RESTRICTED

Report No. PT-4a

This report is for official use only by the Bank Group and specifically authorized organizationsor persons. It may not be published, quoted or cited without Bank Group authorization. TheBank Group does not accept responsibility for the accuracy or completeness of the report.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF THE

KATHMANDU TOURISM PROJECT

NEPAL

February 2, 1972

Tourism Projects Department

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Currency Equivalents

Currency Unit - Nepalese Rupee (NR)US$ 1.00 = 10.1251 NR = US$ 0.11,000,000 NRs = US$ 98,765

Units of Weights and Measures: Metric

Metric: British/U.S. Equivalents

1 m = 3.28 ft1 m 10.76 sq. ft.1 km= 0.62 mi1 km2 0.386 sq. mi1 ha = 2.5 acres1 m ton 0.98 1g ton

- 1.1 U.S. sh ton

Principal Acronyms Used

IDA International Development AssociationNIDC = Nepal Industrial Development CorporationRNAC = Royal Nepal Airlines CorporationADB = Asian Development Bank

Fiscal Year

1/July 16-July 15/

1/ Approximately - based on lunar calendar

Table of Contents

Page No.

SUMMARY i-ii

1. INTRODUCTION 1

2. BACKGROUND 1

A. The Country and its Economy 1B. The Tourism Sector 2

3. THE PROJECT 4A. The Sponsors 4B. Description 4C. Management and Staffing 6D. Cost Estimates 8E. Execution 9

4. JUSTIFICATION 11A. Market Demand 11B. Economic Justification 13

5. FINANCIAL ASPECTS 15

A. Financial Aspects 15B. Financial Forecast 17

6. RECOMENDATIONS 20

ANNEXES

ANNEX 1 - Economic JustificationANNEX 2 - Assumptions for Financial AnalysisANNEX 3 - The Nepal Industrial Development CorporationANNEX 4 - The SponsorsANNEX 5 - Interest Rates in Nepal

This report is based on the findings of a mission to Nepal by Mr. Hayman,Mr. Renkewitz and Mr. Vera in July 1971.

Table of Contents (Cont'd.)

Table No.

Statistical Appendix

Tourist Arrivals by Month and Means of Transport, 1968-1970 1Tourist Arrivals by Nationality, 1968-1970 2Breakdown of Total Project Cost 3Estimated Schedule of Expenditures and Disbursements 4Contingency Allowance 5

Hotel de l t Annapurna

Schedule of Accommodation 6Estimated Schedule of Expenditures 7Estimated Schedule of Disbursements 8Interest and Commitment Charge 9Projected Profit and Loss Statement 10Projected Financial Position 11Projected Cash Flow 12Depreciation Schedule 13

Yak and Yeti Hotel

Schedule of Accommodation 14Estimated Schedule of Expenditures 15Estimated Schedule of Disbursements 16Interest and Commitment Charge 17Projected Profit and Loss Statement 18Projected Financial Position 19Projected Cash Flow 20Depreciation Schedule 21

Import Duties, Surcharges and Sales Taxes 22

Chart 1 - Schedule of Implementation, Expenditures and Disbursements

MAPS

Map No. 1 - IBRD 3382 - Main Tourist Assets of NepalMap No. 2 - IBRD 3383 - Tourist Attractions of the Kathmandu ValleyKey to Map No. 2 - IBRD 3383Map No. 3 - IBRD 3648 - Nepal - Kathmandu City

NEPAL

APPRAISAL OF THE KATHMANDU TOURISM PROJECT

SUMMARY

i. This report appraises a project to provide additional hotelaccommodation in Kathmandu, for which an IDA credit of US$ 4.2 millionis proposed. The project has two components -- the remodelling andextension of the existing 90-room Hotel de I'Annapurna into a 241-roomhotel of first class international standard; and the construction of anew second class hotel of 120 rooms, to be called the Yak and Yeti Hotel.

ii. Nepal has many attractions for the foreign visitor, includingmagnificent scenery, opportunities for climbing and trekking, and arich cultural heritage. Kathmandu is the main entry point of foreigntourists, as well as being an important tourist destination in its ownright.

iii. Some 46,000 non-Indianl/ foreign tourists visited Nepal in1970, arrivals having grown steadily at an average rate of 37% a yearsince 1965. Although gross receipts of foreign exchange from tourismprobably did not exceed US$ 2 million equivalent in 1970, prospects forfurther expansion are considered excellent. International tourism isby far the most promising means open to Nepal for earning hard currency.With the Asian Development Bank project for the improvement of Kathmanduairport in progress, the main constraint on the growth of tourism is theshortage of suitable hotel rooms. The additional accommodation to befinanced by the proposed credit lies well within even the most conserva-tive estimates of future demand, and average annual rates of room occu-pancy of 75% for the Hotel de l'Annapurna and 70% for the Yak and YetiHotel are expected.

iv. The sponsor of the Hotel de l'Annapurna sub-project is theHotel de l'Annapurna Pvt. Ltd. of which the three shareholders are mem-bers of the Royal family. The shareholders of the Hotel Yak and YetiPvt. Ltd. are a British citizen experienced in the hotel business and anIndian citizen, both having many years' association with Nepal. Suitablearrangements will be made for the management of both hotels.

v. The total investment in the two sub-projects, including land,contingencies, the valuation of the existing assets, interest and othercharges during construction, and working capital is US$ 7.37 millionequivalent. The proposed IDA credit of US$ 4.2 million would cover the

1/ Indians are not shown in the immigration statistics. An estimated4,000 Indians arrived by air in 1970.

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total estimated foreign exchange costs of the project. The balance ofthe required financing would be provided by the sponsors. Cost esti-mates have been reviewed during negotiations, to take account of recentinstability in the sub-continent, and currency changes. No significantchanges to the estimates were required, ample contingency allowances hav-ing been provided.

vi. Contracts for civil works and the supply of equipment will beawarded in accordance with IDA's guidelines for international competi-tive bidding.

vii. The sub-projects will be carried out by the sponsors, with theassistance and supervision of the Nepal Industrial Development Corpora-tion (NIDC). Each sponsor will select a suitably qualified project man-ager to supervise construction on their behalf. The NIDC will act onbehalf of the Government in channeling the IDA credit to the sponsors ofthe two sub-projects, and in so doing will receive a service charge fromthe Government. It is proposed that the IDA funds should be relentthrough the NIDC for a term of 24 years, including a 4 years' grace period,at a rate of interest of 7-1/2% per annum.

viii. The Hotel de l'Annapurna is expected to achieve a financial rateof return on a discounted cash flow basis of between 8.8% and 10.6% on thetotal investment, depending on the assumptions made on rates of room occu-pancy and on the date of opening of the extension. The rate of return forthe Yak and Yeti Hotel on the same basis ranges from 7.4% to 9.4%. Debtservice cover is adequate for both. On the lending terms proposed, thereturn on equity would range from 10.0% to 15.2% for the Hotel de l'Anna-purna, and from 7.6% to 12.3% for the Yak and Yeti Hotel.

ix. Best estimates of the economic rate of return are 20% for eachhotel. The differences between the financial and economic rates of returnare due to adjustments for taxes and to the inclusion of an estimate ofthe net benefit accruing as a result of the expenditure of hotel guestson shopping and sightseeing outside the hotels. The whole project willcreate about 500 additional jobs, and the net direct foreign exchangeearnings are likely to be of the order of US$ 2.8 million equivalent perannum at full operation.

x. The project is suitable for an IDA credit of UJS$ 4.2 million.The borrower would be the Kingdom of Nepal.

NEPAL

APPRAISAL OF THE KATHMANDU TOURISM PROJECT

1. INTRODUCTION

1.01 The Government of Nepal has long recognized the opportunitiesoffered by the expansion of tourism. In the fall of 1970 it asked IDAfor assistance in developing the sector.

1.02 A project identification mission visited Nepal in February

1971, followed by a preparation mission in March, and an appraisal mis-sion consisting of Messrs. Hayman, Renkewitz, and Vera in July. Thesemissions confirmed that Nepal could greatly increase its foreign exchangeearnings fram tourism, provided more good hotel accomodation was built.After reviewing several hotel projects, two were selected for immediateconsideration.

2. BACKGROUND

A. The Country and its Economy

2.01 The Kingdom of Nepal is a land-locked country bordering onTibet in the north, and India, its main trading partner, in the east,south, and west. Roughly 800 km long and 170 km wide (about the sametotal size as Greece), it is divided into three distinct physicalregions extending in an east-west direction for the length of the coun-try. These are the relatively fertile Terai plains in the south; thehill country of central Nepal, including the Kathmandu Valley; and theHimalayas, the world's highest mountains, in the north. The central andnorthern regions are crossed by deep valleys running generally from northto south. The country's resources are few and the terrain over much ofits area makes communication extremely difficult. Nepal's population ofsome 11 million is estimated to be growing at about 2.2% per year --roughly the same rate of growth as the GDP. Per capita GDP of aboutUS$ 70 equivalent a year is among the lowest of the developing countries.Over 90% of Nepal's population is engaged in agriculture which, includingforestry, accounts for around 70% of GDP. The countrj is still in thefirst stages of economic development, consisting of many loosely-linkedvalley economies. A large part of the population remains outside themoney economy.

2.02 Nepal's foreign trade is dominated by its relationship withIndia, which takes about 90% of its total exports, mostly foodgrains

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and other food products. Apart from merchandise exports, the country'smost important sources of foreign exchange are gurkha remittances andpensions. While tourist receipts are still very small (officially esti-mated at UJS$ 1.3 million equivalent in 1969/70, less than 5% of totalreceipts of convertible foreign exchange), the prospects for growth intourist receipts seem better than for other sources of convertible cur-rencies. Gurkha remittances and pensions will decline, with reducedrecruitment. Market prospects for jute and jute products are ratheruncertain. Other resources, such as musk and animal skins are believedto be in danger of depletion.

B. The Tourism Sector

2.03 Nepal is a beautiful and exotic country which until recentlywas forbidden to outsiders. The world's most tremendous mountains chal-lenge increasing numbers of climbers and trekkers, while in the hillsand valleys a colorful way of life continues, largely unchanged for cen-turies. In the jungles of southern Nepal are rare species of wild ani-mals. The birthplace of Buddha at Lumbini is a center of pilgrimage.

2.04 The ancient cities of the Kathmandu Valley were created by aunique mingling of cultures. Temples, monasteries, old markets, carv-ings, and statues abound, around which revolves a complex calendar offestivals, ceremonies and fairs in which Buddhist and Hindu practicesare often unselfconsciously combined. The many ornate palaces of theRanas are witness to an autocratic regime which was displaced asrecently as 1951.

