(Japanese Note)

　Kathmandu, August 16, 1995

　Dear Mr. Bhattarai,

　I have the honour to refer to the Notes exchanged on September 8, 1994 between to Government of Japan and His Majesty's Government of Nepal concerning Japanese economic cooperation for the execution of the Project for Providing Materials and Equipment for the Construction of Primary Schools (hereinafter referred to as "the Project").

　I have further the honour to refer to the recent discussions held between the representatives of the two Governments concerning additional Japanese economic cooperation to be extended with a view to strengthening friendly and cooperative relations between the two countries, and to propose on behalf of the Government of Japan the following arrangements:

1. For the purpose of contributing further to the execution of the Project by His Majesty's Government of Nepal, the Government of Japan will extend to His Majesty's Government of Nepal, in accordance with the relevant laws and regulations of Japan, a grant up to two hundred and seventy-five million yen (275,000,000) (hereinafter referred to as "the Grant").

2. The Grant will be made available during the period between the date of coning into force of the present arrangements and March 31, 1996, unless the period is extended by mutual agreement between the authorities concerned of the two Governments.

3.(1) The Grant will be used by His Majesty's Government of Nepal properly and exclusively for the purchase of the products of Japan or the Kingdom of Nepal and the services of Japanese or Nepalese nationals listed below: (The term nationals whenever used in the present arrangements means Japanese physical persons or Japanese juridical persons controlled by Japanese physical persons in the case of Japanese nationals, and Nepalese physical or juridical persons in the case of Nepalese nationals.)

(a) materials necessary for the execution of the Project and services necessary for the procurement thereof; and

(b) services necessary for the transportation of the products referred to in (a) above to the Kingdom of Nepal, and those for internal transportation therein.

(2) Notwithstanding the provisions of sub-paragraph (1) above, when the two Governments deem it necessary, the Grant may be used for the purchase of the products of the kind mentioned in (a) of sub-paragraph (1) above, which are products of countries other than Japan or the Kingdom of Nepal and the services of the kind mentioned in (a) and (b) of sub-paragraph (1) above, which are services of nationals of countries other than Japan or the Kingdom of Nepal.

4. His Majesty's Government of Nepal or its designated authority will enter into contracts in Japanese yen with Japanese nationals for the purchase of the products and services referred to in paragraph 3. Such contracts shall be verified by the Government of Japan to be eligible for the Grant.

5.(1) The Government of Japan will execute the Grant by making payments in Japanese yen to cover the obligations incurred by His Majesty's Government of Nepal or its designated authority under the contracts verified in accordance with the provisions of paragraph 4 (hereinafter referred to as "the Verified Contracts") to an account to be opened in the name of His Majesty's Government of Nepal in an authorized foreign exchange bank of Japan designated by His Majesty's Government of Nepal or its designated authority (hereinafter referred to as "the Bank").

(2) The payments referred to in sub-paragraph (1) above will be made when payment requests are presented by the Bank to the Government of Japan under an authorization to pay issued by His Majesty's Government of Nepal or its designated authority.

(3) The sole purpose of the account referred to in sub-paragraph (1) above is to receive the payments in Japanese yen by the Government of Japan and to pay to the Japanese nationals who are parties to the Verified Contracts. The procedural details concerning the credit to and debit from the account will be agreed upon through consultation between the Bank and His Majesty's Government of Nepal or its designated authority.

6.(1) His Majesty's Government of Nepal will take necessary measures:

(a) to ensure prompt customs clearance and internal transportation in the Kingdom of Nepal of the products purchased under the Grant;

(b) to exempt Japanese nationals from customs duties, internal taxes and other fiscal levies which may be imposed in the Kingdom of Nepal with respect to the supply of the products and services under the Verified Contracts;

(c) to accord Japanese nationals whose services may be required in connection with the supply of the products and services under the Verified Contracts such facilities as may be necessary for their entry into the Kingdom of Nepal and stay therein for the performance of their work;

(d) to ensure that the products purchased under the Grant be maintained and used properly and effectively for the execution of the Project; and

(e) to bear all the expenses, other than those covered by the Grant, necessary for the execution of the Project.

(2) With regard to the shipping and marine insurance of products purchased under the Grant, His Majesty's Government of Nepal will refrain from imposing any restrictions that may hinder fair and free competition among the shipping and marine insurance companies.

(3) The products purchased under the Grant shall not be re-exported from the Kingdom of Nepal.

7. The two Governments will consult with each other in respect of any matter that may arise from or in connection with the present arrangements.

　I have further the honour to propose that this Note and your Note in reply confirming on behalf of His Majesty's Government of Nepal the foregoing arrangements shall be regarded as constituting an agreement between the two Governments, which will enter into force on the date of your reply.

　I avail myself of this opportunity to renew to you the assurance of my high consideration.

　(Signed) Shigenobu Yoshida
Ambassador Extraordinary and Plenipotentiary of Japan to the Kingdom of Nepal

　Mr. Ram Binod Bhattarai
Acting Secretary Ministry of Finance of the Kingdom of Nepal

(Nepalese Note)

　Kathmandu, August 16, 1995

　Excellency,

　I have the honour to acknowledge the receipt of Your Excellency's Note of today's date, which reads as follows:

"(Japanese Note)"

　I have further the honour to confirm on behalf of His Majesty's Government of Nepal the foregoing arrangements and to agree that Your Excellency's Note and this Note shall be regarded as constituting an agreement between the two Governments, which will enter into force on the date of this reply.

　I avail myself of this opportunity to renew to Your Excellency the assurance of my highest consideration.

　(Signed) Ram Binod Bhattarai
Acting Secretary Ministry of Finance of the Kingdom of Nepal

　His Excellency Mr. Shigenobu Yoshida
Ambassador Extraordinary and Plenipotentiary of Japan to the Kingdom of Nepal