Page 1 CONFORMED COPY RFT GRANT NUMBER TF 050370 Rain Forest Trust Fund Grant Agreement (Ecological Corridors Project) between FEDERATIVE REPUBLIC OF BRAZIL and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT acting as Trustee of the Rain Forest Trust Fund Dated December 28, 2001 RFT Grant Number TF 050370 RAIN FOREST TRUST FUND GRANT AGREEMENT AGREEMENT, dated December 28, 2001, between the FEDERATIVE REPUBLIC OF BRAZIL (the Recipient) and the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) acting as trustee of grant funds provided by certain members of the Bank to the Rain Forest Page 2 Trust Fund (RFT) (the Bank in such capacity to be referred to as the Trustee). WHEREAS (A) the Bank, pursuant to Resolution No. 92-45 of March 31, 1992, of the Executive Directors of the Bank (the Resolution), established the RFT, to assist in the financing of a pilot program with the overall objective of maximizing the environmental benefits of Brazil's rain forests in a manner consistent with its developmental goals through the implementation of a sustainable development approach that will contribute to a continuing reduction of the rate of deforestation; WHEREAS (B) certain members of the Bank (the Donors) have provided resources by way of grants to the RFT and the Donors have requested the Bank, and the Bank has agreed, to administer such grant funds as trustee, for the purposes of, and in accordance with, the provisions of the Resolution; WHEREAS (C) the Recipient has appointed its Ministry of Environment (the MMA) as its agency responsible for the coordination of the Pilot Program on its behalf; WHEREAS (D) the Recipient, through MMA, having satisfied itself as to the feasibility and priority of the project (the Project) described in Schedule 2 to this Agreement, has requested assistance from the resources of the RFT in the financing of the Project, and the Trustee has determined that such assistance would be in accordance with the provisions of the Resolution; WHEREAS (E) the Recipient intends to receive from the Federal Republic of Germany, through the Kreditanstalt für Wiederaufbau (KfW), grant funds in an amount equivalent to (thirty two million German Marks (DEM 32,000,000) to assist in the financing of other activities related to Phase-2 of the Project (the KfW Grant), on the terms and conditions set forth in an agreement to be entered into between the Recipient and KfW (the KfW Agreement); WHEREAS (F) the Recipient intends to receive from the European Community, through the European Commission (EC), grant funds in an amount equivalent to seven million Euros (EUR 7,000,000) to assist in the financing of other activities related to Phase-2 of the Project (the EC Grant), on the terms and conditions set forth in an agreement to be entered into between the Recipient and EC (the EC Agreement); and WHEREAS (G) the Trustee has agreed, on the basis, inter alia, of the foregoing, to extend grant funds from the RFT to the Recipient in support of the Project upon the terms and conditions set forth in this Agreement (the RFT Grant). NOW THEREFORE the parties hereto agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. (a) The following provisions of the General Conditions Applicable to Loan and Guarantee Agreements for Currency Pool Loans of the Bank, dated January 1, 1985 (as amended through October 6, 1999), with the modifications set forth in paragraph (b) of this Section (the General Conditions) constitute an integral part of this Agreement: (i) Article I; Page 3 (ii) Sections 2.01 (1), (2), (3), (4), (6), (8), (9), (10), (15), (16), (17), (18), (19) and (20), 2.02 and 2.03; (iii) Section 3.01; (iv) Section 4.01 and the first sentence of Section 4.09; (v) Article V; (vi) Sections 6.01, 6.02 (c), (d), (e), (f), (i) (l), (m), (n), (o) and (p), 6.03, 6.04 and 6.06; (vii) Section 8.01 (b); (viii) Sections 9.01 (a) and (c), 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09; (ix) Sections 10.01, 10.03 and 10.04; (x) Article XI; and (xi) Sections 12.01, 12.02, 12.03 and 12.04. (b) The General Conditions shall be modified as follows: (i) the term "Bank", wherever used in the General Conditions, other than in Sections 2.01 (8) and 6.02 (f) thereof means the Trustee; (ii) the term "Borrower", wherever used in the General Conditions, means the Recipient; (iii) the term "Loan Agreement", wherever used in the General Conditions, means this Agreement; (iv) the term "Loan", wherever used in the General Conditions, means the RFT Grant; (v) the term "Loan Account" wherever used in the General Conditions, means the RFT Grant Account; (vi) paragraph (d) of Section 6.02 shall read as follows: “(d) The Trustee shall have suspended in whole or in part the right of the Recipient to make withdrawals under any grant agreement between the Recipient and the Trustee providing for a grant out of the proceeds of the Rain Forest Trust Fund, because of a failure by the Recipient to perform any of its obligations under such agreement.”; and (vii) a new paragraph (q) is added in Section 6.02 of the General Conditions, as follows: “an extraordinary situation shall have arisen in which any further disbursement under the RFT Grant would exceed the resources available for Page 4 disbursements from the RFT.”. Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in the Recitals to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) “Annual Operating Plan” means the annual operating plan referred to in Section 3.02 (d) of this Agreement; (b) “Beneficiary” means any entity in the Recipient’s public or private sector responsible for carrying out of a Subproject (as such term is hereinafter defined); (c) “Central Amazon Rainforest Corridor” means the area described in Schedule 4, paragraph (A) of this Agreement; (d) “Central Atlantic Rainforest Corridor” means the area described in Schedule 4, paragraph (B) of this Agreement; (e) “Conservation Unit” means Unidade de Conservação, an area protected under the Recipient’s Law No. 9,985 of June 18, 2000; (f) “Corridor Management Committee” means each of the following commissions: (i) in the State of Amazonas, the “Comitê Gestor do Componente Corredor Central da Amazônia”; (ii) in the State of Espírito Santo, the ”Comitê Gestor do Componente Corredor Central da Mata Atlântica no Espírito Santo”, and (iii) in the State of Bahia the “Comitê Gestor do Componente Corredor Central da Mata Atlântica na Bahia”, established by MMA’s Portaria n°118 of 22 March 2001, as amended by Portaria n°204, of 31 May 2001; Portaria n°121 of 22 March 2001, and Portaria n°122 of 22 March 2001, respectively; (g) “Ecological Corridor” means a mosaic of land uses connecting fragments of natural forest across a landscape, with importance for biodiversity conservation; (h) “Eligible Categories” means the categories set forth in (1), (2), (3), and (4) set forth in the table in Section 1 of Schedule 1 to this Agreement; (i) “Eligible