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

7/31/2019 Tourism Infrastructure Development Project (Loan 1156-NEP[SF])

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ASIAN DEVELOPMENT BANKPPA: NEP 24003

PROJECT PERFORMANCE AUDIT REPORT

ON THE

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

IN

NEPAL


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CURRENCY EQUIVALENTS

Currency Unit Nepalese Rupee/s (NRe/NRs)

At Appraisal At Project Completion At OperationsEvaluation

(September 1991) (December 1997) (March 2000)NRe1.00 = $0.0237 $0.0161 $0.0145

$1.00 = NRs42.20 NRs62.00 NRs68.81

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

ABBREVIATIONS

ADB Asian Development BankBME benefit monitoring and evaluationCAAN Civil Aviation Authority of NepalDOA Department of ArcheologyDOR Department of RoadsDOT Department of TourismIA implementing agencyKMTNC King Mahendra Trust for Nature ConservationMOT Ministry of TourismOEM Operations Evaluation MissionNATHM Nepal Academy of Tourism and Hotel ManagementNTB Nepal Tourism Board

PCR

project completion reportPMU project management unitSSTA small-scale technical assistanceTA technical assistanceTSC tourist service center


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MAP vi

I. BACKGROUND 1

A. Rationale 1B. Formulation 1C. Purpose and Outputs 2D. Cost, Financing, and Executing Arrangements 3E. Completion and Self-Evaluation 3F. Operations Evaluation 3

II. PLANNING AND IMPLEMENTATION PERFORMANCE 4

A. Formulation and Design 4B. Cost and Scheduling 6C. Consultant Performance, Procurement, and Construction 6D. Organization and Management 7

III. ACHIEVEMENT OF PROJECT PURPOSE 8

A. Operational Performance 8B. Performance of the Operating Entity 11C. Economic Reevaluation 12D. Sustainability 12

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 13

A. Socioeconomic Impact 13B. Environmental Impact 13C. Impact on Institutions and Policy 14

V. OVERALL ASSESSMENT 14

A. Relevance 14B. Efficacy 15C. Efficiency 15D. Sustainability 15E. Institutional Development and Other Impacts 15


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

Project Preparation/Institution BuildingTA No. TA Name Type Person-Months Amount ($) Approval Date1137 Tourism Development Program A&O 21 460,000 13 Mar 19891428 Tourism Development PP 6 100,000 3 Dec 19901662 Tourism Development Study A&O 14 295,000 16 Jan 19921663 Environmental Protection Study of

Phewa Lake, PokharaA&O 32 440,000 16 Jan 1992

Key Project Data ($ million)As per ADB Loan

Documents ActualTotal Project Cost 14.60 8.93

Foreign Exchange Cost 5.60 2.36Local Currency Cost 9.00 6.57ADB Loan Amount/Utilization 10.401 8.062

ADB Loan Amount/Cancellation 2.812

Amount of CofinancingUNDP 3.02 0.0

Key Dates Expected Actual

Appraisal 11-23 Aug 1991Loan Negotiations 29 Oct-1 Nov 1991

Board Approval 16 Jan 1992Loan Agreement 20 Mar 1992Loan Effectiveness 18 Jun 1992 25 Jun 1992Project Completion3 31 Dec 1996 31 Dec 1997Loan Closing 30 Jun 1997 22 Jun 1998Months (effectiveness to completion) 54 66

Key Performance Indicators (%) Appraisal PCR PPAREconomic Internal Rate of Return

Pokhara Conservation Area Upgrading, LakesideFootpath and Garden

13.4

Pokhara Serankot Road Improvement 17.7 Pokhara Airport Upgrading 26.0 Ecotourism and Circuit Trekking 14.2


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EXECUTIVE SUMMARY

The Tourism Infrastructure Development Project aims to increase foreign exchange earnings. Tourism isperceived as one of the few areas where Nepal enjoys a comparative advantage and has scope for furtherdevelopment to meet this goal. The Project was designed to increase the average length of stay and spending bytourists in Nepal. The specific project outputs underlying this purpose are (i) an expansion in the number of attractivetourist sites by improving five existing sites principally around Pokhara, but also in Gorkha; (ii) improved accessibilityof Pokhara by air through upgrading Pokhara airport; (iii) upgraded capability of the Nepal Academy of Tourism andHotel Management (NATHM) to provide trained human resources; (iv) improved tourism promotion; and (v) enhancedpublic sector institutional capabilities. Two advisory technical assistance projects were provided to support the

Project. The Projects initiatives are expected to encourage tourists to visit additional places, principally in Pokhara,and hence to stay longer while at the same time catalyzing private sector investment in facilities such asaccommodation, travel agencies, guide services, cafs, restaurants, and souvenir shops to cater to the tourists andcapture the increased tourist spending. The Projects detailed design also gave importance to improvingenvironmental protection, building public-private sector linkages, and involving communities in the developmentprocess. In parallel with the Project, the Government was to improve the policy framework for tourism development,and so had established an action plan for this prior to the start of project implementation.

Project implementation started in 1992 and was substantially complete by the end of 1997, one year laterthan expected. Significant events during implementation were the withdrawal of the United Nations DevelopmentProgramme (UNDP) and its cofinancing of $3.2 million because of disagreement with the Government over autonomyfor NATHM; delays in setting up the project management unit and awarding contracts; and failure of a civil workscontractor for one subcomponent. At the time of completion, the majority of the non-UNDP-financed inputs had beenprovided as planned. The main exceptions are one of the tourist sites and one of the two centers to be used forimproving tourism promotion, both of which are incomplete and nonoperable. The quality of the completed works issufficient for the type of service expected. The cost of the implemented Project is $8.93 million, which is only 61percent of the expected amount because of cost savings and the withdrawal of UNDP support. There are loansavings equivalent to $2.81 million.

The Projects objective and concepts are highly relevant to the development objectives of both theGovernment and the Asian Development Bank (ADB). Nevertheless, the design of the Project did not give adequate

attention to several important aspects, which limits the relevance of the outputs to the broader purpose and goal.Important design weaknesses are the deletion of preappraisal proposals to market the tourist sites, inadequatearrangements to involve the private sector during the detailed planning stages of the tourist sites, failure to recognizeconstraints within the institutional arrangements of the private sector that limit its ability to represent all members andlink with the public sector and a poorly conceived tourist promotion component Apart from their inadequate coverage


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The Projects investments in NATHM have enabled it to maintain its intake of students in short-term courses

and add a new three-year degree course. Graduates appear to be readily employed and this component has

contributed in the manner expected. Two tourist service centers (TSCs) were built under the tourism promotioncomponent and aimed to provide information to encourage tourists who had already arrived in Nepal to visit othersites and stay longer, as well as provide general support to the industry. The Pokhara TSC was not completed anddoes not yet operate, although the Government plans to finish the facility. The Kathmandu TSC is some distancefrom the main tourist areas of Kathmandu, and few tourists use it. It supports tourism in other ways, but thesefunctions could have been provided at lower cost by alternative arrangements. With UNDPs withdrawal, the Projecthad limited ability to effect planned institutional change. Nevertheless, important change did occur under areplacement UNDP program and with support from a second ADB project in the tourism sector. The public sector isnow more appropriately structured to support tourism but still requires the transfer of some functions to the newlycreated, autonomous, and independently funded Nepal Tourism Board. Change on the public sector side has

revealed weaknesses within the private sector structure with representative organizations being politicized and notrepresenting their members equally.

The average length of stay by tourists in Nepal and their spending over the past 15 years have beenrelatively constant, and the available statistics do not show any significant impact attributable to the Project. Thenumber of tourists visiting Nepal has increased over this time, and more particularly since before the start of theProject, and it is possible that the Project contributed to such an increase, even though this was not a stated projectaim. However, partly due to ineffective project monitoring, data are not available to establish directly what part, if any,of the national increase in tourist numbers is attributable to the Project.

