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The World Bank

FOR OMCAL USE ONLY

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Reupt N. P-3649-BHU

REPORT AND RE MD

OF THE

PRESIDEIT OF TE

I*ITERNATIONAL ASSOC=MO

TO THE

ECUTIVE DIRCTORS

ON A

PROPOSED CREIT

IN AN AN(!OCT OF SDRs 2.8 MIILIQN

TO THE

KINGDOM OF BHUTAN

FOR A

TECHrNCAL ASSISTANCE EPORT

September 28, 1963

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CURRENCY EQIIVAI

US$1 Ngultru 9.5 laNu 1 = US$0.105Nu 100,000 = US$10,526Nu 1,000,000 = US$1,052,632

ABBREVIATIONS

UNDP - United Nations Developmeut ProgramUNICEF - United Niations Children's Energency FundWFP - World Food ProgramDANMIDA - Danish Iaternational Development AgencyIFAD - International Fund for Agricultural DevelopmentUNFPA - Uhited Nations Fund for Population Activities

FISCAL YEAR

April 1 to March 31

/a The Ngultrum (Nu), the currency of Bhutan, is tied on a one-to-onebasis with the Indian Rupee.

BHUTAN FOR OMCIAL USE OlNLY

TECHNICAL ASSISTANCE PROJECT

CREDIT AU) PROJECT SUMMARY

Borrower: The Royal Kingdom of Bhutan

Amountt: Special Drawing Rights (SDRs) 2.8 million(US$3 million equivalent)

Beneficiary: The Planning Comission

Terms: Standard IDA terms

Project The Project would help prepare a pipeline of high priorityDescription: projects suitable for financing by the Government and

external donors. The project would include technicalassistance for pre-investment planning, feasibilityand engineering studies, consIlting and advisory services,setting up of planning and preparation units, as necessary,trainixg of personnel, setting up of telex facilities andprocurement of equipment, vehicles and materials.

Estimated Cost: US$3.5 million equivalent including US$2.5 million inforeign costs and US$1.0 million in local currency.

US$ MillionLocal Foreign Total

Financing Plan: Kingdom of Bhutan 0.5 - 0.5IDA 0.5 2.5 3.0

1.0 2.5 3.5

Estimated US$ MillionDisbursements: IDA FY84 FY85 FY86

Annual 0.5 1.5 1.0Cumulative 0.5 2.0 3.0

Risks: The project initiation and implementation is likelyto be slow due to inadequacy of communicationsbetween Bhutan and the outside world and Bhutan's lackof familiarity with IDA procedures and processes forselection of consultants. This is sought to be mintmizedby familiarizing government officials, particularly thosein the Planning Commission, with IDA6 selection proceduresand through close follow up and monitoring by IDA staff.

Staff AppraisalReport: Not required.

Rate of Return: Not applicable.

Map: IBRD No. 16830R

This document has a restricted distbution and may be used by recapients only in the performanc ofrtheir ofrical dutits coftnts may not othrwie be diosed without World Dank authriztio

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECONMENDATTON OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS

ON A PROPOSED CREDITTO THE ROYAL KINGDOM OF BHUTAN

FOR A TECHNICAL ASSISTANCE PROJECT

1. I submit the following report and recommendation on a proposedDevelopment Credit to the Royal Kingdom of Bhutan in an amount of SpecialDrawing Rights (SDRs) 2.8 million (US$3.0 million equivalent) on standard IDAterms to help finance a Technical Assistance Project.

PART I - THE ECONOM!

2. The first economic report entitled, "'hutan: Development in aHimalayan Kingdom" (Report No. 4307-BHU dated April 7, 1983) was distributedto the Executive Directors on April 21, 1983. Country data are shown inAnnex I.

Country Background

3. Bhutan is a small and landlocked Buddhist kingdom in the easternHimalaya. It has an area of about 46,500 sq km and is bordered by the Tibetregion of China and the Indian states of Sikkim, West Bengal, Assam andArunachal Pradesh. The border with China is a traditional one following forthe most part the main ridge of the Himalaya; that with India was negotiatedin a series of treaties with Britain in the nineteenth century. It mostlyfollows the southern foothills of the Himalayas, which rise abruptly from theBrahmaputra plains. The relatively remote location, rugged terrain, andformidable natural borders coupled with a strong sense of independence madeit easy for Bhutan to remain in isolation until about 1960.

4. The terrain of Bhutan is some of the most rugged in the world. Theland rises from an altitude of less than 160 m above sea level in the southto over 7,000 m less than 100 kilometers to the north, and is characterizedin between by steadily rising hills cut by deep river valleys. The climateis correspondingly extreme, ranging from the hot and humid sub-tropicalconditions of the southern foothills to the perpetual ice and snow of thehigh Himalaya. Most of the population lives in the hills of the so-called"inner Himalaya," between altitudes of about 1,000 m to 3,000 m, which isgenerally temperate in climate and has a number of relatively broad rivervalleys. These, along with some sections of flatland below the southernfoothills, account for most of the readily cultivable land in Bhutan. Onlyabout 5% of the land is cultivated or inhabited, while about 70Z remainsunder natural forest cover. Most of the remaining land is seasonal grazingland or under perpetual snow.

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5. Prior to 1907, Bhutan was a theocracy with full power, in principle,resting in the hands of the Shabdung, the head lama. However, over time thepower of the Shabdung and the monastic establishment over secular mattersdeclined, and there was constant turmoil as the governors of various regionscompeted for power. But in 1907 a governor of sufficient strength emerged tounify the country under a hereditary monarchy. Thus, Ugen Wangchuck becamethe firat Druk Gyalpo, or king of Bhutan and the present king, His MajestyJigme Singye Wangchuck, is the fourth monarch.

