Page 1 The World Bank 1818 H Street N.W. (202) 477-1234 I NTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD INTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS June 6, 2003 Mario Laborín Gómez Director General Dirección Internacional Nacional Financiera, S.N.C. Plaza Inn, Insurgentes Sur 1971, Torre IV, piso 8 01020 México, D.F. México Alonso Pascual García Tames Claudia María Bazúa Witte Director General de Crédito Público Tesorera de la Fede ración Secretaría de Hacienda y Crédito Público Secretaría de Hacienda y Crédito Público Palacio Nacional, Patio Central, p. 3 of.3010 Av. Constituyentes 1001, Edif. “A”piso 4 Col. Centro, Deleg. Cuauhtémoc, Col. Belén de las Flores, Deleg. Álvaro Obregón, 06066 México, D.F. 01110, México, D.F. México México Jaime Parada Director General Consejo Nacional de Ciencia y Tecnología Av. Constituyentes No. 1046, piso 3 Colonia Lomas Altas 11950, México, D.F. México Re: Loan 4349-ME (Knowledge and Innovation Project) Second Amendment to the Loan and Project Agreements Dear Sirs: We refer to the Loan Agreement between International Bank for Reconstruction and Development (the Bank) and Nacional Financiera, S.N.C. (the Borrower), to the Guarantee Agreement between United Mexican States (the Guarantor) and the Bank, and to the Project Agreement between Consejo Nacional de Ciencia y Tecnología (CONACYT) and the Bank, all dated October 4, 1998 and amended on September 18, 2002 (the Loan Agreement, Guarantee Agreement and Project Agreement, respectively), with respect to the above-captioned Project. Terms not otherwise defined herein shall have the meanings assigned to them in the Loan Agreement. The Bank is pleased to inform you that the Bank has established December 31, 2005 as the later date for purposes of Section 2.03 of the Loan Agreement. In addition, the Bank hereby informs you of its agreement to amend the following sections of the Loan Agreement: Section 1.02(h) and (k), the table under paragraph 1 of Schedule 1, Page 2 paragraph 4(c) of Schedule 1, Part A.4 of Schedule 2, and the expected Project completion date under the last paragraph of Schedule 2. Finally, the Bank informs you of its agreement to amend the following sections of the Project Agreement: Sections I.1, Section I.5 and Section I.6 of Schedule 2. As a result of this amendment and the amendment dated September 18, 2002, the Loan and Project Agreement shall read as per attachments A and B to this Amendment Letter (text added in this amendment appears double underlined and text deleted in this amendment appears stricken through). Please confirm your agreement to this amendment by signing and dating the four originals of this letter in the space provided below, and returning one to us. This amendment shall enter into effect as of its date first above written, upon receipt by the Bank of one original of this letter signed by you. Sincerely yours, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Miguel Lopez-Bakovic Acting Country Director Country Management Unit Colombia and Mexico AGREED: NACIONAL FINANCIERA, S.N.C. UNITED MEXICAN STATES AS GUARANTOR By: /s/ Mario Laborín Gomez By: /s/ Alonso García Tamés Authorized Representative Authorized Representative Date: June 6, 2003 Date: June 6, 2003 By: /s/Claudia María Bazúa Witte Date: _ September 22, 2003 _______ Signed by Tesorería de la Federación for the only purposes of Article 54 of the Ley del Servicio de Tesorería de la Federación , regarding the Guarantor’s obligations set forth in Article II, Section 2.01 of the Guarantee Agreement. CONSEJO NACIONAL DE CIENCIA Y TECNOLOGIA By: /s/ Jaime Parada Authorized Representative Page 3 Date: June 6. 2003 Page 4 Attachment A LOAN NUMBER 4349-ME Loan Agreement (Knowledge and Innovation Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and NACIONAL FINANCIERA, S.N.C. Dated October 4, 1998 (as amended through June 6, 2003 ) Page 5 LOAN NUMBER 4349-ME LOAN AGREEMENT AGREEMENT, dated October 4, 1998, as amended through June 6, 2003 between the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and NACIONAL FINANCIERA, S.N.C. (the Borrower). WHEREAS (A) United Mexican States (the Guarantor) and the Borrower, having been satisfied as to the feasibility and priority of the Project described in Schedule 2 to this Agreement have requested the Bank to assist in the financing of the Project; WHEREAS (B) by an agreement (the Guarantee Agreement) of even date herewith between the Guarantor and the Bank, the Guarantor has agreed to guarantee the obligations of the Borrower in respect of the Loan and to undertake such other obligations as set forth in the Guarantee Agreement; WHEREAS (C) the Project will be carried out by Consejo Nacional de Ciencia y Tecnología (CONACYT) with the Borrower's and the Guarantor's assistance and, as part of such assistance, the Borrower will make available to CONACYT the proceeds of the Loan as hereinafter provided; and WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan to the Borrower upon the terms and conditions set forth in this Agreement and in the Project Agreement of even date herewith between the Bank and CONACYT; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements for Single Currency Loans" of the Bank, dated May 30, 1995, as amended through December 2, 1997 (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) “CONACYT” means Consejo Nacional de Ciencia y Tecnología , the Guarantor's National Council of Science and Technology; (b) “CONACYT Law” means the Guarantor’s Ley Orgánica del Consejo Nacional de Ciencia y Tecnología, published in the Guarantor’s Diario Oficial de la Federación on June 5, 2002; Page 6 (c) “DAAF” means Dirección Adjunta de Administración y Finanzas , CONACYT’s Adjunct Directorate for Administration and Finance; (d) “DAIC” means Dirección Adjunta de Investigación Científica , CONACYT’s Adjunct Directorate for Scientific Research; (e) “FORCCYTEC” means Fondo para el Fortalecimiento de las Capacidades Científicas y Tecnológicas , CONACYT’s Fund for Strengthening Scientific and Technological Capability; (f) “Millennium Science Initiative” means the Bank’s initiative and included in CONACYT’s plan of action and guidelines detailed in its Convocatoria 2000 Para Grupos de Inve stigación de la Iniciativa Científica del Milenio (ICM) , dated August 24, 2000; (g) “Monitoring Indicators” means the monitoring indicators set forth in Annex A to the letter of even