Page 1 CONFORMED COPY INTERIM FUND CREDIT NUMBER N006-0 AM Interim Fund Development Credit Agreement (Enterprise Development Project) between REPUBLIC OF ARMENIA and INTERNATIONAL DEVELOPMENT ASSOCIATION as Administrator of the interim trust fund established with funds contributed by certain members of International Development Association pursuant to Resolution No. IDA 184 of the Board of Governors of International Development Association Dated January 13, 1997 INTERIM FUND CREDIT NUMBER N006-0 AM INTERIM FUND DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated January 13, 1997, between REPUBLIC OF ARMENIA (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) as administrator (the Administrator) of the interim trust fund (Interim Fund) established with funds contributed by certain members of the Association, pursuant to Resolution No. IDA 184 of the Board of Governors of the Association, adopted on June 26, 1996 (the Interim Fund Resolution). WHEREAS (A) by the Interim Fund Resolution, the Interim Fund has been established, constituted of the funds contributed by certain members of the Association and administered by the Association acting as Administrator of the Interim Fund, in accordance with the provisions of the Interim Fund Resolution; (B) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Administrator to assist in the financing of the Project through the provision of resources from the Interim Fund, and the Administrator has determined that such assistance would be in accordance with the provisions of the Interim Fund Resolution; (C) to assist in the financing of the Project, the Borrower intends to obtain: (i) a loan from the Kreditanstalt f(r Wiederaufbau (KfW) in an amount equivalent to $5,000,000 (the KfW Loan); and (ii) a grant from the United States Agency for International Development (USAID) in an amount equivalent to $1,000,000 (the USAID Grant) (KfW and USAID hereinafter referred to collectively as the Co-financiers) on the terms and conditions set forth in agreements to be entered into between the Borrower and the Co-financiers (Co-financiers’ Agreements); WHEREAS the Administrator has agreed, on the basis, inter alia, of the foregoing, to extend the Interim Fund to the Borrower upon the terms and conditions set forth in this Agreement; Page 2 NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Development Credit Agreements" of the Association, dated January 1, 1985, with the modifications set forth in Schedule 6 to this Agreement (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) "CBA" means the Central Bank of Armenia. (b) "EDIPA" means the Enterprise Development and Foreign Investment Promotion Agency established as an autonomous agency under the Ministry of Economy pursuant to Decree No. 19 of the Ministry of Economy dated January 30, 1996; (c) "ESF" means the Enterprise Support Fund established within EDIPA; (d) "Investment Enterprise" means a private enterprise to which a Participating Financial Institution proposes to make or has made a Sub-loan; (e) "LIBOR Base Rate" means the London interbank offered rate for six-month deposits in Dollars, expressed as a percentage per annum; (f) "Operational Manual" means the manual, approved by EDIPA and the Administrator, containing eligibility criteria, appraisal approval and supervision rules and procedures for grants to be provided by EDIPA to finance activities under Part A.1 (a) and (b) of the Project, as such Operational Manual may be changed from time to time upon agreement with the Administrator; (g) "Participating Financial Institution" or "PFI" means a bank or other financial institution, duly established and operating under the laws of the Borrower, which shall have been selected by the Borrower for participation in the Project pursuant to Schedule 7 to this Agreement, and approved by the Administrator for participation in the Project; (h) "PIFCA" means Private Investment Finance Corporation of Armenia, to be established by private entities and international financial institutions to intermediate foreign equity and loans to finance small and medium scale enterprises; (i) "PMU" means the Project Management Unit established by the Borrower within the Foreign Aid Coordination Center under the Ministry of Economy to oversee activities under the Project in accordance with the terms of this Agreement; (j) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; (k) "Sub-loan" means a loan made or proposed to be made by a Participating Financial Institution out of the proceeds of the Interim Fund Credit to an Investment Enterprise for a Sub-project; (l) "Subsidiary Financing Agreement" means the agreement referred to in paragraph 5 of Schedule 4 to this Agreement; and (m) "Subsidiary Loan Agreement" means any of the Subsidiary Loan Agreements entered into between the Borrower and a Participating Financial Institution for the purposes of making Sub-loans by such Participating Financial Institution for Sub-projects under the Project and the term "Subsidiary Loan" means the loan provided under a Subsidiary Loan Agreement; (n) "Sub-project" means a specific development project to be carried out by an Investment Enterprise utilizing the proceeds of a Sub-loan; ARTICLE II Page 3 The Interim Fund Credit Section 2.01. The Administrator 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 eleven million six hundred thousand Special Drawing Rights (SDR 11,600,000). Section 2.02. (a) The amount of the Interim Fund Credit may be withdrawn from the Interim Fund Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Administrator shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Interim Fund Credit. (b) The Borrower may, for the purposes of the Project, open and maintain in Dollars a special deposit account in a bank on terms and conditions satisfactory to the Administrator, including appropriate protection against set-off, seizure or attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 5 to this Agreement. Section 2.03. The Closing Date shall be July 1, 2002 or such later date as the Administrator shall establish. The Administrator 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 Interim Fund Credit not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from the date sixty days after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Interim Fund Credit Account or canceled; 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 paragraph (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\1efourths of one per cent (3/4 of 1%) per annum on the principal amount of the Interim Fund Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on January 15 and July 15 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Interim Fund Credit in semi-annual installments payable on each January 15 and July 15 commencing January 15, 2007 and ending July 15, 2031. Each installment to and including the installment payable on July 15, 2016, shall be one and one-fourth per cent (1-1/4%) of such principal amount, and each installment thereafter shall be two and one-half percent (2-1/2%) of such principal amount. (b) Whenever (i) the Borrower's per capita gross national product (GNP), as determined by the Association, shall have exceeded for three consecutive years the level established annually by the Association for determining eligibility to access the Association’s resources; and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Administrator may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due consideration by the Association of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by: (A) requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Interim Fund Credit shall have been repaid; and (B) requiring the borrower to commence repayment of the principal amount of the Interim Fund Credit as of the first semiannual payment date referred to in paragraph (a) above falling six months or more after the date on which the Administrator notifies the Borrower that the events set out in this paragraph (b) have occurred, provided, however, that there Page 4 shall be a grace period of a minimum of five years on such repayment of principal; (c) If so requested by the Borrower, the Administrator may revise such modification referred to in paragraph (b) above to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Administrator on the principal amount of the Interim Fund Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Administrator, such revision shall not change the grant element obtained under the abovementioned repayment modification; and (d) If, at any time after a modification of terms pursuant to paragraph (b) above, the Administrator determines that the Borrower's economic condition has deteriorated significantly, the Administrator may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end shall carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, banking, accounting and environmental practices and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section, and except as the Borrower and the Administrator shall otherwise agree, the Borrower shall carry out the Project in accordance with the Implementation Program set forth in Schedule 4 to this Agreement. Section 3.02. Except as the Administrator shall otherwise agree, procurement of the goods, works and services required for the Project and to be financed out of the proceeds of the Interim Fund Credit shall be governed by the provisions of Schedule 3 to this Agreement. Section 3.03. For the purposes of Section 9.07 of the General Conditions, and without limitation thereto, the Borrower shall: (a) prepare, on the basis of guidelines acceptable to the Administrator, and furnish to the Administrator 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 Administrator, a plan for the future operation of the Project; and (b) afford the Administrator a reasonable opportunity to exchange views with the Borrower on said plan. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of the Project of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section including those for the Special Account for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Administrator; (ii) furnish to the Administrator, 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 Administrator shall have Page 5 reasonably requested; and (iii) furnish to the Administrator such other information concerning said records, accounts and the audit thereof as the Administrator shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Interim Fund Credit Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Administrator has received the audit report for the fiscal year in which the last withdrawal from the Interim Fund 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 Administrator'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 procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional events are specified: (a) the Co-financiers’ Agreements shall have failed to become effective by December 31, 1997, or such later date as the Administrator may agree; provided, however, that the provisions of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Administrator