Nepal - Settlement Project : Credit 0505 - Credit Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 505 NEP Development Credit Agreement (Settlement Project) BETWEEN KINGDOM OF NEPAL AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED AUGUST 14, 1974 CONFORMED COPY CREDIT NUMBER 505 NEP Development Credit Agreement (Settlement Project) BETWEEN KINGDOM OF NEPAL AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED AUGUST 14, 1974 DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated August 14, 1974, between KINGDOM OF NEPAL (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) 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; (B) The Borrower has applied to the World Food Programme to provide food to about 2800 families within the Project Area (as defined in Section 1.02(i) of this Agreement) over a four-year period beginning July 1976; (C) The Project will be carried out in part by the Timber Corporation of Nepal (hereinafter called TCN) and in part by the Nepal Resettlement Company (hereinafter called NRC) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to TCN and NRC part of the proceeds of the Credit as hereinafter provided; and -- WHEREAS the Association has agreed, on the basis inter alia of the foregoing, to make the Credit available to the Borrower upon the terms and conditions 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 January 31, 1969, with the same force and effect as if they were fully set forth herein, subject, however, to the deletion of Sections 5.01 and 6.02(h) thereof and to the renumbering of Section 6.02(i) into 6.02(h) thereof (said General Conditions Applicable to Development Credit Agreements of the Association, as so modified, being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective 4 meanings therein set forth and the following additional terms have the following meanings: (a) "TCN" means the Timber Corporation of Nepal Limited, a public limited company established under the Company Act, 1964, of the Borrower, as amended; (b) "NRC" means the Nepal Resettlement Company (Pvt.) Limited, a private limited company established under the Company Act, 1964, of the Borrower, as amended; (c) "ADBN" means the Agricultural Development Bank, established under the Agricultural Development Bank Act, 1967, of the Borrower, as amended, and any successor or successors thereto; (d) "Project Financing Agreement" means the agreement to be entered into between the Borrower, TCN and NRC pursuant to Section 3.01(c)(ii) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Project Financing Agreement; (e) "ADBN Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and ADBN pursuant to Section 3.01(c)(i) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the ADBN Subsidiary Loan Agreement; (f) "Bardia A" and "Bardia B" mean those areas of the Bardia District of the Borrower to be described in the Nepal Gazette; (g) "Kanchanpur A" and "Kanchanpur B" mean those areas of the Kanchanpur District of the Boirower to be described in the Nepal Gazette; (h) "Jhapa" means that area of the Jhapa District of the Borrower to be described in the Nepal Gazette; (i) "Project Area" means the areas of the Borrower in which TCN and NRC shall carry out their respective activities included in the Project and shall include Bardia A, Bardia B, Kanchanpur A, Kanchanpur B and Jhapa; (j) "AMC" means the Agricultural Marketing Corporation of the Borrower, a public limited company established under the Corporation Act, 1964, of the Borrower, as amended; (k) "WFP" means the World Food Programme; 5 (1) "WFP Program" means the agreement to be entered into between WFP and the Borrower under which food is to be provided to farmers and their families who are settled in the Project Area by NSC; (m) "SCC" means the settlement coordinating committee established pursuant to the provisions of Section 3.02 of this Agreement, as the same may be amended from time to time; and (n) "NRs" means the currency of the Borrower. 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 six million dollars ($6,000,000). 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 shall be amended from time to time, 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 under the Development Credit Agreement; provided, however, that, except as the Association shall otherwise agree, no withdrawal shall be made on account of expenditures in the territories of any country which is not a member of the Bank (other than Switzerland) or for goods produced in, or services supplied from, such territories. Section 2.03. (a) Except as the Association shall otherwise agree, the goods and services (other than services of consultants) required for the Project and to be financed out of the proceeds of the Credit, shall be procured on the basis of international competition under procedures consistent with the Guidelines for Procurement under World Bank Loans and IDA Credits, published by the Bank in April 1972, as revised in October 1972, and in accordance with, and subject to, the provisions set forth in Schedule 3 to this Agreement. (b) The Borrower shall cause AMC to procure fertilizers, pesticides and seed pursuant to the provisions of Schedule 3 to this Agreement. Section 2.04. The Closing Date shall be July 15, 1982 or such other date as shall be agreed between the Borrower and the Association. 