PROJECT PERFORMANCE AUDIT REPORT

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ASIAN DEVELOPMENT BANK PPA: NEP 24003 PROJECT PERFORMANCE AUDIT REPORT ON THE TOURISM INFRASTRUCTURE DEVELOPMENT PROJECT (Loan 1156-NEP[SF]) IN NEPAL December 2000 CURRENCY EQUIVALENTS Currency Unit – Nepalese Rupee/s (NRe/NRs) At Appraisal At Project Completion At Operations Evaluation (September 1991) (December 1997) (March 2000) NRe1.00 = $0.0237 $0.0161 $0.0145 $1.00 = NRs42.20 NRs62.00 NRs68.81 The Nepalese rupee is pegged to the Indian rupee (Re) at NRs1.00 to Re1.00, and is fully convertible on all current account transactions. ABBREVIATIONS ADB − Asian Development Bank BME − benefit monitoring and evaluation CAAN − Civil Aviation Authority of Nepal DOA − Department of Archeology DOR − Department of Roads DOT − Department of Tourism IA − implementing agency KMTNC − King Mahendra Trust for Nature Conservation MOT − Ministry of Tourism OEM− Operations Evaluation Mission NATHM − Nepal Academy of Tourism and Hotel Management NTB − Nepal Tourism Board PCR − project completion report PMU − project management unit SSTA − small-scale technical assistance TA − technical assistance TSC− tourist service center UNDP − United Nations Development Programme NOTES (i) The fiscal year (FY) of the Government ends on 15 July. (ii) In this report, “$” refers to US dollars. Operations Evaluation ...

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    ASIAN DEVELOPMENT BANK                             

 

 

 PPA: NEP 24003

PROJECT PERFORMANCE AUDIT REPORT     ON THE     TOURISM INFRASTRUCTURE DEVELOPMENT PROJECT (Loan 1156-NEP[SF])     IN     NEPAL                         December 2000

  CURRENCY EQUIVALENTS   Currency Unit – Nepalese Rupee/s (NRe/NRs)    At Appraisal At Project Completion At Operations Evaluation  (September 1991) (December 1997) (March 2000) NRe1.00 = $0.0237 $0.0161 $0.0145  $1.00 = NRs42.20 NRs62.00 NRs68.81   The Nepalese rupee is pegged to the Indian rupee (Re) at NRs1.00 to Re1.00, and is fully convertible on all current account transactions.             ABBREVIATIONS    ADB− Asian Development Bank BME− benefit monitoring and evaluation CAAN− Aviation Authority of Nepal Civil DOA− of Archeology Department DOR− Department of Roads DOT− of Tourism Department IA− agency implementing KMTNC− King Mahendra Trust for Nature Conservation MOT− of Tourism Ministry OEM− Evaluation Mission Operations NATHM− Academy of Tourism and Hotel Management Nepal NTB− Tourism Board Nepal PCR− project completion report PMU− management unit project SSTA− technical assistance small-scale TA− technical assistance TSC− service center tourist UNDP− Nations Development Programme United             NOTES   (i) The fiscal year (FY) of the Government ends on 15 July. (ii) In this report, “$” refers to US dollars.   Operations Evaluation Office, PE-559

 

              BASIC DATA   EXECUTIVE SUMMARY

CONTENTS

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  MAP   I. BACKGROUND    A. Rationale  B. Formulation  C. Purpose and Outputs  D. Cost, Financing, and Executing Arrangements  E. Completion and Self-Evaluation  F. Operations Evaluation   II. PLANNING AND IMPLEMENTATION PERFORMANCE    A. Formulation and Design  B. Cost and Scheduling  C. Consultant Performance, Procurement, and Construction  D. Organization and Management   III. ACHIEVEMENT OF PROJECT PURPOSE    A. Operational Performance  B. Performance of the Operating Entity  C. Economic Reevaluation  D. Sustainability   IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS    A. Socioeconomic Impact  B. Environmental Impact  C. Impact on Institutions and Policy   V. OVERALL ASSESSMENT    A. Relevance  B. Efficacy  C. Efficiency  D. Sustainability  E. Institutional Development and Other Impacts  F. Overall Project Rating  G. Assessment of ADB and Borrower Performance   VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS    A. Key Issues for the Future  B. Lessons Identified  C. Follow-Up Actions   APPENDIXES