that 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. (b) (i) Subject to subparagraph (ii) of this paragraph: (A) The right of the Borrower to withdraw the proceeds of the KfW Loan or the USAID Grant shall have been suspended, canceled or terminated in whole or in part, pursuant to the terms of the agreements providing therefor; or (B) the KfW Loan shall have become due and payable prior to the agreed maturity thereof. (ii) Subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Administrator that: (A) such suspension, cancellation, termination or prematuring is not caused by the failure of the Borrower to perform any of its obligations under the Co-financiers’ Agreements; and (B) 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 any event specified in Section 5.01 (b) (i) (B) subject to the proviso in Section 5.01 (b) (ii) of this Agreement shall occur. ARTICLE VI Page 6 Termination Designation of Administrator Section 6.01. 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. Section 6.02. In the event that the Executive Directors of the Association decide to terminate the functions of the Association as administrator of the Interim Fund pursuant to Section 7 of the Interim Fund Resolution, all of the rights and obligations of the Administrator under this Agreement shall be assumed by the Association in accordance with the Interim Fund Resolution and such decision of said Executive Directors, as of a date to be notified by the Administrator to the Borrower. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister of 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 1, Government House Republic Square Yerevan 375010 Republic of Armenia Telex: 243331 LADA SU For the Association and the Administrator: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 248423 (MCI) Washington, D.C. 64145 (MCI) IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. REPUBLIC OF ARMENIA By /s/ Armen Sarkissian Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION as Administrator of the interim trust fund established with funds contributed by certain members of International Development Association pursuant to Resolution No. IDA 184 of the Board of Governors of International Development Association By /s/ Johannes Linn Regional Vice President Europe and Central Asia Page 7 SCHEDULE 1 Withdrawal of the Proceeds of the Interim Fund Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Interim Fund Credit, the allocation of the amounts of the Interim Fund Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Interim Fund Credit % of Allocated Expenditures (Expressed in to be Category SDR Equivalent) Financed (1) Sub-projects under Part B of the Project: (a) Goods 6,230,000 100% of foreign expenditures, 100% of local expenditures (ex- factory cost) and 80% of local expend- itures for other items procured locally (b) Works 1,340,000 80% (c) Consulting 50,000 100% services and training (2) Goods under 120,000 100% of foreign Part A of the expenditures, Project 100% of local expenditures (ex-factory cost) and 80% of local expenditures for other items procured locally (3) Consulting 100% Services and Training: (a) under Part 170,000 A (f) of the Project (b) under Parts 3,640,000 A (a), (b), (c), (d) and (e) of the Project (4) Operating costs 50,000 100% TOTAL 11,600,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; (b) the term "local expenditures" means expenditures in the currency of the Page 8 Borrower or for goods or services supplied from the territory of the Borrower; and (c) the term "operating costs" means incremental operating costs related to the operation of EDIPA as a result of the Project, including staff salaries and allowance (other than salaries of government officials); communication and transportation costs, office supplies and minor office equipment. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) a Sub-loan unless the Sub-loan has been made in accordance with the procedures and on the terms and conditions set forth or referred to in Schedule 8 to this Agreement; (b) payments made for expenditures under Category (1), unless at least two PFIs have been accredited in accordance with the provisions of Schedule 7 to this Agreement and Subsidiary Loan Agreements, satisfactory to the Administrator, have been entered into between the Borrower and the two selected PFIs; (c) payments made for expenditures under Category (3) (a), unless a Subsidiary Financing Agreement referred to in paragraph 5 of Schedule 4 to this Agreement has been entered into between the Borrower and PIFCA; and (d) payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not to exceed SDR 1,100,000, may be made in respect of Categories (2) and (3) (b) on account of payments made for expenditures before that date but after November 1, 1996. 