Apart from tourism, the Project is also providing significant social benefits to local people in the form of

improved urban amenities, such as drainage, sewerage, and pedestrian access in parts of Pokhara and Gorkha; roadaccess in Sarangkot; electricity and kerosene supply and public water faucets for villagers in the ecotourismdevelopment area; and better airport services for local travelers using Pokhara airport. The number of beneficiaries issignificant in each case. Other impacts have been less significant. The environmental impact has been mainlypositive with the ecotourism concept suitable for supporting increased tourism in rural and forested areas. Institutionaland policy changes under the Project have been relatively minor. The two technical assistance projects contributed tothe formulation of projects to improve regional airports and the control of pollution in Phewa Lake and are rated assuccessful.

Sustainability is uncertain for three of the tourist sites because of limited resources and capability of local

government units to maintain and operate the urban facilities, and because of the inexperience and limited resourcesof the Department of Archeology for operating the palaces at Gorkha.

Overall, the Project is rated less than successful. The Project is relevant to development objectives, butwhile the airport upgrading and NATHM components worked well, the other three components had significant


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A number of recommendations have been made to enhance the Project. These include increasingpromotion of the tourist sites, early opening of the palaces at Gorkha under viable operating arrangements, anddesigning short treks to improve utilization of the lodges in the ecotourism area. Also required are reestablishing the

parking lot and turning circle at the top of the Sarangkot access road, providing additional equipment to NATHM andupgrading some of its courses, providing for sullage disposal in Pokhara, and improving the cleanliness of Pokharaairport.


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I. BACKGROUND

A. Rationale

1. The Tourism Infrastructure Development Project was formulated in the context of the Governments goal ofincreasing foreign exchange earnings. Being a landlocked country with often difficult terrain, Nepal has fewcomparative advantages to exploit in earning foreign exchange. Tourism is one area in which the country enjoys acomparative advantage, and potential exists to expand tourism. While tourism has frequently been considered a

private sector activity, the Project recognized that the private sector needed public sector support in the form oftransport infrastructure, development of public areas to enhance the appeal of less visited tourist attractions, tourismpromotion, human resources development, and regulation.

2. At the time of project formulation, the Asian Development Bank (ADB) country operational strategy, whichfocused on agriculture and industry, was only broadly in line with tourism development. Subsequently, however, thestrategy was refined to incorporate tourism in view of its comparative advantage and the limited alternatives withinNepal. Through the selection and design of its components, the Project was viewed as a suitable mechanism forfostering private sector growth and introducing poverty reduction and environmentally sustainable arrangements intodevelopment, all of which were, and remain, consistent with ADBs objectives.

B. Formulation

3. Appraisal of the Project was completed in 1991 and was preceded by a feasibility study under an ADB-financed small-scale technical assistance (SSTA).

4The SSTA selected and tested the economic feasibility of nine

subprojects, and packaged these into a form suitable for ADB financing. The nine subprojects were selected from 50potential subprojects prepared in 1990 under the Tourism Development Program study financed by ADB technicalassistance (TA).

5The SSTA, drawing extensively from the earlier study, provided a comprehensive description of the

tourism sector and the rationale and target market for each subproject. The SSTA and ea rlier TA study appear tohave fulfilled their terms of reference and provided a suitable basis for project appraisal.6

The appraised projectfollows the SSTA proposal, except that one of the nine subprojects was deleted, the different target markets werecoalesced with the loss of important detail, and much less emphasis was placed on tourism marketing (para. 15).


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visit additional places, principally in Pokhara, and hence to stay longer, and to catalyze private sector investment infacilities such as accommodation, cafs, restaurants, and souvenir shops to cater to tourists. The selection anddesign of the project components also aimed to preserve the scenic qualities of tourist sites and improve

environmental protection, build public-private sector linkages, and involve communities in the development. In parallelwith the Project, the Government was to improve the policy framework for tourism development, and so hadestablished an action plan for this.

6. The project inputs were organized into three parts. Part A provided for infrastructure development at sixsites. Five of these were tourist sites, and the sites and work involved the following: (i) at the Pokhara conservationarea, improved sanitation, footpaths, and streetlighting to enhance the attractiveness of the historic main street ofPokhara; (ii) at Phewa Lake, one of the scenic attractions of Pokhara, a new footpath and garden; (iii) at Sarangkot,repair and surfacing of the access road to facilitate tourist travel to this elevated viewpoint near Pokhara; (iv) in theecotourism area in the Annapurna conservation area near Pokhara, two tourist lodges, three serviced campsites, two

micro-hydroelectricity schemes, two kerosene depots and visitor centers, water and sanitation facilities, as well astraining and community awareness campaigns to expand and improve ecotourism; and (v) at the Gorkhaconservation area, a road, footpath, lighting, water, sanitation, and landscape upgrading around the lower palace andin the core tourist area of Gorkha township. The sixth site was Pokhara airport, where facilities and improvements toupgrade airport safety, aircraft operations, and passenger amenities were made. Under part B, the capability ofNATHM was to be improved by (i) rehabilitation of existing buildings and providing a new water source, access road,and equipment; and (ii) continuation of the expert services, equipment, and other services aimed at both expandingthe centers capacity and providing community training in the rural and hill areas, as provided by the United NationsDevelopment Programme (UNDP). The focus of part C was tourism support services, institutional strengthening, andimplementation assistance for the Department of Tourism (DOT) comprising (i) establishment of tourist servicecenters (TSCs) in Kathmandu and Pokhara; (ii) continuation of UNDP support for womens entrepreneurial training

and institutional strengthening in the DOT and the Ministry of Tourism (MOT) to improve capability for programmanagement; and (iii) implementation assistance, including establishment of the project management unit (PMU),consultants, equipment, logistical support, and incremental operating expenses.

7. Two TAs accompanied the Project.11

The Tourism Development Study provided for the evaluation of aproposal to establish a cultural display center for tourists in Kathmandu, and the identification of the institutional,operational, and infrastructure requirements for improving tourism-related air services in Nepal. The EnvironmentalProtection Study of Phewa Lake, Pokhara aimed to identify current pollution levels and sources; and appropriatepolicies, strategies, and measures to control pollution in Phewa Lake.

D. Cost, Financing, and Executing Arrangements

8 The appraised cost of the Project was $14 6 million of which $9 million comprised local currency costs


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E. Completion and Self-Evaluation

10. Implementation was to take five years, commencing in early 1992. However, the Project was completed oneyear later than expected, at the end of 1997. The project completion report (PCR) was circulated to the Board in April1999.

11. The PCR describes the Projects implementation and attempts to evaluate the key expected project impacts.The PCR rated the Project as generally successful. The PCRs evaluation is weakened by the lack of data to supportthe estimates of benefits claimed to be already occurring at the time. The lack of supporting data reflects theinadequate database on tourism in Nepal. Without such information, a credible without-project scenario cannot becreated and changes in the limited available tourism statistics cannot be attributed to the Project with any confidence.The PCR estimates and conclusions appear optimistic as a result, and a qualified conclusion would have been more

appropriate. The PCRs economic analysis generally follows the methodology used at appraisal, but is not based oncredible without-project assumptions and cannot be supported by the OEM.

F. Operations Evaluation

12. This project performance audit report presents an assessment of the Projects efficacy and efficiency inachieving its purpose, the relevance of the Project to current Government and ADB objectives, other benefitsgenerated, and the sustainability of operations. It discusses issues of current relevance to the sector, and presents

lessons learned from the experience. The results and discussion are based on the findings of an OEM to Nepal inMarch 2000; on a review of the PCR, the appraisal report, ADB files, and government, executing and implementingagency records; and discussions with ADB staff, the Government, the executing and implementing agencies, tourists,and tourist facility operators. Copies of the draft project performance audit report were provided to the Borrower, theExecuting Agency, and ADB staff for review and comments. Comments received were taken into consideration infinalizing the report.

