For Nepali Contacts:
In Kathmandu: Rajib Upadhya (9771) 4226792/3
rupadhya@worldbank.org
In Washington: Erik Nora (202) 4584735
enora@worldbank.org
KATHMANDU, August 21, 2009 --- The Government of Nepal and the World Bank signed two agreements here today totaling US$ 109.2 million in assistance for Nepal’s development priorities in the energy and agriculture sectors. The agreements were signed and exchanged between Finance Secretary Rameshore Khanal and World Bank Country Director for Nepal Susan Goldmark. Under the first agreement the World Bank will provide US$ 89.2 million in additional financing for the Power Development Project to help the Government of Nepal implement its Energy Crisis Management Action Plan. Nepal is experiencing an energy crisis of unprecedented severity, caused by years of under-investment and sharp growth in electricity demand. This long-term problem was exacerbated in the last year by drought in part of the country and the loss, through flooding, of a transmission line that was used to import electricity from India. As a result, by January 2009, grid-based consumers were being supplied with electricity for only 8 hours per day. Moreover, the majority of Nepalis live in rural areas and have no access to reliable sources of electricity. The chronic shortage of electricity has had a highly negative impact on all aspects of the economy and has imposed a heavy burden on Nepalis. While recent rains have brought some relief to the power supply crisis, the shortage of storage capacity in the system means that the power supply deficit will continue to be severe for winters to come. The Government of Nepal has declared a “national energy crisis” and its immediate priorities are to identify and implement quick investments to prevent a repeat in coming winters of crises of similar magnitude, while implementing medium-to-long term development plans on a parallel basis. The Government also intends to ensure the continued expansion of its successful micro-hydro rural electrification program. The additional financing will include investments in rehabilitation of the Kali Gandaki ‘A’ Hydro Electric Plant (HEP), the largest plant in Nepal’s power system, as well as of two existing thermal plants in Duhabi and Hetauda. It will also finance construction of the 220 kV Bharatpur-Bardaghat transmission line, strengthen the old and severely overloaded distribution network in Kathmandu Valley, and expand the Government’s off-grid micro-hydro rural electrification program. These investments are intended to strengthen Nepal’s power system by increasing energy production through reduction of down-time at the Kali Gandaki ‘A’ HEP and making available an estimated 22 MW of capacity at the existing thermal plants. The additional financing will also improve the reliability of the Kathmandu Valley distribution network by adding 500 MW transmission capacity to relay power from existing and expected future projects. An additional 4.25 MW is expected to be installed through the micro-hydro program for the benefit of some 36,000 rural households. Nepal’s total grid-connected generation capacity amounts to a meager 683 MW, and the actual available capacity at any point in time is generally considerably lower. “Load-shedding”, or rotating outages, has long been a facet of the hydro-dependent power system in Nepal, where protracted conflict, and weak institutions and finances have hampered the addition of power generation capacity. Electricity supply is worse in the dry season (October to May) when river flows are lower. “While it is clear that chronic power shortages will continue to be a defining feature of life in Nepal for several years to come, the Bank is stepping up its assistance to help Nepal minimize economic impacts and hardships in the short term as well as to implement medium to long term development plans”, said Susan Goldmark, World Bank Country Director for Nepal. “In the absence of a concerted scale-up of both grid-supplied and off-grid power, Nepal will continue to be burdened by a heavy reliance on costly, and often polluting, alternative means for meeting the demand for electricity”. Under the second agreement the World Bank will provide US$ 20 million for the implementation of the Project for Agriculture Commercialization and Trade (PACT). The project aims to improve the competitiveness of smallholder farmers and agribusinesses in 25 districts . Agriculture contributes 38 percent of Nepal’s gross domestic product (GDP). About 66 percent of the population live in rural areas and depend on agriculture for their livelihood.
However, the Nepalese agricultural sector is predominantly subsistence – barely enough for home or local consumption – and suffers from low productivity. Trade often occurs in local markets and is subject to gluts and price crashes. Storage and transport facilities are poorly developed; and quality and value enhancement through grading and processing is rare. In the absence of adequate marketing channels and opportunities, the incentive and financial capacity to invest in improved farm and water management or modern inputs is limited. Furthermore, the principal challenges that agriculture faces in this era of globalization are market orientation, trade promotion, and increased investment in the agricultural sector to secure broad-based growth in rural incomes. PACT is designed to help farmer groups and cooperatives engage in profitable market-oriented production and improve access to markets through technology and information services, critical public infrastructure and linkages to agribusiness. It intends to create and strengthen industry-wide partnerships along the value chain, forging linkages between producers, traders, processors, and other stakeholders. The support provided by PACT will complement the World Bank’s overall support to the agriculture sector, which includes assistance to improve access to irrigation and to agriculture inputs such as improved seeds. The project will also help reduce existing obstacles to agriculture and food trade, increasing the ability of farmers and agribusiness to respond to sanitary and phyto-sanitary and food-quality standards to meet domestic and international market requirements. “To harness opportunities in the global market, farmers and other stakeholders must produce and deliver the right commodities at the right time, while maintaining consistently high quality standards,” said Ms. Goldmark. “To satisfy the requirements of trade partners and to ensure the competitiveness of Nepali products, food safety and animal health regulations and standards must be actively promoted.” The signing of these two new agreements brings the total number of projects currently financed by the World Bank in Nepal to 16, representing a total value of US$ 916 million. The World Bank approved a new assistance strategy for Nepal last June which is organized around three themes. The first theme addresses the cluster of challenges facing the state in adapting and constructing the systems, institutions, and capacities needed for the “new” Nepal. The second focuses on overcoming constraints faced by the productive sector, especially in terms of productivity, connectivity and sustainability. The third theme concentrates on expanding and honing programs and activities that can increase opportunities and well-being, especially for the poor and excluded. Social inclusion runs across all of these themes as one of the foundations for the new Nepal. Within each of these themes, the strategy identifies specific areas where the Bank Group can make a difference in collaboration with the government and people of Nepal.
For more information on the Bank’s work in Nepal, please visit http://www.worldbank.org.np
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