4. The Administrator may require withdrawals from the Interim Fund Credit Account to be made on the basis of statements of expenditure for: (i) goods and works under contracts not exceeding $500,000 equivalent; (ii) services of consulting firms under contracts not exceeding $100,000 equivalent; (iii) services of individual consultants under contracts not exceeding $50,000 equivalent; and (iv) operating costs under such terms and conditions as the Administrator shall specify by notice to the Borrower. SCHEDULE 2 Description of the Project The objectives of the Project are: (i) to assist in financing such productive facilities and resources in the Republic of Armenia as will contribute to the economic and social development of the country; (ii) to strengthen investment and export market capacity of private enterprises; and (iii) to strengthen commercial banks and other financial institutions and the capital markets. The Project consists of the following Parts, subject to such modifications thereof as the Borrower and the Administrator may agree upon from time to time to achieve such objectives: Part A: Institution Building in the Enterprise, Banking and Capital Markets Sectors 1. Enterprise Sector (a) Provision of grants to private enterprises to support export market development activities in accordance with the Operational Manual. (b) Provision of grants to private enterprises, in accordance with the Operational Manual, to assist in locating strategic investment partners for contract manufacturing, technology transfer, fixed capital investment and plant completion and buyouts. (c) Institutional support to EDIPA through provision of consultants’ services, training and office equipment. (d) Provision of advisory services to private enterprises in business planning, finance marketing, project analysis and other areas agreed with the Administrator. (e) Provision of advisory services, training and equipment to the PMU. (f) Assistance in local staff development of PIFCA through provision of training and fellowships. 2. Banking Sector Provision of consultants’ services, training and equipment to commercial banks to improve their capacity in credit management, appraisal, work-outs, liability Page 9 management and strategic planning and other areas agreed with the Administrator. 3. Capital Markets Development (a) Provision of consultants’ services and equipment for the development of a regulatory body for the securities market. (b) Provision of technical assistance in drafting of regulations and guidelines governing securities markets. (c) Training of regulators, traders and brokers and other capital markets intermediaries to provide the foundations of an efficient functioning capital market. (d) Provision of public information on operations of securities markets. Part B: Financing of Sub-projects through Participating Financial Institutions The financing of specific development projects through Sub-loans to Investment Enterprises engaged in manufacturing, agribusiness, commercial services, trade, construction, mining, energy services, transport and communications. * * * The Project is expected to be completed by January 1, 2002. SCHEDULE 3 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: General Subject to the eligibility restrictions set forth in Section III of this Schedule, goods and works shall be procured in accordance with the provisions of Section I of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in January 1995 and revised in January and August 1996 (the Guidelines) and the following provisions of this Section, as applicable. Part B: International Competitive Bidding 1. Except as otherwise provided in Part C of this Section, goods and works 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 and works 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 and works shall be grouped in bid packages estimated to cost more than $500,000 equivalent each. (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 Works estimated to cost less than $500,000 equivalent per contract, up to an aggregate amount not to exceed $1,500,000 equivalent, may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. 2. Procurement of Small Works Works estimated to cost less than $100,000 equivalent per contract, up to an amount not to exceed $500,000 equivalent, may be procured under lump-sum, fixed-price contracts awarded on the basis of quotations obtained from three (3) qualified Page 10 domestic contractors in response to a written invitation. The invitation shall include a detailed description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to the Administrator, and relevant drawings, where applicable. The award shall be made to the contractor who offers the lowest price quotation for the required work, and who has the experience and resources to complete the contract successfully. 3. International Shopping Goods estimated to cost $500,000 equivalent or less per contract, up to an aggregate amount not to exceed $5,000,000 equivalent, may be procured under contracts awarded on the basis of international shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.5 of the Guidelines. 4. Commercial Practices Goods estimated to cost $100,000 equivalent or less per contract, may be procured at competitive prices, in accordance with the normal commercial practices of the respective Investment Enterprises acceptable to the Administrator, due account being taken also of other relevant factors such as time of delivery and efficiency and reliability thereof and availability of maintenance and spare parts thereof. Part D: Review by the Administrator 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 Administrator 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 Administrator, and with the provisions of said paragraph 1. 2. Prior Review With respect to each contract for goods and works estimated to cost the equivalent of $500,000 or more, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply. 3. Post Review With respect to each contract not governed by paragraph 2 of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply. Section II.  