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CONFORMED COPY
CREDIT NUMBER 3209-YEM
Project Agreement
(Sana'a Water Supply and Sanitation Project)
between
INTERNATIONAL DEVELOPMENT ASSOCIATION
and
NATIONAL WATER AND SANITATION AUTHORITY
Dated June 3, 1999
CREDIT NUMBER 3209-YEM
PROJECT AGREEMENT
AGREEMENT, dated June 3, 1999 between the INTERNATIONAL DEVELOPMENT ASSOCIATION 
(the Association) and NATIONAL WATER AND SANITATION AUTHORITY (NWSA).
WHEREAS (A) by the Development Credit Agreement of even date herewith between 
Republic of Yemen (the Borrower) and the Association, the Association has agreed to 
make available to the Borrower an amount in various currencies equivalent to eighteen 
million four hundred thousand Special Drawing Rights (SDR18,400,000), on the terms and 
conditions set forth in the Development Credit Agreement, but only on condition that 
NWSA agree to undertake such obligations toward the Association as are set forth in 
this Agreement;
(B)
by a subsidiary grant agreement to be entered into between the Borrower 
and NWSA, the proceeds of the Credit provided for under the Development Credit 
Agreement will be made available to NWSA on terms and conditions set forth in said 
Subsidiary Agreement; and
WHEREAS NWSA, in consideration of the Association's entering into the 
Development Credit 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 Development Credit Agreement and in the General Conditions (as so defined) have 
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the respective meanings therein set forth.
ARTICLE II
Execution of the Project
Section 2.01. (a) NWSA declares its commitment to the objectives of the Project 
as set forth in Schedule 2 to the Development Credit Agreement, and, to this end, 
shall carry out the Project with due diligence and efficiency and in conformity with 
appropriate administrative, financial and engineering practices and in accordance with 
the Environmental Management Plan, and shall provide, or cause to be provided, 
promptly as needed, the funds, facilities, services and other resources required for 
the Project.
(b)
Without limitation upon the provisions of paragraph (a) of this Section 
and except as the Association and NWSA shall otherwise agree, NWSA shall carry out the 
Project in accordance with the Implementation Program set forth in Schedule 2 to this 
Agreement.
Section 2.02. Except as the Association shall otherwise agree, procurement of 
the goods, works and consultants' services required for the Project and to be financed 
out of the proceeds of the Credit shall be governed by the provisions of Schedule 1 to 
this Agreement.
Section 2.03. (a) NWSA shall carry out the obligations set forth in Sections 
9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to 
insurance, use of goods and services, plans and schedules, records and reports, 
maintenance and land acquisition, respectively) in respect of the Project Agreement.
(b)
For the purposes of Section 9.07 of the General Conditions and without 
limitation thereto, NWSA shall:
(i)
prepare, on the basis of guidelines acceptable to the Association, 
and furnish 
to the Association not later than six (6) months after the 
Closing Date or 
such later date as may be agreed for this 
purpose between the Association and 
NWSA, a plan for the continued 
achievement of the objectives of the Project; 
and
(ii)
afford the Association a reasonable opportunity to exchange views 
with NWSA on 
said plan.
Section 2.04. NWSA shall duly perform all its obligations under the Subsidiary 
Grant Agreement. Except as the Association shall otherwise agree, NWSA shall not take 
or concur in any action which would have the effect of assigning, amending, abrogating 
or waiving the Subsidiary Grant Agreement or any provision thereof.
Section 2.05. (a) NWSA shall, at the request of the Association, exchange views 
with the Association with regard to the progress of the Project, the performance of 
its obligations under this Agreement and under the Subsidiary Grant Agreement, and 
other matters relating to the purposes of the Credit.
(b)
NWSA shall promptly inform the Association of any condition which 
interferes or threatens to interfere with the progress of the Project, the 
accomplishment of the purposes of the Credit, or the performance by NWSA of its 
obligations under this Agreement and under the Subsidiary Grant Agreement.
ARTICLE III
Management and Operations of NWSA
Section 3.01. NWSA shall carry on its operations and conduct its affairs in 
accordance with sound administrative, financial, environmental and engineering 
practices under the supervision of qualified and experienced management assisted by 
competent staff in adequate numbers.
Section 3.02. NWSA shall at all times operate and maintain its plant, machinery, 
equipment and other property, and from time to time, promptly as needed, make all 
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necessary repairs and renewals thereof, all in accordance with sound engineering, 
financial and engineering practices.
Section 3.03. NWSA shall take out and maintain with responsible insurers, or 
make other provision satisfactory to the Association for insurance against such risks 
and in such amounts as shall be consistent with appropriate practice.
ARTICLE IV
Financial Covenants
Section 4.01. (a) NWSA shall maintain a financial management system, including 
records and accounts, and prepare financial statements in a format acceptable to the 
Association, adequate to reflect the operations, resources and expenditures for and in 
connection with the carrying out of the Project.
