Development Credit Agreement Public Disclosure Authorized

CONFORMED COPY Public Disclosure Authorized

CREDIT NUMBER 939 NEP

(Second Rural Development Project)

between

KINGDOM OF NEPAL

and Public Disclosure Authorized INTERNATIONAL DEVELOPMENT ASSOCIATION

Dated August 9, 1979 Public Disclosure Authorized CREDIT NUMBER 939 NEP

DEVELOPMENT CREDIT AGREEMENT

AGREEMENT, dated August 9, 1979, between KINGDOM OF NEPAL (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association).

ARTICLE I

General Conditions; Definitions

Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Development Credit Agreements of the Association, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Development Credit Agreements of the Association being hereinafter called the General Conditions).

Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "PDCCC" means the Panchayat Development Central Coordi- nation Committee, established and operating pursuant to the Integrated Panchayat Development Decision of the Borrower, dated November 26, 1978 and vested with overall responsibility for coordination of planning and implementation of rural development projects within the Borrower's territory;

(b) "ZCC" means the Zonal Coordinating Committee to be established pursuant to the provisions of Section 3.04 (b) of this Agreement;

(c) "Project Coordinator" means the Project Coordinator to be appointed pursuant to Section 3.03 (b) of this Agreement; (d) "ADBN" means the Agricultural Development Bank Nepal, of established and operating pursuant to the Borrower's Agricultural Development Act, 1967, as amended, or any successor thereto;

(e) "DDC" means the Dairy Development Corporation, established and operating pursuant to the BDrrower's Corporation Act, 1964, as amended, or any successor thezeto; -2-

(f) "AIC" means the Agricultural Inputs Corporation, established and operating pursuant to the Borrower's Corporation Act, 1964, as amended, or any successor thereto;

(g) "Project Area" means the area comprising the Dandeld- hura, Baitadi and Darchula Districts of the Mahakali Zone; and

(h) "Project Staff" means the staff to be employed pursuant to Section 3.01 (b) (iii) of this Agreement.

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 eleven million dollars ($11,000,000).

Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Associa- tion, 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 described in Schedule 2 to this Agreement and 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 civil works to be financed out of the proceeds of the Credit, shall be governed by the provisions of Schedule 3 to this Agreement.

Section 2.04. The Closing Date shall be February 28, 1985 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date.

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 semiannually on March 15 and September 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each March 15 and September 15 commencing September 15, 1989, and ending March 15, 2029, each installment to and including the installment payable on March 15, 1999, 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 or cause to be carried out the Project with due diligence and efficiency and in t-nformity with appropriate administrative, agricultural, engineering, financial, public health and educational prat-tices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose.

(b) Without limitation or restriction upon the provisions of paragraph (a) of this Section, the Borrower shall:

(i) enter into all such arrangements, satisfactory to the Association, as shall be necessary to ensure the proper carrying out of the Parts of the Project specified herein as follows: (A) with AIC with respect to Part A (1) of the Project, (B) with ADBN with respect to Parts A (2) (a) and (b) and L (6) of the Project, and (C) with DDC with respect to Part B (4) of the Project, and shall provide the proceeds of the Credit withdrawn in respect of said Parts to AIC, ADBN and DDC, respectively;

(ii) take and cause to be taken all action necessary or appropriate to cause and enable AIC, ADBN and DDC, respectively, to perform their activities under the Project in accordance with the arrangements referred to in Section 3.01 (b) (i) of this Agreement, and shall not take or permit to be taken any action which would prevent or interfere with such performance; and -4-

(iii) employ, promptly as and when needed, all such additional staff satisfactory to the Association, in such capacities and numbers and with such qualifications as shall be required for the timely and efficient carrying out of the Project.

Section 3.02. In order to assist the Borrower in the ma-ters set forth below, the Borrower shall employ the following experts whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association:

(a) a rural development specialist, to function as an assistant to the Project Coordinator and to assist in Project planning, budgeting, and implementation and in establishing systems for Project disbursements, accounting and monitoring;

(b) a civil engineer, to assist in the planning, design and implementation of work programs for buildings, bridges, and trail improvement and the construction of hill terrace irrigation under the Project;

(c) a socio-economist, to assist in the establishment and implementation of policies and procedures for monitoring the progress of the Project and for evaluating its socio-economic impact on farmers and analyzing the data collected thereunder; and

(d) a training and communications officer, to assist in carrying out the training of staff and farmers under the Project and in developing programs for promoting effective communication among those participating in the carrying out of the Project or any Part thereof.