Expenditures” means the expenditures for goods, works and services referred to in Section 2.02 of this Agreement; (j) “FUNAI” means Fundação Nacional do Índio; the Recipient’s National Indian Foundation; (k) “General Conditions” means the General Conditions Applicable to Loan and Guarantee Agreements for Currency Pool Loans of the Bank, dated January 1, 1985 (as amended through October 6, 1999), with the modifications set forth in paragraph (b) of Section 1.01 of this Agreement; (l) “IBAMA” means Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis, the Recipient’s institute for the environment and renewable natural resources established pursuant to the Recipient’s Law No. 7,735 of February 22, 1989; Page 5 (m) “Interstitial Area” means the areas surrounding and/or connecting protected areas within an Ecological Corridor; (n) “Legal Amazon” means the area defined in the Recipient’s Law No. 5,173 of October 27, 1966 and Article 45 of Complementary Law No. 31 of October 11, 1977, within which the Brazilian Amazon Forest (Floresta Amazônica ) referred to in paragraph 4 of Article 225 of the Brazilian Federal Constitution is located; (o) “Operational Manual” the manual for the operation of the Project referred to in Section 3.02 (a) of this Agreement; (p) Phase-2 of the Project has the meaning ascribed thereto in Schedule 2 of this Agreement; (q) “Project Implementation Letter” means the letter of December 28, 2001, delivered by the MMA to the Trustee, setting forth in a manner satisfactory to the Trustee, the Project’s implementation plan and corresponding performance indicators; (r) “Project Management Report” means each report prepared in accordance with Section 4.02 of this Agreement; (s) “RFT Grant Account means an account opened by the Trustee on its books in the name of the Recipient to which the amount of the RFT Grant is credited; (t) “SECEX/MMA” means the Executive Secretariat of the Recipient’s Ministry of the Environment; (u) “Special Account” means the account referred to in Section 2.02 (b) of this Agreement; (v) “State Coordination Unit” means each of the units to be established in accordance with Section 3.04 (e) of this Agreement; each such unit to be composed of representatives from the State environmental agencies and/or any other entities as may be necessary in the reasonable opinion of the Trustee; (w) “State Implementation Agreements” means the agreements referred to in Section 3.04 of this Agreement; (x) “Subgrant” means a grant made or proposed to be made by MMA for the purposes of partially financing the costs of a Subproject; (y) “Subgrant Agreement” means any of the agreements referred to in Section 3.03 (g) of this Agreement; and (z) “Subproject” means any project to be carried out under part A6 , A7 or B6 of the Project. Section 1.03. Each reference in the General Conditions to the Project implementation entity shall be deemed as a reference to SECEX/MMA. ARTICLE II Page 6 The RFT Grant Section 2.01. The Trustee agrees to make available to the Recipient, on the terms and conditions set forth or referred to in this Agreement, the RFT Grant in the amount of five million United States Dollars ($5,000,000). Section 2.02. The amount of the RFT Grant may be withdrawn from the RFT Grant Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Trustee shall so agree, to be made) in respect of the reasonable cost of goods, works, and services required for carrying out the Project and to be financed out of the proceeds of the RFT Grant. Section 2.03. The Closing Date shall be December 30, 2006 or such later date as the Trustee shall establish. The Trustee shall promptly notify the Recipient of such later date. Section 2.04. The Trustee shall not be obligated to make any payment under this Agreement except to the extent it shall have received funds from the Donors as referred to in Clause (B) of the Preamble to this Agreement. Section 2.05. The Minister of the Environment of the Recipient, or the person or persons designated in writing by such Minister, are designated as representatives of the Recipient for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. ARTICLE III Execution of the Project Section 3.01. The Recipient declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end shall, through SECEX/MMA, carry out or cause to be carried out the activities of the Project; all with due diligence and efficiency and in conformity with appropriate administrative, engineering, managerial and financial practices, and with due regard to ecological and environmental factors, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 3.02 (a) The Recipient shall, through MMA, adopt and thereafter apply in the implementation of the Project an Operational Manual, satisfactory to the Trustee, providing for, inter alia, (i) details of all procurement, financial management and disbursement arrangements, and other administrative, financial and organizational arrangements for implementation of activities under the Project, which procedures shall be consistent with those set forth in this Agreement; (ii) eligibility criteria for selection of Subprojects to be carried out; (iii) guidelines for environmental impact assessment and for indigenous peoples development plans. (b) Except as the Trustee 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 RFT Grant shall be governed by the provisions of Schedule 3 to this Agreement. (c) The Recipient may use the services of any entity acceptable to the Trustee, through an agreement satisfactory to the Trustee, for the purposes of procuring goods, works, and consultants’ Page 7 services required for the carrying out of the Project. (d) The Recipient shall, through MMA, not later than November 15 of each year of Project implementation, furnish to the Trustee an annual plan (the Annual Operating Plan), satisfactory to the Trustee, describing, inter alia, the Project activities to be carried out during the next calendar year and their respective costs and funding sources; the first Annual Operating Plan shall cover the period of project implementation from the Effectiveness Date through December 31, 2002. (e) The Recipient shall ensure that no activities shall be carried out under the Project that may lead to involuntary resettlement of any people. (f) The Recipient, taking into account the agreement with FUNAI referred to in Section 3.03 (i) of this Agreement, shall take or cause to take all necessary action to ensure that: (i) no plans and studies will be designed or carried out under the Project without prior consultation of any affected indigenous peoples in the Project area or without taking into account the opinion of such indigenous peoples, and (ii) any such plans and studies will be carried out in close collaboration with such indigenous peoples. (Role of SECEX/MMA) Section 3.03 Without limitation upon the provisions of Sections 3.01 and 3.02 of this Agreement