6. The first two monarchs concentrated on centralizing authority aroundthe monarchy, but the third king decided that over the longer run it wasdesirable that Bhutan evolve into a constitutional monarchy. Thus, in 1953,the National Assembly was formed. It currently comprises 100 representativesof the people, 10 representatives of the monastic establishment, some 40government officials appointed by the King and a speaker. The Assemblyconvenes twice yearly and its resolutions are binding on the monarchy,although the King has the right to formally address the National Assembly andask them to reconsider. In practice, this has never happened - the people ofBhutan are highly dedicated to their monarchy, and issues are inevitablyresolved before a vote is taken. To assist in governing, the late king alsocreated in 1965 a nine member Royal Advisory Council, and in 1968, a Cabinetalong with the first government ministries. Today, the government comprisessix Ministries - Finance; Home Affairs; Foreign Affairs; Trade, Industry, andForests; Communications and Tourism; and Development. Most developmentsectors operate as departments under the Ministry of Development. For inter-nal administration, Bhutan is divided into 18 districts, with the governorsof each district being appointed by the King and reporting to the Ministry ofRome Affairs. Although its power has declined, the monastic establishmentcontinues to play an important role, and religion continues to be one of thestrongest forces of national unity. -

7. In 1949, following the departure of Britain from the sub-continentBhutan signed a treaty with India which confirmed, as was the case withBritain in prior years, Indian non-interference in internal Bhutanese affairsand Bhutanese agreement to be guided by Indian advice in the conduct of itsexternal affairs. Bhutan's principal external ties had been with Tibet inthe north, because of a common heritage based on Mahayana (lamaistic)Buddhism and major trade ties - foodgrains from Bhutan being exchanged forwool and salt from Tibet. However, the Tibetan uprising of 1959 andSino-Indian border war of 1962 forced Bhutan to close its borders to thenorth and to align itself with India in the south. In 1959, Bhutan beganaccepting Indian offers of economic assistance and started building its firstroad link from the Indian border to Paro and Thimphu in the north. Sincethen, Bhutanese relations with India have been close, and almost all thedevelopment effort to date has been financed with Indian grant aid. Bhutanhas been gradually expanding its international ties - in 1962 it joined theColombo Plan; in 1969, the Universal Postal Union; and in 1971, the UnitedNations. In 1981, Bhutan joined the International Monetary Fund and theWorld Bank Group; and in 1982, the Asian Development Bank. Besides India,Bhutan also has full diplomatic relations with Bangladesh, which it was thesecond country to recognize in 1971. In 1982, Bhutan also opened tradeconsulates in Hong Kong and Singapore.

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8. Bhutan is well endowed with natural resources, and for most of themand their products, there are ready markets in neighboring countries. Bhutanlalso has substantial hydro-power potential estimated at about 20,000 MW.Domnestic small-scale hydro plants generate only about 4 MW of power, but a336 MW hydro-power project at Chukha in western Bhutan is expected to becommissioned in late 1984. The project cost of about US$200 million is beingfinanced by the Government of India while the electricity generated in excessof Bhutan's domestic needs would be sold to India. Bhutan's other greatnatural resource is its forests. At present, extraction is only a smallfraction of the annual forest increment, while some of the forest is begin-ning to decay of overage. There is thus great potential for forest-basedexports from Bhutan; however care will have to be taken to ensure that thedeforestation-related problems which plague other areas of the Himalayas donot arise in Bhutan. A major constraint to the exploration of the forests isinadequate transport infrastructure; thus, while higher extraction for thecountry as a whole can easily be sustained, the more accessible forests,especially in the south, have probably been over-exploited. Bhutan also hasdeposits of certain minerals including limestone, dolomite, graphite, gypsum,lead, zinc, copper, and coal, but for the most part they are of relativelylow quality and/or are inaccessable.

Economic Background

9. Given Bhutan's long isolation, it is not surprising that the economyis at a very early stage of development, and that even some basic economicand demographic information are unavailable. However, Government is becomingincreasingly aware of these gaps and has recently undertaken several majorstatistical efforts, including an agricultural survey, nutrition surveys, anda livestock census. The Planning Commission has also recently prepared a setof national accounts estimates. A population census is also underway whichshould answer the major demographic unknowns, including the population whichis officially estimated at 1.2 million. The population growth rate isestimated at 2% per annum.

10. The economy of Bhutan is still highly subsistence-oriented andcentered around agriculture. It is also overwhelmingly rural, with the twolargest towns - Thimphu, the capital; and Phnntsholing, the main gateway town- each having a population of less than 20,000. Based on the recent 1980/81Planning Commission estimates of the national accounts and the officialpopulation estimate, the per capita GDP of Bhutan amounts to about US$110,one of the lowest in the world. It would appear, however, that Bhutan'soverall standard of living is higher than indicated by this figure. Theoverall population-land ratio is lower than in neighboring countries andnutrition surveys currently underway indicate an average calorie per capitaof about 2,500 per day, some 25% higher than for South Asia as a whole.Literacy is estimated at only 10%, infant mortality is high and lifeexpectancy, as a result, is a low 43 years (compared to about 50 years forSouth Asia as a whole).

11. The national accounts estimates indicate that agriculture and animalhusbandry account for almost half of GDP, and together t ese act vit esprovide the livelihood for about 95% of the population. Landlessness is nota major problem, and farmland appears to be reasonably equitably distributed.According to the recent agricultural survey, net foodgrain production

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amounted to 125,000 MT in 1981/82, requiring about 25,000 MT of rice beingimported from India to meet needs. Historically, Bhutan had been self-sufficient in foodgrain and even exported to Tibet, and, therefore, it shouldbe a high government priority to once again achieve full self-sufficiency.Maize is the predominant foodgrain accounting for almost half of totalproduction, and is grown mainly in eastern Bhutan under rainfed conditions.Paddy, which accounts for about 35% of production is the main crop in westernBhutan, and is grown at altitudes as high as 2,500 m. Wheat and otherfoodgrains are grown at even higher altitudes. Other important crops includechillies, pulses, and mustard seeds at lower altitudes, and potatoes athigher elevations. In recent years, cash crops such as apples, oranges, andcardamom have emerged, especially in southern and western Bhutan wheremarketing is easier. Although the forestry sector accounted for 151 of CDPin 1980/81, this was probably low by historical standards. In 1979, realiz-ing the importance of properly managing its valuable forest resources, theGovernment gave the Department of Forests the sole right to extract logs forcommercial purposes, and placed restrictions on the export of logs and low-value wood products. A plant for veneer end sawnwood is under constructionat Gedu with UNDP and Kuwait Fund assistance. Industry accounts for onlyabout 5% of GDP, due to the small domestic market and the shortage of domes-tic entrepreneurial capacity. Three relatively large industries - a 100,000MT capacity cement factory given to Bhutan by India, a distillery complex,and a joint sector fruit processing plant account for the bulk of the value-added. Other smaller industries include sawmills and furniture, matches,candles, soap and handicrafts. Services account for the remaining 30% ofGDP, with more than half originating in the public sector.

