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World Bank Assistance for Power Transmission, Municipal Services and Urban Infrastructure

May 10, 2011

WASHINGTON, May 10, 2011 – The World Bank today approved a US$ 63 million assistance package for Nepal to help improve the delivery of basic services and priority infrastructure in select municipalities as well as to construct a transmission line and substations to evacuate power that will be generated in the Kabeli corridor in eastern Nepal.

The Urban Governance and Development Program: Emerging Towns Project will channel municipal grants and provide capital financing for the construction and rehabilitation of socio-economic infrastructure in six participating municipalities – Mechinagar, Dhankuta, Itahari, Lekhnath, Baglung and Tansen.  Additional municipalities may be added at a later stage with the expansion of the project.  The project will also support institutional development activities in the six municipalities as well as three key central agencies – the Ministry of Local Development, the Town Development Fund and the Department of Urban Development and Building Construction.

The Kabeli Transmission Project will construct a 132 kV transmission line that will extend from Kabeli Bazaar in the north of Panchthar district to Damak in Jhapa district, both in eastern Nepal.  Substations will be built in the vicinity of Kabeli Bazaar and at the towns of Phidim, Ilam and Damak.  The project’s location is significant from the perspective of the strategic development of the Integrated Nepal Power System as it will open up the extreme east of Nepal for power sector development and will shorten the distance required to transmit electricity to the country’s main industrial center around Biratnagar. 

“Nepalis are moving in unprecedented numbers from remote villages to small towns and larger cities in search of peace, economic opportunities and social wellbeing,” said Susan Goldmark, World Bank Country Director for Nepal“While this is reshaping Nepal’s economic and human geography, years of under-investment in infrastructure have resulted in low levels of economic development.  Together these two new projects intend to maximize the benefits of urbanization and revive economic activity by removing barriers to growth, particularly the severe under-supply of electricity,” she said.

The Urban Governance and Development Program: Emerging Towns Project will develop transparent rules and provide municipal grants to top up existing fiscal transfers to the participating municipalities in order for them to achieve immediate service delivery improvements and support community development initiatives.  The project will also introduce a rational and transparent system for capital financing of urban infrastructure, embedded within the overall intergovernmental fiscal framework.

“Financing will assist municipalities in developing infrastructure that will lead to improved services and greater socio-economic benefits for residents and businesses,” said Balakrishna Menon Parameswaran, Senior Urban Specialist at the World Bank.

The Kabeli Transmission Project was identified as a priority in the Government of Nepal’s Electricity Management Plan, formulated in response to the dramatic worsening of electricity supply that took place in 2008.  The plan includes a focus on developing new transmission corridors to facilitate the development of new generation projects which require transmission capacity to evacuate their power to the national grid.  The Kabeli Corridor is one of five priority transmission corridors identified in the plan.  The transmission line will facilitate efforts by Nepali private hydropower developers to arrange financing for their projects, as generation projects must have a credible plan for transmitting power before banks will offer financing.

Another objective of the project is to provide access to electricity to communities in the area of the Kabeli transmission line.  Where technically feasible, the grid will be extended to presently unelectrified communities located in the area. Communities for which grid extension is not a feasible option will receive funding and technical support for off-grid rural electrification and other energy services, such as biogas for cooking.

“Experience from similar development projects highlights the importance of sharing benefits with communities in the project zone,” says Michael Haney, Senior Energy Specialist at the World Bank.  “This is particularly important in Nepal today, when expectations of inclusive growth are high.”

The assistance package will be a blend of credit and grants from the International Development Association (IDA), the World Bank’s concessionary lending arm.  Financing for the Urban Governance and Development Program: Emerging Towns Project will comprise US$ 13.75 million in IDA credit and US$ 11.25 million in IDA grant.  Financing for the Kabeli Transmission Project will comprise US$ 27.4 million in IDA credit and US$ 10.6 million in IDA grant.

The credit carries a 0.75% service charge, a 10 year grace period and a maturity of 40 years.

Media Contacts
In Washington
Benjamin S. Crow
Tel : (202) 473 1729
In Kathmandu
Rajib Upadhya
Tel : (977) 1 422-6792