Section 3.03. In order to facilitate the p oper carrying out of the Project and except as the Borrower and the Association may otherwise agree, the Borrower shall:

(a) maintain PDCCC in accordance with the Integrated Panchayat Development Decision referred to in Section 1.02 (a) of this Agreement;

(b) appoint a full-time Project Coordinator with qualifications and experience satisfactory to the Association; and

(c) establish and thereafter maintain a Zonal Coordinating Committee (ZCC) to coordinate Project implementation and monitor -5'-

its progress. ZCC's membership shall include the Zonal Commis- sioner as Chairman, the Project Coordinator as Member-Secretary, and representatives from the Ministry of Works and Transport, Ministry of Food, Agriculture and Irrigation, Ministry of Forestry, Ministry of Industry and Commerce, Ministry of Land Reform, Ministry of Health, the District Panchayat Chairmen of Dandeldhura, Baitadi and Darchula Districts, the Chief District Officers of Dandeldhura, Baitadi and Darchula Districts, the District Chairmen of the Back-to-Village National Campaign Committee and representatives from ADBN and AIC.

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 incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Borrower to replace or repair such goods.

(b) Except as the Association shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Credit to be used exclusively for the Project.

Section 3.05. (a) The Borrower shall furnish, or cause to be furnished, 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.

(b) The Borrower shall: (i) maintain, or cause to be maintained, 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) enable, and cause AIC, ADBN and DDC to permit, the Association's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Credit and any relevant records and documents; and (iii) furnish, or cause to be furnished, to the Association at regular intervals not exceeding six months each all such information as the Association shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of the Credit and the goods and services financed out of such proceeds. -6-

(c) Promptly after completion of the Project, but in any eve.L 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, or cause to be prepared and furnished, to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution and initial 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 this Agreement and the accomplishment of the purposes of the Credit.

Section 3.06. The Borrower shall take or cause to be taken all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for carrying out the Project and shall furnish to the Association, promptly after such acquisition, evidence satisfactory to the Association that such land and rights in respect of land are available for purposes related to the Project.

Section 3.07. The Borrower shall, by September 15 of each year beginning with September 15, 1980, prepare and furnish, or cause to be prepared and furnished, to the Association the annual development plans, including budgetary allocations therefor, for Dandeldhura, Baitadi, and Darchula Districts and shall ensure that such plans are in conformity with the requirements of the Project.

Section 3.08. The Borrower shall ensure that staff selected for the training under Part L (5) of the Project shall undertake to serve in the Project Area for at least two years pursuant to their return at the conclusion of their training.

Section 3.09. The Borrower shall levy and collect water charges for the Irrigation Development under Part C (1) of the Project at levels to be determined in consultation with the Association. To this end, the Borrower shall submit proposals as to the amount and method of collection of such charges to the Association by June 30, 1984, or such later date as the Associa- tion may agree.

Section 3.10. Except as the Association may otherwise agree, the Borrower shall:

(a) by December 31, 1980 (i) prepare and furnish to the Association, for its review and comments, a detailed proposal for -7- the carrying out of the training program under Part A (4) (e) of the Project, (ii) initiate the carrying out of the study under Part L (1) of the Project, and (iii) cause DDC to complete the study under Part B (4) (a) of the Project; and

(b) by June 30, 1980, finalize and communicate its decision to the Association with respect to the moving of the Evangelical Hospital of Pokhara as indicated in Part D (2) of the Project.

ARTICLE IV

Other Covenants

Section 4.01. (a) The Borrower shall maintain or cause to be maintained separate records and accounts adequate to reflect in accordance with consistently maintained appropriate accounting practices the operations, resources and expenditures, in respect of the Project, of AIC, ADBN and DDC and the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof, including, without limitation to the foregoing, separate accounts reflecting all expenditures under Cate- gories (1) (a), (3) and (5) of the table in paragraph 1 of Schedule 1 to this Agreement on account of which withdrawals are requested from the Credit Account on the basis of certificates of expenditure.

