NEPAL

	FY 1998 Actual	FY 1999 Estimate	FY 2000 Request
Development Assistance	$15,600,000	$10,624,000	$14,700,000
Child Survival and Disease	$11,200,000	$ 6,000,000	$ 9,480,000
P.L. 480 Title II	$ 642,000	$ 2,734,000	---

Introduction

Nepal remains one of the world’s poorest countries. Almost half of its citizens live in absolute poverty. While the country is struggling to build a foundation for its nine year old democracy, the government has failed to deliver improvements in the quality of life to ordinary citizens. This has caused cynicism about democracy and fueled an armed, rural-based Maoist insurgency, which is feeding on the low economic growth rates and the unmet needs of the population. USAID supports grass roots development in rural areas and is engaging in policy dialogue with the Government of Nepal (GON) on economic reforms and good governance. Strengthening Nepal's economy and democratic movement should promote regional stability and advance other U.S. national interests, including: democracy and respect for human rights, a sustainable environment, stabilized population growth and improved human health, broad-based economic growth, and more open foreign markets for U.S. investments.

Development Challenge

The Nepal program supports the USAID goals of stabilized world population growth, protected human health and reduced spread of infectious diseases. Nepal's population growth rate is high (2.4% annually). USAID is assisting the GON to expand the availability of quality, voluntary family planning services. As a result, total fertility (the average lifetime births per woman) has declined from 5.1 to 4.6 in five years. Eighty percent of this decline is due to increased use of contraceptives, most of which were provided by USAID. The health of Nepal's population is poor. Infant and maternal mortality rates are among the world's highest. Twelve percent of children born will not reach their fifth birthday (1996 Nepal Family Health Survey). USAID programs that improve the control of diarrheal diseases and pneumonia, and reduce the number of children with vitamin A deficiency, have contributed to the reduction in the under-five mortality rate from 165 to 118 deaths per 1,000 live births in five years. USAID’s HIV/AIDS program focuses on the high-risk behavior groups in Nepal. In addition, USAID supports a program to control infectious diseases, with a focus on vector-borne diseases and antimicrobial resistance, both of which have been increasing. The infectious disease and HIV/AIDS programs have a strong cross-border focus, which strengthens regional cooperation in the health sector.

The USAID agriculture and forestry program is key to broad-based economic growth, a sustained global environment and the promotion of grassroots democratic institutions in Nepal. Agricultural development is the principal engine of growth for Nepal where 80% of the economically active population works in the agriculture sector. The high-value crop model, which USAID pioneered in Nepal, has been formally adopted by the GON and is being replicated by government personnel and other donors. The program is showing phenomenal success as greater numbers of subsistence farmers are increasing their incomes through production of high-value cash crops; last year sales of high-value products increased to $25.1 million, benefiting 210,000 farm families. In forestry, USAID's support to over 1,200 community forestry user groups (representing almost 800,000 beneficiaries) has helped preserve biodiversity, reduce global warming, protect the environment and improve the management of over 100,000 hectares of forest. The value of forest products from USAID-supported community forest areas is becoming an increasingly important source of new income for rural families; these incomes increased by 28% this year. USAID programs will contribute to an increase in forest-based incomes from $3.3 million to $4.5 million by FY 2000.

Women are on the front line of household and community efforts to escape poverty and cope with its impact. Nepali women remain illiterate, under-represented, and unaware of their rights and Nepal's economy continues to suffer the consequences of foregone production, diminished family welfare and rapid population growth. The critical contribution of women to Nepal's economy mandates their empowerment as a crucial element of political, economic and social development. Currently about two thirds of Nepali women cannot read or write. USAID is strengthening women's skills by increasing their literacy and knowledge of their legal rights and providing access to small loans to start businesses. This empowerment provides long-term, inter-generational benefits for Nepali society and reinforces USG efforts to improve democratic processes, support economic growth, secure a stable environment, improve the health of the population, as well as bolster human rights and reduce the endemic problem of trafficking in women and girls.