2.05 The climate of Kathmandu is generally pleasant, and -does notimpose a seasonal pattern on tourist arrivals, except insofar as someflights may be cancelled during the rains, particularly in June. Thisdifficulty should be largely resolved by airport improvements in theregion.

2.06 The main constraints on the growth of tourist traffic to Nepalhave been limited air services and the lack of suitable hotel accommoda-tion. The former is being relieved by the ADB airport program and theinitiative of the airlines. The proposed credit would alleviate the lat-ter.

2.07 Nepal has seen rapid and sustained growth in numbers of foreignvisitors. Excluding Indians, 46,000 foreigners visited Nepal in 1970, anaverage annual rate of increase in arrivals of 37% since 1965. Due tothe close ties between Nepal and India, Indian citizens do not completethe same immigration formalities as other foreigners, and consequentlyare not included in the immigration statistics. The Department of Tour-ism estimates that some 4,000 Indians visited Kathmandu by air in 1970.In addition there are many thousands of unrecorded crossings of the long

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land frontier between Nepal and India, which, if included in the statis-

tics, would greatly increase the total number of Indian arrivals.Due to the cancellation of some tourist groups during 1971, attributed

to unsettled conditions elsewhere in the sub-continent, it is expectedthat the total number of foreign arrivals during the year will be about

the same as in 1970

2.08 Seventy-nine percent of non-Indian foreign tourists reachedNepal by air in 1970. Road improvements and the growing popularity of"mini-trek" type holidays have however been accompanied by an increasingproportion of road visitors, including many young people from Europe andthe United States.

2.09 Gross foreign exchange receipts from tourism were officiallyestimated at US$ 1.3 million equivalent in 1969/70. Since a substantialvolume of tourist transactions is believed to pass through unofficialchannels, this is probably an underestimate, a more likely figure beingof the order of US$ 2 million equivalent in 1970.

2.10 There are at present 558 rooms in hotels classified by theDepartment of Tourism throughout Nepal, of which 500 are in Kathmandu:a variety of unclassified accommodation is available, which could appealonly to the spartan. Another 124 rooms are currently being built in asecond class hotel some distance from town, and 15 in the form of bunga-laws on the outskirts. There is also a proposal to add 170 rooms to theexisting first class Soaltee Hotel.

2.11 Visitors have in general been prepared to accept lower stand-ards of accommodation and service in Kathmandu than they would expect asa matter of course elsewhere. Only four hotels with 318 rooms betweenthem can be considered as offering services approaching medium gradehotels in, say, Bangkok, Singapore, or Hong Kong.

2.12 The proposed project would add 271 rooms, almost doublingcapacity in the higher category hotels. It would provide Kathmandu forthe first time with a hotel comparable in standard to internationalclass hotels in other countries. The existing better class hotels arevery heavily booked during much of the year, therefore much of the newcapacity would provide for presently unsatisfied demand. With the pros-pective growth of traffic high occupancy rates are expected.

2.13 Present scheduled air services link Kathmandu with Bangkok,Rangoon, Calcutta, Delhi, Patna and Benares. Air routes from Kathmanduwestwards therefore at present involve a change of flight in India.Royal Nepal Airlines Corporation (RNAC) are considerin4g new routes, overwhich they are planning to operate jet equipment. The runway of Kathmanduairport will be extended under the ADB airport program to 10,000 feet bythe start of full operation of the hotel project, enabling aircraft ofthe DC8/B707 type to operate without undue restrictions. Improvementsare also being made in lighting and navigational aids. Foreign airlines

will become increasingly interested in negotiating traffic rights toKathmandu, once the airport is improved, and once new hotel acconmoda-tion is under construction: more hotel accommodation of the appropri-ate standard is a prerequisite for improved air connections. The geo-graphical situation of Nepal gives special significance to interna-tional air services.

3. THE PROJECT

3.01 The project consists of the refurbishing and extension of theHotel de l'Annapurna and the construction of the new Yak and Yeti Hotel.These particular hotels were selected from several possibilities for anumber of reasons, which included their suitability to the needs of themarket, their probability of being implemented, their technical andfinancial viability, the prospects for sound management, their size,the experience of the sponsors, their state of preparation, and theirlocation.

A. The Sponsors

3.02 The sponsor of the Hotel de l'Annapurna is the Hotel de l'Anna-purna Pvt. Ltd. The shareholders are H.R.H. 1st Queen Mother Kanti RajyaLaxmi Devi Shah, H.R.H. 2nd Queen Mother Iswari Rajya Laxmi Devi Shah, andH.R.H. Princess Helen Shah. The company was formed in March 1971, withan authorized capital of NRs. 20 million of which NRs. 6.4 million is paidup. The company owns the existing Hotel de l'Annapurna, which was oper-ated under an interim management agreement by Hilton International up tothe end of 1971. Details of the current operation are given in Annex 4.

3.03 The Yak and Yeti Pvt. Ltd. has two main shareholders.Mr. Radesham Saraf is an Indian citizen having substantial industrial andtrading investments in Nepal. Mr. Lissanevitch is a British national, whohas been living in Nepal for about 20 years. He has had many years of experi-ence of the hotel and catering business, first in India, then for 12 yearsas manager of the Royal Hotel, Kathmandu, and currently as owner of thesuccessful Yak and Yeti restaurant. For a further description of thesponsors, see Annex 4.

B. Description

3.04 The Hotel de l'Annapurna Pvt. Ltd. owns the freehold of the landrequired. The Yak and Yeti sub-project will be on land that is partly free-hold and partly leasehold, arrangements for the purchase of land for anaccess road having also been agreed in principle by the present owners, the

NIDC. Assurances were obtained during negotiations that legal opinionwould be furnished that land title and conditions of leases meet therequirements of the project.

Hotel de l'Annapurna

3.05 The existing hotel is located in central Kathmandu, near theRoyal Palace and within walking distance of the old city. The presentstructure was opened in 1965 and has three floors offering 90 guestrooms, one dining room, a small bar, and two small shops. The entrancelobby and reception area are small and frequently congested. The exte-rior appearance of the hotel, and the interior design of public andguest rooms are modest.

3.06 The project will create round the nucleus of the existing hotelnew accommodation of first class international standard, while permittingthe present hotel to remain open. One hundred and fifty nine new roomswill be built, and 82 of the present rooms refurbished to give a total of241 twin-bedded rooms. Eight of the existing rooms will be eliminated tomake space for enlarged public areas. Central air-conditioning and a cen-tral hot water system will be installed. A coffee shop, a main diningroom and a speciality restaurant will be provided, and lounge and barspace expanded. A swimming pool with a patio bar will be built, and thetennis courts relocated and improved. The hotel will have its own laun-dry and drycleaning facilities.

3.07 Exterior design and interior decoration will be to a high stand-ard, and careful attention will be paid to landscaping.

3.08 The sewage system which services the existing hotel is also ade-quate for the extension. Electricity is available from the town supply,and the hotel will have its own water purifying and softening plant, forwhich an adequate supply will be available from the municipality.

The Yak and Yeti Hotel

3.09 The site for this hotel is in the grounds of an old palace,which houses the present successful Yak and Yeti restaurant. It islocated in central Kathmandu, a few hundred yards from the Hotel del'Annapurna. The grounds include a small lake, and the site lends itselfto attractive landscaping. Access to the present restaurant involves along detour around side streets, so the project provides for a new accessroad directly from one of Kathmandu's main thoroughfares, on land to beacquired from the NIDC. Preliminary agreement on the purchase of thisland was confirmed during negotiations.

3.10 The proposed hotel will have a basement and four floors, andwill offer 24 single rooms, 84 twin-bedded rooms each with a balcony,and 6 suites each of which can be used as two double rooms. Bedroomswill not be air-conditioned, but individual units will be provided for

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suites and public rooms. Provision is made for a coffee shop and a bar,together with access to the Yak and Yeti restaurant in the old palace.

3.11 Other facilities are to include a swimming pool, tennis courts,a sauna, and a roof garden. The preliminary drawings by a Nepalese archi-tect suggest that the exterior of the hotel will be simple and attractive.Maximum use will be made throughout of local wood carvings and otherhandicrafts, and the high standard of interior design evident in the pre-sent Yak and Yeti restaurant will be maintained.

3.12 The hotel will be connected to an existing sewage system. Elec-tricity and water supplies from the municipality will be adequate, andthe hotel will have its own water purifying and softening plant.

C. Management and Staffing

3.13 The existing Hotel de l'Annapurna had an interim managementagreement with Hilton International Company, a subsidiary of TWA, sinceMarch 1970. At the mutual request of both companies, this interim agree-ment was terminated at the end of 1971. A full management agreement isstill in force, providing for Hilton technical assistance during con-struction of the extension, marketing and training services, and Hiltonmanagement of the upgraded hotel on its completion. Hilton operates 52hotels around the world, for which management agreements are broadly thesame. In the case of the Hotel de l'Annapurna, these provide for directcosts being charged against the operation, Hilton receiving a basic man-agement fee of 5% of total sales plus an incentive payment of 10% ofgross operating profit.

3.14 Hilton has introduced some training schemes for the staff ofthe Hotel de 1'Annapurna. These will be expanded in the future, to havewell-trained local staff available for the start of operation of theextension. So far, four Nepalese supervisors have been sent to Hiltonhotels in the region for training.

3.15 The extended hotel will provide employment for 46 persons, ofwhom 15 will initially come from abroad. Such foreigners will work atthe supervisory level and will have had broad experience in hotel opera-tions. The government's policy is to authorize the employment of for-eigners if qualified Nepalese are not available. Given Hilton Interna-tional's experience in opening and operating ?)tels, the managementarrangements are considered satisfactory. If for any reason eitherparty should wish to withdraw from the agreement, similar arrangementscould be made with one of a number of other experienced hotel operatingcompanies. In view of the size and standards of the extended hotel,the assistance of a specialized management company is considered essen-tial, the arrangements being subject to IDA approval.

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3.16 The management of the Yak and Yeti Hotel will not be assignedto a hotel management firm. One of the two shareholders, Mr. Lissane-vitch has broad experience in the hotel and catering industry, and man-aged the Royal Hotel in Kathmandu for many years. His present restau-rant is widely known and has an excellent reputation. Provision will bemade to hire well-qualified expatriate staff for managerial and profes-sional levels. Of 290 employees, 30 already work in the existirg restau-rant, and 7 will be recruited abroad. The assistant to Mr. Lissanevitchholds degrees from Swiss and American hotel schools. Furthermore,Mr. Lissanevitch's three sons are to be trained abroad in hotel manage-ment. No major difficulties should, therefore, arise in the managementand staffing of the hotel. IDA will approve the qualifications and expe-rience of the manager to be engaged.