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 April 1 and October 1 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each April 1 and October 1 commencing October 1, 1984 and ending April 1, 2024, each installment to and including the installment payable on April 1, 1994 to be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter to be one and one-half per cent (1-1/2%) of such principal amount. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower shall carry out Part E of the Project and shall cause TCN to carry out Parts A and B of the Project and NRC to carry out Parts C and D of the Project with due diligence and efficiency and in conformity with appropriate administrative, engineering, financial, forestry and settlement practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) Without any limitation or restriction upon any of its other obligations under the Development Credit Agreement, the Borrower shall cause: (i) TCN and NRC to carry out their respective obligations as set forth or referred to in the Project Financing Agreement, and (ii) ADBN to perform in accordance with the provisions of the ADBN Subsidiary Loan Agreement, all the obligations 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 TCN, NRC and ADBN to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. 7 (c) The Borrower shall: (i) relend part of the proceeds of the Credit to ADBN under a subsidiary loan agreement to be entered into between the Borrower and ADBN under terms and conditions satisfactory to the Association; and (ii) relend part of the proceeds of the Credit to TCN and make available part of the proceeds of the Credit to NRC under a project financing agreement to be entered into between the Borrower, TCN and NRC, such agreement to be satisfactory to the Association and to include inter alia the provisions set forth or referred to in Schedule 4 to this Agreement. (d) The Borrower shall exercise its rights under the Project Financing Agreement and the ADBN Subsidiary Loan 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, nor amend, abrogate or waive the Project Financing Agreement or the ADBN Subsidiary Loan Agreement or any provision thereof. Section 3.02. Except as the Association shall otherwise agree, in order to coordinate the activities of NRC and TCN under the Project, the Borrower shall establish and maintain a settlement coordinating committee (SCC) with its headquarters at Kathmandu. The Borrower shall establish terms of reference for SCC in consultation with the Association. SCC shall consist of one representative each from the Ministry of Finance, the Ministry of Food, Agriculture and Irrigation and the Ministry of Forest; the General Manager of TCN; and the General Manager of NRC. Section 3.03. (a) Except as the Association shall otherwise agree, the Borrower shall employ consultants acceptable to the Association upon terms and conditions satisfactory to the Association to assist in carrying out Part E of the Project. (b) Without limiting or otherwise restricting its obligations under paragraph (a) of this Section, the Borrower shall employ a soil surveyor by December 3 1, 1974, or such other date as shall be agreed between the Borrower and the Association, to assist in carrying out Part E(i) of the Project. Section 3.04. Except as the Borrower and the Association shall otherwise agree, the Borrower shall submit, or cause to be submitted, to the Association 8 the detailed boundary, base line, forest inventory and soil surveys as well as the structural layout plan for: (i) Bardia A by December 31, 1974; and (ii) all other sites included in Part A of the Project pursuant to a timetable to be agreed between the Borrower and the Association. Section 3.05. The Borrower shall provide, or cause ADBN to provide, funds for food loans to each farmer settled in the Project Area who does not receive food under the WFP Program; provided, however, that each farmer shall only receive food or food loans for a maximum period of eighteen months from the date of such settlement. Section 3.06. The Borrower shall provide to NRC by secondment such staff on such terms as shall be agreed between the Borrower and NRC. Section 3.07. The Borrower shall take such action as may be necessary to permit TCN without restriction to sell or otherwise dispose of, both locally and for export, logs obtained from the felling of forest referred to in Part A of the Project and lumber produced from the sawmills referred to in Part B of the Project. Section 3.08. (a) The Borrower shall ensure that, under arrangements satisfactory to the Association, agricultural inputs, credit and extension services shall be provided to farmers settled under Part C of the Project. (b) Without limiting or otherwise restricting its obligations under paragraph (a) of this Section, the Borrower shall cause ADBN to provide credit to farmers settled under Part C of the Project in accordance with the policies and procedures referred to in Schedule 5 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Association. Section 3.09. The Borrower shall cause ADBN to: (i) maintain records