OFFICIAL DOCUMENTS CREDIT NUMBER 6639-NP Financing Agreement (Second Programmatic Energy Sector Development Policy Financing) between NEPAL and INTERNATIONAL DEVELOPMENT ASSOCIATION FINANCING AGREEMENT AGREEMENT dated as of the Signature Date between NEPAL ("Recipient") and INTERNATIONAL DEVELOPMENT ASSOCIATION ("Association") for the purpose of providing financing in support of the Program (as defined in the Appendix to this Agreement). The Association has decided to provide this 1inancing on the basis, inter alia, of: (i) the actions which the Recipient has already taken under the Program and which are described in Section I of Schedule I to this Agreement: and (ii) the Recipient's maintenance of an adequate macroeconomic policy framework. The Recipient and the Association therefore hereby agree as follows: ARTICLE I - GENERAL CONDITIONS; DEFINITIONS 1.01. The General Conditions (as defined in the Appendix to this Agreement) apply to and form part of this Agreement. 1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the General Conditions or in the Appendix to this Agreement. ARTICLE II - FINANCING 2.01. The Association agrees to extend to the Recipient a credit, which is deemed as Concessional Financing for purposes of the General Conditions, in an amount equivalent to seventy three million three hundred thousand Special Drawing Rights (SDR 73,300,000) (variously, "Credit" and "Financing") (variously, "Credit" and "Financing"). 2.02. The Maximum Commitment Charge Rate is one-half of one percent (1/2 of 1%) per annum on the Unwithdrawn Financing Balance. 2.03. The Service Charge is thrce-fourths of one percent (3/4 of 1%) per annum on the Withdrawn Credit Balance. 2.04. The Payment Dates are April I and October I in each year. 2.05. The principal amount of the Credit shall be repaid in accordance with the repayment schedule set forth in Schedule 2 to this Agreement. 2.06. The Pay mient Currency is Dollar. -2- 2.07. Without limitation upon the provisions of Section 5.05 of the General Conditions, the Recipient shall promptly furnish to the Association such information relating to the provisions of this Article 11 as the Association may, from time to time, reasonably request. ARTICLE Ill -PROGRAM 3.01. The Recipient declares its commitment to the Program and its implementation. To this end, and further to Section 5.05 of the General Conditions: (a) the Recipient and the Association shall fi-om time to time, at the request of either party, exchange views on the Recipient's macrocconomic policy framework and the progress achieved in carrying out the Program: (b) prior to each such exchange of views, the Recipient shall furnish to the Association for its review and comment a report on the progress achieved in carrying out the Program, in such detail as the Association shall reasonably request: and (c) without limitation upon the provisions of paragraphs (a) and (b) of this Section, the Recipient shall promptly inform the Association of any situation that would have the effect of materially reversing the objectives of the Program or any action taken under the Program including any action specified in Section I of Schedule I to this Agreement. ARTICLE IV - REMEDIES OF THE ASSOCIATION 4.01. The Additional Event of Suspension consists of the following: a situation has arisen which shall make it improbable that the Program, or a significant part of it, will be carried out. 4.02. The Additional Event ofAccelcration consists of the Following: the event specified in Section 4.01 of this Agreement occurs and is continuing for a period of 30 days after notice of the event has been given by the Association to the Recipient. ARTICLE V - EFFECTIVENESS; TERMINATION 5.01. The Additional Condition of Effectiveness consists of the following: the Association is satisfied with the progress achieved by the Recipient in carrying out the Program and with the adequacy of the Recipient's macroeconomic policy Fraimiework. 5.02. The Effectiveness Deadline is the date ninety (90) days after the Signature Date. -3- 5.03. For purposes of Section 10.05 (b) of the General Conditions, the date on which the obligations of the Recipient tinder this Agreement (other than those providing for payment obligations) shall terminate is twenty (20) years after the Signature Date. ARTICLE VI- REPRESENTATIVE; ADDRESSES 6.01. The Recipient's Representative is the Secretary, Ministry of Finance of the Recipient. or Joint Secretary of the International Economic Cooperation Coordination Division. Ministry of Finance. 6.02. For purposes of Section 11.01 of the General Conditions: (a) the Recipient's address is: Ministry of Finance Government of Nepal Singha Durbar Kathmandu Nepal, and (b) the Recipient's Electronic Address is: Facsimile: E-rmail: (977-1) 421 1-164 secretary@ttmof.gov.np 6.03. For purposes of Section 11.01 of the General Conditions: (a) The Association's address is: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America: and (b) the Association's Electronic Address is: Telex: Facsimile: 248423 (MCI) 1-202-477-6391 -4- AGREED as of the Signature Date. NEPAIL By Authorized Represenlative Name: Sishir Kumar Dhungana Title: Finance Seeretary Date: June 24. 2020 INTERNATIONAL DEVELOPMENT ASSOCIATION By horizeä Representative Name: Faris 11. Hadad-Zervos Title: Country Manager Date: June 24. 2020 -5- SCHEDULE I Program Actions; Availability of Financing Proceeds Section I. Actions Taken Under the Program I (i) ERC has issued Electricity Consumer Tariff Fixation Directive; and (ii) ERC has accepted NEA tariff application. 