12. Economic ties between India and Bhutan are strong. Indian financialand technical assistance is helping Bbutan implement most of its developmentactivities, while almost all of Bhutan's trade is conducted with India. Astate of free trade exists between the two countries. Imports from Indiaconsist mainly of essentials - petroleum products, rice, metal products,machinery, truck chassis, and the like. Many of these are controlled itemsin India, and exports to Bhutan are supplied under mutually agreed quotas.Exports to India consist primarily of agricultural products, timber, andcement. The main export to third countries is cardamom, and the main import,automobiles and spare parts. The Indian rupee circulates freely alongsidethe ngultrum in Bhutan and accounts for about 90% of the currency incirculation. Over time, Government policy is to convert entirely to thengultrum. Apart from the recently established Royal Monetary Authority whichwill gradually assume central banking functions, the banking system consistsof one commercial bank, the Bank of Bhutan, which is owned jointly by theState Bank of India and the Royal Government. Other financial institutionsare the Royal Insurance Corporation and the Unit Trust, both have beenactively involved in making commercial loans. Trade and transit to thirdcountries through India is governed by a Trade and Commerce treaty signed in1972 and amended in 1979. The treaty expired in 1982 and a new treaty iscurrently under negotiation. Due to the good relations between the twocountries, trade and transit matters have not been a significant constraintto Bhutan's development.

Economic Performance

13. An important objective is to improve fiscal performance so thatBhutan can at least cover recurrent expenditures from domestic resources.Revenues in 1980/81, including the gross receipts of certain governmentdepartmenws, amounted to around 10 of GDP, which is reasonably good con-sidering Bhutan's early stage of development. The recurrent expendituresassociated with the development effort are beginning to rise rapidly andunless the Government is able to increase domestic resource mobilization, itwill find itself forced to allocate ever increasing proportions of scarcedevelopment resources to finance recurrent expenditures. The Government isconscious of this, and one of the main reasons for undertaking the proposednew industrial projects is to provide a basis for generating future revenues.It also recently took measures to reduce recurrent expenditures and increasethe efficiency of resource use. In 1981/82, an 8% reduction in the publicsector work force was achieved. This move was supported by three majorfiscal reforms. First, in 1981/82, the civil budget (which had mainly beenfinanced from domestic resources and administered by the Ministry of Finance)and the development budget (financed by the annual Government of India grantand overseas aid and administered by the Planning Commission) were con-solidated into a single budget administered by the Ministry of Finance.Second, in 1982/83, government finances were reorganized to function throughtwo accounts - one for the release of expenditures, and a second for thedeposit of revenues. Previously, departments maintained their own accounts,which tended to slow down the flow of revenues and often resulted in unspentfunds sitting idle in departmental expenditure accounts. Finally, manyservice functions which had operated as government departments (e.g., publictransport, government printing, and tourism) were, as of 1982/83, instructedto function on commercial lines. These services, as well as existing large-scale commercial units would be subject to a 30% profits tax.

14. Bhutan has been consistently running an overall surplus on its over-seas transactions, mainly due to receipts from tourism and foreign aid. In1981/82, the overall surplus amounted to US$2.9 million and foreign exchangereserves stood at US$7.8 million. It is, however, difficult to determine thebalance of payments with India for a variety of reasons - including thebilateral free trade; the long, common, often unmonitored border; and thefact that an unknown quantity of Indian rupees circulate freely in Bhutan.But based on rupee holdings of the Bank of Bhutan, it would appear thatBhutan has in recent years run an overall surplus with India as well. Bhutanalso has no external debt problem. The only debts Bhutan has incurred so farhave been a loan equivalent to 40% of the cost of the Chukha hydro-powerproject, but this loan will effectively be paid for with electricity, and anIFAD loan of US$6.9 million which is just beginning to disburse. In thiscontext, the primary role of external assistance in Bhutan is to enable anincrease in the overall level of investment by supplementing the Government'sown efforts to increase domestic savings, and to provide technical assistanceto help Bhutan develop modern and efficient administrative procedures as wellas to identifying and preparing investment projects for foreign financing.

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PART II - BRUTAN S DEVELOPMENT STRATEGY

Growth of the Planning Process

15. In 1959, with assistance from India, Bhutan embarked on the prepara-tion of a Five-Year Economic Development Plan. Since then Bhutan has com-pleted four Five-Year Plans (1961/62-1980/81) focusing mainly on developmentof basic economic and social infrastructure. Despite their formal soundingnature, development plans up to about 1971 were mainly only frameworks withinwhich various often ad-hoc development efforts were undertaken. These planswere almost entirely financed by annual grants from the Government of India,which are provided on a cash basis and which Bhutan has been free to allocateas it chooses. In 1982/83, this grant would amount to Rs 250 million (aboutUS$26 million). The Plan expenditures (excluding expenditures by ministriesnot directly involved in development work) amounted to Nu 107 million in theFirst Plan, Nu 202 million in the Second, Nu 475 million in the Third, and Nu1106 million in the Fourth. Expenditure on development has, therefore, showna very rapid rate of increase, more than doubling every five years. TheFifth Plan 1981/82-1986/87 is currently underway. It envisions more thantripling of development expenditures, including outlays on industrialprojects.

16. The first four plans showed a steady growth in the sophisticationof the planning process and in development priorities. In the First Plan,almost two-thirds of the plan outlay were devoted to road development witheducation and manpower development receiving about 9Z. Priorities widenedunder the Second Plan with expenditure on education and manpower developmentincreasing substantially and agriculture and animal husbandry also receiving14% of the Plan allocation. The first two Plans placed much emphasis onroads, to integrate various regions of the country and to link the countrywith outside world. As a result, Bhutan now has over 2,000 km of roads, ofwhich about half are paved, and an internal telecommunications network thstintegrates all major regions of the country. By the time of the Third Plan,investment priorities had begun changing to reflect more directly productiveactivities such as agriculture and industry, and the need to increase socialservices like health, education, and water supply. In the Third Plan newallocations of 5-8X each were made for forestry, power, mining, etc. TheFourth Plan, however, reflected a major shift from the earlier pattern.While areas covered earlier remained important, the emphasis shifted to thedevelopment of major natural resources, with forestry accounting for 10% ofthe Plan allocation and industry and mining about 16%. This changing patternof outlays reflects the Government's confidence that, as a result of basicdevelopment and expansion in the physical and administrative infrastructuralfacilities over the Four Plans, it is now appropriate to gradually begin theexploitation and development of the natural resources of the country toachieve increasing self dependence.

17. The Fifth Five-Year Plan is currently underway during which develop-ment expenditure, excluding some large projects (see below), would doubleto Nu 2,210 million. Agriculture, irrigation, and animal husbandry are toaccount for 28% of Plan development outlays; roads and other transportinfrastructure, 24%; education, 15%; health, 8%; and telecommunications, 5%.The above Plan outlays and their sectorwise distribution are somewhat

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misleading as some large projects such as the Chuckha hydro project, PendenCement project, and the Baylegphing Area Development Project in southernBhutan are being implemented under the Plan for the reason that India madeavailable funds specifically for these projects. The Government similarlyproposes to invest, outside the p'an, about Nu 1,600 million in a number ofsizeable resource-based industries, provided the needed additional financingcan be arranged for them.

