loan number 3041-lao (sf) loan agreement ...lao 45301 loan agreement (special operations) loan...

LOAN NUMBER 3041-LAO (SF)

LOAN AGREEMENT (Special Operations)

(Water Supply and Sanitation Sector Project)

between

LAO PEOPLE’S DEMOCRATIC REPUBLIC

and

ASIAN DEVELOPMENT BANK

DATED 11 OCTOBER 2013

LAO 45301

LOAN AGREEMENT (Special Operations)

LOAN AGREEMENT dated 11 October 2013 between LAO PEOPLE’S DEMOCRATIC REPUBLIC (“Borrower”) and ASIAN DEVELOPMENT BANK (“ADB”).

WHEREAS (A) the Borrower has applied to ADB for a loan for the purposes of the

Project described in Schedule 1 to this Loan Agreement; (B) the Borrower has also applied to Phu Bia Mining Limited for a grant in

the amount equivalent to six million Dollars ($6,000,000) for the purposes of the Project (“PBM Grant”), and Phu Bia Mining Limited has agreed to provide the amount, to be administered by ADB;

(C) ADB has agreed to administer the PBM Grant upon the terms and

conditions set forth in the Externally Financed Grant Agreement between the Borrower and ADB of even date herewith (“Grant Agreement”); and

(D) ADB has agreed to make a loan to the Borrower from ADB's Special

Funds resources upon the terms and conditions set forth herein; NOW THEREFORE the parties agree as follows:

ARTICLE I

Loan Regulations; Definitions

Section 1.01. All provisions of the Special Operations Loan Regulations of ADB, dated 1 January 2006 (“Loan Regulations”), are hereby made applicable to this Loan Agreement with the same force and effect as if they were fully set forth herein.

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

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

(a) “Co-financier” means Phu Bia Mining Limited; (b) “Consulting Guidelines” means the Guidelines on the Use of

Consultants by Asian Development Bank and its Borrowers (2013, as amended from time to time);

(c) “Consulting Services” means the services to be financed out of the proceeds of the Loan as described in paragraph 3 of Schedule 1 to this Loan Agreement;

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(d) “DPWT” means the Department of Public Works and Transport in provinces of the Borrower, or any successor thereto acceptable to ADB, which is responsible for the carrying out of its portion of the Project;

(e) "Environmental Assessment and Review Framework" or "EARF"

means the environmental assessment and review framework for the Project, including any update thereto, prepared and submitted by the Borrower and cleared by ADB;

(f) "Environmental Management Plan" or "EMP" means each

environmental management plan for a Subproject, including any update thereto, incorporated in the IEE;

(g) "Environmental Safeguards" means the principles and requirements

set forth in Chapter V, Appendix 1, and Appendix 4 (as applicable) of the SPS; (h) “GAP” means the gender action plan attached to the PAM, containing

gender measures to be undertaken during Project implementation;

(i) “Goods” means equipment and materials to be financed out of the proceeds of the Loan, including related services such as transportation, insurance, installation, commissioning, training, and initial maintenance, but excluding Consulting Services;

(j) “HIV/AIDS” means human immunodeficiency virus/acquired immune deficiency syndrome;

(k) “Implementing Agency” or “IA” means DPWT and each PNP; (l) “Initial Environmental Examination” or "IEE" means each initial

environmental examination for a Subproject, including any update thereto, prepared and submitted by the Borrower pursuant to the requirements set forth in the EARF and cleared by ADB;

(m) "Indigenous Peoples Plan" or "IPP" means each indigenous peoples

plan for a Subproject, including any update thereto, prepared either as a separate plan or a plan combined with an RP, and submitted by the Borrower pursuant to the requirements set forth in the IPPF and cleared by ADB;

(n) "Indigenous Peoples Planning Framework" or "IPPF" means the

indigenous peoples planning framework for the Project, including any update thereto, prepared and submitted by the Borrower and cleared by ADB;

(o) "Indigenous Peoples Safeguards" means the principles and

requirements set forth in Chapter V, Appendix 3, and Appendix 4 (as applicable) of the SPS;

(p) "Involuntary Resettlement Safeguards" means the principles and

requirements set forth in Chapter V, Appendix 2, and Appendix 4 (as applicable) of the SPS; (q) “Loan Disbursement Handbook” means ADB’s Loan Disbursement

Handbook (2012, as amended from time to time);

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(r) “MOF” means the Ministry of Finance of the Borrower, or any successor thereto;

(s) “MPWT” means the Ministry of Public Works and Transport of the

Borrower, or any successor thereto; (t) “O&M” means operation and maintenance;

(u) “PAM” means the project administration manual for the Project dated

28 August 2013 and agreed between the Borrower and ADB, as updated from time to time in accordance with the respective administrative procedures of the Borrower and ADB;

(v) “Part” means a part of the Project as described in Schedule 1 to this

Loan Agreement; (w) “Participating Province” means any of the provinces of the Borrower,

in which one or more Subprojects, as defined hereunder, are undertaken under the Project; (x) “PCU” means the Project coordination unit established for the

purposes of the Project and described in the PAM; (y) “PIU” means each Project implementation unit established for the

purposes of the Project and described in the PAM; (z) “PNP” means a provincial water supply state company, known locally

as a “provincial nam papa” which is situated in a Participating Province; (aa) “PPSC” means a provincial Project steering committee for each

Participating Province, established for the purposes of the Project and described in the PAM; (bb) “PSC” means a Project steering committee at the national level,

established for the purposes of the Project and described in the PAM; (cc) “Procurement Guidelines” means ADB’s Procurement Guidelines

(2013, as amended from time to time);