3.17 The Government has been helped by the International LabourOrganisation in preparing a request to the United Nations DevelopmentProgram for assistance in setting up a Hotel Training School in Kathmandu.Whilst both the Hotel de l'Annapurna and the Yak and Yeti Hotel can makesatisfactory training arrangements of their own, the establishment ofsuch a school will further improve the supply of qualified staff.

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D. Cost Estimates

3.18 The estimated costs of each sub-project are given in Tables 3, 6, and14, and are summarized below:

Table I

Hotel de l'Annapurna% of

Nepalese Rupees, Millions U.S. Dollars, Millions Base-lineLocal Foreign Total Local Foreign Total Cost

1. Construction:Siteworks 0.25 0.58 0.83 0.02 0.06 0.08 2.4Buildings 7.16 16.33 23.49 0.70 1.62 2.32 70.5Professional Services 0.78 0.79 1.57 0.07 0.09 0.16 4.9

2. Equipment: 1.43 5.07 6.50 0.16 0.49 0.65 19.83. Project Management: 0.30 - 0.30 0.03 - 0.03 0.94. Technical Assistance: 0.05 0.39 0.44 x 0.04 0.04 1.25. Pre-Opening Expenses: 0.03 0.12 0.15 x 0.01 0.01 0.3

Base-Line Costs: 10.00 23.28 33.28 0.98 2.31 3.29 100.0

6. Contingencies:Price Increase (14%) 1.24 3.11 4.35 0.12 0.31 0.43 13.1Physical Increase (12%) 0.93 2.77 3.77 0.10 0.26 0.36 11.0

TOTAL 12.17 29.16 1.33 1.20 2.88 4.08

Yak and Yeti Hotel

1. Construction:Siteworks 0.25 0.57 0.82 0.02 0.06 0.08 5.2Buildings 3.37 7.53 10.90 0.34 0.74 1.08 69.7Professional Services 0.35 0.34 0.69 0.03 0.04 0.07 4.5

2. Equipment: 0.56 2.01 2.57 0.05 0.20 0.25 16.13. Lanr: for access road 0.28 - 0.28 0.03 - 0.03 1.94. Project Manaement: 0.10 - 0.10 0.01 - 0.01 0.75. Pre xn 0.08 0.28 0.36 x 0.03 0.03 1.9

Base-Line Costs: 4.99 10.73 15.72 0.48 1.07 1.55 100.0

6. Contingencies:Price Increase (14%) 0.61 1.48 2.09 0.07 0.14 0.21 13.5Physical Increase (12%) 0.46 1.15 1.61 0.05 0.11 0.16 10.3

TOTAL 6.06 13.36 19.42 0.60 1.32 1.92TOTAL PROJECT COST1/ 11 7! 7 7.20 .0INTERES AND OTHER CRARGESDURING CONSTRUCTION 5.87 - 5.87 0.58 - 0.58

1/ Excluding land for hotel construction - x less than US$ 5,000Note: Totals may not add due to rounding.

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3.19 The compounded annual rate of increase of civil works costsis estimated to have been between 8.5% and 9.0% in the last ten years.Assuming that the increase in prices will continue at the same rate, aprovision of 15% of construction costs and 12% of siteworks costs isincluded in the contingency allowance given in Table 5. In addition,an allowance of 10% of the cost of construction and siteworks, and 15%of equipment and professional services has been made to meet any costsunforeseen at this time. This is appropriate in this case, sincedetailed estimates must await the final design stage, and also becauseof difficulties that may arise in the transportation of materials. Dur-ing negotiations cost estimates were reviewed with the sponsors, and nosignificant changes were considered necessary.

Amount of the Credit

3.20 The proposed credit of US$ 4.2 million would cover the foreignexchange costs of the project, which amount to 64% of the total projectcosts plus interest and other charges during construction. Most buildingmaterials, equipment and specialized labor are imported. The sponsorswould finance the remainder, as specified in paragraphs 5.01 and 5.03below.

E. Execution

3.21 The proposed credit will be channeled from the Government tothe sponsors through the Nepal Industrial Development Corporation (NIDC).For a discussion of the NIDCts organization and financial condition, seeAnnex 3.

3.22 The NIDC was set up in 1959, is fully Government owned, and isthe country's only industrial development bank. In its first elevenyears it approved total loans of NRs. 140 million for 154 projects, ofwhich NRs. 55 million was actually disbursed for 115 projects. It hasappraised around 30 hotel projects, of which it has financed 13. It hastherefore, built up substantial experience of the workings of the hotelindustry in Nepal. The NIDC employs over 200 people, and many of theprofessionals are well qualified.

3.23 The NIDC's financial position has been weak, due in part to themanagement's inability to enforce timely repayment from some of its bor-rowers. Executive assistance from the ADB is under discussion, with aview to putting into effect firmer policies in this respect.

3.24 The NIDC will be responsible for overall supervision, coordina-tion with other government agencies, coordination with the sponsors, andliaison with IDA. It will be required that the NIDC allocate enoughstaff time from properly qualified engineers, procurement officers, andaccountants to ensure that each sub-project is effectively supervised.Day-to-day supervision on behalf of the sponsors, and their liaison withthe NIDC, will be provided by a project manager for each sub-project,

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their qualifications being subject to IDA approval. IDA will approvefinal drawings for all construction works.

3.25 It is proposed that the cost to the NIDC in acting on behalfof the Government in supervising and administering the sub-loans becovered by a service charge. During negotiations, the professionalstaff time and other resources that the NIDC would need to commit inorder to suoervise the sub-projects effectively were reviewed. TheNIDC estimated that their cost for providing these services on behalfof the Government would be covered by a service, charge of US$ 20,000equivalent per year during the first four years of the project, andJS$ 4,000 per year during the rest of the life of the sub-loans. Thearrangements were accepted in principle by the Government and NIDC

representatives. The risk of any possible default will be borne by theGovernment and not the NIDC, since the NIDC will repay the sub-loans tothe Government only to the extent that it receives repayment frot thesponsors. The sub-loans will not be included in the NIDC's balancesheets.

Construction Period

3.26 It is planned that construction would be completed within a2-1/l-year period; the period of implementation for both sub-projectswould spread over 3 years, including defect liability periods of 9 months,as shoin in Chart 1.

Procurement

3.27 Civil works and equipment supply contracts costing the equiva-lent of uS$ 50,000 or more for each separate project item would beawarded under international competitive bidding in accordance with IDA'sguidelines. Items would be grouped to the extent practicable to encour-age such competitive bidding. Local manufacturers of furniture would beallowed a preferential margin of 15% of c.i.f. costs of competing importsor the existing rate of duty, whichever is lower. The two project man-agers and their consultants would be responsible for evaluating bids, onthe basis of which evaluations the NIDC would recommend contracts for IDAapproval.

Only two qualified building contractors are established in thecountry, both of them employing specialized Indian sub-contractors, butit is expected that many foreign contractors would submit bids. Whetherdomestic or foreign contractors should win the bids, the foreign exchangecomponent in total project costs would vary little, as both domestic andforeign contractors need to import most materials, equipment and special-ized labor. A pre-qualification system acceptable to IDA would be intro-duced to ensure that only properly qualified contractors would be permit-ted to submit bids for the construction of the hotels. Detailed lists offurniture and equipment will be submitted for IDA approval prior to pro-curement.

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Disbursement

3.29 The proposed credit would be disbursed on the basis of the c.i.f.costs of imported equipment and furniture and the ex-factory cost of locallyproduced furniture; the foreign exchange costs of technical assistance andprofessional services; and appropriate percentage of civil works, and pre-opening expenses. The estimated foreign exchange components are shown inTable 3. These percentages would be adjusted as necessary so that withdrawalwould be distributed over the project implementation period. A schedule ofdisbursement is shown in Table 4. Savings, if any, after completion of theproject would be expected to be cancelled.

4. JUSTIFICATION

A. Market Demand

4.01 The existing supply of accommodation has virtually reached satura-tion, and the two leading hotels are heavily booked during peak seasons.Nepal's tourist industry can therefore expect only very modest growth untilmore hotel rooms of appropriate standard are available.

4.02 United States tourists make up the largest share of foreign non-Indian arrivals, over 30% in 1970: the British, French and Germanaccounted for about 11% each. Some of these would have been expatriatesliving in neighboring countries, but most are visiting Nepal in the courseof a round-the-world or Far East tour. About 80% of foreigners come by air,although a gradually increasing proportion have been coming by road.

4.03 Many tourists visiting Nepal at present are also visiting India.As new air routes develop, and as Nepal becomes more of an accepted destina-tion in its own right, the proportion doing so may well drop. In the shortterm, however, Nepal stands to gain by steps India takes to improve itstourist facilities. Having only 18,000 hotel roams suitable for foreigntourists at present, India is constructing another 7,000 and the officiallystated intention is to build another 10,000 by 1973. Some 290,000 foreigntourists visited India in 1970, and a target has been set of one million by1978.

4.04 Nepal is also included in tours which go on to Bangkok and theFar East. Thailand received some 629,000 foreign visitors in 1970, of whomsome 333,000 originated by nationality in America, Europe and the MiddleEast (excluding American service personnel). Even if these tourist arrivalsto Thailand should grow at a conservative 10% per year, then by 1978 theywould amount to some 1.4 million.

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4.05 Nepal can also appeal strongly to the Japanese market. ThoughJapanese arrivals are as yet few in absolute terms, Japanese groups havebeen reaching Kathmandu in increasing numbers, both for sightseeing andtrekking. The importance of promoting Nepal in Japan is fully recognizedby the Department of Tourism. Some 330,000 Japanese went overseas onvacation in 1970, an average rate of growth since 1966 of 40% per year.Recent studies indicate that this figure could grow to between 2 and 2.7million by 1978, on conservative assumptions. The great circle mileagebetween Japan and Nepal is less than that from Japan to, for example,Hawaii or Fiji.

