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~AGREED MINUTES OF NEGOTIATION

BETWEEN

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GOVERNMENT OF INDIA

P--i1J' AND

THE INTERNATIONAL BANK FOR RECONSTRUCTION AND

DEVELOPMENT

PROPOSED HYDROLOGY PROJECT PHASE II

GENERALA.

~ The Project: Negotiations for a Loan from the International Bank forReconstruction and Development (ffiRD) for an amount of US$ 105.51 millionfor the proposed Hydrology Project Phase II (HP-II), were held in New Delhifrom June 28-30, 2004. Representatives of the Government of India including the

Central agencies (GoI), the State Governments of Andhra Pradesh, Chhattisgarh,Goa, Gujarat, Himachal Pradesh, Kamataka, Kerala, Madhya Pradesh,Maharashtra, Orissa, Pondicherry, Punjab, and Tamil Nadu (hereafter "the Indiandelegation") and the International Bank for Reconstruction and Development(hereafter "IBRD") participated in these negotiations. The list of participants is

included in attachment to these minutes.

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Purpose of the Minutes: These minutes are not a complete record of theproceedings of the negotiations but are intended to record and clarify theunderstandings reached between the Indian delegation and IBRD related to thedraft Project Appraisal Document (pAD), the draft Loan Agreement (LA) and the

draft Project Agreement (p A).

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US$ 105.51 million. \ //YV ,.

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5. The Indian delegation and the IBRD team reviewed and agreed on changes to bemade to draft legal documents (LA and PA). Copies of the negotiated drafts areattached to these minutes.

:iB.

PROJECT IMPLEMENTATION

6. Project Objectives and Description (LA Schedule 2). The parties agreed thatSchedule 2 of the Loan Agreement (LA) as modified during negotiationsadequately reflects the Project objectives and description.

7./\ Performance Indicators. The key perfonnance indicators in Annex 3 of theProject Appraisal Document (PAD) were reviewed and agreed as modified. TheIBRD team clarified that the project perfonnance indicators would be reviewedduring the course of implementation and revised as necessary..

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8 The PAD was reviewed by both the parties and necessary changes were made.Concerns were expressed on the need to make vendors/service providers moreaccountable to ensure full functionality of their products (this included GEMSsoftware, Digital Water Level Recorders (DWLR) and Atomic AbsorptionSpectrophotometer). Some members of the Indian delegation also expressedconcern on procedures for centralized procurement of some goods and servicesadopted under HP-I.

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9. The State of Karnataka in particular felt that these issues have impacted HP-1perfonnance adversely and unless these are addressed expeditiously theobjectives of HP-II cannot be achieved and hence suggested addressing theseissues upfront in HP-II. The Indian delegation suggested that in view of the factthe DWLRs supplied by some of the finns (e.g. MSquared in Karnataka andGreenspan in rest of the OW agencies) have not perfonned, suitable action shouldbe initiated, co-ordinated by Mo WR to obtain redress and prevent suchoccurrences in future.

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10. Key suggestions (incorporated in the PAD) include need for explicit incorporationof lessons learnt from Hydrology Project-I. Such lessons include (i) provision forupgradation of non-functional DWLRs of HP-I after assessment of the optimalrequirement of such upgradation; and (ii) assistance to make the dedicatedsoftware for groundwater processing (GEMS) fully functional including theinterface of data storage software (WISDOM) with GEMS.

The Indian delegation also suggested that there is a need to restore the deletedactivity "Development of Real Time Decision Support System for MahanadiBasin for Flood Forecasting" (an activity originally planned to be funded by theProject, but later deleted on the understanding that necessary funds for thisactivity were expected as a grant from USAID), alongwith the financialcomponent subject to review of the activity in the event of funding support being ~,available from USAID. N 0/

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The Indian delegation also indicated the possibility of additional new statesjoining the project at a later date. It was agreed that such inclusion may beconsidered at a later date based on the funds available in the project and withsuitable amendments to the legal agreements.

