Nepal - Second Water Supply And Sewerage Project : Credit 0704 - Credit Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 704 NEP Development Credit Agreement (Second Water Supply and Sewerage Project) between KINGDOM OF NEPAL and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated May 27, 1977 DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated May 27, 1977, between KINGDOM OF NEPAL (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) By Development Credit Agreement No. 470 NEP (Water Supply and Sewerage Project) dated May 8, 1974 (hereinafter called the Prior Development Credit Agreement) between the Borrower and the Association, the Association agreed to lend to the Borrower an amount in various currencies equivalent to $7,800,000 (hereinafter called the First Credit) to help finance the project described in Schedule 2 to the Prior Development Credit Agre-ement (hereinafter called the First Project); (B) Cost-overruns are expected to occur in connection with the carrying out of the First Project, and the Borrower has requested the Association to assist it in the financing of the said cost-overrun by increasing the amount of the First Credit by an amount in various currencies equivalent to $4,000,000; (C) The Borrower and the Association have entered into an agreement (hereinafter called the Amending Agreement) amending the Prior Development Credit Agreement to so increase the amount of the First Credit; - 2 - (D) The Borrower has requested the Association to assist in the financing of the Project described in Schedule 2 to this Agreement, by extending the Credit as hereinafter provided; (E) The First Project is being carried out and the Project described in Schedule 2 to this Agreement will be carried out by the Borrower's Water Supply and Sewerage Board (hereinafter called WSSB) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to WSSB the proceeds of the Credit as hereinafter provided; 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 hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: - 3 - 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 and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Prior Development Credit Agreement" means the Development Credit Agreement No. 470 NEP (Water Supply and Sewerage Project) dated May 8, 1974 between the Borrower and the Association, as the same may be amended from time to time, and such term includes all Schedules to the Prior Development Credit Agreement and all agreements supplemental thereto; (b) "WSSB" means the Water Supply and Sewerage Board, established on November 5, 1973 by Order under the Development Board Act, 1956, of the Borrower, as amended; (c) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and WSSB pursuant to Section 3.02 of this Agreement, as the same may be amended from time to time; (d) "Project-in-Charge" means the chief executive officer of WSSB; (e) "fiscal year" means WSSB's fiscal year; and (f) "NRs" means the currency of the Borrower. -5- 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 equivalent to eight million dollars ($8,000,000). 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 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, contracts for the purchase of goods or for civil works to be financed out of the proceeds of the Credit, shall be procured in accordance with the provisions of Schedule 3 to this Agreement. Section 2.04. The Closing Date shall be June 30, 1982 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. -6- 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 semi-annually on March 15 and September 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each March 15 and September 15 commencing September 15, 1987, and ending March 15, 2027, each installment to and including the installment payable on March 15, 1997, 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. - 7 - ARTICLE III Execution of the Project Section 3.01. (a) The Borrower shall carry out, or shall cause WSSB to carry out, the Project with due diligence and efficiency and in conformity with appropriate administrative, engineering, financial and public utility practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) The Project shall be carried out in accordance with an implementation schedule mutually acceptable to the Borrower and the Association. Section 3.02. The Borrower shall onlend the proceeds of the Credit to WSSB under a subsidiary loan agreement satisfactory to the Association. Except as the Association shall otherwise agree, the Subsidiary Loan Agreement shall provide, inter alia, that WSSB shall pay periodically to the Borrower amounts representing: (a) interest on the principal amount of the loan withdrawn and outstanding from time to time at the rate of nine per cent (9%) per annum which shall commence to accrue five years from the date upon which the Subsidiary Loan Agreement becomes effective; and (b) amortization of the principal amount of the loan over a period of twenty-five years from the date upon which the Subsidiary Loan Agreement becomes effective, including a grace period of five years. Section 3.03. In order to assist WSSB (i) in the updating