II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design


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15. During project appraisal, the marketing of the tourist sites to be improved under the Project, originallyincluded as a component in the design prepared under the SSTA and TA studies, was deleted to the detriment of theProject (para. 27). The reasons for this included government reluctance to use foreign exchange loan funds for such

purposes and ADB unwillingness to become involved in supporting the marketing of tourist sites since that wasconsidered a private sector responsibility. Faced with these problems, the Appraisal Mission proposed bilateral aidfinancing for tourism marketing, but this aid did not materialize. The institutional support that was provided under theUNDP component of the Project was broad in scope and could have been used to overcome this gap in the Projectsdesign. However, full implementation of UNDP inputs was contingent on renewal of the preexisting agreementbetween UNDP and the Government shortly after the start of the Project. As it turned out, they did not renew itbecause of an issue concerning autonomy for NATHM, and UNDP withdrew from the Project. Marketing issues alsobroadly came under the terms of reference of the project management consultant to be attached to the PMU.However, the input from this consultant was reformulated to fill part of the gap in institutional support to NATHMfollowing UNDPs withdrawal, and the available resources were insufficient to provide for tourism marketing as well.

16. The Project was intended to enhance public-private sector linkages. However, the private sector did notrespond well to the developments under the Project, leading to underutilization of the improved tourist sites (para.27). Partly, this was because of insufficient consultation between project designers and implementors during theproject design stage, partly because of weaknesses within the private sector representative groups involved duringproject implementation, and partly because of the absence of any direct marketing of the tourist sites. Thus, manyprivate tour operators were unaware of some of the developments, or when the sites were opened, or were skepticalabout the ability of the tourist sites to deliver the expected services. In the case of the lodges in the ecotourism area,such skepticism was appropriate as the envisaged trek was impractical (Appendix 2, para. 11). Greater involvementof the private sector in the planning of the developments may have avoided such impracticalities and may havefacilitated the inclusion of newly finished sites into tour itineraries as soon as they were ready. A major limitation in

the public-private sector linkage appears to be that the private sector was not involved during project design, but onlyafter project implementation had started. In addition, the private sector was involved through the various subsectorassociations, such as the Hotel Association, the Trekking Guides Association, and the Travel and Tour OperatorsAssociation. Although this might be a suitable structure for private sector representation, such organizations are notyet well developed and are subject to bureaucratic inefficiencies and political infighting. Not all members appear tohave been equally represented and information does not appear to have been freely shared among all members.Officers with businesses in the Kathmandu Valley dominate the apex organization, and business operators inPokhara where most of the Project was being implemented are not as well represented. In retrospect, it wasunrealistic to expect these private organizations to fulfill their expected roles without first being strengthened. Whilethe intention to build stronger public-private sector linkages was laudable, project preparation and appraisal do not

appear to have adequately assessed the capabilities of the private sector organizations, or made adequatearrangements for involving the private sector during the early planning stages.

17. The project component for tourism promotion was not well designed. As envisaged, the availability ofinformation to tourists who had already arrived in the country was to be improved so as to encourage them to visit


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due to the withdrawal of UNDP TA support of $3.02 million. Significant savings also occurred in all components withthe exception of upgrading at Pokhara airport. Savings were due to changes in exchange rates, lower than expectedunit costs, and incompleteness of works. At loan closing, SDR2.03 million of the original loan of SDR7.61 million was

not spent and was cancelled. The loan savings were equivalent to $2.81 million.

19. Although several small subcomponents were unfinished at the time, the Project was deemed complete inDecember 1997, about one year later than expected. All facets of the Project were delayed, mainly due toexcessively long times for prequalification, bidding, contract award, and mobilization of consultants and contractors,as well as slow performance by some contractors.

15The tendering process typically took over 10 months per contract

despite the use, in some cases, of the Governments list of prequalified contractors, and a predominance of localcompetitive bidding contracts. Both these elements were expected to speed up the process. Another critical factor inthe overall delay was the slowness in forming the PMU, appointing a PMU project manager, and providing sufficientstaff, resources, and logistical support for the PMU. The PMU was important because of the large number of

relatively inexperienced IAs (para. 23). The need to ensure active and meaningful community involvement under thePokhara conservation area, Gorkha conservation area, and the ecotourism components also required more time thanexpected. As a result of the implementation delays, most components had only recently commenced operations atOEM, and some were still to commence, thus delaying benefits. However, the upgraded Pokhara airport becameoperational earlier than anticipated, in 1996.

C. Consultant Performance, Procurement, and Construction

20. The Project engaged 11 consultants and 15 civil works contractors. All but the international consultant tosupport NATHM were local. The domestic consultants were engaged for implementation supervision. The use ofdomestic consultants and contractors was appropriate for the size and nature of the work. Modification of ADBsprocedures was necessary to accommodate the very small contracts under the ecotourism component, but this didnot materially affect the outcome.

21. The international consultant performed satisfactorily. This led to the establishment of a diploma course atNATHM. The performance of the other consultants and contractors was mostly satisfactory, with seven out of the 10local consultants and 12 out of the 15 contractors performing adequately. The contracts of two contractors wereterminated for poor performance, and the contractor for one of the community lodges under the ecotourism trekkingtrail component had to completely rebuild the lodge. The major weaknesses of the consultants were in contract

administration and contractor supervision, while the main areas of weakness of the civil works contractors werefinancial and project management, and lack of appropriate equipment and logistical support.

16Noncompletion of the

TSC at Pokhara was a direct result of poor performance, which led to termination of one civil works contract. Otherinstances of poor performance contributed to delays.


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the project period. Moreover, the PMU was not accorded a sufficiently high status and lacked the necessary authorityto influence the IAs, which were largely ministries and departments. The transfer of international consultant supportfor the PMU to fill the gap created by the withdrawal of UNDP support further weakened the PMUs capability.

25. Various committees were formed to enable involvement of other stakeholders, principally private sectortourism operators, in the Project. However, as discussed in para. 16, the private sector representative groups wereinadequately developed for the role intended.

26. ADBs administration of the Project would have been better if it had monitored and encouraged greaterprivate sector involvement in planning, and if more attention had been given to how the private sector was to belinked in an ongoing manner to the Project. The number of supervision missions was adequate, but these weremostly concerned with implementation progress and did not adequately review progress toward achievement of thedevelopment objectives.


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III. ACHIEVEMENT OF PROJECT PURPOSE

A. Operational Performance

1. Tourist Sites

27. Of the five tourist sites improved under the Project, only two, Sarangkot access road and the ecotourismarea, resulted in increased tourist visits and increased private sector tourism activity (Appendix 2, paras. 1-16).Visitors to Sarangkot appear to have doubled to 40,000 per year compared with before the Project, while the numberusing the ecotourism trekking trail, opened in 1993, was 1,750 in 1999.

17All the private activity in the ecotourism area

comprising operation of campsites, kerosene depots, and lodges was established under the Project, while atSarangkot, some of the increase in the number of souvenir shops and cafs was offset by a decrease in the numberof active lodges. Also, the souvenirs offered to tourists at Sarangkot are no different from those offered at otheroutlets in Nepal. Of the three other sites, the Pokhara conservation area upgrading satisfactorily improved theattractiveness of the street, but did not result in either an increase in tourist visits or private sector tourism activities.This could be a result of insufficient marketing of the area as few tourists or tour operators are aware of the sites

attractions. The site may be caught in a cycle: too few tourists to warrant private sector investment in cafs andshops, and insufficient interest by tourists/tour operators because of the lack of shops and cafs. The land- andstreet-scaping of the Gorkha conservation area have been completed to a satisfactory standard.

18However, the

major attraction of the area, the adjacent palace, is not yet open to the public as the renovations have yet to befinished. The Gorkha district also suffers from peace and order problems. Relatively few tourists visit the Gorkhaconservation area and increased private sector activity in tourism in Gorkha over the past few years has beendirected at other sites. Nevertheless, the two palaces in the area have the scale and associated history to becomemajor tourist attractions, to which the Projects output would contribute. In contrast to the above sites, the Phewalakeside footpath and garden are incomplete, and because they are located away from the main tourist areas andtourists have closer alternatives, they may not be utilized unless substantial improvements to the nearby parkland are

made. Thus, at OEM, only two of the five tourist site developments produced the desired types of results, but afurther two have some potential to do so.

