Nepal - Mahakali Irrigation - Stage 1 Project : Credit 1055 - Development Credit Agreement - Conformed

O6FIIA OFFICA CREDIT NUMBER 1055 NEP DOCUMENTS Development Credit Agreement (Mahakali Irrigation - Stage I - Project) between KINGDOM OF NEPAL and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated , 1980 CREDIT NUMBER 1055 NEP DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated a 9 , 1980, between KINGDOM OF NEPAL (hereinaf er called the Borrower) and INTER- NATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Development Credit Agreements of the Association, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Development Credit Agreements of the Association being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "MIDB" means the Mahakali Irrigation Development Board, to be established by the Borrower under its Development Board Act of 1956; and (b) "Project Area" means the area of about 8,500 ha of the Borrower's Kanchanpur District of the Mahakali Zone. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions in the Development Credit Agreement set forth or referred to, an amount in various currencies equiv- alent to sixteen million dollars ($16,000,000). Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Association, for expenditures made (or, if the Association shall so agree, to be -2- made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit. Section 2.03. Except as the Association shall otherwise agree, procurement of the goods and civil works to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to this Agreement. Section 2.04. The Closing Date shall be December 31, 1985 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Service charges shall be payable semiannually on June 15 and December 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each June 15 and December 15 commencing December 15, 1990, and ending June 15, 2030T each installment to and including the installment payable on June 15, 2000, to be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter to be one and one-half per cent (1-1/2%) of such principal amount. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. The Borrower shall carry out the Project with due diligence and efficiency and in conformity with appropriate engineering, agricultural and administrative practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. -3- Section 3.02. In order to assist the Borrower in the matters set forth below, the Borrower shall employ the following con- sultants whose qualifications, experience and terms and con- ditions of employment shall be satisfactory to the Borrower and the Association: (a) engineering consultants to assist the Borrower in carrying out the Project, including inter alia, preparation of bidding documents and bid evaluation; and (b) by May 31, 1982, two agricultural consultants to assist the Borrower and MIDB in carrying out Part E of the Project. Section 3.03. (a) The Borrower shall ensure that MIDB is ade- quately staffed for the implementation of the Project in accor- dance with a staffing plan satisfactory to the Borrower and the Association. (b) The MIDB staff shall include a Project Manager whose qualifications and experience shall be satisfactory to the Association. Section 3.04. The Borrower shall carry out the training activities under Part I of the Project in accordance with a plan satisfactory to the Association. Section 3.05. The Borrower shall: (a) coordinate through its committee for forest, resettle- ment and irrigation development in the Kanchanpur District all matters concerning forest clearing, Project construction and settlement in the Project Area; and (b) by May 31, 1982 cause its Forest Products Development Board to clear forests within the Project Area necessary to carry out the Project. Section 3.06. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Borrower to replace or repair such goods. -4- (b) Except as the Association shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Credit to be used exclusively tor the Project. Section 3.07. (a) The Borrower shall furnish to the Associa- tion, promptly upon their preparation, the plans, specifications, reports, contract documents and work and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) The Borrower: (i) shall maintain records and procedures adequate to record and monitor the progress of the Project (including its cost and the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Credit, and to disclose their use in the Project; (ii) shall enable the Association's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Credit and any relevant records and documents; and (iii) shall furnish to the Association at regular intervals all such information as the Association shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of the Credit and the goods and services financed out of such proceeds. (c) As part of the information referred to in subparagraph (iii) of paragraph (b) of this Section, the Borrower shall furnish to the Association, for its review and comments, two agricultural and economic evaluation studies of the Project, such studies to be carried out under the responsibility of the MIDB. The Borrower shall furnish the first such study to the Association not later than June 30, 1982, and the second not later than December 31, 1986. (d) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Association, the Borrower shall prepare and furnish to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by the Borrower and the Association of their respective obligations under the Development Credit Agreement and the accomplishment of the purposes of the Credit. -5- Section 3.08. The Borrower shall take all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for