and except as the Recipient and the Trustee shall otherwise agree, the Recipient shall cause SECEX/MMA to: (a) carry out or cause to be carried out the Project in accordance with an implementation plan and corresponding performance indicators set forth in the Project Implementation Letter, the Annual Operating Plan, and the Operational Manual, and maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with said performance indicators, the carrying out of the Project and the achievement of the objective thereof; (b) establish and thereafter maintain, within SECEX/MMA, a general coordination unit with: (i) adequate responsibilities, structure and functions, including those functions necessary for carrying out Part C of the Project; and (ii) staff in adequate numbers and with adequate qualifications; (c) without limitation to Section 9.07 of the General Conditions, furnish to the Trustee, not later than March 30 and September 30 during each year of Project implementation, reports on the progress of the Project during the six month period preceding the date of each such report, which shall take into consideration the indicators set forth in the Project Implementation Letter, and to be of such scope and in such detail as the Trustee may reasonably request; (d) without limitation to Section 9.01 of the General Conditions, hold with the Trustee, not later than December 30 during each year of Project implementation, reviews on the progress of the Project during the twelve month period preceding the date of each review and based on the reports referred to in paragraph (c) of this Section; Page 8 (e) prepare under terms of reference satisfactory to the Trustee, and furnish to the Trustee not later than September 30, 2003: (i) a report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this section, on the Progress achieved in carrying out the Project during the period preceding the date of said report and setting out the measures recommended to ensure the efficient carrying out of the Project, and including detailed proposal for the phase-2 of the Project; and (ii) an evaluation of the institutional arrangements for the Project and, as appropriate, proposals to improve such arrangements; (f) review with the Trustee by October 30, 2003 or such later date as the Trustee shall request, the report, the evaluation, and the detailed proposals referred to in paragraph (e) of this Section, and thereafter take all measures required to ensure the efficient completion of the Project and the achievement of the objective thereof, based on the conclusions and recommendations of said report and evaluation and the Trustees view on the matter; (g) for each Subproject approved by the Corridor Management Committee, enter into an agreement with each Beneficiary (the Subgrant Agreement), under terms and conditions acceptable to the Trustee, to regulate such Beneficiary’s participation in the carrying out of its corresponding Subproject; such agreement shall inter alia describe the goods, works, and services to be financed and shall include, whenever a Subproject requires the undertaking of environmental protection measures pursuant the Operational Manual above, the obligation of such Beneficiary to carry out the mitigation measures provided for in the corresponding environmental assessment. (h) exercise its rights and comply with its obligations under the Subgrant Agreements in such a manner as to protect the interests of the Recipient and the Trustee and to accomplish the purpose of the RFT Grant and not to assign, amend, abrogate, waive or fail to enforce the Subgrant Agreements or any provision thereof; (i) enter into agreements with IBAMA and FUNAI, satisfactory to the Trustee, establishing their participation in the implementation of the Project, and exercise its rights and comply with its obligations under those agreements in such a manner as to protect the interests of the Recipient and the Trustee and to accomplish the purpose of the RFT Grant and not to assign, amend, abrogate, waive or fail to enforce those agreements or any provision thereof; and (j) for the purpose of section 9.07 of the General Conditions, and without limitation thereto, prepare, on the basis of guidelines acceptable to the Trustee, with the assistance of State Coordination Units, IBAMA, and FUNAI, and furnish to the Trustee not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Recipient and the Trustee, a plan for the future operation of the Project and afford the Trustee a reasonable opportunity to exchange views with the Recipient on said plan. Page 9 (Regional implementation; role of the States) Section 3.04. The Recipient shall, through SECEX/MMA, enter into agreements (the State Implementation Agreements), in form and substance satisfactory to the Trustee, with each of the following States: Amazonas, Bahia, and Espírito Santo, such agreements to provide, inter alia, that each of these States shall: (a) without limitation upon the provisions of Section 3.01 of this Agreement and except as the Recipient and the Trustee shall otherwise agree, carry out part A the Project, in the case of the State of Amazonas, and part B of the Project in the case of the States of Bahia and Espírito Santo, respectively, in accordance with this Agreement, the Operational Manual, and an implementation plan for the corridor and corresponding performance indicators set forth in the Project Implementation Letter; (b) maintain during Project implementation, the Corridor Management Committee with adequate responsibilities, structure and functions; the specific responsibilities of such committee shall include: (i) overseeing the work of the State Coordination Unit; (ii) approving the Annual Operating Plans mentioned in Section 3.04 (c) of this Agreement; (iii) providing annual evaluation of Project implementation and approving semi-annual progress reports; (iv) monitoring the development of the management plans referenced in Part A1 and B1 of the Project; and (v) approving Subprojects, analyzed by the State Coordination Units; (c) assist MMA in the preparation of the plan referred to in Section 3.03 (j) of this Agreement; (d) consistent with the provisions for environmental assessment set forth in the Operational Manual, whenever it is determined by the Corridor Management Committee that a Subproject requires the undertaking of environmental protection measures, submit, through MMA, for the approval of the Trustee the corresponding environmental assessment; (e) maintain, a State Coordination Unit with: (i) adequate responsibilities, structure and functions, including those functions necessary for coordinating Project implementation at local level and (ii) staff in adequate numbers and with adequate qualifications inter alia, to assist and monitor Subprojects financed out of the RFT Grant; the specific responsibilities of the State Coordination Unit shall include: (A) carrying