Conformed Copy - C1988 - Municipal Development and Earthquake Emergency Project - Development Credit Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 1988 NEP (Municipal Development and Earthquake Emergency Housing Reconstruction Project) between KINGDOM OF NEPAL and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated April 7, 1989 DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated April 7, 1989, between the Kingdom of Nepal (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) the Borrower intends to contract from the United Nations Development Programme (UNDP) grants in an aggregate amount of five million one hundred thousand dollars ($5,100,000) to assist in the financing of Parts A (iii), B (ii), B (iv) and C of the Project on the terms and conditions set forth in three agreements (each the UNDP Grant Agreement and collectively the UNDP Grant Agreements) to be entered into between the Borrower and the UNDP; (C) the Borrower intends to contract with the German Agency Page 2 for Technical Cooperation (GTZ) of the Federal Republic of Germany a grant in an amount of three million Deutche Mark (DM 3,000,000) to assist in the financing of Part A (iv) of the Project on the terms and conditions set forth in an agreement (the GTZ Grant Agreement) to be entered into between the Borrower and GTZ; and (D) Part A of the Project will be carried out by the Town Development Fund Board (the Board) with the Borrower's assistance, and as part of such assistance, the Borrower will make available to the Board the proceeds of the Credit as provided in this Agreement; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement and in the Project Agreement of even date herewith between the Association and the Board; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Develop- ment Credit Agreements" of the Association, dated January 1, 1985, with the modifications set forth in Schedule 6 to this Agreement (the General Conditions) constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Town Development Fund Board" and "the Board" mean the board established and operating pursuant to the Formation Order dated February 13, 1989, issued under the Borrower's Development Board Act 2013 (1956), as a corporate body with financial and legal autonomy; (b) "Project Agreement" means the agreement between the Association and the Board, of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Project Agreement; (c) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and the Board pursuant to Section 3.01 (b) of this Agreement, as the same may be amended from time to time, and such term includes all schedules supplemental to the Subsidiary Loan Agreement; (d) "General Policy Statement and Rules and Regulations" means the statement covering the general objectives, management, operations, financial and outreach policies of the Board approved by the Borrower pursuant to Section 3.04 of this Agreement, as such General Policy Statement and Rules and Regulations may be amended from time to time with the prior approval of the Association; (e) "Loan" means a loan made or proposed to be made by the Board to a Town Panchayat for an Investment Project out of the equivalent of the proceeds of the Credit relent to the Board under the Subsidiary Loan Agreement; (f) "free-limit-Loan" means a Loan, as so defined, which qualifies as a free-limit Loan pursuant to the provisions of paragraph 2 (b) of Schedule 1 to the Project Agreement; (g) "Investment Project" means a social infrastructure project or a revenue generating project, as so defined in the Page 3 General Policy Statement and Rules and Regulations, to be carried out by a Town Panchayat utilizing the proceeds of a Loan; (h) "Agriculture Development Bank Financial Agreement" means the agreement to be entered into between the Borrower and the Agricultural Development Bank pursuant to Section 3.01 (c) of this Agreement, as the same may be amended from time to time, and such term includes all schedules supplemental to the Agriculture Development Bank Financial Agreement; (i) "Nepal Bank Limited Financial Agreement" means the agreement to be entered into between the Borrower and the Nepal Bank Limited pursuant to Section 3.01 (d) of this Agreement, as the same may be amended from time to time, and such term includes all schedules supplemental to the Nepal Bank Limited Financial Agreement; (j) "Rastriya Banijya Bank Financial Agreement" means the agreement to be entered into between the Borrower and the Rastriya Banijya Bank pursuant to Section 3.01 (e) of this Agreement, as the same may be amended from time to time, and such term includes all schedules supplemental to the Rastriya Banijya Bank Financial Agreement; (k) "Participating Entities" means collectively the Agriculture Development Bank, the Nepal Bank Limited and the Rastriya Banijya Bank as well as other institutions that from time to time the Borrower and the Association may so agree, and "Participating Entity" means any one of the Agriculture Development Bank, the Nepal Bank Limited, the Rastriya Banijya Bank or such other institution; (l) "Sub-loan" means a loan made or proposed to be made by a Participating Entity to a Beneficiary for the reconstruction of a house damaged by the August 21, 1988 earthquake out of the equivalent of the proceeds of the Credit relent to such Participating Entity under its respective Financial Agreement; (m) "Beneficiary" means the owner of a house