(b) The Borrower shall retain or cause to be retained, until one year after the Closing Date, all records (orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrawals are requested from the Credit Account on the basis of certificates of expenditure and shall enable the Association's accredited representatives to examine such records.

(c) The Borrower shall cause the records and accounts referred to in paragraph (a) of this Section: (i) for each fiscal year to be audited, in accordance with appropriate auditing principles consistently applied, by independent auditors accep- table to the Association; (ii) furnish or cause to be furnished to the Association as soon as available, but in any case not later than twelve months after the end of each such year, (A) certified copies of said records and accounts 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, including, without limitation to the foregoing, a -8- separate opinion by said auditors in respect of the expenditures and records referred to in paragraph (b) of this Section as to whether the proceeds of the Credit withdrawn from the Credit Account on the basis of certificates of expenditure have been used for the purpose for which they were provided; and (iii) furnish or cause to be furnished to the Association such other information concerning said records and accounts and the audit t 'reof as the Association shall from time to time reasonably request.

Section 4.02. The Borrower shall cause all trails and bridges in the Project Area and all works and buildings constructed under the Project to be maintained or repaired in accordance with appropriate engineering standards and shall cause to be provided, as and when required, the funds, facilities and services for this purpose.

ARTICLE V

Effective Date; Termination

Section 5.01. The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions:

(a) the Borrower has entered into the arrangements referred to in Section 3.01 (b) (i) of this Agreement;

(b) the Borrower has made arrangements, satisfactory to the Association, for the employment of the experts referred to in Section 3.02 of this Agreement; and

(c) the Borrower has appointed the Project Coordinator and established the Zonal Coordination Committee pursuant to Section 3.03 (b) and (c) of this Agreement.

Section 5.02. The date November 7, 1979 is hereby specified for the purposes of Section 12.04 of the General Conditions.

ARTICLE VI

Representatives of the Borrower; Addresses

Section 6.01. 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. -9-

Section 6.02. 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 249 NEP Kathmandu, Nepal For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI)

IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written.

KINGDOM OF NEPAL

By /s/ Padma Bahadur Khatri Authorized Representative

INTERNATIONAL DEVELOPMENT ASSOCIATION

By /s/ W. David Hopper Regional Vice President South Asia - 10 -

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 Dollar Equivalent) to be Financed

(1) Civil works: 90% of local expenditures

(a) by force account 5,000,000 and contracts estimated to cost the equivalent of $5,000 or less each

(b) by other contracts 500,000

(2) Goods: 1,750,000

(a) directly imported 100% of foreign expenditures

(b) locally manu- 100% of local factured expenditures (ex-factory)

(3) Provision of Credit 350,000 90% of the under Parts A (2) (a) amounts of and L (6) of the sub-loans Project - 11 -

Amount of the Credit Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed

(4) Training and 400,000 100% consultants' services

(5) Project staff 2,000,000 90% salaries and allowances

(6) Unallocated 1,000,000

TOTAL 11,000,000

2. For the purposes of this Schedule:

(a) the term "foreign expenditures" means expenditures in the currency of any country other than the Borrower and for goods or services supplied from the territory of any country other than the Borrower; and

(b) the term "local expenditures" means expenditures in the currency of the Borrower and for goods or services supplied from the territory of the Borrower.

3. The disbursement percentages have been calculated in com- pliance with the policy of the Association that no proceeds of the Credit shall be di71-ursed on account of payments for taxes levied by, or in the terri ory 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. - 12 -

5. Notwithstanding the allocation of an amount of the Credit or the disbursement percentages set forth in the table in paragraph 1 above, if the Association has reasonably estimated that the amount of the Credit then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Association may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Credit which are then allocated to another Category and which in the opinion of the Association are not needed to meet other experdi- tures, and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made.

