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CONFORMED COPY
CREDIT NUMBER 3058 CE
Development Credit Agreement
(Mahaweli Restructuring and Rehabilitation Project)
between
DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA
and
INTERNATIONAL DEVELOPMENT ASSOCIATION
Dated April 30, 1998
CREDIT NUMBER 3058 CE 
DEVELOPMENT CREDIT AGREEMENT 
AGREEMENT, dated April 30, 1998, between DEMOCRATIC SOCIALIST REPUBLIC OF SRI 
LANKA (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). 
WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and 
priority of the Project described in Schedule 2 to this Agreement, has requested the 
Association to assist in the financing of the Project; and 
WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, 
to extend the Credit to the Borrower upon the terms and conditions set forth in this 
Agreement;
NOW THEREFORE the parties hereto hereby agree as follows: 
ARTICLE I 
General Conditions; Definitions
Section 1.01. The “General Conditions Applicable to Development Credit 
Agreements” of the Association, dated January 1, 1985, with the modifications set 
forth below (the General Conditions) constitute an integral part of this Agreement: 
(a)
The last sentence of Section 3.02 is deleted.
(b)
The second sentence of Section 5.01 is modified to read:
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“Except as the Association and the Borrower shall otherwise agree, no 
withdrawals 
shall be made: (a) on account of expenditures in the territories 
of any country which is not 
a member of the Bank or for goods produced in, or 
services supplied from, such territories; 
or (b) for the purpose of any payment to 
persons or entities, or for any import of goods, if 
such payment or import, to the 
knowledge of the Association, is prohibited by a decision of 
the United Nations 
Security Council taken under Chapter VII of the Charter of the United 
Nations.”
(c)
Section 6.03 is modified to read:
“Section 6.03. Cancellation by the Association. If (a) the right of the 
Borrower to 
make withdrawals from the Credit Account shall have been suspended with 
respect to any 
amount of the Credit for a continuous period of thirty days, 
or (b) at any time, the 
Association determines, after consultation with the 
Borrower, that an amount of the Credit 
will not be required to finance the Project’s 
costs to be financed out of the proceeds of 
the Credit, or (c) at any time, the 
Association determines, with respect to any contract to 
be financed out of the 
proceeds of the Credit, that corrupt or fraudulent practices were 
engaged in by 
representatives of the Borrower or of a beneficiary of the Credit during the 
procurement or the execution of such contract, without the Borrower having taken 
timely and 
appropriate action satisfactory to the Association to remedy the 
situation, and establishes 
the amount of expenditures in respect of such 
contract which would otherwise have been 
eligible for financing out of the 
proceeds of the Credit, or (d) at any time, the 
Association 
determines that the procurement of any contract to be financed out of the 
proceeds of the Credit is inconsistent with the procedures set forth or referred to in 
the 
Development Credit Agreement and establishes the amount of expenditures in 
respect of such 
contract which would otherwise have been eligible for financing 
out of the proceeds of the 
Credit, or (e) after the Closing Date, an amount of 
the Credit shall remain unwithdrawn from 
the Credit Account, the Association may, 
by notice to the Borrower, terminate the right of 
the Borrower to make withdrawals 
with respect to such amount. Upon the giving of such 
notice, such amount of the 
Credit shall be cancelled.”
Section 1.02. Unless the context otherwise requires, the several terms defined 
in the General Conditions have the respective meanings therein set forth and the 
following additional terms have the following meanings: 
(a)
“Act” means the Mahaweli Authority of Sri Lanka Act No. 23 of 1979; 
(b)
“DCFOs” means Distributory Canal Farmer Organizations established under 
the relevant laws of the Borrower for the purposes, inter alia, of managing and 
operating the distributory and field canals in the Mahaweli Area; 
(c)
“Fiscal Year” or “FY” means the fiscal year of the Borrower and MASL 
beginning on January 1 and ending on December 31; 
(d)
“Implementing Agency” means MASL or any other entity, acceptable to the 
Association, that may be established as a result of the transformation of MASL 
pursuant to the provisions of paragraph 8 of Schedule 4 to this Agreement; 
(e)
“LDD” means the Livestock Development Division within MASL; 
(f)
“Mahaweli Area” means the area within the jurisdiction of MASL;
(g)
“Mahaweli Master Plan” means the plan as recorded in the Mahaweli Ganga 
Irrigation and Hydropower Survey Ceylon, FAO/SF: 55/CEY 7, Rome, 1969; 
(h)
“MASL” means the Mahaweli Authority of Sri Lanka as established under the 
Act; 
(i)
“MECA” means the Mahaweli Engineering and Construction Agency within the 
Mahaweli Authority; 
(j)
“MMD” means the Ministry of Mahaweli Development of the Borrower;  
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(k)
“International Panel of Experts” means the panel of experts appointed by 
the Borrower in accordance within the provisions of paragraph 9 of Schedule 4 to this 
Agreement; 
(l)
“PIU” means the Project Implementation Unit established by MASL in a 
manner satisfactory to the Association; 
(m)
“PSC” means the Project Steering Committee established by the Borrower in 
a manner satisfactory to the Association; 
(n)
“Project Preparation Advance” means the project preparation advance 
granted by the Association to the Borrower pursuant to an exchange of letters dated 
August 2, 1996 and August 12, 1996 between the Borrower and the Association; 
(o)
“Special Account” means the account referred to in Section 2.02 (b) of 
this Agreement;  
(p)
“Special Area” means a special area as defined in the Act; 
(q)
“System H” means the area defined as System H under the Mahaweli Master 
Plan and designated as a Special Area by the Order No. 2 of 1979 published in the 
Gazette of the Borrower dated June 25, 1979; and 
(r)
“VESP” means the Voluntary Early Separation Package formulated by MASL 
and offered to its staff employed in those categories deemed to be overstaffed 
pursuant to the findings of the Workforce Analysis Study and Staffing Plan for the 
MASL. 