adequate to record the progress of the part of the Project carried out by ADBN (including the cost thereof) and to identify the goods and services financed out of that part of the proceeds of the Credit made available to ADBN, and to disclose the use thereof in such part of the Project; (ii) without limitation upon the provisions of Section 5.03 of this Agreement, enable the Association's representatives to examine the part of the Project to be carried out by it, the goods financed out of such proceeds and any relevant records and documents; and (iii) furnish to the Association all such information as the Association shall 9 reasonably request concerning the part of the Project carried out by ADBN, the expenditure of the proceeds of the Credit so made available to ADBN and the goods and services financed out of such proceeds. Section 3.10. The Borrower shall take such action as may be necessary to ensure that areas made ready for settlement under Part A of the Project shall be effectively protected to prevent unauthorized settlement thereon prior to the implementation of NRC's settlement program for such areas. Section 3.11. The Borrower shall cause the schools and health clinics which are constructed under Part D of the Project to be staffed by an adequate number of qualified and experienced persons. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall cause ADBN to maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition with respect to its activities under Part C of the Project. (b) The Borrower shall cause ADBN 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, such auditors to be appointed initially within 90 days of the date of this Agreement; (ii) furnish to the Association as soon as available, but in any case not later than five 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 ADBN and the audit thereof as the Association shall from time to time reasonably request. (c) The Borrower shall cause ADBN to: (i) promptly submit quarterly to the Association summary Project accounts and progress reports in a form satisfactory to the Association, and (ii) submit annually to the Association unaudited Project accounts no later than four months after the end of each fiscal year. 10 ARTICLE V Consultation, Information and Inspection Section 5.01. The Borrower and the Association shall cooperate fully to assure that the purposes of the Credit will be accomplished. To that end, the Borrower and the Association shall from time to time, at the request of either party: (a) exchange views through their representatives with regard to the performance of their respective obligations under the Development Credit Agreement, the performance by TCN and NRC of their respective obligations under the Project Financing Agreement, the administration, operations and financial condition of TCN, the administration, operations and resources and expenditures of NRC and, in respect of the Project, of the departments or agencies of the Borrower responsible for carrying out any part of the Project, and other matters relating to the purposes of the Credit; and (b) furnish to the other all such information as it shall reasonably request with regard to the general status of the Credit. On the part of the Borrower, such information shall include information with respect to financial and economic conditions in the territories of the Borrower, including its balance of payments, and the external debt of the Borrower, of any of its administrative subdivisions and of any agency of the Borrower or of any such administrative subdivision. Section 5.02. (a) The Borrower shall furnish or cause to be furnished to the Association all such information as the Association shall reasonably request concerning the administration, operations and financial condition of TCN; the operations, administration and, resources and expenditures of NRC; and, in respect of the Project, of the departments or agencies of the Borrower responsible for carrying out any part of the Project. (b) The Borrower and the Association shall promptly inform each other of any condition which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Credit, the maintenance of the service thereof, the performance by either of them of its obligations under the Development Credit Agreement, the performance by TCN and NRC of their respective obligations under the Project Financing Agreement, or the performance by ADBN of its obligations under the ADBN Subsidiary Loan Agreement. Section 5.03. The Borrower shall afford all reasonable opportunity for accredited representatives of the Association to visit any part of the territories of the Borrower for purposes related to the Credit. 