18. The Fifth Plan also represents a major change in developmentstrategy. Under the Plan, some 50% of plan expenditures, are to bedecentralized and implemented under the district administrations according todevelopment plans drawn up by the individual districts themselves undercentral supervision. It was felt that this approach would result in develop-ment being more consistent with locally perceived needs, and a condition forincluding projects in the Plan was that the districts provide voluntary laborrequired to implement them. This would greatly reduce the cost of mostprojects, and enable a greater overall development effort. To help implementthese plans, a large number of line ministerial staff were transferred fromthe central to district administrations. The chances of success seem good asthe selected projects are relatively simple and Bhutan has a tradition ofvoluntary labor for community purposes. However, a strong central financialmanagement would be necessary to ensure that district administrations use theresources efficiently.

19. As stated earlier, the first two Plans (up to 1970/71) were mainlyfinancial budgeting exercises rather than carefully worked out frameworks ofdevelopment priorities. It was only with the establishment of the PlanningCommission in 1971 and its being entrusted with the preparation of the ThirdPlan that planning in the proper sense could be said to have begun. However,progress was slow because of Planning Commission's small and inexperiencedstaff and lack of economic data and information. In 1979, a comprehensivereview of the planning process was undertaken and it was decided that thePlanning Commission, working in consultation with the Ministry of Finance,would be responsible for preparation of the Plan. The Commission would alsodetermine Government objectives, policies and priorities and coordinate andreview plan implementation. The Ministry of Finance would prepare the annualbudget within the framework of the Plan and would be responsible for mobi-lizing internal resources. External resource mobilization would be theresponsibility of the Ministry of Foreign Affairs and the PlanningCommission. The Planning Commission has three functional wings: (a) thePlanning division deals with development policies, coordinates implementationof the plan and is responsible for program and project appraisal; (b) theResources Division coordinates activities with the Finance Ministry andserves as a liaison on all matters relating to international economiccooperation; and (c) the monitoring and evaluation division for building upa data base and undertaking special surveys. Due to a shortage of qualifiedmanpower, however, there is considerable staff overlap between these wings.

The Need for Technical Assistance

20. A key objective of the Fifth Plan is to increase Bhutan's self-reliance by strengthening the country's productive base to generate incomesand mobilize revenues to sustain development. About 35% of Fifth Plan expen-ditures will be devoted to viable industrial investment opportunities in the

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productive sectors, namely, industry, including forest indtLIstriej, mining,and power. These undertakings, it is hoped, will result in a major increasein exports and public revenues. However, there are factors inhibiting theimplementation of this development strategy, namely, an absence of wellformulated projects, shortage of technical expertise and experienced person-nel within the Government, a weak statistical system and lack of propereconomic data. In order to prepare a number of large-scale resource-basedprojects, which have been tentatively identified, the Guvernment sought IDAassistance to secure necessary consultancy and advisory services.

PART III - BANK GROUP OPERATIONS IN BHUTAN

21. Bhutan became a member of the Bank Group in September 1981. Aprogram mission to obtain general overview of the country's needs visitedBhutan in June 1982 and was followed by an economic mission in October 1982.Since, identification missions for possible projects in the forestry, ruraland urban water supply, and small local resource based industries havevisited Bhutan. Consultancy services were arranged to review prospects ofsetting up an industrial development and finance organization to assistmedium and small-scale enterprises.

22. The lending program for Bhutan includes two projects in PY84 -- theproposed Technical Assistance Project and a Forest Replantation Project. Inlater years, projects tentatively planned are in education, rural and urbandevelopment, communications, power generation and industry. Under theauspices of UNCTAD, an "Aid Group" type conference met in Geneva in May,1983. While specific indications of development assistance from othercountries were not made, the meeting provided an international forum fordiscussing Bhutan's needs.

PART IV - THE PROJECT

Background

23. Assistance from the UN and other international agencies accounted forabout 13% of total external assistance (mainly from India) during the FourthPlan period. Apart from UNDP, the other major funding agencies have beenUNICEF, UNFPA, WFP, IFAD, DANIDA, and assistance under the Colombo Plan.Most of this assistance has been tied to specific projects. While bilateralagencies and the UNDP are expected to continue to support much of Bhutan'srequirements for technical assistance, yet over the next two or three yearsthe level of need is beyond that which can be expected of these agenciesparticularly because of the financial constraints under which UNDP will beoperating during this period. In order to attract financing from interesteddonors as well as IDA, it is necessary to provide funds which would helpprepare a pipeline of high priority projects. The proposed project,therefore, is intended to supplement the technical assistance funds availablefrom UNDP and other multilateral and bilateral agencies. There is noseparate appraisal report. A timetable of key events relating to the projectand special conditions are given in Annex III. Negotiations were held inThimphu, Bhutan from June 6 to June 10, 1983. The delegation of the Royal

Government of Bhutan was headed by Dasho Lam Penjor, Deputy Minister,Planning Commission.

Project Objectives and Description

24. The principal objective of the project is to provide assistance tothe Government of Bhutan in preparing a pipeline of subprojects which aredeemed by the Government to be of high priority in Bhutan's developmenteffort and help strengthen Bhutan's capacity for project preparation andimplementation. The Government have sought IDA involvement for reasons thatthe Association may guide them in establishing development priorities, helpselect the most suitable consultants, help guide the work of consultants and

e provide directions for institution building. The proposed Credit wouldfinance the preparation of feasibility studies and design and engineeringwork for about 10 high priority investment projects which would attractfinancing from bilateral donors and the Association. The project would alsoassist in strengthening of institutions responsible for project preparationand implementation through provision of training of the national staff as theexperts' counterpart and through overseas courses and study tours asnecessary. A provisional list of indicative subprojects is given inAnnex II.

25. Criteria for the selection of subprojects would require, inter alia,that recommended proposals are in line with the Government s Development Planand IDA's lending strategy in the country ddring the next few years. Asubproject would comprise: (a) a study to provide information required forthe selection of specific subprojects for implementation, or for improvementof overall economic planning. (b) a feasibility study or other investigationrequired for preparing projects suitable for finarcing by IDA or other exter-nal financing agencies (with priority given to studies of projects believedlikely to be suitable for financing by IDA). Detailed design and engineeringwill be undertaken after review of the feasibility study and in consultationwith IDA; (c) technical assistance and staff training program designed tostrengthen institutions foZ project planning and implementation. Further,a subproject should include adequate arrangements by the executing agenciesto provide office space, counterpart staff and other facilities required forthe subproject to proceed efficiently and to permit the national staffdevelop their expertise (Section 3.01(b) and the Schedule to the draftDevelopment Credit Agreement (DCA)).

