEUs) at a given time, parking areas, and space for several ancillary facilities.

Although not financed under the project, the 5.4 km rail spur line linking the Sirsiya (Birgunj) ICD with Raxaul terminal in India was completed in April 2001. All civil works related to the rail spur line were procured and executed by GOI-owned enterprises.

The construction of a 4-km long road linking the ICD to the main highways was completed within budget, and to good quality standard in April 2001. Civil works added during implementation also were completed on time and within budget. During the construction of the Sirsiya (Birgunj) ICD, the section of the Padam road used for transporting construction materials by heavy vehicles was damaged. Following a request from the community and HMGN, the DCA was amended to allow for the rehabilitation of about 7.2 km of the Padam road damaged during construction. The civil works were completed in September 2002.

Similarly, line drainage was constructed to collect storm water from around the ICD and to prevent flooding in nearby agriculture fields. A separate shed was also added to garage the reach stackers and protect them from direct heat and rain.

Social Safeguards Related to Sirsiya (Birgunj) ICD. A social impact assessment was carried out as part of the ICR preparation to assess the implementation of the ACRAP and related activities. The following summarize the findings of the impact assessment: Land acquisition. Acquisition of land and other assets covered by the ACRAP developed for the project were completed prior to project effectiveness. All payments for land and assets acquired were borne by HMGN. A social impact assessment done as part of the ICR found that most of the PAP have used the compensation money for purchasing alternative land and/or other productive assets.

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Support for economic rehabilitation. Although people losing land have been fully compensated, in order to ensure that PAPs do not suffer unexpected economic hardship, additional economic rehabilitation was provided to PAPs. This included providing training and skills development program. Accordingly, around 350 PAP participated in the training program organized and provided by the project.

Additional Safeguards. The ACRP states that unskilled and semi-skilled PAP would be given preference in terms of hiring once the Sirsiya (Birgunj) ICD starts operating. To ensure that this occurs, HMGN plans to include a clause in the bid document for appointing the TMC, stating that jobs in unskilled and semi-skilled categories would be offered to PAPs on a preferential basis.

Other development activities. Besides the implementation of the ACRAP, the project supported a number of additional activities based on demand from local people. The additional activities include the construction of drains, approach roads, and low-cost sanitation program for villagers near the ICD. These additional activities and the full implementation of ACRP represent a successful social mitigation and inclusion effort. These activities have also helped the project to gain the goodwill of the local community, and should help to ensure a smooth operation of the Sirsiya (Birgunj) ICD when it becomes operational.

Improvement of the Road-based ICDs in Biratnagar and Bhairahawa. All planned civil works related to the improvement of the two road-based ICDs were completed on time, within budget and quality. The total cost for the improvement of the Biratnagar ICD was US$1.23 million, versus US$1.6 million projected at appraisal. Similarly, the total cost of the Bhairahawa ICD was US$1.19 million, versus US$1.5 million projected at appraisal.

Before the improvements were undertaken, the facilities in Biratnagar and Bhairahawa had limited storage space, and loss and damages to goods were common. The parking areas were crowded, and there were limited circulating areas for trucks. It took up two hours for a truck to exit the Biratnagar facility, and one and a half hours to exit the Bhairahawa facility due to the severe congestion inside the terminals. After the improvements were completed, the Biratnagar ICD now has about 3700 sq. m. warehouse facility that can hold up to 150 TEUs at a given time and the Bhairahawa ICD has over 1000 sq. m. warehouse facility that can hold about 75 TEUs at a given time. Because of these secured warehouses facilities, damage and loss to goods have virtually been eliminated in the Biratnagar and Bhairahawa ICDs. Both facilities have now bituminous pavement around the goods and inspection shed that can park about 250 trucks each, and provide ample room for circulating trucks. As a result, congestion in the terminals has been curtailed. A truck can now go in and out of the facility within 20 minutes.

In addition, the improvements in the Biratnagar and Bhairahawa ICDs have include constructing administrative buildings, each with nearly 570 sq. m. of covered space for accommodating the customs office, the TMC, a bank, post office, shipping line agents, clearing and forwarding agents.

Procurement of Equipment Component. Three reach stackers of 45 ton capacity for handling 40 foot ISO containers and one reach stacker of 7.5 ton capacity to handle empty 40 foot containers were procured at a cost of US$1.2 million (versus US$1.7 million project at appraisal) for use in the Sirsiya (Birgunj) ICD. The reach stackers were delivered to the Sirsiya (Birgunj) ICD in 2001, and are ready to start operations. The testing, commissioning and training of mechanics and operators have also been completed.

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Consultant Services. An international consultant was hired through an International Competitive Bidding (ICB) process to undertake the feasibility study, including identifying the location of the Sirsiya (Birgunj) ICD, and prepare detailed engineering design and cost estimates, as well as assess the financial, economic and environmental feasibility of the project. The same consultant was selected to provide supervision services during the construction phase of the project. The consultant performed well in both the preparation and implementation phase of the project. The Client (HMGN) is pleased with the performance, and output of the consultant.

Trade and Transit Facilitation Component. This component, comprising several sub-components and activities, was executed with technical assistance from UNCTAD. The achievement of the various sub-components is as follows.

Technical Assistance for Multimodal Transport and Trade Facilitation sub-component. This sub-component had five major activities, and their respective achievements are provided below. The total cost for this sub-component was US$1.24 million, versus US$1.2 million at appraisal.

(a) Modernization of Nepal’s transport and insurance legislation. The objective of this activity was to modernize and improve Nepal’s transport and logistic system and insurance liability. In consultations with stakeholders, the UNCTAD technical assistance helped in drafting transport and insurance legislation designed to improve the sectors. The transport legislation included Carriage of Goods by Road Act, Carriage of Goods by Rail Act, and Multimodal Transport Act. The insurance legislation was a Maritime Insurance Act. The drafting of this legislation was completed more than two years ago, and submitted to the Ministry of Law and Justice for judicial review. However, because Parliament was dissolved and has not been in session for the last two years, this legislation has not been enacted into law. Therefore, the achievement of this sub-component will depend on how fast the Parliament is back in session. Alternatively, HMGN could pass Ordinances to enact these draft legislation into law as it has done with other legislation, but it has not chosen to do so.

(b) Implementation of trade facilitation procedures. The main achievement under this activity is the introduction of changes to the exchange control and banking system, which has simplified trading procedures.

(c) Improving Nepal’s transit transport operation. Freight forwarding associations were strengthened through training of the members and harmonizing operating procedures. These procedures are being followed by NEFFA members and are improving transit procedures.

(d) Developing transit procedures for containerized cargo by rail. A draft procedure to be followed by the Nepalese Customs in the Sirsiya (Birgunj) ICD, and Indian Customs officials at Raxaul border and Calcutta was prepared. The draft was used as input to the bilateral negations between India and Nepal for drafting the Rail Service Agreement to govern transit and rails services in to the Sirsiya (Birgunj) ICD.

(e) Establishment of technical team in MOICS. A technical team to look after trade and transit facilitation was established in the PIU since the beginning of the project. This team has now been absorbed in MOICS, and is established as a Trade and Transit Section in the Trade Division. Headed by the Joint Secretary for Trade, the Trade and Transit Section also operates as a secretariat for the Nepal Transport and Trade Facilitation Committee (NTTFC), a public-private partnership concerned with promoting trade and transit facilitation in Nepal.

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ASYCUDA sub-component. The ASYCUDA system was introduced in four custom points, namely: Biratnagar ICD, Bhairahawa ICD, existing Birgunj customs facility, and the Tribhuvan International Airport Customs office. These four customs points cover about 80% of trade in Nepal. In addition, under this sub-component, training was provided to customs officials, and an Information & Technology division was established in the Department of Customs in Kathmandu to provide technical support to the field offices.