6. If the Association shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Credit and the Association may, without in any way restricting or limiting any other right, power or remedy of the Association under the Development Credit Agreement, by notice to the Borrower, cancel such amount of the Credit as, in the Associa- tion's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Credit. - 13 -

SCHEDULE 2

Description of the Project

The Project is part of the Borrower's program over a five- year period to provide for the intensive development of the Project Area and to increase the incomes and living standards of the approximately 53,000 families residing therein. The Project consists of the following Parts:

Part A: Agricultural Development

(1) Crop Seed Improvement and Input Storage

(a) Carrying out of (i) a program to encourage farmers to improve seed storage and to clean and grade existing varieties; and (ii) a program of seed exchange and multiplication to introduce improved seed varieties.

(b) Strengthening the staff and facilities of AIC.

(2) Agricultural Credit

(a) Provision of incremental annual credit by ADBN through sub-loans to farmers in the Project Area, directly and through cooperative societies, to cover the needs for production credit under the seed exchange and multiplication program under Part A (1) (a) (ii) of the Project and to meet the fertilizer and plant protection requirements of all irrigated land in the Project Area.

(b) Construction, equipping and furnishing of about three district offices to supplement existing facilities of ADBN in the Project Area.

(c) Establishment of about 22 cooperative societies, including the provision of staff quarters, offices, warehouses, and staff.

(d) Construction, equipping, furnishing and staffing of about three offices for the Cooperative Depart- ment of the Borrower's Ministry of Land Reform to enable said Department to supervise and audit the - 14 -

cooperative societies referred to in Part A (2) (c) of the Project to ensure the speedy and efficient implementation of Part A (2) (a) of the Project.

(3) Horticultural Development

(a) Carrying out of a program of horticultural development, including the supply of fruit trees and vegetable seed to farmers in the Project Area.

(b) Expansion of the facilities at the horticultural farm at Satbanj in the Baitadi District.

(4) Agricultural Extension

(a) Carrying out of a program of agricultural extension designed to encourage widespread adoption of measures for raising agricultural production in the Project Area.

(b) Construction, equipping and furnishing of about 22 service centers in the Project Area, including the provision of office buildings, cooperative offices and stores, community halls and post offices.

(c) Construction, equipping and furnishing of additional facilities at each District Administrative Headquarters of the Districts of Dandeldhura, Baitadi and Darchula.

(d) Provision of qualified agricultural extension staff for the service centers and the facilities referred to in Part A (4) (b) and (c) of the Project.

(e) Carrying out of a training program for the training of the agricultural extension staff referred to in Part A (4) (d) of the Project.

Part B: Livestock Development

(1) Veterinary Dispensaries

(a) Construction, equipping, furnishing and staffing of a veterinary dispensary at the service centers referred to in Part A (4) (b) of the Project. - 15 -

(b) Rehabilitation of the veterinary hospital at Patan, in Baitadi District.

(2) Livestock Disease Control and Upgrading of Livestock

Carrying out of a program for the upgrading of livestock and for the innoculation and dosing of sheep and goats.

(3) Livestock Extension

(a) Construction of staff housing for and the establishment and staffing of a district extension organization in each of Dandeldhura, Baitadi and Darchula Districts to be responsible for carrying out the programs under Part B (3) (b) of the Project.

(b) Carrying out of: (i) a livestock extension program; and (ii) a program for the training of extension staff and the holding of field demonstrations for farmers.

(4) Ghee Production and Marketing

(a) Carrying out, by DDC, of a study to determine the most suitable means for improving the production and marketing of ghee.

(b) Carrying out, by DDC, of a pilot program for improving ghee production and marketing based on the results and recommendations of the study referred to in Part B (4) (a) of the Project.

Part C: Irrigation Development

(1) Development of about 700 hectares of gravity-fed irrigation schemes in valleys and lower terraces, including diversion structures on larger tributa- ries and streams.

(2) Improvement of hill terrace irrigation on about 700 hectares using water from perennial and sea- sonal streams. - 16 -

Part D: Health Services

(1) Construction and upgrading of two 15-bed hospitals in Baitadi and Darchula Districts, and of twenty-five health posts in the Project Area.