the construction and operation of the facilities included in the Project and shall furnish to the Association, promptly after such acquisition, evidence satisfactory to the Association that such land and rights in respect of land are available for purposes related to the Project. ARTICLE IV Other Covenants Section 4.01. (a) The Borrower shall cause MIDB to maintain separate accounts and records adequate to reflect in accordance with consistently maintained appropriate accounting practices the operations, resources and expenditures of MIDB with respect to the Project including, without limitation to the foregoing, separate accounts reflecting all expenditures under Categories (1) (b) and (4) of the table in paragraph 1 of Schedule 1 to this Agreement on account of which withdrawals are requested from the Credit Account on the basis of. certificates of expenditure. (b) The Borrower shall cause MIDB to retain, until one year after the Closing Date, all records (orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrawals are requested from the Credit Account on the basis of certificates of expenditure and shall enable the Association's accredited representatives to examine such records. (c) The Borrower shall cause MIDB to: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than six months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested including, without limitation to the fore- going, an opinion by said auditors in respect of the expenditures and records referred to in paragraph (b) of this Section as to whether the proc-eeds of the Credit withdrawn from the Credit Account on the basis of certificates of expenditure have been used -6- for the purpose for which they were provided; and (iii) furnish to the Association such other information concerning the accounts and financial statements of MIDB and the audit thereof as the Associ- ation shall from time to time reasonably request. Section 4.02. Except as the Association may otherwise agree, the Borrower shall: (a) not later than one year after completion of the irriga- tion distribution works under Parts A and B and the Canal service road works under Part C of the Project in each irrigation unit of the Project Area, establish and collect from beneficiaries of said works water charges sufficient to enable the Borrower to (i) cover the operating and maintenance costs of said works as they are incurred, and (ii) recover, in progressive steps over a reasonable period of time, the capital expenditures attributable to said works to the fullest extent possible, having due regard to the beneficiaries' ability to pay, the necessary incentives for their participation in the Project and the need for public savings to finance other development activities; and (b) at regular intervals not exceeding three years each: (i) review the above charges and afford the Association a reasonable opportunity to exchange views with the Borrower on the results of said review, and (ii) based on the above, adjust the said charges as shall be necessary to continue to give effect to the provisions of paragraph (a) of this Section. Section 4.03. (a) The Borrower shall cause all canals, structures, equipment and other facilities of the MIDB system to be adequately maintained and repaired, in accordance with appro- priate agricultural, engineering and financial policies and practices and shall provide, promptly as needed, the funds and facilities required for the purpose. The Borrower and the Asso- ciation shall exchange views on a yearly basis on the amount of funds required annually for such purpose. The Borrower shall furnish to the Association, not later than July 31 in each year, its operation and maintenance budget for the MIDB system. (b) The Borrower shall cause MIDB to prepare a comprehensive operation and maintenance manual for the MIDB system and shall furnish to the Association not later than October 1, 1982, a draft of such manual for the Association's comments, and shall furnish the manual in its final form to the Association not later than October 1, 1983. -7- Section 4.04. After completion or improvement of works in irrigation areas under the Project the Borrower shall ensure that water in the MIDB system is made available on a regular basis to such areas only after field channels have been constructed, a water users group has been formed among the users of the water to be made available through such field channels and satisfactory water distribution routines have been formulated. ARTICLE V Remedies of the Association Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional event is specified pursuant to paragraph (h) thereof, namely, that the Borrower shall have amended, waived or repealed the Development Board Act of 1956 or the Order establishing MIDB under the said Act and such amendment, waiver or repeal shall have materially and adversely affected carrying out by the Borrower of its obligation under this Agree- ment. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (d) thereof, namely, that any of the events specified in Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as addi- tional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12,01 (b) of the General Conditions: (a) MIDB has been established with responsibilities and functions satisfactory to the Association; (b) the Project Manager referred to in Section 3.03 (b) of this Agreement shall have been appointed in accordance with the provisions of such Section; (c) a senior roads engineer and an agricultural development officer, with qualifications and experience satisfactory to the Association, have been appointed by the Borrower; and 8- (d) the Borrower has selected the consultants referred to in Section 3.02 (a) of this Agreement. Section 6.02. The date 3Qo9,IL4 30 2/ O is hereby speci- fied for the purposes of Section 12.04 of the General Conditions. Section 6.03. The obligations of the Borrower under Sections 4.01 through 4.04 of this Agreement and the provisions of Section 5.02 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date thirty years after the date of this Agreement, whichever shall be the earlier. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. The Secretary, Ministry of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Secretary to His Majesty's Government Ministry of Finance Kathmandu Nepal Cable address: Telex: ARTHA 249 NEP Kathmandu For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) -9- IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. KINGDOM OF NEPAL By/S/ Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By Regional Vice President South Asia - 10 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Civil works (a) by contract 7,000,000 100% of for- eign expendi- tures and 80% of local expenditures (b) by force account 1,700,000 80% (2) Equipment, materials, 3,300,000 vehicles and spare parts (a) directly imported 100% of for- eign expendi- tures (b) locally manu- factured 100% of local expenditures (ex-factory) (c) locally procured 75% (3) Consultants' and 1,800,000 technical services 100% (4) Agricultural extension 100,000 75% and training staff (5) Fellowships 1,300,000 100% (6) Unallocated 800,000 TOTAL 16,000,000 - 11 - 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than the Borrower and for goods or services supplied from the territory of any country other than the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower and for goods or services supplied from the territory of the Borrower. 3. The disbursement percentages have been calculated in com- pliance with the policy of the Association that no proceeds of the Credit shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Credit decreases or increases, the Association may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Association. 4. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expendi- tures prior to the date of this Agreement. 5. Notwithstanding the allocation of an amount of the Credit or the disbursement percentages set forth in the table in paragraph 1 above, if the Association has reasonably estimated that the amount of the Credit then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Association may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Credit which are then allocated to another Category and which in the opinion of the Association are not needed to meet other expenditures, and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Association shall have reasonably determined that the procurement of any item in any Category is inconsistent with - 12 - the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Credit and the Association may, without in any way restricting or limiting any other right, power or remedy of the Association under the Development Credit Agreement, by notice to the Borrower, cancel such amount of the Credit as, in the Association's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Credit. - 13 - SCHEDULE 2 Description of the Project The Project is designed to: (a) increase the capacity of the existing irrigation distribution system in the Project Area and extend it; (b) improve the handling of sediment in the main canal; (c) improve water control through additional control structures and extension of the distribution system down to 7.5 ha groups of farms; (d) improve drainage conditions; (e) provide a network of all weather public roads and canal service roads; (f) intensify agricultural extension, research and training; and (g) develop technical staff by providing fellowships for students to study engineering and agriculture abroad. The Project consists of the following Parts: Part A: Improvement of the irrigation and drainage system in about 3,400 ha; Part B: Extension of the irrigation system by about 3,200 ha, including about 30 km of new distributaries and 115 km of territory canals, with related structures; Part C: Construction of an interconnected network of about 40 km of all weather public roads, about 65 km of canal service roads and related structures; Part D: Construction of buildings and communication facilities for engineering and agricultural activities and staff quarters; Part E: Strengthening of agricultural extension and training activities, including construction of a pilot demonstra- tion farm-cum-training center; Part F: Provision of materials, equipment and vehicles for construction, survey and laboratory activities and for Project operation and maintenance; Part G: Carrying out of air photography and mapping; Part H: Provision of technical assistance for Project implemen- tation; and Part I: Provision of training and fellowships for engineering and agricultural staff. The Project is expected to be completed by June 30, 1985. - 14 SCHEDULE 3 Procurement A. International Competitive Bidding 1. Except as provided in Part C hereof, goods shall be procured under contracts awarded in accordance with procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of inter- national competitive bidding as described in Part A of the Guidelines. 2. For goods to be procured on the basis of international competitive bidding, in addition to the requirements of paragraph 1.2 of the Guidelines, the Borrower shall prepare and forward to the Association as soon as possible, and in any event not later than 60 days prior to the date of availability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Association shall reasonably request; the Association will arrange for the publi- cation of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods and works in question. The Borrower shall provide the necessary information to update such notice annually so long as any goods remain to be procured on the basis of international compe- titive bidding. 