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

  4   BASIC DATA Tourism Infrastructure Development Project (Loan 1156-NEP[SF])   Project Preparation/Institution Building    TA No. TA Name Type Person-Months Amount($)Approval Date 1137 Tourism Development Program A&O 21 460,000 13 Mar 1989 1428 Tourism Development PP 6 100,000 3 Dec 1990 1662 Tourism Development Study A&O 14 295,000 16 Jan 1992 1663 Environmental Protection Study of A&O 32 440,000 16 Jan 1992 Phewa Lake, Pokhara    As per ADB Loan Key Project Data($ million) Documents Actual Total Project Cost 14.60 8.93 Foreign Exchange Cost 5.60 2.36 Local Currenc ADB Loan Am y ou C n o t s / t U   tilization   9.00 10.40 1     .860 6.57 2     ADB Loan Amount/Cancellation    2.81 2 Amount of Cofinancing—UNDP 3.02 0.0     Key Dates Expected Actual Appraisal 11-23 Aug 1991 Loan Negotiations 29 Oct-1 Nov 1991 Board Approval 16 Jan 1992 Loan Agreement 20 Mar 1992 Loan Effectiveness 18 Jun 1992 25 Jun 1992 Project Completion 3  Dec 1997 3131 Dec 1996 Loan Closing 30 Jun 1997 22 Jun 1998 Months (effectiveness to completion) 54 66       Key Performance Indicators(%) PCR Appraisal   PPAR Economic Internal Rate of Return Pokhara Conservation Area Upgrading, Lakeside 13.4       Footpath and Garden Pokhara Serankot Road Improvement 17.7       Pokhara Airport Upgrading   26.0    Ecotourism and Circuit Trekking 14.2       Gorkha Conservation Area Upgrading 21.4       NATHM Upgrading 12.3       Kathmandu Tourist Service Center 13.8      Pokhara Tourist Service Center 15.4       Financial Internal Rate of Return Pokhara Airport Upgrading 15.2 14.0 6.0      Borrower Government of the Kingdom of Nepal Executing Agency Department of Tourism     Mission Data Type of Mission No. of Missions   No. of Person-Days   Appraisal 1 52 Project Administration  Review   13 252  Project Completion 1 26 Operations Evaluation   1 38                                                              — = not calculated, A&O = advisory and operational, ADB = Asian Development Bank, NATHM = Nepal Academy of Tourism and Hotel Ma nagement, PCR = project completion report, PP = project preparatory, PPAR = project performance audit report, TA = technical assistance, UNDP = United Nations Development Programme. 1  Equivalent to SDR7,611,000 at the time of loan approval. 2  the time of loan closing, total loan disbursements amounted to SDR5,580,851, while total loan cancellations amounted to SDR2,030,149. At 3 tourist information center in Pokhara was still to be completed. to the PCR, the  According

 

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EXECUTIVE SUMMARY

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

 

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

 

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

 

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I. BACKGROUND

    A. Rationale   1. The Tourism Infrastructure Development Project was formulated in the context of the Government’s goal of increasing foreign exchange earnings. Being a landlocked country with often difficult terrain, Nepal has few comparative advantages to exploit in earning foreign exchange. Tourism is one area in which the country enjoys a comparative advantage, and potential exists to expand tourism. While tourism has frequently been considered a private sector activity, the Project recognized that the private sector needed public sector support in the form of transport infrastructure, development of public areas to enhance the appeal of less visited tourist attractions, tourism promotion, human resources development, and regulation.   2. At the time of project formulation, the Asian Development Bank (ADB) country operational strategy, which focused on agriculture and industry, was only broadly in line with tourism development. Subsequently, however, the strategy was refined to incorporate tourism in view of its comparative advantage and the limited alternatives within Nepal. Through the selection and design of its components, the Project was viewed as a suitable mechanism for fostering private sector growth and introducing poverty reduction and environmentally sustainable arrangements into development, all of which were, and remain, consistent with ADB’s 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). 4 tested the economic feasibility of nine The SSTA selected and subprojects, and packaged these into a form suitable for ADB financing. The nine subprojects were selected from 50 ote n 1990 under the Tourism Development Program study financed by ADB technical a p ssis n t t a ia n l c   e s   u ( b T p A r ) o . j 5 ra dngwi SheA,STylevorf txe isneT ptioscri then oferehocpm eedsnviro py,uda d deviae eht mts reilr cteprs arep ied   tourism sector and the rationale and target market for each subproject. The SSTA and ear 6   T  r h   e t   o a p p p p e r a a d i y se   d a     p s r t o u t A c T e   j reil  have fulfilled their terms of reference and provided a suitable basis for project appraisal. follows the SSTA proposal, except that one of the nine subprojects was deleted, the different target markets were coalesced with the loss of important detail, and much less emphasis was placed on tourism marketing (para. 15).   4. This was the first AD sm the Second Tourism Developm B- e fi n n t  a P n r c o e j d e   c t t o . 7 taoisnE ht epOretime of  At the of AT a ,)MEO( niossMin ioatluvae r th project in Neuirr iopr,  cts itotub ;lap6991 ni ced inanteoimolpBDf ,nA  formulation of a possible further project was in process. 8     C. Purpose and Outputs   5. The Project’s purpose was to increase the average length of stay and spending by tourists. 9 To achieve this, the outputs to be generated by the Project comprised (i) an expansion in the number of attractive tourist sites through improvement to five existing sites principally around Pokhara, but also in Gorkha; (ii) improved accessibility of Pokhara by air  m th e r n o t  u ( g N h  A upgra 1 d 0 edymo  foTrusi mof the Nepal Acadedapac liba ytirtpo(i; ) iigrupP koigna riaharna d trt eeniarp odivosoreceurhud n ma Hotel Manage THM) s; (iv) improved tourism promotion; and (v) enhanced public sector institutional capabilities. The Project’s initiatives were expected both to encourage tourists to                                                            4  1428-NEP: TATourism Development, for $100,000, approved on 3 December 1990. 5  TA 1137-NEP:Tourism Development Program, for $460,000, approved on 13 March 1989. 6  Institutional memory and records are insufficient to enable further evaluation of these TAs. 7  Loan 1451-NEP(SF):Second Tourism Development Project, for $17.2 million, approved on 2 July 1996. 8  TA 3332-NEP:Ecotourism, for $500,000, approved on 10 December 1999. 9 logical framework. The outputs-purpose-goal hierarchy of objectives used in this project The Project predated the requirement for a performance audit report was derived from the appraisal report, particularly the project focus, design, and rationale section, the objectives, and various parts of the background. 10  Formerly named the Hotel Management and Tourism Training Center.

