Transport Project Preparatory Facility (RRP NEP 43216)

SECTOR ASSESSMENT: TRANSPORT

A. Sector Performance, Problems, and Opportunities

1. Introduction

1. Nepal is a landlocked Himalayan country bordered to the north by the People’s Republic
of China, and to the south, east, and west by India. The country is commonly divided into three
physiographic areas with dramatic differences in elevation: the mountains in the north, hill and
Siwalik regions in the middle, and the Terai (southern lowland plains) bordering India. There are
75 districts clustered into 14 zones, which are grouped into five major development regions.
Because of its mountainous terrain and difficult weather conditions, roads and aviation are the
major modes of transportation in the country. The presence of railways is negligible. The
country uses India’s eastern port of Kolkata as its gateway to the sea. High transport costs and
poor connectivity are major impediments to achieving one of the country’s major development
goals—regionally balanced economic growth and reduced social inequalities.

2. Road Subsector

2. Network and traffic. The current road network consists of about 18,500 km of roads,
comprising the 7,500 km strategic road network (SRN) of backbone national and feeder roads
connecting district headquarters, and 11,000 km of local and rural roads.1 The network density
is low at 14 km per 100 square km and 0.71 km per 1,000 people.2 Due to mountainous terrain
in the north, more than 60% of the network is concentrated in the lowland (Terai) areas.

3. The number of motor registrations has increased from 263,516 in 2000 to 432,264 in
2005 and 896,332 in 2009, which is about a 13% increase per year on average. About 70% of
the registered motor vehicles are motorcycles. Excluding motorcycles, about 60% are cars,
jeeps, and vans, and the rest are buses and trucks. According to World Bank estimates, the
major traffic flows are concentrated in the central region and, specifically, on the routes between
Kathmandu and the Indian border. Traffic volumes are also generally higher in the east of the
country than in the west. Traffic flow on the East–West Highway is between 2,000 and 3,000
vehicles per day in the east, between 3,000 and 4,000 in the center, and less than 2,000 in the
west. With few exceptions, traffic volumes on hill roads are less than 500 vehicles per day.

4. About 78% of the population is within walking distance of paved roads of 4 hours or less
in hill areas and 2 hours or less in the Terai. Of 75 district headquarters, six are not connected
to the SRN. In the remote hill and mountainous districts, poor conditions and low density of road
networks hamper the delivery of social services and access to shops, markets, schools, and
hospitals. Poor connectivity is limiting opportunities for non-agricultural employment and
incomes.

5. Operations and management. The National Planning Commission sets overall

development objectives and coordinates the investment programs of external agencies and
government agencies. The Ministry of Physical Planning and Works is responsible for planning
and formulating policies, managing all land transport facilities, including the SRN. The Ministry
of Local Development is responsible for the rural roads network.

1
Of which 7,000 km are only partially accessible during the monsoon season.
2
By comparison, regional figures in terms of km/1,000 people are Bhutan 6.5, Sri Lanka 4.7, India 3.0, and
Bangladesh 1.9.
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6. Within the Ministry of Physical Planning and Works, the Department of Roads (DOR) is
responsible for network planning, design, construction, and maintenance of the SRN, and
municipalities are responsible for urban roads. The Department of Transport Management
within the Ministry of Labor and Transport Management is responsible for regulating road
transport, including vehicle registration and licensing. The Department of Local Infrastructure
Development and Agricultural Roads, within the Ministry of Local Development, is responsible
for coordinating and facilitating the rural infrastructure development process throughout the
country and for providing technical guidance and support at the local level.

7. Maintenance financing. The Ministry of Finance through the Roads Board Nepal (RBN)
and DOR provides funds for the maintenance of the SRN. Since its establishment in 2003, the
RBN approves the annual road maintenance plan of the DOR and controls the budget out of the
funds it receives. The DOR remains the planning and implementation agency for maintenance,
and uses other funds, such as direct allocation by the government and through externally funded
projects. RBN funding is sourced mainly from fuel levies, vehicle registration fees, and tolls, and
the revenues are used to maintain all roads. The RBN received NRs760 million from the Ministry
of Finance through the Ministry of Physical Planning and Works for 2007/08. Adding the toll fund
received, the total fund resources is NRs832 million. Of this, NRs640 million was allocated for
SRN roads, NRs118 million for urban roads, and NRs137 million for district roads. It is estimated
that sufficient revenues can be raised from the fuel levy, vehicle registrations and toll collection to
carry out road maintenance in a sustainable manner.

