Nepal - Marsyangdi Hydroelectric Power Project : Credit 1478 - Credit Agreement - Conformed

CREDIT NUMBER 1478 NEP Development Credit Agreement (Marsyangdi Hydroelectric Power Project) between KINGDOM OF NEPAL and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated 30 , 1985 CREDIT NIUBER 1478 NEP DEVELOFMENT CREDIT AGREEMENT AGREEMENT, dated , 1985, between KINGDOM OF NEPAL (hereinafter called the Borrower) and INTER- NATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Asso- ciation). WHEREAS (A) the Borrower has requested the Association to assist in the financing of the foreign exchange cost of Parts B, C, F, G (ii), H and I of the Project described in Schedule 2 to this Agreement by extending the Credit as hereinafter provided; (B) by agreement dated January 26, 1985 (hereinafter called the Kuwait Fund Loan Agreement), the Kuwait Fund for Arab Economic Development (hereinafter called the Kuwait Fund) has agreed to make a loan (hereinafter called the Kuwait Fund Loan) in an amount of 6,000,000 Kuwait Dinars to assist in the financ- ing of Parts A and I (b) of the Project on the terms and condi- tions therein set forth; (C) by agreement dated November 16, 1984 (hereinafter called the Saudi Fund Loan Agreement), the Saudi Fund for Devel- opment (hereinafter called the Saudi Fund) has agreed to make a loan (hereinafter called the Saudi Fund Loan) in an amount of 86,000,000 Saudi Riyals to assist in the financing of Parts A and I (b) of the Project on the terms and conditions therein set forth; (D) the Borrower intends to contract from the Kreditanstalt fur Wiederaufbau (hereinafter called the KfW) a grant (herein- after called the KfW Grant) in an amount of Deutsche Marks 186,300,000 to assist in the financing of Parts D (except civil works under Part D (ii) (a)) and I (b) of the Project on the terms and conditions set forth in an agreement (hereinafter called the KfW Grant) to be entered into between the Borrower and the KfW; (E) the Borrower intends to contract, on reasonable terms and from sources outside Nepal, loans or grants for purposes of meeting as large a portion as possible of the total costs of the equipment and installation thereof required for carrying out Part E of the Project; and -2- WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and eonditions hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: 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 June 30, 1980, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Development Credit Agree- ments 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 addi- tional terms have the following meanings: (a) "NEA" means the Nepal Electricity Authority, an autonomous corporation wholly owned by the Borrower, established and operating since August 17, 1985 under the Borrower's Nepal Electricity Authority Act, 2041 (1984); (b) "MHDB" means the Marsyangdi Hydroelectric Development Board established and operating pursuant to the Borrower's Development Board Act (1957); (c) "Development Boards" mean the boards establisl-ad by the Borrower pursuant to the Borrower's Development Board Act (1957), to undertake the construction of certain power projects in Nepal; (d) "Electricity Department" means the department within the Borrower's Ministry of Water Resources responsible, inter alia, for the planning, designing and construction of power projects in Nepal which, in the latter case, are not under the jurisdiction of the Development Boards; -3- (e) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and NEA pursuant to the provi- sions of Section 4.12 of this Agreement; (f) "Marsyangdi Hydroelectric Power Plant" means the hydro- electric power plant to be constructed under Parts A, B, C, D and E of the Project; (g) "Kulekhani Hydroelectric Development Credit Agreement" means the Development Credit Agreement dated January 9, 1976, entered into between the Borrower and the Association for pur- poses of carrying out the Kulekhani Hydroelectric Project, which project is described in Schedule 2 of the said Development Credit Agreement; and (h) "Nepalese Rupees" means the currency of the Borrower. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Bor- rower, on the terms and conditions in the Development Credit Agreement set forth or referred to, an amount in various curren- cies equivalent to one hundred million six hundred thousand Special Drawing Rights (SDR 100,600,000). 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, procurement of the civil works required for 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. Section 2.04. The Closing Date shall be June 30, 1990, or such later date as the Association shall establish. The Associa- tion shall promptly notify the Borrower of such later date. 4- Section 2.05. (a) The Borrower shall pay to the Association a commitment charge at the rate of one-half of one per cent (1/2 of 1%) per annum on the principal amount of the Credit not with- drawn from time to time. The commitment charge shall accrue from a date sixty days after the date of the Development Credit Agree- ment to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or shall be cancelled. (b) 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 2.06. 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 2.07. Commitment charges and service charges shall be payable semiannually on April 15 and October 15 in each year. Section 2.08. