The Asian Development Bank (ADB) has remained Nepal’s key development partner since 1966. Over these years, the Manila-based multilateral lending institution has provided assistance totalling $5.25 billion. The ADB’s current portfolio in Nepal consists of 35 projects. However, some of its flagship projects, like Melamchi Drinking Water Project and Gautam Buddha International Airport in Bhairahawa, have long been delayed. Rupak D Sharma of The Kathmandu Post met with ADB Vice President Wencai Zhang during his recent visit to Nepal to discuss these issues and the new country partnership strategy that the multilateral lender is drafting. Excerpts: 

You met with the prime minister and the finance minister during your latest visit to Nepal. What issues were discussed?

Discussions were primarily held on the new federal structure, current economic situation and challenges and opportunities facing the country. Discussions were also held on ways the ADB can lend support to introduce reforms in various sectors and levels, and promote socio-economic development. We also talked about ways to enhance the capacity of local bodies for effective delivery of public goods and services. Also, issues such as modernisation and commercialisation of the agricultural sector, physical infrastructure development, job creation, skills development, fostering growth in the manufacturing sector, regional integration, climate change and natural disaster management were covered during the meetings. Nepal will need huge financial resources going forward to implement federalism. The ADB is willing to scale up lending to Nepal and mobilise more resources to meet the country’s growing financial needs.

Nepal has started facing financial problems since it embraced federalism, as it had to provide huge amount to local bodies. It has now sought budgetary support from multilateral lenders like the ADB and the World Bank. Was this issue raised during the meetings?

The transition to federalism offers a unique opportunity to Nepal to bring about economic and social transformation. The new structure and system also bring the government closer to the people, and, if managed properly, will help the government deliver better services to everyone, especially to the poor and the vulnerable, with greater accountability. However, the federal structure is an expensive system at least in the beginning, but it can be managed and sustained. The best way to go about this is to utilise the available fiscal space in the best interest of the country and to raise productive capacity for long-term development. While there are different models of fiscal decentralisation, Nepal must choose the one that best suits its context and needs. ADB will fully support Nepal’s transition to achieve inclusive development and higher economic growth. 

There are also fears lack of capacity at the local level may hit service delivery. How can this problem be addressed?

ADB’s ongoing projects on urban development, irrigation and education at the local level will definitely help local communities and municipalities to cater to the needs of people. But there is a need to roll out new projects to enhance capacity at the local level. Also, infrastructure, like roads, needs to be built at the local level to integrate local communities and bodies. We can also tailor comprehensive training programmes for federal and provincial officials to build capacity. 

I did discuss these issues with the finance minister during our meeting. We can work on this.

How does the ADB intend to work with different tiers of government in the new federal setup?

The Ministry of Finance will be the focal agency for ADB’s entire operation in Nepal. The ministry will provide us the window to implement our programmes and projects throughout the country. At the same time, we will also work with other ministries and local and provincial governments. So, we will coordinate with all tiers of the government to design, implement and monitor projects. 

The ADB is soon launching a new country partnership strategy. Could you please shed light on features of the new strategy and funds required to implement programmes incorporated in the strategy?

The ADB is formulating a new country partnership strategy (CPS) for Nepal covering a 5-year period from 2020 to 2024. It will be approved in 2019. The CPS will take into consideration development challenges in Nepal, the strategic objectives and priorities of the government, other development partners’ support to the country, and the best use of ADB’s limited resources. Substantive consultations will be held with government agencies at the central, provincial and local levels, international development partners, civil society, and the private sector. The ADB’s assistance to Nepal has increased in recent years following improvement in implementation of ADB’s portfolio. The committed resources for ADB projects in Nepal stood at $510 million in 2017, up from an annual average of around $300 million per year during the 2014-2016 period. The ADB is planning to disburse $592 million in 2018. The resource in 2019 and beyond will depend on country performance assessment and overall performance. But we are hopeful that the envelope will be larger. 

What areas will the new country partnership strategy prioritise?