Employment of Consultants 1. Subject to the eligibility restrictions set forth in Section III of this Schedule, consultants' services shall be procured under contracts awarded in accordance with the provisions 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, such contracts shall be based on the standard form of contract for consultants' services issued by the Bank, with such modifications as shall have been agreed by the Administrator. Where no relevant standard contract documents have been issued by the Bank, other standard forms acceptable to the Administrator shall be used. 2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions of the Consultant Guidelines requiring prior Administrator 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) contracts for the employment of individuals estimated to cost less than $50,000 equivalent each. However, said exceptions to prior Administrator 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 Administrator; (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. Section III. Eligibility Restrictions Page 11 1. Notwithstanding the provisions of paragraph 1.6 of the Guidelines, the proceeds of the Interim Fund Credit may only be withdrawn on account of expenditures for goods and works provided by nationals of, and produced in or supplied from, Participating Countries; consequently, nationals of countries that are not Participating Countries and bidders offering goods and works from such countries shall be disqualified from bidding for such contracts, and the bidding documents shall so specify. 2. Notwithstanding the provisions of paragraphs 1.02 of the Consultants’ Guidelines, only consultants from Participating Countries shall be eligible to provide services financed out the proceeds of the Interim Fund Credit. SCHEDULE 4 Implementation Program The provisions of this Schedule shall apply for the purposes of Section 3.01 (b) of this Agreement: 1. The Borrower shall maintain the PMU within the Ministry of Economy with staff and other resources and terms of reference, satisfactory to the Administrator, which shall be responsible for the overall implementation of the Project. 2. For the purpose of carrying out Part A.1 (a) and (b) of the Project, the Borrower shall make available to EDIPA out of the proceeds of the Interim Fund Credit allocated from time to time to Categories (2) and (3) (b) of Schedule 1 to this Agreement, for the purpose of making grants to private enterprises in accordance with the provisions of the Operational Manual, the amount required to finance the activities described in Part A.1 (a) and (b) of the Project. 3. PMU shall be responsible for carrying out activities under Part A.2 of the Project in accordance with the operating guidelines satisfactory to the Administrator, which will set forth, inter alia, a fee base for the services rendered to commercial banks under Part A.2 of the Project. 4. For the purpose of carrying out Part B of the Project, the Borrower shall: (a) select PFIs in accordance with the eligibility criteria and procedures set forth or referred to in Schedule 7 to this Agreement; (b) shall on-lend to a selected PFI a part of the proceeds of the Interim Fund Credit allocated from time to time to Category (1) of Schedule 1 to this Agreement to finance the cost of Sub-Projects in respect of which PFI has made or proposes to make a Sub-loan in accordance with the terms and conditions referred to in Schedule 8 to this agreement, under a Subsidiary Loan Agreement to be entered between the Borrower and each selected PFI under terms and conditions which shall have been approved by the Administrator, including, inter alia, the following: (i) the maturity of the Subsidiary Loan shall not exceed ten (10) years; (ii) an interest rate shall be charged on the amounts of the Subsidiary Loan withdrawn and outstanding from time to time at the prevailing LIBOR Base Rate plus two percent (2%); and (iii) a commitment fee on the principal amount of the Subsidiary Loan not withdrawn from time to time at a rate of 0.5% per annum; (c) exercise its rights under Subsidiary Loan Agreements in such manner as to protect the interests of the Administrator and the Borrower and to achieve the purposes of the Project, and, except as the Administrator shall otherwise agree, not assign, amend, abrogate or waive any Subsidiary Loan Agreement or any respective provision thereof; (d) take or cause to be taken all actions necessary or appropriate to enable the PFIs to perform in accordance with the provisions of their respective Subsidiary Loan Agreements all the obligations of the PFIs therein set forth, and not to take or permit to be taken any action which would prevent or interfere with such performance; and (e) through the PMU, coordinate the overall execution of Part B of the Project. 5. For the purposes of carrying out Part A (f) of the Project, the Borrower shall relend to PIFCA, the proceeds of the Interim Fund Credit allocated from time to time to Category (3) (a) of Schedule 1 to this Agreement, under a Subsidiary Financing Agreement to be entered between the Borrower and PIFCA, under terms and conditions which shall have been approved by the Administrator and which shall include, without Page 12 limitation: (i) 10-year maturity inclusive of a 3-year grace period; (ii) an interest at the rate of two percent (2%); and (iii) the foreign exchange risk borne by PIFCA. 