that was damaged by the August 21, 1988 earthquake; (n) "Nepal Rastra Bank" and "NRB" mean the central bank of the Borrower established and operating under the Borrower's Nepal Rastra Bank Act, 2012 (1955); (o) "MOF" means the Borrower's Ministry of Finance; (p) "MHPP" means the Borrower's Ministy of Housing and Physical Planning; (q) "MPLD" means the Borrower's Ministry of Panchayat and Local Development; (r) "Rupees" and "NRs" mean the currency of the Borrower; and (s) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Development Credit Agreement, an amount in various currencies equivalent to thirty million nine hundred thousand Special Drawing Rights (SDR 30,900,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for: (i) amounts paid (or, if the Page 4 Association shall so agree, to be paid) by a Town Panchayat under a Loan to meet the reasonable cost of goods and services required for the Investment Project in respect of which the withdrawal from the Credit Account is requested; (ii) expenditures made (or if the Association shall so agree, to be made) by the Board in respect of the reasonable cost of goods and services required for carrying out Part A(i) of the Project; (iii) amounts paid (or, if the Association shall so agree, to be made) by a Participating Entity under a Sub-loan to meet the reasonable cost of goods and services required for the reconstruction of a house and to be financed under the On-lending Facility out of the proceeds of the Credit; and (iv) expenditures made (or if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for carrying out Part B (iii) of the Project and to be financed out of the proceeds of the Credit. (b) The Borrower shall, for the purposes of the Project, open and maintain in dollars a special account in the Nepal Rastra Bank on terms and conditions satisfactory to the Association. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 4 to this Agreement. Section 2.03. The Closing Date shall be June 30, 1996 or such later date as the Association shall establish. The Association shall promptly notify the Borrower and the Board of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from a date sixty days after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or cancelled; (ii) at the rate set as of the June 30 immediately preceding the accrual date or at such other rates as may be set from time to time thereafter pursuant to paragraph (a) above. The rate set as of June 30 in each year shall be applied as of the next payment date in that year specified in Section 2.06 of this Agreement, except that the rate set as of June 30, 1988 shall be applied as of July 1, 1988. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on June 1 and December 1 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semiannual installments payable on each June 1 and December 1 commencing June 1, 1999 and ending December 1, 2028. Each installment to and including the installment payable on December 1, 2008 shall be one percent (1%) of such principal amount, and each installment thereafter shall be two percent (2%) of such principal amount. (b) Whenever: (i) the Borrower's gross national product per Page 5 capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years; and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due consideration by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid. If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (c) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. 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. Section 2.09. The Board is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 (a) (i) of this Agreement and Article V of the General Conditions. ARTICLE III Description of the Project; Use of Proceeds of the Credit Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, without any limitation or restriction upon any of its other obligations under the Development Credit Agreement, shall: (i) cause the Board to perform in accordance with the provisions of the Project Agreement all the obligations of the Board therein set forth, shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable the Board to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance; (ii) cause each Participating Entity to carry out, Part B (i) of the Project in accordance with the provisions of their respective Financial Agreement therein set forth, shall take and cause to be taken all action including the provision of funds, facilities, services and other resources, necessary or appropriate to enable each Participating Entity to perform their respective obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance; and (iii) carry out Parts B (ii), B (iii), B (iv) and C of the Project through its respective agencies and departments and shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to carry out such Parts of the Project; all of the aforesaid with due diligence and efficiency and in conformity with appropriate administrative, financial, technical, economic, environmental and social practices. (b) The Borrower shall relend to the Board, out of the Page 6 proceeds of the Credit, an amount equivalent to seven million eight hundred thousand Special Drawing Rights (SDR 7,800,000) or such other amount as the Borrower and the Association may otherwise agree from time to time, under a subsidiary loan agreement to be entered into between the Borrower and the Board under terms and conditions which shall have been