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each April 15 and October 15, commencing October 15, 1994, and ending April 15, 2034, each installment to and including the installment payable on April 15, 2004, 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 2.09. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, shall carry out Parts A, B, C, D, E, I (b), I (c) and I (d) of the Project through MHDB -5- and Parts F, G, H and I (a) through its Ministry of Water Resources and NEA, as the case may be, all with due diligence and efficiency and in conformity with appropriate engineering, financi"l, administrative, and public -utilities pracLices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 3.02. (a) In order to assist the Borrower in carry- ing out Parts F, G (ii), H, I (b) and I (c) of the Project, the Borrower shall employ consultants whose qualifications, expe- rience and terms and conditions of employment shall be satisfac- tory to the Association, such consultants to 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. (b) In order to advise the Borrower with respect to claims that may arise from the carrying out of Parts A, B, C and D of the Project, the Borrower shall employ, a claims advisor whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association, such claims advisor to be selected in accordance with principles and procedures satis- factory 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. Section 3.03. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit against hazards inci- dent to the acquisition, transportation and installation thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Borrower to replace or repair such goods. (b) The Borrower shall cause all goods and services financed out of the proceeds of the Credit to be used exclusively for the purposes of the Project. Section 3.04. The Borrower shall maintain MEDB with such power3, functions, responsibilities, membership, staff, funds and other resources as shall be satisfactory to the Association, in order to enable MHDB to undertake the carrying out of Parts A, B, C, D, E, I (b), I (c) and I (d) of the Project, provided, how- ever, that the Borrower's obligation under the provisions of this -6- Section shall terminate in accordance with the provisions of Section 4.14 of this Agreement. Section 3.05. The Borrower shall carry out Part F of the Project in accordance with a plan of action satisfactory to the Association. Section 3.06. (a) The Borrower shall furnish to the Associa- tion, promptly upon their preparation, the plans, specifications, reports, contract documents and construction and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) The Borrower: (i) shall maintain records and procedures adequate to record and monitor the progress of the Project (including its cost and the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Credit, and to disclose their use in the Project; (ii) shall enable the Association's representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Credit and any relevent records and documents; and (iii) shall furnish to the Association at regular intervals all such information as the Association shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of the Credit and the goods and services financed out of such proceeds. (c) Upon the award by the Borrower of any contract for goods, works or services to be financed out of the proceeds of the Credit, the Association may publish a description thereof, the name and nationality of the party to whom the contract was awarded and the contract price. (d) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Association, the Borrower shall prepare and furnish to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution and ini- tial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by the Borrower and the Association of their respective obligations under the Devel- opment Credit Agreement and the accomplishment of the purposes of the Credit. -7- Section 3.07. The Borrower shall, by January 31, 1986, adopt and, thereafter, implement a rehabilitation program, satisfactory to the Association, for those persons dislocated as a result of the carrying out of Parts A through E of the Project. Section 3.08. The Borrower shall, not later than March 31, 1986, adopt, and thereafter, commence the implementation of a catchment management plan, satisfactory to the Association, to be carried out in the catchment area upstream of the Marsyangdi Hydroelectric Power Plant. Section 3.09. The Borrower shall take or cause to be taken all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for carrying out the Project and shall furnish to the Association, promptly after such acquisition, evidence satisfac- tory to the Association that such land and rights in respect of land are available for purposes related to the Project. Section 3.10. The Borrower shall: (a) maintain its existing panel of experts to review the adequacy of the plans and design of the weir, tunnel and power plant included in the Project and their associated structures; and cause said panel to conduct period reviews during design and construction of such weir, tunnel and power plant to examine, inter alia, whether there is any need for making changes in the design