2. Access to Pokhara


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intake of both first-year degree students and the short-course students in cooking and related courses. The privatesector considers most of NATHMs courses as suitable to its needs but has expressed a need to improve the contentand length of training in some of the short courses. Despite some defects in the courses, NATHM reported that

surveys carried out in 1991 and 1995-1996 indicate that about 75 percent of its graduates are employed in tourism-related activities. Another survey in 1996 showed that 14 percent of the staff of the three- to five-star hotels in Nepalwere graduates of NATHM. Graduates were also reported as being well sought after for employment in the hotelindustry in the Middle East.

4. Tourism Promotion

30. Few tourists (under 15 per day) visit the Kathmandu TSC because it is neither well promoted nor located

conveniently to any of the main tourist areas. Arrangements to have the TSC included in tour itineraries have notbeen implemented. Compared with the 25,000 arrivals at Kathmandu airport in January 2000, the TSC received 70foreign tourists. There are many alternative private tour agents and operators, conveniently located in tourist areas,which can provide tourists with information and services of the type expected from the TSCs. Useful basic informationis also given to visitors on arrival at Kathmandu airport. The Pokhara TSC is incomplete and does not function.Overall, the TSCs have had little impact that could not have been achieved in alternative ways at lower cost(Appendix 2, paras. 24-29). The TSCs were intended to be more than just information centers, and the KathmanduTSC in fact supports the tourism industry in other ways: it provides office space for the Nepal Tourism Board (NTB),helps provide information to tour operators and agents, and provides a meeting room and auditorium for the privatesector and for other tourism sector needs. However, the Kathmandu TSC is relatively expensive due to its design andthe quality of its finish, and for the office space and some of the less-visible supporting facilities, a lower-costbuilding could have been built or found elsewhere.

5. Public and Private Sector Institutional Arrangements

31. Clarity of public institutional functions and improved linkage with the private sector were to be importantoutputs of the Project and the parallel action plan of the Government. With the withdrawal of UNDP from the Project,the direct inputs to create improvements within MOT were no longer provided. However, UNDP subsequentlyembarked on a separate program, a significant result of which was the formation of the NTB as an independent entitydominated by the private sector to promote and develop tourism. Formation of the NTB was a requirement of ADBsSecond Tourism Development Project. Although some functions are still managed by MOT, the NTB has taken overmost functions from DOT, which is to be abolished. While not under the Project, this change has clarified the basicinstitutional arrangements within the public sector and established a better platform on which linkages with the private


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currently available. Similar information is needed to establish links between the other project components, namely theTSCs and NATHM upgrading, and measured changes in tourism.

Source: Data from Appendix 3.

Nepal Tourism Statistics

60

80

100

120

ndex


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34. The town of Pokhara, where four of the Projects five tourist sites and the airport are located, hasexperienced a rapid rise in the number of private hotels, restaurants, travel and trekking agencies, travel services,

souvenir manufacturing, and souvenir shops (Appendix 4). The growth in souvenir shops and restaurants aroundSarangkot is due to the Projects road improvements, and much of the increase in other tourist facilities and serviceswithin Pokhara may have been stimulated by the airports upgrading and increase in passenger arrivals. However,this increase in facilities in Pokhara has not resulted in any apparent increase in length of stay in either Pokhara orNepal, or in average spending. For spending, the converse may have happened as, for example, the increase in thenumber of hotels in Pokhara has resulted in a low average occupancy rate, which is currently some 25 percent, andreduced prices. Low utilization leads to economic inefficiency and jeopardizes the sustainability of many businesses.There also is the possibility of economic loss as a substantial amount of the resources needed to establish andservice tourist accommodation is imported. Similar overcapacity was reported in some other types of business. It isalso noteworthy that the souvenirs offered in Pokhara, including those from around Sarangkot, do not differ fromthose available elsewhere in Nepal, limiting the ability of the industry to gain incremental sales or higher prices.

B. Performance of the Operating Entity

35. Many entities are involved in operating the facilities constructed under the Project. Except for Pokharaairport, financial analyses of the facilities and entities involved were not undertaken, but the capability of each entityand broad financial arrangements in each case were reviewed. Operational weakness is likely to be encountered inmaintaining the urban facilities in both the Pokhara and Gorkha conservation areas, and the palaces associated withthe Gorkha conservation area. The local governments in Pokhara and Gorkha and DOA, which is to operate thepalaces, have very limited financial and technical resources and may not be able to operate and maintain the facilitiesproperly. The situation in Pokhara will soon be subsumed within the much-enlarged local government responsibility tooperate and maintain the urban infrastructure and waste management services created under ADBs Second TourismDevelopment Project. Although this project provides for training of local government staff, provision is limited and maynot be able to adequately address the broad aspects of municipal management needed to cope with the increase instaff, finances, resources, and responsibilities.

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36. DOR has sufficient experience in maintaining roads and, up to OEM, had provided adequately for themaintenance of the Sarangkot access road, including its resurfacing. Given the local importance of the road totourism, it is probable that maintenance will be sustained. Similarly, the operation of Pokhara airport is well within the

experience and capability of CAAN. CAAN also recoups sufficient income to operate and maintain the airport.Financial analysis shows that Pokhara airport generates a positive financial rate of return of 6 percent (Appendix 5).At OEM, routine maintenance, particularly the cleanliness of toilets and floors, needed improvement. The adequacyof airport maintenance is also subject to the demands put on CAAN to use funds derived from profitable airports,such as Pokhara and Tribhuvan to support other loss incurring airports The facilities in the ecotourism area are


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in tourist numbers above this level were deemed incremental and 10 percent of the money spent by theseincremental tourists was assumed as a net benefit attributable to the Project. On this basis, the PCR recalculated theeconomic internal rate of return to be 26 percent. The OEM could not verify the PCRs assumptions.

38. The Project was reviewed from the point of view of cost-effectiveness and efficiency related to theimplementation timetable. While the OEM did not apply a rigorous least-cost analysis, it appears that the Sarangkotaccess road, works for the Pokhara and Gorkha conservation areas, Pokhara airport expansion, and NATHMupgrading were completed at reasonable cost in relation to their individual output targets. Implementation delays,particularly for the Gorkha conservation area, reduced the efficiency of these investments, however, by extending thetime when realization of benefits began. The various physical elements in the ecotourism area were established atreasonable cost, but the overall cost of this component was high because of the community development aspects.The expenditure on community development was necessary, however, and may bring added benefits in the future.The Kathmandu TSC is much larger and of much higher standard than needed to achieve its objectives, and cannotbe said to be cost-effective. The incompleteness of the Phewa lakeside footpath and garden, and the Pokhara TSC,renders them cost-ineffective.

D. Sustainability

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

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS


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

have yet to benefit from increased income from tourism.

B. Environmental Impact

42. The ecotourism component had a positive impact on the environment through establishing electricity andkerosene supply for villagers, both of which have reduced the need to cut trees for fuelwood. Although surveys onflora and fauna have not been completed, the Nepal National Parks and Wildlife office has an optimistic view of thebenign nature of the ecotourism component on the natural environment based on recent sightings of indicator animal

species and observations by its staff. Conversely, by failing to adequately address the disposal of sullage byhouseholds in the Pokhara conservation area, the Project missed an opportunity to improve the quality of storm waterdraining into Phewa Lake. However, this component did not increase lake pollution, since sullage was beingproduced and drained into the lake via other routes before the Project.

43. Safety at Pokhara airport was improved by the construction of a fence, which now prevents people fromstraying onto the airport. Relocation of the control tower also improved safety for air traffic control staff.

C. Impact on Institutions and Policy

44. The Project was to have a direct impact on tourism institutions, policy, and the private and public linkagesrelating to tourism. Because of the withdrawal of UNDP consultant support, very little was directly achieved under theProject in this area. Significant changes occurred under the UNDP-implemented replacement program, however.Improvements within CAAN and NATHM did not materialize.

45. The Project has increased financial and administrative burdens for the local governments of Pokhara andGorkha, which are responsible for operating and maintaining the improved urban infrastructure in their areas. Whilethis was known at appraisal, the lack of resources and capacity of the local governments was underestimated.