(b)
NWSA shall:
(i)
have the records, accounts and financial statements referred to in 
paragraph 
(a) of this Section and the records and accounts for the 
Special Account for 
each Fiscal Year audited, in accordance with 
auditing standards acceptable to 
the Association 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 (6) months after the end of each Fiscal 
Year, (A) certified copies of 
the financial statements referred to in 
paragraph (a) of this Section for such 
year as so audited, and (B) an 
opinion on such financial statements, records 
and accounts and a report 
of such audit by said auditors, of such scope and in 
such detail as the 
Association shall have reasonably requested; and
(iii)
furnish to the Association such other information concerning such 
records and 
accounts and the audit thereof, and concerning said 
auditors, as the 
Association may from time to time reasonably 
request.
Section 4.02. (a) Without limitation upon the provisions of Section 4.01 of this 
Agreement, the Borrower shall carry out a time-bound action plan acceptable to the 
Association for the strengthening of its financial management system for the Project 
in order to enable NWSA, not later than March 31, 2000, or such later date as the 
Association shall agree, to prepare quarterly Project Management Reports, acceptable 
to the Association, each of which:
(i)
(A) sets forth actual sources and applications of funds for the 
Project, both 
cumulatively and for the period covered by said 
report, and projected sources 
and applications of funds for the 
Project for the six-month period following 
the period covered by said 
report, and (B) shows separately expenditures 
financed out of the 
proceeds of the Credit during the period covered by said 
report and 
expenditures proposed to be financed out of the proceeds of the 
Credit during the six-month period following the period covered by said 
report;
(ii)
(A) describes progress in Project implementation, both 
cumulatively and for 
the period covered by said report, and (B) 
explains variances between actual 
and previously forecast 
implementation targets; and
(iii)
sets forth the status of procurement under the Project and 
expenditures under 
contracts financed out of the proceeds of the Credit, 
as at the end of the 
period covered by said report.
(b)
Upon the completion of the action plan referred to in paragraph (a) of 
this Section, NWSA shall prepare, in accordance with guidelines acceptable to the 
Association, and furnish to the Association not later than forty five (45) days after 
the end of each calendar quarter a Project Management Report for such period.
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Section 4.03. (a) Except as may otherwise be agreed with the Association, NWSA 
shall produce funds from internal resources equivalent (i) for Fiscal Years 1999 and 
2000, to not less than the sum of its total operating expenses; and (ii) starting 
Fiscal Year 2001, to not less than the sum of its total operating expenses, its debt 
service requirements and five percent (5%) of the  capital expenditures expected to be 
incurred during the following Fiscal Year.
(b)
By December 15 of each Fiscal Year, on the basis of forecasts prepared by 
NWSA and satisfactory to the Association, NWSA shall review with the Association 
whether it would meet the requirements stated in paragraph (a) of this Section, and 
shall furnish to the Association the results of such review upon its completion.  If 
any such review shows that NWSA would not meet the requirements set forth in paragraph 
(a) of this Section, NWSA shall promptly take all necessary measures (including, 
without limitation, adjustments in the structure or levels of its tariffs) in order to 
meet such requirements.
(c)
For purposes of this Section:
(i)
The term “total operating expenses” means all expenses related to 
operations, 
adequate maintenance, general and administrative costs, 
contributions to NWSA 
headquarters, and taxes and payments in lieu 
of taxes, but excluding interest, 
depreciation and other charges on 
debt.
(ii)
The term “funds from internal sources” means the difference 
between:
(A)
the sum of revenues from all sources related to operations, 
consumer 
deposits, net non-operating income and any reduction 
in working capital 
other than cash; and
(B)
the sum of all expenses related to operations, adequate 
maintenance, 
general and administrative costs, contributions to 
NWSA headquarters, 
and taxes and payments in lieu of taxes, but 
excluding interest, 
depreciation and other charges on 
debt.
(iii)
The term “net non-operating income” means the difference between:
(A)
revenues from all sources other than those related to
operations; and
(B)
expenses, including taxes and payments in lieu of taxes,
incurred in the generation of revenues in (A) above.
(iv)
The term "working capital other than cash” means the difference 
between 
current assets excluding cash and current liabilities 
at the end of each 
Fiscal Year.
(v)
The term “current assets excluding cash” means all assets other 
than cash 
which could in the ordinary course of business be 
converted into cash within 
twelve (12) months, including accounts 
receivable, marketable securities, 
inventories and prepaid 
expenses properly chargeable to operating expenses 
within the 
next Fiscal Year.
(vi)
The term “current liabilities” means all liabilities which will 
become due and 
payable or could under circumstances then existing be 
called for payment 
within twelve (12) months, including accounts 
payable, customer advances, debt 
services requirements, taxes and 
payments in lieu of taxes and dividends.