8. Institutional capacity. Substantial efforts have been made through partnerships

between the government and various external funding agencies to help DOR improve its road
management capacity, planning and monitoring capability, and environmental and traffic safety
practices, and control of overloading. DOR has been able to develop and improve its basic
capabilities to better manage the road capital and resources allocated to the sector.

3. Air Transport Subsector

9. Air transport network and traffic. Civil aviation in Nepal plays a vital role in linking the
remote areas in hilly and mountainous parts of the country that are otherwise inaccessible by
road, and is crucial to the growth of trade and tourism in the country. Nepal has 47 airports,
comprising one international airport—Tribhuvan International Airport (TIA) in Kathmandu—four
regional airports (Bhairawa, Biratnagar, Nepalgunj, and Pokhara), and 42 other small domestic
airports and short take-off and landing strips. The volume of air traffic in terms of air passengers
has increased considerably over the past 20 years (1990 to 2010), with annual growth rates
varying from 7% to more than 17% per annum. In 2007 and 2008, strong growth in excess of
12% per year was recorded for passenger traffic and 7% in aircraft movements. International
and domestic passenger traffic volume at TIA is forecast to increase from 2.8 million in 2008 to
4.6 million passengers annually by 2013 and to 9.3 million passengers by 2028.

10. Capacity and safety. At the country's only international airport (TIA), airside facilities,
runways, taxiways, aprons, and communication navigation surveillance equipment are not fully
compliant with international safety standards and recommended practices. The international
terminal building is nearing its passenger-handling capacity and the domestic terminal building
is operating beyond its capacity. Of the 42 domestic airports, only 27 are operational. Most of
the short take-off and landing strips in remote areas are unpaved, have no terminal facilities,
and lack modern communication, navigation, and weather equipment. Sustained improvements
and upgrading are necessary to facilitate a safe and reliable air transport system, which is vital
to achieving the government's tourism development targets.
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11. Institutional capacity. The Civil Aviation Authority of Nepal (CAAN) is responsible for
the administration of civil aviation and is essentially functioning well. However, further
institutional enhancement, especially in its operational efficiency and management capacity, is
necessary to effectively handle the expected demand of greater air transport traffic in the
medium term.

4. Subregional Road and Air Connectivity

12. The South Asian Association for Regional Cooperation (SAARC) Regional Multimodal
Transport Study3 has identified priority corridors in Nepal, which include four road corridors, two
rail corridors as railheads, and one aviation gateway at TIA in Kathmandu for SAARC trade. The
Bay of Bengal Initiative for MultiSectoral Technical and Economic Cooperation (BIMSTEC)
Transport Infrastructure and Logistics Study4 identified issues and provided the policy
framework and strategies for governments to pursue development of regional cooperation and
integration transport projects in a collective manner. From a regional integration and
cooperation perspective, Nepal’s overseas trade infrastructure and administration mainly
focused on improving customs procedures, as well as infrastructure and trade transit with India.

13. Road congestion is growing at the borders as traffic volumes rise. Transit via India faces
constraints from poor roads, especially those leading to the Indian state of Bihar. Necessary
requirements to improve subregional connectivity and gain access to regional and national
markets include improving the main corridors connecting to the border, upgrading trade
facilitation and logistics (such as customs procedures and automation), removing restrictions on
rail traffic, and reducing delays at Kolkata port in India.

14. With dynamic growth in subregional air traffic, the government has recently signed new
bilateral air service agreements with India, substantially increasing available seat capacity.
There is healthy potential for increased volume of air cargo freight and cost reductions. The
potential constraint is an acute capacity constraint at TIA in Kathmandu, limiting the potential
volume of aircraft movements.

