Agreement on the Construction of Kohalpur-Mahakali Sector of the Mahendra Rajmarg
Kathmandu, September 28^th, 1985.

THE Government of the Republic of India, (hereinafter referred to as 'G.O.I.') and His Majesty's Government of Nepal (hereinafter referred to as HMG/N):

BEARING in mind the friendly relations existing between the two countries and their peoples and wishing to strengthen them;

AND being desirous of cooperating with each other in promoting the development of transport and communications in Nepal;

HAVE agreed as follows:

Article – I

Grant

GOI agree to provide grant assistance of Rupees Fifty Crores (Rs. 50,00,00,000) in Indian Currency to be utilised for the construction of Kohalpur-Mahakali Section of the Mahendra Rajmarg (MRM) (hereinafter referred to as the 'Project'). Cost overruns, if any, would be borne by HMG/N. Local costs of the Project on items such as office expenses, salaries of Nepalese staff and infrastructural development work required for the Project shall be borne by HMG/N. Cost of provision of site offices, laboratories, laboratory equipment, vehicles for the supervision of the Project including POL for their running up to an aggregate amount of Rs. 2.5 Crores (IC) will be met out of the grant assistance and any amount in excess of this shall be borne by HMG/N.

Article – II

Project

The Project shall consist of construction of an all weather motorable road, including bridges and other ancillary structures starting from Kohalpur and ending at Mahakali (Nepal-India border) as per Annex I attached hereto.

Article – III

Execution of the Project

3.1              HMG/N shall execute the Project in conformity with all the plans and specifications as per Annex II attached hereto.

3.2              The Project shall be completed in 48 months from the date of the award of the contract(s) and both governments will mutually co- operate to ensure the completion of the Project within the above time and resources.

3.3              The recruitment of all personnel for the Project shall be confined to the nationals of either country.

Article – IV

Joint Monitoring Committee

4.1              A Joint Monitoring Committee (hereinafter referred to as the ‘Committee’) consisting of the following eight (8) members of HMG/N and GOI shall be constituted for the purpose of monitoring and reviewing the progress of the construction works of the Project and ensuring its effective and efficient implementation:

    HMG/N Side                                                                                    G.O.I. Side

1. Secretary or Additional Secretary,                                        1. Director General, Roads

    Works & Transport                                                                  Development, Ministry of

                                                                                                    Transport

2. Additional Secretary,                                                            2. Financial Adviser

    Ministry of Finance                                                                   Ministry of External Affairs

3. Chief Engineer,                                                                     3. Representative of Ministry       

    Department of Roads                                                                of External Affairs

4. Project Manager                                                                   4. Counselor (EC)

    Member Secretary                                                                    Embassy of India, Kathmandu

4.2              The Committee shall have the following functions:

(a)         To review and monitor progress of implementation on the basis ()f approved programme every three months, or earlier, if considered necessary and to take necessary and timely action through concerned Departments of HMG/N and GOI to overcome bottlenecks, if any.

(b)        To give assistance and necessary directions to the Project in its financial, technical and related administrative matters.

(c)         To make arrangements for timely release of funds from GOI and HMG/N.

Article – V

Financial Covenants

5.1              GOI shall provide HMG/N a sum of Rs. 7.5 crores in Indian currency by way of advance for mobilisation work. The balance of the grant assistance shall be provided on the basis of annual budget estimates. Funds will be released trimesterly on the basis of annual allocations, and on the recommendation of the Committee based on the progress of works. The release of the first trimesterly amount shall be given two months after the payment of mobilisation advance, and on the basis of annual budget estimate as recommended by, the Committee.

5.2              Statement of expenditure for the first trimester shall be furnished at the time of request for release of advance for the third trimester. Likely expenditure and commitments for each trimester shall be made available to the Committee before the release of funds for the subsequent trimester. This procedure shall be followed for all subsequent releases.

Article-VI

Land and other Facilities

Keeping in mind the necessity of expeditious and economic execution of the Project, HMG/N agrees to the following:

6.1              HMG/N shall make available, in good time, the necessary land free of cost and free from all encumbrances and provide right of way, where required. Construction materials required for the Project such as sand, gravel, stone etc. shall be allowed to be quarried from suitable quarries within easy reach of the Project site and shall be tree of royalty, duties, taxes and other levies. The obligations of HMG/N mentioned herein shall be subjected to ecological and environmental considerations and needs.

6.2              Construction power, adequate water supply, and wireless links will be made available to the maximum feasible extent to the agents of the Project authorities and the contractors on normal payment.

6.3              Payment of compensation, if any, and settlement of claims and disputes arising from clause 0.1 above shall be the responsibility of HMG/N. The grant to be provided by GOI shall not include any payments made in respect of such claims and disputes.

6.4              HMG/N shall provide under mentioned facilities in respect of goods, materials, equipment, machinery, transport, vehicles, etc. which may be required for the execution of the Project:

(a)           Expeditious entry into Nepal or exit from Nepal.

(b)          Goods and materials imported for the Project by the Project authorities or their agents or contractors, will be exempt from payment of all customs duties, royalty, taxes, cesses and levies of any kind whether at the border or movement within Nepal. This exemption shall also apply in respect of vehicles hired by the Project authorities or their agents or contractors for movement within Nepal of goods, materials, equipment, machinery etc. for the Project. Furthermore, vehicles, equipment and machinery imported for the Project shall be recorded at the customs entry point-without levying any taxes and duties on condition that such items shall be taken back after the completion of the Project. If they are disposed off in Nepal, taxes and duties, pursuant to Nepal Law shall be levied on such items.