(vii)
The term “debt” means any indebtedness of the Sana’a branch of 
NWSA maturing 
by its terms more than one (1) year after the date on 
which it is originally 
incurred.
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(viii) Debt shall be deemed to be incurred: (A) under a loan contract or 
agreement or 
other instrument providing for such debt or for the 
modification of its terms 
of payment on the date of such contract, 
agreement or instrument; and (B) 
under a guarantee agreement, on 
the date the agreement providing for such 
guarantee has been 
entered into.
(ix)
The term "debt service requirements" means the aggregate amount of 
repayments 
(including sinking fund payments, if any) of, and interest 
and other charges 
on debt.
(x)
The term “capital expenditures” means all expenditures incurred on 
account of 
fixed assets, including interest charged to construction, 
related to 
operations.
(xi)
Whenever for the purposes of this Section it shall be necessary to 
value, in 
terms of the currency of the Borrower, debt payable in 
another currency, such 
valuation shall be made on the basis of the 
prevailing lawful rate of exchange 
at which such other currency is, 
at the time of such valuation, obtainable for 
the purposes of servicing 
such debt, or, in the absence of such rate, on the 
basis of a rate of 
exchange acceptable to the Association.
ARTICLE V
Effective Date; Termination
Section 5.01. This Agreement shall come into force and effect on the date upon 
which the Development Credit Agreement becomes effective.
Section 5.02. (a) This Agreement and all obligations of the Association and of 
NWSA thereunder shall terminate on the earlier of the following two dates:
(i)
the date on which the Development Credit Agreement shall terminate 
in 
accordance with its terms; or
(ii)
the date twenty (20) years after the date of this Agreement.
(b)
If the Development Credit Agreement terminates in accordance with its 
terms before the date specified in paragraph (a) (ii) of this Section, the Association 
shall promptly notify NWSA of this event.
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 addresses 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 Association:
International Development Association
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Cable address:
Telex:
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INDEVAS
248423 (MCI) or
Washington, D.C.
 64145 (MCI)
For National Water and Sanitation Authority:
P.O. Box 104
Sana'a
Republic of Yemen
Cable address: 
Telex:
Sana’a
YEYE
Section 6.02. Any action required or permitted to be taken, and any documents 
required or permitted to be executed, under this Agreement on behalf of NWSA or by 
NWSA on behalf of the Borrower under the Development Credit Agreement, may be taken or 
executed by its Director General, or by such other person or persons as NWSA shall 
designate in writing, and NWSA shall furnish to the Association sufficient evidence of 
the authority and the authenticated specimen signature of each such person.
Section 6.03. This Agreement may be executed in several counterparts, each of 
which shall be an original, and all collectively but one instrument.
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.
INTERNATIONAL DEVELOPMENT ASSOCIATION
By /s/ Inder K. Sud
Acting Regional Vice President
Middle East and North Africa
NATIONAL WATER AND SANITATION AUTHORITY
By /s/ Abdulwahab Al-Hajjri 
Authorized Representative
SCHEDULE 1
Procurement and Consultants' Services
Section I.
Procurement of Goods and Works
Part A:
General
1.
Goods and works shall be procured in accordance with (a) the provisions of 
Section I of the "Guidelines for Procurement under IBRD Loans and IDA Credits" 
published by the Association in January 1995 and revised in January and August 1996, 
September 1997 and January 1999, subject to the modifications thereto set forth in 
paragraph 2 of this Part A (the Guidelines), and (b) the provisions of the following 
Parts of this Section I.
2.
In paragraphs 1.6 and 1.8 of the Guidelines, the references to “Bank member 
countries” and “member country” shall be deemed to be references, respectively, to 
“Participating Countries” and “Participating Country.”
Part B:
International Competitive Bidding
1.
Except as otherwise provided in Part C of this Section, goods and works shall be 
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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 and works to be procured under 
contracts awarded in accordance with the provisions of paragraph 1 of this Part B.
Preference for domestically manufactured goods and domestic contractors
The provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 2 
thereto shall apply to goods manufactured in the territory of the Borrower and works 
to be carried out by domestic contractors.
Part C:
Other Procurement Procedures
1.
National Competitive Bidding
Goods estimated to cost less than $500,000 equivalent per contract, up to an 
aggregate amount not to exceed $1,000,000 equivalent, and works estimated to cost less 
than $1,000,000, up to an aggregate amount not to exceed $7,000,000 equivalent, may be 
procured under contracts awarded in accordance with the provisions of paragraphs 3.3 
and 3.4 of the Guidelines.
2.