Finally, standard codes and procedures for commodities and tariffs were established, making tariff assessment relatively easy and transparent. The ASYCUDA has been in operation in the various facilities since mid 2000. The total cost of installing ASYCUDA and related technical support was about US$1.83 million, versus US$1.1 million at appraisal.

ACIS sub-component. A Border Pass Monitoring System (BPMS) was installed in the Biratnagar and Bhairahawa ICDs, and the existing Birgunj customs facility. In operation since mid 2001, the BPMS is helping in producing reliable traffic statistics and monitoring dwell time by truckers. The planned BPMS for the Sirsiya (Birgunj) ICD has not been implemented because of the non-operational status of the facility. The total cost of the BPMS, related technical assistance, and training was US$0.58 million, versus US$1.1 million at appraisal.

4.3 Net Present Value/Economic rate of return:

An ex-post economic analysis was conducted on the Sirsiya (Birgunj) ICD, which comprises 70% of project cost, and 80% of projected economic benefits. The more likely scenario is that the ICD will be operational in about a year (2005), while the investment was undertaken in 2000. However, different start dates were used to assess the viability of the project. The main economic benefits from the project come from the reduction in transportation cost by using rail transport (with the project) versus using road transport (without the project). The assumptions used in the analysis are the same us those used during appraisal. Annex 3 provides the details of the results of the economic analysis. A summary is provided below.

Results summary. The economic analysis conducted reveals that the project will be economically viable and generate an ERR of about 14% if the ICD in Sirsiya (Birgunj) becomes operational by 2005. Otherwise, if the start operations are delayed beyond 2005, the project may not be economically viable, as the estimated ERR will be below the acceptable 12% ERR. In contrast, if the ICD in Sirsiya (Birgunj) had become operational in 2001 after all civil works were completed, the project would have had an ERR of 32%. See the graph below comparing expected ERR with different start dates.

The results of the economic analysis underscore the need for HMGN to make the ICD operational soon if the initial investment is to remain viable. As the start of operation of the ICD in Sirsiya (Birgunj) is delayed, the stream of economic benefits are also delayed, which increase the opportunity cost of the initial investment.

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Economic Costs of Delays in Operarting Sirsiya (Birgunj) ICD

0%5%

10%15%20%25%30%35%

2000 2002 2004 2006 2008 2010

Start of Operation (Year)IR

R

IRR

For the Biratnagar and Bhairahawa ICDs, an ex-post economic analysis was also conducted. The result shows that the two ICDs have a combined NPV of US$3.7 million, and combined ERR of 12.85% (see annex 3 for details).

4.4 Financial rate of return:

Ex-post financial analysis was conducted for the Biratnagar and Bhairahawa ICDs that are currently in operation and earning revenues. The analysis conducted shows that the project is financially sound. It will earn a Net Present Value of NRs.144.0 million, and 10% financial rate of return in the ten-year that is leased to the private TMC. The main revenues are from truck parking, warehouse charges, and leasehold fee to HMGN. The expenses are the initial capital investment and annual maintenance expenditure, and major rehabilitation in year 7 of the operations. Finally, a 25% salvage value is expected at the end of the project.

The financial analysis also shows that the payback period for the investment is about 8.7 years.

Because the ICD in Sirsiya (Birgunj) is not operational, the overall financial return of the project is so far negative. However, if the ICD in Sirsiya (Birgunj) becomes operational, the project will have positive financial return.

4.5 Institutional development impact:

The institutional development impact of the project is rated substantial for the following reasons.

Introduction of Private Sector Participation in Terminal Management. Prior to the improvement of the ICDs in Biratnagar and Bhairahawa, the Department of Customs operated these facilities and did not provide modern terminal management services to users. Once these facilities were improved, the ICDs were handed over to NITDB, which in turn leased them out to the private sector in a competitive bidding process. Leasing the ICDs to the private sector not only has improved the management of the facilities, but also has provided HMGN with leasehold revenue, and passed the responsibilities for maintaining the facilities to the private sector. When the Sirsiya (Birgunj) ICD becomes operational, it is envisaged that a private TMC will operate the facility. Private sector TMC is currently accepted in Nepal as a way to manage and operate ICDs. The NITDB plans to scale up private sector participation in ICDs and is currently exploring options to convert existing customs facility into ICDs, and lease their management and operation to a private TMC. In addition, the NITDB is seeking private sector participation to establish an ICD in Kathmandu.

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Establishment of a regulatory regime. With support from the project, the NITDB was established as a regulatory body to oversee the operations of the private TMC operators on behalf of HMGN, as well as to manage the ex-ante bidding process, and to enforce the ex-post contract provision. The Board of the NITDB is composed of private and public sector representatives and is headed by a full time executive director, who looks after the day-to-day operations. The NITDB gets monthly operational reports from the TMC in Biratnagar and Bhairahawa ICDs. In recent months, some issues related to the interpretation contract clauses for parking charges and responsibilities of taxes had emerged that required regulatory interventions. NITDB has addressed some of the contractual disputes, albeit with some delays. This, however, has shown that establishing a regulatory body is essential for a smooth operation of private concessions, especially when contractual disputes emerge.

Modernization of customs and trading procedures. With the introduction of ASYCUDA and the implementation of the various transit and trade facilitation measures, customs and trading procedures are following modern and internationally accepted practices. Although not directly related to the project, the modernization of the customs and trading procedures have helped Nepal in its efforts to join the World Trade Organization (WTO).

Absorption of the project-focused PIU into the MOICS. The PIU and its staff were absorbed and made a permanent part of the MOICS. The PIU Director became the Joint Secretary for the Trade Division and continues to be the focal person for trade and transit matters in Nepal. This model, whereby a PIU is absorbed into a regular government institution, is a good practice that ensures institutional development efforts in PIUs are not lost when the project is closed. However, this was possible only because (a) the incentive structure in the PIU was the same as in the line ministry, and (b) the PIU staff stayed through out the project implementation period.

Establishment of NTTFC. Composed of private and public sector representatives, NTTFC operates as the apex body for promoting trade and transit in Nepal. Although NTTFC has not been as active as originally planned, it has been serving as an advisory body to the government in trade and transit issues.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:

Political Instability. The project was implemented during a time of political turmoil and Maoist insurgency in Nepal. While the insurgency had minimal effect on the project, the political unrest, which is in part related to the insurgency, did have adverse effects on the performance of the project. The dissolution of Parliament, and the ensuing political unrest resulted in frequent government changes, which made it difficult to maintain continuity in negotiations with India on the Nepal-India Rail Service Agreement. With three government changes in the last two years, each incoming government not only had to come up to speed on the issues, but also had their own stance towards the Rail Service Agreement, and often opened up issues that had been settled previously. The lack of a sitting Parliament for the last two years also has prevented the enactment of the draft transport and insurance legislation.

5.2 Factors generally subject to government control:

Bilateral negotiations with India. The bilateral negotiations between HMGN and GOI on the Nepal-India Rail Service Agreement took three years to complete. While the early negotiations were on the usual technical matters related to rail service and transit issues, the negotiations towards the end became bogged down in a few clauses. In particular, since Nepal does not have a railway law, the application of the Indian Railway Act was required to govern rail operations on the part of the rail spur line that is in Nepal territory (about 500 meters of the 5 km spur line). The application of Indian Railway Act, however, became a

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sensitive issue for HMGN. The Rail Service Agreement negotiations, therefore, turned into a political and foreign relations discussion between Nepal and India, rather than technical discussion on rail service operations and schedules. HMGN could have expedited the enactment of the draft Nepal Railways Act that was prepared during the project in anticipation that this would be required to govern rail services in its territory. While the Nepal Railways Act was ready to be enacted, HMGN delayed its enactment, and instead decided to negotiate further with GOI to arrive on mutually acceptable wording in the Agreement on how transit and rail services would be governed in the part of the rail spur line that is in Nepali territory. Arriving at appropriate wording took more than one and one half years to conclude.