(dd) “Procurement Plan” means the procurement plan for the Project dated 28 August 2013 and agreed between the Borrower and ADB, as updated from time to time in accordance with the Procurement Guidelines, the Consulting Guidelines, and other arrangements agreed with ADB;

(ee) “Project Executing Agency” or “EA” for the purposes of, and within the meaning of, the Loan Regulations means MPWT, or any successor thereto acceptable to ADB, which is responsible for the carrying out of the Project;

(ff) “Project facilities” means the equipment to be procured and the facilities to be constructed, rehabilitated, operated and maintained under the Project;

(gg) “Provincial Authority” means, with respect to a Participating Province, the Provincial Governor (or designate person) of that Participating Province;

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(hh) "Resettlement Framework" or “RF” means the resettlement framework for the Project, including any update thereto, prepared and submitted by the Borrower and cleared by ADB;

(ii) "Resettlement Plan" or “RP” means each resettlement plan for a

Subproject, including any update thereto, prepared and submitted by the Borrower pursuant to the requirements set forth in the RF and cleared by ADB;

(jj) "Safeguard Policy Statement" or “SPS” means ADB's Safeguard Policy

Statement (2009); (kk) "Safeguards Monitoring Report" means each report prepared and

submitted by the Borrower to ADB as part of the semi-annual Project progress reports that describes progress with implementation of, and compliance with, the EMP, the RP and the IPP (as applicable), including any corrective and preventative actions;

(ll) “Service Agreement” means a service agreement entered into between

a PNP and the relevant Provincial Authority which (amongst others) sets out performance indicators and targets to be met by the PNP, sets tariffs and minimum service levels, and contains provisions detailing reporting and other regulatory requirements;

(mm) “SLA” means, in connection with carrying out a Subproject, a subsidiary loan agreement entered into between MOF and a PNP;

(nn) “Subproject” means a subproject under the Project that meets (a) the screening criteria set forth in paragraph 8 of Schedule 5 to this Loan Agreement; and (b) the eligibility criteria set forth in paragraph 9 of Schedule 5 to this Loan Agreement;

(oo) “Subproject Loan” means a loan provided by MOF to a PNP under an SLA to finance a Subproject;

(pp) “WSRC” means the Water Supply Regulatory Committee established by Decree No. 66/PM, dated 20 May 1999, as amended by Decree No. 191/PM, dated 1 July 1995, issued by the Prime Minister of the Borrower, and the MPWT Decision No. 13266/MPWT, dated 22 October 2008; and

(qq) “Works” means construction or civil works to be financed out of the proceeds of the Loan, 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.

ARTICLE II

The Loan

Section 2.01. ADB agrees to lend to the Borrower from ADB's Special Funds resources an amount in various currencies equivalent to twenty-three million forty-seven thousand Special Drawing Rights (SDR23,047,000).

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Section 2.02. (a) The Borrower shall pay to ADB an interest charge at the rate of 1% per annum during the grace period, and 1.5% per annum thereafter, on the amount of the Loan withdrawn from the Loan Account and outstanding from time to time.

(b) The term “grace period” as used in subsection (a) hereinabove means

the period prior to the first Principal Payment Date in accordance with the amortization schedule set forth in Schedule 2 to this Loan Agreement.

Section 2.03. The interest charge and any other charge on the Loan

shall be payable semiannually on 15 March and 15 September in each year.

Section 2.04. The Borrower shall repay the principal amount of the Loan withdrawn from the Loan Account in accordance with the amortization schedule set forth in Schedule 2 to this Loan Agreement.

Section 2.05. The currency of repayment of the principal amount of

the Loan and the currency of payment of the interest charge for the purposes of Sections 4.03(a) and 4.04 of the Loan Regulations shall be the Dollar.

ARTICLE III

Use of Proceeds of the Loan

Section 3.01. The Borrower shall relend part of the proceeds of the Loan to the PNPs of the Participating Provinces under SLAs upon terms and conditions satisfactory to ADB, including but not limited to, an interest rate of 6.4% per annum and a maturity period of 25 years, with a 6 year grace period. For each Subproject, the amount to be relent by the Borrower to the PNP concerned under the relevant SLA shall be 30% of the capital cost of the relevant water supply system as required for such Subproject and agreed by ADB in advance, with the balance of 70% of the aforesaid capital to be provided by the Borrower to the relevant PNP as a grant.

Section 3.02 The Borrower shall cause the proceeds of the Loan to

be applied to the financing of expenditures on the Project in accordance with the provisions of this Loan Agreement.

Section 3.03.

The proceeds of the Loan shall be allocated and

withdrawn in accordance with the provisions of Schedule 3 to this Loan Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and ADB.

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

shall procure, or cause to be procured, the items of expenditure to be financed out of the proceeds of the Loan in accordance with the provisions of Schedule 4 to this Loan Agreement.

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Section 3.05. Except as ADB may otherwise agree, the Borrower shall cause all items of expenditure financed out of the proceeds of the Loan to be used exclusively in the carrying out of the Project.

Section 3.06. The Loan Closing Date for the purposes of Section 8.02

of the Loan Regulations shall be 31 March 2022 or such other date as may from time to time be agreed between the Borrower and ADB.

ARTICLE IV

Particular Covenants

Section 4.01. In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement.

Section 4.02. (a) The Borrower 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 Loan proceeds and compliance with the financial covenants of this Loan Agreement as well as on the use of the procedures for the imprest fund 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 and the opinion of the auditors on the financial statements within 30 days of the date of their receipt by posting them on ADB’s website.

