Page 1 CONFORMED COPY CREDIT NUMBER 2671 KE Development Credit Agreement (Institutional Development and Civil Service Reform Project) between REPUBLIC OF KENYA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated January 30, 1995 CREDIT NUMBER 2671 KE DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated January 30, 1995, between REPUBLIC OF KENYA (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; (B) the Association has received a letter dated October 13, 1994 from the Borrower describing a program of actions, objectives and policies designed to reform and strengthen its civil service (here- inafter called the Program) and declaring the Borrower's commitment to the execution of the Program; (C) the Borrower intends to obtain from the Overseas Development Administration (ODA) a grant (the ODA Grant) in an amount equivalent to $10,700,000 to assist in financing the Project on the terms and conditions set forth in an agreement (the ODA Grant Agreement) to be entered into between the Borrower and ODA; 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: Page 2 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 last sentence of Section 3.02 deleted (the General Conditions), constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth, and the following additional terms have the following meanings: (a) "CSRS" means the Civil Service Reform Secretariat established by the Borrower to manage and coordinate civil service reform; (b) "DPM" means the Directorate of Personnel Management in the Office of the President; (c) "KIA" means the Kenya Institute of Administration; (d) "MRC" means the Ministerial Reform Committee established in each of the Borrower's Ministries to carry out civil service reform in the respective ministries; (e) "NSC" means the National Steering Committee; (f) "VERS" means the Voluntary Early Retirement Scheme adopted by the Borrower in 1993 to finance civil service reform and retirement of civil servants; (g) "Project Preparation Advance" means the project preparation advance granted by the Bank to the Borrower pursuant to an exchange of letters dated February 25, 1994 and March 18, 1994 and letters dated November 8, 1994 and November 28, 1994 between the Borrower and the Association; (h) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; (i) "Shillings" means the currency of the Borrower; (j) "Project Implementation Plan" means the plan dated November 11, 1994, as amended from time to time by the Borrower and the Association, for the implementation of the Project; and (k) "Fiscal Year" of the Borrower means the period July 1 to June 30. 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 seventeen million two hundred thousand Special Drawing Rights (SDR 17,200,000). 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 a commercial bank on terms and conditions satisfactory to the Association, including appropriate protection against set-off, seizure or attachment. Page 3 Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 4 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 the Bank 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 cancelled. Section 2.03. The Closing Date shall be April 30, 1998 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 with- drawn 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 cancelled; and (ii) at the rate set as of the June 30 immediately preceding the accrual date or at such other rates as may be set from time to time thereafter pursuant to para- graph (a) above. The rate set as of June 30 in each year shall be applied from the next payment 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 semiannually on February 1 and August 1 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi- annual installments payable on each February 1 and August 1, commencing February 1, 2005 and ending August 1, 2034. Each installment to and including the installment payable on August 1, 2014 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 gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years, 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 considera- tion by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by 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. If so requested by the Borrower, the Asso- ciation may revise such modification 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 Page 4 revision shall not change the grant element obtained under the above-mentioned repayment modification. (c) 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. 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 Department of Personnel Management with due diligence and efficiency and in conformity with appropriate administrative and financial practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 3.02. Without limitation upon the provisions of Section 3.01 of this Agreement, the Borrower shall: (a) implement the Project in accordance with the Project Implementation Plan in a manner satisfactory to the Association; and (b) (i) by January of each Fiscal Year until completion of the Project, furnish to the Association for its review and comment its forward budget allocation for VERS for the following year, and (ii) adopt such budget satisfactory to the Association, including pro- vision of adequate allocations for VERS of not less than the equi- valent of Shillings 1.75 billion (in constant shillings) for each year. Section 3.03. Except as the Association shall otherwise agree, procurement of the goods 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 3.04. Without limitation upon the provisions of Article IX of the General Conditions, the Borrower shall: (a) prepare 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, of such scope and in such detail as the Association shall reasonably request, for the future operation of the Project; (b) afford the Association a reasonable opportunity to exchange views with the Borrower on said plan; and (c) thereafter, carry out said plan with due diligence and efficiency and in accordance with appropriate practices, taking into account the Association's comments thereon. Section 3.05. (a) The Borrower shall maintain, until completion of the Project: (i) the CSRS, (ii) the National Steering Committee, and (iii) the Ministerial Reform Committees, and other Reform Committees established under VERS, all with staff in adequate numbers and under terms of reference satisfactory to the Association. (b) Without limitation to or restriction upon its other reporting requirements under the General Conditions or this Agree- ment, the Borrower shall submit to the Association for review semi- annual progress reports on the Project not later than March 31 and Page 5 September 30 of each year. Said progress reports shall cover, inter alia: (i) budget allocations and actual expenditures for VERS, (ii) the number of civil servants retrenched under VERS, and (iii) the number of retrenched civil servants who have been trained. (c) The NSC shall meet at least once every six months to review the progress reports referred to in paragraph (b) above prior to submission to the Association. Section 3.06. (a) The Borrower shall carry out jointly with the Association, not earlier than June 30, 1996 and not later than September 30, 1996, a midterm review of the progress made in carrying out the Project and the Program. This review shall cover, among other things: (i) the workings of VERS; (ii) compensation reform; (iii) staff rationalization; (iv) personnel management; (v) staff development; and (vi) ministerial rationalization plans. (b) The Borrower shall furnish to the Association, at least 90 days prior to the midterm review described in paragraph (a) above, a report, in scope and detail satisfactory to the Association, describing the status of the items listed in such paragraph and the status of Project and Program implementation generally. (c) Based on such midterm review, the Borrower shall promptly prepare an action plan acceptable to the Association for the further implementation of the Project and the Program and shall thereafter implement such action plan. Section 3.07. The Borrower shall take all necessary governmental action to ensure that positions vacated by retirees through the VERS are eliminated and cancelled from the civil service establishment. 