Regulatory capacity of NITDB. Although the ICDs in Biratnagar and Bhairahawa are operating smoothly, and important positive changes have been observed, there were some regulatory and contractual issues that required timely attention by NITDB. Some of the regulatory issues were minor, while others required arbitration to solve them, but all invariably required interpretation of the contractual agreement between HMGN and the private TMC. However, because of NITDB's weak capacity, the regulatory issues took some time to resolve. Although most of them have now been settled, the regulatory and contractual issues that emerged during the early part of the operations of the ICD in Biratnagar and Bhairahawa underscore the challenges NITDB faces in regulating the ICDs and in interpreting the contractual agreement when disagreements arise or when unforeseen circumstances emerge. These challenges would increase once the bigger Sirsiya (Birgunj) ICD comes into operation, and more ICDs are developed and leased to private operators. Hence, there is a need to enhance NITDB’s regulatory capacity to manage and enforce the contractual agreements, to adapt to changing circumstances, and to resolve disputes in a fair, transparent, and efficient manner. HMGN needs to take the necessary steps to strengthen the capacity of NITDB capacity, especially to improve its skill mixes. NITDB needs to have staff knowledgeable in financial analysis and contractual matters, and it needs to have access to expert legal advice on such matters as tax law and contract law to effective monitor and enforce contracts.

Delays in TMC Selection Process. Related to the weak regulatory capacity of NITDB and the fact that it was a new agency was the delay in the selection of TMC for Biratnagar and Bhairahawa ICDs. The bidding process organized by NITDB was not able to attract enough bidders because the bid was internally inconsistent, where by NITDB set a maximum leasehold fee to the government and a minimum tariff to be charged to users. At the end, NITDB was forced to cancel the initial bid and re-bid with only the minimum tariff set, and allowing bidders to offer leasehold feed. The responsive bidder evaluated to offer the highest leasehold revenue to the government was finally selected.

5.3 Factors generally subject to implementing agency control:

Multiple implementing agencies. While the PIU was the main implementing agency for the project, the Department of Customs (DOC), with technical support from UNCTAD, was responsible for implementing the customs modernization sub-component. The PIU was housed in MOICS, while DOC is under the Ministry of Finance. This arrangement could not be avoided since multimodal transport projects by their nature would require more than one implementing agency. In this case, the problem was with the DOC delaying the implementation of activities related to ASYCUDA and the coordination and information exchange problems between the PIU and DOC. The UNCTAD technical assistance also required oversight by both the PIU and the DOC, which meant that effective coordination by both agencies was essential to ensure maximum benefit from the service provided by UNCTAD. Yet, DOC did not provide adequate oversight of the UNCTAD technical assistance.

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5.4 Costs and financing:

The original project cost was US$28.5 million, and IDA's share of financing was US$23.5 million, including 10% physical contingencies, and 10% price contingencies. The costs without the contingencies were estimated at US$23.5 million. At project closing, the total cost of the project was US$21.40 million, and IDA’s financing share was about US$17.42 million. About US$4.0 million was cancelled from the Credit. The total project cost and IDA financing are lower than the original estimates in part because the competitive bids received for the major physical components of the project were lower, as well as the appreciation of the Special Drawing Rate (SDR) relative to the US dollar and the depreciation of the Nepali Rupee relative to the US dollar and SDR. The savings were not cancelled earlier because during the last year of the project, HMGN wanted to keep the credit line open to use as technical assistance for the selection of the TMC for Sirsiya (Birgunj) ICD. However, because the selection process was not started on time, the project savings could not be used for that purpose. Annex 2 provides details of project costs and financing.

6. Sustainability

6.1 Rationale for sustainability rating:

The sustainability of the project is rated likely. Although most of the project economic benefits have yet to begin, once the Sirsiya (Birgunj) ICD becomes operational, the flow of economic benefits to the country will be sustained over the long design life of the project for the following reasons.

The project is economically and financially robust. The shift from road traffic to rail shipment will have visible benefits in terms of reduced transportation costs, and would in turn ensure the continued utilization of the ICD in Sirsiya (Birgunj) once it becomes operational. In addition, the road-based ICDs in Biratnagar and Bhairahawa have shown that pilferage and damages to goods during transit and storage could be substantially reduced by switching from break bulk shipment to container shipment. This mode of shipment, therefore, will alter the way import and export goods will move in Nepal and, as experience in other countries suggests, it will be irreversible as long as it continues to generate the expected benefits. Since the rail-linked ICD in Sirsiya (Birgunj) ICD will be based on container shipment, this will provide an added reason for shippers and traders to utilize the Sirsiya (Birgunj) ICD once it becomes operational.

The project is supported by the business community. Through the NTTFC and other channels, the business community has been supporting HMGN's initiative to make the ICDs operational and promote multimodal transport and trade facilitation.

The hiring of private TMC ensures an effective and sustainable operation of the ICDs. This has already been proven in the Biratnagar and Bhairahawa ICDs. The private TMC is not only operating the facility efficiently, but also is investing resources to maintain and improve the facility.

The establishment of NITDB as an autonomous regulatory body helps to foster private sector confidence in ICD operations. It also minimizes possible arbitrary policy reversals and infringement by HMGN on the operations of the TMC. There is virtually no government intervention in the operations of the TMC in Biratnagar and Bhairahawa ICDs, except the regulatory oversight provided by NITDB. This kind of arms-length regulatory relationship between HMGN and the private sector ensures that the private sector will have a long-term view of its involvement in ICD operations.

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The sustainability of the trade and transit facilitation components is also likely. ASYCUDA has now been established in the country and is providing benefits to HMGN and users. It has a strong support from HMGN, especially the Ministry of Finance. HMGN now plans to expand ASYCUDA in three other customs facility using its own funding. Trade and transit facilitation also has strong support from HMGN and the business community.

6.2 Transition arrangement to regular operations:

The Biratnagar and Bhairahawa ICDs have already been leased out to a private TMC, which is operating the facilities on a ten-year leasehold contract. The Sirsiya (Birgunj) ICD will be leased out to a TMC, which will also operate the facility on a ten-year leasehold contract. The ASYCUDA is being operated by the various customs offices. An IT division has been established in DOC to provide technical support and sustain the operation of ASYCUDA. Finally, the trade and transit facilitation aspect of the project have been integrated to the Trade Division in the MOICS.

7. Bank and Borrower Performance

Bank7.1 Lending:

Bank performance during lending preparation is rated satisfactory. IDA team undertook rigorous project preparation, and supported what was, and still is, a high priority project for HMGN. The policy dialogue during project preparation was focused on agreeing on a shared framework on the project concept and on operational modality for the ICDs once they are constructed and improved.

The introduction of private sector participation in terminal management, along with the regulatory regime, was a key aspect of the project design that would ensure the effectiveness and sustainability of the project.

The IDA team, however, underestimated the risks associated with the bilateral negotiations between India and Nepal. The construction of the rail spur line was considered the main risk, and it was mitigated by ensuring bilateral negotiations were concluded before project effectiveness. Yet, the risk associated with both HMGN and India agreeing on a Rail Service Agreement was not adequately thought through during project preparation. Although signing a Rail Service Agreement before the project became effective would probably not have been practical, starting the bilateral discussion, and developing an outline agreement during project preparation would have helped in minimizing the effects of the protracted bilateral negotiations on the Nepal-India Rail Service Agreement.