(c) The Borrower shall enable ADB, upon ADB's request, to discuss the financial statements for the Project and the Borrower'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. This is provided that such discussions shall be conducted only in the presence of an authorized officer of the Borrower, unless the Borrower shall otherwise agree.

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

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

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ARTICLE V

Suspension

Section 5.01. The following is specified as an additional event for suspension of the right of the Borrower to make withdrawals from the Loan Account for the purposes of Section 8.01(m) of the Loan Regulations: the PBM Grant or any portion thereof shall have become liable for suspension or cancellation.

ARTICLE VI

Effectiveness

Section 6.01. The following is specified as an additional condition to

the effectiveness of this Loan Agreement for the purposes of Section 9.01(f) of the Loan Regulations: the Grant Agreement, in form and substance satisfactory to ADB, shall have been duly executed and delivered on behalf of the Borrower and shall have become legally binding upon the Borrower in accordance with its terms, subject only to the effectiveness of this Loan Agreement.

Section 6.02. A date 90 days after the date of this Loan Agreement is specified for the effectiveness of this Loan Agreement for the purposes of Section 9.04 of the Loan Regulations.

ARTICLE VII

Miscellaneous

Section 7.01. The Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.02 of the Loan Regulations.

Section 7.02. The following addresses are specified for the purposes

of Section 11.01 of the Loan Regulations: For the Borrower Ministry of Finance 23rd Singha Road

P.O. Box 46 Vientiane Capital Lao People’s Democratic Republic

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SCHEDULE 1

Description of the Project 1. The objective of the Project is to improve the performance of PNPs in delivering sustainable water supply and sanitation services. 2. The Project shall comprise five outputs: Output 1: Improved Sector Coordination and Policy Implementation (a) conducting biannual meetings of the sub-sector working group on water supply and sanitation under the Technical Working Group sub-group on urban development (UDSWG), conducting annual sub-sector performance reviews and workshops with all participating development partners, and smaller sub-sector coordination meetings; (b) providing training to PNPs on corporate planning and financial management, implementing simplified corporate plans for PNPs, implementing tariff adjustments, implementing a “free connection policy” for households with sanitation facilities, issuing district sanitation regulations, executing Service Agreements; and (c) expanding policy implementation to nationalize a free connections policy and sanitation regulations, implementing a sector-wide approach to non-revenue water control, asset management and Water Safety Plans through a coordinated development partner approach, and establishing a corporate planning help desk in the PCU. Output 2: Improved Non-Revenue Water Management and Water Supply Development (a) undertaking a comprehensive non-revenue reduction program which: (i) applies an integrated business approach that includes both investment for physical works and support for surveys, water audits and water balances, record drawings and registers; and (ii) by establishes permanent leak detection and repair teams and implements disconnection and meter management policies; and (b) constructing new water supply systems and rehabilitating piped water supply systems in Subproject towns located in Participating Provinces. Output 3: Developed Water Supply Systems in Small Towns (a) constructing piped water supply systems for core urban areas in small towns located in Participating Provinces. Output 4: Enhanced Community Action in Water Supply and Sanitation (a) conducting village environmental improvements through construction or upgrading of small-scale community improvements such as drains and village access roads; (b) constructing or upgrading of household latrines for the poor;

Schedule 1

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(c) constructing or repairing public sanitation facilities in locations where O&M can be contracted to a business or social entity and where septage disposal facilities are not available in the subproject area, the project will provide assistance for constructing septage disposal facilities at a suitable location; and (d) increasing project and hygiene awareness, which shall include: (i) implementing stakeholder consultation and community participation activities for informing, promoting and educating beneficiaries, consulting with individuals from different social and ethnic groups, and public disclosure of safeguard documents, water and sanitation policies, and corporate plans; and (ii) providing support to district authorities for sanitation and hygiene behavior change, including formative research on behaviors, expert assistance in developing hygiene and sanitation promotion campaigns and materials, design of new programs to cover emerging issues (e.g., water conservation or protection of water sources), and evaluation of program effectiveness. Output 5: Strengthened Capacity for Project Implementation and O&M (a) providing technical and management support to the PCU and PIUs for efficient Project implementation and O&M services provision, including effective implementation of environmental and social safeguards plans; and (b) carrying out a capacity development program to provide PNPs with on-the-job O&M training in managing, operating and maintaining relevant infrastructure systems and the equipment provided under the Subprojects. 3. The Project also includes the provision of Consulting Services to provide assistance in Project implementation. 4. The Project is expected to be completed by 30 September 2021.

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SCHEDULE 2

Amortization Schedule

(Water Supply and Sanitation Sector Project) Date Payment Due Payment of Principal (expressed in Special Drawing Rights)*

15 March 2022 480,146

15 September 2022 480,146 15 March 2023 480,146 15 September 2023 480,146 15 March 2024 480,146 15 September 2024 480,146 15 March 2025 480,146 15 September 2025 480,146 15 March 2026 480,146 15 September 2026 480,146 15 March 2027 480,146 15 September 2027 480,146 15 March 2028 480,146 15 September 2028 480,146 15 March 2029 480,146 15 September 2029 480,146 15 March 2030 480,146 15 September 2030 480,146 15 March 2031 480,146 15 September 2031 480,146 15 March 2032 480,146 15 September 2032 480,146 15 March 2033 480,146 15 September 2033 480,146 15 March 2034 480,146 15 September 2034 480,146 15 March 2035 480,146 15 September 2035 480,146 15 March 2036 480,146 15 September 2036 480,146 15 March 2037 480,146 15 September 2037 480,146 15 March 2038 480,146 15 September 2038 480,146 15 March 2039 480,146 15 September 2039 480,146 15 March 2040 480,146 15 September 2040 480,146

Schedule 2

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15 March 2041 480,146 15 September 2041 480,146 15 March 2042 480,146 15 September 2042 480,146 15 March 2043 480,146 15 September 2043 480,146 15 March 2044 480,146 15 September 2044 480,146 15 March 2045 480,146 15 September 2045 480,138 Total 23,047,000 ∗ The arrangements for payment are subject to the provisions of Sections 3.04 and 4.03 of the Loan

Regulations.