6. The Borrower shall: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with indicators satisfactory to the Administrator, the carrying out of the Project and the achievement of the objectives thereof; (b) prepare, under terms of reference satisfactory to the Administrator, and furnish to the Administrator, on or about September 30, 1999, a report integrating the results of the monitoring and evaluation activities performed pursuant to sub-paragraph (a) above, 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 Administrator, by October 31, 1999, or such later date as the Administrator shall request, the report referred to in sub-paragraph (b) above, 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 Administrator's views on the matter. SCHEDULE 5 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1), (2), (3) and (4) 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 Interim Fund Credit allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement, provided, however, that notwithstanding the provisions of paragraph 2 (b) of Schedule 5 to the Project Agreement, payments for expenditures to be financed out of the proceeds of free-limit Sub-loans may be made out of the Special Account before the Administrator shall have authorized withdrawals from the Interim Fund Credit Account in respect thereof. Such expenditures, however, shall qualify as eligible expenditures only if the Administrator shall subsequently authorize such withdrawals; and (c) the term "Authorized Allocation" means an amount equivalent to $1,600,000 to be withdrawn from the Interim Fund Credit Account and deposited in the Special Account pursuant to paragraph 3 (a) of this Schedule, provided, however, that unless the Administrator shall otherwise agree, the Authorized Allocation shall be limited to an amount equivalent to $1,000,000 until the aggregate amount of withdrawals from the Interim Fund Credit Account plus the total amount of all outstanding special commitments entered into by the Administrator pursuant to Section 5.02 of the General Conditions shall be equal to or exceed the equivalent of SDR 3,500,000. 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 Administrator 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 Administrator 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 Administrator shall, on behalf of the Borrower, withdraw from the Interim Fund 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 Administrator requests for deposits into the Special Account at such intervals as the Administrator shall specify. Page 13 (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Administrator 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 Administrator shall, on behalf of the Borrower, withdraw from the Interim Fund Credit Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Administrator from the Interim Fund 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 Administrator shall reasonably request, furnish to the Administrator 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 Administrator shall not be required to make further deposits into the Special Account: (a) if, at any time, the Administrator shall have determined that all further withdrawals should be made by the Borrower directly from the Interim Fund 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 Administrator, 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 Administrator pursuant to said Section in respect of the audit of the records and accounts for the Special Account; (c) if, at any time, the Administrator 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 Interim Fund Credit Account pursuant to the provisions of Section 6.02 of the General Conditions; or (d) once the total unwithdrawn amount of the Interim Fund Credit allocated to the eligible Categories for the Project, less the amount of any outstanding special commitment entered into by the Administrator 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 Interim Fund Credit Account of the remaining unwithdrawn amount of the Interim Fund Credit allocated to the eligible Categories for the Project shall follow such procedures as the Administrator shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Administrator 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 Administrator 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 Administrator, the Borrower shall, promptly upon notice from the Administrator: (A) provide such additional evidence as the Administrator may request; or (B) deposit into the Special Account (or, if the Administrator shall so request, refund to the Administrator) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Administrator shall otherwise agree, no further deposit by the Administrator 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 Administrator 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 Administrator, refund to the Administrator such outstanding amount. (c) The Borrower may, upon notice to the Administrator, refund to the Administrator all or any portion of the funds on deposit in the Special Account. Page 14 (d) Refunds to the Administrator made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Interim Fund Credit Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. SCHEDULE 6 Modifications of the General Conditions For purposes of this Agreement, the provisions of the General Conditions are modified as follows: (1) The term "Association", wherever used in the General Conditions means the International Development Association acting as Administrator of the Interim Fund referred to in the Preamble to the Interim Fund Development Credit Agreement; (2) The terms "Development Credit Agreement" and "Credit Account", wherever used in the General Conditions, are amended to read "Interim Fund Development Credit Agreement", "Interim Fund Credit" and "Interim