B. Government’s Sector Strategy

15. The importance of the transport sector has been recognized and highlighted in several
key national plans and strategies. The government’s Three Year Interim Plan (FY2007/08–
FY2009/10) has emphasized the role of roads, civil aviation, and tourism in achieving the
country’s overarching objective of reducing poverty in the country.5

16. Roads. The government’s plan aims to connect six unconnected district headquarters
through roads, establish an enabling environment for public–private partnerships, improve the
RBN’s performance for financing road maintenance, and enhance the DOR’s capacity for
efficient road management in a sustainable manner. In 2001, the government established the
Road Transport Policy and developed a 20-year road master plan. Recently, the DOR
completed an integrated 10-year sector wide plan and priority investment plan (2007–2016) for
the development and management of strategic roads, including institutional development

3
SAARC Secretariat. 2007. Regional Multimodal Transport Study. Kathmandu (prepared under: ADB. 2004.
Technical Assistance for Promoting South Asian Regional Economic Cooperation. Manila [TA 6187-REG]).
4
ADB. 2008. BIMSTEC Transport Infrastructure and Logistics Study. Final Report. Manila (TA 6335-REG).
5
Government of Nepal, National Planning Commission. 2007. Three Year Interim Plan (2007/08–2009/10).
Kathmandu.
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requirements.6 The priority investment plan is based on the government’s accessibility targets,
i.e., to bring the entire hill population within a 4-hour walk of an all-season road and the Terai
population within a 2-hour walk of an all-season road.

17. Air transport. As air traffic is forecast to double by 2019, the government has
recognized the urgent need to improve the safety and capacity of country’s air transport system,
and enhance institutional effectiveness in terms of regulatory function, airport operation, and air
navigation and air traffic services. The government’s main strategy includes upgrading TIA and
other domestic airports, strengthening the institutional capabilities and organizational
effectiveness of the CAAN, and attracting private sector participation in airport development.

18. Subregional trade facilitation and logistics. The government has initiated the third
phase of the customs reform and modernization action plan (2009–2013). The plan identified
nine strategies: trade facilitation, law compliance, efficient revenue collection, accurate statistics
dissemination, enhanced customs management, integrity, computerization, improved passenger
clearances, and effective communication with internal and external stakeholders.

C. ADB Sector Experience and Assistance Program

19. The operations of the Asian Development Bank (ADB) in the transport sector have
generally been successful, although the projects have often been delayed by various issues,
such as the implementation gap between loan approval and contract awards, underestimated
cost, and overoptimistic schedule. Appropriate lessons have been incorporated into this project.

20. Engagement by development partners operating in the country, mainly the Japan
International Cooperation Agency and the World Bank, has been active in the transport sector.
Regular consultative discussions on the respective sector strategy and pipeline projects help
ensure equitable geographical coverage and avoid duplication. At present, ADB is focused on
rehabilitating the country’s strategic road network, while the World Bank’s support is aimed at
improving local and rural roads in the remote hill areas. In the air transport sector, ADB has
been the main funding agency since 1969, focusing on infrastructure improvement with respect
to safety and capacity. Bilateral sources from Australia, France, and Japan have also
contributed, targeting specific equipment (such as radar and communication) and formal training
in air traffic management. It is reasonably expected that reliance on bilateral assistance will
decrease in the long term as the CAAN is showing signs of financial viability.

21. ADB support. ADB will enhance connectivity to improve regionally balanced economic
growth and reduce social inequality. ADB will also support government initiatives of promoting
public–private partnerships, regional cooperation and integration, and social inclusiveness in
transport sector development. In the road transport subsector, ADB will continue to support the
SRN, based on the priority investment plan and the 20-year master plan for the SRN. The roads
selected for ADB support will increase connectivity and accessibility, improve regionally
balanced economic growth, and reduce social inequality. Roads will be selected to enable
national links to subregional transport corridors, including the priority corridors identified under
the SAARC study. ADB will continue to provide support to enhance customs modernization and
capacity development. In the air transport subsector, ADB will support improvement of TIA's
capacity and safety, upgrading of remote domestic airports to support tourism, and provision of
assistance to increase the government's capacity to undertake public–private partnerships.