of such weir, tunnel and power plant; and (b) under arrangements satisfactory to the Association, cause the weir, tunnel, power plant and the related structures constructed under the Project to be periodically inspected in accordance with sound engineering practice in order to determine whether there are any deficiencies in the condition of such structures, or in the quality and adequacy of maintenance or methods of operations of the same, which may endanger their safety. Section 3.11. The Borrower shall: (a) promptly upon receipt of the appropriate applications, issue, or cause to be issued, such import licenses as shall be required for goods to be imported for the carrying out of the Project; -8- (b) make available, or cause to make available, promptly as needed, all foreign 0xchange which shall be required therefor; and (c) with respect to locally produced materials which are subject to allocation, make, or cause to be made, allocations of such materials promptly and in such quantities as shall be required for the carrying out of the Project. ARTICLE IV Financial and Other Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained records and separate accounts adequate to reflect in accordance with consistently maintained appropriate accounting practices the operations, resources and expenditures, in respect of the Project, of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall: (i) have the accounts referred to in paragraph (a) of this Section for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association, as soon as available, but in any case not later than six months after the end of each such year, a certified copy of the report of such audit by such 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 accounts, records and expendi- tures and the audit thereof as the Association shall from time to time reasonably request. Section 4.02. (a) The Borrower shall cause NEA to maintain records adequate to reflect in accordance with consistently main- tained appropriate accounting practices the operations and finan- cial condition of NEA. (b) The Borrower shall cause NEA to: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles con- sistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as avail- able, but in any case not later than twelve months after the end -9- of each such year, (A) certified copies of its financial state- ments 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 NEA and the audit thereof as the Association shall from time to time reasonably request. Section 4.03. The Borrower shall cause NEA: (a) to carry out its operations and conduct its affairs in accordance with sound administrative, financial, engineering and public utility practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers, including a qualified and experienced internal audit6r; (b) at all times to operate and to maintain its plants, machinery, equipment and other property, and from time to time, promptly as needed, to make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and public utilities practices. Without limitation to the provisions of this paragraph, the Borrower shall cause NEA to prepare and furnish to the Association for its review and comments, not later than January 31, 1986, a proposal for establishing a plant main- tenance program for rehabilitating the existing hydroelectric plants in Nepal, and, thereafter, taking into account the Association's comments, if any, adopt and implement such plant maintenance program in a timely manner satisfactory to the Association; and (c) 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. Without limitation to the provisions of this paragraph, the Borrower shall cause NEA to prepare and furnish to the Association for its review and com- ments, not later than January 31, 1986, a proposal for an insurance program consistent with sound public utility practice to be undertaken by NEA, and, thereafter, taking into account the Association's comments, if any, the Borrower shall cause NEA to adopt and implement such insurance program in a timely manner satisfactory to the Association. Section 4.04. The Borrower shall ensure that NEA does not, without the consent of the Association, sell, lease, transfer, or - 10 - otherwise dispose of any of its properties or assets which shall be required for the efficient carrying out of its business. Section 4.05. The Borrower shall cause NEA to take, at all times, all such action as shall be necessary to maintain and renew all rights, powers, privileges, licenses, consents and franchises necessary or useful for the operation of the Project and the conduct of its business. Section 4.06. The Borrower shall: (a) take all such action as shall be necessary, including increases in NEA's current tariffs, to maintain NEA tariffs at such a level as shall be necessary to provide NEA with revenue sufficient to produce an annual rate of return on the value of NEA's average net fixed assets in operation of not less than the percentage shown below: (i) Fiscal Year 1986: 5.5% (ii) Fiscal Year 1987 and thereafter: 6.0% (b) For the purpose of this Section: (i) The annual rate of return shall be calculated by relating the operating income for the year in question to the average of the value of the net fixed assets of NEA in operation at the beginning and at the end of such