of master plans, the preparation of detailed engineering design and bidding documents, the evaluation of bids and the supervision of the construction included in the Project, and (ii) in carrying out the studies included in Part C of the Project, the Borrower shall cause WSSB to employ consultants acceptable to the Association upon terms and conditions satisfactory to the Association. Section 3.04. (a) The Borrower undertakes to insure, cause to be insured, 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 or WSSB to replace or repair such goods. (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 for the Project. -9- Section 3.05. (a) The Borrower shall furnish or cause to be furnished to the Association, promptly upon their preparation, the plans, specifications, 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 or cause to be maintained records adequate to record the progress of the Project (i-,luding the cost thereof) and to identify the goods and services financed out of the proceeds of the Credit, and to disclose the use thereof 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, WSSB's property and equipment, and any relevant records and documents; and (iii) shall furnish or cause to be furnished to the Association all such information as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit and the goods and services financed out of such proceeds. Section 3.06. The Borrower shall take, or cause WSSB to take, all such action as may be necessary to purchase or otherwise acquire, in accordance with a timetable to be agreed between the Borrower and the Association, all such land and rights in respect - 10 - of land as shall be required for carrying out the Project, and shall furnish, or cause WSSB to furnish, to the Association, when so requested, evidence satisfactory to the Association that such land and rights in respect of land are available for purposes related to the Project. Section 3.07. By December 31,1977, or such other date as may be agreed between the Borrower and the Association, the Borrower shall cause the tariff study included under Part C.2 of the Project to be carried out with the assistance of the consultants referred to in Section 3.03 (ii) of this Agreement. Section 3.08. (a) For purposes of Part D of the Project, the Borrower shall by September 30, 1977, or such later date as may be agreed to by the Association, submit, or cause to be submitted to the Association for approval, a detailed program for training of WSSB staff. (b) Without limitation upon the provisions of subsection (a) of this Section 3.08, except as the Borrower and the Association shall otherwise mutually agree., the Borrower shall make or cause to be made arrangements satisfactory to the Association to continue the training of WSSB staff in the operation of appropriate public utility accrual accounting systems (including without limitation separate accounting for water supply and sewerage). - 11 - ARTICLE IV Other Covenants Section 4.01. (a) The Borrower shall cause WSSB to maintain records adequate to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of WSSB. (b) The Borrower shall cause WSSB 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 sound 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; and (iii) furnish to the Association such other information concerning the accounts and financial statements of WSSB and the audit thereof as the Association shall from time to time reasonably reque.t. - 12 - Section 4.02. (a) The Borrower shall cause WSSB to operate WSSB's business and conduct its affairs in accordance with sound business, engineering, financial and public utility practices and under the supervision of qualified and experienced management assisted by qualified and adequate staff and to operate, maintain, renew and repair its plants, equipment and property in accordance with sound engineering and public utility practices; (b) Without limitation or restriction on the generality of the provisions of paragraph (a) of this Section, the Borrower shall: (i) cause WSSB at all times to fill the position of Project-in-Charge with a person of such qualifications and experience as are appropriate to such position and acceptable to the Association; (ii) make arrangements satisfactory to the Association for the provision of technical assistance to WSSB in the fields of administration, water supply system operation and maintenance, water production, laboratory work, engineering and finance until the completion of the Project; and (iii) cause WSSB to appoint qualified Nepalese counterpart staff to assist the experts referred to in sub- paragraph (ii) of this paragraph. - 13 - Section 4.03. The Borrower shall cause WSSB: (a) to take all action reasonably required to maintain and renew all rights, powers, privileges and franchises necessary or useful in the conduct of WSSB's business; (b) to take out and maintain with responsible insurers, or to make other provision satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice; and (c) not to sell, lease, transfer, or otherwise dispose of any of its properties or assets which shall be required for the efficient carrying