3. To the extent practicable, contracts for the procurement of goods shall be grouped in bid packages estimated to cost the equivalent of $75,000 or more. 4. For the purpose of evaluation and comparison of bids for the supply of goods to be procured on the basis of international competitive bidding: (i) bidders shall be required to state in their bid the c.i.f. (port of, entry) price for the imported goods, or the ex-factory price or off-the-shelf price of other goods, offered in such bid; and (ii) customs duties and other import taxes levied in connection with the importation, or the sales and similar taxes levied in connection with the sale or delivery, pursuant to the bid, of the goods shall not be taken into account in the evaluation of the bids. - 15 - B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A of this Schedule, goods manufactured in the Kingdom of Nepal may be granted a margin of preference in accordance with, and subject to, the following provisions: 1. All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. 2. After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in the Kingdom of Nepal if the bidder shall have established to the satisfaction of the Borrower and the Association that the manufacturing cost of such goods includes a value added in the Kingdom of Nepal equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other domestic bids. (3) Group C: bids offering any other goods. 3. In order to determine the lowest evaluated bid of each group, all evaluated bids in each group shall first be compared among themselves, without taking into account customs duties and other import taxes levied in connection with the importation, and sales and similar taxes levied in connection with the sale or delivery, pursuant to the bids, of the goods. Such lowest evalu- ated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. 4. If, as a result of the comparison under paragraph 3 above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the evaluated bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to: (i) the amount of customs duties and other import taxes which a non-exempt importer would - 16 - have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph 3 is the lowest evaluated bid shall be selected. C. Other Procurement Procedures 1. Notwithstanding the provision of Part A.1 above, contracts for goods which the Association agrees cannot be grouped in accordance with Part A.3 above and which are estimated to cost less than the equivalent of $75,000 each and not more than the equivalent of $500,000 in the aggregate, may be procured in accordance with applicable procurement procedures of the Borrower, satisfactory to the Association. 2. Contracts for civil works: (a) may be carried out by the Borrower through force account under arrangements satisfactory to the Association; or (b) may be procured on the basis of locally advertised competitive bidding in accordance with applicable procurement procedures of the Borrower, satisfactory to the Association. D. Review of Procurement Decisions by the Association 1. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for civil works estimated to cost the equivalent of $200,000 or more and for goods estimated to cost the equivalent of $75,000 or more: (a) Before bids are invited, the Borrower shall furnish to the Association, for its comments, the text of the invitations to bid and the specifications and other bidding documents, to- gether with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedures as the Association shall reasonably request. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. - 17 - (b) After bids have been received and evaluated, the Bor- rower shall, before a final decision on the award is made, inform the Association of the name of the bidder to which it intends to award the contract and shall furnish to the Association, in sufficient time for its review, a detailed report, by the con- sultants referred to in Section 3.02 (a) of this Agreement, on the evaluation and comparison of the bids received, together with the recommendations for award of the said consultants and such other information as the Association shall reasonably request. The Association shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked or prequalification invited. (d) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract. 2. With respect to each contract not governed by the preceding paragraph, the Borrower shall furnish to the Association, promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, recommendations for award and such other information as the Association shall reasonably request. The Association shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. 3. Before agreeing to any material modification or waiver of the terms and conditions of a contract, or granting an extension of the stipulated time for performance of such contract, or issuing any change order under such contract (except in cases of extreme urgency) which would increase the cost of the contract by more than 15% of the original price, the Borrower shall inform the Association of the proposed modification, waiver, extension or change order and the reasons therefor. The Association, if it determines that the proposal would be inconsistent with the provisions of this Agreement, shall promptly inform the Borrower and state the reasons for its determination. INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Association thereunto the day of __ -_ , 1980-. FOR SECRETARY