11 ARTICLE VI Taxes and Restrictions Section 6.01. The principal of, and service charges on, the Credit shall be paid without deduction for, and free from, any taxes imposed under the laws of the Borrower or laws in effect in its territories. Section 6.02. The Development Credit Agreement shall be free from any taxes on or in connection with the execution, delivery or registration thereof, imposed under the laws of the Borrower or laws in effect in its territories. Section 6.03. The payment of the principal of, and service charges on, the Credit shall be free from all restrictions, regulations, controls and moratoria of any nature imposed under the laws of the Borrower or laws in effect in its territories. ARTICLE VII Remedies of the Association Section 7.01. If any event specified in Section 7.01 of the General Conditions or in Section 7.03 of this Agreement shall occur and shall continue for the period, if any, therein set forth, then at any subsequent time during the continuaince thereof, the Association, at its option, may by notice to the Borrower declare the principal of the Credit then outstanding to be due and payable immediately together with the service charges thereon and upon any such declaration such principal and service charges shall become due and payable immediately, anything to the contrary in the Development Credit Agreement notwithstanding. Section 7.02. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified: (a) The Memorandum or Articles of Association of TCN or NRC, respectively, shall have been amended, suspended, abrogated, repealed or waived in such a way as to materially and adversely affect either the ability of TCN or NRC to carry out their respective covenants, agreements and obligations as set forth in the Project Financing Agreement or the efficient operation of TCN or NRC. (b) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of ADBN or for the suspension of its operations. 12 Section 7.03. For the purposes of Section 7.01 of the General Conditions, the following additional event is specified, namely, that any event specified in paragraphs (a) and (b) of Section 7.02 of this Agreement shall occur. ARTICLE VIII Effective Date; Termination Section 8.01. The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 10.01(b) of the General Conditions: (a) the execution and delivery of the Project Financing Agreement on behalf of the Borrower, TCN and NRC, respectively, have been duly authorized or ratified by all necessary corporate and governmental action; (b) the execution and delivery of the ADBN Subsidiary Loan Agreement on behalf of the Borrower and ADBN, respectively, have been duly authorized or ratified by all necessary corporate and governmental action; (c) SCC shall have been established pursuant to the provisions of Section 3.02 of this Agreement; and (d) the Borrower shall have granted to NRC appropriate and effective rights to hold and operate land for settlement in Kanchanpur A, Bardia A and Jhapa, as required under the provisions set forth in paragraph C(10) of Schedule 4 to this Agreement. Section 8.02. The following are specified as additional matters, within the meaning of Section 10.02(b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association: (a) that the Project Financing Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower, TCN and NRC, respectively, and constitutes a valid and binding obligation of the Borrower, TCN and NRC in accordance with its terms; (b) that the ADBN Subsidiary Loan Agreement has been duly authorized o. ratified by, and executed and delivered on behalf of, the Borrower and ADBN, respectively, and constitutes a valid and binding obligation of the Borrower and ADBN in accordance with its terms; and (c) that the rights to hold and operate land referred to in Section 8.01(d) of this Agreement are valid and effective. 13 Section 8.03. The date December 20, 1974 is hereby specified for the purposes of Section 10.04 of the General Conditions. Section 8.04. The obligations of the Borrower under Sections 4.01, 7.02 and 7.03 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date sixteen years after the date of this Agreement, whichever shall be the earlier. ARTICLE IX Representative of the Borrower; Addresses Section 9.01. The Secretary to the Ministry of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 9.03 of the General Conditions. Section 9.02. The following addresses are specified for the purposes of Section 9.01 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: INDEVAS Washington, D.C. 14 IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names and to be delivered in the District of Columbia, United States of America, as of the day and year first above written. KINGDOM OF NEPAL By /s / Yadu Nath Khanal Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ William Diamond Acting Regional Vice President South Asia 15 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 amounts of the Credit to each Category and the percentage of eligible expenditures so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed 1. Civil works 1,100,000 75% of total included in expenditures Parts B and D of the Project 2. Equipment and 2,0000 vehicles (a) Directly 100% of foreign imported expenditures goods (c.i.f.) (b) Imported 75% of local goods pur- expenditures chased locally 3. Incremental amount 400,000 75% of amounts of ADBN short-term disbursed sub-loans for seasonal inputs such as fertilizers, pesticides and seed 4. ADBN medium-term 600,000 75% of amounts sub-loans for such disbursed items as bullocks and tools 5. NRC costs in 300,000 75% of total the Project expenditures Area (other than civil works) 6. Consultants' 600,000 100% of foreign services expenditures 7. Unallocated 1,000,000 TOTAL 6,000,000 16 