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SCHEDULE 3

Allocation and Withdrawal of Loan 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 Loan and the allocation of the Loan proceeds to each such Category (“Table”). (Reference to “Category” in this Schedule is to a Category or Subcategory of the Table.) Basis for Withdrawal from the Loan Account 2. Except as ADB may otherwise agree, the proceeds of the Loan shall be disbursed on the basis of the withdrawal percentage for each item of expenditure set forth in the Table. Interest Charge 3. The amount allocated to Category 7 is for financing the interest charge on the Loan during the implementation period of the Project. Reallocation 4. Notwithstanding the allocation of Loan proceeds and the withdrawal percentages set forth in the Table, (a) if the amount of the Loan allocated to any Category appears to be insufficient to finance all agreed expenditures in that Category, ADB may, by notice to the Borrower, (i) reallocate to such Category, to the extent required to meet the estimated shortfall, amounts of the Loan 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 Loan allocated to any Category appears to exceed all agreed expenditures in that Category, ADB may, by notice to the Borrower, reallocate such excess amount to any other Category.

Disbursement Procedures 5. Except as ADB may otherwise agree, the Loan proceeds shall be disbursed in accordance with the Loan Disbursement Handbook.

Attachment to Schedule 3

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TABLE

ALLOCATION AND WITHDRAWAL OF LOAN PROCEEDS (Water Supply and Sanitation Sector Project)

Number

Item

Total Amount Allocated for ADB Financing

Basis for Withdrawal from the Loan Account

(SDR)

Category Subcategory

1 Works 8,060,000

1A Water Supply 7,000,000 65.2% of total expenditure claimed*

1B Village Environmental Improvements

777,000 71% of total expenditure claimed

1C Household and Public Sanitation

283,000

100% of total expenditure claimed*

2 Equipment 1,939,000


3 Social Mitigation 270,000


4 Consulting Services 5,018,000


5 Surveys and Investigation 303,000


6 Recurrent Costs 1,264,000


7 Financing Charge 761,000

100% of total amount due

8 Unallocated 5,432,000

Total 23,047,000

* Exclusive of taxes and duties imposed within the territory of the Borrower.

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SCHEDULE 4

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 Loan 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) Limited International Bidding; (c) National Competitive Bidding; and (d) 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 Borrower 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. Domestic Preference 5. The Borrower may grant a margin of preference in the evaluation of bids under international competitive bidding in accordance with paragraphs 2.55(a) and 2.56 of the Procurement Guidelines for domestically manufactured Goods and paragraphs 2.55(b) and 2.56 of the Procurement Guidelines for domestic Works, provided that at the date of advertisement of the bid for domestic Works, the Borrower is eligible for domestic preference for Works according to ADB’s policies in effect at that date. National Competitive Bidding 6. The Borrower and ADB shall ensure that, prior to the commencement of any procurement activity under national competitive bidding, the Borrower’s national competitive bidding procedures are consistent with the Procurement Guidelines. Any modifications or clarifications to such procedures agreed between the Borrower 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 Borrower and ADB. Conditions for Award of Contracts for Subprojects 7. The Borrower shall not award any Works contract which involves environmental impacts for a Subproject until the EA has:

Schedule 4

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(a) obtained the final approval of the updated IEE from the Borrower for such Subproject based on the Subproject’s detailed design and clearance of such IEE from ADB; and

(b) incorporated the relevant provisions from the EMP into the Works

contract.

8. The Beneficiary shall not award any Works contract which involves involuntary resettlement impacts for a Subproject until:

(a) the EA has prepared and submitted to ADB the final RP for such Subproject based on the Subproject's detailed design and obtained ADB's clearance of such RP; and

(b) a report from the external resettlement monitor has been submitted to

ADB confirming that there are no resettlement issues.

9. The Borrower shall not award any Works contract for a Subproject which involves impacts on indigenous peoples until the Borrower has prepared and submitted to ADB the final IPP and obtained ADB's clearance of such IPP. 10. The Borrower shall not award any Works contract for a Subproject unless: (a) a district sanitation regulation (issued by the district governor) or regulations equivalent (in case of a national policy) have been issued; (b) a PPSC and provincial PIU have been established to implement that Subproject; (c) the PCU has submitted to ADB a comprehensive feasibility study together with an appraisal report to ADB under paragraph 7 of Schedule 5 to this Loan Agreement and ADB has cleared such report confirming that the Subproject meets: (i) the screening criteria set forth in paragraph 8 of Schedule 5 to this Loan Agreement; and (ii) the eligibility criteria set forth in paragraph 9 of Schedule 5 to this Loan Agreement; (d) an SLA, acceptable to ADB has been signed between the Ministry of Finance and the relevant PNP in respect of the Subproject, in witness of the Provincial Authority; (e) a Service Agreement has been signed between the relevant PNP and the Provincial Authority in respect of the Subproject; (f) an external resettlement monitoring report has been submitted to ADB, which confirms that there are no resettlement issues in accordance with the RP for the Subproject; (g) an updated RP for the Subproject has been submitted to ADB for approval based on the Subproject’s detailed design and uploaded onto the ADB website;

