Nepal - Bhairawa-Lumbini Groundwater Project : Credit 1316 - Credit Agreement - Conformed

OFFRUAL CREDIT NUMBER 1316 NEP Development Credit Agreement (Bhairawa-Lumbini Groundwater Project, Stage II) between KINGDOM OF NEPAL and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated /,, 1983 CREDIT NUMBER 1316 NEP DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated L , . , 1983, 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) pursuant to a development credit agreement dated July 9, 1976 the Association has extended a development credit (No. 654 NEP) to the Borrower for the purpose of assisting in financing a prior groundwater irrigation project in the Bhairawa- Luubini area (hereinafter called the Stage I Project); (C) pursuant to a development credit agreement dated April 18, 1973 the Association has extended a development credit (No. 373 NEP) to the Borrower for the purpose of assisting in financing an irrigation project in the Narayani zone of the Birganj area, including a groundwater irrigation component (hereinafter called the Birganj Project); and WHEREAS the Association has agreed, on the basis inter alia of the foregoing, to extend the Credit to the Borrower upon the terms and conditions 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 Agreements of the Association being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the -2- respective meanings therein set forth and the following addi- tional terms have the following meanings: (a) "Project Office" means the office under the Department of Irrigation, Hydrology and Meteorology of the Borrower's Ministry of Water Resources, established pursuant to Section 3.01 (b) of the Prior Development Credit Agreement; (b) "NZIDB" means the Narayani Zone Irrigation Development Board established pursuant to the Borrower's Narayani Zone Irrigation Development Board (Establishment) Order 2029 (1973) issued under the Borrower's Development Board Act of 1956, as emended to the date of this Agreement; (c) "DA" means the Department of Agriculture of the Borrower's Ministry of Agriculture; (d) "GRDB" means the Groundwater Resources Development Board established pursuant to the Borrower's Groundwater Resources Development Board (Establishment) Order 2031 (1974), as amended to date of this Agreement issued under the Borrower's Development Board Act of 1956, as amended to the date of this Agreement; (e) "ADBN" means the Agricultural Development Bank of Nepal established pursuant to the Borrower's Agricultural Development Bank Act, 1967, as amended to date of this Agreement; (f) "AIC" means the Agricultural Inputs Corporation, estab- lished under the Borrower's Corporation Act 1964, as amended to the date of this Agreement; (g) "NEC" means the Nepal Electricity Corporation estab- lished under the Borrower's Nepal Electricity Corporation Act, 1962, as amended to the date of this Agreement; (h) "Prior Development Credit Agreement" means the develop- ment credit agreement referred to in Recital (B) of the Preamble to this Agreement, as amended by exchange of a letter dated December 27, 1977, between the Association and the Borrower; (i) "Project Area" means (A) the following areas within the Rupandehi District in the Western Terai: (1) the area (herein- after called the Stage I Implementation Area) of about 7,600 ha net which is part of a 20,000 ha gross area lying between the Dano River in the west, the Rohini River in the east, the Churia -3- (SIWALIK) Hills to the north, and the India/Nepal border to the south, and (2) the area (hereinafter called the Stage I.I Imple- mentation Area) of about 2,340 ha gross lying west of the Dano River and with its southern boundary along the Bhairawa-Lumbini highway; (B) for purposes of Part E of the Project, the entire Rupandehi District; and (C) for purposes of Part G of the Proj- ect, the entire region denominated the Terai; and (j) "DIRM" means the Department of Irrigation, Hydrology and Meteorology of the Borrower's Ministry of Water Resources. 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 fifteen million one hundred thousand Special Drawing Rights (SDR 15,100,000). 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 th1 Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project cand to be financed out of the proceeds of the Credit. Section 2.03. Except as the Association shall otherwise agree, procurement of the goods and 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 Agree- ment. Section 2.04. The Closing Date shall be October 31, 1988 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. 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 -4- 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 January I and July 1 in each year. Section 2.08. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each January 1 and July 1 commencing July 1, 1993, and ending January 1, 2033, each installment to and including the install- ment payable on January 1, 2003, 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. (a) The Borrower shall carry out (i) Parts A, B, C, D (i), D (ii) and E of the Project through the Project Office, with the cooperation and support of DA for Part E of the Project and of NEC for Part C of the Project; (ii) Part F of the Project through NZIDB; (iii) Part G of the Project through GRDB; and (iv) Part D (iii) of the Project through DIHM and/or DA, as - 5 - appropriate, all with due diligence and efficiency and in con- formity with appropriate administrative, financial, engineering and agricultural practices, and the Borrower shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) The Borrower shall make the proceeds of the Credit allocated to Parts A, B, C, D (i), D (ii) and E of the Project available to the Project Office, those allocated to Part F of the Project to NZIDB, those allocated to Part G of the Project to GRDB, and those allocated to Part D (iii) of the Project to DIHM and/or DA, as the case may be. Section 3.02. (a) The Borrower shall maintain the Project Office with such powers, responsibilities, staffing and organiza- tion as shall be required to enable it to carry out its responsi- bilities for the execution of the Project and the coordination thereof with the other agencies or entities of the Borrower participating therein, under the direction of a Project manager whose qualifications, experience and terms of reference shall be satisfactory to the Association. (b) The Borrower shall take all such further action as shall be required to ensure coordination among its agencies and entities participating in the execution of the Project including in particular the following: (i) the Borrower shall entrust the GRDB with the responsibility, inter alia, to approve appoint- ments of key staff in the Project Office, Project implementation programs and budgets, to make final decisions on any policy questions or differences among the Borrower's agencies or entities regard- ing Project execution, and to review semiannually the progress of the Project. The Borrower shall take the necessary action to: (A) include in the membership of GRDB representatives of the Bor- rower's Ministry of Home, Ministry of Panchayat and Local Development and NEC; and (B) to include the Project manager, referred to in paragraph (a) of this Section, as an observer in the GRDB for all matters relating to the Project. (ii) The Borrower shall maintain the project coordinat- ing committee established pursuant to paragraph -6- (c) (ii) of Section 3.01 of the Prior Development Credit Agreement. Such committee shall continue to be chaired by the Chief District Officer, Rupandehi District, and include as members repre- sentatives of AIC, ADBN, NEC, and any other agri- cultural agencies or entities of the Borrower operating in or near the Project Area, as well as the chairman of the District Panchayat, the Dis- trict Agricultural Officer, the local Development Officer, the Pradhan Panchas of the villages ser- ved by the tubewells in the Project Area and the Project manager referred to in paragraph (a) of this Section. Such committee shall meet regularly, at least once every half year, to advise and assist the Project manager in coordinating the execution of the Project, siting tubewells and forming water users groups. Section 3.03. The Borrower shall: (a) In order to assist (i) the Project Office in the carrying out of Parts A, B, C, D (1), D (ii) and E of the Project and the monitoring and evaluation thereof, (ii) DIHM and/or DA, as the case may be, in the carrying out of Part D (iii) of the Project, and (iii) GRDB in the carrying out of Part G of the Project, employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory 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; and (b) make arrangements- on terms and conditions satisfactory to the Association for making the services of the consultants retained for purposes of the Narayani Zone Irrigation Development - Stage II - Project and financed under Credit No. 856 NEP extended by the Association to the Borrower, available to assist NZIDB in the carrying out of Part F of the Project. Section 3.04. (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 delivery thereof to the place of use or installation, and for such insurance any -7- 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 3.05. (a) The Borrower shall furnish to the Associa- tion, promptly upon their preparation, the plans, specifications, reports, contract documents, training programs, and construction, work and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) Without any limitation to the provisions of paragraph (a) of this Section, the Borrower shall furnish to the Asso- ciation annually its detailed plans for executing the Project in its next fiscal year, including estimates of the financial requirements of its agencies and entities responsible for carrying out the Project. Without limitation to the generality of Section 3.01 (a) of this Agreement, the Borrower shall, on the basis of such estimates, make adequate budgetary provision for such agencies and entities to enable them to carry out the Project. (c) The Borrower: (i) shall maintain or cause to be main- tained 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 relevant records and documents; and (iii) shall furnish to the Association at regular intervals all such information as the Association shall reasonably request concern- ing 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. (d) Without limitation to the generality of paragraph (c) of this Section, the Borrower shall, by November 1, 1983: (i) establish within the Project Office, directly under the Project manager, a special unit comprising an engineer, an agricultural officer and a statistician which shall monitor and evaluate the -8- execution, results and benefits of the Project; and (ii) inte- grate 1n such special unit the existing groundwater monito:ing unit, including the staff thereof responsible for assessing the effect of pumping from the tubewells on the groundwater aquifers in the Project Area during Project execution and thereafter. (e) Upon the award by the Borrower or any of its agencies or entities of any contract for goods, works or servic s 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. (f) 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 Development Credit Agreement and the accomplishment of the pur- poses of the Credit. Section 3.06. The Borrower shall take or cause to be taken all such action as shall be ne--essary to acquire as and when needed all such land and rights in respect of land as shall be required fo: the construction and operation of the facilities included in the Project and shall furnish to the Association, at its request, evidence satisfactory to the Association that such land and rights in respect of land are available for purposes related to the Project. Section 3.07. (a) In order to carry out Parts A (ii) and B (iii) of the Project, the Borrower shall ensure that a water users group, including as members all farmers who are to receive water from a tubewell, shall be organized and duly constituted in respect of each tubewell included in the Project. Except as the Association may otherwise agree: (i) no tubewell shall be drilled under Part B of the Project, until farmers holding at least two thirds of the irrigable land within the area to be served by such well shall have agreed to join such a group and to pay water charges and assist in operating and maintaining the irrigation and drainage works in such area; and (ii) no water shall be supplied from any tubewell included in the Project, until the -9- farmers in the area to be served by such well shall have duly constituted such a group and the necessary arrangements for the distribution of irrigation water below the 4-5 ha outlet, includ- ing the construction of the field channels referred to in para- graph (b) of this Section, shall have been made. (b) The Borrower shall take all such action as may be necessary or useful to cause farmers in the Stage I Implemen- tation Area and Stage II Implementation Area to carry out the construction of field channels from the 4-5 ha outlets on the water distribution canals and pipes under Parts A (i) and B (ii) of the Project to their fields as well as field drains. (c) If the field channels and drains referred to in para- graph (b) of this Section shall not be constructed within a rea- sonable period after water becomes available for irrigation of any part of the Stage I Implementation Area or of the Stage II Implementation Area, the Borrower, under Parts A (iii) or B (iv) of the Project, as the case may be, shall carry out such works through the Project Office. Section 3.08. The Borrower shall, by November 1, 1983, fur- nish to the Association for review and comment a draft of the operation and maintenance manuals to be prepared under Part D (i) of the Project and shall thereafter, taking into account Asso- ciation's comments, if any, introduce and apply such manuals by November 1, 1984. Section 3.09. The Borrower shall cause NEC: (a) upon completion of any of the power supply facilities to be constructed under Part C of the Project to inspect and test such facilities and within two months after completion of the water distribution system for any tubewell included in the Pro- ject, to provide power for such tubewell;. and (b) to operate the 33 kilovolt transmission line from the Gandak West hydropower station to the transformer substation in the Project Area as a dedicated feeder line for purposes of providing the power required for the operation of the tubewells included in the Project. - 10 - ARTICLE IV Other Covenants Section 4.01. The Borrower shall cause the Project Office, GRDB and NZIDB: (a) to maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices their respective operations, resources and expenditures in respect of the Project (the Project Accounts), including, without limitation to the foregoing, separate accounts reflecting all expenditures on account of which withdrawals are requested from the Credit Account on the basis of statements of expenditure; (b) to retain, until one year after the Closing Date, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which with- drawals are requested from the Credit Account on the basis of statements of expenditure and to enable the Association's repre- sentatives to examine such records; (c) to