7.2 Supervision:

The QAG undertook Quality of Supervision for Risky Project (QSR) in FY2002. QAG rated the overall supervision quality satisfactory, and rated some categories as highly satisfactory. The ICR rates Bank supervision highly satisfactory. The IDA team made a solid effort to ensure the project was implemented effectively, and achieves its development objectives. The task team was focused on overcoming problems that hindered implementation progress and achievement of the objectives. Supervision was well-organized and timed to handle a wide range of activities and issues in this complex project. In the last three years, IDA’s supervision efforts were focused on ensuring the enabling arrangements (i.e., the signing of the Nepal-India Rail Service Agreement and selection of a TMC) for the Sirsiya (Birgunj) ICD were put in place.

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The Country Management Unit (CMU) provided exceptional support to the task team in addressing the issues related to the operationalization of the Sirsiya (Birgunj) ICD. The Country Director and Operations Adviser took up the issues of the Rail Service Agreement in discussions with high-level HMGN officials and with the Indian Ambassador for Nepal. The start of operation of the Sirsiya (Birgunj) ICD was a key part of the country dialogue in the last few years. The CMU’s support and involvement in the supervision effort represents a good practice in providing the right level of support to task teams, and ensuring that tough issues are taken up at a higher level when they could not be solved at the project level. To help ensure timely operation of Sirsiya (Birgunj) ICD, the country team intends to link its to the processing of the Poverty Reduction Support Credit II.

At the end, however, the strong effort by IDA team was not enough to ensure the timely conclusion of the bilateral negations between Nepal and India on the Rail Service Agreement, and selection of the TMC to make the ICD in Sirsiya (Birgunj) operational. This shows that when project success depends on exogenous factors for which IDA does not have control over, IDA, after exhausting all its leverage, needs to have an exit strategy when these could not be established. IDA’s decision to reject HMGN’s third Credit extension request was therefore the right decision given that the enabling environments were eluding the project. The first two Credit extensions totaling 21 months were granted to facilitate the implementation of some minor ASYCUDA activities, and provide time for the conclusion of the bilateral negotiations. Yet, they were not enough for HMGN to conclude its bilateral negotiations with India, and put the required enabling environment to ensure the timely start of operations of the Sirsiya (Birgunj) ICD.

7.3 Overall Bank performance:

On the basis of the above, the overall Bank performance is rated satisfactory. IDA’s preparatory activities focusing on developing a shared concept for the project helped to ensure that the project was owned by HMGN, and had the support of the business community. IDA’s supervision efforts represented best practice – focusing on development effectiveness by the task team, the right support from Country Management, and finally exiting when the exogenous enabling environment could not put in place on time.

Borrower7.4 Preparation:

Borrower performance during project preparation is rated satisfactory. The project was a high priority for HMGN, and this was demonstrated by the good ownership the HMGN shown during project preparation. HMGN quickly organized itself, set up a project steering committee to oversee and lead project preparation, requested IDA for a Project Preparation Facility (PPF) to cover expenses related to project preparation, and hired an international consultant to support it with project preparation. The policy dialogue with IDA during project preparation was productive, and resulted in a well-though out project, and a commonly-shared project concept. Bilateral negotiations with India were also amicable, which ensured that India provided the grant financing to construct the rail spur line to connect the ICD in Sirsiya (Birgunj) with the Raxaul terminal in India.

7.5 Government implementation performance:

HMGN performance during implementation is rated unsatisfactory. HMGN failed to provide the required enabling environment within a reasonable time to ensure the success of the project. For example, the enactment of the three transport laws through Ordinance (in the absence of a sitting Parliament) could have provided the required legal framework to facilitate the bilateral negotiations between HMGN and GOI. The fact that Nepal did not have its own railway law to govern rail services in its territory was one of the

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key issues that delayed the finalization of the Nepal-India Rail Service Agreement. Yet, HMGN could have remedied this by enacting the draft Railway Act, which was prepared under the Project. Second, HMGN could have started its bilateral negotiations with GOI on the Rail Service Agreement much earlier instead of waiting for the physical completion of the ICD in Sirsiya (Birgunj). This would have ensured that the ICD would be operational within a reasonable time of its completion, rather than being unutilized for three years, and possibly for another year. Finally, HMGN could have managed various interest groups within Nepal more productively, and ensured that the bilateral negotiations between India and Nepal were focused on technical issues and putting in place the enabling arrangements.

7.6 Implementing Agency:

The performance of the implementing agency during project implementation is rated satisfactory. The PIU was well staffed with the necessary skills, and was headed by the same Project Director throughout the project implementation period. This provided continuity of leadership and management of project implementation; such continuity is quite exceptional in the context of Nepal. The PIU staff and its Director were well informed on all aspects of the project. Financial management and procurement was dealt with professionally and competently. The PIU’s submitted to IDA timely and good quality financial management and quarterly progress reports.

7.7 Overall Borrower performance:

The overall performance of the Borrower is satisfactory. Although HMGN could have been more focused on getting the enabling arrangements for ensuring the success of the project, on balance, the borrower was committed to the project and undertook the implementation of the project professionally and competently.

8. Lessons Learned

Projects that depend on exogenous factors (i.e., factors outside the control of the project) should be treated as high-risk projects and IDA should have an exit strategy if enabling arrangements cannot be arranged ex ante. The project depended on exogenous factors such as on India agreeing to construct the rail spur line to connect the ICD in Sirsiya (Birgunj), timely conclusion of bilateral negotiations between Nepal and India on the Rail Service Agreement, and the selection of TMC in a competitive and transparent manner. In this case, it would have been useful if a tentative Rail Service Agreement was reached before or early during project implementation, and the TMC selection process was made part of the project.

Bilateral and regional initiatives, such as regional transit projects, require political commitment and consensus by all parties to succeed. In the South Asia context, this means that clear economic benefits of regional cooperation can be overshadowed by the regional politics. Therefore, in the design of future projects that involve cooperation of two or more countries, it is important to first develop a consensus among the countries involved, and take into account the regional political context that could derail the project benefits. There is also a need to have patience in preparing such projects. The MTTFP took five years to prepare, mostly because of the need to finalize the bilateral negotiations to construct the spur rail line from Raxaul to the Sirsiya (Birgunj) ICD.

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Stakeholder analysis is important in projects that have significant, non-reversible changes to the existing mode of operation. The project was intended to shift the use of road transport to rail container transport. This is bound to have winners and losers. In such situations, it is useful to identify who the winners are (often the business community) and losers (often road transporters) to get the support from the winners and minimize opposition from losers.

Better sequencing of physical works with other related project activities could maximize implementation success and development effectiveness. The progress in physical implementation needs to be in synch with progress in other components, especially institutional and policy components, as well as other exogenous enabling environments. Otherwise, physical implementation should be held back as a leverage until enabling arrangements are put in place to ensure the ultimate success of the project.

Strong regulatory institutions are essential for the success of private sector participation in ICD operations. While the obligations of the TMC and HMGN are specified in the contract, there is still a need to have a strong regulatory institution to manage the contract, especially when unanticipated situations arise that require either clarification of the contract terms or possible changes to the contract. Such changes require strong institutions that can guard the interests of both parties – HMGN and the private TMC– within a framework of the rule of law that provides assurances that the terms of any changes will be fair and that the principles underlying such terms can be anticipated in advance.

