(Japanese Note)

　Kathmandu, December 4, 1995

　Dear Mr. Bhattarai,

　I have the honour to refer to the resolution 165 dated March 11, 1978 of the Third Part of the Ninth Special Session of the Trade and Development Board of the United Nations Conference on Trade and Development regarding debt and development problems of developing countries and to the recent discussions held between the representatives of the Government of Japan and of His Majesty's Government of Nepal concerning Japanese economic cooperation to be extended to the Kingdom of Nepal with a view to strengthening friendly and cooperative relations between the two counties, and to propose on behalf of the Government of Japan the following arrangements:

1. Noting the debts of His Majesty's Government of Nepal under the loan agreements concluded in accordance with the Notes exchanged between the Government of Japan and His Majesty's Government of Nepal on the dates enumerated in the list attached to this Note, 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 of five hundred fifty-four million four hundred and sixty-nine thousand yen (554,469,000) (hereinafter referred to as "the Grant") for the purpose of contributing to the development of the economy of the Kingdom of Nepal and the enhancement of the welfare of its people.

2.(1) The Grant and its accrued interest will be used by His Majesty's Government of Nepal properly and exclusively for the purchase of products enumerated in a list to be mutually agreed upon between the authorities concerned of the two Governments and services incidental to such products, provided that those products are produced in eligible source countries.

(2) The list mentioned in sub-paragraph (1) above will be subject to modifications which may be agreed upon between the authorities concerned of the two Governments.

(3) The scope of the eligible source countries mentioned in sub-paragraph (1) above will be agreed upon between the authorities concerned of the two Governments.

3.(1) His Majesty's Government of Nepal will open a yen ordinary deposit account at an authorized foreign exchange bank of Japan in the name of His Majesty's Government of Nepal (hereinafter referred to as "the Account") within fourteen days after the date of coming into force of the present arrangements and will notify in writing the Government of Japan of the completion of the procedure for opening the Account within seven days after the date of the opening of the Account.

(2) The sole purpose of the Account is to receive the payment in Japanese yen by the Government of Japan referred to in paragraph 4 as well as to make payments necessary for the purchase of the products and services referred to in sub-paragraph (1) of paragraph 2, and such other payment as may be agreed upon by the authorities concerned of the two Governments.

4. The Government of Japan will execute the Grant by making payment in Japanese yen of the amount referred to in paragraph 1 to the Account during the period between the date of receipt of the written notification referred to in sub-paragraph (1) of paragraph 3 and March 31, 1996, unless the period is extended by mutual agreement between the authorities concerned of the two Governments.

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

(a) to use the Grant and its accrued interest within a reasonable period after the Grant is executed;

(b) to ensure that customs duties, internal taxes and other fiscal levies which may be imposed in the Kingdom of Nepal with respect to the purchase of the products and services referred to in sub-paragraph (1) of paragraph 2 shall not be borne by the Grant;

(c) to ensure that the products purchased under the Grant be maintained and used properly and effectively for the development of the economy of the Kingdom of Nepal and the enhancement of the welfare of its people; and

(d) to submit to the Government of Japan a report prepared in a written form acceptable to the Government of Japan on the transactions on the Account together with copies of contracts, vouchers and other documents concerning the relevant transactions without delay when the Grant and its accrued interest are completely drawn in accordance with the provisions of sub-paragraph (2) of paragraph 3 or upon request by the Government of Japan.

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

6. 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 Government, 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

List

1. March 16, 1976

2. November 20, 1978

3. February 17, 1982

4. April 27, 1983

5. July 14, 1987

(Nepalese Note)

　Kathmandu, December 4, 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