GRANT NUMBER 0299-NEP (SF)

GRANT AGREEMENT
(Special Operations)

(Water Resources Project Preparatory Facility)

between

NEPAL

and

ASIAN DEVELOPMENT BANK

DATED 2 NOVEMBER 2012

NEP 45206
 GRANT AGREEMENT
(Special Operations)

GRANT AGREEMENT dated 2 November 2012 between NEPAL (“Recipient”)

and ASIAN DEVELOPMENT BANK (“ADB”).

WHEREAS

(A) the Recipient has applied to ADB for a grant for the purposes of the
Project described in Schedule 1 to this Grant Agreement;

(B) the Project will be executed by the Ministry of Irrigation (“MOI”) with the
assistance of the Department of Irrigation (“DOI”) and the Department of Water Induced
Disaster Prevention (“DWIDP”) and for this purpose the Recipient will make available to MOI
the proceeds of the Grant provided for herein; and

(C) ADB has agreed to make a grant to the Recipient from ADB's Special
Funds resources upon the terms and conditions set forth herein;

NOW THEREFORE the parties agree as follows:

ARTICLE I

Grant Regulations; Definitions

Section 1.01. All provisions of the Special Operations Grant

Regulations of ADB, dated 7 February 2005 (“Grant Regulations”), are hereby made
applicable to this Grant Agreement with the same force and effect as if they were fully set
forth herein.

Section 1.02. Wherever used in this Grant Agreement, the several

terms defined in the Grant Regulations have the respective meanings therein set forth unless
modified herein or the context otherwise requires. Additional terms used in this Grant
Agreement have the following meanings:

(a) “Consulting Guidelines” means the Guidelines on the Use of

Consultants by Asian Development Bank and its Borrowers (2010, as amended from time to
time);

(b) “Consulting Services” means the services to be financed out of the

proceeds of the Grant as described in paragraph 2(e) of Schedule 1 to this Grant Agreement;

(c) “EARF” means the Environmental Assessment and Review

Framework, including any update thereto, prepared for the Project by the Recipient and
cleared by ADB;
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(d) “FMU” means the Facility Management Unit to be set up within DOI for
the implementation of the Project;

(e) “Follow-on Project” means any future project for which detailed
feasibility studies or preparatory work will be undertaken as part of this Project;

(f) “GESI” means gender equality and social inclusion;

(g) “Goods” means equipment and materials to be financed out of the

proceeds of the Grant, including related services such as transportation, insurance,
installation, commissioning, training, and initial maintenance, but excluding Consulting
Services;

(h) “IPPF” means the Indigenous Peoples Planning Framework, including

any update thereto, prepared for the Project by the Recipient and cleared by ADB;

(i) “Loan Disbursement Handbook” means ADB’s Loan Disbursement

Handbook (2007, as amended from time to time);

(j) “NGO” means non-government organization;

(k) “PAM” means the project administration manual for the Project dated
30 May 2012 and agreed between the Recipient and ADB, as updated from time to time in
accordance with the respective administrative procedures of the Recipient and ADB;

(l) “Procurement Guidelines” means ADB’s Procurement Guidelines

(2010, as amended from time to time);

(m) “Procurement Plan” means the procurement plan for the Project dated
30 May 2012 and agreed between the Recipient and ADB, as updated from time to time in
accordance with the Procurement Guidelines, the Consulting Guidelines, and other
arrangements agreed with ADB;

(n) “RF” means the Resettlement Framework, including any update

thereto, prepared for the Project by the Recipient and cleared by ADB;

(o) “Safeguard Policy Statement” or “SPS” means ADB’s Safeguard Policy

Statement (2009); and

(p) “Works” means construction or civil works to be financed out of the

proceeds of the Grant, including services such as drilling or mapping, and project related
services that are provided as part of a single responsibility or turnkey contract, but excluding
Consulting Services.
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ARTICLE II

The Grant

Section 2.01. ADB agrees to make available to the Recipient from

ADB's Special Funds resources an amount of eleven million Dollars ($11,000,000).

ARTICLE III

Use of Proceeds of the Grant

Section 3.01. The Recipient shall cause the proceeds of the Grant to
be applied to the financing of expenditures on the Project in accordance with the provisions
of this Grant Agreement.

Section 3.02. The proceeds of the Grant shall be allocated and

withdrawn in accordance with the provisions of Schedule 2 to this Grant Agreement, as such
Schedule may be amended from time to time by agreement between the Recipient and ADB.