Project Implementation Unit arrangements can be effective if there is an absorption strategy once the project is completed. It is important, however, that the PIU does not operate under a difference incentive structure as normal government agencies. In this case, the PIU, although it was separate from the line ministry, operated under the same salary and compensation scheme. In addition, continuity of project staff was critical to absorb the PIU into regular government institutions.

9. Partner Comments

(a) Borrower/implementing agency:

Please refer to Annex 8 for Borrower's evaluation.

(b) Cofinanciers:

(c) Other partners (NGOs/private sector):

10. Additional Information

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Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

15% decrease in transport costs of tradable (import/export) goods after the first full year of operations of ICDs and a further 10% after two years of operations

Not met because the ICD in Sirsiya (Birgunj) has yet to be operational.

Not met because the ICD in Sirsiya (Birgunj) has yet to be operational.

Output Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

Completion of reconstruction of ICDs at Biratnagar, Bhairahawa

June 1999 January/April 2000

Completion of construction of ICD at Sirsiya (Birgunj)

June 2000 December 2000

Construction of rail spur to Sirsiya (Birgunj) ICD

March 2000 March 2001

Procurement of Equipment at Sirsiya (Birgunj) ICD

May 2000 May 2001

Implementation of trade facilitation action plan

December 2000 December 2000

Implementation of ASYCUDA December 2000 December 2000

Implementation of ACIS December 2000 December 2000

Selection of terminal management companies (TMCs) to operate ICDs at Biratnagar and Bhairahawa

June 1999 March 2002

Selection of TMC to operate ICD at Sirsiya (Birgunj)

June 2000 Not achieved

1 End of project

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Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)AppraisalEstimate

Actual/Latest Estimate

Percentage of Appraisal

Component US$ million US$ millionConstruction of rail/road Inland Container Depot (ICD) at Sirsiya (Birgunj)

14.80 12.57 84.93

Major improvements to road only ICD at Biratnagar 1.60 1.23 76.88Improvements to road only ICD at Bhairahwa 1.50 1.38 92Procurement of equipment for ICDs (including customs laboratories)

1.70 1.19 70

Supervision consultants for civil works 0.70 0.98 140Technical assistance and training 0.90 1.24 137.78Installation of Automated Systems for Customs Data (ASYCUDA)

0.90 1.83 203.33

Installation of Advanced Cargo Information System (ACIS) 0.90 0.58 64.44Project Preparation - PPF 0.50 0.40 80

Total Baseline Cost 23.50 21.40 Physical Contingencies 2.40 Price Contingencies 2.60

Total Project Costs 28.50 21.40Total Financing Required 28.50 21.40

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 21.80 0.00 0.00 0.00 21.80(17.30) (0.00) (0.00) (0.00) (17.30)

2. Goods 2.00 0.00 0.00 0.00 2.00(1.90) (0.00) (0.00) (0.00) (1.90)

3. Services 0.00 0.00 4.70 0.00 4.70(0.00) (0.00) (4.30) (0.00) (4.30)

4. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 23.80 0.00 4.70 0.00 28.50(19.20) (0.00) (4.30) (0.00) (23.50)

Figures in parenthesis are the amounts to be financed by the IDA credit.

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Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 15.65 0.00 0.00 0.00 15.65(12.21) (0.00) (0.00) (0.00) (12.21)

2. Goods 1.20 0.00 0.00 0.00 1.20(1.07) (0.00) (0.00) (0.00) (1.07)

3. Services 0.00 0.00 4.55 0.00 4.55(0.00) (0.00) (4.14) (0.00) (4.14)

4. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 16.85 0.00 4.55 0.00 21.40(13.28) (0.00) (4.14) (0.00) (17.42)

1/ Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies.2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff

of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

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Project Financing by Component (in US$ million equivalent)

Component Appraisal Estimate Actual/Latest EstimatePercentage of Appraisal

IDA Govt. CoF. IDA Govt. CoF. IDA Govt. CoF.Construction of rail/road Inland Container Depot (ICD) at Sirsiya (Birgunj)

9.90 4.90 10.68 1.89 107.9 38.6

Major improvements to road only ICD at Biratnagar

1.10 0.50 1.05 0.18 95.5 36.0

Improvements to road only ICD at Bhairahwa

1.10 0.40 1.17 0.21 106.4 52.5

Procurement of equipment for ICDs (including customs laboratories)

1.50 0.20 1.01 0.18 67.3 90.0

Supervision consultants for civil works

0.50 0.20 0.83 0.15 166.0 75.0

Technical assistance and training

0.70 0.20 1.05 0.19 150.0 95.0

Installation of Automated Systems for Customs Data (ASYCUDA)

0.70 0.20 1.56 0.27 222.9 135.0

Installation of Advanced Cargo Information System (ACIS)

0.70 0.20 0.49 0.09 70.0 45.0

Project Preparation - PPF 0.40 0.10 0.40 0.00 100.0 0.0

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Annex 3. Economic Costs and Benefits

The ex-post economic analysis covers the physical components of the project, following the assumption used during appraisal, and using updated traffic and cost figures.

Economic Analysis of Sirsiya (Birgunj) ICD

An ex-post economic analysis was conducted on the Sirsiya (Birgunj) ICD, which comprises 70% of project cost and 80% of projected economic benefits. The likely scenario is that the ICD will be operational in about a year (2005), while the investment was undertaken in 2000. In addition, different start dates were used to assess the viability of the project. The main economic benefits are from the reduction in transportation cost by using rail transport (with project) versus using road transport (without the project).

Assumptions Made

Traffic. The base traffic is the 2003 traffic for existing Birgunj facility. About 912,000 tones of export and import goods transited through the Birgunj customs facility in 2003. The growth rate for traffic is assumed to follow Nepal’s economic growth rate: 4.5% (2003 to 2013); and 6% a year thereafter.

Modal Shift. It is assumed that 50% of the existing road traffic will shift to rail up to 2010, and 75% from 2011 to 2015, and 80% afterwards. This assumptions have been modified from the appraisal assumptions in that the current assumption is that not all traffic will move to rail, and hence only 80% of the container traffic will shift to rail.

Benefits are expected to accrue from shifting from road to rail. The current rate for shipping a container from Kolkata to Birgunj is IRs.30,000 by road, and the shipping rate by rail from Kolkata to the Raxaul is IRs.15,000. IRs.10,000 per container will be saved by shifting from road to rail.

Life of the project is assumed to be 25 years. However, it is assumed that in every ten years the equipment will be replaced and a major rehabilitation of the facility will be undertaken. In addition, annual maintenance of the facility is assumed.

Discount rate is 10%. Economic figures are 90% of financial figures, using the standard conversion factor of 0.9.

Results of the Economic Analysis

Table 1 shows the results of the economic analysis, taking into account the above assumptions, actual construction cost figures and a start date of 2005. Other start dates were also conducted and the summary results are provided below.

If the ICD becomes operational in 2005, it will have an ERR of 14.5%. This compares poorly with the appraisal estimate of 45% ERR for the Sirsiya (Birgunj) ICD. The substantial difference between the appraisal ERR and the latest estimate is due to the delay in the start of operation, as well as lower than expected traffic. However, if the ICD had started operations in 2001, the ERR would have been about 32% much closer to the original estimate.