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 para- graph (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, a certified copy of 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, 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; Page 6 (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 or payment out of the Special 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 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 pro- cedures 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 events are specified: (a) a situation has arisen which shall make it improbable that the Program, or a significant part thereof, will be carried out; (b) subject to paragraph (c) of this Section: (i) the right of the Borrower to withdraw the proceeds of any loan or grant made to the Borrower for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms thereof, or (ii) any such loan shall have become due and payable prior to the agreed maturity thereof. (c) Paragraph (b) of this Section shall not apply if the Borrower establishes to the satisfaction of the Association that: (i) such suspension, cancellation, termination or prematuring is not caused by the failure of the Borrower to perform any of its obligations under such agreement; and (ii) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. 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 (b) (i) of this Agree- ment shall occur, subject to the proviso of Section 5.01 (c) of this Agreement. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Borrower has furnished to the Association evidence satisfactory to the Association that a functioning accounts section, with staff in adequate numbers and with qualifications and experience satisfactory to the Association, has been established within CSRS. The said accounting unit shall be headed by a chief accountant whose qualifications and experience shall be satis- factory to the Association; and Page 7 (b) the Borrower has furnished to the Association evidence satisfactory to the Association showing that all positions already vacated by retirees through the VERS have been eliminated and cancelled from the civil services establishment. 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 Representatives of the Borrower; Addresses Section 7.01. The Minister for Finance 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 P.O. Box 30007 Nairobi, Kenya Cable address: Telex: FINANCE 22921 Nairobi MINFIN-KE For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) 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. REPUBLIC OF KENYA By /s/ Benjamin E. Kipkorir Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Francis X. Colao Acting Regional Vice President Page 8 Africa 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) Computers and 2,540,000 100% of foreign Equipment expenditures and 90% of local expenditures (2) Vehicles 240,000 100% of foreign expenditures and 90% of local expenditures (3) Consultants' 9,480,000 100% Services (4) Training 2,090,000 100% of foreign expenditures and 90% of local expenditures (5) Office 410,000 80% Supplies (6) Refunding of 970,000 Amounts due pur- Project Prepara- suant to Section tion Advance 2.02 (c) of this Agreement (7) Unallocated 1,470,000 __________ TOTAL 17,200,000 ========== 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; and (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. 3. Notwithstanding the provisions of paragraph 1 above, no with- drawals shall be made in respect of payments made for expenditures prior to the date of this Agreement. 4. The Association may require withdrawals from the Credit Account to be made on the basis of statements of expenditure for expenditures for: (a) goods under contracts not exceeding $100,000 equivalent, (b) services under contracts not exceeding $100,000 equivalent for consulting firms and $50,000 equivalent for individual consultants, and (c) all local training, under such terms and conditions as the Association shall specify by notice to the Borrower. SCHEDULE 2 Page 9 Description of the Project The objectives of the Project are to assist the Borrower in reforming its civil service and in improving the performance of selected ministries by: (a) rationalization of staffing and improved staff control; (b) introducing compensation reform; (c) improving personnel management practices; (d) improving opportu- nities for staff development; and (e) ministerial rationalization. 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: Staffing Rationalization 1. Improving the design of VERS, including carrying out a review of the costs and benefits of the system. 2. Developing an overall structure for establishment and payroll control. 3. Developing and implementing of a new Integrated Personnel and Payroll Database system. 4. Strengthening the capacity of CSRS in managing the reform program. 5. Acquisition of vehicles and computers for CSRS. Part B: Compensation Reforms 1. Carrying out a comprehensive review of pay and benefits, grading policies and procedures and job evaluation techniques. 2. Carrying out a study on civil servants' housing scheme. 3. Implementing a pilot program on performance-related pay system. Part C: Personnel Management 1. Developing a human resource strategy and a training scheme in change management techniques. 2. Carrying out a program for the improvement of personnel manage- ment organization and procedures, including options for decentrali- zation. 3. Developing a modern performance appraisal system. Part D: Staff Development 1. Strengthening the Kenya Institute of Administration in providing high quality market-oriented training courses to civil servants and retirees through the acquisition of computers, office equipment and infrastructure rehabilitation. 2. Carrying out a review of the structure of the KIA, its course portfolio and other services. 