4.06 World tourism expenditures have been growing at around 12% peryear. Further expansion is expected, as rising incomes in the main mar-kets are accompanied by better transport and accommodation facilities,more sophisticated travel marketing, more leisure time and earlierretirement, and lower holiday prices in real terms. Nepal's share oftotal tourist movements will probably remain so small that its successin attracting tourists will be almost entirely determined by the hoteland transport supply it can offer. Nevertheless, there are a number ofdiscernible trends in world tourism which suggest that market demandfor a destination such as Nepal will remain particularly strong. Suchtrends include the tendency to move further afield as established desti-nations become more congested and conmonplace; group and charter farestending to lower the travel cost barrier to distant destinations; thegrowing popularity of round-the-world travel; the growth in activityholidays, such as trekking; and the increasing number of second holi-days pe2 year.

4.07 The Government has formulated a tourism policy which shouldenable Nepal to realize its tourism potential. Visas and trekking per-mits are readily granted, but any steps which can be taken to improvethe facilitation of tourists still further should be encouraged. TheGovernmientIs civil aviation policy recognizes the central role thatboth Royal Nepal Airlines Corporation and foreign airlines will haveto play in supporting the growth of tourism.

4.08 Although Nepal is now an attractive tourist destination, somefuture developments will enhance its appeal still further. The comple-tion of the road to Pokhara and the improvement of its airport willenable two-center holidays to be effectively promoted. Pokhara liesnear a lako beneath the spectacular Machhapuchhare Peak, and is an estab-lished center for trekking. The expansion of the road network through-out the Kathmandu Valley will open up many beautiful areas to convenientsightseeing, Lumbini, the birthplace of Buddha, lies some 130 miles byair to the west of Kathmandu, a few miles on the Nepalese side of theborder with india. Imaginative and ambitious plans are being made tobuild a unique religious center there, for which funds are being soughtfrom many sources, including governments of countries with large Buddhistpopulations. Building such a center at Lumbini will publicize Nepal, anda numbe- of pilgrims will also wish to visit major Buddhist shrines inKathmandu.

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4.09 Hotels in Nepal face the risk that their occupancy rates arevulnerable to political disturbances, strikes, or serious epidemics inany one of the other countries which are included in the itinerary oftourists visiting Nepal. This element of risk will decrease as newair routes and more tourist facilities and promotion enable Nepal todevelop as a main destination instead of a stopover on a multi-countrytour. The 75% and 70% rates of room occupancy taken as the higherassumption for the Hotel de l'Annapurna and the Yak and Yeti Hotelrespectively are considered to be achievable when good and bad yearsare averaged together. The existing hotels that offer acceptable inter-national standards have begun to show high rates of occupancy of theiravailable accommodation. The additional capacity provided by the pro-posed sub-projects will achieve the higher rates of occupancy assumedin the financial projections not later than 1978 if tourist arrivalsgrow at less than 13% compound per year, even if the proposed 170-roomextension to the Soaltee Hotel is built. This rate of growth is farbelow historical rates. The Yak and Yeti Hotel, by providing comfort-able accommodation, well-managed, with good food, at prices below thoseof the Hotel de l'Annapurna, will meet the needs of an important seg-ment of the market not well catered for in Kathmandu at present.

B. Economic Justification

4.10 The economic justification for the project is reviewed inAnnex 1.

4.11 The net benefits to the economy will consist primarily ofexpenditures of additional guests in the hotels, less the cost of oper-ating the facilities. The related investments are the capital costs ofthe hotels, negligible additional infrastructure being required. Otherbenefits included in the calculation of the economic rate of return arethose deriving from the expenditures of the additional tourists visitingNepal as a result of the project on visas, shopping, and sightseeing.Taxes and duties have been eliminated from the financial costs, and the5% Government sales tax added to financial benefits.

4.12 The best estimate of the internal economic rate of returnwould be 19.9% for the Hotel de l'Annapurna, 20.8% for the Yak and YetiHotel, and 20.2% for the two combined. The rates of return are sensi-tive to the assumptions made on rates of roam occupancy and the datesof opening: a reduction of 5 percentage points in room occupancy,together with a delay of 12 months in opening the new accommodation,lowers the economic rates of return to 16-2% for the Fotel de l'Anna-purna, and 16.8% for the Yak and Yeti Hotel.

4.13 The effect of the economic rate of return of shadow pricingforeign exchange and labor was tested. A shadow exchange rate of 14rupees to the dollar, as against the official rate of 10.125, raised

the rates of return by 5 percentage points for the Hotel de 1'Annapurnaand 4 percentage points for the Yak and Yeti Hotel. A shadow wage ratefor semi and unskilled labor of 40% of actual wages raised the rates ofreturn by 3 percentage points and 2 percentage points for each hotelrespectively. Shadow pricing has however not been used to calculate thebest estimate of economic rate of return.

4.14 The project will directly create some 500 new jobs. It willmoreover stimulate employment in the handicraft and tour operating indus-tries, and will provide a base for trekking and climbing expeditions.The latter employ relatively large numbers of porters in remote areas ofthe country. Indirect employment effects cannot be quantified, but maybe substantial. Other benefits which could not be quantified includethose derived from increased embarkation taxes, landing fees, andimproved load factors for Royal Nepal Airlines.

4.15 When in full operation from 1978 onwards, the project isexpected to increase direct gross foreign exchange earnings by UE$ 4.8million equivalent per year, more than double estimated gross tourismreceipts in 1970. Net earnings of foreign exchange may be estimated atUS$ 2.8 million equivalent per year, including US$ 0.3 million equivalentper year in net receipts from shopping, etc. These earnings compare withthe estimated foreign exchange cost of the project of US$ 4.2 millionequivalent.

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5. FINANCIAL ASFECTS

A. Financing Plan

5.01 The total estimated financing requirements of the project withinterest during construction are expected to be as follows:

Table II

Financing Plan

(US$ Million)

Est. ProjectCost Including Land for Hotels,Capitalized Existing Assets, % of

Interest Working Capital Total Total

Hotel de l'Annapurna

Equity:Hotel de l'Annapurna

Pvt. Ltd. 1.21 0.64 1.85 36

Long-Term DebtH.M. Government 3.28 3.28 64

4.49 0.64 5.13 100

Yak and Yeti Hotel

Equity:Yak and Yeti Pvt. Ltd. 0.60 0.14 0.74 33

Long-Term DebtH.M. Government 1.5O 1.50 67

2.10 0.14 2.24 100

The equity contribution of the Hotel de 1'Annapurna Pvt. Ltd. willinclude cash to the equivalent of US$ 1.21 million as well as landvalued at the original price of acquisition of US$ 0.08 million, exist-ing assets valued at US$ 0.46 million, and working capital of US$ 0.10million. Existing assets have been valued at their book values at thetime of opening. The required cash contribution will be provided outof the profits of the existing hotel in the period from 1971 to 1974amounting to US$ 0.76 million equivalent as well as by cash contributionof the order of US$ 0.55 million equivalent.

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5.02 The long-term debt of US$ 3.28 million equivalent is to con-sist of two parts. The IDA credit amounting to US$ 2.88 million forthe foreign exchange requirements of the sub-project, and the capital-ized interest during construction of US$ 0.40 million. The capitalizingof interest and other charges during construction is justified in view ofthe relatively large scale of expansion proposed, and the risk of pos-sible loss of business due to disturbance and inconvenience during theconstruction period.

5.03 In the case of the Yak and Yeti Hotel, the equity contribu-tion will amount to the equivalent of US$ 0.74 million including cashof US$ 0.60 million, land valued at the original acquisition price ofUS$ 0.05 million and existing assets valued at US$ 0.05 million, aswell as working capital of US$ 0.04 million. The loan will compriseUS$ 1.32 million for the foreign exchange requirements and US$ 0.18million for capitalized interest and other charges during construction.

5.04 The NIDC will act for the Government in on-lending to thesponsors of the two sub-projects. Each sub-loan agreement will be sub-ject to IDA approval. Each sub-loan will carry an interest rate of7-1/2% per annum, plus a commitment charge of 1/4% per annum on theundisbursed balance: these are the standard conditions available tohotel projects in Nepal. The signature of the respective sub-loanagreement will be a condition of effectiveness of that part of thecredit allocated to the sub-project.

5.05 The term of each sub-loan will be 24 years, including a4-year grace period to cover construction and the first full operatingyear. Terms of this length, and longer, are not uncommon in hotelfinancing. On the basis of the assumptions made in the financial pro-jections, both sub-projects need a term of this length and the proposedinterest rate in order to be able to provide a return on equity which,although modest, is likely to prove attractive to the sponsors. Theassumptions on tariffs and occupancy levels are in line with theexpected level of demand, and the probable development of competitiveaccommodation. If these assumptions should turn out in practice tohave been conservative in the event of continuing world-wide inflationafter the opening date, the improved profitability of the hotels willenable them to repay their loans more quickly. This possibility isallowed for in the sub-loan agreements with each sponsor by the inclu-sion of a requirement whereby additional dividends in excess of 20% ofthe par value of the capital shares in any one year would be matched byan equal payment towards the accelerated repayment of the loan.

5.06 Each sub-loan agreement includes provisions for the securingof each sub-loan by the NIDC on behalf of the government by mortgageson fixed assets. Annual provisions for depreciation are expected to be notless than 6.4% of total fixed assets for the Hotel de l'Annapurna and4.9% for the Yak and Yeti Hotel. It is required that not less than 20%of net profits after taxes will be retained in the reserves of each

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company. NIDC approval will be required before any additional long-term debt is assumed. The exchange risk on the foreign exchange com-

ponent of the sub-loans will be borne by the sponsors.

5.07 The equity capital will be contributed according to a sched-ule related to the financing requirements of ea-ch sub-project. In the

case of the Hotel de 1'Annapurna, it will be required that no dividends

are paid out during the period of implementation unless this schedule

is respected. This, as well as a commitment by the sponsors to provide

the necessary equity, was agreed during negotiations. In addition, per-

sonal guarantees, acceptable to IDA and the NIDC based on the latter's

evaluation of each sponsor's resources, will be required for each sponsor's

commitment to meet cost overruns. The NIDC would, in accordance with

its normal practice, be prepared to make a separate loan to cover up to

70% of such overruns. Both companies will be liable to Nepalese income

taxes amounting to 45% of taxable profits, but both qualify for the

5-year tax holiday for which approved projects are eligible in Nepal.

5.08 Owners equity in the Hotel de l'Annapurna, with the general

reserve, amounts to US$ 155,000 equivalent. The owners have also pro-vided an unsecured loan of US$ 507,000 equivalent. The company has asecured loan from the NIDC, of which US$ 25,000 equivalent is outstand-ing, due to be amortized by October 1974; and a small unsecured loanfrom the Nepal Rastra Bank. Loans to the ccmpany by its shareholderswill be converted into equity before signature of the sub-loan agree-ments.