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Table 1: Economic Returns of Sirsiya (Birgunj) ICD

Year

Base Traffic (2003 equivalent TEUs)

Traffic to swith to rail

Savings per container Costs

Net Savings

NPV (If operations start in 2005)

2000 - 14.85 (14.85) (14.85) 2001 - 0.09 (0.09) (0.08) 2002 - 0.09 (0.09) (0.07) 2003 70216 35108 - 0.09 (0.09) (0.07) 2004 73376 36688 - 0.09 (0.09) (0.06) 2005 76678 38339 7.97 0.09 7.88 4.90 2006 80128 40064 8.33 0.09 8.24 4.65 2007 83734 41867 8.71 0.09 8.62 4.42 2009 87502 43751 9.10 0.09 9.01 3.82 2010 91439 45720 9.51 3.38 6.13 2.60 2011 95554 71666 14.91 0.09 14.82 5.71 2012 99854 74891 15.58 0.09 15.49 5.43 2013 104348 78261 16.28 0.09 16.19 5.16 2014 110609 82956 17.25 0.09 17.16 4.97 2015 117245 87934 18.29 0.09 18.20 4.79 2016 124280 93210 19.39 0.09 19.30 4.62 2017 131737 105389 21.92 0.09 21.83 4.75 2018 139641 111713 23.24 0.09 23.15 4.58 2019 148019 118415 24.63 0.09 24.54 4.41 2020 156900 125520 26.11 3.38 22.73 3.72 2021 166314 133051 27.67 0.09 27.58 4.10 2022 176293 141035 29.34 0.09 29.25 3.95 2023 186871 149497 31.10 0.09 31.01 3.81 2024 198083 158466 32.96 0.09 32.87 3.67 2025 209968 167974 34.94 0.09 34.85 3.54 2026 222566 178053 37.03 0.09 36.94 3.41

NPV 75.88 ERR 14.5%

Table 2: Economic Returns for Different Start Year of Sirsiya (Birgunj) ICD

Start Year 2001 2002 2003 2004 2005 2006 2007 2008 2009NPV (in US$ Millions) 107 101 95 90 76 71 66 61 57ERR 32% 24.6% 20% 18% 14.5% 12% 11% 10% 9%

Economic Analysis of the Biratnagar and Bhairahawa ICDs

Table 3 shows the results of the economic analysis of the Biratnagar and Bhiarahawa ICDs. Most of the project benefits from these ICDs are due to the reduction in transit time cost in the terminals. The result show that the two ICDs have a combined ERR of about 13% and a NPV of US$3.7 million.

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Table 3: Economic Analysis of the Biratnagar and Bhairahawa ICDs

Year Total Traffic

Savings per container

Total savings per year Costs Net Savings NPV

2000 - 2,730,000.00 (2,730,000.00) (2,730,000.00) 2001 1,312.50 1,575.00 574,875.00 10,000.00 564,875.00 513,522.73 2002 1,378.13 1,653.75 603,618.75 100,000.00 503,618.75 416,213.84 2003 1,447.03 1,736.44 633,799.69 20,000.00 613,799.69 461,156.79 2004 1,519.38 1,823.26 665,489.67 20,000.00 645,489.67 440,878.13 2005 1,595.35 1,914.42 698,764.16 20,000.00 678,764.16 421,459.14 2006 1,675.12 2,010.14 733,702.36 20,000.00 713,702.36 402,866.38 2007 1,758.88 2,110.65 770,387.48 20,000.00 750,387.48 385,067.43 2009 1,846.82 2,216.18 808,906.86 20,000.00 788,906.86 334,573.52 2010 1,939.16 2,326.99 849,352.20 100,000.00 749,352.20 317,798.48 2011 2,036.12 2,443.34 891,819.81 20,000.00 871,819.81 336,124.28 2012 2,137.92 2,565.51 936,410.80 20,000.00 916,410.80 321,196.39 2013 2,244.82 2,693.78 983,231.34 20,000.00 963,231.34 306,915.19 2014 2,357.06 2,828.47 1,032,392.91 20,000.00 1,012,392.91 293,254.16 2015 2,474.91 2,969.90 1,084,012.55 20,000.00 1,064,012.55 280,187.76 2016 2,598.66 3,118.39 1,138,213.18 20,000.00 1,118,213.18 267,691.34 2017 2,728.59 3,274.31 1,195,123.84 20,000.00 1,175,123.84 255,741.19 2018 2,865.02 3,438.03 1,254,880.03 20,000.00 1,234,880.03 244,314.43 2019 3,008.27 3,609.93 1,317,624.03 20,000.00 1,297,624.03 233,389.09 2020 3,158.69 3,790.43 1,383,505.23 20,000.00 1,363,505.23 222,944.00

NPV 3,725,294.27 ERR 12.8%

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/Preparation11/22/1992 5 Transport Specialist, Transport

Economist, Highway Engineer (2), Environmental Specialist

3/20/1993 2 Transport Specialist, Transport Economist

03/10/1994 1 Transport Specialist6/20/1994 3 Transport Specialist, Transport

and Trade Facilitation Specialist, Transport Economist,

12/05/1994 1 Transport Specialist04/04/1995 5 Transport Specialist, Transport

Economist, Privatization Specialist, Trade Facilitation Specialist, Procurement Specialist,

06/09/1995 2 Transport Specialist, Privatization Specialist

11/15/1995 7 Transport Economist, Financial Analyst, Urban Redevelopment Specialist, Privatization Specialist, Transport and Trade Facilitation Specialist, Port Specialist, Procurement Specialist

4/16/1996 9 Transport Economist, Financial Analyst, Urban Redevelopment Specialist, Privatization Specialist, Transport and Trade Facilitation Specialist, Port Specialist, Procurement Specialist, Railway Specialist, Transport Specialist

10/18/1996 1 Transport Economist

Appraisal/Negotiation07/11/1996 7 Transport Economist,

Financial Analyst, Urban Redevelopment Specialist, Privatization Specialist, Transport and Trade Facilitation specialist, Transport Specialist

Supervision02/07/1998 7 Transport Economist, S S

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Financial Analyst (2), Private Sector Specialist, Highways Engineer, Procurement, Trade Facilitation Expert

06/07/1998 5 Transport Economist, Financial Analyst, Private Sector Specialist, Highways Engineer, Operations Officer

S S

10/07/1998 4 Financial Analyst, Transport Economist, Highway Engineer, Transport and Trade Facilitation Specialist

S S

02/17/1999 6 Financial Analyst, Transport Economist, Transport Specialist, Transport and Trade Facilitation Specialist, Private Sector Specialist, Port Specialist

S S

07/01/1999 3 Financial Analyst, Transport Specialist (2)

S U

11/04/1999 5 Financial Analyst, Transport Economist, Port Specialist, Private Sector Specialist, Transport Specialist

S S

04/21/2000 4 Financial Analyst, Private Sector Specialist, Infrastructure Specialist, Port Specialist

S U

12/05/2000 2 Financial Analyst, Transport Specialist

S S

09/11/2001 3 Financial Analyst, Infrastructure Specialist, Social Development Specialist

S S

03/31/2002 3 Financial Analyst, Transport Specialist, Operations Advisor

S S

09/13/2002 4 Financial Analyst, Transport Specialist, Transport Economist, Team Assistant

S U

03/31/2003 3 Financial Analyst, Transport Economist, Program Assistant

S U

ICR09/07/2003 5 Financial Analyst,

Transport Specialist, Transport Economist, Social Development Specialist, Team Assistant

S U

Note: September 13, 2002 mission also initiated discussions on preparation for ICR.

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(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation 155 453Appraisal/Negotiation 92 290Supervision 177 602ICRTotal 424 1345

(1) Latest estimate figures include travel expenses as well.(2) Trust Fund usage of about US$276,410.00.(3) Actual expenditure on ICR is included in Supervision.

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

1. Nepal Multimodal Transit and Trade Facilitation Project, Project Appraisal Document, October 29, 1997, Report No. 17134-NEP.

2. Development Credit Agreement between (Nepal Multimodal Transit and Trade Facilitation Project) Kingdom of Nepal and International Development Association, December 18, 1997.