have the Project Accounts (balance sheets, statements of income and expenses and related statements, as applicable), for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (d) to furnish to the Association, as soon as available, but in any case not later than six months after the end of each such year, (i) certified statements of the Project Accounts for such year as so audited, and (ii) the report of such audit by said auditors, of such scope and in such detail as the Associa- tion shall have reasonably requested, including, without limita- tion to the foregoing, a separate opinion by said auditors: (A) on the separate accounts referred to in paragraph (a) of this Section, and (B) in respect of the expenditures and records referred to in paragraph (b) of this Section, as to whether the proceeds of the Credit made available to it and withdrawn from the Credit Account on the basis of statements of expenditure have been used for the purpose for which they were provided; and (e) to furnish to the Association such other information concerning the Project Accounts and said records and expenditures, as well as the audit thereof, as the Association shall from time to time reasonably request. - 11 - Section 4.02. Without limitation to the provisions of Section 3.01 of this Agreement, the Borrower shall: (i) ensure that the tubewell pumps, irrigation and drainage systems and the other works and facilities included in the Project as well as the equipment required for the operation thereof shall at all times be operated and maintained and, promptly as needed, repaired or replaced, all in accordance with appropriate engineering, agricultural and financial practices; and (ii) provide or cause to be provided, promptly as needed, the staff and funds required for this purpose. Section 4.03. (a) The Borrower shall cause AIC at all times, to make available adequate supplies of seeds, fertilizer and other agricultural inputs for the farmers in the Project Area. (b) The Borrower shall make arrangements on terms and conditions satisfactory to the Association for ADBN to provide, each year, seasonal agricultural credit to farmers in the Project Area at an adequate level permitting such farmers to make optimal use of the irrigation water from the tubewells under the Project. Section 4.04. The Borrower shall: (a) establish, by March 1, 1983, a technical committee charged with the preparation of proposals for a new system of water charges for public tubewell irrigation and shall furnish such proposals to the Association for its review and comments not later than December 31, 1983; (b) introduce, by March 31, 1984, and thereafter apply, a new system of water charges satisfactory to the Association per- mitting adequate cost recovery for public tubewell irrigation; (c) until the introduction of such new system, levy and collect water charges for water supplied from the tubewells included in the Project at least at the rates in effect as of December 1, 1982 for public irrigation systems; and (d) at least every three years following the introduction of the system of water charges referred to in paragraph (b) of this Section, review the adequacy of such charges and the procedures for their collection in consultation with the Association and make such changes therein as may be required to ensure continued adequate cost recovery for public tubewell irrigation. - 12 - Section 4.05. The Borrower shall: (a) channel or cause to be channeled through the Project manager all budget requests and releases for the Agricultural Division established within the Project Office; and (b) make or cause to be made such Agricultural Division accountable to the Project manager for its administrative and financial matters. ARTICLE V Remedies of the Association Section 5.01. For the purposes of Section 6.02 of the Gen- eral Conditions, the following additional event is specified pur- suant to paragraph (h) thereof, namely, that the order referred to in Section 1.02 (d) of this Agreement shall have been amended, suspended, repealed or waived in such a way as to affect materially and adversely the performance by the Borrower of its obligations under this Agreement. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional event is specified pursuant to paragraph (d) thereof, namely, that any event speci- fied in Section 5.01 of this Agreement shall occur. ARTICLE VI Amendments to Prior Development Credit Agreement Section 6.01. The Prior Development Credit Agreement is amended as follows, namely, Sections 3.01 (c), 3.06 (c), and 4.02 (a) and (b) of the Prior Development Credit Agreement are superseded by Sections 3.02 (b), 3.07 (c), and 4.04, respectively of this Agreement, as the same may be amended from time to time by agreement between the Borrower and the Association. ARTICLE VII Termination Section 7.01. The date / / is hereby specified for the purposes o Section 12.04 of the General Conditions. - 13 - Section 7.02. The obligations of the Borrower under Sections 3.05 (d), 3.09 (b), 4.02, 4.03 and 4.04 (b) of this Agreement and the provisions of Section 5.02 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date twenty years after the date of this Agreement, whichever shall be the earlier. ARTICLE VIII Representatives of the Borrower; Addresses Section 8.01. 