date herewith from CONACYT to the Bank; (h) “Operating Rules” means CONACYT’s operating rules for Parts A.1 and A.4 of the Project provided to the Bank under cover of CONACYT’s letter dated May 20, 1998 and accepted by the Bank pursuant to its letter dated May 22, 1998, as such operating rules may be amended from time to time with the agreement of the Bank (including, without limitation, the amendment related to Part A.4 of the Project sent by the Borrower to the Bank on May 9, 2003); (i) “Project Agreement” means the agreement between the Bank and CONACYT of even date herewith, as such agreement may be amended from time to time, and such term includes all agreements supplemental to such agreement; (j) “Project Coordination Unit” or “PCU” means Unidad Coordinadora del Proyecto , the unit established and operating within CONACYT as set forth in Section 2.10 of the Project Agreement; (k) “Project Implementation Plan” means the detailed plan for the implementation of the Project provided to the Bank by CONACYT under cover of its letter dated May 20, 1998, and accepted by the Bank pursuant to its letter dated May 22, 1998, as such plan may be amended from time to time with the agreement of the Bank (including, without limitation, the amendment related to Part A.4 of the Project sent by the Borrower to the Bank on May 9, 2003); (l) “SEP-CONACYT Research Centers” means the system of 27 public research centers coordinated by CONACYT; (m) “Special Account” means the account referred to in Section 2.02 (b) of this Agreement; and (n) “Young Researchers Program” means the program described in the Project Implementation Plan under the heading “ Apoyo para jóvenes investigadores. ” Page 7 ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement, an amount equal to three hundred million Dollars ($300,000,000). Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods, services and the Equity Contribution (as defined in paragraph 3 of Schedule 1 to this Agreement) required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan. (b) The Borrower may, for the purposes of the Project, open and maintain in Dollars a special deposit account in Banco de México on terms and conditions satisfactory to the Bank. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 4 to this Agreement. Section 2.03. The Closing Date shall be December 31, 2005 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower, CONACYT and the Guarantor of such later date. Section 2.04. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.05. The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time in accordance with the provisions of Schedule 3 to this Agreement. Section 2.06. Interest and other charges shall be payable in arrears on March 15 and September 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Loan in accordance with the provisions of Schedule 3 to this Agreement. ARTICLE III Transfer of Loan Proceeds; Execution of the Project; Other Covenants Section 3.01 (a) The Borrower shall enter into contractual arrangements with the Guarantor and CONACYT satisfactory to the Bank providing, inter alia, for: (i) the transfer to CONACYT of the proceeds of the Loan; and (ii) the transfer by the Guarantor to the Borrower of such funds as the Borrower shall be required to pay to the Bank on account of principal, interest, and other charges on the Loan. Except as the Bank shall otherwise agree, the Borrower shall not change or fail to enforce any provision of such contractual arrangements. Page 8 (b) The Borrower shall exercise its rights under the contractual arrangements referred to in paragraph (a) above in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan. Section 3.02. Except as the Bank shall otherwise agree, procurement of the goods and services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 1 to the Project Agreement. Section 3.03. The Bank and the Borrower hereby agree that the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) shall be carried out, by CONACYT pursuant to Section 2.09 of the Project Agreement. Section 3.04. The Borrower shall participate in the review referred to in Section 2.07 (d) of the Project Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained records and separate accounts adequate to reflect, in accordance with sound accounting practices, the resources and expenditures in connection with the execution of the Project. (b) The Borrower shall: (i) have the records 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 generally accepted auditing standards and procedures consistently applied, by independent and qualified auditors; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year, the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; (iii) furnish to the Bank each month certified statements of the Special Account; and (iv) furnish to the Bank such other information concerning said records and accounts as well as the audit thereof as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan 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 9 (ii) retain or cause to be retained, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan 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 Bank's representatives to examine such records; and (iv) ensure that such records and separate 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 procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. ARTICLE V Remedies of the Bank Section 5.01. Pursuant to Section 6.02 (p) of the General Conditions, the following additional events are specified: (a) CONACYT shall have failed to perform any of its obligations under the Project Agreement; (b) as a result of events which have occurred after the date of the Loan Agreement, an extraordinary situation shall have arisen which shall make it improbable that CONACYT will be able to perform any of its obligations under the Project Agreement; (c) the CONACYT Law or the Operating Rules shall have been amended, suspended, abrogated, repealed or waived so as to affect, in the opinion of the Bank, materially and adversely the ability of CONACYT to perform any of its obligations under the Project Agreement; and (d) the Guarantor or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment or for the suspension of the operations of CONACYT. Section 5.02. Pursuant to Section 7.01 (k) of the General Conditions, the following additional events are specified: (a) the event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Bank to the Borrower; and (b) the events specified in paragraphs (c) or (d) of Section 5.01 of this Agreement shall occur. Page 10 ARTICLE VI Effective Date; Termination Section 6.01. The following event is specified as an additional condition to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions, namely that the contractual arrangements referred to in Section 3.01 (a) of this Agreement have been executed. Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank: (a) the contractual arrangements referred to in Section 3.01 (a) of this Agreement have been duly authorized or ratified by the Borrower, the Guarantor and CONACYT, have been duly executed, and are legally binding upon the Borrower, the Guarantor and CONACYT in accordance with their terms; and (b) the Project Agreement has been duly authorized or ratified by CONACYT, has been duly executed, and is legally binding upon CONACYT in accordance with its terms. Section 6.03. The date of January 4, 1999 is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Director Internacional 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 Bank: 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) Washington, D.C. 64145 (MCI) or For the Borrower: Dirección Internacional Nacional Financiera, S.N.C. Plaza Inn, Insurgentes Sur 1971 Torre IV, piso 8 Page 11 01020 México, D.F. México Cable address: Telex: NAFIN NAFIME 383-1775765 Mexico City Mexico City Page 12 SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the % of Loan Allocated Expenditures (Expressed in to be Category Dollars) Financed (1) Part A of the Project (a) Grants under Part A.1 171,000,000 75% of grant amounts disbursed (b) Grants under Part A.2 4,800,000 75% of grant amounts disbursed (c) Consultants’ Services 3,000,000 and Training 100% (d) Goods 0 100% of foreign expenditures and 85% of local expenditures (e) Scholarships under Part A.4 71,600,000 100% of scholarship amounts disbursed (2) Part B of the Project (a) Part B.1: (i) Goods 7,270,000 100% of foreign expenditures and 85% of local expenditures (ii) Consultants’ 100,000 100% Services and Training for Part B.1 (b) Matching grants for 3,900,000 100% of amounts Part B.2 disbursed by CONACYT Page 13 Amount of the % of Loan Allocated Expenditures (Expressed in to be Category Dollars) Financed (c) Consultants’ 1,300,000 100% Services, Training and Promotion Services under Parts B.2 and B.3 (d) Goods 130,000 100% of foreign expenditures and 85% of local expenditures (3) Part C of the Project (a) Matching grants under Part C.1: (i) pilot phase 2,350,000 100% of amounts disbursed by CONACYT (ii) implementation 14,600,000 100% of amounts phase disbursed by CONACYT (b) Matching loans under 3,310,000 100% of amounts Part C.2 disbursed by CONACYT (c) Equity Contribution 5,000,000 up to 20% of under Part C.3 Approved Initial Capitalization (d) Consultants’ Services 40,000 100% under Part C.4 (4) Unallocated 0 (5) Goods 3,500,000 100% of foreign expenditures and 85% of local expenditures (6) Project Administration 8,100,000 100% of expenditures through December 31, 2002; 75% of expenditures thereafter _________ TOTAL 300,000,000 2. For the purposes of this Schedule: Page 14 (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Guarantor for goods or services supplied from the territory of any country other than that of the Guarantor; (b) the term "local expenditures" means expenditures in the currency of the Guarantor or for goods or services supplied from the territory of the Guarantor; (c) the term "Promotion Services" means production and dissemination of booklets, brochures, promotional videos and other promotional documentation; organization of seminars, workshops, and specialized encounters and meetings; Internet page preparation; and travel expenses (including per diem or subsistence expenses) for the foregoing, for visits to universities and research centers by CONACYT staff, and for staff or members of Project coordinating units and the private sector advisory council of the Director General of CONACYT; (d) the term "Training" means travel expenses (including per diem or subsistence expenses) for organization of or attendance at workshops, seminars, courses and study tours; acquisition and production of training materials; rental of facilities; fees for trainers; and fellowships; (e) the term "Equity Contribution" means the equity contribution made or to be made by CONACYT in accordance with a detailed proposal to be made by CONACYT to the Bank for the establishment and operation of a pilot capital venture fund under Part C.3 of the Project, as approved by the Bank; (f) the term "Approved Initial Capitalization" means the amount of the initial capitalization of the pilot venture capital fund to be established under Part C.3 of the Project as approved by the Bank pursuant to the proposal referred to in subparagraph (e) above; and (g) the term “Project Administration” means reasonable recurrent expenditures incurred by CONACYT, through the PCU in the daily implementation, management, coordination, monitoring and evaluation of the Project, such as the costs of consumable supplies, maintenance of facilities and equipment and transportation and per diem for the PCU staff, all of which would not have been incurred absent the Project 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of (a) payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not to exceed $10,000,000, may be made on account of payments made for expenditures before that date but after April 14, 1998; (b) payments made for expenditures under Category (1) (b) of the table in paragraph 1 of this Schedule unless the technical committee referred to in Chapter 2, paragraph 21 of the Project Implementation Plan has been established; (c) payments made for expenditures under Category (3) (c) of the table in paragraph 1 of this Schedule unless the Bank has approved CONACYT's detailed proposal for the establishment and operation of a pilot capital venture fund under Part C.3 of the Project referred to in paragraph 2 (e) of this Schedule; and Page 15 (d) payments made for expenditures under Category 3 (a) (ii) of the table in paragraph 1 of this Schedule unless the Bank has approved the operational manual referred to in Schedule 2, Section III, paragraph 1 to the Project Agreement. 