As home of the Himalayan Mountains and the headwaters of South Asia's major rivers, Nepal has tremendous hydropower potential. Only 1% of that potential has been developed. Power shortages continue to constrain economic development and inhibit foreign investments. The country continues to depend on fuelwood for 85% of its energy needs. In support of USG goals to reduce global warming, secure a stable environment and promote U.S. business interests abroad, USAID assistance is improving the capacity of the GON to administer sound hydropower development and improve the investment climate for private investment. The program is expected to result in GON approval and licensing of hydropower projects with a total value of as much as $475 million. Several U.S. investors have shown interest in this sector (including the single largest U.S. investment in Nepal's history, valued at approximately $95 million). USAID is coordinating its hydropower assistance with the World Bank.

According to the World Bank ¹ , the external deficit of Nepal remains high at 10.3% of GDP (1997), and is fully financed by external aid. USAID is not involved in debt relief in Nepal. However, development assistance funds at current levels will continue to be required for the foreseeable future.

Other Donors

Donor assistance accounts for nearly 60% of the GON's investment budget. Approximately $400 million is provided annually by donors, with the greatest contributions coming from Japan, Denmark, the World Bank, and the Asian Development Bank (ADB). The United States is the third-largest bilateral donor, accounting for about 5% of the total. USAID is a major player in the donor community, chairing several technical sub-groups and taking the lead in policy discussions with the GON in forestry, health, women’s issues, agriculture and hydropower.

FY 2000 Program

Priority investments in high-value agriculture and forestry, family planning and health services, empowerment of women and hydropower development are necessary for Nepal's attainment of broad-based development. These investments will address global issues by promoting democracy and regional stability, protecting the environment, stabilizing population growth, improving child survival and preventing HIV/AIDS. Sustained funding levels are imperative for building on the success of prior USG investment in Nepal.

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 ¹ World Bank Report: Nepal 1997 Economic Update: The Challenge of Accelerating Economic Growth (November 11, 1997).

NEPAL

FY 2000 PROGRAM SUMMARY
(in thousands of dollars)

USAID Mission Director, Ms. Joanne Hale

USAID Strategic & Special Objectives	Economic Growth & Agriculture	Population & Health	Environment	Democracy	Human Capacity Developmnt	Humanitarian Assistance	TOTALS
S.O 1. Increased Sustainable Production and Sales of Forest and High-Value Agricultural Products. - DA	2,000	---	1,000	---	---	---	3,000
S.O. 2. Reduced Fertility and Improved Maternal and Child Health - DA - CSD	--- ---	10,300 9,480	--- ---	--- ---	--- ---	--- ---	10,300 9,480
S.O. 3. Increased Women's Empowerment -DA	500	---	---	400	---	---	900
Sp.O. 4 Increased Private Sector Participation and Investment in Environmentally and Socially Sound Hydropower -DA	---	---	500	---	---	---	500
Totals: - DA - CSD	2,500 ---	10,300 9,480	1,500 ---	400 ---	--- ---	--- ---	14,700 9,480

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ACTIVITY DATA SHEET

PROGRAM: NEPAL
TITLE AND NUMBER: High-Value Agriculture and Forestry, 367-SO01
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $3,000,000 DA
INITIAL OBLIGATION: FY 1992 ESTIMATED COMPLETION DATE: FY 2002

Summary: Eighty per cent of Nepal's 23 million people depend on agriculture, agribusiness and/or forestry for their livelihood. Accelerating agricultural growth is consequently a key component of USAID's strategy for alleviating poverty and facilitating economic development in Nepal. The purpose of this objective is to increase the sustainable production and sales of forest and high-value agricultural products. This will be accomplished by expanding market participation by farmers, traders and entrepreneurs, promoting sustainable management of the productive resource base, and increasing adoption of improved technologies for high-value agriculture.

This objective is closely tied to USG interests particularly in the area of promoting broad-based economic growth through increasing opportunities for disadvantaged groups such as farmers and women. Broad-based economic growth will support democracy as well. The objective also promotes a sustained global environment through programs to reduce forest degradation and to promote biodiversity and conservation.

Approximately 1.2 million people in the Mid-Western and Western Development Regions will directly benefit from this program. People throughout Nepal will benefit from the introduction of improved crop varieties, increased trade, additional off-farm employment opportunities, and increased access to high-quality/lower-cost agricultural products. Women beneficiaries make up over 46% of the participants in the high-value agriculture program and 80% of the participants in the community forestry program. USAID also will improve the nutritional status of women and preschool children in western Nepal as part of a new initiative to link nutrition with increased production and consumption of high-value, micro-nutrient-rich foods.