46. Two TAs accompanied the Project (footnote 8). The TAs were sufficient for the purposes intended, and theterms of reference were adequately addressed by the consultants (Appendix 2, paras. 33-35). Part A of TA 1662-NEP made recommendations for the establishment of a cultural display center, but these were not acted upon. Part Bof the TA reviewed civil aviation as it related to tourism. Several of the recommendations have been implemented,


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B. Efficacy

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

C. Efficiency

49. Six of the eight major components of the Project were completed with a reasonable degree of cost efficiencyin generating outputs, but delays did occur. The lakeside footpath and garden and the Pokhara TSC were incompleteat OEM. The Kathmandu TSC was built to an excessively high standard overall and included facilities of marginalutility, and is not considered very cost-effective compared with its objective. Of greater concern, however, inassessing the efficiency of the Project is the delay in realizing benefits. Several subcomponents may produce an

effect only in the long term. Overall, the Project is rated as less efficient.

D. Sustainability

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

E. Institutional Development and Other Impacts


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F. Overall Project Rating

53. The Project is rated less than successful. The rationale behind this rating is outlined in paras. 46-51 andpresented in quantitative terms in Table 1. In summary, the Project is relevant to the development objectives of theGovernment and ADB and is considered to be capable of achieving a significant part of its purpose in time, as well asother socioeconomic benefits. However, it has some major shortfalls in its achievements compared with thoseexpected, and weaknesses in terms of efficiency and sustainability that prevent it from being classified in moresuccessful terms.

21

Table 1: Overall Project Rating

Criterion Assessment Rating(0-3)

Weight (%) Weighted Rating

Relevance Relevant 2 20 0.40Efficacy Less Efficacious 1 25 0.25Efficiency Less Efficient 1 20 0.20Sustainability Likely 2 20 0.40Institutional Development andOther Impacts

Moderate 2 15 0.30

Overall Rating LS 100 1.55

Assessment Ratings:Relevance: 3 = highly relevant; 2 = relevant; 1 = partly relevant; 0 = irrelevant.Efficacy: 3 = highly efficacious; 2 = efficacious; 1 = less efficacious; 0 = inefficacious.Efficiency: 3 = highly efficient; 2 = efficient; 1 = less efficient; 0 = inefficient.Sustainability: 3 = most likely; 2 = likely; 1 = less likely; 0 = unlikely.Institutional Development and Other Impacts: 3 = substantial; 2 = moderate; 1 = little; 0 = negligible.

Overall Rating:HS = highly successful 2.5 < HS 3.0S = successful 1.6 S 2.5LS = less than successful 0.6 LS < 1.6U = unsuccessful < 0.6


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VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

A. Key Issues for the Future

1. Municipal Government Capabilities for Operation and Maintenance

56. The operation and maintenance of services and facilities in the Pokhara and Gorkha conservation areas andthe Phewa lakeside footpath and garden were correctly identified as local government responsibilities at appraisal.

Moreover, tourism in general in the Gorkha and Pokhara townships is intertwined with the maintenance of clean andorderly urban environments. Polluted and unsightly surroundings discourage tourism. The good performance of thePokhara and Gorkha municipal authorities in urban management, therefore, is necessary to maintain the urbaninfrastructure created under the Project and to encourage tourism in general. However, these two institutions havelimited capability and resources, aspects that were not adequately addressed by the Project. The capacity of thePokhara municipal government is being addressed under ADBs Second Tourism Development Project, but supportfrom this Project has been delayed and is unlikely to be sufficient with training limited to the project period and noattention given to broader aspects of management, including financial management. Further strengthening of themunicipal governments in Pokhara and Gorkha will be required to ensure that project benefits can be realized and toenhance the tourism appeal of the towns.

2. Phewa Lake

57. Phewa Lake is one of Pokharas major natural tourist attractions. However, it has become progressivelymore polluted over time. Many studies have been done on the lakes condition and the causes of pollution, includingsome by the Project, yet little has been done to correct environmental degradation. The issue of pollution in the lakehas been addressed indirectly in ADBs Second Tourism Development Project through a public environmentaleducation program; specific drainage, sanitation, and solid waste management improvement initiatives; and urban

management capacity-building measures within the municipality. Nevertheless, at best these will slow down the rateof pollution without improving existing pollution levels. In view of the importance of the lake to tourism and of tourismto Pokhara, further action is of high priority.


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B. Lessons Identified

58. As shown by the Pokhara conservation area and the ecotourism trekking trail components, communityinvolvement in design and implementation can enhance community support for operations. However, involvingcommunities may cause delays and flexible project timetables are required.

59. In designing centers, such as the TSCs, it is necessary to maintain a clear view of the type of service thatneeds to be provided and the appropriate location for sites to deliver such a service.

60. The promotion of improved tourist sites is important and should be built into projects designed to improve or

establish tourist sites as tourists will not come otherwise, nor will private operators automatically include the sites ontheir itineraries or set up tourist facilities at the improved site. Further, the design of tourist sites should involve touroperators so that the site is operationally feasible for tours.

61. Weaknesses in poorly performing public-private sector linkages frequently occur on the side of the publicsector and, as a result, many projects focus on enhancing public sector capabilities. However, as shown by theProject, the private sector also may suffer from institutional weaknesses and may require strengthening to effectivelyparticipate in development partnerships. In addition, project experience shows the need to fully involve the privatesector from the early stages of project planning and implementation.

62. Ecotourism, as implemented under the Project, can work. However, each enterprise, such as lodges, shouldbe subject to rigorous financial and marketing feasibility assessment. The Project has brought out the difficulty ofestablishing community lodges as viable enterprises in view of the need to establish a sufficient number of functioninglodges at appropriate places along the trekking circuit. The community development operations under the Projectrequired large resources, which will limit the scale at which such development can be replicated.

63. Sullage disposal in urban areas is normally into storm water drainage systems and specific attention to thedisposal of this waste is needed in the design of drainage and sanitation projects.

64. Where there are many inexperienced IAs, the PMU assumes added importance and careful consideration ofthe strength and status of PMU personnel is needed in project design. An understafffed PMU may not be able to give

adequate attention to the soft parts of a project in view of the often more immediate demands of implementing thehard components. The permanent status of personnel is also important in order to improve continuity. The earlyestablishment of the PMU is necessary to avoid delays.

65 To be successful benefit monitoring and evaluation needs specific attention from project supervisors at an


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68. Although there is a Curriculum Reviewing Committee, established to review the curricula of NATHM, severalprivate operators have indicated a need for changes, including upgrading of certain courses and lengthening of the

rafting-guide course to include practical training. An important issue is how well all the various sector interests arecovered by the Curriculum Reviewing Committee and channeled into the review process. A broad review of thecourses by NATHM through wide canvassing of all interested tourism participants would appear appropriate.Consideration could also be given to strengthening the certification arrangements of graduates, perhaps with greaterinvolvement of private sector organizations in testing and certification, in order to enhance the usefulness of thecertificates. A plan to address these issues could be drafted during an initial meeting between NATHM and therelevant private sector groups. Such a meeting could take place in the first quarter of 2001.

69. Action is needed in Pokhara by the local municipality and the Directorate of Housing and UrbanDevelopment to ensure that sullage is disposed of properly rather than into the storm water drainage system, which ishaving a detrimental effect on the environmental condition of Phewa Lake. The solution will require households to beencouraged to install soakage pits, which may take time. However, the preparation of a plan to address the problemcould be prepared by mid-2001.


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APPENDIXES

Number Title Page Cited on(page, para.)