ARTICLE II 
The Credit 
Section 2.01. The Association agrees to lend to the Borrower, on the terms and 
conditions set forth or referred to in the Development Credit Agreement, an amount in 
various currencies equivalent to forty-one million seven hundred thousand Special 
Drawing Rights (SDR 41,700,000). 
Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit 
Account in accordance with the provisions of Schedule 1 to this Agreement for 
expenditures made (or, if the Association shall so agree, to be made) in respect of 
the reasonable cost of goods and services required for the Project described in 
Schedule 2 to this Agreement and to be financed out of the proceeds of the Credit.
(b)
The Borrower may, for the purposes of the Project, open and maintain in 
dollars a special deposit account in its Central Bank on terms and conditions 
satisfactory to the Association. Deposits into, and payments out of, the Special 
Account shall be made in accordance with the provisions of Schedule 5 to this 
Agreement. 
(c)
Promptly after the Effective Date, the Association shall, on behalf of 
the Borrower, withdraw from the Credit Account and pay to itself the amount required 
to repay the principal amount of the Project Preparation Advance withdrawn and 
outstanding as of such date and to pay all unpaid charges thereon. The unwithdrawn 
balance of the authorized amount of the Project Preparation Advance shall thereupon be 
canceled. 
Section 2.03. The Closing Date shall be December 31, 2003 or such later date as 
the Association shall establish. The Association shall promptly notify the Borrower of 
such later date. 
Section 2.04. (a) The Borrower shall pay to the Association a commitment charge 
on the principal amount of the Credit not withdrawn from time to time at a rate to be 
set by the Association as of June 30 of each year, but not to exceed the rate of 
one-half of one percent (1/2 of 1%) per annum.
(b)
The commitment charge shall accrue: (i) from the date sixty days after 
the date of this Agreement (the accrual date) to the respective dates on which amounts 
shall be withdrawn by the Borrower from the Credit Account or canceled; and (ii) at 
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the rate set as of the June 30 immediately preceding the accrual date and at such 
other rates as may be set from time to time thereafter pursuant to paragraph (a) 
above. The rate set as of June 30 in each year shall be applied from the next date in 
that year specified in Section 2.06 of this Agreement.
(c)
The commitment charge shall be paid: (i) at such places as the 
Association shall reasonably request; (ii) without restrictions of any kind imposed 
by, or in the territory of, the Borrower; and (iii) in the currency specified in this 
Agreement for the purposes of Section 4.02 of the General Conditions or in such other 
eligible currency or currencies as may from time to time be designated or selected 
pursuant to the provisions of that Section. 
Section 2.05. The Borrower shall pay to the Association a service charge at the 
rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of 
the Credit withdrawn and outstanding from time to time. 
Section 2.06. Commitment charges and service charges shall be payable 
semi-annually on March 1 and September 1 in each year. 
Section 2.07. (a) Subject to paragraphs (b), (c) and (d) below, the Borrower 
shall repay the principal amount of the Credit in semi-annual installments payable on 
each March 1 and September 1 commencing September 1, 2008, and ending March 1, 2038. 
Each installment to and including the installment payable on March 1, 2018 shall be 
one percent (1%) of such principal amount, and each installment thereafter shall be 
two percent (2%) of such principal amount.