Key Results: Two results will indicate that this objective has been achieved: 1) the production of forest and high-value agricultural commodities in targeted areas should increase from 21,428 metric tons (1993) to 170,000 metric tons by 2002; and 2) annual sales of forest and high-value agricultural commodities in targeted areas should increase tenfold from $3.2 million (1993) to $32 million by 2002. Other results will indicate progress towards the objective, including: a) community forest user groups supported by the USAID program will increase from 586 (1995) to 1,900 by 2002, b) land turned over to these user groups will increase from 37,754 (1994) hectares to 150,000 hectares by 2002; c) the amount of land turned over to water user groups, supported by USAID, will increase from 4,000 hectares (1994) to 10,724 hectares by 1998 (end of activity); and d) the number of buffer zone conservation committees sharing in national park revenues will increase from 0 (1997) to 50 by 2002.

Performance and Prospects: Performance over the past year has been good. However, excess rainfall has affected some results and the rural-based Maoist insurgency has caused USAID to relocate some activities to safer areas. In 1998, the production of high-value agriculture and forest products increased by 15% from 200,000 metric tons in 1997 to 230,000 metric tons while sales increased by 28% to $25.1 million. Prospects are favorable for even greater contributions to an increased standard of living in rural areas, provided funding levels are maintained.

USAID works primarily with non-government organizations (NGOs), private firms and GON counterparts. Community groups are given training and technical assistance, which increases their capacity to help themselves. Increased incomes from community forests and high-value crop production systems are now being used to build roads, potable water systems, and schools and to undertake other types of self-help development activities. Knowledge of improved technologies is increasing production and the competitiveness of Nepalese farm and forest enterprises in both local and export markets.

USAID's forestry and irrigation activities have succeeded in privatizing more than 120,000 hectares of forest and irrigated land. In 1998 irrigated areas turned over to private water user associations increased by 33% from 10,300 hectares to almost 14,000 hectares. Over 23,500 hectares of additional national forest was turned over to community forest user groups. The transfer of this land to private user groups is a landmark event in Nepal's history. It demonstrates the Government's acceptance of the need for productive resource management by the private sector; builds the confidence of rural citizens in their own ability to manage resources; provides good examples of grass roots democracy; and demonstrates that democratic government can effectively and tangibly address the needs of its poorest citizens.

USAID assistance has helped to create market linkages for new technologies that improve production and identified markets for forest and high-value agricultural products in Nepal and the South Asia region. At the national level, USAID is continuing to support development and adoption of export-oriented trade policies and implementation of natural resource legislation which expands community, and private management of forest and water resources.

Possible Adjustments to Plans: Due to Maoist activities in five mid-western hill districts during the spring of 1998, USAID funded agriculture extension advisors were temporarily relocated to six districts in the western hills and Terai. While this precautionary action was initiated for security reasons it has, in effect, expanded USAID's high-value agriculture model to additional districts. While agricultural productivity and sales may be slightly reduced during this transitional period it does not appear that the program or its targets will be greatly affected in the long term.

Other Donor Programs: Donors are now expanding USAID’s high-growth model into new geographic regions and further supporting the development of a policy environment which promotes the commercialization of agriculture. A consortium of donors, led by ADB and USAID, participated in developing Nepal's principal agricultural planning document, the Agriculture Perspective Plan, and is now coordinating with the GON to implement the 20-year plan. The high-growth agriculture model is being employed by the British Department for International Development in eastern Nepal, and by German Technical Aid and the Swiss Development Cooperation in central Nepal, and Denmark in western Nepal. USAID's efforts to strengthen the GON's capacity to provide extension services and support the transfer of government irrigation systems to private water user groups complement similar efforts by the World Bank and the ADB. The two banks also fund large infrastructure and rural roads programs that are improving the profitability of rural enterprises and complementing USAID's efforts to strengthen producer associations, increase agricultural exports and support agribusiness development. USAID is an important donor in establishing community based forest management.