out the Project in accordance with the terms of the approved Annual Operating Plan, the Operational Manual, and this Agreement; (B) dissemination of project information at local level; (C) preparation of semi-annual Project implementation reports to be submitted for approval by the Corridor Management Committee; (D) preparation during each year of Project implementation, of corridor annual operating plan to be submitted for approval by the Corridor Management Page 10 Committee, describing, inter alia, the Project activities to be carried out during the next calendar year and their respective costs and funding sources; and (E) selection, and appraisal of Subprojects in accordance with the criteria and procedure specified in the Operational Manual, and submission of each selected Subproject for approval by the Corridor Management Committee. Section 3.05. The Recipient shall, through SECEX/MMA, exercise its rights and comply with its obligations under each of the State Implementation Agreements, all in such a manner as to protect the interests of the Recipient and the Trustee and to accomplish the purposes of the RFT Grant, and except as the Trustee shall otherwise agree, the Recipient shall not assign, amend, abrogate, waive or fail to enforce any of such agreements or any provision thereof. (The role of IBAMA) Section 3.06. Without limitation upon the provisions of Sections 3.01 and 3.02 of this Agreement and except as the Recipient and the Trustee shall otherwise agree, the Recipient, through SECEX/MMA, shall cause IBAMA to carry out, under the coordination of the State Coordination Units, any activities to be undertaken under parts A3, A5, B3 and B5 of the Project that pertain to federal Conservation Units, all in accordance with this Agreement, the Operational Manual, the Annual Operating Plan, and an implementation plan for the corridors and corresponding performance indicators set forth in the Project Implementation Letter. ARTICLE IV Financial Covenants Section 4.01 (a) The Recipient shall establish and cause to be maintained a financial management system, satisfactory to the Trustee, including records and accounts, and prepare financial statements in a format acceptable to the Trustee, adequate to reflect the operations, resources and expenditures for and in connection with the carrying out of the Project. (b) The Recipient shall: (i) have the records and accounts and financial statements referred to in paragraph (a) of this Section and the records and accounts for the Special Account for each fiscal year audited, in accordance with auditing standards acceptable to the Trustee consistently applied, by independent auditors acceptable to the Trustee; (ii) furnish to the Trustee as soon as available, but in any case not later than six months after the end of each such year: (A) certified copies of the financial statements referred to in paragraph (a) of this Section for such year as so audited; and (B) an opinion on such financial statements, records and accounts and a report of such audit by said auditors, of such scope and in such detail as the Trustee shall have reasonably requested; and Page 11 (iii) furnish to the Trustee such other information concerning said records and accounts and the audit thereof, and concerning said auditors, as the Trustee shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the RFT Grant Account were made on the basis of Project Management Reports or statements of expenditure, the Recipient 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 Trustee has received the audit report for the fiscal year in which the last withdrawal from the RFT Grant Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Trustee'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 report of such audit contains a separate opinion by said auditors as to whether the Project Management Reports and 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. Section 4.02. (a) Without limitation to the provisions of Section 4.01 of this Agreement, the Recipient shall carry out a time bound action plan acceptable to the Trustee for the strengthening of the financial management system in order to enable the Recipient, not later than one year after the Effective Date of this Agreement or such later date as the Trustee shall agree, to prepare quarterly Project Management Reports, acceptable to the Trustee each of which: (i) (A) sets forth actual sources and applications of funds for the Project, both cumulatively and for the period covered by said report, and projected sources and applications of funds for the Project for the six-month period following the period covered by said report, and (B) shows separately expenditures financed out of the proceeds of the RFT Grant during the period covered by said report and expenditures proposed to be financed out of the proceeds of the RFT Grant during the six-month period following the period covered by said report; (ii) (A) describes physical progress in Project implementation, both cumulatively and for the period covered by said report, and (B) explains variances between the actual and previously forecast implementation targets; and (iii) sets forth the status of procurement under the Project and expenditures under contracts financed out of the proceeds of the RFT Grant, as at the end of the period covered by said report. (b) Upon completion of the action plan referred to in paragraph (a) of this Section, the Page 12 Recipient shall prepare, in accordance with guidelines acceptable to, and furnish to the Trustee not later than 45 days after each calendar quarter a Project Management Report for such Period. ARTICLE V Remedies of the Trustee Section 5.01. Pursuant to Section 6.02 (p) of the General Conditions, the following additional events, subject to Section 5.03 of this Agreement, are specified, namely: (a) the event that, within 24 months of the Effective Date of this Agreement, the Recipient has not entered into one or more agreements with other donors sufficient to ensure additional funding to assist in financing other activities related to Phase-2 of the Project, in an amount equivalent to no less than US$ 15,000,000 (fifteen million United States dollar), or if such agreement or agreements have not become effective within said period. (b) the event that, within 30 months of the Effective Date of this Agreement, the Recipient has not entered into one or more agreements with other donors sufficient to ensure funding additional to the amount in paragraph (a) of this Section to assist in financing other activities related to Phase-2 of the Project, in an amount equivalent to no less than US$ 5,000,000 (five million United States dollar), or such agreement or agreements have not become effective within said period. (c) the event that, within three months of the Trustee’s request pursuant to Section 5.02 of this Agreement, an amendment to this Agreement as