Section 3.03. Except as ADB may otherwise agree, the Recipient

shall procure, or cause to be procured, the items of expenditure to be financed out of the
proceeds of the Grant in accordance with the provisions of Schedule 3 to this Grant
Agreement.

Section 3.04. Except as ADB may otherwise agree, the Recipient

shall cause all items of expenditure financed out of the proceeds of the Grant to be used
exclusively in the carrying out of the Project.

Section 3.05. Withdrawals from the Grant Account in respect of

Goods, Works and Consulting Services shall be made only on account of expenditures
relating to:

(a) Goods which are produced in and supplied from and Works and
Consulting Services which are supplied from such member countries
of ADB as shall have been specified by ADB from time to time as
eligible sources for procurement; and

(b) Goods, Works and Consulting Services which meet such other
eligibility requirements as shall have been specified by ADB from time
to time.

Section 3.06. The Grant Closing Date for the purposes of Section
8.02 of the Grant Regulations shall be 30 June 2017 or such other date as may from time to
time be agreed between the Recipient and ADB.
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ARTICLE IV

Particular Covenants

Section 4.01. In the carrying out of the Project and operation of the
Project facilities, the Recipient shall perform, or cause to be performed, all obligations set
forth in Schedule 4 to this Grant Agreement.

Section 4.02. (a) The Recipient shall (i) maintain separate

accounts and records for the Project; (ii) prepare annual financial statements for the Project
in accordance with accounting principles acceptable to ADB; (iii) have such financial
statements audited annually by independent auditors whose qualifications, experience and
terms of reference are acceptable to ADB, in accordance with international standards for
auditing or the national equivalent acceptable to ADB; (iv) as part of each such audit, have
the auditors prepare a report (which includes the auditors’ opinion on the use of the Grant
proceeds and compliance with the financial covenants of this Grant Agreement as well as on
the use of the procedures for the imprest account and statement of expenditures) and a
management letter (which sets out the deficiencies in the internal control of the Project that
were identified in the course of the audit, if any); and (v) furnish to ADB, no later than
6 months after the end of each related fiscal year, copies of such audited financial
statements, audit report and management letter, all in the English language, and such other
information concerning these documents and the audit thereof as ADB shall from time to time
reasonably request.

(b) ADB shall disclose the annual audited financial statements for the
Project within 30 days of the date of their receipt by posting them on ADB’s website.

(c) The Recipient shall enable ADB, upon ADB's request, to discuss the
financial statements for the Project and the Recipient’s financial affairs where they relate to
the Project with the auditors appointed pursuant to subsection (a)(iii) hereinabove, and shall
authorize and require any representative of such auditors to participate in any such
discussions requested by ADB, provided that any such discussion shall be conducted only in
the presence of an authorized officer of the Recipient, unless the Recipient shall otherwise
agree.

Section 4.03. The Recipient shall enable ADB's representatives to

inspect the Project, the Goods and Works, and any relevant records and documents.

ARTICLE V

Effectiveness

Section 5.01. A date 90 days after the date of this Grant Agreement is
specified for the effectiveness of this Grant Agreement for the purposes of Section 9.04 of
the Grant Regulations.
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ARTICLE VI

Miscellaneous

Section 6.01. The Secretary, Ministry of Finance of the Recipient is

designated as representative of the Recipient for the purposes of Section 11.02 of the Grant
Regulations.

Section 6.02. The following addresses are specified for the purposes
of Section 11.01 of the Grant Regulations:

For the Recipient

Secretary
Ministry of Finance
Singha Durbar
Kathmandu, Nepal

Facsimile Number:

+977 1 421-1164.

For ADB

Asian Development Bank

6 ADB Avenue
Mandaluyong City
1550 Metro Manila
Philippines

Facsimile Numbers:

+63 2 636-2444
+63 2 636-2391.
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SCHEDULE 1

Description of the Project

1. The objective of the Project is to improve the readiness of water resources

management projects for implementation.

2. The Project shall comprise:

(a) Detailed Feasibility Studies for high priority water resources projects,
including:

(i) Mid-Hills Irrigation Efficiency Improvement Project which will

upgrade inefficient irrigation schemes to fully functional status; build up
farmer water user groups through appropriate community organization
and training for sustained operation and maintenance; and provide
training and support for enhanced agriculture production, improved
marketing and value addition on the improved schemes;

(ii) Water-induced hazard mapping and preparation of a Water

Induced Disaster Prevention Project in Naryani river basin to prevent
or alleviate risks to human settlements and damages to productive
agriculture land by flood, sedimentation, river bank erosion and
landslides; and

(iii) Terai Irrigation Efficiency Improvement Project to rehabilitate

and restore schemes to full productive capacity along with the
development of groundwater irrigation using deep and shallow
tubewells.