Schedule 4

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(h) the PNP has complied with its obligations under paragraph 9(f) of Schedule 5 to this Loan Agreement to submit and disclose an approved corporate plan to the Borrower; (i) the PNP for the Subproject has confirmed that its current accounts receivable is less than 90 days; (j) the PNP for the Subproject has adopted a provincial utility-wide progressive tariff structure as described in paragraph 9(d) of Schedule 5 to this Loan Agreement; and (k) the relevant PNP has submitted to the Borrower an updated corporate plan for the PNP as approved by its board of directors and acceptable to the EA and ADB, and such corporate plan has been disclosed on the Project website. Consulting Services 11. Except as ADB may otherwise agree, and except as set forth in the paragraph below, the Borrower shall apply quality- and cost-based selection for selecting and engaging Consulting Services. 12. The Borrower shall apply the following methods for selecting and engaging the specified Consulting Services, in accordance with, among other things, the procedures set forth in the Procurement Plan:

(a) Consultants’ Qualifications Selection for project accounting services for the PCU, independent auditing of PNPs and provision of IT support for the Project; and

(b) Single Source Selection for resource experts from the Provincial

Waterworks Authority of Thailand.

13. The Borrower shall recruit the individual consultants for external monitoring of resettlement activities in accordance with procedures acceptable to ADB for recruiting individual consultants. Industrial or Intellectual Property Rights 14. (a) The Borrower 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 Borrower 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.

Schedule 4

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15. The Borrower 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 16. 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 Borrower and ADB and set forth in the Procurement Plan.

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SCHEDULE 5

Execution of Project; Operation of Project Facilities; Safeguards and Financial Matters A. Project Execution and Implementation Implementation Arrangements 1. The Borrower and the EA shall ensure that the Project is implemented: (a) in accordance with the detailed arrangements set forth in the PAM; and (b) consistently with the Borrower’s urban water supply and sanitation policy and water sector investment plan. Any subsequent change to the PAM shall become effective only after agreement of such change by the Borrower and ADB. In the event of any discrepancy between the PAM and this Loan Agreement, the provisions of this Loan Agreement shall prevail. 2. The Borrower shall ensure that: (a) the PSC is chaired by the Vice Minister of the EA and the PSC includes the Subcommittee on Corporatization; (b) the PCU is chaired by the Project Director and includes the Deputy Project Directors, in each case from the EA; (c) the Chair of each PPSC is the relevant Vice Provincial Governor and the Vice Chair is the relevant District Governor; and (d) ADB is informed of any changes to the composition and operations of sub-sector working group on water supply and sanitation within the UDSWG group. 3. The Borrower, through the EA, shall ensure that the IAs are equipped with qualified staff, reasonable office space, equipment, and adequate financial resources required for implementation of the Project throughout Project implementation. 4. The Borrower, through the EA, shall ensure that all Works under the Project are designed and constructed in accordance with all relevant national, municipal and local design codes and standards of the Borrower and that the construction supervision, quality control, contract management, and completion inspection and acceptance procedures shall be in accordance with all applicable laws, and municipal and local regulations of the Borrower. 5. The Borrower, through the EA, shall ensure that adequate funding and human resources are allocated so that Project facilities are maintained and operated in good condition, and in strict conformity with all applicable laws, regulations and standards of the Borrower. 6. The Borrower shall also ensure that under Output 4 (as described in Schedule 1 to this Loan Agreement), poor households are provided with a grant for sanitation improvements (a) at an amount equivalent to $120 for each poor household that elects to connect to the water supply system and construct pour flush latrines, and (b) an amount less than $120 equivalent for those who decide not to connect, but to improve their toilet facilities otherwise. Poor household eligibility criteria and the operating procedures shall be determined by the PCU in agreement with ADB.

Schedule 5

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B. Subproject Screening and Selection Screening Criteria 7. Based on priority assigned to each of the aforesaid provinces, the PCU shall screen each of the proposed Subprojects for its respective readiness according to the applicable criteria set forth in paragraphs 8 and 9 of this Schedule. For reasons of cost, efficiency and expediency: (i) Subprojects shall be prepared and implemented in geographically proximate Participating Provinces, to the extent possible; and (ii) proposed Subprojects located within the same Participating Province shall be screened, assessed for feasibility and implemented during the same implementation phase. If a particular Participating Province and its PNP are not considered by the PCU as ready for implementing the Subproject proposed, such Subproject shall be assigned a lower priority, and the Participating Province and PNP in question shall be required to enhance their readiness before being further considered under the Project. After a proposed Subproject is screened by the PCU, it shall be confirmed with ADB for its readiness. Following such confirmation from ADB, the PCU shall prepare a feasibility study and determine whether the proposed Subproject meets the eligibility criteria described in paragraph 9 of this Schedule 5 before the proposed Subproject can be approved for funding under the Project. In determining the eligibility for each proposed Subproject, the PCU shall prepare and submit an appraisal report to ADB, which shall describe the PCU’s finding and conclusion, together with relevant supporting data, on each of the criteria set forth in paragraphs 8 and 9 of this Schedule 5. 8. Each Subproject proposal shall be screened against the following criteria:

(a) the Subproject shall have been listed in the Borrower’s Water Supply

Investment Plan (2013, as amended from time to time), and been given high development priority by central, relevant provincial and district governments;

(b) the Subproject covers only the most densely populated core villages

within a town and the Subproject town population shall be projected by the Borrower to be more than 4,000 by 2015;

(c) the relevant Subproject town has urban characteristics and has an

approved urban master plan, which includes the core areas under consideration for water supply development, expansion or rehabilitation;