year. (ii) The term "value of net fixed assets in operation" shall mean the gross book value of such assets, less the amount of accumulated depreciation. (iii) The term "operating income" shall mean the difference between: (A) gross operating revenue accruing from NEA's services; (B) the operating and administration expenses (including taxes, if any), adequate main- tenance and depreciation but excluding interest and other charges on debt; and - 11 - (iv) The term "Fiscal Year" means the Borrower's fiscal year. (c) On May 16 of each year, commencing May 16, 1986 and thereafter, furnish to the Association, or cause NEA to furnish to the Association, for its review and comments, a financial forecast of NEA operations for the next following Fiscal Year, together with the proposed measures to be undertaken, including required adjustments in NEA tariffs, in order to obtain the annual rates of return provided for in paragraph (a) of this Section. (d) The provisions of paragraphs (a), (b) and (c) of this Section supersede the provisions of Section 5.02 of the Kulekhani Hydroelectric Development Credit Agreement. Section 4.07. By July 16, 1986, the Borrower shall, or shall cause NEA to, revalue NEA's fixed assets in operation in accor- dance with a method satisfactory to the Association. Section 4.08. (a) Except as the Association shall otherwise agree, the Borrower shall cause NEA not to incur any debt unless NEA'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 1.2 times the maximum debt service requirements for any succeeding fiscal year on all debt incurred by NEA. (b) For the purposes of this Section: (i) the term "debt" means all debt incurred by NEA, 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 guaran- tee agreement, on the date the agreement providing for such guarantee is entered into but shall be only counted to the extent that the underlying debt is outstanding; - 12 - (iii) the term "net revenues" means total revenues from all sources, adjusted to take account of NEA's tariffs in effect at the time of the inct'rence 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 sink- ing fund payments, if any), interest and other charges on debt; (v) the term "fiscal year" means the Borrower's fiscal year; and (vi) 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 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 4.09. The Borrower shall take all such action as shall be necessary to ensure that NEA does not declare any dividend until: (a) the assets under Parts A, B, C, D and E of the Project have been transferred to NEA pursuant to Section 4.12 of this Agreement; and (b) the funds required to cover NEA's operating expenses, debt service and at least 30% of its capital investment, have been met. Section 4.10. The Borrower shall: (a) not later than January 31, 1986, prepare and furnish to the Association, for its review and comments, a proposal of methods and procedures to be implemented for ensuring that, at all times, the Borrower's departments, agencies and entities - 13 - shall pay to NEA their respective electricity bills within two months after the receipt thereof by the said Borrower's depart- ments, agencies, or entities, and, thereafter, taking into account the Association's comments, if. any, adopt and implement such methods and procedures in a manner satisfactory to the Asso- ciation, so as to ensure that such bills shall be paid within two months of their receipt. (b) The provisions of paragraph (a) of this Section super- sede the provisions of Section 5.08 of the Kulekhani Hydro- electric Development Credit Agreement. Section 4.11. The Borrower shall take, or shall cause NEA to take, all such action as shall be necessary to reduce the current electricity losses in Nepal to 24% in Fiscal Year 1986 and to 18% in Fiscal Year 1991 (including a reduction in electricity losses in the Central Region to 25% and to 20% in Fiscal Years 1986 and 1991, respectively). For such purposes, the Borrower shall, or shall cause NEA to: (a) not later than March 31, 1986, prepare and furnish to the Association for its review and comments, a draft program to be undertaken for achieving such loss reduction, which draft program shall include, inter alia, provisions for (i) metering all unmetered consumers by September 30, 1986, (ii) checking and sealing meters of all large consumers and all domestic consumers by June 30, 1988, and (iii) rectifying and recalibrating all meters by June 30, 1990; and (b) thereafter, taking into account the Association's comments, if any, adopt and implement such program in a timely manner satisfactory to the Association. For purposes of this Section, the term "Fiscal Year" means the Borrower's fiscal year. Section 4.12. (a) The Borrower shall, within six months after the commissioning of the works under Parts A, B, C, D and E of the Project, transfer to NEA the Marsyangdi Hydroelectric Power Plant at its cosc. (b) The Rupee equivalent of the part of the proceeds of the Credit used for the financing of the assets transferred pursuant to the provisions of paragraph (a) of this Section, shall be deemed to have been re-lent by the Borrower to NEA as of the date of such transfer. - 14 - (c) For purposes of paragraph (b) of this Section, the Borrower shall, not later than thirty days after the transfer of the assets referred to