(b)
Whenever: (i) the Borrower’s per capita gross national product (GNP), as 
determined by the Association, shall have exceeded for three consecutive years the 
level established annually by the Association for determining eligibility to access 
the Association’s resources; and (ii) the Bank shall consider the Borrower 
creditworthy for Bank lending, the Association may, subsequent to the review and 
approval thereof by the Executive Directors of the Association and after due 
consideration by them of the development of the Borrower’s economy, modify the 
repayment of installments under paragraph (a) above by: (A) requiring the Borrower to 
repay twice the amount of each such installment not yet due until the principal amount 
of the Credit shall have been repaid; and (B) requiring the Borrower to commence 
repayment of the principal amount of the Credit as of the first semi-annual payment 
date referred to in paragraph (a) above falling six months or more after the date on 
which the Association notifies the Borrower that the events set out in this paragraph 
(b) have occurred, provided, however, that there shall be a grace period of a minimum 
of five years on such repayment of principal. 
(c)
If so requested by the Borrower, the Association may revise the 
modification referred to in paragraph (b) above to include, in lieu of some or all of 
the increase in the amounts of such installments, the payment of interest at an annual 
rate agreed with the Association on the principal amount of the Credit withdrawn and 
outstanding from time to time, provided that, in the judgment of the Association, such 
revision shall not change the grant element obtained under the above-mentioned 
repayment modification. 
(d)
If, at any time after a modification of terms pursuant to paragraph 
(b) above, the Association determines that the Borrower’s economic condition has 
deteriorated significantly, the Association may, if so requested by the Borrower, 
further modify the terms of repayment to conform to the schedule of installments as 
provided in paragraph (a) above.
Section 2.08. The currency of the United States of America is hereby specified 
for the purposes of Section 4.02 of the General Conditions. 
ARTICLE III 
Execution of the Project 
Section 3.01. (a) The Borrower declares its commitment to the objectives of the 
Project as set forth in Schedule 2 to this Agreement, and, to this end, shall carry 
out the Project through the Implementing Agency with due diligence and efficiency and 
in conformity with appropriate administrative, financial, agricultural and engineering 
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practices, and shall provide, promptly as needed, the funds, facilities, services and 
other resources required for the Project. 
(b)
Without limitation upon the provisions of paragraph (a) of this Section 
and except as the Borrower and the Association shall otherwise agree, the Borrower 
shall carry out the Project in accordance with the Implementation Program set forth in 
Schedule 4 to this Agreement.
Section 3.02. Except as the Association shall otherwise agree, procurement of 
the goods, works and consultants’ services required for the Project and to be financed 
out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to 
this Agreement.
Section 3.03. For the purposes of Section 9.07 of the General Conditions and 
without limitation thereto, the Borrower shall: 
(a)
prepare, on the basis of guidelines acceptable to the Association, and 
furnish to the Association not later than six (6) months after the Closing Date or 
such later date as may be agreed for this purpose between the Borrower and the 
Association, a plan for the future operation of the Project; and 
(b)
afford the Association a reasonable opportunity to exchange views with 
the Borrower on said plan. 
ARTICLE IV 
Financial Covenants 
Section 4.01. (a) The Borrower shall maintain or cause to be maintained records 
and accounts adequate to reflect in accordance with sound accounting practices the 
operations, resources and expenditures in respect of the Project of the departments or 
agencies of the Borrower responsible for carrying out the Project or any part thereof.
(b)
The Borrower shall:
(i)
have the records and accounts referred to in paragraph (a) of this 
Section 
including those for the Special Account for each 
fiscal year audited, in 
accordance with appropriate auditing 
principles consistently applied, by 
independent auditors 
acceptable to the Association;
(ii)
furnish to the Association, as soon as available, but in any case 
not later 
than six months after the end of each such year, the report 
of such audit by 
said auditors, of such scope and in such detail as 
the Association shall have 
reasonably requested; and
(iii)
furnish to the Association such other information concerning said 
records and 
accounts and the audit thereof as the Association shall from 
time to time 
reasonably request.
(c)
For all expenditures with respect to which withdrawals from the Credit 
Account were made on the basis of statements of expenditure, the Borrower shall:
(i)
maintain or cause to be maintained, in accordance with paragraph 
(a) of this 
Section, records and accounts reflecting such expenditures;
(ii)
retain, until at least one year after the Association has received 
the audit 
report for the fiscal year in which the last withdrawal from 
the Credit 
Account was made, all records (contracts, orders, 
invoices, bills, receipts 
and other documents) evidencing such 
expenditures;
(iii)
enable the Association’s representatives to examine such records; 
and
(iv)
ensure that such records and accounts are included in the annual 
audit 
referred to in paragraph (b) of this Section and that the 
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report of such audit 
contains a separate opinion by said auditors 
as to whether the statements of 
expenditure submitted during such fiscal 
year, together with the procedures 
and internal controls involved in 
their preparation, can be relied upon to 
support the related 
withdrawals. 