(d) the relevant Subproject town shall not have a significant piped water

supply system and there is a high demand for piped water supply; (e) the Subproject consists of: (i) a comprehensive non-revenue water

program with expansion and rehabilitation of an existing PNP water supply system; or (ii) a comprehensive non-revenue water program without expansion and rehabilitation of an existing PNP water supply system; or (iii) the development of a new PNP piped water supply system;

(f) the relevant provincial and district governments and the relevant PNP

shall have agreed in writing to adopt the Borrower’s water sector policies, cost recovery principles, tariffs, arrears, district sanitation regulations, free connection policy, non-revenue water program, and other reforms as agreed between the Borrower and ADB;

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(g) the relevant PNP is a state company operating under the national

Enterprise Law (2005) and has a corporate plan in place; (h) the relevant PNP has reduced accounts receivable to less than 90

days; (i) the Subproject shall not have been considered for funding by another

external donor; and (j) the Subproject is located in one of the geographically proximate

Participating Provinces referred to in paragraph 7 above. Eligibility Criteria 9. Each Subproject shall meet the following eligibility criteria:

(a) a feasibility report shall have been prepared, which shows that the proposed Subproject: (i) meets ADB’s and the Borrower’s technical, economic, financial, institutional and social development requirements for the Project; (ii) has been classified as Category “B” or “C” according to ADB’s environmental classification, as Category “B” or “C” according to ADB’s resettlement classification, as Category “B” or “C” according to ADB’s indigenous peoples classification; (iii) has an economic internal rate of return of at least 12%; and (iv) has a financial internal rate of return that exceeds the weighted average cost of capital;

(b) the relevant provincial and district governments and PNP shall have

confirmed their agreement to adopt the Borrower’s water sector policies, cost recovery principles, tariffs, arrears, sanitation regulations, free connection policy, non-revenue water program and other reforms as agreed between the Borrower and ADB;

(c) the Subproject covers only the most densely populated core villages,

and in the case of system expansion, covers the core villages and contiguous densely populated expansion areas;

(d) the relevant PNP for the Subproject has adopted a provincial utility-

wide progressive tariff structure with 3 consumption blocks, namely lifeline, middle, highest, whereby the average tariff has been set at such levels to enable the PNP to: (i) recover full O&M costs and gradually increasing costs of depreciation; and (ii) maintain a debt service coverage ratio of 1.2:1;

(e) the relevant provincial and district governments and the PNP

concerned shall have agreed to: (i) adopt sanitation regulations for the Subproject town concerned, acceptable to the EA and ADB; and (ii) provide adequate budget allocations to meet the O&M costs of the village environmental improvements and public sanitation improvements constructed under Output 4;

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(f) the relevant PNP for the Subproject has submitted to the Borrower an updated corporate plan for the PNP as approved by the board of directors and acceptable to the EA and ADB, and such corporate plan has been disclosed on the Project website;

(g) the relevant PNP shall have: (i) identified potential sources of surface

water or groundwater supply for the proposed Subproject; (ii) collected adequate flow and water quality data for each potential source during the dry and wet seasons at the Subproject feasibility and design phases to demonstrate source suitability, adequate minimum flows exceed the design flow for the water supply system, adequate water treatment requirements;

(h) the Provincial Authority shall have given a written assurance that: (i)

the Subproject will have first priority for raw water from the proposed surface source and has obtained an agreement to that effect from any hydropower, irrigation agency or company which uses or stores water upstream of the urban water supply intake. This would involve identification of the facilities that could affect the continuity of water supply at the intake during feasibility preparation of each Subproject;

(i) the Provincial Authority shall have given a written assurance that it will

issue and enforce regulations to protect raw water quality upstream of the proposed water supply intake. The feasibility report shall confirm that water quality testing at the raw source has been undertaken in accordance with applicable standards and the tests must confirm that the presence of chemicals or hazardous substances at the raw source are in accordance with Borrower’s water quality standards;

(j) the Borrower and the Provincial Authority have approved the RPs,

IPPs, IEE and EMPs and have agreed to implement the aforementioned plans in accordance with the policies of the Borrower and ADB;

(k) the Provincial Authority has confirmed in writing that sufficient

government budget is available to finance additional Works or Consulting Services under the proposed Subproject; and

(l) the EA and project implementation consultants prior to the

commencement of Project implementation shall have confirmed that the relevant Participating Province, district and PNP are ready to implement the proposed Subproject based on their assessment of: (i) the relevant PIU having been established, staffed by adequate, qualified and competent staff appointed, and adequate funding provided; (ii) the capacity of the relevant PIU to manage the Project; (iii) the capacity of the PNP being adequate to manage, operate and maintain the proposed water supply system, including arrangements for ongoing training, technical and management support; (iv) PNP performance including approved corporate plan is in place and accounts receivable is less than 90 days; (v) the debt service capacity for the relevant PNP having been reviewed; (vi) the relevant tariff level in the Participating Province concerned having been reviewed and adjusted as needed to financially sustainable levels; and (vii) in the case of Subprojects involving non-revenue water programs, the PNP’s non-revenue water taskforce, leak detection team and leak repair team established.

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D. Other Obligations Tariff Levels

10. The Borrower shall cause each participating PNP to undertake an annual assessment, satisfactory to the Borrower and ADB, of the tariff levels in order to determine the tariff adjustments required for the subsequent year. On the basis of each assessment, the Borrower shall cause each PNP to implement the aforesaid tariff adjustments by 1 April of each year.