Fund Credit Account", respectively; (3) A new paragraph, numbered 15, is added to Section 2.01 to read as follows: "15. "Participating Country" means any country that meets the requirements set forth in Section 5(e) of Resolution No. IDA 184 of the Board of Governors of the Association, adopted on June 26, 1996, as determined by the Administrator as of the date on which the Interim Fund Credit was approved pursuant to Section 5(c) of said Resolution; and "Participating Countries" means, collectively, all such countries;" (4) The last sentence of Section 3.02 is deleted. (5) The second sentence of Section 5.01 is modified to read: "Except as the Administrator and the Borrower shall otherwise agree, no withdrawals shall be made: (a) on account of expenditures in the territories of any country which is not a Participating Country or for goods produced in, or services supplied from, such territories; or (b) for the purpose of any payment to persons or entities, or for any import of goods, if such payment or import, to the knowledge of the Administrator, is prohibited by a decision of the United Nations Security Council taken under Chapter VII of the Charter of the United Nations." (6) In Sections 6.02 and 7.01 of the General Conditions, the term "Association" shall also mean the International Development Association acting in its own capacity. (7) Section 6.03 is modified to read as follows: "Section 6.03. Cancellation by the Administrator. If (a) the right of the Borrower to make withdrawals from the Interim Fund Credit Account shall have been suspended with respect to any amount of the Interim Fund Credit for a continuous period of thirty days, or (b) at any time, the Administrator determines, after consultation with the Borrower, that an amount of the Interim Fund Credit will not be required to finance the Project’s costs to be financed out of the proceeds of the Interim Fund Credit, or (c) at any time the Administrator determines, with respect to any contract to be financed out of the proceeds of the Interim Fund Credit, that corrupt or fraudulent practices were engaged in by representatives of the Borrower or of a beneficiary of the Interim Fund Credit during the procurement or the execution of such contract, without the Borrower having taken timely and appropriate action satisfactory to the Administrator to remedy the situation, and establishes the amount of expenditures in respect of such contract which would otherwise have been eligible for financing out of the proceeds of the Interim Fund Credit, or (d) at any time, the Association determines that the procurement of any contract to be financed out of the proceeds of the Interim Fund Credit is inconsistent with the procedures set forth or referred to in the Interim Fund Development Credit Agreement and establishes the amount of expenditures in respect of such contract which would otherwise have been eligible for financing out of the proceeds of the Interim Fund Credit, or (e) after the Closing Date, an amount of the Interim Fund Credit shall remain unwithdrawn from the Interim Fund Credit Account, or (e) by the date specified in Page 15 paragraph C.3 (c) of Schedule 8 to this Agreement, the Administrator shall, in respect of any portion of the Interim Fund Credit: (i) have received no applications or requests permitted under subparagraphs (a) or (b) of said paragraph; or (ii) have denied any such applications or requests, the Administrator may, by notice to the Borrower, terminate the right to submit such applications or approvals or to make withdrawals from the Interim Fund Credit Account, as the case may be, with respect to such amount or portion of the Interim Fund Credit. Upon the giving of such notice, such amount or portion of the Interim Fund Credit shall be canceled." SCHEDULE 7 Eligibility Criteria and Procedures for Selection of Participating Financial Institutions 1. Except as provided in paragraph 3 of this Schedule with respect to PIFCA, a Subsidiary Loan Agreement may be entered into with a PFI, duly established and operating under the laws of the Borrower, which, as the Borrower shall have determined, and the Administrator shall have agreed: (a) has an acceptable audit report which: (i) covers the last year of operations; (ii) incorporates a portfolio review; and (iii) is prepared by external auditors in accordance with International Accounting Standards ("IAS"); (b) has been in existence and has produced operating results for a minimum of two years; provided that in the case of a merger or reorganization of two or more PFIs, at least one PFI existed and produced operating results for a minimum of two years; (c) has a capital adequacy ratio as defined under IAS of at least 4%, incorporating risk-weighted ratio as determined by the Basel Committee of Banking Supervision; (d) has provided a certificate of compliance from CBA stating that: (i) it has a valid banking license, and specifying type and date of license; and (ii) the PFI is in general compliance with all relevant banking laws and regulations of the Borrower; (e) has exposure to any one borrower as a percent of its IAS capital of no more than 30 percent by January 1997 or the date of its accreditation as a PFI, whichever is later; (f) has aggregate exposure to insiders (defined as council members, members of the Management Board of such PFI, employees in a management position and shareholders with voting rights in excess of 10 percent) of no more than 100 percent of IAS capital as of the date of its accreditation as a PFI; (g) on the basis of the audit report referred to in paragraph 1 (a) of this Schedule, has adopted adequate policies and procedures with respect to credit administration, loan servicing, and other key areas of banking practice; (h) has established capacity, for credit, accounting, and environmental assessment to manage investment lending to enterprises; and (i) has adopted a strategic corporate plan acceptable to the Administrator which includes, inter alia: (A) a program to fully convert its accounts to IAS by January 1, 1998; (B) specific arrangements to increase its capital adequacy ratio to 8% within a reasonable timetable; and (C) specific arrangements to strengthen its capacity for credit, accounting and environmental assessment for management of investment lending. 