4. The Bank may require withdrawals from the Loan Account to be made on the basis of statements of expenditure, under such terms and conditions as the Bank shall specify by notice to the Borrower, for expenditures for: (a) goods under contracts costing less than $350,000 equivalent; (b) services of consulting firms under contracts costing less than $100,000 equivalent and services of individual consultants under contracts costing less than $50,000 equivalent; and (c) grants, scholarships and loans under Parts A.1, A.2, A.4, B.2, C.1 and C.2 of the Project. (d) project administration expenditures as referred to in paragraph 2 (g) of this Schedule. Page 16 SCHEDULE 2 Description of the Project The objective of the Project is to promote the generation, diffusion and application of knowledge for strengthening scientific development and for the promotion of innovation in support of economic development in the territory of the Guarantor. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Bank may agree upon from time to time to achieve such objectives: Part A : Science and Technology Research Improvement of the quality, quantity and relevance of science and technology research through: 1. The provision of grants for competitive, peer-evaluated science and technology projects to consolidate advances in existing disciplines and for the Young Researchers Program. 2. Provision of support for fundamental and applied science and technology research to accelerate the development of lagging or emerging disciplines of scientific relevance and of economic or social importance: (a) the development of new networks and new academic programs; and (b) direct support through grants for specific research projects, including, inter alia, biotechnology research projects and the research projects selected, under a competitive process, under the Millennium Science Initiative. 3. Carrying out of in-depth evaluations of the different disciplines supported by CONACYT, execution of special studies designed to contribute to the quality of CONACYT's policy-making and funding decisions, and execution of other studies related to scientific development in the territory of the Guarantor. 4. The provision of scholarships for graduate studies in science and technology. Part B : Academia-Private Sector Linkages Creation and strengthening of mechanisms and institutions that facilitate the interaction of the academic and private sectors through: 1. Restructuring of most SEP-CONACYT Research Centers to increase their capacity for self-financing and to increase their service to industry. 2. Establishment, promotion and execution of a matching grant scheme to support joint projects between industry and academia in the following areas: applied research; product and process design, development and improvement; and technology adaptation and diffusion. Page 17 3. Provision of technical assistance to universities and other institutions of higher learning to develop or strengthen a variety of outreach activities to the private sector, including: the creation or strengthening of outreach units; creation of joint advisory councils; and the carrying out of workshops, led by the private sector, in which academic researchers can learn about industrial problems. Part C : Enterprise Technology Development 1. Establishment and execution of a technology modernization program primarily for small and medium scale enterprises based on a decentralized network of local agents supported by CONACYT through a matching grant program. 2. Establishment or expansion of regional or sector-based technology centers offering services primarily to small and medium scale enterprises and supported by CONACYT through a matching loan program. 3. Establishment and operation of a pilot venture capital fund majority-owned and operated by the private sector to provide equity investments in start-up, technology-based enterprises. 4. (a) Carrying out of a foresight-for-innovation process in selected sectors of the economy through: (i) the formation of a private-public sector committee to raise awareness of the benefits of technology foresight and to select pilot activities; (ii) execution of selected pilot activities; and (iii) diffusion of the lessons of the pilot activities. (b) Design and implementation on a pilot basis of a technological and commercial information system. (c) Design and implementation of pilot activities to test emerging policy priorities of CONACYT. Part. D: Institutional Strengthening 1. Establishment and operation of the Project Coordination Unit (PCU). 2. Strengthening of PCU’s and CONACYT’s capabilities for the monitoring and evaluation of research projects financed under the Project. * * * The Project is expected to be completed by June 30, 2005. Page 18 SCHEDULE 3 Interest and Principal Repayment Provisions A. General Definitions For purposes of this Schedule, the following terms have the following meanings: (a) "Disbursed Amount" means, in respect of each Interest Period, the aggregate principal amount of the Loan withdrawn from the Loan Account in such Interest Period. (b) "Interest Period" means the initial period from and including the date of this Agreement to, but excluding, the first Interest Payment Date occurring thereafter, and after the initial period, each period from and including an Interest Payment date to, but excluding, the next following Interest Payment Date. (c) "Interest Payment Date" means any date specified in Section 2.06 of this Agreement. (d) "Rate Fixing Date" means, for each Disbursed Amount, the first day of the Interest Period next following the Interest Period in which such Disbursed Amount is withdrawn. B. Interest 1. The principal amount of the Loan shall be divided into Disbursed Amounts. Interest shall accrue on each Disbursed Amount outstanding from time to time at a rate based on a floating rate index prior to its Rate Fixing Date and at a fixed rate from its Rate Fixing Date, as described in paragraph 2 of this Part B. 2. (a) From the date of withdrawal of each amount of each Disbursed Amount withdrawn and outstanding, to but not including the Rate Fixing Date for such Disbursed Amount, interest on each such amount shall accrue, at a rate equal to the applicable: (i) LIBOR Base Rate; plus (ii) LIBOR Total Spread. (b) From the Rate Fixing Date for each Disbursed Amount until final repayment thereof, interest on such Disbursed Amount shall accrue, at a rate equal to the applicable: (i) Fixed Base Rate; plus (ii) Fixed Total Spread. 