ARTICLE V 
Remedies of the Association 
Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the 
following additional event is specified, namely, that the Act and any other 
legislation or regulation of the Borrower governing the establishment, organization 
and powers of the Implementing Agency shall have been amended, suspended, abrogated, 
repealed, waived, or shall cease to be enforced, so as to materially and adversely 
affect the ability of the Implementing Agency to carry out the Project, provided, 
however, that this provision shall not apply to any changes to the Act that are made 
for the purpose of restructuring MASL to the extent that the ability of MASL or 
another entity resulting from such restructuring to carry out the Project is not 
materially and adversely affected thereby.
Section 5.02. Pursuant to Section 7.01(d) of the General Conditions, the 
following additional event is specified, namely, that the event specified in Section 
5.01 of this Agreement shall occur. 
ARTICLE VI 
Effective Date; Termination 
Section 6.01. The following event is specified as an additional condition to the 
effectiveness of the Development Credit Agreement within the meaning of Section 12.01 
(b) of the General Conditions, namely, that the Borrower has selected auditors for the 
Project satisfactory to the Association, pursuant to Section 4.01 hereof. 
Section 6.02. The date ninety (90) days after the date of this Agreement is 
hereby specified for the purposes of Section 12.04 of the General Conditions. 
ARTICLE VII 
Representative of the Borrower; Addresses 
Section 7.01. The Secretary, or the Director General, External Resources 
Department, Ministry of Finance and Planning of the Borrower is designated as 
representative of the Borrower for the purposes of Section 11.03 of the General 
Conditions.
Section 7.02. The following addresses are specified for the purposes of Section 
11.01 of the General Conditions:
For the Borrower:
Ministry of Finance and Planning
Democratic Socialist Republic of Sri Lanka
Colombo, Sri Lanka
Cable address:
Telex:
SECMINFIN
FINMIN 21409
Colombo
FORAID 21232
For the Association:
International Development Association
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
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Cable address:
Telex:
INDEVAS
248423 (MCI) or
Washington, D.C.
 64145 (MCI)
IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized 
representatives, have caused this Agreement to be signed in their respective names in 
the District of Columbia, United States of America, as of the day and year first above 
written.
DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA
By /s/ Warnasena Rasaputram 
Authorized Representative
INTERNATIONAL DEVELOPMENT ASSOCIATION
By /s/ Mieko Nishimizu 
Regional Vice President 
South Asia
SCHEDULE 1 
Withdrawal of the Proceeds of the Credit
1.
The table below sets forth the Categories of items to be financed out of the 
proceeds of the Credit, the allocation of the amounts of the Credit to each Category 
and the percentage of expenditures for items so to be financed in each Category:
Amount of the
Credit Allocated
% of
(Expressed in
  Expenditures
Category
SDR Equivalent)
 to be Financed
(1)
Civil works 
20,500,000
80%
(2)
Equipment and
 1,830,000
100% of foreign
vehicles
expenditures,
100% of local
       expenditures 
(ex-factory cost)
and 70% of local
expenditures for other
items procured locally
(3)
Consultants’
 2,200,000
100%
services and
training
(4)
Severance payments
13,880,000
80%
(5)
Incremental O&M costs
   370,000
80%
(6)
Refunding of Project
   400,000
Amount due pursuant 
Preparation Advance
to Section 2.02 (c) 
of this Agreement
(7)
Unallocated
 2,520,000
      ___________
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TOTAL
41,700,000
2.
For the purposes of this Schedule: 
(a)
the term “foreign expenditures” means expenditures in the currency of any 
country other than that of the Borrower for goods or services supplied from the 
territory of any country other than that of the Borrower;  
(b)
the term “local expenditures” means expenditures in the currency of the 
Borrower or for goods or services supplied from the territory of the Borrower;  
(c)
the term “severance payments” means payments to MASL staff who receive a 
voluntary early separation package under the VESP; and
(d)
the term “incremental O&M costs” means the expenditures incurred by the 
Implementing Agency under the Project for the operation and maintenance of vehicles 
and equipment. 
3.
Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be 
made in respect of payments made for expenditures prior to the date of this Agreement, 
except that withdrawals, in an aggregate amount not exceeding the equivalent of 
SDR 4,170,000, may be made in respect of Category 4 on account of payments made for 
expenditures before that date but after November 1, 1997.
4.