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 8.02. 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 2499 NEP Kathmandu, Nepal For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) - 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 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 - 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 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) Materials, equip- 100% of foreign ment, agricultural expenditures, inputs, vehicles 100% of local and spare parts expenditures ex-factory, and 75% of other local expenditures (a) for Part F of 285,000 the Project (b) for other Parts 3,960,000 of the Project (2) Civil works under 100% of foreign contracts expenditures and 75% of local expendi- tures (a) for Part F of 285,000 the Project (b) for other Parts 3,580,000 of the Project (3) Civil works by 40% force account (a) under Part F of 95,000 the Project - 16 - Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (b) under other Parts 190,000 of the Project (4) Staff salaries, 50% allowances, local training and other operating costs (except those for civil works under Category (3) and electricity charges) (a) for Part F 190,000 of the Project (b) for other Parts 1,230,000 of the Project (5) Consultants' services 100% and expenditures for overseas training (a) for Part D (iii) 950,000 of the Project (b) for Parts A, B, 3,300,000 C, D (i), D (ii) and E of the Project (c) for Part G of 380,000 the Project (6) Unallocated 655,000 TOTAL 15,100,000 - 17 - 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than the Borrower and for goods or services supplied from the territory of any country other than the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. The disbursement percentages have been calculated in compli- ance with the policy of the Association that no proceeds of the Credit shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Credit decreases or increases, the Association may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Association. 4. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not exceeding the equivalent of SDR 1,410,000, may be made on account of payments made for such expenditures before that date but after March 1, 1982. 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 or Sub- category will be insufficient to finance the agreed percentage of all expenditures in that Category or Sub-category, the Associa- tion may, by notice to the Borrower: (i) reallocate to such Cate- gory or Sub-category, to the extent required to meet the esti- mated shortfall, proceeds of the Credit which are then allocated to another Category or Sub-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 short- fall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Cate- gory or Sub-category may continue until all expenditures there- under shall have been made. - 18 - 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 expend- itures 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 Bor- rower, 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. - 19 - SCHEDULE 2 Description of the Project The Project is designed mainly to ensure proper operation and maintenance of the tubewells included under the Stage I Project, to develop and introduce improved tubewell irrigation systems on a pilot basis in the Stage II Implementation Area adjoining the Stage I Implementation Area, to organize the participation of farmers in the Project Area in the irrigation systems included in the Project, to ensure the provision of adequate agricultural inputs and extension services to such farmers, and to strengthen the Borrower's institutions respon- sible for the planning, design, construction, operation and maintenance of tubewell irrigation systems. The Project consists of the following Parts: Part A: Completion and Operation and Maintenance of Tubewell Systems in the Stage I Implementation Area (i) Completion of (a) the installation of about 64 tube- wells included in the Stage I Implementation Area, (b) the construction of water distribution canals totaling about 280 km required for such tubewells (including lining of about 10 km of distribution canals) and related drainage networks, (c) the construction of gravel roads totaling about 96 km to provide access to such tubewells and to connect the major villages in the area served by such tubewells, and (d) other related facilities included under the Stage I Project, such as offices and staff housing. (ii) Completion of the formation of water users groups for - each tubewell system included in the Stage I Project for the purpose of ensuring proper operation and maintenance thereof. (iii) Construction of field channels totaling about 500 km in the areas served by the tubewells included in the Stage I Project to convey irrigation water from the 5 ha outlets to farmers' fields. (iv) Initial operation and maintenance of the tubewells included in the Stage I Project, including