 

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visit additional places, principally in Pokhara, and hence to stay longer, and to catalyze private sector investment in facilities such as accommodation, cafés, restaurants, and souvenir shops to cater to tourists. The selection and design of the project components also aimed to preserve the scenic qualities of tourist sites and improve environmental protection, build public-private sector linkages, and involve communities in the development. In parallel with the Project, the Government was to improve the policy framework for tourism development, and so had established an action plan for this.   6. The project inputs were organized into three parts. Part A provided for infrastructure development at six sites. Five of these were tourist sites, and the sites and work involved the following: (i) at the Pokhara conservation area, improved sanitation, footpaths, and streetlighting to enhance the attractiveness of the historic main street of Pokhara; (ii) at Phewa Lake, one of the scenic attractions of Pokhara, a new footpath and garden; (iii) at Sarangkot, repair and surfacing of the access road to facilitate tourist travel to this elevated viewpoint near Pokhara; (iv) in the ecotourism area in the Annapurna conservation area near Pokhara, two tourist lodges, three serviced campsites, two micro-hydroelectricity schemes, two kerosene depots and visitor centers, water and sanitation facilities, as well as training and community awareness campaigns to expand and improve ecotourism; and (v) at the Gorkha conservation area, a road, footpath, lighting, water, sanitation, and landscape upgrading around the lower palace and in the core tourist area of Gorkha township. The sixth site was Pokhara airport, where facilities and improvements to upgrade airport safety, aircraft operations, and passenger amenities were made. Under part B, the capability of NATHM was to be improved by (i) rehabilitation of existing buildings and providing a new water source, access road, and equipment; and (ii) continuation of the expert services, equipment, and other services aimed at both expanding the center’s capacity and providing community training in the rural and hill areas, as provided by the United Nations Development Programme (UNDP). The focus of part C was tourism support services, institutional strengthening, and implementation assistance for the Department of Tourism (DOT) comprising (i) establishment of tourist service centers (TSCs) in Kathmandu and Pokhara; (ii) continuation of UNDP support for women’s entrepreneurial training and institutional strengthening in the DOT and the Ministry of Tourism (MOT) to improve capability for program management; and (iii) implementation assistance, including establishment of the project management unit (PMU), consultants, equipment, logistical support, and incremental operating expenses.   7. Two TAs accompanied the Project. 11  Tourism Development Study provided for the evaluation of a The proposal to establish a cultural display center for tourists in Kathmandu, and the identification of the institutional, operational, and infrastructure requirements for improving tourism-related air services in Nepal. The Environmental Protection Study of Phewa Lake, Pokhara aimed to identify current pollution levels and sources; and appropriate policies, strategies, and measures to control pollution in Phewa Lake.   D. Cost, Financing, and Executing Arrangements   8. The appraised cost of the Project was $14.6 million, of which $9 million comprised local currency costs (Appendix 1). On 16 January 1992, ADB approved a loan from its Special Funds resources of SDR7.611 million, then equivalent to $10.4 million, for the Project. UNDP was to provide parallel grant cofinancing of $3.02 million to cover ongoing technical support which was incorporated under three of the project components. The $1.18 million balance of the project cost was to be financed by the Government. Part of the ADB loan was to be onlent to the King Mahendra Trust for Nature Conservation (KMTNC) to help finance the construction of lodges and alternative energy sources as part of ecotourism development in the Annapurna conservation area.   9. The Execu   t A in u g t   h A or g it e y n   c of y     N w e as DOT. T N h ) e  12 i pmvenedas tch rojePan ,ylem( se)sAIagg cienmeleinntU of , the PM nt ortmecheof ArK TMHT,MeDapCN ,mert ontf ygolOD(  ,)AapeD DOT, Civil Aviation pal (CAA , NA Roads (DOR), and the Department of Housing and Urban Development in association with the Pokhara Town Development Committee. A national Tourism Development Coordination Committee; a field level committee, the Pokhara Tourism Development Committee; a Project Implementation and Coordination Committee; and a PMU within DOT were established to assist implementation.  