1 Project Cost 21 3, 8

2 Achievement of Project Outputs 22 4, 14

3 Selected Tourism Data for Nepal 32 10, 33

4 Statistics on Private Sector Tourism Facilities 33 11, 34

5 Pokhara Airport Financial Reevaluation 34 11, 36


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Appendix 1

Project Output/Component

Tourist Attractions

Pokhara Conservation Area 1,126 1,112

Phewa Lakeside Path and Gardens 108 29a

Sarangkot Road 668 683

Gorkha Conservation Area 858 536

Ecotourism Trekking Trail 900 634

Subtotal 3,660 2,994

Upgrading Pokhara Airport 1,606 1,926

Upgrading of Nepal Academy ofTourism and Hotel Management

Physical Works 2,458 1,920

Technical Assistance 1,700 250b


Tourism Promotion

Tourist Service Center, Kathmandu 2,209 1,052

Tourist Service Center, Pokhara 325 155a


PROJECT COST

($'000)

Appraisal Actual


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Appendix 2, page 1

ACHIEVEMENT OF PROJECT OUTPUTS

A. Expanded Number of Tourist Attractions

1. General Assessment

1. The attractiveness for tourism of four of the five sites addressed under the Project hasbeen substantially improved. The fifth site, the Phewa lakeside footpath and garden, was notcompleted and is not functional. However, at the time of the Operations Evaluation Mission(OEM), not all parts of the four completed subprojects were in operation and, in some cases,additional inputs from other projects were needed to complete the development. At Sarangkot,

as a result of the Projects improvement of the access road, both the number of visitors and thecommercial activity of private souvenir stalls and cafs have increased. Tourist use of theecotourism trekking trail has commenced and is significant in all areas except lodges. Localcommunities are involved in maintaining the services. At the other sites, however, significantincreases in either tourist numbers and private sector tourism activity are not yet apparent.

2. Pokhara Conservation Area

2. The Project aimed to upgrade the attractiveness to tourists of the historic streets ofGanesh Tole and Ram Krishna Tole. Many of the buildings along the street are old traditionaltwo-story brick and tile shop-houses. An important temple is located at the end of Ganesh Tole.The Project established most of the physical works planned for the street, including drainagealong the sides of the streets, a sewerage system utilizing communal septic tanks, footpathpaving in stone that matches the character of the buildings, litter bins, and street lighting.

Although not part of the Project, the local government sealed the roadway, which was previouslyonly partially sealed and unsightly. The uncompleted work comprised the outfall of the drainagesystem, which was left to drain into Phewa Lake without any mechanism to settle out solid

material. An arrangement to overcome this deficiency is planned under the Asian DevelopmentBank (ADB)-financed Second Tourism Development Project.

3. The street appearance was improved under the Project. The facilities also benefit local

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Appendix 2, page 2

Responses from street residents and tourists interviewed by the OEM, however, suggest thatthe increase in businesses and business activity is due to domestic trade and that tourist trafficand tourist trade have not appreciably changed. Very few tourists visit the area, and trade withtourists comprises the occasional sale of cold drinks. Along the street, there are no shops,cafs, or other establishments catering specifically to tourists. One possible reason for the lackof tourist visits is the absence of any concerted effort to market the site. In general, tourists areunaware of the area, and tour operators are not aware that the site has been upgraded and canoffer additional sightseeing opportunities for tourists. The lack of specialized tourist shops andcafs also limits the appeal of the area.

3. Phewa Lakeside Footpath and Garden

5. The component aimed to develop an attractive landscaped garden and footpath in anexisting park adjacent to Phewa Lake and the site of the tourist service center (TSC), also to beestablished under the Project. Most of the footpath was completed with the exception of thesections joining either end to existing roads and pathways. Essentially, the footpath exists but atone end entry to it is blocked by a wall, while at the other end, the entry is not very obvious, theentry being separated from the roadway footpath by a grassy strip. A slum area exists nearbythe middle section of the footpath and a large section in the same area has collapsed; theseconditions impose limitations on the attractiveness and usefulness of the feature. The gardenwas not established.

6. Few people, let alone tourists, use the footpath. The park through which the footpathpasses is itself not very attractive, lacking shade trees and areas of interest other than theadjacent lake. Tourists can access the lake at many other sites making a visit to the park for thispurpose unnecessary. The park is located near the site of the dam forming the lake, but themain tourist area has developed several kilometers further down the lake. The footpath will likelyonly be used if the park is made attractive to tourists. Currently, the municipal government is

discussing upgrading the park with officials from its sister city in Japan.

4. Sarangkot Access Road

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Appendix 2, page 3

40,000 visitors per year, whereas before the road was completed, less than half this numbervisited. The increased tourist traffic has stimulated an increase in the number of souvenir shopsand cafs in the area. Between 1996 and 1997, the BME surveys registered a 20 percentincrease in the number of commercial establishments in the area, and an increase in the netvalue of monthly commercial sales and annual income among households with commercialinterests. Sample interviews and surveys carried out by OEM confirmed this overall increase incommercial activity.1 However, the income of hotels and guesthouses has declined as a resultof a reduction in the number of hikers visiting the site and staying overnight. About one quarterof the 16 hotels and guesthouses appear to have closed. It was not possible to determine thenet effect of the increase in souvenir and caf sales on the one hand, and the loss from reducedaccommodation on the other. Another group benefiting from the increase in tourist numbers is

the taxi operator group, which has another destination to bring tourists to.

9. In addition to facilitating increased tourist traffic, the road has benefited local residentsby shorter travel times, lower freight costs, and availability of regular bus services. The localpopulation comprises about 5,000 people in two villages.

5. Ecotourism

10. The Project established a new trekking trail in the Annapurna conservation area.Campsites, kerosene depots, garbage disposal arrangements, riverbank stabilization, pavedpathways and footbridges, forestry plantations, an information center, a small museum, and twolodges were established to encourage both organized trekkers with camping equipment andthose without. Local community groups, particularly womens groups, manage and maintain thefacilities, apart from the kerosene depots, which are owned and operated by individuals, andcollect fees from users. As part of the development and to encourage greater support from thelocal population in maintaining the environment, public water faucets, two mini-hydroelectricschemes and transmission lines to connect these, and another scheme for four villages were

also established.

11. At OEM, the Dhiprang lodge had been in operation for about six months, but the one atSikles was not yet operational. The Sikles lodge was poorly constructed and was rebuilt by the

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Appendix 2, page 4

operators bring all requirements with them and only purchase kerosene along the way. This isunderstandable in view of the need to ensure that everything promised to the trekkers isavailable during the trek, a guarantee that may not be met if the organizers rely upon localsupply, given the variable nature of both supply and demand.

12. The four kerosene depots are operating satisfactorily and, with one exception, fundsloaned to the operators as working capital have been largely repaid.

13. The two mini-hydroelectric schemes were satisfactorily established and appear to beoperating well, serving 270 households at Tanting and Ghalekharka. The transmission linesfrom the preexisting mini-hydroelectric plant at Sikles provided connections for 535 households.

Payments by users were reported by the King Mahendra Trust for Nature Conservation(KMTNC) to be 80 percent or better, and repayment of the loans contracted by the communitiesfor the mini-hydroelectric plants and transmission lines was already substantial at OEM.

14. The Project successfully established a new trekking trail. The trail facilities are managedby the communities and are bringing in small amounts of regular income. The lodges areunlikely to be a commercial success. The kerosene depots are working satisfactorily and willbenefit the individuals operating them. Infrastructure in the form of water supply, foot trails andfootbridges, and mini-hydroelectricity plants was also established for the benefit of localcommunities. Measurements on the environment have not been made, but the Nepal NationalParks and Wildlife office considers the type of development undertaken by the Project as havingpotential to achieve its ecofriendly objective. Despite the problems with the lodges, the overallobjectives appear on the way to being achieved. Nevertheless, development has beenexpensive. About 72 percent of the cost of mini-hydroelectric schemes was subsidized, the costof the campsites and other trail facilities was subsidized 50-80 percent, the other infrastructurewas provided as grant, and KMTNC employed as many as 26 staff in the area to encourage anddevelop the communities.

6. Gorkha Conservation Area Improvement

15. Under the Project, areas around the historic lower palace at Gorkha were landscaped

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Appendix 2, page 5

B. Improved Accessibility of Pokhara

17. The planned works under the Project to increase the capacity and safety of Pokharaairport were satisfactorily completed. A new airport terminal was constructed, the runway wassealed, and the airport enclosed with perimeter fencing. During the course of implementation,but before construction of the new terminal started, civil aviation policy changed to enableairlines other than Royal Nepal Airways to operate. As a result of this and the consequentimmediate registration of many new airlines, the terminal was redesigned to cater for sixairlines. Currently, it caters for 12 airlines. At the same time, the design was changed toincorporate a new control tower, which was previously located on the other side of the runway,constituting a safety issue. Some congestion occurs in the passenger check-in and waiting

areas, and in the aircraft standing areas; but this is because of the concentration of most airmovements into two short periods in the morning and afternoon. The problem could beovercome through management arrangements, such as by the use of differential charges toencourage use at other times. Some expansion of the airport facilities, including the aircraftstanding apron, will be carried out under the Second Tourism Development Project. Thestandard of construction was generally satisfactory. Repairs to structural joints in the terminalbuilding, which leaked, have been completed. The standard of routine daily cleaning andmaintenance, especially of public toilets and the check-in and departure areas, needsimprovement.