26. In order to facilitate start up of the project, and implementationof the selected subprojects, the first subproject would be for the estab-lishment of the Project Coordination Cell in the Planning Commission. Under

* this subptoject funds would be provided for employing short-term consultants,training of staff and procurement of equipment, materials and vehicles essen-tial to support the coordination cell and to undertake the studies proposedto be included in the project. The equipment, inter alia, would include: 6vehicles and spares, 6 typewriters, 6 calculators, and 2 photocopy machines.The total allocation for the subproject would be about US$100,000. Tofacilitate mobilization, retroactive financing lip to US$50,000 would beprovided to cover expenditures made after June 30, 1983 (Section 2.02(c) ofthe draft DCA).

Organization and Implementation

27. The Planning Commission would be responsible for the overall coor-dination and munitoring of the project, selection and employment ofconsultants, and administration of their contracts. This is considereddesirable in this first project in Bhutan, as it would minimize involvementof different officials in various agencies and avoid delays andmisunderstandings. The Planning Commission would also be responsible forscreening subprojects submitted by various agencies and for selection ofsubprojects in consultation with the Association. The individual subprojectswould be impl-mented by the relevant technical ministries, the PlanningCommission itself or other appropriate government agencies. Consultantsengaged for the subprojects would work directly with the appropriateGovernment agencies. The Planning Commission has appointed a ProjectCoordinator, whose qualifications and experience are acceptable to theAssociation (Section 4.01(b) of draft DCA), for ensuring coordination betweenthe Planning Commission and the implementing agencies.

28. Some of the main functions of the Project Coordinator would be to:(a) coordinate selection of subprojects in accordance with the agreedcriteria for subproject eligibility; (b) coordinate and assist with therecruitment of consultants by: (i) explaining IDA's "Guidelines for the Useof Consultants by World Bank Borrowers (August 1981)" to the Governmentagencies implementing the subprojects; (ii) participating in the evaluationof consultants' proposals; (iii) participating in the negotiations ofconsultants' contracts; (iv) coordinating efforts to standardize consultants'contracts; and (v) ensuring provision of adequate support to consultantsunder each subproject; (c) compile, prepare, verify, sign and submit to IDAwithdrawal applications in addition to monitoring disbursement against eachsubproject; (d) monitor overall project progress and forward to IDA quarterlyprogress reports based on information prepared by the various subprojectimplementing agencies; and (e) evaluate overall project achievement andforward to IDA the Project Completion Report based on information prepared bythe various subproject implementing agencies.

29. The consultants would be employed in accordance with the BankGuidelines under terms and conditions satisfactory to the Association(Section 4.02 of draft DCA). Funds for subprofects would be allocated afterconsultants' contracts have been approved by the Association. TheAssociation and the Planning Commission have reviewed a proposed standardformat for requesting technical assistance, the procedures for obtainingconsultant's services and a standard contract for employment of consultants.These steps would help minimize delays. While most of the technical assis-tance would be provided by foreign consultants, the consultants' terms ofreference would emphasize the importance of training local staff so as toreduce the need for foreign technical assistance in the long term. Qualifiedlocal consultants may be used either independently or in collaboration withforeign firms.

30. The present inadequate means of communication between Bhutan and theoutside world affect adversely the whole gamut of activities of theGovernment and could also cause inordinate delays in the implementation of

the proposed project unless improvements are effected on an urgent basis.Currently, only telephone and teleprinter links exist between Bhutan and

-11-

India. Messages from Washington are transmitted by telex to Bhutan's Embassyin Neu Delhi, India for relying by a radio link to Thimphu, Bhutan, via twointermediate links. The system is highly susceptible to atmospheric condi-tions and long breakdowns are experienced from time to time and particularlyduring the monsoons. An Indo-Bhutan microwave system is under implementationand is expected to be completed by early 1984. At present our information inregard to telecommunications facilities in Bhutan and the Indo-Bhutanmicrowave system is very limited. It is expected that this system couldoperate telex lines between Thimphu and the nearest telex exchange in India.This would be a least cost, short term solution for improving communications.Upto 10 telex lines may be installed providing the telex subscribers inThimphu, primarily the Government, the basic telex facilities and should not

* cost more than about US$100,000. IDA would provide, under the initial sub-project proposed in para 26 (but not financed retroactively) US$100,000 tocover the purchase of teleprinter machines and ancillary equipment which willbe procured in accordance with the Bank Guidelines. Further, consultancyservices would be arranged to review existing systems in Bhutan and India andrecommend ways and means to improve outside communications.

Estimated Cost and Financing

31. Although the proposed subprojects have not been identified, it isexpected that about 10 subprojects would be financed under the proposedcredit of US$3.0 million equivalent, or about 86% of total project costs ofUS$3.5 million equivalent, of which US$2.5 million is estimated to be inforeign exchange and US$1.0 million in local currency. The proposed IDAcredit would cover the foreign costs and US$0.5 million of local costs. Theremaining cost of US$0.5 million will be financed by the Government. It isestimated that the consultant rates for the estimated 400 man-months ofconsultancy work would average about US$9,000 per expatriate professionalman-month. I/ However, Consultants from neighboring countries are expectedto cost less, in which case a greater number of subprojects would beundertaken.

32. The proposed IDA credit would finance 100% costs of consultantsirrespective of whether they are foreign or local consultants. It wouldfinance 100% of the cost of training programs associated with the subprojectsas also 100l of the cost of foreign expenditures for equipment and materialsrequired for carrying out the subprojects. For equipment and materialsprocured locally, tbe credit would finance 1002 of ex-fac:ory cost. The^redit would also finance OOZ of foreign e: ?enditures incurred in connectionwith overseas training and travel of personnel associated with preparationand implementation of subprojects (Section 2.02 of the droft DCA).Reimbursement of all expenditures under these categories would be made onfull documentation.

33. Contracts for equipment and materials valued over US$50,000 equiv-alent or more would be procured on the basis of international competitivebidding in accordance with IDA's procurement guidelines. For awards of

1/ Man-month rate includes salary, social and overhead costs and postadjustment, including international travel and subsistence.

-12-

contract of US$100,000 equivalent or more for equipment and materials IDA'sprior review would be required. Small contracts estimated to cost underUS$60,000 equivalent, provided that the aggregate would not exceed US$500,000equivalent, would be let through local procurement procedures which areacceptable to IDA (Section 3.03 of the draft DCA). Disbursements will bemade against prior approved suibprojects.