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures for goods produced in, or services supplied from, the territories, and in the currency, of any country other than the Borrower; (b) the term "local expenditures" means expenditures in the currency of the Borrower, or for goods produced in, or services supplied from, the territories of the Borrower; (c) the term "total expenditures" means the aggregate of foreign and local expenditures; (d) the term "sub-loans" means loans made or proposed to be made by ADBN to farmers under Part C of the Project to assist such farmers in acquiring necessary agricultural inputs; and (e) "incremental amount of ADBN short-term sub-loans" means the portion of such sub-loans included in Part C of the Project and to be financed hereunder as the Association shall reasonably determine from time to time to be required by ADBN to finance the purchase of such inputs in any one year, over and above any amounts previously disbursed from the Credit Account for such purpose. 3. Notwithstanding the provisions of paragraph I above, no withdrawals shall be made in respect of: (a) expenditures prior to the date of this Agreement, except that withdrawals may be made in respect of Category 2 on account of expenditures incurred after April 30, 1974 in an aggregate amount not exceeding the equivalent of $50,000; (b) Category 2 until two winch lorry operators and two winch lorry mechanics shall have been employed by TCN pursuant to the provisions of paragraph B(2) of Schedule 4 to this Agreement; and (c) payments for taxes imposed under the laws of the Borrower or laws in effect in its territories on goods or services, or on the importation, manufacture, procurement or supply thereof. To the extent that the amount represented by the percentage set forth in the third column of the table in paragraph 1 above in respect of any Category would exceed the amount payable net of all such taxes, such percentage shall be reduced to ensure that no proceeds of the Credit will be withdrawn on account of payments for such taxes. 17 4. Notwithstanding the allocation of an amount of the Credit set forth in the second column of the table in paragraph I above: (a) if the estimate of the expenditures under any Category shall decrease, the amount of the Credit then allocated to such Category and no longer required therefor will be reallocated by the Association by increasing correspondingly the unallocated amount of the Credit; (b) if the estimate of the expenditures under any Category shall increase, the percentage set forth in the third column of the table in paragraph I above in respect of such expenditures shall be applied to the amount of such increase, and a corresponding amount will be allocated by the Association, at the request of the Borrower, to such Category from the unallocated amount of the Credit, subject, however, to the requirements for contingencies, as determined by the Association, in respect of any other expenditures; and (c) 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 Section 2.03 of 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. 5. Notwithstanding the percentages set forth in the third column of the table in paragraph 1 above, if the estimate of total expenditures under Category 1, 3, 4 or 5 shall increase and no proceeds of the Credit are available for reallocation to such Category, the Association may, by notice to the Borrower, adjust the percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 18 SCHEDULE 2 Description of the Project The Project is part of the Borrower's program to remove timber from forest land in the Terai which is suitable for agriculture and to settle farmers thereon. It consists of the following Parts: Part A: The felling by TCN of (i) about 1,000 hectares of forest in the existing NRC settlement area in Kanchanpur District, and to the extent agreed between TCN and the Association, in Jhapa District, and (ii) about 17,600 hectares of forest in the settlement areas to be established in Kanchanpur, Bardia and Jhapa Districts and the provision of related equipment and vehicles. Part B: The construction by TCN of about 26 sawmills, each with a capacity of about 100,000 cubic feet of sawn lumber per year, and related civil works, in Kanchanpur and Bardia Districts, and to the extent agreed between TCN and the Association, in Jhapa District; the purchase and installation of related machinery and equipment; and the provision of related vehicles. Part C: The settlement by NRC of about 7,900 families on land from which forest is felled under Part A(ii) of the Project, the provision to NRC of equipment and vehicles, and the provision of credit facilities by ADBN to farmers to assist in their acquisition of necessary agricultural inputs, including, inter alia, fertilizers, pesticides, seeds, bullocks and tools. Part D: The construction of necessary basic infrastructure in areas to be settled under the Project and the installation of related facilities thereon, including, inter alia, NRC offices and staff housing, food and produce stores, workshops, roads, wells, schools and health clinics. Part E: The provision of technical assistance and related equipment to assist the Borrower in: (i) carrying out a soil survey in the Western Terai to determine the sites and areas for future settlement programs of the Borrower; and 19 (ii) developing the irrigation potential in areas settled under Part C of the Project. The Project is expected to be completed by July 15, 1981. 