Principal Contractors, Grantees or Agencies: Current partners include: the GON Ministry of Agriculture, the GON Ministry of Forest and Soil Conservation, Winrock International Institute for Agricultural Development, Chemonics International, Canadian Center for International Studies and Cooperation, World Wildlife Fund, and CARE.

Selected Performance Measures:

	Baseline (1993)	Target (2000)	Target (2002)
Production of forest and high-value agricultural commodities (metric tons)	21,428	130,000	170,000
Annual sales of forest and high-value agricultural commodities ($000)	3,200	30,000	32,000

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ACTIVITY DATA SHEET

PROGRAM: NEPAL
TITLE AND NUMBER: Reduced Fertility and Improved Maternal and Child Health, 367-SO02
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $10,300,000 DA; $9,480,000 CSD
INITIAL OBLIGATION: FY 1996 ESTIMATED COMPLETION DATE: FY 2002

Summary: According to the 1996 Nepal Family Health Survey, which serves as the baseline for major activity results, under-five mortality was 118 per 1000 live births, fifteen times U.S. levels. Total fertility was 4.6 children per woman while the women’s stated desired family size was only 2.9 children. Nearly 29% of women were using modern contraceptives, but there was a substantial unmet demand: 31% of women who wanted family planning were not using contraceptives. The population growth rate of nearly 2.4% means that Nepal’s population will double in only 29 years. Clearly, Nepal cannot sustain this level of growth without disastrous socioeconomic consequences. HIV/AIDS appears to be increasing steadily and high-risk behaviors are widespread among certain population groups. Vector-borne diseases and antimicrobial resistance are also on the rise. In short, fertility and mortality are both much too high, placing women and children at substantial risk of death and disease, significantly reducing Nepal’s human resource potential and impeding development efforts. Weak health institutions, a difficult geographic setting and many social barriers to improved health practices further complicate the situation.

This objective supports the global goals of stabilized world population growth, protected human health and reduced spread of infectious diseases. Its major purpose is to reduce fertility and improve maternal and child health. This will be accomplished by expanding the use of quality voluntary family planning (FP) services, increasing selected maternal and child health (MCH) services, increasing HIV/STI (sexually transmitted infection) prevention and control practices among high-risk groups, and strengthening capacity and control of selected infectious diseases (especially vector-borne diseases and antimicrobial resistance). The beneficiaries of USAID’s family planning/reproductive health program potentially include the entire population of women (15-49) and men of reproductive age – more than 11 million people of which at least four million will be contraceptive users. Child health activities will reach about 90% of children under five (about 3.5 million children).

Key Results: Two major results will indicate that this objective has been achieved: 1) total fertility rate should continue to drop from the 4.6 baseline (1996) to 4.0 children per woman by 2002; and 2) under-five mortality rate should decline by an additional 35 percent, from 118 to 85 per 1000 live births by 2002.

Performance and Prospects: USAID assistance is delivered through an integrated program of bilateral and centrally funded support working with the GON, non-government organizations (NGOs) and the commercial private sector. Technical assistance and local cost funding are provided to the Ministry of Health to strengthen policies and procedures to improve the delivery of selected high-impact child survival interventions, to strengthen capacity in selected infectious diseases and to support an integrated logistics management system, family planning and reproductive health training programs and the FP/MCH service delivery system. USAID also focuses on increasing awareness and use of FP/MCH, HIV/AIDS and STI services through effective communications and counseling.

Building capacity and programs to control vector-borne diseases began in 1998 and includes institutional strengthening at the USAID-built Vector Borne Disease Research and Training Center, including the capacity to assess, monitor and develop disease-control strategies. At the same time, USAID is helping to establish a much-needed system for surveillance of antimicrobial resistance. Both the infectious disease and HIV/AIDS programs include regional activities aimed at sharing information and coordinating cross-border prevention and control.

USAID also supports a private, non-profit Nepali company that markets contraceptives and health products, accounting for 40% of the distribution of oral contraceptives and condoms in Nepal. USAID provides the majority of the contraceptives to Nepal for distribution by the GON, private commercial outlets and NGOs.

A network of U.S. and Nepali NGOs provides community-based health and FP services in 23 of Nepal’s 75 districts. Female community health workers and community members participating in health education and adult post-literacy classes provide information and community-level services for diarrheal diseases, pneumonia, vitamin A deficiency, child spacing, safe birthing practices and HIV/AIDS. This provides the basis for long-term sustainability of changed health behaviors.