3. For purposes of paragraph 2 of this Part B, the following terms have the following meanings: (a) "LIBOR Base Rate" means, for the Interest Period in which a Disbursed Amount Page 19 is withdrawn, the London interbank offered rate for six-month deposits in Dollars for value the first day of such Interest Period (or, in the case of the initial Interest Period, for value the day occurring on the Interest Payment Date preceding the first day of such Interest Period), as reasonably determined by the Bank and expressed as a percentage per annum. (b) "LIBOR Total Spread" means, for the Interest Period in which each Disbursed Amount is withdrawn: (i) one half of one percent (1/2 of 1%); (ii) minus (or plus) the weighted average margin, for such Interest Period, below (or above) the London interbank offered rates, or other reference rates, for six-month deposits, in respect of the Bank's outstanding borrowings or portions thereof allocated by the Bank to fund single currency loans or portions thereof made by it that include such Disbursed Amount for such Interest Period; as reasonably determined by the Bank and expressed as a percentage per annum. (c) "Fixed Base Rate" means, for each Disbursed Amount, the equivalent of the London interbank offered rate for six-month deposits in Dollars for value on the Rate Fixing Date for such Disbursed Amount, expressed as a single fixed interest rate based on the fixed interest rates corresponding to the repayment installments of such Disbursed Amount, as reasonably determined by the Bank and expressed as a percentage per annum. (d) "Fixed Total Spread" means, for each Disbursed Amount: (i) one-half of one percent (1/2 of 1%); (ii) minus (or plus) the cost margin, applicable on the Rate Fixing Date for such Disbursed Amount, below (or above) the London interbank offered rates, or other reference rates, for six-month deposits, in respect of the Bank's outstanding borrowings or portions thereof allocated to fund single currency loans or portions thereof made by it that include such Disbursed Amount; plus; and (iii) the Bank's risk spread applicable on the Rate Fixing Date for such Disbursed Amount; as reasonably determined by the Bank and expressed as a percentage per annum. 4. The Bank shall notify the Guarantor and the Borrower of LIBOR Base Rate, LIBOR Total Spread, Fixed Base Rate and Fixed Total Spread applicable to each Disbursed Amount, promptly upon the determination thereof. 5. Whenever, in light of changes in market practice affecting the determination of the interest rates referred to in this Schedule, the Bank determines that it is in the interest of its borrowers as a whole and of the Bank to apply a basis for determining the interest rates applicable to the Loan other than as provided in this Schedule, the Bank may modify the basis for determining the interest rates applicable to amounts of the Loan not yet withdrawn upon not less than six (6) months' notice to the Guarantor and the Borrower of the new basis. The new basis shall become effective on the expiry of the notice period unless the Guarantor or the Borrower Page 20 notifies the Bank during said period of its objection thereto, in which case said modification shall not apply to the Loan. C. Repayment 1. Subject to the provisions of paragraph 2 of this Part C, the Borrower shall repay each Disbursed Amount of the Loan in semiannual installments payable on each March 15 and September 15, the first such installment to be payable on the seventh (7th) Interest Payment Date following the Rate Fixing Date for such Disbursed Amount and the last such installment to be payable on the eighteenth (18th) Interest Payment Date following the Rate Fixing Date for such Disbursed Amount. Each installment shall be one-twelfth (1/12) of such Disbursed Amount. 2. Notwithstanding the provisions of paragraph 1 of this Part C, if any installment of principal of each Disbursed Amount would, pursuant to the provisions of said paragraph 1, be payable after March 15, 2014, the Borrower shall also pay on said date the aggregate amount of all such installments. 3. After each Disbursed Amount shall have been withdrawn, the Bank shall promptly notify the Borrower and the Guarantor of the amortization schedule for such Disbursed Amount. Page 21 SCHEDULE 4 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1) through (3) 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 Loan allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount of $20,000,000 to be withdrawn from the Loan Account and deposited in the Special Account pursuant to paragraph 3 (a) of this Schedule, provided, however, that unless the Bank shall otherwise agree, the Authorized Allocation shall be limited to an amount of $10,000,000 until the aggregate amount of withdrawals from the Loan Account plus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions shall be equal to or exceed the amount of $40,000,000. 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 Bank 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 Bank 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 Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit in 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 Bank requests for deposits into the Special Account at such intervals as the Bank shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Bank from the Loan Account under the respective eligible Categories, and in the respective amounts, as shall have been justified by said documents and other evidence. Page 22 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Bank shall reasonably request, furnish to the Bank such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shall not be required to make further deposits into the Special Account: (a) if, at any time, the Bank shall have determined that all further withdrawals should be made by the Borrower directly from the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or (b) if the Borrower shall have failed to furnish to the Bank, 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 Bank pursuant to said Section in respect of the audit of the records and accounts for the Special Account; (c) if, at any time, the Bank 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 Loan Account pursuant to the provisions of Section 6.02 of the General Conditions; or (d) once the total unwithdrawn amount of the Loan allocated to the eligible Categories, less the amount