20 SCHEDULE 3 Procurement A. Responsibility for Procurement 1. Fertilizers, pesticides and seed shall be procured by AMC. 2. Bullocks and tools shall be purchased by farmers through cooperatives. 3. Equipment and vehicles shall be procured by TCN and NRC for their respective parts of the Project. 4. Civil works contracts shall be awarded by TCN and NRC for their respective parts of the Project. 5. Contracts for civil works, equipment and vehicles shall be respectively bulked to the extent possible. B. Contracts Governed by Guidelines 1. With respect to any contract for equipment estimated to cost the equivalent of $100,000 or more: (a) Before bids are invited, TCN 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 procedure 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, TCN shall, before a final decision on the award is made, inform the Association of the name of the bidder to whom it intends to award the contract and shall furnish to the Association, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, together with the reasons for the intended award. The Association shall, if it determines that the intended award would be inconsistent with the procedures set forth or referred to in Section 2.03 of this Agreement, promptly inform TCN and the Borrower, and state the reasons for such determination. 21 (c) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked. (d) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the delivery to the Association of the first application for withdrawal of funds from the Credit Account in respect of any such contract. 2. With respect to any contract for equipment estimated to cost less than $100,000 and more than $50,000, TCN shall furnish to the Association, promptly after its execution and prior to the delivery to the Association of the first application for withdrawal of funds from the Credit Account in respect of any such contract, two conformed copies of such contract, together with the analysis of 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 is not consistent with the procedures set forth or referred to in Section 2.03 of this Agreement, promptly inform TCN and the Borrower, and state the reasons for such determination. C. Contracts Governed by Procedures Other than the Guidelines 1. Equipment and vehicles estimated to cost the equivalent of $50,000 or less may be procured without resort to international competition and pursuant to TCN's and NRC's usual procurement practices. 2. Road and building construction works and well installation shall be carried out either (i) under contracts awarded on the basis of local competitive bidding pursuant to TCN's or NRC's usual procurement practices or (ii) by force account. 3. Bullocks and tools shall be purchased by farmers through cooperatives. 4. Fertilizers, pesticides and seed shall be procured by AMC pursuant to its usual procurement procedures. 5. With respect to all contracts included in this paragraph, TCN or NRC, respectively, shall furnish to the Association, promptly after its execution and prior to the delivery to the Association of the first application for withdrawal of funds from the Credit Account in respect of any such contract, two conformed copies of such contract, together with the recommendations for award and such other information as the Association shall reasonably request. The Association shall, if 22 it determines that the award of the contract is not consistent with procedures set forth or referred to in Section 2.03 of this Agreement, promptly inform TCN or NRC, respectively, and the Borrower and state the reasons for such determination. 23 SCHEDULE 4 Provisions to be included in the Project Financing Agreement A. General Undertakings by TCN and NRC 1. TCN shall carry out Parts A and B of the Project and NRC shall carry out Parts C and D of the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency and in conformity with appropriate administrative, financial, forestry and settlement practices. 2. Each of TCN and NRC shall procure the goods and services to be financed out of the proceeds of the Credit pursuant to the procedures set forth or referred to in Section 2.03 of the Development Credit Agreement. 3. Each of TCN and NRC undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the part of the proceeds of the Credit made available to each of TCN or NRC, respectively, by the Borrower 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 TCN or NRC to replace or repair such goods. 4. Except as the Association shall otherwise agree, each of TCN and NRC shall cause all goods and services financed out of the part of the proceeds of the Credit made available to each of TCN and NRC, respectively, by the Borrower to be used exclusively for the Project. 5. Each of TCN and NRC shall furnish to the Association 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. 