referred to in that Section 5.02 has not become effective. Section 5.02 Upon entering into any of the agreements referred to in Section 5.01 (a) and (b), if the Trustee shall so request, the Trustee and the Recipient shall seek to amend this Agreement in order to include a cross default clause relating to such agreements. Section 5.03. Sections 5.01 and 5.02 of this Agreement shall not apply if the Recipient establishes to the satisfaction of the Trustee that adequate funds for the Project are available to the Recipient from other sources on terms and conditions consistent with the obligations of the Recipient under this Agreement. ARTICLE VI Effectiveness; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of this Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) that the general coordinating unit mentioned in Section 3.03 (b) of this Agreement, the Corridor Management Committees and the State Coordinating Unit have been established and staffed; Page 13 (b) that the Operational Manual has been furnished to the Trustee; (c) that the State Implementation Agreements for Amazonas, Bahia and Espírito Santo have all become effective; (d) that the financial management system referred to in Section 4.01 (a) of this Agreement has been established; (e) that the first Annual Operating Plan has been submitted to the Trustee; and (f) that evidence has been furnished to the Trustee that SECEX/MMA, and the State Coordination Units have sufficient counterpart funds for the first year of Project implementation. Section 6.02. The date ninety days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 6.03. This Agreement shall continue in effect until the parties to this Agreement have fulfilled all their obligations hereunder. ARTICLE VII Representative of the Recipient; Addresses Section 7.01. The Minister of Finance of the Recipient is designated as representative of the Recipient 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 Recipient: Procuradoria Geral da Fazenda Nacional Esplanada dos Ministérios - Bloco “P” - 8° andar 70048-900, Brasília, D.F. Brazil For the Trustee: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 248423 (MCI) or Page 14 Washington, D.C. 64145 (MCI) With copies to: Ministério do Planejamento, Orçamento e Gestão Secretaria de Assuntos Internacionais Esplanada dos Ministérios, Bloco “K” - 5º andar 70040-906, Brasília, D.F. Brazil Ministério do Meio Ambiente Esplanada dos Ministérios Bloco “B” - 5º andar 70068-900, Brasília, D.F. Brazil IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in Brasília, Brazil, as of the day and year first above written. FEDERATIVE REPUBLIC OF BRAZIL By /s/ Suely Dib de Sousa e Silva Procuradora da Fazenda Nacional Ministry of Finance Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT as Trustee of the Rain Forest Trust Fund By /s/ Christoph Diewald Lead Operations Officer LCSRF Acting for Country Director Authorized Representative SCHEDULE 1 Withdrawal of the Proceeds of the RFT Grant A. General Page 15 1. The table below sets forth the categories of items to be financed out of the proceeds of the RFT Grant, the allocation of the amounts of the RFT Grant to each category and the percentage of expenditures for items so to be financed in each category: Amount of the % of RFT Grant Allocated Expenditures Category (Expressed in Dollars) To be Financed (1) Goods 800,000 75% (2) Small civil works 300,000 70% (3) Consultants’ Services and Training (including travel) 3,700,000 80% (4) Incremental Operational Cost 200,000 60% until March 1, 2003; 40% from March 1, 2003 until March 1, 2005; and 0 % thereafter TOTAL 5,000,000 2. For the purposes of this Schedule, the term “Incremental Operational Costs” means the additional cost of operation and maintenance incurred for the purposes of carrying out the Project. 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 not exceeding an aggregate amount of $500,000 (five hundred thousand United States dollars) may be made for payments made for eligible expenditures prior to such date but after the date twelve months prior to the date of this Agreement. 4. The Trustee may require withdrawal from the RFT Grant Account to be made on the basis of statement of expenditures for (i) goods and works under contracts not exceeding $100,000 equivalent; (ii) services under contracts not exceeding $100,000 equivalent for employment of consulting firms and $50,000 for employment of individual consultants, respectively; all under such terms and conditions as the Trustee shall specify by notice to the Recipient. 5. If the Trustee shall have determined at any time that any payment made from the RFT Grant Account was used for any expenditure not consistent with the provisions of this Agreement, the Recipient shall, promptly upon notice from the Trustee, refund to the Trustee for deposit into the RFT Grant Account, an amount equal to the amount so used or the portion thereof as specified by the Trustee. B. Special Account 1. The Recipient shall open and maintain in United States Dollars a special deposit account at Banco do Brasil S.A., on terms and conditions satisfactory to the Trustee, including appropriate Page 16 protection against set-off, seizure and attachment. 2. After the Trustee has received evidence satisfactory to it that the Special Account has been opened, withdrawals from the RFT Grant Account of amounts to be deposited into the Special Account shall be made as follows: (a) until the Trustee shall have received (i) the first Project Management Report referred to in Section 4.02(b) of this Agreement and (ii) a request from the Recipient for withdrawal on the basis of Project Management Reports, withdrawals shall be made in accordance with the provisions of Annex A to this Schedule 1; and (b) upon receipt by the Trustee of a Project Management Report pursuant to Section 4.02(b) of this Agreement, accompanied by a request from the Recipient for withdrawal on the basis of Project Management Reports, all further withdrawals shall be made in accordance with the provisions of Annex B to this Schedule 1. 3. Payments out of the Special Account shall be made exclusively for Eligible Expenditures. For each payment made by the Recipient out of the Special Account, the Recipient shall, at such time as the Trustee shall reasonably request, furnish to the Trustee such documents and other evidence showing that such payment was made exclusively for Eligible Expenditures. 4. Notwithstanding the provisions of Part B.2 of this Schedule, the Trustee shall not be required to make further deposits into the Special Account: (a) if the Trustee determines at any time that any Project Management Report does not adequately provide the information required pursuant to Section 4.02 of this Agreement; (b) if the Trustee determines at any time that all further withdrawals should be made by the Recipient directly from the RFT Grant Account; or (c) if the Recipient shall have failed to furnish to the Trustee 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 Trustee pursuant to said Section in respect of the audit of (A) the records and accounts for the Special Account or (B) the records and accounts reflecting expenditures with respect to which withdrawals were made on the basis of Project Management Reports. 