Outstanding Water Bills

11. Where the water bills of any agency of the Borrower are outstanding for 60 days or more, the Borrower shall cause the respective agency with the outstanding water bill within the Participating Province, within a further 30 days, to allocate from its budgetary resources and provide to the concerned PNP sufficient funds to fully liquidate the outstanding accounts. Connection Fees 12. The Borrower shall ensure that for each Subproject: (a) the relevant participating PNP waives upfront fees for only the domestic households that apply for water supply connection; and (b) households that receive a connection are required to pay a monthly fee that covers water consumption, turnover tax, amortized cost of connection and a basic administration fee. Other Obligations 13. The Borrower shall ensure that the EA (a) causes all participating PNPs to monitor water quality and quantity data of the relevant potential raw water sources for urban water supply; and (b) ensures that the least-cost solution for each Subproject (as determined from a comprehensive feasibility study that focuses on appropriate water treatment technology and service areas) is adopted. E. Sector Strategy and PNPs 14. The Borrower shall ensure that, within 36 months of the Effective Date, the relevant policies and guidelines for the urban water supply and sanitation sector are reviewed and, if necessary, revised to further clarify and strengthen the social, economic, financial, and administrative targets for the sector in a manner satisfactory to ADB. The Borrower shall also ensure that, within 48 months of the Effective Date, the revised policies and guidelines are approved and implemented accordingly. 15. The Borrower shall ensure that each PNP updates and commences implementation of its 3-year rolling corporate plans, incorporating the specific action plans aimed at transforming the relevant PNP into a more efficient and autonomous water supply company with specific mandate, objectives and targets and more commercial focus. Each such corporate plan and update shall at least include: (a) mission statement and corporate objectives; (b) standards, performance indicators and targets; (c) tariffs; (d) market analysis; (e) management and organization review; (f) related action plan and detailed activities; (g) 3-year financial forecast; and (h) capital investment program.

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F. Safeguards Environment

16. The Borrower shall ensure or cause the EA to ensure that the preparation, design, construction, implementation, operation and decommissioning of each Subproject and all Project facilities comply with (a) all applicable laws and regulations of the Borrower relating to environment, health, and safety; (b) the Environmental Safeguards; (c) the EARF; and (d) all measures and requirements set forth in the respective IEE and EMP, and any corrective or preventative actions set forth in a Safeguards Monitoring Report. Land Acquisition and Involuntary Resettlement 17. The Borrower shall ensure or cause the EA to ensure that all land and all rights-of-way required for each Subproject and all Project facilities are made available to the Works contractor in accordance with the schedule agreed under the related Works contract and all land acquisition and resettlement activities are implemented in compliance with (a) all applicable laws and regulations of the Borrower relating to land acquisition and involuntary resettlement; (b) the Involuntary Resettlement Safeguards; (c) the RF; and (d) all measures and requirements set forth in the respective RP, and any corrective or preventative actions set forth in a Safeguards Monitoring Report. 18. Without limiting the application of the Involuntary Resettlement Safeguards, the RF or the RP, the Borrower shall ensure or cause the EA to ensure that no physical or economic displacement takes place in connection with the Subprojects until:

(a) compensation and other entitlements have been provided to affected people in accordance with the RP; and

(b) a comprehensive income and livelihood restoration program has been

established in accordance with the RP. Indigenous Peoples 19. The Borrower shall ensure or cause the EA to ensure that the preparation, design, construction, implementation and operation of the Project, each Subproject and all Project facilities comply with (a) all applicable laws and regulations of the Borrower relating to indigenous peoples; (b) the Indigenous Peoples Safeguards; (c) the IPPF; and (d) all measures and requirements set forth in the respective IPP, and any corrective or preventative actions set forth in a Safeguards Monitoring Report. Human and Financial Resources to Implement Safeguards Requirements 20. The Borrower shall make available or cause the EA to make available necessary budgetary and human resources to fully implement the EMP, the RP and the IPP. Safeguards – Related Provisions in Bidding Documents and Works Contracts 21. The Borrower shall ensure or cause the EA to ensure that all bidding documents and contracts for Works contain provisions that require contractors to:

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(a) comply with the measures and requirements relevant to the contractor

set forth in the IEE, the EMP, the RP and the IPP (to the extent they concern impacts on affected people during construction), and any corrective or preventative actions set out in a Safeguards Monitoring Report;

(b) make available a budget for all such environmental and social

measures; (c) provide the Borrower with a written notice of any unanticipated

environmental, resettlement or indigenous peoples risks or impacts that arise during construction, implementation or operation of the Project that were not considered in the IEE, the EMP, the RP or the IPP;

(d) adequately record the condition of roads, agricultural land and other

infrastructure prior to starting to transport materials and construction;

(e) fully reinstate pathways, other local infrastructure, and agricultural land to at least their pre-project condition upon the completion of construction; and

(f) disseminate information on the risks of sexually transmitted infections,

including HIV/AIDS to the workers they employ under the Project and to the local communities.

Safeguards Monitoring and Reporting 22. The Borrower shall do the following or shall cause the EA to do the following:

(a) submit semi-annual Safeguards Monitoring Reports to ADB and disclose relevant information from such reports to affected persons promptly upon submission;

(b) if any unanticipated environmental and/or social risks and impacts arise during construction, implementation or operation of the Project that were not considered in the IEE, the EMP, the RP or the IPP, promptly inform ADB of the occurrence of such risks or impacts, with detailed description of the event and proposed corrective action plan; and

(c) report any actual or potential breach of compliance with the measures and requirements set forth in the EMP, the RP or the IPP promptly after becoming aware of the breach. G. Other Prohibited List of Investments 23. The Borrower shall ensure or cause the EA to ensure that no proceeds of the Loan are used to finance any activity included in the list of prohibited investment activities provided in Appendix 5 of the SPS.