                                                           11  TA 1662-NEP:Tourism Development Study, for $295,000, approved on 16 January 1992; and TA 1663-NEP:Environmental Protection Study of Phewa Lake,Pokhara,for $400,000, approved on 16 January 1992. 12  Formerly the Department of Civil Aviation.

 

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E. Completion and Self-Evaluation   10. Implementation was to take five years, commencing in early 1992. However, the Project was completed one year later than expected, at the end of 1997. The project completion report (PCR) was circulated to the Board in April 1999.   11. The PCR describes the Project’s implementation and attempts to evaluate the key expected project impacts. The PCR rated the Project as generally successful. The PCR’s evaluation is weakened by the lack of data to support the estimates of benefits claimed to be already occurring at the time. The lack of supporting data reflects the inadequate database on tourism in Nepal. Without such information, a credible without-project scenario cannot be created and changes in the limited available tourism statistics cannot be attributed to the Project with any confidence. The PCR estimates and conclusions appear optimistic as a result, and a qualified conclusion would have been more appropriate. The PCR’s economic analysis generally follows the methodology used at appraisal, but is not based on credible without-project assumptions and cannot be supported by the OEM.   F. Operations Evaluation   12. This project performance audit report presents an assessment of the Project’s efficacy and efficiency in achieving its purpose, the relevance of the Project to current Government and ADB objectives, other benefits generated, and the sustainability of operations. It discusses issues of current relevance to the sector, and presents lessons learned from the experience. The results and discussion are based on the findings of an OEM to Nepal in March 2000; on a review of the PCR, the appraisal report, ADB files, and government, executing and implementing agency records; and discussions with ADB staff, the Government, the executing and implementing agencies, tourists, and tourist facility operators. Copies of the draft project performance audit report were provided to the Borrower, the Executing Agency, and ADB staff for review and comments. Comments received were taken into consideration in finalizing the report.     II. PLANNING AND IMPLEMENTATION PERFORMANCE   A. Formulation and Design   13. The Project and its design were broadly consistent with the objectives and strategy of both the Government and ADB at the time of formulation, and remained so at OEM. At the time the Project was prepared, Government and ADB support for tourism was not explicitly reflected in planning documents. 13 For example, direct public expenditure on tourism accounted for less than 1 percent of the then Seventh Five-Year Development Plan. ADB strategy statements focused on agriculture and industry, the latter not explicitly covering tourism. The limited direct support to tourism by both the Government and ADB was because tourism was perceived as a private sector activity. Nevertheless, at the time, some people in the Government and ADB were aware that tourism was one of the few areas where Nepal enjoyed a comparative advantage that could be further exploited to increase foreign exchange earnings. Moreover, it was beginning to be realized that the private sector required public sector support for it to be able to take advantage of the potential for tourism. These changes in awareness found expression in the 1992 revision of ADB’s operational strategy for Nepal where tourism’s potential is outlined and its development incorporated as part of the operational strategy. The development objectives of both the Government and ADB as reflected in the new operational strategy also focused on poverty reduction, environmental conservation, and placing production in the hands of the private sector. The Project was designed in accordance with these objectives.   14. With the exception of the withdrawal of UNDP support, the Project was essentially constructed as planned (Appendix 2). A review of the Project’s operations (chapter III) reveals several shortcomings that resulted from design weaknesses and inadequate understanding of their importance at appraisal.                                                              13  The ADB strategy is outlined inAn Operational Strategy of the Bank for Nepal, April 1988.