34. The Government's contribution to individual subproject costs,estimated to be about 14Z of total project costs, would normally be theprovision of counterpart staff, office space and supplies and would bespecified in the TOR. The Government's commitment to make these contribu-tions would be a condition of approval to each subproject.

Accounts and Auditing

35. The Planning Commission would establish and maintain consolidatedproject accounts for all of the proposed project's expenditures and prepare aquarterly progress report. These accounts and supporting records would beaudited annually by the Royal Audit Departmeat and audit reports would besubmitted promptly to the Association (Section 4.04 of the draft DevelopmentCredit Agreement).

Monitoring and Evaluation

36. The Project Coordinator would be responsible for monitoring thesubprojects by collecting, reviewing and evaluating information on the for-mulation and progress of subprojects. Quarterly progress reports would beforwarded to the Association. The monitoring and evaluation wing of thePlanning Commission would provide him necessary support.

Benefits and Risks

37. The major benefit of the proposed project would be to build up apipeline of projects suitable for financing by the Government, externaldonors and the Association. This, in turn, should help Bhutan make moreeffective use of domestic and external resources for the development of itseconomy. The proposed project would also assist in enhancing projectpreparation capabilities of the technical ministries and associated agencies,and in the long term, reduce dependence on foreign assistance for thesepurposes.

38. There are no major risks in implementation of the project. Theremay be, however, some delays because of (a) difficulties in the identifica-tion and selection of projects, (b) inexperience with the Bank's selectionprocedures, (c) problems in negotiating consultants contracts and (d) generalcommunications difficulties. To minimize delays, a tentative list of sub-projects has been agreed during visits by program and technical missions andduring the preparation and negotiations of this project. Further, theGovernment and the Association will review proposed standardized proceduresfor processing consultants' contracts and ensure careful supervision.

-13-

PART V - LEGAM INSTRMENTS AND AUTHORITY

39. The draft Development Credit Agreement between the Royal Governmentof Bhutan and the Association, and the Recommendation of the Committeeprovided for in Article V, Section l(d) of the Articles of Agreement of theAssociation are being distributed to the Executive Directors separately.

40. Special Conditions are listed in Section III of Annex III.

41. I am satisfied that the proposed Credit would comply with theArticles of Agreement of the Association.

PART VI - RECOMENEDATION

42. I recommend that the Executive Directors approve the proposedDevelopment Credit.

A. W. ClausenPresident

AttachmentsSeptember 28, 1983

- 14 -ARMEX IPage 1

COUNTr DATA - BHRUTA

A_EL POPULATION DENSITY (1982)

46.500 sq km 1.2 million (mid-1982) 25 per sq km (1982)

POPULATION CHARACTERISTICS (1982) HEALTH (1982)

Crude Birth Rate (per '000): 43 Population per Physician 18,100Crude Death Rate (per '000): 21 Population per Hospital Bed: 2,000Infant Mortality (per '000 live births): 147

INCOME DISTRIBUTION DISTRIBUTION OF LADD OWNERSHIP

S of National Income - Highest Quintile: Z. SOOwned by Top 1Ow of OwnersLovest Quintile .. Owned by Smallest 10 of Owners:

ACCESS TO PIPED WATERS (1982) ACCESS TO ELECTRICITY

r of Population - Urban : 49 Z of Dwellings - Urban:Rural : 6 Rural:

NUTRITION EDUCATION (1982)

Calorie Intake as Z of Requirement: .. Adult Literacy Rate : 10XPer Capita Protein Intake (grams Primary School Enrollment: 21X

per day):

GDP PER CAPITA IN 1981: USS116

VALUE ADDED BY SECTOR (1980181)

Value AddedE million x

Agriculture a/ 61.6 47.6Forestry 20.2 15.6Industry b/ 8.0 6.2Services cl 39.5 30.6

1Z9.3 100.0

GOVERNMENT FINANCE (1981/82)

Yu millIon 2 of CDP at Market Pfice

Revenue and Grants 407.0 39.9Total Expenditure 436.8 42.8Overall Balance (deficit -) -29.8 -2.9

a/ Includes agriculture and animal husbandry.b/ Includes manufacturing. mining, power, and construction.c/ Includes communications, transport, tourism, financial services, social

services, rental income, trade, and governtent.

.. Not available.

AZ2D3 IPage 2

MONEY. CEDIT, AND PRICES(Fnd-Narch)

1978179 1979/80 1980181 1981/82(Nu million)

Money and Quasi Money 57.7 80.0 105.7 145.5Bank Credit to Public Sector -62.0 -59.1 -53.6 -78.7Bank Credit to Private Sector 23.7 32.9 28.3 45.9

Money and Quasi Money as 2 of CDP ., .. 10.4Annual Z Changes in:

Consumer Price Index 12.1 13.5 9.6 10.3Bank Credit to Public Sector .. +4.7 +9.3 -46.8Bank Credit to Private Sector .. +38.8 -14.0 +62.2

Consumer Price Index(1977/78 - 100) 112.1 127.2 139.4 153.7

BALANCE OF PAYMENTS, 1981/82 a/ MERCHANDISE EXPORTS, 1981/82 a/(US$°000) USSO000 I

Export of Goods 714.0Import of Goods -3,307.0 Cardamom 614 86.0Services and Private Transfers (net) -917.0 Gus rosin 80 11.2Total Current Account -3,510.0 Handicrafts 17 2.4Official Capital Transfers (net) 6,400.0 Timber 3 0.4Change in Reserves (decrease -) 2,890.0 Total 714 100.0

RAE OF EXCHANGE bJ(Annual Average for Fiscal Year)

1978/79US$1.00 - Ngultrum 8.21Ngultrum 1.00 - US$0.12

1979/80US$1.00 - Ngultrum 8.08Ngultrur 1.00 - US$0.12

1980/81US$1.00 - Ngultrum 7.89Ngultrum 1.00 - US$0.13

1981/82US51.00 - Ngultrum 8.93Ngultrum 1.00 - US$0.11

a/ With countries other than India.Al The Ng-ltru- is freely exchangeable in Bhutan with the TIidia"i rupee on a

one-for-one bi6is.

Not available.