The Association may require withdrawals from the Credit Account to be made on 
the basis of statements of expenditure for expenditures: (a) for goods and works under 
contracts not exceeding $100,000 equivalent; (b) for consulting firms under contracts 
not exceeding $100,000 equivalent; (c) for individual consultants under contracts not 
exceeding $50,000 equivalent; and (d) under Categories 4 and 5, all under such terms 
and conditions as the Association shall specify by notice to the Borrower.
SCHEDULE 2 
Description of the Project
The objectives of the Project are: (a) to shift the focus of MASL from project 
implementation to river basin management; and (b) to improve agricultural productivity 
in System H.
The Project consists of the following parts, subject to such modifications 
thereof as the Borrower and the Association may agree upon from time to time to 
achieve such objectives:
Part A:
Institutional Restructuring of MASL 
1.
Reducing MASL staff to an appropriate level through provision of a voluntary 
early separation program for selected categories thereof, and retraining and 
redeployment of remaining staff. 
2.
Promoting farmer sustainability by strengthening approximately 757 DCFOs through 
provision of technical assistance, training, vehicles and equipment to take over 
operation and maintenance of the distributory and field canals serving about 91,000 ha 
of irrigated land. 
3.
Provision of technical assistance and training to prepare MECA, LDD and other 
MASL business units for commercialization/privatization. 
4.
Handing over MASL constructed roads and buildings to national and local line 
agencies. 
5.
Strengthening MASL’s natural resource management capacity through provision of 
technical assistance and training.
Part B:
Irrigation Rehabilitation and Improvement
Carrying out essential repair and rehabilitation works and improvements where 
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required on facilities serving about 31,500 ha of irrigated land in System H, 
including irrigation tanks, main canals, branch canals, distributory canals, field 
canals, drains and canal bund roads, through provision of civil works, 
electro-mechanical works, vehicles and equipment.
*       *       *
The Project is expected to be completed by June 30, 2003.
SCHEDULE 3 
Procurement and Consultants’ Services 
Section I.
Procurement of Goods and Works
Part A:
General 
Goods and works shall be procured in accordance with the provisions of Section I 
of the "Guidelines for Procurement under IBRD Loans and IDA Credits” published by the 
Bank in January 1995 and revised in January and August 1996 (the Guidelines) and the 
following provisions of Section I of this Schedule.
Part B:
International Competitive Bidding 
1.
Except as otherwise provided in Part C of this Section, goods shall be procured 
under contracts awarded in accordance with the provisions of Section II of the 
Guidelines and paragraph 5 of Appendix 1 thereto. 
2.
The following provisions shall apply to goods to be procured under contracts 
awarded in accordance with the provisions of paragraph 1 of this Part B. Preference 
for domestically manufactured goods The provisions of paragraphs 2.54 and 2.55 of the 
Guidelines and Appendix 2 thereto shall apply to goods manufactured in the territory 
of the Borrower.
Part C:
Other Procurement Procedures 
1.
National Competitive Bidding 
Goods estimated to cost less than $100,000 equivalent per contract, up to an 
aggregate amount not to exceed $1,600,000 equivalent, and civil works may be procured 
under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of 
the Guidelines.
2.
National Shopping Goods estimated to cost less than $50,000 equivalent per 
contract, up to an aggregate amount not to exceed $200,000 equivalent, may be procured 
under contracts awarded on the basis of national shopping procedures in accordance 
with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. 
3.
Direct Contracting
Small field works estimated to cost less than $10,000 each and which may be 
carried out by DCFOs and costing $2,200,000 equivalent or less in the aggregate, may, 
with the Association’s prior agreement, be procured in accordance with the provisions 
of paragraph 3.7 of the Guidelines.
Part D:
Review by the Association of Procurement Decisions 
1.
Procurement Planning 
Prior to the issuance of any invitations to prequalify for bidding or to bid for 
contracts, the proposed procurement plan for the Project shall be furnished to the 
Association for its review and approval, in accordance with the provisions of 
paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods and works shall 
be undertaken in accordance with such procurement plan as shall have been approved by 
the Association, and with the provisions of said paragraph 1. 
2.
Prior Review
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With respect to each contract for goods and civil works estimated to cost the 
equivalent of $100,000 or more, the procedures set forth in paragraphs 2 and 3 of 
Appendix 1 to the Guidelines shall apply. 
3.
Post Review 
With respect to each contract not governed by paragraph 2 of this Part, the 
procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply.
Section II.