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~~c.- Disclosure of .Information: The Indian delegation confirmed that the PAD may

be released (after incorporating the changes suggested and agreed during thenegotiations) by IBRD through the World Bank's Public Information Center{Infoshop) after approval of the Loan by IBRD' s Board of Executive Directors inaccordance with IBRD's policies on disclosure of information.

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hj Project Implementation Plan (PIP): The IBRD team confirmed that the June2004 version of the PIP presented byMoWRis acceptable. It was further agreedthat this document would be revised as and when necessary by Mo WR, inconsultation with IBRD.

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FINANCIAL MANAGEMENTc.The Indian delegation confirmed that the borrower will submit six monthlyFinancial Monitoring Reports (FMRs) from the start of the Project. The first suchreport will be due for the period ending March 31, 2005, assuming that the Projectbecomes effective in November 2004. The draft formats of the FMR has beenagreed with the Ministry of Water Resources (MaWR). These formats will becirculated to the Implementing Agencies and finalized thereafter. The first FMRwill cover any retroactive expenditure incurred in the Project.

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The Indian delegation (State of Gujarat) suggested auditing of Gujarat (SurfaceWater Agency) through private chartered accountant. The IBRD team indicatedthat the Bank will have no objection to such auditing provided it is acceptable to

the C&AG.

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The Indian delegation assured the IBRD team that the TORs for the Auditors(C&AG) will be finalized soon.

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Incremental Operating Costs: : The Indian delegation explained the criticalityof incremental specialized government staff inputs for the project and the need forreimbursing their salaries from loan proceeds. It was agreed to reword thedefInition of "operating cost" in Schedule 1, Part A, Section 2 (c) of the LoanAgreement as "the term 'operating cost' means incremental costs arising underthe Project on account of operation and maintenance of buildings, equipment ofvehicles, office rental and expenses, hiring of vehicles, additional staff salaries,

travel and other allowances."

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Reimbursement Percentages on incremental operating costs: It was alsoagreed that the reimbursement percentages for the operating cost wo,u1d be 1. ,

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modified as 80% until March 31,2007, 75% until March 31, 2008, 60% untilMarch 31, 2009, 50% thereafter.6J

ajl20. Settlement of Disallowances: The IBRD team stressed the need to settle the

outstanding audit disallowances of amounts already reimbursed to a fewimplementing agencies of HP.I before the Board date (Aug. 24) of HP-II. TheIndian delegation assured the IBRD team that all efforts will be made to settlethese in a timely manner.

~E PROCUREMENT

21 Repeat Procurement: The Indian delegation requested to allow in HP-II repeatprocurement by the same agencies of similar goods/services without the need torefer it to the Bank for prior review. The IBRD team agreed for the sameprovided it does not involve changes in procurement methods, technicalspecifications, evaluation criteria and other contract conditions.

22. Increase of NCB thresholds: The IBRD team confirmed that all civil workcontracts estimated to cost more than $30,000 equivalent shall follow NCBprocedures. It was also agreed to increase the threshold for procurement ofgoods following NCB procedures up to $500, 000 equivalent.~

23 Prior Review: The IBRD team clarified that only first contracts for goods andworks (excluding local shopping) for each agency and all contracts above US$500,000 will be subject to prior review. All consultancy contracts estimated tocost more than US$ 100,000 equivalent for firms and US$ 50,000 for individualconsultants will be subject to prior review.

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24 NCB Procedures: The Indian delegation agreed that all the NCB contracts forworks and goods to be financed from the proceeds of the Loan shall follow thefollowing procedures:

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(a) Only the standard bidding documents for NCB agreed with the GOI TaskForce (and as amended from to time) shall be used for bidding.

(b) Invitations to bid shall be advertised in at least one widely circulatednational daily newspaper, at least thirty days prior to the deadline for thesubmission of the bids.

(c) No special preference will be accorded to any bidder when competing withforeign bidders, state-owned enterprises, small-scale enterprises orenterprises from any given state.

(d) Except with the prior concurrence of the Bank, there shall be no negotiationof price with the bidders, even with the lowest evaluated bidder.