South Asia Programs DepartmentSeptember 7, 1983

- 16 - ANNEX II

Page 1

BHUTAN

TECHNICAL ASSISTANCE PROJECT

A Preliminary List of Projects from which Suitable Subprojectswill be Selected for Technical Assistance for the Preparation ofFeasibility Studies, and Design and Engineering Work on the Basis

of the Needs of Individual Subprojects

1. Power Generating Plaats (10-20 MW) in South and Eastern Bhutan

Region: One Plant each in the South and West BhutanTotal Project Cost: Nu 520 millionForeign Cost: Nu 410 millionProject Duration: 5 years

Project Objectives and Description: The eastern region of Bhutanforms a rich agricultural and forest belt. At present, limited powerrequirements of the region are being met by importing electricity from Assamin India. The project would help develop agriculture and related activitiesand industries based on local raw materials provided adequate electric poweris made available. Therefore, in order to meet the medium term requirementsof power, two medium-sized plants of between 10-20 MW are proposed. Theproject will also make available electrical energy to the 500,000 MT capacityNanglam Cement Plant, which is being set up in the region.

Resource Requirement: The estimated cost of the two projects isabout iu 520 million including foreign costs of about Nu 410 million to covercivil works, plant and equipment, machinery, tools and vehicles.

2. Calcium Carbide Project

Region: Western BhutanTotal Project Cost: Nu 100 millionForeign Cost: Nu 80 millionProject Duration: 5 years

Project Objectives and Description: The project would help exploreand process the identified limestone deposits of Tala and Chalaila in WesternBhutan to manufacture Calcium Carbide for export. A calcium carbide plantwould be a suitable diversification in the processing of Bhutan's vastresources of limestone and dolomite. It is proposed to establish the plantwith a capacity of 12,000 MT per annum near Phuntsholing. The power require-ment of 5 to 7 MW for the proposed plant will be available from the ChukhaHydel Project. The annual requirement of 6,000 tons of petroleum coke willbe procured from the nearby oil refineries in India. Substantial demand for

- 17 - ANNEX IIPage 2

the calcium carbide exists in India, which is at present importing largequantities from abroad.

Resource Requirements: The project woull cost about Nu 100 millionincluding foreign cost of Nu 80 million to cover procurement of plantmachinery and establishment of required infrastructure.

3. Graphite Mining and Beneficiation Project

Region: Ha - Paro (Western Region)Total Project Cost: Nu 14 millionForeign Cost: Nu 11.0 millionProject Duration: 1 year

Project Objectives and Description: The project would help quarrythe proven graphite deposits at Chalaila in Western Bhutan and process theore for export. The graphite ore available at the Chalaila deposits is oflow grade containing 11% to 13% carbon. According to tests recentlycompleted, the graphite ore can be beneficiated to 90% purity by the floationprocess using suitable frothing agents. Bhutan graphite would have a readymarket in India which is at present importing it from other countries. Theinstalled capacity of the project would be 15,000 Mr per annum. The projectis expected to have a net return of about Nu 2.0 million annually. In thelong run it will pave the way for setting up a number of graphite basedindustries in the country such as the manufacture of graphite crucibles,pencils, paints and pigments, brushes for motors and generators, electrodes,lubricants, dry cells, and other carbon articles.

Resource Requirement: The project would cost about Nu 14 millionincluding foreign cost of Nu 11 million; of this amount a sum of Nu 6 millionwould be required for a rope-way for the transportation of the crude ore tothe beneficiation plant.

4. Gypsum Mining Project

Region: EasternTotal Project Cost: Nu 10 millionForeign Cost: Nu 8 millionProject Duration: 3 years

Project Objectives and Description: The project would help exploitthe proven reserves of gypsum for supply to the indigenous cement industryand for export to neighboring states in India. Bhutan has estimated reservesof 78 million tons of high grade gypsum in Pema district, about 25 miles fromthe planned cement plant at Nanglam. At present, the existing cement plantat Gedu and those in the north-eastern states of India are obtaining gypsumfrom the state of Rajasthan in Western India, a distance of almost 1,800 km.These plants can therefore benefit from a local supply which will havereduced transport costs. The project would mine 100 tons per day in theinitial stages to meet the immediate requirements of these plants and will

ANNEX IIPage 3

be expanded to mine 250 tons a day to meet the future expected demands ofgypsum based industries to be set up in Bhutan.

Resource Requirement: The project would cost about Nu 10 millionincluding foreign cost of Nu 8 million for equipment and material.

5. fchanization of Roads Project

Region: All over the countryTotal Project Cost: Nu 26.00 millionForeign Cost: Nu 18 millionProject Duration: 1 year

Project Objectives and Description: The plan target for road con-struction is set at 80-90 km per year. The capacity of Public WorksDepartment is about 50 km per year mainly because of the rough terrain andlack of equipment and machinery. The project through mechanization of roadconstruction, will increase the department's capability and will facilitateachievement of the plan target.

Resource Requirements: The project would cost about Nu 26 millionincluding foreign cost of Nu 18 million for procurement of tools, read build-ing machinery and equipment and spare parts.

6. Forestry Plantation Project

Region: Whole CountryTotal Project Cost: Nu 37.5 millionForeign Cost: Nu 25 millionProject Duration: 5 years

Project Objectives and Description: The project would help restockdenuded forest areas of Bhutan, particularly those areas affected by forestfires and shifting cultivation. Under the project, forest based industrieswould be established to provide economic and infrastructural development inthe backward areas. The Department of Forests has drawn up a modest programfor forest plantations of 7,500 hectares which will be expanded later. Inaddition, a countrywide plantation program is also to be carried out incommunity forests by village people planting at least 10 trees per household.

Resource Requirement: The total cost of the project is estimated atNu 37.5 million including foreign cost of Nu 25 million to cover extractionmachinery, planting equipment, road building equipment and venicles.

- 19 - ANNEX II

Page 4

7. Dairy Development and tarketing Project

Region: South-Western RegionTotal Project Cost: Wu 25.0 millionForeign Cost: Nu 17.5 millionProject Duration: 5 years

Project Objectives and Description: The project will help establisha number of plants to process milk with recombining facilities. The milkproduction in the country is expected to increase to about 16.50 millionlitres per year, a per capita 38 gm of milk daily. The project would alsodevelop and organize milk collection centres and provide a proper marketingsystem for milk produced by farmers. The project would also help livestockdevelopment.

Resource Requirement: The project would cost about Nu 25 millionincluding foreign cost of about Nu 18 million to cover costs of pasteuriza-tion and homogenization plants, dairy processing and recombining equipment,recombining/processing and bottling unit facilities, livestock vaccines andsupplies, refrigerated vans and diesel operated pickups/trucks.

8. Industrial Development Bank of Bhutan

Region: Country-wideTotal Project Cost: Nu 400 millionForeign Cost: Nu 300 millionProject Duration: n.a.

Project Objectives and Description: To set up an IndustrialDevelopment Bank for financing industrial development in order to facilitatethe growth of natural resource-based industries in the private, joint andpublic sectors. The setting up of such industries will facilitate increasingthe value-added component of Bhutan's natural resources, improve exportearnings and generate revenues for the national exchequer.