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Labor Standards 24. The Borrower shall, through the EA, cause the PCU to ensure that the Works contracts and bidding documents under the Project include specific provisions requiring contractors to: (a) comply with 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; (iii) the elimination of forced labor; (iv) the provision of timely payment of wages; (v) the provision of safe working conditions for workers; and (vi) the provision of adequate on-the-job training and safety training for workers; and (b) disseminate information on sexually transmitted diseases including HIV/AIDS to employees and local communities surrounding the Project sites. Compliance shall be strictly monitored by the EA through the construction supervision consultant, PCU and the PIUs. Health 25. The Borrower shall cause the EA to ensure that activities for HIV/AIDS prevention are mainstreamed in the Project through the following measures: (a) contractors disseminate information on the risks of sexually transmitted infections, including HIV/AIDS to the workers they employ under the Project and to the local communities; and (b) HIV/AIDS messages are integrated in awareness and behavior change activities under Output 4 (as described in Schedule 1 to this Loan Agreement), in Subproject towns that are situated in close proximity to the Borrower’s international borders. Gender and Development 26. The Borrower shall cause the EA to ensure that the GAP is fully implemented, including but not limited to: (a) meeting the relevant targets for the involvement and participation of women in Project activities; (b) training stakeholders on gender issues related to the urban water supply and sanitation sector; and (c) collecting sex-disaggregated data for the purposes of monitoring Project implementation. Counterpart Support 27. The Borrower, through the EA, shall ensure that counterpart funding is provided in a timely manner including that 10% of the capital requirements of each Subproject is provided by the relevant Provincial Authority and district authority. To this end, the Borrower and the EA shall ensure timely preparation and submission of annual budgets and requests for disbursement of counterpart funds necessary for Project implementation (including for land acquisition and resettlement activities) and take all measures necessary or appropriate for the prompt disbursement of such funds.

Public Awareness 28. The Borrower, through the EA, shall undertake public awareness campaigns through information disclosure, education and consultation on the Project and its benefits, including but not limited to information related to water, sanitation, health, hygiene, Project impact on gender outcomes, the social and safeguards planning documents.

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29. The Borrower shall not and shall ensure that the EA shall not use, or permit the use of, the Co-financier’s name, trademark or logo in any advertisements, promotional literature or information, signage, marketing materials, brochures, press releases or any other similar public materials in any medium whatsoever, without the prior written consent of ADB. Such permission may be given or denied, or withdrawn after having been initially given or denied, in ADB’s sole discretion. Non-Contact 30. The Borrower shall not and shall ensure that the EA shall not contact, communicate or discuss any aspect of the Project with the Co-financier in the absence of the designated ADB Project officer (or designate) and shall course all communication related to the Project solely through the designated ADB Project officer (or designate). Project Performance Monitoring and Evaluation 31. The Borrower shall, through the EA, cause the PCU to ensure that within 12 months of the Effective Date, the Project performance management system is developed to facilitate submission of annual Project performance monitoring and evaluation reports by 31 January of the following year. Grievance Redress Mechanism 32. The Borrower, through the EA, shall ensure that within three months of the Effective Date, a grievance redress mechanism, acceptable to ADB and in accordance with the PAM, is established and functioning effectively to (a) review and document eligible complaints of project stakeholders; (b) proactively address grievances; (c) provide the complainants with notice of the chosen mechanism/action; and (d) prepare periodic reports to summarize (i) the number of complaints received and resolved, (ii) chosen actions, and (iii) final outcomes of the grievances and make these reports available to ADB. Eligible complaints will include (a) those related to the project, (b) any of the service providers, (c) any person responsible for carrying out the project, (d) complaints on misuse of funds and other irregularities, and (e) grievances due to any safeguards and gender issues. Governance and Anticorruption 33. The Borrower shall and shall cause the EA to, comply with ADB’s Anticorruption Policy (1998, as amended to date). The Borrower (a) acknowledges ADB's right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or coercive practices relating to the Project; and (b) agrees to cooperate, and shall cause the EA, and all other government offices, organizations and entities involving in implementing the Project to cooperate, fully with any such investigation and to extend all necessary assistance, including providing access to all relevant books and records, as may be necessary for the satisfactory completion of any such investigation. In particular, the EA shall ensure that (a) periodic inspections of the Project contractors’ activities related to fund withdrawals and settlements are carried out; (b) relevant provisions of ADB’s Anticorruption Policy are included in all bidding documents for the Project; and (c) contracts, financed under the Project, include provisions specifying the right of ADB to audit and examine the records and accounts of the contractors, suppliers, consultants, and other service providers as they relate

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to the Project. Individuals/entities on ADB’s anticorruption debarment lists are ineligible to participate in ADB-financed activity and may not be awarded any contracts under the Project. 34. In addition to these requirements, to deter corruption and increase transparency, the Borrower shall create a Project website within 12 months of the Effective Date (or expand the existing website for ADB’s Small Towns Water Supply and Sanitation Sector Project), accessible by the public, to disclose various information concerning the Project including general information about the Project, public procurement related to the Project, Project progress and contact details in English and Lao languages. The website shall also provide a link to ADB’s Integrity Unit (http://www.adb.org/Integrity/complaint.asp) for reporting to ADB any grievances or allegations of corrupt practices arising out of the Project and Project activities. For each contract, the website shall include information on, among others, the list of participating bidders, name of the winning bidder, basic details on bidding procedures adopted, amount of contract awarded, and the list of goods/services, including consulting services, procured. The Borrower shall cause the EA to permit any bidder to request an explanation as to why a bid was unsuccessful and the EA will respond promptly. The website will be updated regularly. In addition to the web-based disclosure, stakeholders shall be provided by the Borrower with detailed information on procurement on public notice boards in their respective areas.