5.09 With the accumulation of retained earnings both companiesmight find opportunities for profitable investment. Annual capitalexpenditures other than replacement in excess of US$ 50,000 equivalentwill, however, be made only with the approval of NIDC.

5.10 Accounts and financial statements will be kept by both com-panies in a form acceptable to IDA and the audited accounts should be

presented within 6 months of the close of the financial year. Accountswill be audited by a qualified independent firm of auditors acceptableto IDA.

B. Financial Forecast

5.11 Forecasts of annual earnings, financial position and cashflow for the first 21 years of the sub-projects are presented in Tables10, 11, 12, 18, 19 and 20, and details of the assumptions are given inAnnex 2.

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Table III

Projected Annual Earnings

(US$ Million)

Year Ending December 31 1975 1976 1977 1978 1985 1993

Hotel de l'Annapurna

Average Annual Room Occupancy 60 65 70 75 75 75Total Sales 2.04 2.21 2.37 2.54 2.54 2.54Net Profit before Interest 0.25 0.31 0.39 0.47 o.48 0.48Return on Total Investment* 4.9 6.0 7.6 9.2 9.4 9.4

Yak and Yeti Hotel

Average Annual Room Occupancy 50 60 65 70 70 70Total Sales 0.70 0.83 0.90 0.97 0.97 0.97Net Profit before Interest 0.06 0.10 0.15 0.18 0.19 0.19Return on Total Investment* 2.7 4.5 6.7 8.0 8.5 8.5

* Net profit before interest and dividend.

5.12 Assumptions on operating costs and revenues are based on inter-national experience, taking account of local conditions. Tariffs for theHotel de l'Annapurna are based on present tariffs, adjusted for the up-grading of the facilities, and for price increases expected ly 1975.Tariffs for the Yak and Yeti Hotel are related to the expected range oftariffs of comparable hotels in Kathmandu in 1975. Details are given inAnnex 2.

5.13 The financial return estimated on a discounted cash flow basisbefore direct taxes for the first 25 years of operation would lie between8.8% and 10.6% for the Hotel de l'Annapurna, and 7.4% and 9.6% for theYak and Yeti Hotel, depending on the assumptions made on occupancy ratesand opening date. The effect of these assumptions on the rates of returnare shown in Annex 2. Whilst these returns are somewhat modest, they arenot unusual in areas where indirect taxation, construction costs and someoperating costs are relatively high, and where opportunities for conven-tion business and sales to non-guests are limited. Return on equitybefore direct taxes ranges from 10.0% to 15.2% for the Hotel de l'Annapur-na, and from 7.6% to 11.3% for the Yak and Yeti Hotel, for the same setof assumptions on occupancy and opening date. If it were assumed thatinflation continued at a compound rate of 3% per year over the life ofthe project, the range of returns on equity would be increased from 12.7%

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to 18.3% for the Hotel de l'Annapurna, and from 11.C% to 15.6% for the Yakand Yeti Hotel.

5.14 Projected balance sheets and financial ratios of the two sub-projects are summarized below:

Table IV

Projected Balance Sheets and Financial Ratios

(In US$ Million)

Year Ending December 31 1975 1976 1977 1978 1985 1993

Hotel de l'Annapurna

Current Assets 1.00 1.23 1.56 1.92 2.37 1.27Current Liabilities 0.41 0.39 0.48 0.57 0.59 0.75Net Working Capital 0.59 0.84 1.08 1.35 1.78 0.52

Total Net Assets 5.25 5.19 5.13 5.09 4.44 3.01

Long Term Debt 3.21 3.13 3.04 2.95 2.07 0.31

Original Equity and RetainedEarnings 2.04 2.06 2.09 2.14 2.37 2.70

Long-Term Debt Service Coverage 2.8 1.9 2.1 2.4 2.4 2.3

Long-Term Debt Equity Ratio 61:39 60s40 59s41 58s42 47653 10:90

Yak and Yeti Hotel

Current Assets 0.25 0.33 0.4 0.60 0.75 0.46,urrent Liabilities 0.10 0.12 0.13 0.21 0.23 0.31Net Working Capital 0.15 0.21 0.31 0.39 0.52 0.15

Total Net Assets 2.21 2.16 2.16 2.13 1.79 1.10

Long-Term Debt 1.47 1.h3 1.39 1.35 0.94 0.13

Original Equity and RetainedEarnings 0.74 0.73 0.77 0.78 0.85 0.97

Long-Term Debt Service Coverage 1.4 1.4 1.7 1.9 1.9 1.8

Long-Term Debt Eqity Ratio 67:33 66:34 64:36 63:37 53:47 12:88

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6. RECOmiENDATIONS

6.01 During credit negotiations, assurances were obtained that:

(a) arrangements acceptable to IDA will be made wherebythe NIDC would act for the Government in making theIDA credit available to the sponsors under appropri-ate sub-loan agreements, and in supervising thehotel projects (paras. 3.24, 3.25);

(b) arrangements acceptable to IDA will be made forproject management during construction and for man-agement of the hotels during operation (paras. 3.24,3.15, 3.16);

(c) evidence satisfactory to IDA will be produced thatthe title to all freeholds, and the condition of allleases are such as to meet the requirements of theproject (para. 3.04);

(d) sub-loan agreements agreed by IDA will be concludedwith each sponsor by the NIDC acting for the Govern-ment: each sub-loan will contain requirements that:

(i) each sponsor will have a commitment, supportedby appropriate guarantees, to provide the nec-essary equity including any additional fundsrequired to meet cost overruns (para. 5.07);

(ii) the sponsors' equity will be paid in accordingto an agreed schedule: neither sponsor willpay out any dividends during the period ofimplementation until the scheduled equity pay-ments for the given year have been made (para.5.07);

(iii) not less than 20% of the net profits of eachsponsor will be added to retained earningsannually (para. 5.06);

(iv) capital expenditures, except for replacement,in excess of US$ 50,000 equivalent would becommitted only after NIDC approval (para.5.09);

(v) each sub-loan will be secured by mortgages onfixed assets, held by the NIDC on behalf ofthe Government (para. 5.06);

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(vi) neither sponsor will assume any additional long-term debt during the life of the loan withoutNIDC approval (para. 5.06);

(vii) dividends in any one year during the life of theloan in excess of 20% of the par value of thecapital shares will be matched by equivalent pre-payment of the loan (para. 5.05);

(viii) the sponsors will bear any exchange rate risk onthe foreign exchange component of the sub-loans(para. 5.06);

(e) prior to signature of the respective sub-loan agreements,evidence satisfactory to NIDC would be furnished that:

(i) any past loans to each sponsor by their respec-tive shareholders have been converted intoequity (para. 5.08);

(ii) agreementhas been reached between theNIDC and the Yak and Yeti Hotel Pvt. Ltd. onthe purchase of land for an access road (para.

3.09);

(f) accounts for each sub-project shall be in accordancewith modern commercial practice, and shall be auditedby a qualified firm of auditors acceptable to IDA(para. 5.10).

6.02 A condition of effectiveness of the credit will be IDA approvalof the arrangements between the Government and the NIDC regarding thesupervision and administration of the project (para. 3.25).

6.03 A condition of effectiveness of that part of the credit allo-cated to each sub-project will be the signature of the respective sub-loan agreement (para. 5.04).

6.04 The proposed project provides a suitable basis for an IDAcredit of US$ 4.2 million equivalent.

ANNEX 1

Page 1

NEPAL

APPRAISAL OF THE KATHMANDU TOURISM PROJECT

ECONONIC JUSTIFICATION

Introduction

1. Throughout this appraisal each sub-project is considered

separately, and the effect on the operating results of each of anyconceivable failure to implement the other is ignored. This is justi-fiable where, as in this case, the two hotels appeal to substantiallydifferent markets, and where high occupancies are expected. It is

also assumed that there will be no significant diversion of businessfrom other hotels, given the acute shortage of accommodation.

2. The net benefits to the economy will consist primarily ofexpenditures of additional guests in the Annapurna and Yak and Yetihotels, less the cost of operating the facilities to be provided.The related investments are the capital costs of the hotels. Addi-

tional investments in infrastructure and other facilities are negligi-ble.

3. At full operation, the new accommodation will generate some

34,000 additional tourist arrivals per year, nearly all coming by air.Consequently, Royal Nepal Airlines Corporation may expect better loadfactors, revenue from embarkation taxes will increase, as will thatfrom landing fees charged to foreign airlines as a result of the addi-

tional flights needed. Since such benefits would be impossible toquantify with the present state of knowledge on the plans of the air-lines, they are excluded from the benefit stream of the project.

Revenue and Cost Assumptions

4. Each additional visitor can be expected to make some pur-chases during his stay in Nepal, other than what he pays for bed andboard. Gross per capita tourist expenditure on shopping in India wasUS$ 51 in 1968/69, and tourists spent an average of US$ 48 on itemsother than food, lodging, local transport and entertainment in Thai-land in 1969. In the absence of expenditure surveys for Nepal, assump-tions have been made which are believed to be rather conservative.Given that expenditure on souvenirs etc. tends to be largely independ-ent of the length of stay, and that Nepal produces an attractive rangeof local handicrafts, an average of US$ 45 gross expenditure per tour-ist including US$ 2 for a visa is possible and may well be exceeded bythe kind of tourist using bette'r class aceftmodation. The cautiousassumption has been made that this expenditure would result in a net

ANNE X 1Page 2

benefit to Nepal of US$ 10 per tourist, equivalent to US$ 3 per tour-ist bed-night.

5. There is expected to be very little use of the room accommo-dation by Nepalese, at least during the earlier years of the project.Use of expatriates stationed outside Kathmandu, or while looking forpermanent housing, may be significant, but there is justification forregarding much of this expenditure as foreign exchange. It is there-fore assumed that 95% of room sales will represent foreign exchange.Relatively more food and beverage sales will derive from Nepalese,either individually or as official entertaining. Entertaining byforeign embassies, airlines, etc. is treated as foreign exchange. Itis assumed that only 15% of food and beverage sales should be treatedas local currency.

6. It has been assumed that the average length of stay will be2.6 nights for the Hotel de l'Annapurna, and 4 nights for the Yak andYeti Hotel. Forty-five per cent of the Hotel de 1'Annapurna's occupieddoubled rooms are expected to be occupied by 2 persons, as against 55%in the case of the Yak and Yeti Hotel.

7. The economic life of each sub-project is assumed to be 25years. Provision is made for replacements during the lives of the sub-projects.