(e) Except in cases of force majeure and/or situations beyond the control of thelAs, extension of bid validity shall not be allowed without the prior

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than eight weeks; and (b) for all subsequent requests for extensionirrespective of the period.

(t) Re-bidding shall not be carried out without prior concurrence of the Bank.The system of rejecting the bids outside a pre-determined margin or"bracket'" of prices shall not be used.

(g) Rate contracts entered into by DGS&D will not be acceptable as a substitutefor NCB procedures. Such contracts will be acceptable for any procurementunder the national shopping procedures. Procurement of computers andvehicles costing up to $100,000 could also be done through DGS&D.

(h) The two-or-three envelope system will not be used.~~ 25. The Indian delegation expressed the need to revisit Bank guidelines on

procurement and suggested to allow CVC approved procurement procedures inBank financed projects.. The .IBRD team suggested since such aspect cut acrossall the Bank financed projects in India, this aspect should be taken up atappropriate level (during CPPR etc.).

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26. The Indian Delegation pointed out that the map of Madhya Pradesh in the lastpage of the PAD needs to be replaced with a new map as it needs to exclude th],state of Chhattisgarh. /11'V1/// -,.-

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A eed Minutes 0 ect Phase II

ON BEHALF OF GOI/CENTRAL AGENCIES

Saurabh Garg

Deputy SecretaryDepartment of Economic AffairsMinistry of FinanceGovernment of India

Av,,",,~-e'\J'N"! .S.K. ChaudhuriCommissioner (HP and MI)Ministry of Water ResourcesGovernment of India

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/~~~~::::::;;»S.K. MathurController of AccountsMinistry of Water ResourcesGovernment of India

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Chief Engineer (P&D)Central Water Commission

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Sunil KumarScientist DCentral Ground Water Board

jl!f'Dr. B. LalAdditional Director GeneralIndia Meteorological Department

K.V.S. ThakurDirector ( Water Regulation)Bhakra-Beas Management Board

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Dr. R.C. TrivediAdditional DirectorCentral Pollution Control Board

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Dr. R.D. SinghScientist FNational Institute of Hydrology

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ON BEHALF OF STATES

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V.K. ChellaniChief Engineer (MG Basin)Water Resources DepartmentGovernment of Chhattisgarh

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Dr. B.N. Prasa1IDirector (GW)Government of Andhra Pradesh

Superintending EngineerCentral Planning OrganizationDepartnient of Water ResourcesGovernment of Goa

l~.I"-o-l"-/"--f-~ ~ .S.RoyPrincipal Resident CommissionerGovernment of Himachal Pradesh

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~ ~! \-, .I. A. DelviSuperintending Engineer (Hydrology)Office of Engineer- in-ChiefWater Resources DevelopmentOrganizationGovernment of Karnataka

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Mr. N. SaslChief Engineer (project II and HP)Water Resources Department(Irrigati_~Government of Kerala-

J.K. TiwariChief Engineer & Ex. Officio AdditionalSecretaryWater Resources DepartnmentGovernment of M~dhya Pradesh

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M.S.PatelSecretary (Water Resource)Narmada Water Resource, Water Supplyand Kalpsar DepartmentGovernment of Guiarat

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~~I. SrinivasResident CommissionerGovernment of Orissa

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Chief SecretaryGovernment of Pondicherry

(~,.;.--~~ \CY:;> U f[b v1f-b--- ~K. Raghupafuy 1 QChief Engineer (Water ResourcesOrganization)SG & SW RDCGovernment of Tamil Nadu

ON BEHALF OF IBRD

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Raj SooprarnanienSenior CounselLegai DepartmentSouth Asia Region

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H. Y. KolawaleChief Engineer (Hydrology Project)Irrigation DepartmentGovernment of Maharashtra

K.S. TakshiDirector (Water Resources and

Environment)Punjab Irrigation DepartmentGovernment of Punjab

E. V. J~gannathanTask Team LeaderRural Development SectorSouth Asia Re~ion