5. The Trustee shall not be required to make further deposits into the Special Account in accordance with the provisions of Part B.2 of this Schedule if, at any time, the Trustee shall have notified the Recipient of its intention to suspend in whole or in part the right of the Recipient to make withdrawals from the RFT Grant pursuant to Section 6.02 of the General Conditions. Upon such notification, the Trustee shall determine, in its sole discretion, whether further deposits into the Special Account may be made and what procedures should be followed for making such deposits, and shall notify the Recipient of its determination. 6. (a) If the Trustee determines at any time that any payment out of the Special Account was Page 17 made for an expenditure which is not an Eligible Expenditure, or was not justified by the evidence furnished to the Trustee, the Recipient shall, promptly upon notice from the Trustee, provide such additional evidence as the Trustee may request, or deposit into the Special Account (or, if the Trustee shall so request, refund to the Trustee) an amount equal to the amount of such payment. Unless the Trustee shall otherwise agree, no further deposit by the Trustee into the Special Account shall be made until the Recipient has provided such evidence or made such deposit or refund, as the case may be. (b) If the Trustee determines at any time that any amount outstanding in the Special Account will not be required to cover payments for Eligible Expenditures during the six-month period following such determination, the Recipient shall, promptly upon notice from the Trustee, refund to the Trustee such outstanding amount. (c) The Recipient may, upon notice to the Trustee, refund to the Trustee all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Trustee made pursuant to sub-paragraph (a), (b) or (c) of this paragraph 6 shall be credited to the RFT Grant Account for subsequent withdrawal or for cancellation in accordance with the provisions of this Agreement. Annex A to SCHEDULE 1 Operation of Special Account When Withdrawals Are Not Made On the Basis of Project Management Reports 1. For the purposes of this Annex: the term “Authorized Allocation” means an amount equivalent to $300,000 (or such other amount as the Trustee shall establish by notice to the Recipient) to be withdrawn from the RFT Grant Account and deposited into the Special Account pursuant to paragraph 2 of this Annex; provided, however, that unless the Trustee shall otherwise agree, the Authorized Allocation shall be limited to an amount equivalent to $200,000 until the aggregate amount of withdrawals from the RFT Grant Account, plus the total amount of all outstanding special commitments entered into by the Trustee pursuant to Section 5.02 of the General Conditions shall equal or exceed the equivalent of $800,000. 2. Withdrawals of the Special Account’s Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Special Account’s Authorized Allocation, the Recipient shall furnish to the Trustee a request or requests for deposit into the Special Account of an amount or amounts which in the aggregate do not exceed the Authorized Allocation. On the basis of each such request, the Trustee shall, on behalf of the Recipient, withdraw from the RFT Grant Account and deposit into the Special Account such amount as the Recipient shall have requested. (b) For replenishment of the Special Account, the Recipient shall furnish to the Trustee Page 18 requests for deposit into the Special Account at such intervals as the Trustee shall specify. Prior to or at the time of each such request, the Recipient shall furnish to the Trustee the documents and other evidence required pursuant to Part B.3 of Schedule 1 to this Agreement for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Trustee shall, on behalf of the Recipient, withdraw from the RFT Grant Account and deposit into the Special Account such amount as the Recipient 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. Each such deposit into the Special Account shall be withdrawn by the Trustee from the RFT Grant Account under one or more of the Special Account’s Eligible Categories. 3. The Trustee shall not be required to make further deposits into the Special Account, once the total unwithdrawn amount of the RFT Grant minus the total amount of all outstanding special commitments entered into by the Trustee pursuant to Section 5.02 of the General Conditions, shall equal the equivalent of twice the amount of the Special Account’s Authorized Allocation. Thereafter, withdrawal from the RFT Grant Account of the remaining unwithdrawn amount of the RFT Grant shall follow such procedures as the Trustee shall specify by notice to the Recipient. Such further withdrawals shall be made only after and to the extent that the Trustee 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. Annex B to SCHEDULE 1 Operation of Special Account When Withdrawals Are Made On the Basis of Project Management Reports 1. Except as the Trustee may otherwise specify by notice to the Recipient, all withdrawals from the RFT Grant Account shall be deposited by the Trustee into the Special Account in accordance with the provisions of Schedule 1 to this Agreement. Each such deposit into the Special Account shall be withdrawn by the Trustee from the RFT Grant Account under one or more of the Special Account’s Eligible Categories. 2. Each application for withdrawal from the RFT Grant Account for deposit into the Special Account shall be supported by a Project Management Report. 3. Upon receipt of each application for withdrawal of an amount of the RFT Grant, the Trustee shall, on behalf of the Recipient, withdraw from the RFT Grant Account and deposit into the Special Account an amount equal to the lesser of: (a) the amount so requested; and (b) the amount which the Trustee has determined, based on the Project Management Report accompanying said application, is required to be deposited in order to finance Eligible Expenditures during the six-month period following the date of such report; provided, however, that the amount so deposited, when added to the amount indicated by said Project Management Report to be remaining in the Special Account, shall not exceed the equivalent of $1,000,000. SCHEDULE 2 Page 19 Description of the Project The objective of the Project is to demonstrate the viability of Ecological Corridors in conserving biodiversity in the Recipient’s Amazon and Atlantic rainforests. The Project consists of two phases: Phase-1 covering 18 months from the date of effectiveness of this Agreement, and Phase-2 covering the period thereafter until the Closing Date. The Project consists of the following parts and corresponding activities, subject to such modifications thereof as the Recipient and the Trustee may from time to time agree upon to further the objective of the Project. Part A: Central Amazon Rainforest Corridor 1. Preparation of a corridor management plan, under terms satisfactory to the Trustee, for the purpose of assisting in: (i) natural resource management, (ii) regulatory enforcement, (iii) marketing and dissemination, and (iv) long-term environmental monitoring. 