Rate of Return

8. The economic costs and benefits of each sub-project are sum-marized below.1/Financial results have been adjusted by eliminatingindirect taxes and import duties from costs and adding to the bene-fits the 5% sales tax which is levied on hotel bills. US$ 10 per tour-ist has also been added to the benefit stream to allow for the assumednet benefit arising from expenditure on shopping etc. The costs andrevenues of the Hotel de l'Annapurna are the incremental costs andrevenues due to the project, estimated results for the continued opera-tion of the existing hotel having been subtracted from the projectedresults of the enlarged hotel.

1/ The taxes and duties currently applicable to hotel operations inNepal are shown in Table 22.

ANNEX 1Page 3

US$ Million Equivalent

Hotel de l'Anppurna Yak and Yeti otelCosts- Reve- Costs Reve-

Year Investment Operating nues / Investment Operating nues2 /

1 1.18 - - 0.75 - -2 2.19 - - 0.97 - -3 0.65 0.25 0.43 0.25 0.23 0.344 0.20 0.98 1.71 - 0.46 0.685 - 1.01 1.85 - 0.51 0.956 - 1.05 1.99 - 0.55 1.037-8 - 1.07 2.13 - 0.57 1.129 0.08 1.07 2.13 0.03 0.57 1.12

10-13 - 1.07 2.13 - 0.57 1.12tI4 0.30 1.07 2.13 0.11 0.57 1.1215-18 - 1.07 2.13 - 0.57 1.1219 0.85 1.07 2.13 0.28 0.57 1.1220-23 - 1.07 2.13 - 0.57 1.1224 0.30 1.07 2.13 0.11 0.57 1.1225-28 - 1.07 2.13 - 0.57 1.12

1/ Excluding indirect taxes and duties2/ Including sales tax and net benefit due to shopping etc. expendi-

ture.

9. The above figures are taken to represent the best estimates.They give an economic rate of return of 19.9% for the Hotel de 1'Anna-purna, and 20.8%for the Yak and Yeti Hotel, and 20.2% for the twosub-projects combined. This calculation uses the official foreignexchange rate, and the market price for unskilled labor. In view ofrates of between 12 and 16 rupees to the dollar being offered in thegray market, and underemployment of labor, the effect on the rates ofreturn of shadow pricing was tested. A shadow price of 14 rupees tothe dollar, as against the official rate of 10.125 rupees, raised theeconomic rate of return by 5 and 4 percentage points for the Hotel del'Annapurna and the Yak and Yeti Hotel respectively. Shadow pricingof semi and unskilled labor at 40% of the wage rates raised the ratesof return by 3 and 2 percentage points respectively.

10. The economic rates of return are reduced by assuming a loweraverage rate of room occupancy than the 75% and 70% assumed in the pro-jections for the Hotel de l'Annapurna and the Yak and Yeti Hotel respec-tively. For example, reducing the average occupancy by 5 percentagepoints lowers the economic rate of return of the two hotels by 1 per-centage point each. Similarly, assuming a year's delay in the openingof the hotels would reduce the returns by 2 percentage points for each.

ANNEX 1Page 7

11L. The extended Hotel de l'Annapurna will employ 465 staff, 239more than the existing hotel. The Yak and Yeti Hotel will employ 260more than the 30 working in the existing restaurant. Although employ-ment figures are scanty in Nepal, it is believed that these jobs arebadly needed. The hotel industry moreover provides opportunities foradvancement to higher levels of responsibility, and provides some basicskills which are transferable to other service industries. The addi-tional tourists visiting Nepal as a result of the project will alsostimulate employment in sightseeing and handicraft businesses. To theextent that the hotels provide a base for trekking expeditions, theywill help to give employment to porters in the more remote and under-developed regions of the country. No attempt has however been made toquantify such indirect employment effects, but they may be considerable.

Direct Balance of Payments Impact

12. The project is expected to increase gross foreign exchangeearnings by about US$ 4.85 million per year when both hotels are fullyoperational, including the impact due to the expenditure of the addi-tional hotel guests on shopping, etc. This compares with estimatedgroEs tourist receipts of US$ 2.0 million in 1970. The import compo-nent of hotel operating costs are relatively high, but revenues arealmost entirely foreign exchange. During a typical year, direct netforeign exchange earnings attributable to the project will be of theorder of US$ 2.45 million plus some US$ 0.34 million due to expendi-ture on shopping etc. Once repayment of the IDA credit begins, thisfavorable effect on the balance of payments will be slightly reduced,by some US$ 0.1 million a year.

ANNEX 2Page 1

AS SUMPTIONS

FOR

FINANCIAL ANALYSIS

Operating Results

1. Tables 10 and 18 present the forecast of operating resultsover the first 21 years of the project. The forecasts are based onRevenue and Cost assumptions described below.

Revenue Assumptions

2. Total revenues include income from hotel guests and non-resident guests. Revenue comprises income from rooms, food, beverage,other operating departments, miscellaneous sales and rentals. Roomincome from hotel guests is based on average room tariffs differenti-ated according to single and double occupancy.

Rate for % ofAverage Single Double DoubleRoom Ratel/ Occupancy Occupancy Occupancy

Hotel de l'Annapurna US$ 18.0 US$ 16.70 US$ 20.70 45

Yak and Yeti Hotel US$ 15.00 'US$ 13.30 US$ 16.80 60=

1/ Rates do not include 10% service charge and 5% government salestax.

2/ Based on double rooms only, 20% of total capacity single rooms.

3. Estimates for food and beverage income are based on ratiosprevailing in hotels of these types.

Percentage of Total Revenues Hotel de l1'Annapurna Yak and Yeti Hotel

Food 34 33

Beverage 10 15

ANNEX 2Page 2

4. The higher ratio for beverage sales for the Yak and Yeti Hotelreflects the fact that the bar together with the restaurant will be themain social gathering point in Kathmandu both for local customers andforeigners.

5. Income from other operated departments amounts for the Hotelde l'Annapurna to 2.6% of total revenues. Because of the smaller sizeand the difference in the clientele this possible source of income hasbeen disregarded for the Yak and Yeti Hotel. Only in the case of theHotel de l'Annapurna rental income amounting to US$ 5,000 for a typicalyear was included in total revenue.

Cost Assumptions

6. Direct material costs for food, beverage and other items havebeen calculated as follows:

Cost of SalesFood Beverage Other

Hotel de 1'Annapurna 37% 3%

Yak and Yeti Hotel 42% 38% -

The difference in the percentages between the two hotels reflects thedistinctions in the type of operation and the resulting pricing policy.

7. Payroll and related expenses are expected in the typical yearof operation to be 20.1% of total revenues for the Hotel de l'Annapurnaand 21.6% for the Yak and Yeti Hotel. These percentages reflect therelatively low wages of semi- and unskilled workers in Nepal.

8. Indirect costs estimated as a percentage of total revenue(22.8 for the Hotel de l'Annapurna and 29.9 for the Yak and Yeti Hotel)include the following:

Administrative and General ExpensesAdvertising and Sales PromotionCommissionsHeat, Light, PowerOperating SuppliesReplacement of Operating EquipmentMaintenance and Repairs.

In the case of the Yak and Yeti Hotel they include also insurance andauditing fees.

ANNEX 2Page 3

9. Insurance and auditing fees as well as director's fees forthe Hotel de l'Annapurna are shown separately due to the provisions ofthe management agreement. They account for 1.6% of total revenue.

10. Rental payments by the Yak and Yeti Hotel are shown sepa-rately and are not included in indirect expenses. They amount to 1%of total revenues.

11. The management fee of Hilton International Company for theHotel de l'Annaparna amounts to 8.7% of total revenues. This is madeup of a basic fee of 5% of total revenue plus an incentive payment of10% of gross operating profit.

12. Average depreciation on total assets is about 6.4% per yearfor the Hotel de 1'Annapurna and 4.9% for the Yak and Yeti. The differ-ence reflects the fact that the Hotel de l'Annapurna has an existingbuilding, and more equipment such as central air conditioning. Build-ing and site development are depreciated over 33 years, mechanical andelectrical equipment over 15 years, furnishing over 10 years, and car-pets, curtains, bedding, etc. over five years. Pre-opening expensesand training are amortized over the first five years of operation.

13. Commitment charge and interest during construction is capi-talized for the time of disbursement, i.e. in the case of the Hotel de1'Annapurna for three years and three months and in that of the Yakand Yeti Hotel for three years.

14. A projected Financial Position Statement, a projected CashFlow Statement for the two sub-projects based on the forecast operat-ing results, are shown in Tables 11, 12, 19 and 20.

15. The effect on the financial rates of return, estimated ona discounted cash flow basis for the first 25 years of operation, ofdiffering assumptions about rates of room occupancy and opening dateare given below:

ANNEX 2Page b

DCF Rate of Return

Including WithoutSunk Cost Sunk Cost

Hotel de 1'Annapurna

Average room occupancy 75%: opening Oct. '74 10.6 11.8Average room occupancy 70%: opening Oct. '74 9.9 10.9Average room occupancy 75%: opening Oct. '75 9.8 10.9Average room occupancy 70%: opening Oct. '75 8.8 9.7

Yak and Yeti Hotel

Average room occupancy 70%: opening May '74 9.4 9,6Average room occupancy 65%: opening May '74 8.6 8.8Average room occupancy 70%: opening May '75 8.0 8.3Average room occupancy 65%: opening May '75 7.4 7.6

ANNEX 3Page 1

THE NEPAL INDUSTRIAL DEVELOPNT CORPORATION

1. The Government-owned Nepal Industrial Development Corpora-tion (NIDC) was established in 1959, and is the country's only indus-trial development bank. It is able to make short- and long-term loans,and participate in equity. It has also some non-banking activities,such as a Consultancy Services Division, an Industrial Promotion andProductivity Center, and two Industrial Districts.

2. The Chairman is the Minister of Commerce and Industry, andother directors are the Secretary of Finance, the Governor of theNepal Rastra Bank, and two prominent private businessmen.

3. The staff totals over 200, of whom 80 are professionals. Thegeneral level of competence is good, and some professionals havereceived training abroad, including at the Economic Development Insti-tute.

4. The resources of the NIDC, as at early 1971, stood atNRs. 78,500,000 net of repayment, of which NRs. 35,680,000 was equity.the balance being provided by loans from USAID, Kreditanstalt fuerWiederaufbau, ExIm Bank of Japan, the Government of India, and the Gov-ernment of Nepal.