Short-term progress in this objective appears promising. For example, in 1997, contraceptive use increased by 16%, while consistent condom use among commercial sex workers more than doubled. In addition, the USAID-supported vitamin A program currently is estimated to be preventing 25,000 child deaths per year.

Possible Adjustments to Plans: None.

Other Donor Programs: USAID is the lead donor for family planning and the only donor supporting private sector FP services. It is also a major contributor to selected MCH programs (vitamin A, diarrheal disease control, and pneumonia). In addition, USAID is the chief donor supporting the private sector to deliver interventions to combat HIV/AIDS and other sexually transmitted infections. The United Nations Children’s Fund assists with the national immunization program, control of diarrheal diseases, pneumonia, vitamin A capsule supply and nutrition. The British Department for International Development and the German aid agency GTZ share with USAID the main responsibility for ensuring contraceptive supply. The United Nations Population Fund provides the balance of the contraceptive supplies, promotes population awareness, and supports family planning and safe motherhood programs. The World Bank supports construction and renovation of health facilities and warehouses. The World Health Organization works with USAID to strengthen surveillance capacity in vector-borne diseases. USAID also collaborates with the Joint United Nations Program on HIV/AIDS and with GTZ to develop district-level systems to improve the use of antimicrobial drugs. Host country contributions include procurement of some essential drugs and vaccines, payment of staff salaries and facility maintenance. Resources directed towards this objective from the GON and donors approximate $60-65 million annually; USAID’s contribution is about 20-25% of the total.

Principal Contractors, Grantees, or Agencies: USAID works with a wide network of contractors, grantees and other agencies. These include the Centers for Disease Control and Prevention, a range of international NGOs and private sector firms, including Save the Children, The Asia Foundation, CARE, the Adventist Development and Relief Agency, John Snow, Inc., Family Health International, Johns Hopkins University, the Association for Voluntary and Safe Contraception, the Center for Population and Health Activities, Management Sciences for Health, Camp Dresser & McKee, the Center for Health and Population Research, and Deloitte Touche Tohmatsu.

Selected Performance Measures:

	Baseline	Target (2000)	Target (2002)
Total fertility rate	4.6 (1995-96)	4.2	4.0
Under-five mortality rate per 1,000 live births	118 (1993)	92	85

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ACTIVITY DATA SHEET

PROGRAM: NEPAL
TITLE AND NUMBER: Increased Women's Empowerment, 367-SO03
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $900,000 DA
INITIAL OBLIGATION: FY 1995 ESTIMATED COMPLETION DATE: FY 2000

Summary: The purpose of this SO is to enable women to improve their own well-being and that of their family and community by offering them an integrated package of literacy, income generating opportunities, and legal rights and advocacy training. The direct beneficiaries of achieving Phase II of this objective will be 100,000 women in 21 districts who are participants in the program. These women will become literate, learn about their legal rights, and use newly learned economic skills to increase their household incomes by creating small businesses. The indirect beneficiaries are nearly one-half million family and community members who’s well being will be improved as a result of this program.

In 1995 when USAID began work on this objective, almost 80% of Nepali women could neither read nor write (1991 Nepali Census). Women work on average three hours longer per day than do men, but only 48% of rural women, compared to 70% of rural men, were reported as economically active. While the Nepali Constitution contains guarantees for women, women remain largely unaware of their human or legal rights and participate little in the democratic process. USAID’s women’s empowerment program provides a road map out of poverty for rural Nepali women, their families and communities.

Empowering women intrinsically ties this objective to U.S. national interests. The involvement of women in political life promotes democracy and good governance. Women’s increased awareness of their rights as human beings will help to reduce problems of women and girl trafficking, as well as eliminate impediments to economic growth such as unchecked population increases. Women’s increased involvement in economic life supports broad-based economic growth for the country as a whole with long-term economic impact.

Key results: Phase II of the program will provide: 1) 120,000 women with literacy skills; 2) 108,000 women with legal rights awareness and advocacy skills; 3) 101,000 women with access to savings and credit services; and 4) 81,000 women with the business skills to increase their contributions to household income.