 

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15. During project appraisal, the marketing of the tourist sites to be improved under the Project, originally included as a component in the design prepared under the SSTA and TA studies, was deleted to the detriment of the Project (para. 27). The reasons for this included government reluctance to use foreign exchange loan funds for such purposes and ADB unwillingness to become involved in supporting the marketing of tourist sites since that was considered a private sector responsibility. Faced with these problems, the Appraisal Mission proposed bilateral aid financing for tourism marketing, but this aid did not materialize. The institutional support that was provided under the UNDP component of the Project was broad in scope and could have been used to overcome this gap in the Project’s design. However, full implementation of UNDP inputs was contingent on renewal of the preexisting agreement between UNDP and the Government shortly after the start of the Project. As it turned out, they did not renew it because of an issue concerning autonomy for NATHM, and UNDP withdrew from the Project. Marketing issues also broadly came under the terms of reference of the project management consultant to be attached to the PMU. However, the input from this consultant was reformulated to fill part of the gap in institutional support to NATHM following UNDP’s withdrawal, and the available resources were insufficient to provide for tourism marketing as well.   16. The Project was intended to enhance public-private sector linkages. However, the private sector did not respond well to the developments under the Project, leading to underutilization of the improved tourist sites (para. 27). Partly, this was because of insufficient consultation between project designers and implementors during the project design stage, partly because of weaknesses within the private sector representative groups involved during project implementation, and partly because of the absence of any direct marketing of the tourist sites. Thus, many private tour operators were unaware of some of the developments, or when the sites were opened, or were skeptical about the ability of the tourist sites to deliver the expected services. In the case of the lodges in the ecotourism area, such skepticism was appropriate as the envisaged trek was impractical (Appendix 2, para. 11). Greater involvement of the private sector in the planning of the developments may have avoided such impracticalities and may have facilitated the inclusion of newly finished sites into tour itineraries as soon as they were ready. A major limitation in the public-private sector linkage appears to be that the private sector was not involved during project design, but only after project implementation had started. In addition, the private sector was involved through the various subsector associations, such as the Hotel Association, the Trekking Guides Association, and the Travel and Tour Operators Association. Although this might be a suitable structure for private sector representation, such organizations are not yet well developed and are subject to bureaucratic inefficiencies and political infighting. Not all members appear to have been equally represented and information does not appear to have been freely shared among all members. Officers with businesses in the Kathmandu Valley dominate the apex organization, and business operators in Pokhara where most of the Project was being implemented are not as well represented. In retrospect, it was unrealistic to expect these private organizations to fulfill their expected roles without first being strengthened. While the intention to build stronger public-private sector linkages was laudable, project preparation and appraisal do not appear to have adequately assessed the capabilities of the private sector organizations, or made adequate arrangements for involving the private sector during the early planning stages.   17. The project component for tourism promotion was not well designed. As envisaged, the availability of information to tourists who had already arrived in the country was to be improved so as to encourage them to visit extra places and stay longer. However, the usefulness of such a service is limited and is beneficial only to tourists who are not on a fixed schedule. Tourists on a fixed schedule constitute a significant proportion of the upper-income non-Indian tourists targeted under the Project. Nevertheless, some demand for the envisaged service exists. The main issue concerns the type of facilities required and where they should be located. Two large buildings were constructed to house information counters as well as offices, auditoriums, shops, 14 cafeterias, and other facilities in locations away from the main tourist centers in Kathmandu and Pokhara (para. 30). The facilities far exceed what is needed and are unlikely to be fully utilized as expected; they are of an overall high standard, even for the areas accommodating “back-office” support services. The locations were selected because large land areas were needed to accommodate the large buildings, and the selected sites were the best large vacant sites available. Separation of the various functions between those which tourists would directly come into contact with and the support services could have led to the former being housed in smaller buildings for which sites closer to the tourist areas might have been found, and the latter being housed in more modest accommodation.   B. Cost and Scheduling   18. The actual project cost was $8.93 million, about 61 percent of the expected amount (Appendix 1). Final works for several subcomponents that were incomplete at OEM will increase the total cost, but this increase is expected to be small. The largest incomplete subcomponent was the TSC in Pokhara. Half the cost underrun was                                                            14 third, modest building of appropriate size was built, not under the Project, but as part of the associated Gorkha palace comparison, a  In rehabilitation project of DOA to provide tourist information services.