Employment of Consultants
Part A:
General
Consultants’ services shall be procured in accordance with the provisions of the 
Introduction and Section IV of the “Guidelines: Selection and Employment of 
Consultants by World Bank Borrowers” published by the Bank in January 1997 (the 
Consultant Guidelines) and the following provisions of Section II of this Schedule.
Part B:
Quality- and Cost-based Selection 
1.
Except as otherwise provided in Part C of this Section, consultants’ services 
shall be procured under contracts awarded in accordance with the provisions of Section 
II of the Consultant Guidelines, paragraph 3 of Appendix 1 thereto, Appendix 2 
thereto, and the provisions of paragraphs 3.13 through 3.18 thereof applicable to 
quality- and cost-based selection of consultants. 
2.
The following provisions shall apply to consultants’ services to be procured 
under contracts awarded in accordance with the provisions of the preceding paragraph. 
The short list of consultants for services under Parts A.2, A.3 and A.5 of the 
Project, estimated to cost less than $100,000 equivalent per contract, may comprise 
entirely national consultants in accordance with the provisions of paragraph 2.7 of 
the Consultant Guidelines.
Part C:
Other Procedures for the Selection of Consultants 
1.
Selection Based on Consultants’ Qualifications
Services under Parts A.2, A.3 and A.5 of the Project estimated to cost less than 
$100,000 equivalent per contract may be procured under contracts awarded in accordance 
with the provisions of paragraphs 3.1 and 3.7 of the Consultant Guidelines. 
2.
Individual Consultants
Services under Parts A.2, A.3 and A.5 of the Project that meet the requirements 
set forth in paragraph 5.1 of the Consultant Guidelines shall be procured under 
contracts awarded to individual consultants in accordance with the provisions of 
paragraphs 5.2 through 5.3 of the Consultant Guidelines.
Part D:
Review by the Association of the Selection of Consultants 
1.
Selection Planning 
Prior to the issuance to consultants of any requests for proposals, the proposed 
plan for the selection of consultants under the Project shall be furnished to the 
Association for its review and approval, in accordance with the provisions of 
paragraph 1 of Appendix 1 to the Consultant Guidelines. Selection of all consultants’ 
services shall be undertaken in accordance with such selection plan as shall have been 
approved by the Association, and with the provisions of said paragraph 1. 
2.
Prior Review
(a)
With respect to each contract for the employment of consulting firms 
estimated to cost the equivalent of $100,000 or more, the procedures set forth in 
paragraphs 1, 2 and (other than the third subparagraph of paragraph 2(a)) and 5 of 
Appendix 1 to the Consultant Guidelines shall apply.
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(b)
With respect to each contract for the employment of individual 
consultants estimated to cost the equivalent of $50,000 or more, the qualifications, 
experience, terms of reference and terms of employment of the consultants shall be 
furnished to the Association for its prior review and approval. The contract shall be 
awarded only after the said approval shall have been given. 
3.
Post Review
With respect to each contract not governed by paragraph 2 of this Part, the 
procedures set forth in paragraph 4 of Appendix 1 to the Consultant Guidelines shall 
apply.
SCHEDULE 4 
Implementation Program
1.
The Borrower shall:
(a)
maintain policies and procedures adequate to enable it to monitor and 
evaluate on an ongoing basis, in accordance with indicators satisfactory to the 
Association, the carrying out of the Project and the achievement of the objectives 
thereof;
(b)
prepare, under terms of reference satisfactory to the Association, and 
furnish to the Association, on or about November 30, 1999 and November 30, 2001, a 
report integrating the results of the monitoring and evaluation activities performed 
pursuant to paragraph (a) of this Section, on the progress achieved in the carrying 
out of the Project during the period preceding the date of each said report and 
setting out the measures recommended to ensure the efficient carrying out of the 
Project and the achievement of the objectives thereof during the period following each 
such date; and
(c)
review with the Association, by December 30, 1999 and December 30, 2001, 
or such later date as the Association shall request, the respective report referred to 
in paragraph (b) of this Section, and, thereafter, take all measures required to 
ensure the efficient completion of the Project and the achievement of the objectives 
thereof, based on the conclusions and recommendations of each said report and the 
Association’s views on the matter.
2.
The Borrower shall cause the Implementing Agency to:
(a)
ensure that the separation of staff receiving the VESP is completed no 
later than August 31, 1998; and
(b)
refrain from new recruitment of staff in those categories specified in 
the VESP and take all budgetary and other measures, satisfactory to the Association, 
to prevent the recurrence of overstaffing.
3.