2. (i) NEA Board of Directors has approved NEA Corporate Development Plan: and (ii) MOE WRI has assigned the responsibility for the regulation of electric vehicles charging stations operation to NEA. 3. NEA has: (i) implemented immediate priority institutional measures, satisfactory to the Association, to reduce power transmission and distribution losses; and (ii) established a monitoring and evaluation mechanism for the performance of its provincial and district distribution center chiefs. 4. The Council of Ministers of the Recipient has approved the draft Electricity Bill for the purpose of its submission to the Recipient's Parliament. 5. The NEA institutional restructuring plan aimed at separation of its generation- transmission and distribution business functions has been approved by MOEWRI and concurred by the Ministry of Finance of the Recipient. 6. NPTCL Board of Directors has approved the NPTCL's business plan aimed at its transition frotn a service provider for NEA to a power trading company. 7. NEA has amended the Procedure for Purchase of Electricity from Solar Photovoltaic Systems to increase renewable energy-based generation. 8. NEA has adopted the Gender Equity and Social Inclus ion Strategy and Operational Guidelines to mainstream gender and social inclusion in its projects and work force. Section II. Availability of Financing Proceeds A. General. The Recipient may withdraw the proceeds of the Financing in accordance Ith the provisions of th is Section and such additional instructions as the Association may specify by notice to the Recipient. B. Allocation of Financing Amounts. The Financing is allocated in a single withdrawal tranche, from which the Recipient may make withdrawals of the Financing proceeds. The allocation of the amounts of the Financing to this end is set out in the table belov: -6- Allocations Amount of the Financing Allocated (expressed in SDR) (1) Single Withdrawal 73300,000 Tranche TOTAL AMOUNT 73,300,000 C. Withdrawal Tranche Release Conditions. No withdraw.al shall be made of the Single Withdrawal Tranche unless the Association is satisfied: (a) with the Program being carried out by the Recipient; and (b) with the adequacy of the Recipient's macroeconomic policy framework. D. Deposit of Financing Amounts. The Recipient, within thirty (30) days after the withdrawal of the Financing from the Financing Account, shall report to the Association: (a) the exact sum received into the account referred to in Section 2.03 (a) of the General Conditions; (b) the details of the account to which the Nepalese Rupee equivalent oF the Financing proceeds will be credited; (c) the record that an equivalent amount has been accounted for in the Recipient's budget management systems; and (d) the statement of receipts and disbursement of the account referred to in Section 2.03 (a) of the General Conditions. E. Closing Date. The Closing Date is June 30, 2021. -7- SCHEDULE 2 Repayment Schedule Principal Amount of the Date Payment Due Credit repayable (expressed as a . ___.____- - _percentage)* On each April I and October 1, commencing October 1 .5625% I, 2026 to and including April 1, 2058 * The percentages represent the percentage of the principal amount of the Credit to be repaid, except as the Association may otherwise specify pursuant to Section 3.05 (b) of the General Conditions. -8- APPENDIX Section . Definitions 1. "Electricity Consumer Tariff Fixation Directive" means the directive approved by ERC on November 15, 2019 and providing guidance for setting electricity consumer tariffs. . "ERC" means the Recipient's Electricity Regulatory Commission, or any successor thereto. 3. "General Conditions" means the ~International Development Association General Conditions for IDA Financing, Development Policy Financing", dated December 14, 2018. 4. "MOEWRI" means the Recipient's Ministry of Energy. Water Resources and Irrigation, or any successor thereto. 5. "NEA" means the Nepal Electricity Authority established pursuant the Recipient's Nepal Electricity Authority Act. 2041 (1984) (i.e. Act 18 of the year 2041 (1984)), published in the Nepal Gazette on November 12. 1984. or any successor thereto. 6. "NPTCL" means the Nepal Power Trading Company Limited, a state-owned power trading utility, registered under the Recipient's Company Act. pursuant to Registration No 165 121/073/074 of March 7. 2017, or any successor thereto. 7. "Program" means: the program of objectives, policies, and actions set forth or referred to in the letter dated 29 April 2020 from the Recipient to the Association declaring the Recipient's commitment to the execution of the Program, and requesting assistance from the Association in support of the Program during its execution and comprising actions taken, including those set forth in Section I of Schedule I to this Agreement, and actions to be taken consistent with the program's objectives. 8. "Signature Date" means the later of the t\wo dates on which the Recipient and the Association signed this Agreement and such definition applies to all references to "the date of the Financing Agreement" in the General Conditions. 9. "Single Withdrawal Tranche" means the amount of the Financing allocated to the category entitled "Single Withdrawal Tranche" in the table set forth in Part B of Section lI of Schedule I to this Agreement. 10. "Procedure for Purchase of Electricity from Solar Photovoltaic Systems" means the procedure adopted by NEA on April 16, 2017 and amended for the purposes of the Program. -9- 11. "Gender Equity and Social Inclusion Strategy and Operational Guidelines" means the document approved by the NEA's Board of Directors on its 827"' meeting on March 19, 2020.