18. Between the start of the Project in 1992 and 1999, passenger throughput at the airportincreased by 170 percent and flight movements by 190 percent (Table A2.1). In 1999, about246,000 passengers passed through the airport, slightly more for departure than arrival. Theprevious terminal facilities, which are still standing, could not have accommodated such anincrease. Airport staff estimated that about two thirds of passengers were local. The number ofpassengers passing through Pokhara airport has been increasing since the mid-1980s, but withthree periods of rapid growth: 1987-1988, 1993-1994, and 1997-1999. The 1993-1994 period

corresponds to the increase in the number of airlines operating as a result of the change inGovernment policy. The period 1997-1999 appears to be a continuation of the earlier growth,which had been temporarily stopped by the construction works at the airport. For example,during construction, aircraft movements were constrained due to the necessity to close parts of

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Appendix 2, page 6

C. Upgraded Training Capability of NATHM

19. The Project upgraded existing buildings and the water supply system and provided newbuildings and equipment to the Nepal Academy of Tourism and Hotel Management (NATHM).2The focus of the works was to improve the quality of the training facilities with limited expansion.

20. Unexpected additional civil works in the form of reconstructing, as opposed torenovating, one building were required. The quality of the finish of the completed buildings is lowwhen compared with the Kathmandu TSC, but is comparable to other buildings in Kathmanduand is of adequate standard for the operations required. In retrospect, sturdier electrical fittings

would have been more appropriate given the often careless operation of the electricallyoperated facilities by some students. Dust control and cleanliness will be an ongoing problem,as the environment is very dusty and the buildings were designed to blend with the existingpalace architecture rather than to minimize maintenance. Less equipment was supplied thanexpected due to delays caused by the added construction works and insufficient budgetreleases by the Government. The equipment was of adequate quality and problems have notbeen encountered with its use.

21. The complementary technical assistance (TA) to be provided by the United NationsDevelopment Programme (UNDP) was withdrawn and only partially compensated for by thereallocation of 12 person-months of consultant time from project management to the support ofNATHM. This reallocated consultant time enabled the creation of a new three-year degreecourse, which was initiated in mid-1999. However, other expected improvements including theformulation of a strategic plan for NATHM, revision of its organizational structure, and upgradingof its accounting system were not achieved because of the lack of technical support.

22. As a result of the Project, NATHM has adequate classroom space and functional

curricula. NATHM has maintained its short courses and outreach activities at a level of about900-1,000 students per year and has added the three-year degree course for which it has a firstyear intake of 32 students (Table A2.2). However, NATHM lacks equipment to enable it tomaintain a regular intake of both first-year degree students and the short-course students in

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Training Course

Hotel 1,254 146 172 161 315 213 306 309 220 222 476 312 279

Tours and Travel 638 173 107 123 62 31 90 64 70 192 312 450 213Trekking 482 78 130 101 100 112 397 102 164 300 189 288 272

Others 67 53 26 0 0 14 0 22 56 75 281 297 126

Subtotal 2,441 450 435 385 477 370 793 497 510 789 1,258 1,347 890

Outreach Courses 255 347 583 40 207 199 231 170 208 414 237 258 183

Total 2,696 797 1,018 425 684 569 1,024 667 718 1,203 1,495 1,605 1,073

Source: Nepal Academy of Tourism and Hotel Management.

1998/99

Table A2.2: Nepal Academy of Tourismand Hotel Management Graduates

1994/1995 1995/1996 1996/1997 1997/981990/19911991/1992 1992/1993 1993/19941972/1987 1987/1988 1988/19891989/1990


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Appendix 2, page 8

23. The private sector considers most of NATHMs courses as suitable to its needs but hasexpressed a desire to see improvement in the content and length of training in some of the short

courses. The private sector is represented on NATHMs board, and was involved in a revision ofthe syllabus in 1996. However, not all the private sectors needs for improving courses appearadequately met. The opinion of the OEM is that this shortcoming is related more to the way inwhich the private sector is structured, rather than the arrangements at NATHM. Despite someshortcomings in the courses, NATHM reported that surveys done in 1991 and 1995-1996indicate that about 75 percent of its graduates are employed in tourism-related activities.Graduates were also reported as being well sought after for employment in the hotel industry inthe Middle East.

D. Improved Tourism Promotion

1. General Assessment

24. Improvements in the promotion of tourism focused on tourists who had already arrived inNepal so as to increase their length of stay. To help achieve this, the Project was to build TSCsin Kathmandu and Pokhara. A parallel action plan being undertaken by the Governmentprovided for the rationalization of administrative functions relating to tourism to establish clear

responsibilities for promotion, development, licensing, and quality assessment. Institutionalstrengthening under the UNDP TA component of the Project supported the action plan.

25. The Kathmandu TSC was established as planned, but is much larger than required toachieve its objectives (paras. 26-27). Few tourists, under 15 per day, visit the Kathmandu TSCbecause it is not well promoted and is not located conveniently to any of the main tourist areas(paras. 27-28). Compared with the 25,000 arrivals at Kathmandu airport in January 2000, theTSC received 70 foreign tourists. There are many alternative private tour agents and operators,conveniently located in tourist areas, which can provide information. Useful basic information isalso given to visitors on arrival at Kathmandu airport. The Pokhara TSC is incomplete and doesnot function (para. 29). The TSCs have had negligible direct impact on improving theinformation flow to tourists. The Kathmandu TSC supports the tourism industry in other ways by

idi ffi f th N l T i B d (NTB) h l i id i f ti t t

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Appendix 2, page 9

27. At OEM, the display room, cafeteria, and shop spaces were not yet operational, but theother parts of the building were well utilized although not always for the intended functions.Examples of the latter include the occupation of about half of the office space by DOT and the

indirect rather than direct use of the auditorium and meeting room to enhance information flowto tourists. The tourist information room is well stocked with maps and brochures of relevance totourists, but operates only during normal business hours and not on Sundays or public holidays.Counting of visitors began only in 2000. For the month of January 2000, TSC received457 visitors, of whom 70 were foreign tourists and 387 were local tourist-trade personnel andstaff of other organizations. The problems preventing the cafeteria from being operated wereresolved in early 2000 and it is expected to open within the year. However, low tourist traffic willconstrain the ability of the cafeteria to maintain an attractive service; it also is expected to causethe shop spaces to remain unused.

28. The Kathmandu TSC is built on the site identified at the time of project preparation andappraisal. The site was deemed suitable, as it is adjacent to the exhibition grounds and within afew kilometers of the major areas of tourist hotels and the important Durbar Square tourist site.Moreover, there was a lack of alternative large sites close to the main tourism areas availablefor development. Nevertheless, the TSC is not well promoted and the growth in traffic onsurrounding roads makes it harder for tourists to find and access the center than was thoughtwhen the site was selected.

3. Tourist Service Center: Pokhara

29. At OEM, the Pokhara TSC was incomplete and not functioning. The building has beenerected, but much of the internal fitting-out has not been done. The contract of the civil workscontractor for the TSC was terminated because of poor performance. The Ministry of Tourism(MOT) plans to complete the facility using its own funds. The Pokhara TSC provides space foroffices, an auditorium, display hall, information services, and restaurant. The building isinteresting from an architectural perspective. The TSC is adjacent to the lakeside footpath and

gardens, which were not completed either. Utilization of the TSC, footpath, and gardens maynot meet expectations because they are not easily accessible or immediately visible from themain roads, and because they are poorly located in relation to the main areas of tourist activityth t h f th t th th

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Appendix 2, page 10

32. Clarity of functions and improved linkage with the private sector were key aims of theProject under this component. The basic institutional arrangements within the public sector arenow adequate to achieve this. There remain some issues about whether the NTB or the

Government, through MOT, should have responsibility for accreditation of tourist facilities andthe collection and analysis of tourism data. These issues are currently under review. The Projectdid not give adequate attention to the parallel institutional arrangements within the privatesector, however. Each subsector grouping has a representative organization, for example, theHotel Association of Nepal, the Nepal Association of Travel Agents, and the Nepal Associationof Rafting Agents. However, each group has its own factions, while information flows betweenmanagement and members, and on the changeover of officers, appear inadequate. Thus biasesoccur, for example, in favor of development around Kathmandu as against other areas, and notall members are adequately represented by their associations.