The Borrower shall cause the Implementing Agency to:
(a)
conduct consultations with DCFOs for carrying out irrigation 
rehabilitation and improvement works under Part B of the Project, and take all steps 
as may be necessary or required for encouraging joint management of distribution and 
field canals in the Mahaweli Area with the objective of ultimately transferring these 
canals to DCFOs under arrangements and in accordance with a time schedule satisfactory 
to the Association, which shall include a requirement for DCFOs to contribute at least 
10% of the capital cost of irrigation rehabilitation and improvement works in respect 
of these canals; and
(b)
ensure that the principles and processes developed for encouraging the 
participation of DCFOs and the arrangements for transferring the distribution and 
field canals to DCFOs, all as set out in paragraph 3 (a) hereof are uniformly applied 
throughout the Mahaweli Area.
4.
The Borrower shall cause the Implementing Agency to:
(a)
maintain the PIU with adequate staff, powers, functions and resources, 
Page  12
satisfactory to the Association;
(b)
ensure that the PIU prepares annual action plans for the implementation 
of the Project, satisfactory to the Association, and implements the Project in 
accordance with such plans; and
(c)
ensure that the PIU prepares and submits to the Association quarterly 
reports on the progress of the Project.
5.
The Borrower shall cause the Implementing Agency to:
(a)
promptly divide MECA into two separate units covering architectural and 
consultancy functions respectively and operate the LDD and such other units of MASL 
that the Association may approve as independent business units;
(b)
establish for each such business unit a gradually increasing target for 
revenue generation as a share, satisfactory to the Association, of its costs for the 
next three years;
(c)
furnish to the Association annual accounts of each such business unit for 
each year referred to in subparagraph (b) of this paragraph audited in accordance with 
appropriate auditing principles consistently applied, by independent auditors 
acceptable to the Association within three months after the end of each such year; and
(d)
liquidate any business unit which does not meet the revenue generation 
target established pursuant to subparagraph (b) above as demonstrated by the annual 
audited accounts to be furnished pursuant to subparagraph (c) of this paragraph within 
three months of the receipt of the audited accounts for the third year of operation.
6.
The Borrower shall:
(a)
by December 15, 1998 submit to the Association through MMD a list of all 
infrastructure constructed by MASL to be transferred to line agencies and the amount 
of funds required to repair and rehabilitate them and to operate and maintain them;
(b)
make adequate provisions in its annual budgets from FY 1999 to FY 2003 to 
carry out repair and rehabilitation of aforesaid infrastructure in accordance with the 
list referred to in subparagraph (a) of this paragraph; and
(c)
ensure that the infrastructure included in the list referred to in 
subparagraph (a) of this paragraph are transferred to line agencies in accordance with 
arrangements and time schedule satisfactory to the Association. 
7.
The Borrower shall allocate sufficient funds, in amounts satisfactory to the 
Association, in its annual budget for each Fiscal Year during the implementation of 
the Project for operation and maintenance of the main and branch canals in the 
Mahaweli Area.
8.
The Borrower shall:
(a)
by June 30, 2000, submit to the Association a proposal for refocusing 
MASL on river basin management in accordance with terms of reference satisfactory to 
the Association;
(b)
by December 31, 2000, discuss with the Association the aforesaid 
proposal; and
(c)
by June 30, 2001, complete the refocusing of MASL taking into account any 
comments made by the Association and any recommendation made by the International 
Panel of Experts. 
9.
For purposes of assisting the Borrower in the carrying out of Part A of the 
Project, the Borrower shall, by September 30, 1998, establish and thereafter maintain 
an International Panel of Experts with composition, functions and terms of reference 
satisfactory to the Association. 
10.
The Borrower shall maintain the PSC with adequate members, powers, functions and 
Page  13
resources, satisfactory to the Association, for purposes, inter alia, of coordinating 
and monitoring the implementation of the Project.
SCHEDULE 5 
Special Account
1.
For the purposes of this Schedule:
(a)
the term “eligible Categories” means Categories 1 through 5 set forth in 
the table in paragraph 1 of Schedule 1 to this Agreement;
(b)
the term “eligible expenditures” means expenditures in respect of the 
reasonable cost of goods and services required for the Project and to be financed out 
of the proceeds of the Credit allocated from time to time to the eligible Categories 
in accordance with the provisions of Schedule 1 to this Agreement; and
(c)
the term “Authorized Allocation” means an amount equivalent to $7,000,000 
to be withdrawn from the Credit Account and deposited into the Special Account 
pursuant to paragraph 3(a) of this Schedule, provided, however, that unless the 
Association shall otherwise agree, the Authorized Allocation shall be reduced to an 
amount equivalent to $1,000,000 when the proceeds of the Credit initially allocated to 
Category 4 have been fully disbursed for the purposes specified thereunder, or have 
been reallocated to another category. 
2.