3. Study Report on Regional Transport and Trade Facilitation Through Phulbari Corridor and East-West Highway, Nepal Centre for Contemporary Studies, 1999.

4. Project Preparation/Identification mission reports.

5. Various Progress Reports.

6. Project Status Reports.

7. Supervision and Back to Office Reports.

8. Resettlement policy framework & acquisition, compensation & rehabilitation plan (ACRP), Ministry of Works and Transport, 1998.

9. Environmental Management Plan Review During Construction Phase, Rites, October, 1999.

10. Quarterly Progress Reports.

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Additional Annex 8. Borrower's Evaluation

1. Introduction

1.1 HMGN implemented the NMTTFP with financing from the World Bank Credit in 1997. The initiative to launch the project came after the establishment of a broad gauge rail line at the Indian border of Raxaul, and the conclusion of an agreement with GOI to extend the broad gauge rail line to the ICD site at Birgunj from Raxaul.

1.2 A draft DCA between HMGN and IDA of the World Bank was signed on 6 March 1997 in which the IDA agreed in principle to provide loan assistance to HMGN. A detailed Borrower's Project Implementation Plan (BPIP) was formulated in March 1997, and signed by the Secretary, (MOICS) (then Ministry of Commerce), and the Task Manager of IDA. The BPIP outlines the detailed implementation arrangement of the project activities.

1.3 After the completion of project preparation activities, the total project cost was estimated at US$28.5 million out of which the IDA approved loan amount of US$23.5 million in November 1997 for the implementation of NMTTFP. HMGN will contribute the balance amount of US$5.0 million. Consequently, the DCA was signed between HMGN and the World Bank on 18 December 1997 in Washington DC with the Credit becoming effective on 4 February, 1998.

1.4 In addition to the project investment, the GOI will fund the construction of 5.4 km rail spur from Raxaul to the Birgunj ICD at an estimated cost of US$3.0 million.

2. Project Scope and Objectives

2.1 The principle development objective of the project is to reduce transport costs associated with Nepal's imports and exports, and thereby help in reducing the internal price of imported goods, and also in raising export competitiveness in the international market. This is to be realized through achieving cost efficiency in transport, transit and storage of costs as well as increased competitiveness in transport services. A second set of project objectives are to streamline trade and transit procedures, and improve the efficiency and organization of transit trade documentation and data exchange. Thus, the implementation of NMTTFP clearly envisages streamlining of trade and transit procedures, and makes them more efficient and better organized.

2.2 The project will also result in the opening of new commercial opportunities to private sector operators by enabling them to offer a full range of better-managed services through their involvement in the management and operation of ICD.

2.3 The increased efficiency in trade and transport sectors also aims at improving HMGN finances and strengthening Nepal's economy. This is to be achieved through implementation of three inter-linked yet separate set of activities, i.e., (a) Multimodal Transport and Trade Facilitation; (b) ASYCUDA Phase II; and (c) ACIS.

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3. Detailed Project Description

3.1 Construction of Rail ICD at Sirsiya, Birgunj. This component includes construction of a modern ICD at Khalwatola, Sirsiya, located 4 km west of Birgunj along with creation of rail/road transshipment, storage, and customs facilities. The 38-hectare area of the ICD is designed to receive and dispatch container, general merchandise and bulk freight trains to/from transit seaports of Kolkata and Haldia as well as various freight terminals in India. In separate service zones, the facility will provide for expeditious customs inspection and clearance of containerized and non-containerized cargo, interchange of transport, loading and unloading, parking slots for containers and vehicles.

3.2 Construction of Road ICDs at Biratnagar and Bhairahawa. The project also aims at expanding and creating modern physical facilities at the existing border customs terminals of Biratnagar and Bhairahawa. As the Indian border across these Nepalese customs are served only by meter gauge railways which are not permitted to transport ISO containers, the ICD facilities are meant for handling containerized and non-containerized traffic moving by road. The 2.86-hectare area at Biratnagar, and 3.23-hectare area at Bhairahawa are to be developed as ICDs to facilitate customs inspection and clearance of cargo. Transfer of cargo between containers, Godown and trucks in addition to the parking space for freight vehicles and containers.

3.3 Procurement of Reach Stackers. Four reach stackers for handling of containers at the Birgunj ICD were also funded under the project. Three 45-ton capacity and one 7.5-ton capacity, reach stackers are to be procured for handling and stacking of loaded and empty 20' and 40' containers at the terminal.

3.4 Supervision Consultants. The services of internationally experienced consultants are to be used for the supervision of construction works at the ICDs.

3.5 Trade and Transport Facilitation. The trade and transport facilitation component of the project aims at streamlining and improving the existing formalities, procedures, documentation and institutional arrangements. This included simplification, harmonization and standardization of procedures and documentation, modernization of customs management and administration, strengthening freight forwarding services, and reform and modernization of transport and insurance legislation. UNCTAD is appointed as Executive Agency to carry out the job.

3.6 Extension of ASYCUDA. The project is designed to implement ASYCUDA in coordination with the Asian Development Bank (ADB), UNCTAD and Nepalese Customs. The first phase of ASYCUDA was financed by ADB for operation at Tribhuvan International Airport (TIA) Customs (Godown No. 2) in Kathmandu. The project is to finance its extension to three ICDs at Biratnagar, Birgunj, and Bhairahawa. In addition, it was later decided as per the recommendations of the mid-term review (MTR) meeting in February 1999 to extend the ASYCUDA operation at the then Godown No. 1 & 3 at TIA Customs as well as at the existing customs terminal of Birgunj. However, the entire three scattered Godown at TIA Customs have been recently merged, and shifted to the newly built Godown at TIA.

3.7 Installation of ACIS. Under this component, ACIS will be installed and operated for the tracking of movement of transit cargo with UNCTAD acting as the main provider of the software program and executor of its implementation. Its operation is designed to provide information needed by railways, customs administration, TMC, private operators and traders as this will help to streamline transit movement of goods and program shipment schedules. The MTR meeting of February 1999 also took decision for modifying the provision of ACIS to light version.

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4. Status of Project Implementation

4.1 Implementation of the project was started on 4 February 1998. The road based ICDs of Biratnagar and Bhairahawa were completed in January 2000 and April 2000 respectively.

4.2 The rail based ICD of Birgunj, which is the largest of all the three ICDs, has also been completed in December 2000. The schedule of completion of construction of various physical facilities is as follows:

Completion of civil works December 2000lCompletion of rehabilitation work of TRP-Sirsiya ICD road April 2001lCompletion of rail link from Raxaul to Sirsiya ICD April 2001l

(Under grant aid from GOI)

4.3 After completion of construction works, all the three ICDs were handed over to NITDB for operation and maintenance of the facilities. Upon completion of selection process of a TMC, the road based ICDs of Biratnagar and Bhairahawa were contracted out to a Nepal-India Joint Venture Company to work as TMC for 10 years lease period on 20 March 2002.

4.4 Three 45-ton capacity, and one 7.5-ton capacity reach stackers were procured and placed at the Birgunj ICD for the handling of containerized traffic in May 2001. These reach stackers will be used for loading, unloading, and stacking of loaded/empty containers.

4.5 RITES India, the supervision consultant appointed to supervise construction works at the ICDs, has completed their job.

4.6 Apart from the construction works for the development of ICDs, various activities under the MTTF, ASYCUDA, and ACIS were also implemented during the period. The achievements made under these activities are summarized as follow:

(a) Express procedures and documentation for the rail movement of containerized transit traffic were developed which was proposed by HMGN to GOI.