2. Design and implementation of an integrated monitoring and information system, with indicators for forest cover integrity, fragmentation, burning and other forms of degradation in the Central Amazon Rainforest Corridor; such a system shall inter alia be aimed at providing support to decision making and planning in the corridor. 3. Design and implementation of an emergency strategy for control and surveillance of the Central Amazon Rainforest Corridor. 4. Environmental awareness raising of local in habitants and stakeholders, including the organization of workshops and environmental education; building of constituencies and partnerships with governmental and non-governmental organizations in order to gain support for the conservation of biodiversity in the Central Amazon Rainforest Corridor. 5. Preparation of management plans for Conservation Units within the Central Amazon Rainforest Corridor area, associated with a tailored training program for Conservation Unit staff. 6. Carrying out of Subprojects aiming at conservation of biodiversity in Interstitial Areas of the Central Amazon Rainforest Corridor, such projects to include, inter alia: (i) promotion of sustainable management in buffer areas; (ii) recuperation of degraded areas; (iii) promotion of establishment of private reserves; and (iv) promotion of ecotourism activities. 7. Preparation and implementation of Subprojects aiming at protection of biodiversity in indigenous lands located in the Central Amazon Rainforest Corridor, such projects to include, inter alia: (i) support for demands for vigilance and communications systems, (ii) promotion of sustainable management, and (iii) training. Part B: Central Atlantic Rainforest Corridor 1. Provision of support aiming at re-establishing of connectivity among existing forest fragments in the Page 20 Central Atlantic Rainforest Corridor through the preparation of a corridor management plan, under terms satisfactory to the Trustee, for the purpose of assisting in: (i) natural resource management; (ii) regulatory enforcement; (iii) marketing and dissemination; and (iv) long-term environmental monitoring. 2. Design and implementation of an integrated monitoring system, building on existent systems, with indicators for the major threats to biodiversity conservation, forest cover integrity, fragmentation, burning and other forms of degradation in the corridor area; the system shall be oriented to support decision making and planning in the Central Atlantic Rainforest Corridor. 3. Design and implementation of an emergency strategy for enforcement and surveillance of the Central Atlantic Rainforest Corridor. 4. Design and implementation of a strategy to disseminate information about the Project in the Central Atlantic Rainforest Corridor area and build support among state, municipal, non-governmental and local stakeholders. 5. Preparation and implementation of management plans for Conservation Units within the Central Atlantic Rainforest Corridor, associated with a tailored training program for Conservation Unit staff. 6. Carrying out of Subprojects aiming at conservation of biodiversity in Interstitial Areas of the Central Atlantic Rainforest Corridor, such Subprojects to include, inter alia: (i) promotion of sustainable management in buffer areas; (ii) recuperation of degraded areas; (iii) promotion of establishment of private reserves; and (iv) promotion of ecotourism activities. Part C: Project administration: 1. Carrying out the overall coordination of the Project through, inter alia: (i) preparation of Annual Operating Plans; (ii) assist project management capacity at State level; (iii) monitoring and evaluation of the Project activities (including an independent mid-term and final evaluation of the Project); (iv) preparation of semi-annual Project progress reports and provision of Project information to the Trustee and other donors; and (v) evaluation and dissemination of Project results. 2. Furthering collaboration between the organizations involved and with other organizations that have similar initiatives, to ensure complementarity and comprehensiveness of the activities developed at federal, municipal and State level. 3. Carrying out of studies including: (i) an assessment of the use of economic incentives for nature conservation purposes, including results obtained, and their potential for the conservation of Ecological Corridors; and (ii) strategic studies to delimit other rainforest Ecological Corridors than the Central Amazon Rainforest Corridor and the Atlantic Rainforest Corridor, and examine their biological, socioeconomic and institutional characteristics. 4. Disseminating information in order to further the concept of Ecological Corridors. * * * The project is expected to be completed by June 30, 2006. SCHEDULE 3 Procurement and Consultants' Services Page 21 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, September 1997 and January 1999 (hereafter referred to in this Schedule as “the Guidelines”) and the following provisions of this Section, as applicable. Part B : Procurement Procedures 1. National Competitive Bidding Except as provided in Parts B.2 and B.3 hereof, goods and works shall be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. In the procurement of goods in accordance with this Part B.1, bidding documents in a standardized form for the Project shall be used. Without limitation to any other provisions set forth in this Schedule or the Guidelines, the following shall apply to the procurement of goods to be undertaken pursuant to this Part B.1: (a) Contracts shall be awarded to the bidder whose bid has been determined to be the lowest evaluated bid, such evaluation to be based on price and, whenever appropriate, to also take into account factors similar to those referred to in paragraph 2.51 of the Guidelines, provided, however, that the bid evaluation shall always be based on factors that can be quantified objectively, and the procedure for such quantification shall be disclosed in the invitation to bid. (b) Whenever required by the Trustee, the invitation to bid shall be advertised for at least three consecutive days in a newspaper of wide circulation in Brazil. (c) The arrangements, under the invitation to bid, for a joint-venture of Brazilian and foreign firms shall be approved in advance by the Trustee in each case. (d) The invitation to bid shall not establish, for purposes of acceptance of bids, minimum or maximum amounts for the contract prices. (e) The purchaser shall not, without the Trustee's prior approval, issue any change order under a contract which would increase or decrease by more than 15% the quantity of goods (and related services) without any change in the unit prices or other terms and conditions of sale. 2. International or National Shopping Goods costing $100,000 equivalent or less per contract shall be procured under contracts awarded on the basis of international or national shopping procedures, at the option of the Recipient, in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. 