(b) DOI and DWIDP Strengthening:

This will include enhancing the capacities of staff of DOI and DWIDP
through formal and on-the-job training (including participation in the
preparation of Follow-on Projects); strengthening of the existing
environment section of DOI as a social and environment section; and
establishing a social and environment desk within DWIDP.

(c) Irrigation Master Plan Updating:

This will include updating the existing Irrigation Master Plan of the
Recipient with a vision until 2030, which will result in an inventory of
high priority irrigation infrastructure investment needs and potential
projects.

(d) Facility Management:

This will include supporting the FMU for the efficient management of
the Project.
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Schedule 1

(e) Consulting Services to undertake the above.

3. The Project is expected to be completed by 31 December 2016.

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SCHEDULE 2

Allocation and Withdrawal of Grant Proceeds

General

1. The table attached to this Schedule sets forth the Categories of items of
expenditure to be financed out of the proceeds of the Grant and the allocation of the Grant
proceeds to each such Category (“Table”). (Reference to “Category” in this Schedule is to a
Category or Subcategory of the Table.)

Percentages of ADB Financing

2. Except as ADB may otherwise agree, each item of expenditure shall be

financed out of the proceeds of the Grant on the basis of the percentages set forth in the
Table.

Reallocation

3. Notwithstanding the allocation of Grant proceeds and the withdrawal

percentages set forth in the Table,

(a) if the amount of the Grant allocated to any Category appears to be

insufficient to finance all agreed expenditures in that Category, ADB may, in consultation with
the Recipient, (i) reallocate to such Category, to the extent required to meet the estimated
shortfall, amounts of the Grant which have been allocated to another Category but, in the
opinion of ADB, are not needed to meet other expenditures, and (ii) if such reallocation
cannot fully meet the estimated shortfall, reduce the withdrawal percentage applicable to
such expenditures in order that further withdrawals under such Category may continue until
all expenditures thereunder shall have been made; and

(b) if the amount of the Grant allocated to any Category appears to

exceed all agreed expenditures in that Category, ADB may, in consultation with the
Recipient, reallocate such excess amount to any other Category.

Disbursement Procedures

4. Except as ADB may otherwise agree, the Grant proceeds shall be disbursed
in accordance with the Loan Disbursement Handbook.

Imprest Account and Statement of Expenditures

5. (a) Except as ADB may otherwise agree, the Recipient shall establish
immediately after the Effective Date, an imprest account at Nepal Rastra Bank. The imprest
account shall be established, managed, replenished and liquidated in accordance with the
Loan Disbursement Handbook, and detailed arrangements agreed upon between the
Recipient and ADB. The imprest account shall only be used for the purposes of the Project.
The currency of the imprest account shall be the Dollar. The ceiling for the imprest account
shall not exceed the lower of (i) the estimated expenditure to be financed from the imprest
 10
Schedule 2

account for the first 6 months of Project implementation, or (ii) the equivalent of 10% of the
Grant amount.

(b) The statement of expenditures procedure may be used for

reimbursement of eligible expenditures and to liquidate advances provided into the imprest
accounts, in accordance with the Loan Disbursement Handbook and detailed arrangements
agreed upon between the Recipient and ADB. Any individual payment to be reimbursed or
liquidated under the statement of expenditures procedure shall not exceed the equivalent of
$50,000.

Retroactive Financing

6. Withdrawals from the Grant Account may be made for eligible expenditures
incurred under the Project before the Effective Date, but not earlier than 12 months before
the date of this Grant Agreement in connection with vehicles, office equipment and furniture,
subject to a maximum amount equivalent to 20% of the Grant amount.
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Attachment to Schedule 2

TABLE

ALLOCATION AND WITHDRAWAL OF GRANT PROCEEDS

(Water Resources Project Preparatory Facility)
CATEGORY ADB FINANCING
Total Amount Allocated
Percentage and
for ADB Financing
Number Item Basis for Withdrawal
($)
from the Grant Account
Category

1 Consulting Services 6,497,000 100% of total expenditure*

2 Surveys and Studies 1,975,000 91% of total expenditure*

3 Seminar, Workshop, and Training 1,275,000 100% of total expenditure

4 NGO Contracts 522,000 100% of total expenditure*

5 Vehicles 228,000 100% of total expenditure

6 Equipment and Furniture 77,000 100% of total expenditure

7 Unallocated 426,000

Total 11,000,000

* Exclusive of taxes and duties imposed within the territory of the Recipient.
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SCHEDULE 3

Procurement of Goods, Works and Consulting Services

General

1. The procurement of Goods, Works and Consulting Services shall be subject to

and governed by the Procurement Guidelines, and the Consulting Guidelines, respectively.