of any outstanding special commitment entered into by the Bank pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of the Loan allocated to the eligible Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank 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 Bank 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 Bank, the Borrower shall, promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; or (B) deposit into the Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further deposit by the Bank 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 Bank 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 Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the Special Account. Page 23 (d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. Page 24 Attachment B LOAN NUMBER 4349-ME Project Agreement (Knowledge and Innovation Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and CONSEJO NACIONAL DE CIENCIA Y TECNOLOGIA Dated October 4, 1998 (as amended through June 6, 2003 ) Page 25 LOAN NUMBER 4349-ME PROJECT AGREEMENT AGREEMENT, dated October 4, 1998, (as amended through June 6, 2003 ) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and CONSEJO NACIONAL DE CIENCIA Y TECNOLOGIA (CONACYT). WHEREAS (A) by the Loan Agreement of even date herewith between Nacional Financiera, S.N.C. (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount equal to three hundred million Dollars ($300,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition, inter alia, that CONACYT agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by contractual arrangements to be entered into between the Borrower, United Mexican States, and CONACYT, the proceeds of the loan provided for under the Loan Agreement will be made available to CONACYT on the terms and conditions set forth in said contractual arrangements; and WHEREAS CONACYT, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Loan Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. CONACYT declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, scientific, financial, and environmental practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 2.02. Except as the Bank shall otherwise agree, procurement of the goods and consultants' services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.03. CONACYT shall duly perform all its obligations under the contractual arrangements referred to in Section 3.01 (a) of the Loan Agreement. Except as the Bank shall Page 26 otherwise agree, CONACYT shall not change or fail to enforce any provisions of said contractual arrangements. Section 2.04. (a) CONACYT shall, at the request of the Bank, exchange views with the Bank with regard to the progress of the Project, the performance of its obligations under this Agreement and under the contractual arrangements, and other matters relating to the purposes of the Loan. (b) CONACYT shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Loan, or the performance by CONACYT of its obligations under this Agreement. Section 2.05. CONACYT shall strengthen, on the basis of terms of reference agreed with the Bank, its DAAF for the purpose of coordinating all financial reporting requirements under the Project. Section 2.06. CONACYT shall carry out the Project in accordance with the Project Implementation Plan and the supplemental implementation arrangements set forth or referred to in Schedule 2 to this Agreement. Section 2.07. CONACYT shall: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with the Monitoring Indicators, the carrying out of the Project and the achievement of the objectives thereof; (b) no later than March 31 in each year of Project execution furnish to the Bank: (i) a progress report on the execution of the Project during the previous calendar year, said reports to be of such scope an detail as the Bank shall have reasonably requested and including the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section; (ii) the actual budget allocation for the Project during the previous calendar year and the approved budget allocation for the current calendar year; and (iii) sectoral evaluations of the Project's effectiveness, including the results of any special studies commissioned for the purpose; (c) not later than April 15, 2000 cause an independent agency or specialized firm, with qualifications and experience and under terms of reference agreed with the Bank, to prepare a report integrating the results of the monitoring and evaluation activities performed to paragraph (a) of this Section on the progress achieved in the carrying out of 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 the achievement of its objectives during the period following such date; and (d) review with the Bank by October 31, 2000, or such later date as the Bank may request, the report referred to in paragraph (c) of this Section and, thereafter, take all measures required to ensure the efficient completion of the Project and the achievement of its objectives based on the conclusions and recommendations of the said report and the Bank's views on the matter. Section 2.08. CONACYT shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and Page 27 services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the Project. Section 2.09. For the purposes of Section 9.01 of the General Conditions and without limitation thereto, CONACYT shall: (a) prepare, on the basis of guidelines acceptable to the Bank, and furnish to the Bank not later than six months after the Closing Date or such later date as may be agreed for this purpose between CONACYT and the Bank, a plan designed to ensure the continued achievement of the Project's objectives; and (b) afford the Bank a reasonable opportunity to exchange views with CONACYT on said plan. Section 2.10. (a) CONACYT shall establish, and thereafter maintain, at all times, until the completion of the Project, a Project coordination unit with functions and responsibilities satisfactory to the Bank, including, inter alia , the following functions and responsibilities: (i) monitoring the implementation of the Project and ensuring effective coordination among the staff and institutions responsible for the implementation of the Project, pursuant to the provisions of the Operating Rules and the Project Implementation Plan; (ii) preparing and submitting to the Bank the reports referred to in Section 4.01 of this Agreement; (iii) carrying out of the procurement of goods and