Performance and Prospects: Performance over the past year has been slightly under projections. The move to establish two new implementing partners, set up field offices, put in place a baseline and a management information system, and start implementation has taken longer than expected. Two implementing organizations, Private Agencies Collaborating Together (Pact) and The Asia Foundation (TAF), are held mutually responsible for the end results of this objective. These organizations have put in place a shared management information system and have established three shared regional offices. They have hired 700 empowerment field workers who will be the front line contact with the women's groups. Pact created a new three-month empowerment literacy package including empowerment messages to reinforce the purpose of this objective and created post-literacy microfinance and microenterprise materials. TAF totally revised its legal rights and advocacy curriculum to emphasize decision-making and post-literacy skills practice. It also broadened the traditional coverage to include issues of economics and law relevant to microfinance and microenterprise (e.g., interest rates, contracts, and fraud). The two implementing organizations have contracted with 90 Nepali non-governmental organizations to implement integrated literacy, legal rights and savings and credit interventions. Empowerment literacy training, the first step of the program, has begun for an additional 89,000 women. The post-literacy legal rights training begins when the women complete their literacy training.

Two other organizations, Save the Children and the Canadian Center for International Studies and Cooperation (CECI), implement supportive economic opportunity activities. The number of rural women having access to microfinance services and income generating activities increased by 11,500 in 1998. These activities are increasing the outreach and sustainability of NGO Grameen banks in Nepal, federating small savings and credit groups of women into sustainable cooperatives, and are supporting profitable microenterprises. At the national level, a Center for Microfinance has been established with USAID funding to promote best practice microfinance through training, research and seminars, donor coordination and policy reform on financial intermediation.

Possible Adjustments to Plans: Management decisions regarding budget, targets and timeframe options will affect the future of the objective. Additional time and resources may be needed to meet the objective’s targets given the current implementation structure.

Other Donors Programs: USAID has become the recognized leader in supporting empowerment of Nepali women. UNICEF programs target women for health, water, education, and advocacy. The USAID-funded Center for Microfinance is widely recognized as a national resource center for microfinance information and training, regularly contacted by other donors and the National Bank, and consulted on such issues as the design of a comprehensive new initiative by the Asia Development Bank on microcredit for women, and regional World Bank initiatives.

Principal Contractors, Grantees, or Agencies: Current grantees are Pact, TAF, Save the Children, and CECI.

Selected Performance Measures:

	Baseline	Target (2000)
Women who are literate at a basic level (in SO3–sponsored program)	0(1994)	*550,000
Women who know their basic legal rights	325(1994)	*194,000
Women becoming active members of savings and credit groups	11,037 (1996)	101,000
Women saving and credit group members who begin or expand microenterprises (cumulative)	0(1996)	81,000
*cumulative numbers since 1994

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ACTIVITY DATA SHEET

PROGRAM: NEPAL
TITLE AND NUMBER: Increased Private Sector Participation and Investment in Environmentally and Socially Sound Hydropower, 367-SO04
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $500,000 DA
INITIAL OBLIGATION: FY 1998 ESTIMATED COMPLETION DATE: FY 2001

Summary: The USAID-funded "Nepal Hydropower Strategy and Options" assessment, completed in 1992, was the first major review of the potential for private hydropower development in Nepal. It led to a new GON commitment to attract private U.S. and other international investment. Since then USAID has been helping to increase the GON’s capacity to implement a successful private hydropower development program by providing training and technical assistance. Tremendous strides have been made during the last two years and Nepalese counterparts frequently acknowledge USAID's many important contributions toward development of a policy and regulatory framework for private development of Nepal's hydropower potential. The purpose of this special objective is to help the GON improve the policies and procedures for hydropower investment and strengthen local capabilities to ensure that investments are environmentally and socially sound.

This special objective supports the USG goals of reduced global warming and a sustainable world environment. Hydropower development provides a clean, renewable, and environmentally friendly source of power to an energy hungry region while promoting U.S. business. At the same time, hydropower development would reduce Nepal’s dependence on foreign donors, improve the quality of life in Nepal, and strengthen regional cooperation. Currently, only 16% of Nepal's 22 million people have electricity. The principal beneficiaries in Nepal will be the millions of people, in thousands of rural communities, who will receive dependable, clean electricity.