on of its business, without the consent of the Association. Section 4.04. Except as the Association shall otherwise agree, and without limitation or restriction upon the provisions of Section 4.06 of this Agreement, the Borrower shall: (a) ensure that any exemption from the levy of water and sewerage rates and charges by WSSB shall be made only after consultation with the Association; (b) pay water rates and charges to WSSB for all water consumed through standpipes; (c) commencing in the fiscal year 1978, cause sewerage rates and charges to be levied upon all consumers connected to the - 14 - sewerage system at a level not less than 50% of the metered water charges to such consumers, or at such other level as may be mutually agreed between the Borrower and the Association taking into account the findings and recommendations of the tariff study referred to in Section 3.07 of this Agreement; (d) cause WSSB to carry out, in fiscal year 1978, a water and sewer connection survey; and (e) cause WSSB to make available to the Association for comment any rules proposed to be issued by WSSB. Section 4.05. Except as the Borrower and the Association shall otherwise mutually agree, the Borrower shall, by the end of fiscal year 1978: (i) transfer or cause to be transferred to WSSB as equity all sewerage assets of the Kathmandu sewerage system, free and clear of indebtedness; (ii) transfer or cause to be transferred to WSSB as equity, all assets of the water supply systems of Biratnagar and BirganJ, free and clear of indebtedness; and (iii) publish or cause to be published in the Nepal Gazette a notification of the transfers referred to in subsections (i) and (ii) of this Section. - 15 - Section 4.06. (a) Except as the Association shall otherwise agree, the Borrower shall take, or cause WSSB to take, from time to time such action as may be necessary (including, but without limitation to, adjusting and maintaining rates and charges for water supply and sewerage services) to provide revenues sufficient (i) to cover all operating costs of WSSB's water supply and sewerage services (as defined in subparagraph (ii) (B) of subsection (b) of this Section 4.06) in fiscal years 1977 and 1978; and (ii) to produce an annual rate of return on the average value of WSSB's net fixed assets in operation of at least 2% in fiscal years 1979, 1980, 1981 and 1982, at least 3% in fiscal year 1983, at least 4% in fiscal year 1984, and increasing to at least 6% in fiscal year 1987 and thereafter. (b) For the purposes of paragraph (a) of this Section: (i) The annual rate of return shall be calculated by relating the net operating income of WSSB for the fiscal year in question to the average of the net depreciated value of WSSB's fixed assets in operation at the beginning and at the end of the year in question; - 16 - (ii) "Net operating income" shall mean the difference between (A) gross operating revenues accruing from WSSB's water supply and sewerage services; and (B) all operating costs of WSSB's water supply and sewerage services, including administrative expenses, adequate maintenance and provision for depreciation on all depreciable assets in operation, based upon the agreed estimated useful life of such assets, computed in accordance with the straight-line method, and excluding interest and other charges on debt; and (iii) "Net depreciated value of WSSB's fixed assets in operation" shall mean the gross value of such assets, valued in accordance with methods agreed between the Borrower and the Association, less accumulated depreciation. - 17 - Section 4.07. (a) Except as the Association shall otherwise agree, the Borrower shall not incur, or permit to be incurred, any debt for the benefit of WSSB unless WSSB's net revenues for the fiscal year next preceding the date of such incurrence or for any later twelve-month period ending prior to the date of such incurrence, whichever net revenues are the greater, shall be at least 1.5 times the maximum debt service requirements for any succeeding fiscal year on all debt incurred for the benefit of WSSB, including the debt to be incurred. (b) For the purposes of this Section: (i) the term "debt" means all debt incurred by or on behalf of WSSB, including debt assumed or guaranteed by the Borrower, except debt incurred in the ordinary course of business and maturing by its terms on demand or less than one year after its incurrence; (ii) the term "incur" with reference to any debt includes any modification of the terms of payment of such debt. Debt shall be deemed to be incurred (1) under a contract or loan agreement, on the date such contract or loan agreement providing for such debt is entered into and (2) under a guarantee agreement, on the date the agreement providing for - 18 - such guarantee is entered into but shall be only counted to the extent that the underlying debt is outstanding; (iii) the term "net revenues" means total revenues from all sources, adjusted to take account of WSSB's rates and charges in effect at the time of the incurrence of debt even though they were not in effect during the entire fiscal year or twelve- month period to which such revenues