6
Government of Nepal, Ministry of Physical Planning and Works, Department of Roads. 2007. Sector Wide Road
Programme and Priority Investment Plan. Kathmandu.

Problem Tree for the Transport Sector
Works contracts are awarded
well after loan or grant
approvals by ADB and other
development partners
Detail engineering design and
bidding documents are not
prepared in advance
Source: Asian Development Bank
5
Poor connectivity
hinders regionally and
socially balanced economic
growth in Nepal
Transport projects are not
implemented efficiently
Implementation of necessary Capacity to prepare and
social safeguard plans are implement private-public
often delayed partnership projects is low
Preparation and Clear strategy and road map
implementation of social for preparing and
safeguard pans are not implementing private-public
adequately advanced partnership project is lacking
and no pilot project has been
prepared
 Transport Project Preparatory Facility (RRP NEP 43216)

Sector Results Framework (Transport Sector, 2011–2013)

Country Sector Outcome Country Sector Outputs ADB Sector Operations

Outcomes with Indicators with Outputs with Indicators with
ADB Targets and ADB Incremental Targets Main Outputs Expected
Contributions Baselines Contributions (Baselines Zero) Planned and Ongoing ADB Interventions from ADB Contributions
Enhanced global Road transport Strategic road Percentage of strategic Planned key activity areas Planned key activity areas
and local All 75 district network is road network in bad Strategic road network (85% of funds) Feasibility study and detail
connectivity, headquarters are improved and condition is reduced by Road transport policies and reforms (15% of design will be carried out for
facilitating connected by 2010 maintained. 50% by 2015. funds) about 700 km of strategic
regionally (2009 baseline: 69). roads
balanced Subregional Cross-border traffic Pipeline projects with estimated amounts
economic growth Percentage of transport volume is increased by Subregional Transport Enhancement Project Pipeline projects
and reduced population within 4- corridors and 15% more than the (2010, $49 million) About 500 km of strategic
social inequality hours (or less) walk of trade logistics country's average traffic Transport Project Preparatory Facility (2010, roads to be rehabilitated
paved roads in hill facilitation are growth rate by 2015. $12 million)
areas and 2 hours (or improved. Road Connectivity Project (2011, $45 million) Ongoing projects
less) in Terai areas Subregional Transport Enhancement Project About 300 km of strategic
increases to 83% by (2012, $50 million) roads to be rehabilitated
2012 (2007 baseline: Strategic Roads Improvement Project (2013,
78%). $70 million)

Ongoing projects with approved amounts

Road Connectivity Sector 1 Project ($55.2
million)
Air transport Safety and TIA’s runway and Planned key activity areas Planned key activity areas
International air capacity is parallel taxiway achieves Strategic airport improvements (85% of funds) Project preparatory activities
passenger volume improved at the safety separation Air transport policies and reforms (15% of for projects in pipeline
increases to 2.4 million TIA in distance by 2015 (2009 funds)
passengers per year Kathmandu and baseline: noncompliant) Pipeline projects
by 2012 remote Pipeline projects with estimated amounts Safety and capacity
(2009 baseline: domestic Visual alignment Transport Project Preparatory Facility (2010, enhancements at TIA and
1.6 million) airports. guidance system and $12 million) additional remote domestic
abbreviated precision airports
Domestic air approach path indicators Air Transport Capacity Enhancement Project II
passenger volume are operational at remote (2015, $90 million) Ongoing projects
increases to 1.3 million domestic airport in Lukla, TIA’s international terminal
passengers per year Simikot, and Rara, by Ongoing projects with approved amounts to be rehabilitated. Safety
by 2012 2015 (2009 baseline: Air Transport Capacity Enhancement Project improvements at TIA and
(2009 baseline: nonoperational) ($80 million) three remote domestic
1.1 million) airports to be completed.
ADB = Asian Development Bank, TIA = Tribhuvan International Airport
Source: Asian Development Bank