2. All terms used in this Schedule and not otherwise defined in this Grant
Agreement have the meanings provided in the Procurement Guidelines and/or the
Consulting Guidelines, as applicable.

Goods and Works

3. Except as ADB may otherwise agree, Goods and Works shall only be
procured on the basis of the methods of procurement set forth below:

(a) International Competitive Bidding;

(b) National Competitive Bidding; and
(c) Shopping.

4. The methods of procurement are subject to, among other things, the detailed
arrangements and threshold values set forth in the Procurement Plan. The Recipient may
only modify the methods of procurement or threshold values with the prior agreement of
ADB, and modifications must be set out in updates to the Procurement Plan.

National Competitive Bidding

5. The Recipient and ADB shall ensure that, prior to the commencement of any
procurement activity under national competitive bidding, the Recipient’s national competitive
bidding procedures are consistent with the Procurement Guidelines. Any modifications or
clarifications to such procedures agreed between the Recipient and ADB shall be set out in
the Procurement Plan. Any subsequent change to the agreed modifications and clarifications
shall become effective only after approval of such change by the Recipient and ADB.

Consulting Services

6. Except as ADB may otherwise agree, and except as set forth in the paragraph
below, the Recipient shall apply quality- and cost-based selection for selecting and engaging
Consulting Services.

7. The Recipient shall apply the following method for selecting and engaging the
specified Consulting Services on surveys and studies, in accordance with, among other
things, the procedures set forth in the Procurement Plan: quality- and cost-based selection,
consultants’ qualifications selection or least-cost selection.

8. The Recipient shall apply the following method for selecting and engaging
NGOs, in accordance with, among other things, the procedures set forth in the Procurement
Plan: consultants’ qualifications selection or least-cost selection.
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Schedule 3

9. The Recipient shall recruit the individual consultants for the Project in
accordance with procedures acceptable to ADB for recruiting individual consultants.

Industrial or Intellectual Property Rights

10. (a) The Recipient shall ensure that all Goods and Works procured
(including without limitation all computer hardware, software and systems, whether
separately procured or incorporated within other goods and services procured) do not violate
or infringe any industrial property or intellectual property right or claim of any third party.

(b) The Recipient shall ensure that all contracts for the procurement of
Goods and Works contain appropriate representations, warranties and, if appropriate,
indemnities from the contractor or supplier with respect to the matters referred to in
subparagraph (a) of this paragraph.

11. The Recipient shall ensure that all ADB-financed contracts with consultants
contain appropriate representations, warranties and, if appropriate, indemnities from the
consultants to ensure that the Consulting Services provided do not violate or infringe any
industrial property or intellectual property right or claim of any third party.

ADB’s Review of Procurement Decisions

12. Contracts procured under international competitive bidding procedures and

contracts for Consulting Services shall be subject to prior review by ADB, unless otherwise
agreed between the Recipient and ADB and set forth in the Procurement Plan.
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SCHEDULE 4

Execution of Project; Financial Matters

Implementation Arrangements

1. The Recipient and the Project Executing Agency shall ensure that the Project
is implemented in accordance with the detailed arrangements set forth in the PAM. Any
subsequent change to the PAM shall become effective only after approval of such change by
the Recipient and ADB. In the event of any discrepancy between the PAM and this Grant
Agreement, the provisions of this Grant Agreement shall prevail.

2. The Recipient shall establish the FMU as part of the DOI with the
responsibility to implement the Project and with such staff and resources as necessary for
the efficient implementation of the Project, and shall ensure that the FMU is fully functional
by 1 January 2013.

3. The Recipient shall establish the policy working group and technical working
group for the Project by 31 October 2012.

4. The Recipient shall ensure that the environment section at the Project
Executing Agency is allocated sufficient financing as per its annual program to prepare
guidelines, review assessment reports, and conduct monitoring activities.