National Shopping
Goods estimated to cost less than $50,000 equivalent per contract, up to an 
aggregate amount not to exceed $100,000 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
Goods estimated to cost less than $5,000 equivalent per contract, and costing 
$50,000 equivalent or less in the aggregate, may, with the Association's prior 
agreement, be procured in accordance with the provisions of paragraph 3.7 of the 
Guidelines.
Part D:
Review by the Association of Procurement Decisions
1.
Procurement Planning
Prior to the issuance of any invitations to pre-qualify for bidding or to bid 
for contracts, the proposed procurement plan for the Project shall be furnished to the 
Association for its review and approval, in accordance with the provisions of 
paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods and works shall 
be undertaken in accordance with such procurement plan as shall have been approved by 
the Association, and with the provisions of said paragraph 1.
2.
Prior Review
With respect to the first three (3) contracts for works and goods, the 
procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall 
apply.
3.
Post Review
With respect to each contract not governed by paragraph 2 of this Part, the 
procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply.
Section II.
Employment of Consultants
Part A:
General
1.
Consultants’ services shall be procured in accordance with the provisions of the 
Introduction and Section IV of the "Guidelines:  Selection and Employment of 
Consultants by World Bank Borrowers" published by the Bank in January 1997 and revised 
in September 1997 and January 1999, subject to the modifications thereto set forth in 
paragraph 2 of this Part A (the Consultant Guidelines), and (b) the provisions of the 
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following provisions of Parts of this Section II.
2.
In paragraph 1.10 of the Consultant Guidelines, the references to “Bank member 
countries” and “member country” shall be deemed to be references, respectively, to 
“Participating Countries” and “Participating Country.”
Part B:
Quality- and Cost-based Selection
Except as otherwise provided in Part C of this Section, consultants’ services 
shall be procured under contracts awarded in accordance with the provisions of Section 
II of the Consultant Guidelines, 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.
Part C:
Other Procedures for the Selection of Consultants
1.
Quality-based Selection
Services estimated to cost less than $100,000 equivalent per contract may be 
procured under contracts awarded in accordance with the provisions of paragraphs 3.1 
through 3.4 of the Consultant Guidelines.
2.
Selection Based on Consultants Qualifications
Services estimated to cost less than $100,000 equivalent per contract may be 
procured under contracts awarded in accordance with the provisions of paragraphs 3.1 
and 3.7 of the Consultant Guidelines.
3.
Single Source Selection
Services which are estimated to cost less than $100,000 equivalent per contract, 
may, with the Association's prior agreement, be procured in accordance with the 
provisions of paragraphs 3.8 through 3.11 of the Consultant Guidelines.
Part D:
Review by the Association of the Selection of Consultants
1.
Selection Planning
Prior to the issuance to consultants of any requests for proposals, the proposed 
plan for the selection of consultants under the Project shall be furnished to the 
Association for its review and approval, in accordance with the provisions of 
paragraph 1 of Appendix 1 to the Consultant Guidelines.  Selection of all consultants’ 
services shall be undertaken in accordance with such selection plan as shall have been 
approved by the Association, and with the provisions of said paragraph 1.
2.
Prior Review
With respect to each contract for the employment of consulting firms and 
individual consultants, the procedures set forth in paragraphs 1, 2 (other than the 
third subparagraph of paragraph 2 (a)) and 5 of Appendix 1 to the Consultant 
Guidelines shall apply.
SCHEDULE 2
Implementation Program
1.
In order to assist in carrying out the Project, NWSA shall maintain PMU with 
professional staffing in adequate numbers whose qualifications and experience shall be 
acceptable to the Association. The responsibilities of PMU shall include the 
management of the procurement, disbursement, accounting and auditing processes under 
the Project. NWSA, through PMU, shall coordinate the carrying out of Part A.2 of the 
Project with NWRA and Parts D.2, E.2 and E.3 of the Project with the Technical 
Secretariat.
2.
NWSA shall:
(a)
maintain policies and procedures adequate to enable it to monitor and 
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evaluate on an ongoing basis, in accordance with indicators satisfactory to the 
Association, the carrying out of the Project and the achievement of the objectives 
thereof;
(b)
prepare, under terms of reference satisfactory to the Association, and 
furnish to the Association, on or about December 31, 2000, a report integrating the 
results of the monitoring and evaluation activities performed pursuant to paragraph 
(a) of this Section, on the progress achieved in the carrying out of the Project 
during the period preceding the date of said report and setting out the measures 
recommended to ensure the efficient carrying out of the Project and the achievement of 
the objectives thereof during the period following such date; and
(c)
review with the Association, by February 28, 2001, or such later date as 
the Association shall request, the report referred to in paragraph (b) of this 
Section, and, thereafter, take all measures required to ensure the efficient 
completion of the Project and the achievement of the objectives thereof, based on the 
conclusions and recommendations of the said report and the Association’s views on the 
matter.