in paragraph (a) of this Section have become effective, enter into an agreement with NEA under terms and conditions satisfactory to the Association and which shall include, inter alia, (i) that the foreign exchange risk shall be borne by the Borrower, and (ii) that the re-lending term shall be 30 years and interest at the rate of 12% per annum. (d) The Borrower shall cause NEA to increase its authorized share cavital as and when needed to issue shares for assets transferred as equity. (e) With regard to any assets transferred to NEA as debt, the Borrower undertakes that such debt shall be equal to the cost of such assets, less any amount which NEA shall have contributed toward their cost. (f) The Borrower shall inform the Association of the transfer of the assets referred to in paragraph (a) of this Section within sixty days after such transfer shall have been made. Such information shall include, inter alia, the date of such transfer, whether such assets are transferred as equity or as debt, and in the latter case, the terms and conditions of such debt. Section 4.13. The Borrower shall exercise its rights under the Subsidiary Loan Agreement in such a 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 any provision thereof. Section 4.14. The Borrower shall take all such action as shall be necessary to dissolve and liquidate: (a) MHDB six months after the commissioning of the works under Parts A, B, C, D and E of the Project have been done, pursuant to the provisions of Section 4.12 of this Agreement; and (b) the Development Boards which are currently undertaking the construction of power projects, six months after the commis- sioning of the respective construction works. Section 4.15. The Borrower shall consult with the Associa- tion on any proposed institutional changes in the NEA system. - 15 - Section 4.16. The Borrower shall, not later than June 30, 1986, or such later date as the Association may agree, obtain other loans or other financing, on reasonable terms, from sources outside Nepal for purposes of meeting as large a portion as possible of the cost of the equipment and installation thereof required for carrying out Part E of the Project. For purposes of this Section, the Borrower shall keep the Association informed of the progress in arranging such financing, including the terms and conditions thereof, and shall take into account the Association's comments, if any, thereon. ARTICLE V Remedies of the Association Section 5.01. For the purposes of Section 6.02 of the Gen- eral Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) the Borrower or any authority having jurisdiction shall have taken any action for the dissolution or disestablishment of NEA or for the suspension of its operations, or NEA or others shall have taken any action which may lead to the suspension of NEA's operations; (b) the Borrower or any authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of MHDB or for the suspension of its operations, or M,.HDB or others shall have taken any action which may lead to the suspen- sion of MHDB's operations; (c) the Borrower shall have amended, suspended, abrogated, repealed or waived the Nepal Electricity Authority Act, 2041 (1984) or any other law, regulation or legal provision governing the organization or operation of NEA, so as to materially and adversely affect the conduct of NEA's operations or its financial condition, or the efficient carrying out of the Project; (d) the loans or other financing arrangements provided for in Section 4.16 of this Agreement shall not have been concluded by June 30, 1986, or such later date as the Association may agree; provided, however, that the provisions of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association that adequate funds for the Project are avail- able to the Borrower on terms and conditions consistent with the obligations of the Borrower under this Agreement; and - 16 - (e) (i) Subject to subparagraph (ii) of this paragraph: (A) The right of the Borrower to withdraw the proceeds of any grant or loan 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, or (B) any such loan shall have become due and payable prior to the agreed maturity thereof. (ii) Subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association that: (A) such suspension, cancel- lation, termination or prematuring 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 con- ditions consistent with the obligations of the Borrower under this Agreement. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (d) thereof: (a) any events specified in paragraphs (a), (b), (c) and (d) (subject to its proviso) of Section 5.01 of this Agreement shall occur; and (b) the event specified in paragraph (e) (i) (B) of Section 5.01 of this Agreement sha,l occur, subject to the proviso of subparagraph (ii) of that paragraph. 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: - 17 - (a) that all conditions of effectiveness of the Kuwait Fund Loan Agreement, other than the effectiveness of this Agreement, if that be the case, have been met; (b) that all conditions of effectiveness of the Saudi Fund Loan Agreement, other than the effectiveness of this Agreement, if that be the case, have been met; and (c) that all conditions of effectiveness of the KfW Grant, other than the effectiveness of this Agreement, if that be the case, have been met. Section 6.02. The date, becve 3, 1985 is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 6.03. Section 5.02 of this Agreement shall cease and terminate on the date on which the Development Credit Agreement shall terminate or on a date 20 years after the date of this Agreement, whichever shall be the earlier. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. The Secretary, Ministry of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance His Majesty's Government Kathmandu Nepal Cable address: Telex: ARTHA 2249 ARTHA NP Kathmandu, Nepal - 18 - 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 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 Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By Regional Vice President South Asia - 19 - SCHEDULE I 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) Civil works 85,510,000 100% of foreign under Parts B, expenditures C and D (ii) (a) of the Project (2) Technical Assist- ance: (a) under Parts 3,760,000 100% of foreign I (a), I (c) expenditures and I (d) of the Project (b) under Part 940,000 10.75% of foreign I (b) of the expenditures Project (3) Unallocated 10,390,000 TOTAL 100,600,000 2. For the purposes of this Schedule 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. 3. The disbursement percentages have been calculated in com- pliance with the policy of the Association that the proceeds of - 20 - the Credit shall not 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; on this basis, if the amount of any such taxes levied on or in respect of items in any Category decreases or increases, the Association may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such Category as required to be consistent with the aforemen- tioned policy of the Association. 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, except that withdrawals, in an aggregate amount not exceeding the equivalent of SDR 50,000 may be made in respect of Category 2 on account of expenditures made before that date bnt after March 31, 1985. 5. Notwithstanding the allocation of an amount of the Credit or the disbursement percentages set forth in the table in paragraph 1 above, if the Association has reasonably estimated that the amount of the Credit then allocated to any Category will be in- sufficient 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 Cate- gory may continue until all expenditures thereunder shall have been made. 6. If the Association shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditure 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. - 21 - SCHEDULE 2 Description of the Project The objectives of the Project are: (a) to strengthen the Borrower's power sector; and (b) to meet the forecasted demand for electricity in Nepal up to the Borrower's Fiscal Year 1993. The Project consists of the following Parts: Part A: Construction of the necessary structures to divert the required water from the Marsyangdi River to the tunnel under Part B of the Project, including a gated overflow-type diversion weir of about 98 meters wide and with 5 radial gates, a flushing structure of about 44 meters wide and with 2 radial gates, a settling basin of about 400 meters long, and an intake structure for the headrace tunnel. Part B: Construction of a concrete-lined circular headrace tunnel of about 7,100 meters long and with a diameter of about 6.4 meters, to conduct the required water from the intake structure under Part A of the Project to the power station under Part C of the Project, including construction of a surge tank of about 50 meters high, a steel-lined pressure shaft of about 75 meters long and of about 5 meters in diameter, and three tailrace tunnels of about 30, 35 and 40 meters long, respectively. Part C: Construction of a semi-underground power station to be located at the end of the headrace tunnel under Part B of the Project. Part D: (i) Construction and provision of the required hydraulic steel structures and of the electrical and mechanical equipment for Parts A, B and C of the Project; and - 22 - (ii) Construction and provision of the required struc- tures and electrical equipment for: (a) an outdoor 132 kV substation to be located at the site of the power station under Part C of the Project; (b) extension of the existing 132 kV substation at Bharatpur; (c) upgrading to 132 kV the existing 66 kV Balaju substation; and (d) extension of the local distribution system in Kathmandu, including transmission lines from Balaju to Lainchaur. Part E: Installation, including the required civil works, of two 132 kV transmission lines from the power station under Part C of the Project to Balaju and to Bharatpur. Part F: Carrying out adequate training programs for the Borrower's power sector staff, including provision of training facilities at Kathmandu. Part G: Strengthening of the Borrower's power sector through, inter alia, the implementation of (i) an adequate pricing system for the service provided, (ii) loss reduction program, and (iii) plant maintenance program. Part H: Preparation of a catchment management plan. Part I: Provision of technical assistance for: (a) the carrying out of Parts G (ii) and H of the Project; (b) the overall supervision of the works under Parts A through D of the Project, including construction design; (c) the review of design and safety aspects of the works under Parts A through C of the Project; and - 23 - (d) the review of the claims that may arise from the implementation of the contracts. related to Parts A through E of the Project. The Project is expected to be completed by September 30, 1989. - 24 - SCHEDULE 3 Proccrement A. International Competitive Bidding 1. Civil works shall be procured under contracts awarded in accordance with procedures consistent with those set forth in the current edition of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of inter- national competitive bidding as described in Part A of the Guide- lines. 