5. The Recipient shall ensure that DOI will have staffed its environment section
with 1 gazetted level II environment officer and 3 gazetted level III officers by 1 January 2013
and with an additional gazetted level III officer by 1 January 2014, with specializations in
environment, social development, GESI and other technical areas. The section shall be re-
named as Environment and Social Section, and the Project Executing Agency shall provide
sufficient budget to the section to conduct safeguard assessment, monitoring and
environmental audit activities. All the positions to be filled at the DOI under this covenant
shall be converted into regular positions by 1 January 2015.

6. DWIDP shall establish an environment and social desk staffed with 1 gazetted
level II officer (environment) and 1 level III officer (social development and gender) by
1 January 2013 and take necessary steps so that the positions are fully gazetted by
1 January 2015.

7. The Recipient and the Project Executing Agency shall ensure that to the
extent possible under the prevailing laws of the Recipient, the staff members who will receive
training under the Project will be retained in their current positions and will not be transferred
unnecessarily so that the Follow-on Projects can benefit from their skills.

Safeguards

8. The Recipient and the Project Executing Agency shall ensure that all Follow-
on Projects are prepared in accordance with (a) the Recipient’s environmental regulations
and policy, (b) SPS, (c) EARF, and (d) ADB’s Environmental Assessment Guidelines (2003).
 15
Schedule 4

9. The Recipient and Project Executing Agency shall ensure that (a) resettlement
plans, if necessary, for Follow-on Projects are prepared based on detailed design and in
accordance with the Recipient’s applicable laws and regulations, the SPS, and RF, and
(b) such resettlement plans are submitted to ADB for review and approval.

10. The Recipient and Project Executing Agency shall ensure that indigenous
peoples’ planning documents, if required, are prepared for Follow-on Projects in accordance
with the Recipient’s applicable laws and regulations, the SPS and IPPF.

11. If any of the proposed subprojects of the Follow-on Projects is assessed to be

falling under category A under SPS, such subprojects shall be dropped from the Follow-on
Projects.

Labor Standards

12. The Recipient shall ensure that for each Follow-on Project for ADB financing
the bidding documents under such projects will include specific provisions to comply with all:
(a) applicable labor laws and core labor standards on (i) prohibition of child labor as defined
in national legislation for construction and maintenance activities, (ii) equal pay for equal
work of equal value regardless of gender, ethnicity or caste, and (iii) elimination of forced
labor; and (b) requirement to disseminate information on sexually transmitted diseases
including HIV/AIDS to employees and local communities surrounding the project areas.

13. The Recipient shall ensure that each Follow-on Project to be prepared under
the Project are prepared following ADB’s Policy on Gender and Development (2003) and
with such provisions that are required to enhance gender benefits under the Follow-on
Projects.

Counterpart Support

14. The Recipient and the Project Executing Agency shall make available all
counterpart funds required for timely and effective implementation of the Project, including
any funds required to meet additional costs arising from unforeseen circumstances.

Acknowledgement of Project Scope

15. The Recipient and the Project Executing Agency acknowledge and agree that
provision of financing under this Project shall not be construed as committing ADB to provide
any finance or other form of assistance for any Follow-on Projects.

Anticorruption and Transparency

16. The Recipient, the Project Executing Agency, and the implementing agencies
shall (i) comply with ADB’s Anticorruption Policy (1998, as amended to date) and
acknowledge that ADB reserves the right to investigate directly, or through its agents, any
alleged corrupt, fraudulent, collusive or coercive practice relating to the Project; and
(ii) cooperate with any such investigation and extend all necessary assistance for satisfactory
completion of such investigation.
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Schedule 4

17. The Project Executing Agency and implementing agencies shall ensure that
the anticorruption provisions acceptable to ADB are included in all bidding documents and
contracts, including provisions specifying the right of ADB to audit and examine the records
and accounts of all contractors, suppliers, consultants, and other service providers as they
relate to the Project.

18. The Recipient, the Project Executing Agency and the implementing agencies
shall announce the Project and business opportunities associated with the Project and any
Follow-on Projects on their websites. Such announcements, when dealing with contracts
awarded, shall at least disclose: (a) the list of participating bidders, (b) the name of the
winning bidder, (c) the amount of the contracts awarded, and (d) the goods and services
procured. The Project Executing Agency shall designate an officer at the FMU as contact
point for queries and complains with regard to procurement and consulting services
recruitment and other implementation activities.