relate, less all operating and other expenses, including adequate maintenance, taxes, if any, and administrative expenses, but before provision for depreciation and debt service requirements; (iv) the term "debt service requirements" means the aggregate amount of amortization (including sinking fund payments, if any), interest and other charges on debt; and (v) whenever it shall be necessary to value in the currency of the Borrower, debt payable in another currency, such valuation shall be made on the basis of the rate of exchange at which such other currency is obtainable by the Borrower, at the time such valuation is made, for the purposes of - 19 - servicing such debt, or, if such other currency is not so obtainable at the rate of exchange that will be reasonably determined by the Association. Section 4.08. Except as the Borrower and the Association shall otherwise mutually agree, the Borrower shall ensure that, until the completion of the works included in the Project, any construction expenditures of WSSB not included in the First Project or the Project, which would exceed in the aggregate in any one fiscal year the equivalent of $500,000, shall be made only with adequate strengthening of the project organization of the WSSB in consultation with the Association. - 20 - ARTICLE V Modifications of the Prior Development Credit Agreement Section 5.01. The Prior Development Credit Agreement is hereby modified as follows: (a) The provisions of Sections 4.02 (b) (ii), 4.04, 4.05 (i) and (iii) (insofar as the provisions of Section 4.05 (i) and (iii) concern sewerage systems) and 4.06 of the Prior Development Credit Agreement are replaced respectively by the provisions of Sections 4.02 (b) (ii), 4.04, 4.05 (i) and (iii) and 4.06 of this Agreement; (b) The provisions of Section 3.03 (b) and 3.09 of the Prior Development Credit Agreement, and Part D of the First Project, are deleted; (c) Section 7.02 of the Prior Development Credit Agreement is amended to read as follows: "Section 7.02. For the purposes of Section 6.02 of the General-Conditions, the following additional events are specified: (a) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of WSSB or for the suspension of its operations, in such manner as would materially and adversely affect the carrying out or efficient operation of the Project; and - 21 - (b) the Borrower or WSSB shall have failed to carry out any of its respective obligations under the Development Credit Agreement (Second Water Supply and Sewerage Project) dated May 27, 1977 between the Bor- rower and the Association or the Subsidiary Loan Agree- ment referred to in Section 3.02 of such Development Credit Agreement." (d) Section 7.03 of the Prior Development Credit Agreement is amended to read as follows: "Section 7.03. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified: (a) the event specified in paragraph (b) of Section 7.02 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Association to the Borrower; and (b) the event specified in paragraph (a) of Section 7.02 of this Agreement shall occur;" and (e) The provisions set forth under Schedule 3 to the Prior Development Credit Agreement are replaced by the provisions set forth under Schedule 3 to this Agreement. - 22 - ARTICLE VI Remedies of the Association Section 6.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of WSSB or for the suspension of its operations, in such manner as would materially and adversely affect the carrying out or efficient operation of the Project; (b) The Borrower or WSSB shall have failed to carry out any of its respective obligations under the Prior Development Credit Agreement or the Subsidiary Loan Agreement referred to in Section 3.02 of the Prior Development Credit Agreement; and (c) WSSB shall have failed to carry out any of its obligations under the Subsidiary Loan Agreement. Section 6.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (d) thereof: - 23 - (a) any of the events specified in paragraphs (b) and (c) of Section 6.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Association to the Borrower; and (b) the event specified in paragraph (a) of Section 6.01 of this Agreement shall occur. - 24 - ARTICLE VII Effective Date; Termination Section 7.01. 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) WSSB has employed the consultants referred to in Section 3.03 (i) of this Agreement; (b) the execution of the Subsidiary Loan Agreement on behalf of the Borrower and WSSB, respectively, in form and substance satisfactory to the Association, has been duly authorized or ratified by all necessary corporate and governmental action; and (c) the Amending Agreement has become effective, or alternative arrangements satisfactory to the Association have been made for the financing of the cost overruns expected to occur in connection with the First Project. Section 7.02. The following event is specified as an additional matter, 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, namely, that the Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and WSSB, respectively, and is legally binding upon the Borrower and WSSB in accordance with its terms. - 25 - Section 7.03. The date August 26, 1977, is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 7.04. The obligations of the Borrower under Sections 4.01 through 4.04 and 4.06 and 4.07 of this Agreement and the provisions of Section 6.02 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date twenty-five years after the date of this Agreement, whichever shall be the earlier. - 26 - ARTICLE VIII Representatives of the Borrower; Addresses Section 8.01. The Secretary to the 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 8.02. 