5. The last three available Balance Sheets can be summarized asfollows:

As at July 15 (NRs. Million)

1968 1969 1970(Provisional)

ASSETS

Cash and banks 3.01 4.45 2.5Accounts receivables 7.35 8.13 5.0Investments:

Loans 35.43 35.22 43.3Equity 3.96 4.17 4.8Industrial Districts 7.76 8.76 8.8

Net fixed assets 1.74 1.71 2.4Guarantees 12.33 13.13 13.8

LIABILITIES AND EQUITY

Current 5.60 1.82 1.0Long-term borrowings 26.99 25.53 30.7Share capital 25.72 34.12 34.4Reserves and surplus 0.94 0.97 0.7Guarantees 12.33 13.13 13.8

715 75.77-0.

ANNEX 3Page 2

6. In the first eleven years of operation, NIDC has approved154 projects, for which the proposed loans totalled NRs. 140 million.Of this, however, only NRs. 5 million was disbursed, for 115 projects.Among these were 13 hotel projects, for which NIDC loans amounted toMRs. 19 million. NIDC appraisals of hotel projects have shown someattention to detail, and are in general conscientiously done.

7. The main problem the NIDC has encountered has been its man-agement's inability to insist on timely repayment from influentialborrowers. In early 1971, no less than 59 loans were in arrears,interest and principal due amounting to NRs. 3.9 and NRs. 15.7 millionrespectively. Loans in arrears included 4 hotel projects, of whichthe Soaltee Hotel accounted for 99% of the amount due. The diffi-culties of the Soaltee arose partly fram the short term over which itsNIDC loan was granted. Since that time, however, the Soaltee has begunto meet its obligations. The newly appointed General Manager of theNIDC appears to be able and willing to institute much firmer policies,and a general tightening up on NIDC's operations. Executive assistancefrom the ADB is under discussion.

8. NIDC's standard terms of long-term finance are an interestrate of 7-1/2% per annum, paid semi-annually, plus a commitment chargeof 1/4% on the undisbursed balance. The term of each loan is determinedaccording to the nature of the enterprise concerned. A grace period forthe repayment of principal is granted on the basis of the length of timerequired for the project to be in full operation. Loans are normallysecured by a mortgage on up to 75% of total fixed assets, or 80% for aproject in the Industrial Districts.

ANNEX 4Page 1

THE SPONSORS

The Hotel de l'Annapurna Pvt. Ltd.

1. The company was formed in March 1971, with an authorizedcapital of NRs. 20 million of which NRs. 6.4 million is paid up. Theshareholders are H.R.H. 1st Queen Mother Kanti Rajya Laxmi Devi Shah,2nd Queen Mother Iswari Rajya Laxmi Devi Shah, and H.R.H. PrincessHelen Shah.

Present Operations

2. The existing Hotel de l'Annapurna comprises 90 rooms andsmall inadequate public areas. Technical installations as well asfurniture and decorations are not up to the standards of an inter-national four-star hotel. Lack of proper laundry facilities andinconvenient kitchen arrangements require great efforts to maintainhygienic standards.

3. A high level of demand and limited competition has made itpossible to charge prices which have been out of line with the qual-ity of the accommodation. The hotel has thus been a profitableundertaking operating at an average annual room occupancy of 82%.

4. Apart from a small secured loan from the NIDC amounting toNRs. 565,904 (US$ 55,892) as of December 31, 1970 and an unsecuredloan from Nepal Rastra Bank of NRs. 17,555 (US$ 1,734) the hotel isfinanced by the owners. Owners' equity together with the generalreserve amounts to NRs. 1,568,947 (Us$ 155,129). In addition, theowners have provided an unsecured loan of NRs. 5,137,363 (uS$ 507,394).Being still exempt from income taxes under the hotel investment incen-tive arrangements, profit (1970 NRs. 1,181,151 = US$ 116,756) and inter-est on the unsecured sponsors loan amounted to NRs. 1,644,500(US$ 162,400) resulting in a return on owners' investment of 24.5%.

5. The existing operation should generate from 1971 until 1974cash to the order of NRs. 7.7 million (US$ 0.76 million) equivalent to58% of the required cash investment in equity. The remaining US$ 0.55million equivalent will be provided by the owners.

The Yak and Yeti Hotel Pvt. Ltd.

6. The company has an authorized capital of NRs. 5 million andan issued capital of NRs. 1 million. Mr. Radesham Saraf and his familyhold 65% of the shares, Mr. Boris Lissanevitch, the remaining 35%.The company has no trading activities at present, having been estab-lished solely to operate the new hotel. Application has been made toraise the authorized capital to NRs. 12 million.

ANNEX .Page 2

7. Mr. Saraf is an Indian citizen who has built up substantialtrading and industrial enterprises in Nepal. He is a director of SarafEnterprises Pvt. Ltd., which exports commodities of Nepalese originsuch as musk. He is also Managing Director of a weaving mill in Bombay,and of a Calcutta metal pipe agency. He is a partner in Messrs. HimdootFabrics of Calcutta, New Delhi, and Bombay, and in Messrs. Saraf Brothersof Calcutta, a leading exporter of Indian goods. He owns over 7 acres of

land in central Kathmandu, a multi-story building in Calcutta, a factoryand 20 acres of land in Bombay, a 100-acre tank farm in Calcutta andresidential property. He has so far made investments amounting to someUS$ 880,000 equivalent in Nepal and US$ 2.6 million equivalent in India.

8. Mr. Lissanevitch is a British citizen who has lived in Nepalfor 20 years. He has had many years of experience in the hotel andcatering business in Europe, in India, and for 12 years as manager of

the successful Royal Hotel in Kathmandu, which closed when the leaseexpired. His restaurant sets a high standard of food, service, andinterior design, and is widely known outside Nepal. Mr. Lissanevitch

has a large circle of friends and contacts throughout the world, a

factor which is thought to be a considerable asset for the marketing of

the new hotel. His three sons are all to be trained in leading hotels

in Europe.

ANNEX 5Page 1

NEPAL: KATHMANDU TOURISM PROJECT

Interest Rates in Nepal

The following quotation from the IMF report on Nepal datedSeptember 1971 summarizes the latest available information on thestructure of interest rates in Nepal.

"The structure of interest rate was revised by theRastra Bank effective April 14, 1971. The most signifi-cant changes involved increases in commercial bankdeposit rates, changes in their lending rates for cer-tain important types of loans, and lower lending ratesfor agricultural credits and Rastra Bank refinancingloans to other financial institutions.

IA few selected deposit interest rates are shownbelow:

Table 18. Nepal: Commercial Bank Deposit Rates(In per cent per annum)

Before AfterApril 14, 1971 April 14, 1971

Savings deposits 4 1/2 5

Fixed-term deposits1 year 6 7-1/2Over 1 to 2 years 6 7-3/4Over 2 to 3 years 6-1/2 8Over 3 to 5 years 6-3/4 8-1/4Over 5 years 7 8-1/2

Source: Nepal Rastra Bank

ANNEX 5Page 2

"Some of the new lending rates are shown below:

Table 19. Nepal: Commercial Bank Loan Rates(In per cent per annum)

Security or Before AfterPurpose of Loan Arril 14, 1971 April 14,A 971

Jute manufactures 9-1/2 9Gold and silver 9-1/2 9-1/2Foodgrains 9-1/2 10Overdrafts 11 12Hire purchase 12 9-1Imports 10 12--Export bills 7-1/2-8-1/2 7

1/ Specified categories

Source: Nepal Rastra Bank

"The lending rates of the financial institutions inthe agricultural sector were reduced almost uniformll.For instance, for short-term credits to institutions,the rate was decreased from 8 per cent to 7 per centper annum; for medium-term credits to institutions,from 7-1/2 per cent to 6 per cent per annum; and forlong-term loans for the same purpose, from 5 per centto 3-1/2 per cent per annum. The reductions in inter-est rates for agricultural loans to individuals werebrought down in approximately the same proportion.

"The Rastra Bank's interest rates for refinancingof commercial bank loans were reduced from 6 per centto a range of 4-1/2 per cent to 5-1/2 per cent perannum, except for industrial requisites for which therate remained unchanged at 6 per cent. Similarly, theBank's refinancing rates for financial institutions inthe agricultural sector dropped from a range of 5-5-1/2per cent to 2-6 per cent per annum; at the same time,refinancing possibilities were extended to new types ofloans, such as long-term agricultural credits."

ANNEX 5FIage 3

The Nepal Industrial Development Corporation (NIDC) is thecountry's only development bank. Its long-term loans carry a stand-ard interest rate of 7-1/2% per annum, plus 1/4% commitmnt chargeon the undisbursed balance. Loans are secured by mortgages on fixedassets.

NEPALKATHMANDU TOURISM PROJECT

TOURIST ARRIVALS BY MODE OF TRANSPORT

(excluding Indian nationals)

1968 1969 1970By By By By By By

Road Air Total Road Air Total Road Air Total

January 276 1,399 1,675 317 1,685 2,002 437 2,318 2,755

February 326 1,492 1,818 402 2,279 2,681 306 2,510 2,816

March 331 2,154 2,485 499 2,375 2,874 583 3,374 3,957

April 324 1,752 2,076 685 2,279 2,964 694 2,909 3,603

May 340 1,318 1,658 485 1,947 2,432 690 2,773 3,463

June 249 811 1,060 301 1,496 1,797 370 1,866 2,236

July 291 1,525 1,816 590 2,212 2,802 1,051- 3,109 4,160

August 393 1,726 2,119 900 2,165 3,065 1,063 3,979 5,042

September 520 1,258 1,778 719 1,899 2,618 989 2,544 3,533

October 457 2,274 2,731 536 3,782 4,318 928 3,627 4,555

November 522 1,912 2,434 728 3,091 3,819 1,381 3,137 4,518

December 463 2,096 2,559 609 2,920 3,529 970 4,362 5,332

Total 4,492 19,717 24,209 6,771 28,130 34,901 9,462 36,508 45,970'

Source: Central Bureau of Statistics

February 1972

TABLE 2

NEPAL: KATHMANDU TOURISM PROJECT

1/TOURIST ARRIVALS BY NATIONALITY-

1968 1969 1970

Nationality

United States 9,550 12,816 14,346Great Britain 3,192 4,413 5,211France 2,427 3,290 5,280W. Germany 2,159 2,846 4,600Australia 1,027 1,590 2,229Japan 794 1,439 2,314Canada 70C 980 1,512Switzerland 698 651 1,421Italy 459 827 1,468Denmark 293 626 1,192Other 22910 5,021 6,397

TOTAL 24,209 34,901 45,970

1/ excluding Indian citizens, who are nct required to complete the sameimmigration formalities as other foreigners.