consultants’ services required for the Project pursuant to the provisions of Schedule 1 to this Agreement; (iv) overseeing the general administration of the Project, with respect to Loan proceeds withdrawal, financial management, accounting and auditing; (v) reviewing, jointly with the Borrower, the Guarantor and the Bank, the progress achieved by CONACYT in the implementation of the Project on the basis of the Monitoring Indicators, and carrying out the actions required for the subsequent implementation of the Project; (vi) monitoring progress achieved by the SEP-CONACYT Research Centers in the implementation of their respective activities under the Project; and (vii) identifying any possible obstacle or difficulty affecting or threatening to affect such implementation. (b) CONACYT shall ensure that the PCU is, at all times, during the execution of the Project, headed by a Project coordinator (the Project Coordinator), with qualifications, experience, functions and responsibilities satisfactory to the Bank. (c) The Project Coordinator shall be assisted by technical and administrative staff in adequate numbers and with qualifications and experience satisfactory to the Bank, including, inter alia : (i) one accountant with technical expertise in financial management matters (the Project Accountant); (ii) a specialist in procurement procedures, guidelines and contracts (the Procurement Specialist); and (iii) an officer responsible for administrative and operational matters (the Administrative Manager). (d) Without limitation or restriction upon other provisions of this Agreement, CONACYT shall provide, promptly as needed, the funds, facilities, services, staff and other resources required for the discharge of the functions of the PCU. Page 28 ARTICLE III Management and Operations of CONACYT Section 3.01. CONACYT shall carry on its operations and conduct its affairs in accordance with sound administrative, scientific and financial practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. CONACYT shall at all times operate and maintain its premises, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and administrative practices. ARTICLE IV Financial Covenants Section 4.01. (a) CONACYT shall maintain records and accounts adequate to reflect in accordance with consistently maintained sound accounting practices its operations and financial condition, and to register separately the operations, resources and expenditures related to the Project. (b) CONACYT shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with generally accepted auditing standards and procedures, by independent and qualified auditors; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year: (A) a certified copy of the financial statements referred to in paragraph (a) above for such year as so audited; and (B) the report of such audit by said auditors of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, or for all expenditures with respect to which withdrawals were made from the Special Account, CONACYT shall provide to the Borrower all records and accounts necessary to allow the Borrower to perform its obligations punctually under Section 4.01 of the Loan Agreement. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Page 29 Section 5.02. This Agreement and all obligations of the Bank and of CONACYT hereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify CONACYT thereof. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: 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 Washington, D.C. 64145 (MCI) For CONACYT: Consejo Nacional de Ci encia y Tecnología Av. Constituyentes No. 1046, piso 3 Colonia Lomas Altas México, D.F. 11950 Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of CONACYT may be taken or executed by the Director General of CONACYT or such other person or persons as said Director General shall designate in writing, and CONACYT shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Page 30 Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. SCHEDULE 1 Procurement and Consultants' Services Section I. Procurement of Goods Part A: General Goods 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 and in September 1997 (the Guidelines) and the following provisions of Section I of this Schedule. Part B: International Competitive Bidding 1. Except as otherwise provided in Part C of this Section, goods shall be procured under contracts awarded in accordance with the provisions of Section II of the Guidelines and paragraph 5 of Appendix 1 thereto. 2. The following provisions shall apply to goods to be procured under contracts awarded in accordance with the provisions of paragraph 1 of this Part B. (a) Grouping of Contracts To the extent practicable, contracts for goods shall be grouped in bid packages estimated to cost $350,000 equivalent or more each. (b) Notification and Advertising The invitation to bid for each contract estimated to cost $10,000,000 equivalent or more shall be advertised in accordance with the procedures applicable to large contracts under paragraph 2.8 of the Guidelines. Part C: Other Procurement Procedures 1. National Competitive Bidding (a) Goods estimated to cost less than $500,000 equivalent per contract but more that $100,000 equivalent per contract, up to an aggregate amount not to exceed $5,700,000 equivalent, may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. Page 31 (b) In the procurement of goods in accordance with the provisions of paragraph (a) above, standard bidding documents satisfactory to the Bank shall be used. 2. Shopping (a) Goods estimated to cost $100,000 equivalent or less per contract, up to an aggregate amount not to exceed $27,000,000 equivalent, may be procured under contracts awarded on the basis of international shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. (b) Goods estimated to cost $50,000 equivalent or less per contract, up to an aggregate amount not to exceed $27,000,000 equivalent, may be procured under contracts awarded on the basis of national shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. 