(2) Construction of a new 15-bed hospital, including facilities for the accommodation of in-patients, at Dandeldhura in Dandeldhura District; provided, however, that said hospital shall not be constructed under the Project if the Borrower decides to move the Evangelical Mission Hospital of Pokhara in Dandeldhura District to Dandeldhura and to transfer jurisdiction over said hospital to its Ministry of Health.

(3) Construction of three district health offices, including staff housing therefor.

(4) Provision of drugs, surgical and medical equipment and staff for the hospitals and health posts referred to in Part D (1) through (3) of the Project.

Part E: Educational Facilities

Upgrading of about 110 lower-secondary and about 15 secondary schools in the Project Area through the provision of improved buildings for classroom instruc- tion and libraries and additional hostels, teaching aids and materials and incremental mathematics and science teachers.

Part F: Panchayat Development

(1) Construction, furnishing and equipping of a multipurpose village Panchayat community center, including offices and staff housing at each of the service centers referred to in Part A (4) (b) of the Project.

(2) Carrying out of a program for the training, at the training center referred to in Part M (2) of the Project, of Project staff, officials and members of the village Panchayat, in Project related activities. - 17 -

(3) Provision of appropriate support for the staff of the Chief District Officer's offices in Dandeld- hura, Baitadi and Darchula Districts in the preparation and maintenance of Project accounts.

Part G: Distr,-,t Technical Offices

(1) Strengthening the facilities and staff of existing District Technical Offices in Dandeldhura, Baitadi and Darchula Districts, including the provision of offices, storage facilities, accommodation blocks, equipment and staff and horses for staff transportation.

(2) Establishment and staffing of a technical support unit under the Project Coordinator to provide training, technical inputs and support for the staff of the District Technical Offices.

(3) Establishing and equipping of a meteorological station in Baitadi District.

(4) Carrying out of a program for the technical training of local technicians in the Project Area.

Part H: Village Water Supplies

(1) Construction of headquarter offices, including staff housing and storage facilities, for the Local Development Department of the Borrower's Ministry of Home Panchayat responsible for supervising the carrying out of Part R of the Project.

(2) Rehabilitation of about 225 wells.

(3) Provision of training for village level technicians in construction, supervision and maintenance of village water supply schemes.

Part I: Soil Erosion

(1) Establishment of a Divisional Erosion Control Office within the Borrower's Ministry of Forests.

(2) Carrying out of soil erosion control programs, including control measures, as necessary, to - 18 -

protect the irrigation works referred to in Part C of the Project.

(3) Provision of training for farmers in erosion control principles and practices.

Part J: Development of Trails

(1) Improvement of about 250 km of major trails and about 340 km of minor trails.

(2) Construction of about 128 timber bridges and about 19 suspension bridges.

(3) Carrying out of a trail and bridge maintenance program.

Part K: Postal Services:

(1) Provision of furniture and fittings for about 19 existing post offices in the Project Area.

(2) Construction, furnishing and staffing of an extra- departmental post office at each of the service centers referred to in Part A (4) (b) of the Project.

(3) Construction of about 50 small relay stations.

Part L: Cottage Industries

(1) Carrying out of a study on the cotton, metal, wood and leather goods cottage industries in the Project Areas and the measures required to support and develop said industries.

(2) Construction, including office space, training facilities, storage and staff housing, equipping and staffing of a district cottage industry center in each of Dandeldhura, Baitadi and Darchula Districts, and the provision of staff for the Darchula District. - 19 -

(3) Construction and equipping of about two buildings in Darchula District to be utilized for the training of residents in the Project Area in wool-based cc-.tage industries.

(4) Upgrading the existing Kanchanpur District's branch office of the Cottage Industries and Handicrafts Emporium of the Borrower's Ministry of Industry and Commerce. (5) Provision of foreign training for about 4 district staff in cottage industries. (6) Provision of credit by ADBN through sub-loans to cottage industries' workers in the Project Area for the purchase and utilization of equipment, tools and raw materials. Part M: Project Headquarters and a Multipurpose Training Center (1) Construction and equipping of Project headquarters at Patan in Baitadi District, including the provision of water and electricity supplies therefor. (2) Construction and equipping of a multipurpose training center at Patan in Baitadi District. Part N: Project Monitoring and Evaluation (1) Provision of appropriate support for the socio- economic program established pursuant to Section 3.13 of the Development Credit Agreement (Rural Development Project) between the Borrower and the Association, dated April 30, 1976, including staff, staff training and management and technical support as required to assist the Borrower in monitoring the progress of the Project and evaluating its socio-economic impact on residents in the Project Area and in preparing the reports and the other information referred to in Section 3.05 of this Agreement.