approved by the Association, which terms and conditions to include an interest rate not to exceed 3% per annum, a maximum repayment period of 25 years, including a grace period of 5 years, and the provision that the Borrower shall bear the foreign exchange risk. (c) The Borrower shall relend to the Agriculture Development Bank, out of the proceeds of the Credit, an amount equivalent to three million six hundred thousand Special Drawing Rights (SDR 3,600,000) or such other amount as the Borrower and the Association may otherwise agree from time to time, under a financial agreement to be entered into between the Borrower and the Agriculture Development Bank under terms and conditions which shall have been approved by the Association, which terms and conditions to include those set forth in Schedule 5 to this Agreement, an interest rate not to exceed 14% per annum, a maximum repayment period of eight years, including a grace period of two years, and the provision that the Borrower shall bear the foreign exchange risk. (d) The Borrower shall relend to the Nepal Bank Limited, out of the proceeds of the Credit, an amount equivalent to seven million four hundred thousand Special Drawing Rights (SDR 7,400,000) or such other amount as the Borrower and the Association may otherwise agree from time to time, under a financial agreement to be entered into between the Borrower and the Nepal Bank Limited under terms and conditions which shall have been approved by the Association, which terms and conditions to include those set forth in Schedule 5 to this Agreement, an interest rate not to exceed 14% per annum, a maximum repayment period of eight years, including a grace period of two years, and the provision that the Borrower shall bear the foreign exchange risk. (e) The Borrower shall relend to the Rastriya Banijya Bank, out of the proceeds of the Credit, an amount equivalent to seven million four hundred thousand Special Drawing Rights (SDR 7,400,000) or such other amount as the Borrower and the Association may otherwise agree from time to time, under a financial agreement to be entered into between the Borrower and the Rastriya Banijya Bank under terms and conditions which shall have been approved by the Association, which terms and conditions to include those set forth in Schedule 5 to this Agreement, an interest rate not to exceed 14% per annum, a maximum repayment period of eight years, including a grace period of two years, and the provision that the Borrower shall bear the foreign exchange risk. (f) The Borrower shall exercise its rights under the Subsidiary Loan Agreement, the Agriculture Development Bank Financial Agreement, the Nepal Bank Limited Financial Agreement, and the Rastriya Banijya Bank Financial Agreement in such manner as to protect the interests of the Borrower and the Association and to accomplish the purposes of the Credit, and except as the Association shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Loan Agreement, or the Agriculture Development Bank Financial Agreement, or the Nepal Bank Limited Financial Agreement, or the Rastriya Banijya Bank Financial Agreement or any provision thereof. Section 3.02. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services required for Parts A (ii) and B (iii) of the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to this Agreement; provided, however, that procurement of consultants' services required for Parts B (ii), B (iv) and C of the Project shall be governed by the Page 7 provisions of Section II (b) of Schedule 3 to this Agreement. Section 3.03. The Borrower shall approve and thereafter cause the Board to apply in its operations the General Statement Policy and Rules and Regulations acceptable to the Association. Section 3.04. Without limitation to the provisions of Section 3.01 (a) (i) of this Agreement, the Borrower shall, on March 1 of each year, commencing on March 1, 1990 and thereafter, cause the Board to prepare and furnish to the Association, for its review and comments, the Board's proposed Annual Plan and Budget and Operating Expenses for the forthcoming fiscal year, and thereafter, taking account the Association's comments, if any, the Borrower shall provide the necessary financial resources to enable the Board to meet its financial needs during such forthcoming fiscal year. Section 3.05. The Borrower and the Association hereby agree that in respect of Part A of the Project, the obligations set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) shall be carried out by the Board pursuant to Section 2.04 of the Project Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with sound financial practices the operations, resources and expenditures in respect of Part B (i) of the Project of each of the Participating Entities carrying out such Part of the Project or any part thereof, and in respect of Part B (iii) of the Project of the departments and agencies of the Borrower carrying out such Part of the Project or any part thereof. (b) The Borrower shall, or shall cause each of the Participating Entities, and its departments and agencies carrying out the Project or any part thereof to: (i) have the records and accounts referred to in paragraph (a) of this Section including those for the Special Account 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 twelve months after the end of each such year, a certified copy of the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning said records, accounts and the audit thereof as the Association shall from time to time reasonably request including without any limitation on the foregoing unaudited Project accounts and financial statements for each fiscal year, certified as to their accuracy and authenticity by an independent auditor acceptable to the Association, as soon as available, but not later than six months after the end of each such year. (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditure, the Borrower shall, or shall cause each of the Participating Entities and its departments and agencies carrying out the Project or any part thereof to: Page 8 (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Associa- tion has received the audit for the fiscal year in which the last withdrawal from the Credit Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the proce- dures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional events are specified: (a) the Board shall have failed to perform any of its obligations under the Project Agreement; (b) any of the Participating Entities shall have failed to perform any of their obligations under their respective Financial Agreement; (c) as a result of events which have occurred after the date of the Development Credit Agreement, an extraordinary situation shall have arisen which shall make it improbable that either the Board or any of the Participating Entities will be able to perform its obligations under the Project Agreement, the Subsidiary Loan Agreement, the Agriculture Development Bank Financial Agreement, the Nepal Bank Limited Financial Agreement, or the Rastriya Banijya Bank Financial Agreement, as the case may be; (d) the Formation Order of the Board shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the operations or financial condition of the Board or its ability to carry out Part A of the Project or to perform any of its obligations under the Project Agreement; (e) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of the Board or for the suspension of its operations; (f) the General Policy Statement and Rules and Regulations shall have been amended, suspended, abrogated, repealed or waived without the prior approval by the Association; and (g) (i) subject to subparagraph (ii) of this paragraph the right of the Borrower to withdraw the proceeds of any grant made to the Borrower for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the agreement providing therefor; and (ii) subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association that: (A) such suspension, Page 9 cancellation or termination is not caused by the failure of the Borrower to perform any of its obligations under such agreement; and (B) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. Section 5.02. Pursuant to Section 7.01 (d) of the General Conditions, the following additional events are specified: (a) the events specified in paragraphs (a) and (b) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Association to the Borrower and the Board or the respective Participating Entity, as the case may be; (b) any event specified in paragraphs (d), (e) and (f) of Section 5.01 of this Agreement shall occur; and (c) the event specified in paragraph (g) (i) of Section 5.01 of this Agreement shall occur, subject to the proviso of paragraph (g) (ii) of such Section. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Subsidiary Loan Agreement shall have entered into by the Borrower and the Board, respectively; (b) an officer with qualifications and experience satisfactory to the Association shall have been appointed as Executive Director of the Board, and staff in quality and numbers adequate for the operation of the Board shall have been retained and deployed; (c) the General Policy Statement and Rules and Regulations shall have been approved pursuant to Section 3.03 of this Agreement; (d) the UNDP Grant Agreements shall have been duly signed by the parties thereto; (e) an entity or entities acceptable to the Borrower, UNDP and the Association shall have been duly appointed as executing agency for Parts A (iii) and B (iv) of the Project; (f) the Association, or such entity or entities acceptable to the Borrower, UNDP and the Association, shall have been duly appointed as executing agency for Parts B (ii) and C of the Project; (g) consultants for carrying out Parts A (iii) and C of the Project shall have been retained pursuant to Section II of Schedule 2 to the Project Agreement and Section II of Schedule 3 to this Agreement, respectively; (h) the Borrower has made an equity contribution to the Board in an amount not less than NRS 5,000,000; (i) that all conditions precedent to the effectiveness of the GTZ Grant Agreement, other than the effectiveness of this Agreement, if that be the case, have been fulfilled; and (j) the Agriculture Development Bank Financial Agreement, the Nepal Bank Limited Financial Agreement and the Rastriya Banijya Bank Financial Agreement have been entered into by the Borrower and the Agriculture Development Bank, the Nepal Bank Limited and the Rastriya Banijya Bank, respectively. Page 10 Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association: (a) that the Project Agreement has been duly authorized or ratified by the Board, and is legally binding upon the Board in accordance with its terms; (b) that the Subsidiary Loan Agreement has been duly authorized or ratified by, and is legally binding upon the Borrower and the Board in accordance with its terms; and (c) that the Agriculture Development Bank Financial Agreement, the Nepal Bank Limited Financial Agreement and the Rastriya Banijya Bank Financial Agreement have been duly authorized or ratified by, and are legally binding upon the Borrower and the Agriculture Development Bank, the Nepal Bank Limited, and the Rastriya Banijya Bank, respec- tively, in accordance with their terms; Section 6.03. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. Except as provided in Section 2.09 of this Agreement, 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: Ministry of Finance His Majesty's Government Bagdurbar Kathmandu Nepal Cable address: Telex: ARTHA 2249-NEP Kathmandu, Nepal 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) IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, 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 Page 11 By /s/ Mohan Man Sainju Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Attila Karaosmanoglu Regional Vice President Asia 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 SDR Equivalent) to be Financed (1) Sub-loans under 18,400,000 85% Part B (i) of the Project (2) Investment Projects under Part A(ii) of the Project: (a) Civil works 5,500,000 80% (b) Goods 1,820,000 100% of foreign ex- penditures; 100% of local expenditures (ex-factory cost); and 70% of local ex- penditures for other items procured locally (c) Technical 190,000 100% assistance Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (3) Civil works under 80,000 90% Part B (iii) of the Project (4) Goods under 670,000 100% of Page 12 Part B (iii) of foreign ex- the Project penditures; 100% of local expenditures (ex-factory cost); and 70% of local ex- penditures for other items procured locally (5) Management and 220,000 100% operation under Part A (i) of the Project (6) Management and 1,750,000 100% operation (excluding staff salaries), technical assistance and training under Part B (iii) of the Project (7) Non-governmental 370,000 100% organizations' activities under Part B (iii) of the Project Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (8) Installation of 1,040,000 100% low-cost latrines and improved stoves (9) Unallocated 860,000 __________ TOTAL 30,900,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made: (a) in respect of expenditures under Category 2 for an Investment Project until the Association approves the respective Investment Project, provided, however, that for an Investment Project costing no more than $150,000 equivalent, withdrawals may be made for expenditures under such Category without the prior approval of the Association of such Investment Project; (b) in respect of payments made for expenditures prior to the date of this Agreement except that withdrawals, in an Page 13 aggregate amount not exceeding the equivalent of $6,200,000 may be made in respect of Categories (1), (3), (4), (6), (7) and (8) on account of payments made for expenditures before that date but after November 1, 1988. SCHEDULE 2 Description of the Project The objectives of the Project are to assist the Borrower: (a) in establishing and developing, on a pilot basis, a viable institutional framework for providing appropriate financial support to Town Panchayats to implement Investment Projects; (b) in providing long-term financing to Town Panchayats to implement their priority social infrastructure and revenue- generating projects; (c) in strengthening the financial and administrative capacity of the Town Panchayats to prepare, implement, supervise and maintain priority investment projects, including social infrastructure and revenue-generating projects; (d) in implementing its program to reconstruct housing damaged in the earthquake of August 21, 1988; (e) in implementing its long-term program to prevent and mitigate the adverse effects of natural disasters; and (f) in implementing its long-term program to enhance housing and building construction techniques with due regard to environmental consequences. The Project consists of the following Parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: Town Development Fund Board (i) Establishment and operation of the Board, including the provision of funds, staffing, goods and services required therefor. (ii) Financing and implementation of specific Investment Projects through Loans to eligible Town Panchayats. (iii) Provision of technical assistance to the Board to strengthen its in-house ability to appraise and supervise Investment Projects financed by the Board; (iv) Provision of financial and technical assistance to selected Town Panchayats, inter alia, for: (1) the planning and implementation of demonstration investment projects, including priority social infrastructure and revenue- generating projects; (2) the preparation of plans and feasibility studies for development schemes; (3) the implementation of health education programs to increase public awareness and commitment to health and hygiene; and (4) the development of financial management, including establishment of a tax record system. Page 14 Part B: Housing Reconstruction Program (i) Provision of Sub-loans for the reconstruction of houses in the rural, district headquarters and urban areas of Central and Eastern Nepal affected by the earthquake of August 21, 1988. (ii) Provision of technical assistance and training for: (1) establishing and developing a long term program to prevent and mitigate the