provision to - 20 - the Project Office of additional staff, vehicles, equipment and tools required for this purpose and improvement of its workshop management. Part B: Additional, Pilot Tubewell Systems (i) Installation and initial operation and maintenance of about 15 additional tubewells with an improved design in the Stage II Implementation Area, each reaching a depth of about 200 m, being equipped with an auto- matically controlled, submersible electric pump which is capable of discharging about 300 cubic meters per hour, and housed in a brick building. (ii) Construction of water distribution systems, consisting of buried polyvinyl-chloride pipes and drainage net- works (including improvement of the drainage capacity of about 28 km of natural streams), for each of the tubewells under Part B (i) of the Project each of which is to serve a net irrigated area of about 120 ha. (iii) Formation of water users groups for each tubewell sys- tem under Part B (i) of the Project for the purpose of ensuring proper operation and maintenance thereof. (iv) Construction of field channels totaling about 100 km in the area served by the tubewells under Part B (i) of the Project to convey irrigation water from the 4 ha outlets to farmers' fields. (v) Construction of about 25 km of gravel roads to provide access to the tubewells under Part B (i) of the Project and to connect the major villages in the Stage II Implementation Area. (vi) Initial operation and maintenance of the tubewells in- cluded in the Stage II Implementation Area, including provision to the Project Office of staff, vehicles, equipment and tools required for this purpose. Part C: Power Transmission Facilities (i) Completion of the construction of about 73 km of 11 kilovolt transmission lines, with stepdown transformers to 0.4 kilovolts, to deliver power from the substation - 21 - in the Project Area to the tubewells included in the Stage I Implementation Area. (ii) Construction of about 35 km of 33 kilovolt transmission lines, with stepdown transformers to 0.4 kilovolts, to deliver power from said -substation to the tubewells under Part B of the Project. Part D: Technical Support and Training (i) Preparation of operation and maintenance manuals for the tubewell systems under Parts A and B, respectively, of the Project. (ii) On-the-job training of Project Office staff in the planning, design, operation and maintenance of tubewell systems and through special courses and field excur- sions to similar tubewell systems. (iii) Strengthening of the Borrower's agencies and institu- tions responsible for the carrying out of on-going irrigation projects financially assisted by the Asso- ciation, through the provision of technical assistance. Part E: Agricultural Extension and Training Strengthening of the training and visit system of agricul- tural extension in the Rupandehi District, including in particular: (i) an increase in agricultural extension staff in the area served by the tubewells included in the Project to a level of one junior technician for approximately each 3,600 ha, one junior technical assistant for approxi- mately each 360 ha and one Panchayat level agricultural assistant for each tubewell command of about 120 ha; (ii) training programs for agricultural extension staff; (iii) applied and adaptive research and field demonstrations to indicate optimal cropping in the Project Area; (iv) construction of additional housing for agricultural extension staff and training facilities for the re- gional training center to be located at the Bhairawa Research Station; - 22 - (v) provision of extension materials, equipment and vehi- cles for the agricultural ( -ision staff; and (vi) provision of agricultural inputs, including seeds, fertilizer and pesticides to responsive farmers for the growing of major crops in about 150 ha. Part F: Improvement and Repairs of Birganj Tubewells Repair, improvement and operation and maintenance of about 28 tubewell irrigation systems and conversion of an observation well into a production well in the area covered by Part B of the Birganj Project, including replacement of inadequate pumps and other equipment, provision of spare parts, and supply of agricul- tural support services for the farmers served by such tubewells. Part G: Study to determine the most suitable strategies for groundwater development for irrigation in the Terai. The Project is expected to be completed by October 31, 1987. - 23 - SCHEDULE 3 Procurement A. International Competitive Bidding 1. Except as provided in Part D and F hereof, goods and works shall be procured under contracts awarded in accordance with pro- cedures 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 international competitive bid- ding as described in Part A of the Guidelines. 2. For goods and works to be procured on the basis of inter- national 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 Asso- ciation shall reasonably request; the Association will arrange for the publication of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods and works in question. The Borrower shall provide the necessary information to update such notice annually so long as any goods or works remain to be procured on the basis of inter- national competitive bidding. 