Payments out of the Special Account shall be made exclusively for eligible 
expenditures in accordance with the provisions of this Schedule.
3.
After the Association has received evidence satisfactory to it that the Special 
Account has been duly opened, withdrawals of the Authorized Allocation and subsequent 
withdrawals to replenish the Special Account shall be made as follows:
(a)
For withdrawals of the Authorized Allocation, the Borrower shall furnish 
to the Association a request or requests for deposit into the Special Account of an 
amount or amounts which do not exceed the aggregate amount of the Authorized 
Allocation. On the basis of such request or requests, the Association shall, on behalf 
of the Borrower, withdraw from the Credit Account and deposit into the Special Account 
such amount or amounts as the Borrower shall have requested.
(b)
(i)
For replenishment of the Special Account, the Borrower shall 
furnish to the 
Association requests for deposits into the Special 
Account at such intervals 
as the Association shall specify.
(ii)
Prior to or at the time of each such request, the Borrower shall 
furnish to 
the Association the documents and other evidence required 
pursuant to 
paragraph 4 of this Schedule for the payment or 
payments in respect of which 
replenishment is requested. On the basis 
of each such request, the Association 
shall, on behalf of the Borrower, 
withdraw from the Credit Account and deposit 
into the Special Account 
such amount as the Borrower shall have requested and 
as shall have been 
shown by said documents and other evidence to have been 
paid 
out of the Special Account for eligible expenditures. All such deposits 
shall be withdrawn by the Association from the Credit Account under the 
respective eligible Categories, and in the respective equivalent amounts, as 
shall have been justified by said documents and other evidence. 
4.
For each payment made by the Borrower out of the Special Account, the Borrower 
shall, at such time as the Association shall reasonably request, furnish to the 
Association such documents and other evidence showing that such payment was made 
exclusively for eligible expenditures.
5.
Notwithstanding the provisions of paragraph 3 of this Schedule, the Association 
shall not be required to make further deposits into the Special Account:
(a)
if, at any time, the Association shall have determined that all further 
withdrawals should be made by the Borrower directly from the Credit Account in 
accordance with the provisions of Article V of the General Conditions and paragraph 
Page  14
(a) of Section 2.02 of this Agreement;
(b)
if the Borrower shall have failed to furnish to the Association, within 
the period of time specified in Section 4.01 (b)(ii) of this Agreement, any of the 
audit reports required to be furnished to the Association pursuant to said Section in 
respect of the audit of the records and accounts for the Special Account;
(c)
if, at any time, the Association shall have notified the Borrower of its 
intention to suspend in whole or in part the right of the Borrower to make withdrawals 
from the Credit Account pursuant to the provisions of Section 6.02 of the General 
Conditions; or
(d)
once the total unwithdrawn amount of the Credit allocated to the eligible 
Categories, minus the total amount of all outstanding special commitments entered into 
by the Association pursuant to Section 5.02 of the General Conditions with respect to 
the Project, shall equal the equivalent of twice the amount of the Authorized 
Allocation. Thereafter, withdrawal from the Credit Account of the remaining 
unwithdrawn amount of the Credit allocated to the eligible Categories shall follow 
such procedures as the Association shall specify by notice to the Borrower. Such 
further withdrawals shall be made only after and to the extent that the Association 
shall have been satisfied that all such amounts remaining on deposit in the Special 
Account as of the date of such notice will be utilized in making payments for eligible 
expenditures.
6.
(a)
If the Association shall have determined at any time that any payment out 
of the Special Account: (i) was made for an expenditure or in an amount not eligible 
pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence 
furnished to the Association, the Borrower shall, promptly upon notice from the 
Association: (A) provide such additional evidence as the Association may request; or 
(B) deposit into the Special Account (or, if the Association shall so request, refund 
to the Association) an amount equal to the amount of such payment or the portion 
thereof not so eligible or justified. Unless the Association shall otherwise agree, no 
further deposit by the Association into the Special Account shall be made until the 
Borrower has provided such evidence or made such deposit or refund, as the case may 
be.
(b)
If the Association shall have determined at any time that any amount 
outstanding in the Special Account will not be required to cover further payments for 
eligible expenditures, the Borrower shall, promptly upon notice from the Association, 
refund to the Association such outstanding amount.
(c)
The Borrower may, upon notice to the Association, refund to the 
Association all or any portion of the funds on deposit in the Special Account.
(d)
Refunds to the Association made pursuant to paragraphs 6 (a), (b) and (c) 
of this Schedule shall be credited to the Credit Account for subsequent withdrawal or 
for cancellation in accordance with the relevant provisions of this Agreement, 
including the General Conditions.