3. Direct Contracting The following goods may, with the Bank’s prior agreement, be procured in accordance with the provisions of paragraph 3.7 of the Guidelines: (a) goods to be procured as an extension of an existing contract or which must be purchased from the original supplier to be compatible with existing equipment; (b) goods which are of a proprietary nature; (c) goods which must be procured from a particular supplier as a condition of a performance guarantee; and (d) goods which are licensed intellectual property. Part D: Review by the Bank of Procurement Decisions 1. Procurement Planning Prior to the issuance of any invitations to prequalify for bidding or to bid for contracts, the proposed procurement plan for the Project shall be furnished to the Bank for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods and works shall be undertaken in accordance with such procurement plan as shall have been approved by the Bank, and with the provisions of said paragraph 2. Prior Review With respect to each contract to be awarded in accordance with the provisions of Part B of this Schedule, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply. 3. Post Review With respect to each contract not governed by paragraph 2 of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply. Page 32 Section II. Employment of Consultants Part A: General Consultants' services shall be procured in accordance with the provisions of the Introduction and Section IV of the "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" published by the Bank in January 1997 and revised in September 1997 (the Consultant Guidelines) and the following provisions of Section II of this Schedule. Part B: Quality- and Cost-based Selection 1. Except as otherwise provided in Part C of this Section, consultants' services shall be procured under contracts awarded in accordance with the provisions of Section II of the Consultant Guidelines, paragraph 3 of Appendix 1 thereto, Appendix 2 thereto, and the provisions of paragraphs 3.13 through 3.18 thereof applicable to quality- and cost-based selection of consultants. 2. The following provisions shall apply to consultants' services to be procured under contracts awarded in accordance with the provisions of the preceding paragraph. The short list of consultants, estimated to cost less than $200,000 equivalent per contract, may comprise entirely national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Part C: Other Procedures for the Selection of Consultants 1. Selection Under a Fixed Budget Services of a straightforward nature under Part B of the Project that can be precisely defined and that are estimated to cost less than $200,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions of paragraphs 3.1 and 3.5 of the Consultant Guidelines. 2. Individual Consultants Services for tasks that meet the requirements set forth in paragraph 5.01 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 Bank of the Selection of Consultants 1. Selection Planning Prior to the issuance to consultants of any requests for proposals, the proposed plan for the selection of consultants under the Project shall be furnished to the Bank 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 Bank, and with the provisions of said paragraph 1. Page 33 2. Prior Review (a) With respect to each contract for the employment of consulting firms to be procured in accordance with the provisions of Part B and Part C.1 of this Section II, and estimated to cost the equivalent of $200,000 or more, the procedures set forth in paragraphs 1, 2 and (other than the third subparagraph of paragraph 2 (a)) and 5 of Appendix 1 to the Consultant Guidelines shall apply. (b) With respect to each contract for the employment of consulting firms for to be procured in accordance with the provisions of Part B and Part C.1 of this Section II, and 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 Bank for its prior review and approval. The contract shall be awarded only after the said approval shall have been given. 3. Post Review With respect to each contract not governed by paragraph 2 of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Consultant Guidelines shall apply. SCHEDULE 2 Supplemental Implementation Arrangements Section I: Part A.1 and A.4 of the Project 1. CONACYT shall carry out Parts A.1 and A.4 of the Project on the basis of the Operating Rules. 2. For the purpose of administering the grants awarded under Part A.1 of the Project, CONACYT shall, no later than July 1, 1999 , restructure DAIC along lines of academic disciplines in accordance with the provisions of the Project Implementation Plan and cause it to be staffed with specialized personnel from said disciplines. 3. CONACYT shall ensure that all questions of an ethical nature relating to the application process, approval and execution of research grants shall be investigated and resolved in accordance with the provisions of the Project Implementation Plan. 4. CONACYT shall enter into grant agreements with recipients of grants under Part A.1 of the Project on the basis of a model form agreement satisfactory to the Bank including, in particular, the requirement that the procurement of goods and services under the grants by the recipients shall be carried out in accordance with the provisions of Schedule 1 to this Agreement. 5. CONACYT shall ensure that the application process, approval and administration of the scholarships granted under Part A.4 of the Project follow the provisions set forth in the Project Implementation Plan. Page 34 6. CONACYT shall enter into scholarship agreements with recipients of scholarships under Part A.4 of the Project on the basis of a model form agreement satisfactory to the Bank. Section II: Part B of the Project CONACYT shall establish, and thereafter maintain during the execution of the Project, a change management unit to support and administer the implementation of Part B.1 of the Project by the SEP-CONACYT Research Centers. Section III: Part C of the Project 1. CONACYT shall first carry out Part C.1 of the Project on a pilot basis. Towards the end of the pilot phase, CONACYT shall forward to the Bank for its approval an operational manual for the further execution of Part C.1 of the Project and shall, thereafter, carry out said Part of the Project in accordance with the operational manual as approved by the Bank. 2. Part C.2 of the Project shall be carried out on the basis of a revision of the operating rules of FORCCYTEC as set forth in the Project Implementation Plan. 3. The pilot venture capital fund referred to in Part C.3 of the Project shall be established and operated in accordance with the provisions of the detailed proposal referred to in paragraph 2 (e) of Schedule 1 to the Loan Agreement as accepted by the Bank.