F. Study on the Establishment of a Cultural Display Center in Kathmandu

33. The study comprised part A of TA 1662-NEP.3 The basic features of a cultural displaycenter to be located at the exhibition grounds were outlined, and the main conclusion was thatsuch a facility would be viable at a throughput of 150,000 visitors per year. However, the studyrecommended that the center should be implemented and operated by the private sector. It wasnoted that the concept had been supported by the earlier ADB-funded sector study, which

recommended the center be located on the outskirts of Kathmandu City. This alternative sitewas not considered by the TA consultants. The study was responsive to its terms of reference.The recommendations were not acted upon.

G. Domestic Civil Aviation Study

34. The study comprised part B of TA 1662-NEP. The study reviewed relevant aspects suchas tourism and local travel patterns, changes in alternative road travel conditions, seatavailability and load factors, airport and physical site conditions, government policies and the

financial implications of those policies, and privatization issues. Various recommendations weremade and subject to financial and economic evaluation. A number have been acted upon,including under the Second Tourism Development Project. This part of the TA appears to haved t l dd d it t f f d d d f l t t

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32

Appendix 3

Number

Year of

Visitors

1985 180,989 11.30 39.19 59.15 19.16 28.921986 223,331 11.16 50.84 65.09 20.40 26.121987 248,080 11.98 60.23 70.21 20.27 23.62

1988 265,943 12.00 63.50 69.00 19.90 21.621989 239,945 12.00 68.34 74.78 23.74 25.971990 254,885 12.00 63.70 65.97 20.83 21.571991 292,995 9.25 58.59 59.35 21.62 21.901992 334,353 10.14 61.09 59.33 18.02 17.501993 293,567 11.94 66.34 64.61 18.93 18.431994 326,531 10.00 88.20 82.87 27.01 25.381995 363,395 11.27 116.78 101.45 28.52 24.77

1996 393,613 13.50 116.64 105.97 21.95 19.941997 421,857 10.49 115.90 110.75 26.19 25.031998 463,684 10.76 152.50 151.58 30.57 30.381999 484,120

= not available.

Source: Ministry of Tourism, except for Foreign Exchange Earnings per Visitor-Day which are Operations

Evaluation Mission estimates calculated on the basis of other data presented in the table. Note that the

number of visitors for 1999 is a preliminary estimate only.

Foreign Exchange Earnings

SELECTED TOURISM DATA FOR NEPAL

Constant 1999 Prices

Total ($ million)

Current

Per Visitor-Day ($)

Constant 1999 Prices

Average Length

of Stay (days)

Current


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Appendix 5, page 1

POKHARA AIRPORT FINANCIAL REEVALUATION

1. The financial internal rate of return (FIRR) was recalculated to assess the financial impact

of the Pokhara airport component. The analysis compared with- and without-project scenarios andconforms with the Asian Development Banks Guidelines for the Preparation and Presentation ofFinancial Analyses. The basic data were derived from historical income and expenses andpassenger throughputs supplied by the Civil Aviation Authority of Nepal (Table A5.1). All historicalfigures were converted to constant 1999 values by use of the implicit gross domestic productdeflator for Nepal.

2. The analysis covered the 25-year period from 1993 when construction started to 2017, anda salvage value for the Project, equal to 50 percent of the capital investment, was assumed at the

end of the period. The new facilities at the airport were completed in 1996, and it was assumedthat with-project operations commenced in January 1997.

3. Airport revenues are derived mainly from passenger taxes and, to a lesser extent, fees onaircraft movements. The growth in revenues parallels the growth in passengers, with the exceptionthat from the second half of 1998, there was a significant jump in the revenue stream due to thedoubling of the airport tax and subjecting foreign travelers, who were previously exempt, to the tax.For the with-project scenario, actual revenues were available for the period up to 1999. For

subsequent years, the with-project revenues were increased at the same rate of increase aspassenger numbers (para. 4). For the without-project scenario, actual revenues were adopted upto 1996 and thereafter were increased at the same rate as the assumed increase in without-projectpassenger numbers (para. 4). For 1998 and 1999, the passenger tax component of the without-project revenue stream was further increased to reflect the changes in the tax system. Theincreases were 114 percent in 1998, and 38 percent in 1999.

4. Passenger numbers in the with-project scenario were available for the period up to 1999.For subsequent years, passenger numbers were increased at 10 percent per year for 5 years, then

5 percent per year until a ceiling of 500,000 passengers per year was reached. This isapproximately double the 1999 figure. For the without-project scenario, actual passenger numberswere adopted for the period up to 1996, and for subsequent years the 1996 number was assumedt t 5 t t ili f 250 000 hi h i b t 100 000

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Year

1993 116,431 116,431 408 1,934 1,934 0 4,305 4,305 0 (408)1994 146,215 146,215 10,510 1,923 1,923 0 3,704 3,704 0 (10,510)1995 144,365 144,365 57,865 2,097 2,097 0 4,478 4,478 0 (57,865)

1996 154,508 154,508 27,902 2,545 2,545 0 5,927 5,927 0 (27,902)1997 162,233 185,388 23,206 2,407 3,139 732 5,744 7,798 2,054 (21,884)

1998 170,345 207,874 0 2,402 4,371 1,969 9,834 13,436 3,603 1,6341999 178,862 245,575 0 7,359 25,284 17,925 12,732 18,474 5,742 (12,183)

2000 187,805 270,133 536 2,418 5,549 3,131 13,369 20,322 6,953 3,2862001 197,195 297,146 2,478 5,826 3,348 14,038 22,354 8,316 4,968

2002 200,000 326,861 2,496 6,118 3,622 14,237 24,590 10,353 6,7312003 200,000 359,547 2,496 6,424 3,928 14,237 27,048 12,811 8,883

2004 200,000 395,502 7,496 21,745 14,249 14,237 29,752 15,515 1,2662005 200,000 423,187 2,496 6,981 4,485 14,237 31,834 17,597 13,112

2006 200,000 452,810 2,496 7,225 4,729 14,237 34,062 19,825 15,0962007 200,000 484,507 2,496 7,478 4,982 14,237 36,446 22,209 17,227

2008 200,000 500,000 2,496 7,598 5,102 14,237 37,612 23,375 18,2732009 200,000 500,000 7,496 22,598 15,102 14,237 37,612 23,375 8,273

2010 200,000 500,000 2,496 7,598 5,102 14,237 37,612 23,375 18,2732011 200,000 500,000 2,496 7,598 5,102 14,237 37,612 23,375 18,273

2012 200,000 500,000 2,496 7,598 5,102 14,237 37,612 23,375 18,2732013 200,000 500,000 2,496 7,598 5,102 14,237 37,612 23,375 18,273

2014 200,000 500,000 7,496 22,598 15,102 14,237 37,612 23,375 8,2732015 200,000 500,000 2,496 7,598 5,102 14,237 37,612 23,375 18,273

2016 200,000 500,000 2,496 7,598 5,102 14,237 37,612 23,375 18,2732017 200,000 500,000 2,496 7,598 5,102 14,237 37,612 23,375 75,401

6%

Amount in NRs'000 (Constant 1999 Prices)

Incremental

Net

Cash FlowProject

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

Incremental

Revenue

Without- With-

Passenger Throughput Capital

Expense Without-

Operating Expense

Without- With- Incremental

Project

With-

Project

Financial internal rate of return =

ProjectProject Project

36

Appendix5,pag

e3