2. For works to be procured on the basis of international competitive bidding, in addition to the requirements of paragraph 1.2 of the Guidelines, the Borrower shall prepare and forward to the Association as soon as possible, and in any event not later than 60 days prior to the date of availability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Association shall reasonably request; the Association will arrange for the publication of such notice in order to provide timely notifica- tion to prospective bidders of the opportunity to bid for the works in question. The Borrower shall provide the necessary information to update such notice annually so long as any works remain to be procured on the basis of international competitive bidding. 3. Bidders for civil works contracts under Parts B and C of the Project shall be pre-qualified as described in paragraph 1.3 of Part A of the Guidelines. B. Preference for Domestic Contractors With respect to the evaluation of bids for any contract for civil works included under Category (1) of the table set forth in Schedule 1 to the Development Credit Agreement and to be procured in accordance with the procedures described in Part A of this Schedule, the Borrower may grant a margin of preference of 7-1/2% to domestic contractors, in accordance with, and subject to, the following provisions: 1. Contractors shall be required to prequalify as provided in Part A of this Schedule and applicants for qualification - 25 - applying for such preference 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 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. 2. After bids have been received and reviewed by the Borrower, 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. C. Review of Procurement Decisions by the Association 1. Review of prequalification. The Borrower shall, before qualification is invited, inform the Association in detail of the procedure to be followed, and shall introduce such modifications 4i1 said procedure as the Association shall reasonably request. The list of prequalified bidders, together with a statement of their qualifications and, where applicable, of their eligibility for domestic preference under Part B above and of the reasons for the exclusion of any applicant for prequalification and for such eligibility shall be furnished by the Borrower to the Association for its comments before the applicants are notified of the Borrower's decision, and the Borrower shall make such additions to, deletions from, or modifications in, the said list as the Association shall reasonably request. 2. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for civil works: (a) Before bids are invited, the Borrower shall furnish to the Association, for its comments, the text of the invitations to - 26 - 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, the Bor- rower shall, before a final decision on the award is made, inform the Association of the name of the bidder to which it intends to award the contract and shall furnish to the Association, in sufficient time for its review, a detailed report on the evalua- tion and comparison of the bids received, and such other informa- tion as the Association shall reasonably request. The Association shall, if it determines that the intended award would be incon- sistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked or prequalification was 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 with- drawal of funds from the Credit Account in respect of such con- tract. 3. With respect to each contract not governed by the preceding paragraph, the Borrower shall furnish to the Association, promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, recommendations for award and such other infor- mation as the Association shall reasonably request. The Associa- tion shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. 4. Before agreeing to any material modification or waiver of the terms and conditions of a contract, or granting an extension of the stipulated time for performance of such contract, or issuing any change order under such contract (except in cases of - 27 - extreme urgency) which would increase the cost of the contract by more than 15% of the original .price, the Borrower shall inform the Association of the proposed modification, waiver, extension or change order and the reasons therefor. The Association, if it determines that the proposal would be inconsistent with the pro- visions of this Agreement, shall promptly inform the Borrower and state the reasons for its determination. INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have signed this Certifi- cate and affixed the a of the Association thereunto the 30 day of 198 FOR SECRETARY