adverse effects that natural disasters may have, including: (A) disaster management, (B) preparation of a national building code incorporating, inter alia, earthquake construction resistant features, (C) epicentral and seismic mapping, (D) new building product develop- ment and (E) study of alternatives to use of timber in buildings' construction, and building products development for domestic use; (2) development of a housing strategy and related studies; and (3) preparation of a housing sector project. (iii) Carrying out of the Borrower's housing reconstruc- tion program, including management and operation, training, construction of model houses with improved building techniques, financial support to non-governmental organizations to assist in implementing part of said program, including provision of machinery for the manufacturing of building materials, and support for the introduction of low-cost latrines and improved stoves. (iv) Provision of the services of a program advisor to assist the Borrower in implementing the Borrower's 1988 Earthquake Reconstruction Program. Part C: Management Support for Urban Development Provision of technical assistance to MHPP and MPLD for implementing a Program for improving the institutional, financial,management and technical capacity of the Town Panchayats, MHPP and MPLD. * * * Part A of the Project is expected to be completed by June 30, 1995. Part B of the Project is expected to be completed by June 30, 1992. Part C of the Project is expected to be completed by June 30, 1991. SCHEDULE 3 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: International Competitive Bidding Except as provided in Part D hereof, goods and works shall be procured under contracts awarded in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1985 (the Guidelines). Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A hereof, goods manufactured in Nepal may be granted a margin of preference in accordance with, and subject to, Page 15 the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraphs 1 through 4 of Appendix 2 thereto. Part C: Preference for Domestic Contractors In the procurement of works in accordance with the procedures described in Part A hereof, the Borrower may grant a margin of preference to domestic contractors in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraph 5 of Appendix 2 thereto. Part D: Other Procurement Procedures 1. Contracts for civil works estimated to cost $200,000 equivalent or less shall be awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association. 2. Goods estimated to cost $200,000 equivalent or less shall be procured under contracts awarded on the basis of comparison of price quotations solicited from at least three suppliers eligible under the Guidelines, in accordance with procedures satisfactory to the Association. Part E: Review by the Association of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for civil works estimated to cost the equivalent of $200,000 or more, and for each contract for goods estimated to cost the equivalent of $50,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Association pursuant to said paragraph 2 (d) shall be furnished to the Association prior to the making of the first payment out of the Special Account in respect of such contract. (b) With respect to each contract not governed by the pre- ceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract together with the other information required to be furnished to the Association pursuant to said paragraph 3 shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to this Agreement. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Association has authorized withdrawals from the Credit Account on the basis of statements of expenditure. Such contracts shall be retained in accordance with Section 4.01 (c) (ii) of this Agreement. 3. The figure of 15% is hereby specified for purposes of para- graph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants (a) In order to assist the Borrower in carrying out Part B(iii) of the Project, the Borrower shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. Such consultant shall be selected in accordance with principles and procedures satisfactory to the Association on the basis of the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Bank in August 1981. Page 16 (b) In order to assist the Borrower in carrying out Parts B (ii), B (iv) and C of the Project, the Borrower shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. SCHEDULE 4 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means all Categories set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures 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 allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $9,000,000 to be withdrawn from the Credit Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Association has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Association a request or requests for a deposit or deposits which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit in the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Association requests for deposits into the Special Account at such intervals as the Association shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Association the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been made out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Association from the Credit Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the