3. To the extent feasible, contracts for goods and works shall be grouped for purposes of bidding. 4. For the purpose of evaluation and comparison of bids for the supply of goods to be procured on the basis of international com- petitive bidding: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for the imported goods, or the ex-factory price or off-the-shelf price of other goods, offered in such bid; (ii) customs duties and other import taxes levied in connection with the importation, or the sales and simi- lar taxes levied in connection with the sale or delivery, pur- suant to the bid, of the goods shall not be taken into account in the evaluation of the bids; and (iii) the cost of inland freight and other expenditures incidental to the delivery of the goods to the place of their use or installation shall be included. -24- B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the proce- dures described in Part A of this Schedule, goods manufactured in Nepal may be granted a margin of preference in accordance with, and subject to, the following provisions: 1. All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. 2. After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Nepal if the bidder shall have established to the satisfaction of the Borrower and the Association that the manufacturing cost of such goods includes a value added in Nepal equal to at least 20% of the ex-factory bid price, of such goods. (2) Group B: all other domestic bids. (3) Group C: bids offering any other goods. 3. In order to determine the lowest evaluated bid of each group, all evaluated bids in each group shall first be compared among themselves, without taking into account customs duties and other import taxes levied in connection with the importation, and sales and similar taxes levied in connection with the sale or delivery, pursuant to the bids, of the goods. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. 4. If, as a result of the comparison under paragraph 3 above, the lowest bid is a bid from groip C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the evaluated bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to: (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in - 25 - such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph 3 is the lowest evaluated bid shall be selected. C. Preference for Domestic Contractors With respect to the evaluation of bids for any contract for. works included under Sub-category (2) (b) 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 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 coatractors 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. D. Other Procurement Procedures Contracts for works estimated to cost less than the equiva- lent of $50,000 each and for the purchase of construction materials and urgently required spare parts, may be procured on - 26 - the basis of competitive bidding advertised locally, in accor- dance with local procedures acceptable to the Association. E. Review of Procurement Decisions by the Association 1. Review of invitations to bid and of proposed awards and final contracts. With respect to all contracts estimated to cost the equivalent of $50,000 or more: (a) Before bids are invited, the Borrower shall furnish to the Association, for its comments, the text of the invitations to bid and the specifications and other bidding documents, 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 Borrower 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 Associa- tion, in sufficient time for its review, a detailed report, by the consultants referred to in Section 3.03 (a) of this Agree- ment, on the evaluation and comparison of the bids received, together with the recommendations for award of the said consul- tants and such other information as the Association shall reasonably request. The Association shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked. (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. - 27 - 2. With respect to each contract not governed by the preceding paragraph, the Borrower shall furnish to the Association, promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, recommendations for award and such other 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. 3. Before agreeing to any material modification or waiver of the terms and conditions of a contract, or granting an extension of the stipulated time for performance of such contract, or issuing any change order under such contract (except in cases of extreme urgency) which would increase the cost of the contract by more than 10% 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 determinatiou. F. Procurement Without Contracting Works for the drilling, development and testing of tubewells and for the repair and improvement of tubewells under Part F of the Project may be carried out on force account by the Project Office or NZIDB, as the case may be. INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Association thereunto the day of, 19&3. FOR SECRETARY