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: ARTHA 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) - 27 - IN WITNESS WHEREOF, the parties thereto, 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/ P. B. Khatri Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Ernest Stern Regional Vice President South Asia . - 28 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of imported items to be financed out of the proceeds of the Credit and the allocation of amounts of the Credit to each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Civil works 2,200,000 100% of foreign expenditures and 30% of local expendi- tures (2) Equipment, 2,100,000 materials, supplies and vehicles (a) directly imported 100% of foreign expenditures (b) locally manufactured 100% of local expenditures (ex-factory cost) (c) Other 60% of local expenditures (3) Consultants' Services 1,500,000 100% (4) Unallocated 2,200,000 TOTAL 8,000,000 - 29 - 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 compliance with the policy of the Bank 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. - 30 - 4. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement. 5. Notwithstanding the allocation of an amount of the Association 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. - 31 - 6. If the Association shall have reasonably determined that the procurement of any item in any Category is inconsistent with 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. - 32 - SCHEDULE 2 Description of the Project The Project consists of the following Parts:* A. Water Supply 1. Kathmandu and Lalitpur: Rehabilitation of about 4 km of existing distribution mains, including service connections, standpipes, gatevalves and other system facilities and construction of about 48 km of new secondary distribution mains. 2. Villages in Kathmandu Valley: Extension of water supply to about ten villages in the Kathmandu Valley including construction of about 29 km of distribution mains. 3. Bode/Thimi (Kathmandu Valley): Extension of the distribution system by construction of about 6.5 km of new distribution mains, and construction of a new service reservoir with a capacity of about 500 m3. 4. Pokhara: Extension of the secondary distribution system by construction of about 11 km of new distribution * All facilities described under Parts A and B below are incremental to the facilities included in the First Project. - 33 - mains, and construction of a new service reservoir with a capacity of about 500 m3 to replace the existing Bindhabasini reservoir. 5. Biratnagar: (i) Construction of a new tubewell scheme including two deep wells with a design capacity of about 4,200 m3/day each. (ii) Improvement to the existing tubewell scheme to restore the design capacity of about 3,000 m3/day. (iii) Extension of the distribution system by construction of about 34 km of distribution mains. (iv) Construction of an elevated service reservoir with a capacity of about 500 m3, staff quarters, an office and a laboratory. 6. Birganj: (i) Improvements to the existing tubewell schemes. (ii) Extension of the distribution system including construction of about 27 km of distribution mains. 7. Installation of about 27,000 new metered service connections (in addition to about 13,000 service connections being installed in Kathmandu, Lalitpur -34- and Pokhara under the First Project) in the Kathmandu Valley, Pokhara, Biratnagar and Birganj. 8. Procurement and placing into service of equipment and tools for maintenance and leak detection, vehicles and office machines. B. Sewerage Systems Construction of about 9 km of sewer lines in Kathmandu and Lalitpur. C. Studies 1. Feasibility studies for further stages of the Borrower's water supply and sewerage development program in about six provincial towns of the Borrower to be mutually agreed between the Borrower and the Association. 