Special Page 17 Account, the Borrower shall, at such time as the Association shall reasonably request, furnish to the Association such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Association shall not be required to make further deposits into the Special Account: (a) if, at any time, the Association shall have determined that all further withdrawals should be made by the Borrower directly from the Credit Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or (b) once the total unwithdrawn amount of the Credit allocated to the eligible Categories, less the amount of any outstanding special commitment entered into by the Association pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit allocated to the eligible Categories shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Association shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Association, the Borrower shall, promptly upon notice from the Association: (A) provide such additional evidence as the Association may request; or (B) deposit into the Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Association shall otherwise agree, no further deposit by the Association into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Association shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Association, refund to the Association such outstanding amount. (c) The Borrower may, upon notice to the Association, refund to the Association all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Association made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Credit Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. SCHEDULE 5 ON-LENDING FACILITY Terms and Conditions 1. Each Participating Entity, prior to or concurrent with, requesting refinancing from the Borrower for Sub-loans shall furnish to MOF copies of the Sub-loan together with relevant Page 18 documentation including a certificate issued by MHPP certifying that the beneficiary is eligible to obtain the Sub-loan. 2. Sub-loans shall be made on terms whereby the Participating Entity shall obtain, by written contract with the Beneficiary or by other legal means, rights adequate to protect the interest of the Association and the Participating Entity, including collateral on the land and improvements therein. For purposes of the Sub- loans, ownership of the Beneficiaries may be demonstrated by Land Entitlement Certificates, Land Revenue Tax Payment Slips or other legal means. 3. Sub-loans shall include a maximum repayment period of 8 years, including a grace period of 2 years of principal and interest on the first NRS 5,000 of the Sub-loan amount, and a grace period of 2 years of the principal only on any amount thereafter. 4. Sub-loans shall include interest at the following rates: (a) the first NRS 5,000 of principal 1% per annum; (b) the next NRS 5,001 to 10,000 of principal 10% per annum; and (c) the next NRS 10,001 to 50,000 of principal 15% per annum. 5. The maximum amount of the principal of a single Sub-loan shall be: (a) in the rural areas ---------------------- NRS 10,000; (b) in the district headquarters areas ------ NRS 20,000; and (c) in the urban areas ---------------------- NRS 50,000. - 30 - 6. The Borrower shall: (a) annually make available to each Participating Entity the difference between the various interest rates charged to Beneficiaries under Sub-loans during the previous 12 calendar months and the prevailing interest rate for housing loans currently set at 19% per annum; and (b) deposit on NRB the amounts paid by each Participating Entity to the Borrower pursuant to Sections 3.01 (c), 3.01 (d) and 3.01 (e) of this Agreement, which amounts to be used exclusively to: (1) meet, in part or in total, the financial requirements under sub-paragraph (a) of this paragraph, and (2) cover, in part or in total, the bad debts on Sub-loans of the Participating Entities. For such purposes an amount equivalent to 3% of such deposits shall be reserved to cover, in part or in total, the financial requirements under sub- paragraph (b) (2) of this Section. SCHEDULE 6 Modifications of the General Conditions For purposes of this Agreement, the provisions of the General Conditions are modified as follows: (1) The last sentence of Section 3.02 is deleted. (2) The following subparagraph is added to Section 2.01: "15. The term 'Project Agreement' has the meaning set forth in paragraph (b) of Section 1.02 of the Development Credit Agreement." (3) The words "the Association may, by notice to the Borrower, terminate the right of the Borrower to make withdrawals Page 19 with respect to such amount. Upon the giving of such notice, such amount of the Credit shall be cancelled" set forth at the end of Section 6.03 are deleted and the following is substituted therefor: "or (e) by the date specified in sub-paragraph 3 (c) of Schedule 1 to the Project Agreement, the Association shall, in respect of any portion of the Credit allocated to Part A of the Project: (i) have received no applications or requests permitted under sub-paragraphs (a) or (b) of said paragraph; or (ii) have denied any such applications or requests, the Association may, by notice to the Borrower, terminate the right to submit such applications or approvals or to make withdrawals from the Credit Account, as the case may be, with respect to such amount or portion of the Credit. Upon the giving of such notice, such amount or portion of the Credit shall be cancelled."