ADB’s priority areas are energy, transport, urban development, human capital, and agriculture transformation. Addressing gender and social exclusion, wide socio-economic and interregional disparities, poor governance, and environmental sustainability, including adaptation to climate change and resilience to disaster risks, are also ADB’s priorities. The ADB will support the development of human capital through its support to schools, mainly infrastructure, teacher training, curriculum development, and regulatory and institutional reforms, and the skills development project. The ADB sees energy development as a strong engine of growth, driving industry and commerce as well as improving people’s quality of life. The transport sector, too, remains important as connectivity within the country and with the regional and global markets is essential for trade, tourism, and access to health and education services. As fast-increasing urban population puts increasing pressure on basic services, the ADB will build drinking water projects and also support construction of roads, drainage, and sanitation facilities. The ADB is also helping upgrade airports, essential to both trade and tourism. We will also try to help the government to rope in the private sector investment in infrastructure development.

Is the ADB planning to scale up support for the private sector as well?

The country needs more private sector investment, including foreign direct investment, to diversify its economy and bridge financing gaps, especially in infrastructure projects. Our 2030 strategy, which is being formulated, underscores the need to further expand private sector operations. In the coming years, we will engage more with the private sector to respond to changing needs of the country. We will also scale up support for public-private partnership projects.

The completion deadline of one of ADB’s flagship projects, Melamchi Drinking Water Project, has been postponed time and again. It is now being said Melamchi River’s water will start flowing through taps of Kathmandu Valley beginning December. Will this deadline be met?

The ADB has persisted with the Melamchi Water Supply Project because it is an important project for Nepal and its people. Melamchi is the only economically-viable long-term approach to solve the Kathmandu Valley’s acute water crisis. The government has shown strong commitment to complete the Melamchi project. This is evident through the progress on important sector reforms to ensure sustainable service delivery. Progress seen in construction of tunnel and water treatment plant, and setting up of the distribution system also demonstrate government’s strong commitment to complete the project. Distribution of water, I understand, will be in phases and it may take some time for water testing to complete to ensure quality. Implementing a project of such a size and scope will no doubt pose challenges. But the benefits that the people of the Kathmandu Valley stand to gain are certainly worth this effort. If everything goes according to schedule, Kathmandu residents will start getting water on their tap by the end of this year.

It is said that the second water treatment plant, under the Melamchi Drinking Water Project, is yet to be built in Sundarijal. Will this affect supply of drinking water in Kathmandu Valley?

I understand there will be enough water available for testing and putting the system into operation. So, this should not affect the supply. 

Another flagship project of the ADB, Gautam Buddha International Airport, has also been delayed. But after the change in management of the Chinese company hired to build the airport, work seems to have gathered pace. Are you happy with the ongoing progress? And will the ADB continue funding the project? 

The progress of the project has been slow, and we had expressed our concern to the government. The government has taken this in a positive way and has shown strong commitment to expedite the physical progress. The Gautam Buddha International Airport [located in Bhairahawa] is a national pride project and key to developing Nepal’s vast potential for tourism. If the recent progress is sustained, the ADB will consider positively to continue supporting this very important project.

It is said India is yet to agree on the air route proposed by Nepal for movement of flights to and from Gautam Buddha International Airport. Will this affect movement of flights after completion of the airport?

We have been informed that the government has initiated talks with their counterpart in India and they are confident that the proposed air route will be confirmed before the completion of the airport.

Why do ADB’s projects in Nepal progress so slowly?

Projects in Nepal face challenges due to the mountainous topography, the remote location of many communities, and limited human resource capacities. Startup delays and low disbursement are a major concern. The speed and quality of implementation needs to be improved to achieve results. But the situation is improving, and the overall performance in disbursement has improved significantly in recent years. The government awarded ADB-funded project contracts worth $435.9 million in 2017 and disbursed $275.4 million to ADB-funded projects. These results are historically the best in Nepal for the second year in a row. The ADB and Nepal continue to focus on three ways to improve implementation: better project readiness at start up; faster and more efficient procurement process; and stronger contract management and project supervision.