2. A tariff study, including a review of WSSB's rates and charges for water supply and sewerage services. D. Training A program of training of WSSB staff, to be mutually agreed by the Borrower and the Association. The Project is expected to be completed by June 30, 1981. - 35 - SCHEDULE 3 Procurement A. International Competitive Bidding Except as provided in Part B hereof, contracts for the purchase of goods or for civil works shall be procured 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 August 1975 (hereinafter called the Guidelines), on the basis of international competitive bidding as described in Part A of the Guidelines. B. Other Procurements Procedures Minor works for extension of existing water supply and sewerage systems, repairs, improvements, house connections and metering, minor buildings and provision of electricity supplies, estimated to cost less than the equivalent of $100,000 each, and contracts for the supply of minor equipment estimated to cost less than $50,000 each, may be procured in accordance with WSSB's usual procurement procedures, or in the case of such minor civil works, carried out by force account, provided that the aggregate value of all such minor works and equipment shall not exceed the equivalent of $500,000. - 36 - C. Evaluation and Comparison of Bids for Goods; Preference for Domestic Manufacturers 1. For the purpose of evaluation and comparison of bids for the supply of goods except those to be procured in accordance with local procedures: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex-factory price for domestically-manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost to WSSB of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in Nepal may be granted a margin of preference in accordance with, and subject to, the following provisions: (a) 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. (b) After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Nepal if the bidder shall have established to the - 37 - satisfaction of the Borrower and the Association that the manufacturing cost of such goods includes a value added in Nepal equal to at least 20% of the ex-factory bid price of such goods. (2) Group E: all other bids offering goods manufactured in Nepal. (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evaluated bid of each group. Such lowest evaluated 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. (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bids from group A after adding to the c.i.f. 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 - 38 - importer would 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 such custom 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 (c) is the lowest evaluated bid shall be selected. D. Evaluation and Comparison of Bids for Civil Works; Preference for Domestic Contractors With respect to any contract for civil works included under Category 1 of the table set forth in Schedule 1 to the Credit Agreement and to be procured in accordance with the proceIures described in Part A of this Schedule, WSSB may grant a margin of preference of 7-1/2% to domestic contractors, in accordance with, and subject to, the following provisions: (a) Domestic contractors shall be required to prequalify as to eligibility for preference. Applicants for qualification shall be asked to provide, as part of the data for qualification, such information, including details of ownership, as shall be required to determine whether, according to the classification established by the Borrower and accepted by the Association, a particular firm or group of firms qualifies for a domestic - 39 - preference. The bidding documents shall clearly indicate the preference and the method that will be followed in the evaluation and comparison of bids to give effect to such preference. (b) After bids have been received and reviewed by WSSB, responsive bids will be classified into the following groups: (i) bids offered by domestic contractors eligible for preference; and (ii) bids offered by other contractors. For the purpose of evaluation and comparison of bids an amount equal to 7-1/2% of the bid amount shall be added to bids received under group (ii) above. E. Review of Procurement Decisions by the Association 1. Review of prequalification for domestic preference. WSSB shall, before qualification is invited, inform the Association in detail of the procedure to be followed, and shall introduce such modifications in said procedure as the Association shall reasonably request. The list of domestic bidders, together with a statement of their eligibility for domestic preference under Part D above and of the reasons for the exclusion of any applicant for such eligibility shall be furnished by WSSB to the Association for its comments before the applicants are notified of WSSB's decision, and WSSB shall make such additions to, deletions from, or modifications in, the said list as the Association shall reasonably request. - 40 - 2. 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 $100,000 or more and with respect to any contract for equipment, materials, supplies or vehicles estimated to cost the equivalent of $50,000 or more: (a) Before bids are invited, WSSB shall furnish to the Association, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together 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. (b) After bids have been received and evaluated,WSSB 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 consultants referred to in Section 3.03 (i) 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 - 41 - 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 WSSB 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. 3. With respect to each contract to be financed out of the proceeds of the Credit and not governed by the preceding paragraph, WSSB 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 WSSB and state the reasons for such determination.