(2) Carrying out of feasibility studies for a future rural or agricultural development project.

The Project is expected to be completed by September 30, 1984. - 20 -

SCHEDULE 3

Procurement

A. International Competitive Bidding

1. Except as provided in Part C1 hereof, goods shall be procured under contracts awarded in accordance with procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of international competitive bidding as described in Part A of the Guidelines.

2. For goods to be procured on the basis of international competitive bidding, in addition to the requirements of paragraph 1.2 of the Guidelines, the Borrower shall prepare and forward to the Association as soon as possible, and in any event not later than 60 days prior to the date of availability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Association shall reasonably request; the Association will arrange for the publi- cation of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods in question. The Borrower shall provide the necessary information to update such notice annually so long as any goods remain to be procured on the basis of international competitive bidding.

3. To the extent practicable, contracts for the procurement of goods shall be grouped in bid packages estimated to cost the equivalent of $100,000 or more.

4. For the purpose of evaluation and comparison of bids for the supply of goods to be procured on the basis of international competitive bidding, (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex-factory price for domestically manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically supplied goods, shall be excluded; and (iii) the cost to the Borrower of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. - 21 -

B. Preference for Domestic Manufacturers

In the procurement of goods in acccrdance with the procedures described in Part A of this Scheduie, goods manufactured in Kingdom of Nepal may be granted a margin of preference in accordance with, and subject to, the followin6 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 trie following methods and stages that will be followed in the ev3luation and comparison of bids.

2. After evaluation, responsive bids will be classified in f)ne of the following three groups:

in (1) Group A: Dids offering goods manufactured Kingdcrn of Nepal if the bidder shall have established to the satisfaction of the Borrower and the the Association that the manufacturing cost of such goods includes a value added in Kingdom of Nepal equal to at least 20% of the ex-factory bid pricL of such gocs.

"2) G-our, B: ;;ll other domestic bids.

(3, -roup bids offering any other goods.

3. .All ev-1luated bids in each group shall be first compared among themselves, -xcluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes the lowest on goods to be supplied domestically, to determine shall evaluated bid of each group. Such lowest evaluated bids this then be compared with each other, and if, as a result of shall comparison, a bid from group A or group B is the lowest, it be selected for the award.

4. If, as a result of the comparison under paragraph 3 above, the lowest bid is a bid from group C, all gro,- 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 of customs comparison only, an amount equal to: (i) the amount would duties and other import taxes which a non-exempt importer have to pay for the importation of the gcods offered in such - 22 -

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. Other Procurement Procedures

1. Notwithstanding the provisions of Part A.1 above, contracts for goods which the Association agrees cannot be grouped in accordance with Part A.3 above and which are estimated to cost less than the equivalent of $100,000 each, may be procured in accordance with applicable procurement procedures of the Borrower, satisfactory to the Association.

2. Contracts for civil works under Part C (1) of the Project shall be procured on the basis of locally advertised competi.tive bidding in accordance with applicable procurement procedures of the Borrower, satisfactory to the Association.

D. 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 for goods 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 on the evaluation and comparison of the bids received, and such other - 23 - 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 or prequalification invited.

(d) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract.

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 information as the Association shall reasonably request. The Association shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform 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 15% of the original price, the Borrower shall inform the Association of the proposed modification, waiver, extension or change order and the reasons therefor. The Association, if it determines that the proposal would be inconsistent with the provisions of this Agreement, shall promptly inform the Borrower and state the reasons for its determination.

E. Procurement Without Contracting

Civil works, except those referred to in Part B.2 above, shall be carried out by the Borrower through force account under arrangements satisfactory to the Association.