6. Each of TCN and NRC: (i) shall maintain separate records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Credit made available to TCN and NRC, respectively, by the Borrower, and to disclose the use thereof in the Project; (ii) shall, without limitation upon the provisions of Section 5.03 of the Development Credit Agreement, enable the Association's representatives to examine the Project, the goods financed out of such 24 proceeds and any relevant records and documents; and (iii) shall furnish to the Association all such information as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit so made available to TCN and NRC, respectively, and the goods and services financed out of such proceeds. 7. Each of TCN and NRC shall duly perform all its obligations under the Project Financing Agreement. Except as the Association shall otherwise agree, TCN or NRC shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Project Financing Agreement or any provision thereof. 8. Each of TCN and NRC shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. 9. Each of TCN and NRC shall: (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, such auditors to be initially appointed by each of TCN and NRC within 90 days of the date of this Agreement; (ii) furnish to the Association as soon as available, but in any case not later than five 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 TCN and NRC, respectively, and the audit thereof as the Association shall from time to time reasonably request. 10. Each of TCN and NRC shall: (i) promptly submit quarterly to the Association summary Project accounts and progress reports in a form satisfactory to the Association, and (ii) submit annually to the Association unaudited Project accounts no later than four months after the end of each fiscal year. 11. Each of TCN and NRC shall enable the Association's representatives to examine all plants, sites, works, properties and equipment of TCN and NRC, respectively, and any relevant records and documents. B. Specific Undertakings by TCN 1. TCN shall: 25 (a) operate TCN's business and conduct its affairs in accordance with sound business, financial and forestry practices under the supervision of qualified and experienced management and operate, maintain, renew and repair its plants, equipment and property in accordance with sound engineering and maintenance practices; (b) take all action reasonably required to maintain and renew all rights, powers, privileges and franchises necessary or useful in the conduct of TCN's business; (c) take out and maintain with responsible insurers, or make other provisions satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice; and (d) not sell, lease, transfer, or otherwise dispose of any of its properties or assets which shall be required for the efficient implementation of the Project, without the consent of the Association. 2. In order to assist TCN in carrying out Parts A and B of the Project, TCN shall employ an appropriate number of competent and experienced persons acceptable to the Association to serve as (i) winch lorry operators and mechanics and (ii) sawmill operators and mechanics. For a period of two years from the date of the Development Credit Agreement, the terms and conditions of the contracts of employment for such persons shall be satisfactory to the Association. 3. TCN shall ensure that the position of General Manager is filled at all times by a suitably qualified and experienced person. 4. By December 31, 1974, or such other date as shall be agreed between TCN and the Association, TCN shall prepare and furnish to the Association a staffing plan for the carrying out of Parts A and B of the Project and after agreement between TCN and the Association thereon, TCN shall implement said staffing plan as agreed. 5. By August 31, 1975, or such other date as shall be agreed between TCN and the Association, TCN shall employ a sales advisor acceptable to the Association upon terms and conditions satisfactory to the Association to assist TCN in the export marketing of its products. 6. TCN shall begin its felling operations for any area included in Part A(ii) of the Project only after TCN shall have received notice from the Association 26 that NRC has submitted, pursuant to paragraph C(10) of this Schedule, evidence satisfactory to the Association of NRC's right to hold and operate land in each such area. 7. TCN shall promptly submit to the Association annual evaluation reports in a form acceptable to the Association. C. Specific Undertakings by NRC 1. NRC shall: (a) operate NRC's business and conduct its affairs in accordance with sound agricultural, business, financial and settlement practices under the supervision of qualified and experienced management and operate, maintain, renew and repair its plants, equipment and property in accordance with sound engineering and maintenance practices; (b) take all action reasonably required to maintain and renew all rights, powers, privileges and franchises necessary or useful in the conduct of NRC's business; (c) take out and maintain with responsible insurers, or make other provisions satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practices; and (d) not sell, lease, transfer, or otherwise dispose of any of its properties or assets which shall be required for the efficient implementation of the Project, without the consent of the Association. 