3. Works estimated to cost up to $100,000 equivalent or less per contract may be procured under lump-sum, fixed-price contracts awarded on the basis of quotations obtained from three (3) qualified domestic contractors in response to a written invitation. The invitation shall include a detailed Page 22 description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to the Trustee, and relevant drawings, where applicable. The award shall be made to the contractor who offers the lowest price quotation for the required work, and who has the experience and resources to complete the contract successfully. Part C : Review by the Trustee of Procurement Decisions 1. Procurement Planning Prior to the issuance of any invitations to bid for contracts, the proposed procurement plan for the Project shall be furnished to the Trustee for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods shall be undertaken in accordance with such procurement plan as shall have been approved by the Trustee, and with the provisions of said paragraph 1. 2. Prior Review (a) With respect to any contract for goods estimated to cost the equivalent of $100,000 per contract or more, and work estimated to cost the equivalent of $200,000 per contract or more, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply. (b) With respect to the first two contracts for goods estimated to cost less than $100,000 equivalent and the first two contracts for works estimated to cost less than $200,000 equivalent, the following procedures shall apply: (i) prior to the selection of any supplier or contractor, the Recipient shall provide to the Trustee a report on the comparison and evaluation of quotations received; (ii) prior to the execution of any such contract, the recipient shall provide the Trustee a copy of the specifications and the draft contract; and (iii) The procedures set forth in paragraph 2(f), 2(g) and 3 of Appendix 1 to the Guidelines shall apply. 3. Post Review The procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply to all contracts awarded under this Section. Section II . Consultants’ Services 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 and revised in September 1997 and January 1999 (the Consultant Guidelines), and the following provisions of this Section I Part B :Quality- and Cost-based Selection 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, Page 23 paragraph 3 of Appendix 1 thereto, Appendix 2 thereto, and the provisions of paragraphs 2.13 through 2.18 thereof applicable to quality- and cost-based selection of consultants. Part C :Other Procedures for the Selection of Consultants Individual Consultants Services for tasks estimated to cost less than $50,000 equivalent per contract, 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 5.1 through 5.3 of the Consultant Guidelines. Part D :Review by the Trustee 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 Activities shall be furnished to the Trustee 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 Trustee, 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 $200,000 or more, the procedures set forth in paragraphs 1, 2 (other than the third subparagraph of paragraph 2(a)) and 5 of Appendix 1 to the Consultant Guidelines shall apply. (b) With respect to each contract for the employment of consulting firms estimated to cost the equivalent of $100,000 or more, but less than the equivalent of $200,000, the procedures set forth in paragraphs 1, 2 (other than the second subparagraph of paragraph 2(a)) and 5 of Appendix 1 to the Consultant Guidelines shall apply. (c) 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 Trustee for its prior review and approval. The contract shall be awarded only after 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, provided, however, that the terms of reference for such contracts and any single-source selection of consulting firms shall be subject to the Trustee’s prior approval. SCHEDULE 4 Page 24 SELECTED AREAS A. Geographic Boundaries of the Central Amazon Rainforest Corridor This corridor is geographically located between the Rio Solimões and Rio Negro watersheds, stretching approximately between 57 ° W - 69 ° W and 1 ° N - 5 ° S and is almost entirely within the State of Amazonas. Its overall extension is approximately 245,000 km2, of which almost 170,000 km2 are currently under different forms of legal protection (nearly 70% of the corridor’s total extension). The major urban centers are Manaus, Manacapuru and Tefé. It is composed of a central axis where almost contiguous protected areas are located. This axis has two sub-regions. One sub-region, to the West, consists of Conservation Units (Mamirauá, Jaú, Amanã, Anavilhanas). The second sub-region, to the East, consists of indigenous lands territories (Waimiri-Atroari, Trombetas-Mapuera and Nhamunda-Mapuera). In addition, several indigenous reserves and other protected areas, further to the West and beyond the sub-region of Conservation Units, are scattered and not interconnected. Towards the Eastern sub-region, around the BR-174 (Manaus/Boa Vista) road, additional Conservation Units and a few indigenous reserves are also included. B. Geographic Boundaries of the Atlantic Rainforest Corridor This corridor stretches roughly in a North-South direction between 39 ° W - 42 ° W and 13 ° S - 21 ° S. Major river systems comprise the Rio das Contas, Rio Pardo, Rio Jequitinhonha, Rio Mucuri and Rio Doce, in the South. The main urban centers are Ilhéus, Porto Seguro and Vitória. The Atlantic Rainforest Corridor is largely constituted by privately owned lands. Protected areas are small, widely scattered and there is little natural vegetation left outside the remaining fragments covered by federal and state Conservation Units. A total of 314,000 hectares is currently under protection in 49 Conservation Units, and another 52,000 ha are officially set aside for 15 indigenous reserves, totaling approximately 370,000 ha. The corridor’s overall extension is 8.64 millions hectares. The spatial distribution of these areas comprises "stepping stones" rather than a mosaic of contiguous areas favorable to connectivity.