(b) Drafts of three transport laws namely Carriage of Goods by Road Act, Carriage of Goods by Rail Act, and Multimodal Transport Act were prepared, and put into various stages of their legislation. In addition, draft of Marine Insurance Act, amendments to the existing Insurance Act, and Multimodal Transport Regulations were also prepared for reforming the transport and insurance legal regime.

(c) Various activities including training, seminars, and workshops on INCOTERMS, UCP 500, Multimodal transport, Containerization, Insurance, Carriers Liability, freight Forwarding etc. were conducted with a view to educate the concerned stakeholders like transporters, freight forwarders, insurers, and other service providers, and government agencies.

(d) A number of trade facilitation measures relating banking, customs, insurance, and transit transportation were recommended for implementation by the concerned private sector and government agencies. This included simplification, standardization and harmonization of existing trade procedures and documentation with an objective to make the trading activity simpler, faster and least costly.

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A standard layout based on the United Nations Layout Key was developed for the enterprise registration certificate, invoice, packing list, and certificate of origin, which were forwarded to the concerned agencies for their application.

(e) Various activities like development of standard trading conditions, specific training programs, and recognition by the international associations like FIATA were undertaken so as to enable the freight forwarding industry to cope with the demand of multimodal transport and containerization.

(f) ASYCUDA has come to live operation at the TIA, Biratnagar, Birgunj, and Bhairahawa Customs.

(g) Border Pass Monitoring System (BPMS), a part of ACIS, has been installed and operated at the Biratnagar ICD, Bhairahawa ICD and existing customs terminal at Birgunj. Another component of ACIS called 'Freight Transit Monitoring System' will be installed and operated at Kolkata, and Birgunj ICD once the ICD becomes operational, and the proposed Memorandum of Understanding between NITDB and National Informatics Center.

5. Contingent and Uncompleted Activities

5.1 Of all the project components, there are few activities that have remained uncompleted mainly because of non-finalization of the proposed bilateral rail service agreement with India. This, of course, has affected the execution of the main part, operationalization of the Birgunj ICD. HMGN, and NMTTFP have been doing all out efforts to complete all the scheduled project activities in time since the very beginning. For instance, HMGN has forwarded a draft proposal on Customs Transit Procedures to GOI in December 1999; one year before the completion of ICD construction in Birgunj. Although most of the activities that could be done internally, have been completed, but some activities including operation of the Birgunj ICD could not be completed due to non-finalization of Rail Service Agreement with India. Such contingent activities included bidding process for selecting TMC, installation and operation of ASYCUDA, and installation and operation of ACIS/BPMS all at the Birgunj ICD.

5.2 Multimodal Transport and Trade Facilitation (MTTF). Of the three components of the project, most of the activities under the MTTF component have been completed. The three-draft legislations on transport are yet to be adopted by the Parliament. Now, it is planned to carry out a package program consisting of a seminar on transport and insurance draft laws, two-man months consultancy service of a legal expert to take follow-up actions and constitution of a working expert committee to review the drafts for forwarding to Parliament.

5.3 ACIS. The BPMS/ACIS has already been installed and operated at the Biratnagar ICD, Bhairahawa ICD, and existing customs terminal of Birgunj. But the FTMS/ACIS cannot be installed and operated before the operation of the Birgunj ICD, and finalization of rail service agreement with India. Therefore, BPMS/ACIS could be executed in 2003 after the finalization of the bilateral agreement between Nepal and India, conclusion of a MoU between NITDB and NIC, and functioning of the Birgunj ICD. However, this also depends upon the TMC selected for the Birgunj ICD, which may have its own system with networking in Kolkata and Haldia ports.

5.4 ASYCUDA. Activities for further consolidation and extension of ASYCUDA are underway for rolling out the system at three additional land customs at Kakarvitta, Krishnanagar, and Tatopani, trainings, creation of Information and Technology (IT) Division in Customs Department, Networking of Customs Department and ASYCUDA sites, Wide area Network (WAN) and introduction of Selectivity Module for facilitating risk management by Customs. Although these activities are targeted for completion

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in 2002, most of these could not be executed in time due to the delay in the creation and fulfillment of 52 staffs required for the IT Division and WAN operation. The delay in the fulfillment of the positions was caused by the then declared mid-term election in the country. Moreover, the planned installation and operation of ASYCUDA in the Birgunj ICD has also remained contingent upon the finalization of the proposed rail service agreement with India, and operation of the Birgunj ICD.

5.5 Operation of the Birgunj ICD. The road based ICDs at Biratnagar and Bhairahawa have already come to operation after the management and operation of the both ICDs were handed over to a private enterprise selected through competitive international bidding. But the rail based ICD of Birgunj is yet to come to operation due to non-finalization of the rail service agreement between Nepal and India. However, there has been some progress towards this end as the two rounds of bilateral negotiations held in Kathmandu and New Delhi in May and September 2002 have been instrumental in clearing up most of the operational issues except modalities for TMC Selection, and Customs Transit Procedures.

6. Conclusion

6.1 HMGN and NMTTFP have put their best efforts for timely achieving the targets set under the various components of the project. Construction works at ICDs, rehabilitation of ICD connecting roads, procurement reach stackers, operation of road ICDs of Biratnagar and Bhairahawa along with selection of TMC, consultants' services of UNCTAD have been completed in time. But the external factor lying behind the pending finalization of the bilateral rail service agreement has caused unavoidable delays in completing some of the activities including operation of the Birgunj ICD, and installation and operation of ASYCUDA and ACIS at the rail ICD.

6.2 It must be noted with great satisfaction that HMGN has submitted a draft agreement on customs transit procedures to GOI one year before the completion of the ICD construction at Birgunj. The draft agreement was handed over to GOI during the Commerce Secretary level bilateral meeting held in Delhi in December 1999. Since the rail operation to/from the Birgunj ICD consisted two parts, one relating to rail operation, and other relating to transit procedures for ICD, HMGN had again forwarded a draft term proposal on rail operation arrangements in February 2000. In response, a counter proposal from GOI was received in April 2001. The Indian draft was based on the application of the conventional transit procedures and documentation in accordance with the provisions of the Treaty of Transit. Considering that the better way to deal with the issue could be still by way of entering into two separate agreements rather than to mix up the customs procedures and rail operation matters in a single document, two separate drafts were prepared and forwarded to GoI in September 2001 for their consideration. The first round of bilateral consultation at the Joint secretary level took place in Kathmandu only in May 2002. The second round of bilateral discussions took place in Delhi in September 2002 when several operational issues were clarified, and agreed between the two sides. But differences between Nepalese and Indian sides remained unresolved mainly on the issues of customs transit procedures and TMC selection. It was also agreed to have the third round of bilateral meeting in Kathmandu to finalize issues remaining unresolved between the two sides.

6.3 Under the two stage bidding process, NITDB published a notice on 13 September 2001 inviting technical proposals from the ten pre-qualified bidders. Only eight of them participated in the first stage bidding by submitting their technical proposals. The Bid Evaluation Committee has also completed evaluation of the eight technical proposals, and submitted its recommendation to the NITDB. The decision will be taken depending upon the modality to be agreed between Nepal and India while finalizing the rail service agreement.

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Moreover, the technical bid document has clearly spelled out that the call for financial proposal is subject to the finalization of the bilateral rail service agreement, and that a copy of the agreement would be made available to the technically qualified bidders.

6.4 In consideration to all these aspects of implementation of various project components, the efforts of HMGN to achieve the timely completion of the scheduled project activities and the external factor inhibiting progress of some of the project components as explained above, one must conclude that the project implementation is up to the mark of satisfaction in the fulfillment of the basic objectives of the IDA funded project, and HMGN has tried its best to achieve the development objectives of the Credit.

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