2. By December 31, 1974, or such other date as shall be agreed between NRC and the Association, NRC shall employ a person acceptable to the Association upon terms and conditions satisfactory to the Association to fill the position of Agricultural Advisor. 3. NRC shall ensure that the position of General Manager is filled at all times by a suitably qualified and experienced person. 4. By December 31, 1974, or such other date as shall be agreed between NRC and the Association, NRC shall appoint qualified and experienced persons to fill the positions of Deputy General Manager, Chief Agricultural Officer and Civil Engineer, respectively. 27 5. NRC shall provide suitable incentives to its staff to ensure adequate staffing in the Project Area. 6. Except as NRC and the Association shall otherwise agree, NRC shall select settlers under Part C of the Project pursuant to the criteria set forth or referred to in Schedule 6 to the Development Credit Agreement. 7. NRC shall promptly submit to the Association annual evaluation reports in a form acceptable to the Association. 8. NRC undertakes to guarantee the repayment of all food loans made by ADBN pursuant to the provisions of Section 3.05 of the Development Credit Agreement. 9. NRC shall ensure that any additional settlement activities do not interfere with the efficient carrying out of Parts C and D of the Project. To this end, NRC shall consult with the Association before undertaking any substantial additional settlement activities. 10. NRC shall submit to the Association evidence satisfactory to the Association of NRC's right to hold and operate land for areas to be settled under Part C of the Project. 11. By December 31, 1974, or such other date as shall be agreed between NRC and the Association, NRC shall prepare and furnish to the Association a staffing plan for the carrying out of Parts C and D of the Project and after agreement between NRC and the Association thereon, NRC shall implement the agreed staffing plan, 12. In each of Bardia A, Bardia B, Kanchanpur A, Kanchanpur B and Jhapa, NRC shall appoint a person to serve as manager to be assisted by an agricultural officer experienced in extension activities. 13. NRC shall prepare and submit to the Association, by December 15, 1974, or such other date as shall be agreed between NRC and the Association, its annual accounts as prepared for audit for the fiscal year ending July 1 5, 1974. 28 SCHEDULE 5 ADBN Lending Procedures and Policies A. Lending Procedures NRC shall organize settlers under Part C of the Project into cooperatives, with village branches, to assist in providing agricultural inputs and marketing of agricultural produce. Although each cooperative shall serve as a channel for credit from ADBN to the farmer, ADBN shall provide credit only after receiving from NRC a farm plan acceptable to ADBN. ADBN shall rediscount all loans made to cooperatives under the Project in accordance with the provisions of the ADBN Subsidiary Loan Agreement. B. Lending Policies 1. ADBN Subsidiary Loan Agreement (a) Repayment period: Same repayment periods as under ADBN loans to cooperatives. (b) Interest rate: 3% per annum (c) Security: Same security as ADBN receives from cooperatives. 2. ADBN Loans to Cooperatives (a) Short term: 7% per annum rate of interest, up to 18 months' repayment period without a grace period. (b) Medium term: 5% per annum rate of interest, a repayment period of up to 7 years including a grace period of up to 2 years. 3. Cooperative Loans to Farmers (a) Short term: 10% per annum rate of interest, up to 18 months' repayment period without a grace period. (b) Medium term: 7-1/2% per annum rate of interest, a repayment period of up to 7 years including a grace period of up to 2 years. 29 SCHEDULE 6 Criteria for Selecting Settlers 1. Settlers shall be selected pursuant to a system based upon satisfying minimum eligibility criteria and grading of applicants according to points and interviews. Applications shall be made to NRC through local district officials. At this stage, the applicant's general suitability shall be determined by applying minimum eligibility criteria to ensure that the candidate: (a) is a citizen of Nepal; (b) is one of a minimum of two adult able-bodied persons in his family; (c) has no serious criminal records; and (d) is prepared to abide by the rules and regulations established by NRC. 2. Points would be awarded to each eligible applicant according to a scale based upon age, number of children, extent of land ownership and agricultural aptitude. 3. The final selection shall be made by NRC based upon the point system referred to in paragraph 2 of this Schedule and upon an interview with the applicant by NRC. 4. Upon selection, the settler would sign a ten-year bond agreeing to abide by the regulations set by NRC. He would then be given evidence by NRC of his right to use the plot. 5. Settlers would purchase their land for NRs300 per bigha. This amount would be paid, interest free, at the rate of NRs30 per bigha per annum between the fourth and thirteenth year of the settler's term of occupancy. Upon completion of these payments, the settler would receive permanent title to his plot.