6.5              .

(a)           Expatriate personnel employed by the Project authorities shall be immune from legal processes in respect of all acts performed by them in their official capacity, in the execution of the Project and enjoy inviolability and immunity from legal processes for all papers, documents, property and other materials relating to the Project.

(b)          Expatriate personnel employed by' the agents of the Project authorities or contractors shall except in the case of negligence or willful act be immune from legal processes in respect of all acts performed by them in their official capacity in the execution of the Project and enjoy inviolability and immunity from legal processes for all papers, documents, property and other materials relating to the Project.

(c)           HMG/N shall not levy income tax and any other taxes on income arising out of the contract(s) on any Indian national or Indian firm employed by the Project authorities or their agents or contractors.

(d)          HMG/N shall grant exemption from payment of Contract Tax to all contracts connected with the Project.

6.6              Contractors of the Project from India shall be free to import any amount of Indian currency that may be deemed necessary but shall convert it into Nepalese currency at legally recognised exchange counters for transactions inside Nepal for the execution of their work. They shall be allowed to repatriate their currency by Nepal Rastra Bank.

6.7              HMG/N shall ensure expeditious grant of licenses, permits and similar other authorisations necessary to enable the Project authorities, and their agents and contractors to execute the work relating to the Project.

6.8              HMG/N shall make necessary security arrangements for the protection of the expatriate personnel, including contractors, their families and their personal belongings as well as the materials, equipment etc. at various sites in Nepal including in transit.

Article – VII

Labour

7.1                The Project authorities, or their contractors, shall be allowed to import from India skilled and semi-skilled and other labour to the extent not available in Nepal.

7.2                HMG/N will take all necessary steps to ensure maintenance of peaceful labour relations and the safeguarding of the personnel and property of the Project. 

Article- VIII

Procurement

The plant and equipment, machinery, vehicles, construction materials and stores required for the works, which are not available in Nepal, shall be procured from India. Such construction materials and equipment as not available in India when required may be procured from third countries on the recommendations of the Committee. The foreign exchange required for such procurement from third countries shall be arranged by HMG/N.

Article – IX

Legal Immunity

In the event of any legal action arising from activities undertaken in pursuance of this Project, HMG/N shall assume full responsibility for the defense of any action in Nepal, and ensure immunity from garnishment or any other legal process or title to all contributions made for or property and benefits derived from the execution of the Project.

Article – X

Maintenance

HMG/N shall take responsibility for the maintenance and operation of the Project after its completion. 

Article – XI

Settlement

Any difference regarding the interpretation or application of any provisions of this agreement shall be resolved by mutual consultations between the two governments.

Article – XII

Validity

This Agreement shall come into force with effect from the date of its signing and shall remain valid until December 31^st, 1989.

IN WITNESS WHEREOF, the undersigned being duly authorised by their respective governments, have signed the agreement and affixed thereto their seals.

DONE at Kathmandu this twenty-eighth day of September one thousand nine hundred and eighty five AD in two originals each in Nepali, Hindi and English languages, all the texts being equally authentic except in case of doubt the English text shall prevail.

Sd/-                                                                                                     Sd/-

(N.P. JAIN)                                                                             (LOK BAHADUR SHRESTHA)

Secretary                                                                                  Secretary

Ministry of External Affairs                                                        Ministry of Finance

For the Government of the Republic of India                             For His Majesty's Government

of Nepal

ANNEX-I

Project Description

Kohalpur-Mahakali Section of MRM would provide a means to integrate the Mid and Far Western Regions of Nepal with the rest of the country through completion of an all weather East- West Highway. The basic features of the Project include the following:

(i)                  204 Km of highway construction except Karnali Bridge.

(ii)                Construction of approximate 60 Kms gravel feeder road excluding major river crossings at Karnali delta.

(iii)               Details of works for the above mentioned items (i) and (ii) are as per Kohalpur-Mahakali Highway Project Engineers' Estimate, M.R.M. Kohalpur-Mahakali Highway Project Office January 1985 for contracts 1, 2, 3 and 4 as governed by Article I of this Agreement.

ANNEX-II

Design Standards for Highways

                                                                        Flat                              Hilly

Design Speed (Kph)                                         100                              80

Width of Right of way (m)                                 50                                50

Formation Width (m)                                        7.5                               7.5

Paved width (m)                                               3.5                               3.5

Ruling Gradient (%)                                          5                                  6

Stopping sight distance (m)                               120                              120

Min. Radius Horizontal Curves (m)                   475                              210

                                               First stage of ultimate 6.0 m paved width.

                                               Structural Design: Standard specifications for Highway Bridges

(The American Association of State Highway and Transportation Officials)

Loading HS 20-44.

Earlier the road was to be constructed by the Chinese under a World Bank loan since they put in the lowest bid which was far below the Indian bid. The Nepalese Government was left with no choice except to award the contract to China if it wanted to avail of the World Bank assistance. As Nepal's principal contributor of foreign assistance, India offered to provide an extra Rs. 500 million in addition to the construction of works it had already undertaken in the central sector of this highway at a cost of Rs. 700 million. Naturally, to accept the Indian offer Nepal had to forgo the World Bank loan.