3. Improving the financial management of KIA. 4. Assisting the Government training institute, Mombasa, in training retirees retrenched under VERS. 5. Training for staff in CSRS, DPM, NSC and Ministerial Reform Committees in civil service management and related fields. Part E: Rationalization of Ministries 1. Carrying out rationalization programs in selected ministries involving: Page 10 (a) carrying out an organization review of each ministry; (b) assisting in the design and execution of implementation programs; (c) carrying out a review of management structures and practices, including the personnel management function; (d) updating job descriptions, regrading posts and introducing a new performance appraisal system; (e) improving establishment control through building interim MIS systems to improve monitoring of staff numbers; (f) carrying out studies on staffing norms; and (g) acquisition of computers, vehicles and other equipment. * * * The Project is expected to be completed by October 31, 1997. SCHEDULE 3 Procurement and Consultants' Services Section I. Procurement of Goods Part A: International Competitive Bidding 1. Except as provided in Part C hereof, goods shall be procured under contracts awarded in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1992 (the Guidelines), and in accordance with the following additional procedures: (a) When contract award is delayed beyond the original bid validity period, such period may be extended once, subject to and in accordance with the provisions of paragraph 2.59 of the Guidelines, by the minimum amount of time required to complete the evaluation, obtain necessary approvals and clearances and award the contract. The bid validity period may be extended a second time only if the bidding documents or the request for extension shall provide for appropriate adjustment of the bid price to reflect changes in the cost of inputs for the contract over the period of extension. Such an increase in the bid price shall not be taken into account in the bid evaluation. With respect to each contract made subject to the Association's prior review in accordance with the provisions of Part D.2(a) of this Section, the Association's prior approval will be required for (i) a first extension of the bid validity period if the period of extension exceeds sixty (60) days, and (ii) any subsequent extension of the bid validity period. (b) In the procurement of goods in accordance with this Part A, the Borrower shall use the relevant standard bidding documents issued by the Bank, with such modifications thereto as the Association shall have agreed to be necessary for the purposes of the Project. Where no relevant standard bidding documents have been issued by the Bank, the Borrower shall use bidding documents based on other interna- tionally recognized standard forms agreed with the Association. 2. To the extent practicable, contracts for computers, vehicles and office equipment shall be grouped into bid packages estimated to cost the equivalent of $50,000 or more. Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A.1 hereof, goods manufactured in Kenya may be granted a margin of preference in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and Page 11 paragraphs 1 through 4 of Appendix 2 thereto. Part C: Other Procurement Procedures 1. Computers, vehicles and equipment estimated to cost the equivalent of $170,000 or less per contract, up to an aggregate amount equivalent to $1,210,000, may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association. 2. Items or groups of items for goods estimated to cost the equi- valent of $50,000 or less per contract, up to an aggregate amount equivalent to $750,000, may be procured under contracts awarded on the basis of comparison of price quotations obtained from at least three suppliers eligible under the Guidelines, in accordance with procedures acceptable to the Association. Part D: Review by the Association of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for computers, vehicles and equipment estimated to cost the equivalent of $100,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Association pursuant to said paragraph 2 (d) shall be furnished to the Association prior to the making of the first payment out of the Special Account in respect of such contract. (b) With respect to each contract not governed by the preceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract together with the other information required to be furnished to the Association pursuant to said paragraph 3 shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to this Agreement. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the Credit Account are to be made on the basis of statements of expenditure. 2. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants 1. In order to assist the Borrower in carrying out the Project, the Borrower shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Association on the basis of the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Bank in August 1981 (the Consultant Guidelines). For complex, time-based assignments, the Borrower shall employ such consultants under contracts using the standard form of contract for consultants' services issued by the Bank, with such modifications as shall have been agreed by the Association. Where no relevant standard contract documents have been issued by the Bank, the Borrower shall use other standard forms agreed with the Association. 2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions of the Consultant Guidelines requiring prior Associa- tion review or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts shall not apply to (a) contracts for the employment of consulting firms estimated to cost less than $100,000 equivalent each, or (b) Page 12 contracts for the employment of individuals estimated to cost less than $50,000 equivalent each. However, this exception to prior Association review shall not apply to (a) the terms of reference for such contracts; (b) single-source selection of consulting firms; (c) assignments of a critical nature, as reasonably determined by the Association; (d) amendments to contracts for the employment of consulting firms raising the contract value to $100,000 equivalent or above; or (e) amendments to contracts for the employment of individual consultants raising the contract value to $50,000 equivalent or above. SCHEDULE 4 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories 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 accor- dance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equiva- lent to $2,000,000 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 limited to an amount equivalent to $1,200,000 until the aggregate amount of with- drawals from the Credit Account plus the total amount of all out- standing special commitments entered into by the Association pur- suant to Section 5.02 of the General Conditions shall be equal to or exceed the equivalent of SDR 6,100,000. 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 a deposit or deposits 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 docu- ments and other evidence required pursuant to para- graph 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. Page 13 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 expen- ditures. 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 (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, less the amount of any outstanding special commitment 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. Page 14 (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.