The project is important in the context of the Fifth Plan industrialdevelopment programme. As a number of industries planned are to be set upwith external financing, the local currency requirements and national equitycontribution will also have to be met. In the absence of a major privatesector involvement in industries at present, the Government will have toraise these resources to meet the local requirements. In addition, somemeans of providing the loan component of industrial investment will have tobe found, especially for industries where external financing is notavailable. This will particularly be the case for the medium and small-scalesectors. The existing financial institutions, i.e., the Bank of Bhutan andthe Royal Insurance Corporation of Bhutan, are not capable of taking on alarge long-term lending burden, given their nature, resources andliabilities. It is also essential that an industrial banking institutionshould have the capability of identifying projects and entrepreneurs,appraising projects, assisting in the identification of technology, equipment

- 20 - ANNEX II

Page 5

and supply sources, and in the implementation of projects and marketing. TheIndustrial Development Bank has been conceived with this in mind, and in thecontext of Bhutan's present state of development, would, in addition tofinancing operations, play a strong promotional role. Due to the strongexport orientation that all large industries will have, the Bank will also berequired to provide export credit for industrial products. The setting up ofthe Bank is expected to promote industrial development in a big way, includ-ing that of private industries ancillary to the large public sectorindustries. As a first step, the Government has established a cell in theRoyal Monetary Authority.

Resource Requirements: The total resource base initially would beNu 400 million, of which Nu 100 million would be the equity. The RoyalGovernment has resources of Nu 50 million for its equity contribution; thebalance is to be raised 'rom the other national financial institutions. Thedebt component is to be raised in the form of soft-term loans from the inter-national community.

9. Improvement and Expansion of Road Transport

Region: Country-wideTotal Project Cost: Nu 10.0 millionForeign Cost: 6.0Project Duration: 6 Years

Project Objectives and Description: The project is designed to bringefficiency in bus services by acquiring vehicles more suitable to Bhutan'sdifficult terrain, enhancing repair and maintenance facilities, operatingbuses on new routes, as well as increasing the frequency of bus services onhigh density routes. It will thereby help to meet the transportation demandsgenerated by the accelerated pace of development. The programme willfacilitate the country and permit a greater mobility of man and materialsfrom place co place.

Road transport by bus is the major means of public conveyance inBhutan. With the diversification of economic activities in different partsof the country, bus services have also been extensively expanded by adding anumber of buses, operating new routes, and intensifying frequency of servicein high-density routes. However, in spite of all these measures, there is asubstantial gap between the demand for bus services and what is presentlyavailable. The Fifth Plan envisages an accelerated socio-economic develop-ment of the country. The transportation system plays a crucial and pivotalrole in facilitating this process. Therefore, there is a need for expansion,intensification and diversification of the existing bus network. The presentproject aims at these ends. Under the project, it is proposed to examinemore suitable design features and procure new vehicles and a substantialquantity of tools, equipment and spares for the repair and maintenance ofvehicles.

- 21 -ANNEX IIPage 6

Resource Requirements: The total cost Of the project is estimated atNu 5.816 million and includes purchase of 6 vehicles, tools, equipment andspare parts for training.

10. Education Project

Region: Country-wideTotal Project Cost: Nu 94 millionProject Duration: 3 yearsAmount already committed: Nu 1.08 million (OXFAM)

Project Objectives and Description: The main emphasis during theFifth Plan in the education sector is to consolidate and improve the qualityof existing education system. Nevertheless, some expansion of the primaryschool system is necessary in order to continue increasing the literacy levelin the country. Requests for almost one hundred new primary schools havebeen received from different parts of the country. The present programme isdesigned to extend the primary education system in remote areas. New schoolswill also be provided in areas where existing facilities are overcrowded andcannot be further expanded. The main objective is to increase the intake ofstudents at the primary level in order to improve the general level of educa-tion countrywide.

With an estimated average growth rate of 10% per annum in enrollment,the total student population in primary schools will have increased from33,610 in 1980-81 to 58,300 by the end of the Fifth Plan. A substantialproportion of the new students will be absorbed into existing schools, inparticular where the facilities at present are being underutilized. However,to meet the additional requirements, it is proposed to open 21 new primaryschools and add 121 new classrooms to existing schools. Existing primaryschools will be renovated where required. While school buildings will beconstructed with volunteer labor organized by the Dzongkhag administration,the cost of supervision, construction materials, equipment and teachers willbe borne by the Government. With the new schools, the total number ofprimary schools will increase from 119 at the end of the Fourth Plan to 140by the end of the Fifth Plan. A factor in increasing enrollment is theincentive of free mid-day meals to students. This will decrease the pressureon rural families of supporting students during the school term. Under themid-day feeding programme, run with assistance from the World Food Programme,the number of primary schools to be covered would increase from 82 to 121 bythe end of the Fifth Plan.

Resource Requirements: Capital: the total cost of the primaryschool programme in the Fifth Plan is Nu 94 million, of which Nu 40.0 millionis required to finance new development. This sum covers the material andsupervision costs, and the cost of 320 additional teachers and other person-nel required for the expansion programme.

- 22 - ANNEX III

BHUTANI

TECHNICAL ASSISTANCE PROJECT

Supplementary Project Data Sheet

Section I - Timetable of Key Events:

(a) Time taken to prepare project: Three months

(b) Project prepared by: Government of Bhutanand the Association

(c) Initial discussion with the Association: October, 1982

(d) Departure of Appraisal Mission: Not scheduled

(e) Negotiations: June 6-10, 1983

(f) Board Presentation: October 18, 1983

(g) Planned Date of Effectiveness: December 31, 1983

Section II - Special Implementation Action:

Seminars in Washington, D.C. and in Bhutan (by the visiting nego-tiating team and Bank staff) were arranged to familiarize off-icials in Bhutanwith Bank procedures with a view to minimize delays in employing consultantsand mobilizing local support services.

Section III - Special Conditions of the Project:

(a) Sub-projects will be selected in accordance with criterifagreed with IDA (para 25).

(b) The Planning Commission will be responsible for ensuring effectivecoordination among the ministries and agencies implementing thesub-projects. For this purpose, an officer of the Planning aCommission shall continue to serve as the Project Coordinator(paras 27 and 28).

PHYSICAL RELIEF 90

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Unpaved roads t Airport

Roads under construction 69 National capitalRoads under improvement 0 District capitols

Roads proposed under 0 Other townsFifth Plan 0 Selected villagesRivers -District boundaries (Bhutan)

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