Source: Central Bureau of Statistics

NEPAL: KATHMWANDU TOURISM PROJECT

BREAKDOWN OF TOTAL PROJECT COST

Rate of Exchange: US$1.00 Rupees 10.125

Land Professional Cost of Project Technical Pre-OpeningTotal Area Acquisition Siteworks Construction Equipnent Services P i Facilities Management Assistance Expenses(sq.ft.) NRs.(ON) NRs.(00) NRN.. (000) (000) _ (00 NRs. (000) S. (000)

1. Yak and Yeti Hotel 8 h,000 283.5 816.0 10,901.5 2,571.8 690.3 1j,263.1 1,507.5 101.2 354.4 15,718.7 1,552.52. Hoel de l'Annapurna 165,800 830.3 23,493.0 6,500.2 1,572.4 32,395.9 3,199.6 303.7 435.4 151.9 33,286.9 3,287.6

Total Area 249,800

Total before Contingencies 283.5 1,646.3 34,394.5 9,072.0 2,262.7 47,659.0 4,707.1 404.9 435.4 506.3 69,005.6 4,840.1

Price Increase 197.6 5,149.6 1,088.6 6,435.8 635.6

Physical Increase 164.6 3,443.8 1,36o.8 339.4 5,308.6 524.3

Total Contingencies 362.2 8,593.4 2,449.4 339.4 11,744.4 1,159.9 11,744.4 1,159.9

Total after Contingencies 283.5 2,008.5 42,987.9 11,521.6 2,602.1 59,403.6 5,867.0 406.9 435.4 506.3 60,750.0 6,000.0

Foreign Exchange Component:

Percentage ?o.o% 70,0% 78.0% 50.0% 70.2% 90.0% 80.0% 70.0%

Total 1,405.9 29,851.6 8,986.7 1,301.0 41,728.0 4,121.3 392.0 4O5.0 42,525.0 4,200.0

February 1972

NEPAL: KAlTKAUNDU TOURISM PROJECT

ESTIMATED SCHEDUIE OF EXPENDITUR'z AND DISBURSEMENTS

(in US$ equivalent)

Expend it u r es Disburse m en t s1/ Accummulated Undi-sbursedQuarters IDA FY and )uarter yak & Yett Annapurna Total Yak & Yeti Annapurna Total Disbursements 1/ Balance 1/

1972 - 19731 June 30, 1972 103,000 61,300 164,300 - - - - 4,200,0002 September 30, 1972 103,000 214,300 317,300 63,800 45,000 108,800 10a,800 4,091,2003 December 31, 1972 197,800 312,000 509,800 63,800 131,900 195,700 30L,500 3,896,500

1973 - 19744 March 31, 1973 300,600 454,3CO 754,900 134,400 205,600 340,000 644,500 3,555,5005 June 30, 1973 357,500 584,300 941,800 208,900 325,900 634,800 1,179,300 3,020,7006 September 30, 1973 317,200 724,300 1,041,500 250,300 414,900 665,200 1,844,500 2,356,5007 December 31, 1973 198,600 569,300 767,900 220,800 614,900 736,700 2,680,200 1, 61 9,doo

1974 - 19758 MarchT 1, 1974 133,000 408,500 541,500 139,500 404,400 643,900 3,124,100 1,076,9009 June 30, 1974 33,300 261,000 294,300 93,600 290,600 384,200 3,508,300 691,700

10 September 30, 197 32,900 111,000 143,900 26,200 186,100 211,300 3,719,600 480,40011 December 31, 1974 140,800 91,700 232,500 24,900 33,000 107,900 3,827,500 372,600

1975 - 197612 Mai T1 1975 - 290,400 290,,00 98,500 70,700 169,200 3,996,700 203,30013 Jane 30, 1975 - - - - 203,300 203,300 4,200,000 0

1/ Excluding interest during construction and other charges.

NOTE: Small differences between this table and Tables 7, 8 and 15, 16 are due to rounding.

Februpry 1972

NEPAL: KATHMANDU TOURISM PROJECT

CONTINGENCY ALLOWANCE

land Siteworks Construction Equipment Professional Project Technical Pre-OpeningAcquisition Services Management Assistance Expenses TOTAL

local Foreign Local Foreign Local Foreign local Foreign Local Foreign local Fo Local Foreign local Foreign

Allowance forPhysical Increase n.a. 10.0% 10.0% 15.0% 15.0% n.a. n.a. n.a.

Allowance forPrice Increase n.. 12.0% 15.0% 12.0% n.a. n.a. n.a. n.a.

Total Project Cost BeforeContingencies(USmillions) 0.028 0.049 0.114 1.019 2.378 0.197 0.699 0.223 0.00 0.004 0.039 0.010 0.040 4.840

Allowance forPhsical Increase

$ mllIns n.a. 0.005 0.011 0.102 0.238 0.029 0.105 0.034 n.a. n.a. n.a. 0.524

Sub-TotalTuMfmillions) (1.028 0.054 0.125 1.121 2.616 0.226 0.

804 0.257 0.oo 0.004 0.039 0.010 0.o4o 5.364

Allowance forPrice Inn rease(US$ millions) n.a. 0.005 0.014 0.153 0.356 0.024 0.084 n.a. n.a. n.a. n.a. 0.636

TOTALIncluding Contingencies

US$ miilions) 0.028 0.059 0.139 1.274 2.972 0.250 0.888 3.257 0.0h0 0.004 0.039 0.010 0.04O 6.000

February 1972

NEPAL: KATHMANDU TOURISW PROJECT

3CHEDULE OF.AOMMDDATION OF THE HOTEL DE L'ANNAPURNA, KATHMANDU

Rate of Exchange: US$1.00 = Rupees 10.125

Total Area Siteworks Construction Equipment TOTAL COST

Type of Accommodation (sq.ft.) Hs.(OOO) NRB. (000) NRS.(000) HI7s. (000)

Bedroom Area (159 new guest rooms) 67,595 269.3 9,795.0 1,055.0 11,119.3 1,098.2

Public Space 8,460 44.6 1,556.2 149.8 1,750.6 172.9

General Service Space -53,675 146.8 7,143.2 661.2 7,951.2 785.3

Concession and Sub-Rental Space 100 6.1 14.2 19.2 39.5 3.9

Food and Beverage Space 21,650 104.3 2,925.1 1,135.0 4,164.4 411.3

Miscellaneous Facilities 14,320 259.2 2,059.3 138.8 2,457.3 242.7

Sub-Total 165,800 830.3 23,493.0 3,159.0 27,482.3 2,714.3

(+3,341.2)

rice n ncrease 90.2 3,427.0 832.3 4,349.5 429.6Physical Increase 89.8 2,241.5

1,026.5 3,357.8 331.6

Total Contingencies 180.0 5,668.5 1,858,8 7,707.3 761.2

Sub-Total 1,010.3 29,161.5 5,017.8 35,189.6 3,475.5

Operational Equipment 2,303.4 2,303.4 227.5

Refurnishing of Existing Rooms 1,037.8 1,037.8 102.5

Professional Services 1,911.8 188.8

Project Management 303.7 30.0

Technical Assistance 435.4 43.0

Pre-Opening Expenses (Staff Training) 151.9 15.0

GRAND TOTAL 41,333.6 4,082.3

1/ Including contingencies

February 1972

HOTEL DE L'ANNAPURNA

SCHEDULE OF ACCOMMODATION

Total Area Siteworks Construction Equipnent Total Total(sq. ft.) NRs. (000) NNRs.(000) NHs. (000) US(000)

1. BEDROOM AREA

121 New Bedrooms (bathroom & closet)in main block 38,922 5,463.0

38 New Bedrooms (bathroom & closet) 13,474 1,793.4

82 Upgrading of existing bedrooms(aircmditioning, heating, hotwater & low voltage only) 559.9

5 Linen Areas 900 123.5

Balconies 3,300 451.6

Circulation 11,000 1,403.6

Sub-Total 67,596 269.3 9,795.0 1,055.0 11,119.3 1,098.2

2. PUBLIC SPACE

Reception Foyer 2,400 441.6

Lounge (new) 1,600 294.4

Public Toilets 500 92.0

Lifts 1,360 250.2 o

Circulation 2,600 478.0

Sub-Total 8,460 44.6 1,556.2 149.8 1,750.6 172.9

Total Area Siteworks Construction Equipment Total Total(sq. ft.) NRS.(000) NR. (000) NRs.(OOO) NRs. (000) UST 000

3. GENERAL SERVICE SPACE

Front Office 200 27.3

Telephone and Sound Control 300 41.5

Accounts Office (new) 1,580 216.7

Offices (existing) 95.2

Luggage (existing) 5.1

Storage Areas (new) Floor 6& Luggage Room at Floor 2 3,160 411.0

Housekeeping Room 1,200 164.0

Laundry 2,500 352.2

Men EIployees' Toilets and Lockers 2,250 317.8

Women Erployees' Toilets and Lockers 650 89.1

Supervisor's Toilet and Looker 416 56.7

Machine Room (Floor 7) 3,000 410.1

Mechanical Services 19,534 2,387.4

Engineering Store 480 65.8

Engineer's Office 145 19.2

Workshop 900 123.5

Machine Shop 4,960 673.4

Water Tanks 6,600 893.4

Garbage Cold Room 200 27.3

Circulation 5,600 766.5 0

Sub-Total 53,675 146 .8 7,143.2 661.2 7,951.2 785.3

i. CONCESSION & SUB-RENTAL SPACE

Shop 100 14.2

100 6.1 1T.2 19.2 39.5 3.9

Total Area Siteworks Construction Equipment Total Total(sq. ft.) mins.(0) N3RS . (000) Niss. o00 s. 000)

5. FOOD AND BEVERAGE SPACE

Specialty Restaurant 1,100 171.1

Main Restaurant 2,750 375.9

Private Dining Rooms (2) 2,200 303.0

Bar 1,400 191.4

Cocktail Lounge 1,730 202.0

Snack Bar 1,000 145.8

Staff Cafeteria 1,200 162.0

Supervisor's Dining Roo 200 27.0

Pantry 1,434 184.2

Hot Kitchen 900 123.5

Cold Kitchen 500 68.6

Food & Beverage Store 2,650 352.5

Trash & Bottles 396 53.6

Purch. Mgr. Offices & Control 659 66.8

Indian Kitchen 290 39.5

Pastry 320 42.5

Pot Wash