Key Results: Two key intermediary results will indicate that this objective has been achieved: 1) improved policies and procedures for hydropower investment in order to increase the number of private sector companies progressing towards hydropower development from 2 (1997) to 5 in 2001; and 2) strengthened local capabilities so that private financial commitments for environmentally and socially sound hydropower investment increase from $238 million (1997) to $475 million in 2001.

Performance and Prospects: USAID has played a critical role in leveraging several hundred million dollars of private and other donor investments in hydropower development, including $98 million for the Bhote Koshi Project ($95 million of this was invested by Panda Energy International, Inc. of Texas and Harza Engineering of Chicago making this the single largest American investment in Nepal) and $138 million for the Khimti Khola Project (a Norwegian investment). Recognizing that continued assistance was needed in this sector to build on prior USG investments, USAID signed a three-year $4.3 million Hydropower Special Objective Agreement with the GON in December 1997. Implementation progress in 1998 was satisfactory despite issues resulting from the frequent changes in Government and delays in approval of the World Bank's new Power Development Fund (PDF). Nevertheless, several important milestones were achieved. For example, the GON approved agreements to construct two additional hydropower plants valued at $40 million which will produce an additional 25 megawatts (MW) of power; three additional environmental and social impact assessments were concluded using the new, more rigorous evaluation methodologies developed with USAID assistance; and one public hearing was held to present a new hydropower proposal to local stakeholders.

Nepal currently cannot meet even its relatively low peak electricity demand of 308 MW. Nepal has no indigenous supplies of fossil fuel, but does have significant hydrologic resources. Nepal has roughly 83,000 MW of hydropower potential, half of which is economically feasible for development. At present less than 1% of these resources are being used. Nepal's demand for power is outstripping supply by more than 30 MW (8.3%) per year, and the domestic energy demand is expected to nearly double to 571 MW by 2005. India and China provide natural markets for Nepal's excess hydropower and are both experiencing critical energy shortages; further they currently rely on environmentally unsound means of generating power.

To help Nepal tap this tremendous potential USAID will provide assistance to the GON's Electricity Development Center to 1) improve the "one window" facility for investment; 2) monitor investor compliance with social and environmental mitigation requirements; 3) increase use of competitive contracting procedures; and 4) improve Nepal's capacity to negotiate and sign equitable power purchase agreements and power supply contracts with international and local private power developers. To bolster environmental and social soundness of hydropower investment, USAID will strengthen local capability to conduct social and environmental impact assessments. The program will also encourage more public hearings in the investment process, thereby improving transparency and assuring that needs of local residents are heard and addressed.

The USAID activity also includes a U.S. Energy Association (USEA) partnership program through which USEA will help U.S. utility companies develop long-term cooperative relationships with the Nepal Electricity Authority and in the future with Nepal’s first private utility company. This will promote the transfer of the U.S. energy industry’s best technologies to the Nepali utilities as well as provide long-term business opportunities to U.S. companies.

Possible Adjustments to Plans: None.

0ther Donor Programs: USAlD has participated substantively in discussions with the World Bank and the GON regarding the World Bank's new Power Development Fund (PDF) which will be in place in 1999. USAID consultants drafted the implementation guidelines for the PDF, the model Request for Qualifications and other PDF design documents. The PDF and the USAID program will be mutually supportive in the development of hydropower in Nepal. The PDF will provide $175 million in funds - $100 million to leverage private investments at an expected ratio of 3:1 and $75 million to improve Nepal's power transmission and distribution system. The Asia Development Bank also provides financing for hydropower projects. The United Nations Development Program and GTZ (German Aid) implement projects to promote development of micro and medium scale hydropower projects. NORAD (Norwegian Aid) is also involved in the sector.

Principal Contractors, Grantees, or Agencies: Current partners are the Ministry of Water Resources (Electricity Development Center) and International Resources Group, Ltd.

Selected Performance Measures:

	Baseline (1997)	Target (2000)	Target (2001)
Private sector companies progressing toward hydropower investment	2	4	5
Private financial commitments for environmentally and socially sound hydropower investment ($million)	238	400	475

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