2. For the purposes of paragraph 1 of this Schedule, the term "International Accounting Standards" or "IAS" means the accounting standards issued or endorsed by the International Accounting Standards Committee and the term "equity capital" or "capital" means assets minus liabilities, as defined under IAS. 3. For the purpose of enabling PIFCA to qualify as a Participating Financial Institution under the Project, PIFCA shall: (a) adopt a corporate charter, acceptable to the Administrator; (b) adopt an institutional development plan acceptable to the Administrator; Page 16 (c) define capital structure, management, and prudential operating guidelines including capital adequacy, accounting, investment and provisionary policy either in the charter or the institutional development plan; (d) register its charter in accordance with the Borrower’s applicable laws; and (e) have its initial equity capital paid up. SCHEDULE 8 Procedures for and Terms and Conditions of Sub-loans Pursuant to the provisions of paragraph 4 (b) of Schedule 4 to this Agreement and except as the Administrator shall otherwise agree, the principal terms and conditions set forth or referred to in this Schedule shall apply to Sub-loans: A. Terms 1. Each Sub-loan shall be charged interest, on the principal amount thereof withdrawn and outstanding from time to time, at the rate determined by the PFI on the basis of market conditions and risk assessment. 2. Each Sub-loan shall be made for a period not exceeding seven (7) years, inclusive of a grace period not exceeding two (2) years. 3. The foreign exchange risk on Sub-loans shall be borne by an Investment Enterprise. B. Eligibility Criteria 1. Each Sub-loan shall be made to an Investment Enterprise which shall have established to the satisfaction of the Borrower and the Administrator that: (a) it is an enterprise duly established under the laws of the Borrower, with at least fifty-one percent (51%) private shareholding and engaged in manufacturing, agribusiness, commercial services, trade, construction, mining, energy services, transport and communications; (b) has a maximum debt-equity ratio of 3:1; the term "debt" means any indebtedness maturing by its term more than one year after the date on which it is originally incurred, and the term "equity" means assets minus liabilities; and (c) it has its financial statements (including balance sheets and income statements) audited for at least the past year. 2. Sub-loans shall be made for Sub-projects which are determined, on the basis of an appraisal carried out in accordance with guidelines satisfactory to the Administrator, to be: (a) related to the type of business in which an Investment Enterprise is engaged; (b) technically feasible and financially and commercially viable, based on the projected cash-flow analysis; and (c) designed in accordance with appropriate environmental standards and the laws of the Borrower. 3. The total amount of each Sub-loan made to an Investment Enterprise for a Sub-project by a PFI shall not exceed the equivalent of $500,000; and the maximum amount of each Sub-loan made to an Investment Enterprise for a Sub-project by PIFCA shall be established in PIFCA’s charter or its institutional development plan. C. Other Conditions 1. No expenditures for goods, works or services required for a Sub-project shall be eligible for financing out of the proceeds of the Interim Fund Credit unless: (a) the Sub-loan for such Sub-project shall have been approved by the Administrator and such expenditures shall have been made not earlier than ninety (90) Page 17 days prior to the date on which the Administrator shall have received the application and information required under paragraph C.3(a) of this Schedule in respect of such Sub-loan; or (b) the Sub-loan for such Sub-project shall have been a free-limit Sub-loan for which the Administrator has authorized withdrawals from the Interim Fund Credit Account and such expenditures shall have been made not earlier than ninety (90) days prior to the date on which the Administrator shall have received the request and information required under paragraph C.3(b) of this Schedule in respect of such free-limit Sub-loan. For the purposes of this Agreement, a free-limit Sub-loan shall be: (i) a Sub-loan made by a PFI for a Sub-project other than the first three Sub-loans to be made by each PFI and other than any Sub-loan in an amount exceeding $150,000 equivalent; and (ii) notwithstanding the provision of paragraph (i) above, a Sub-loan made by PIFCA for a Sub-project other than the first three Sub-loans made by PIFCA and other than any Sub-loan in an amount exceeding $300,000 equivalent. 3. (a) When presenting a Sub-loan (other than a free-limit Sub-loan) to the Administrator for approval, PFI shall furnish to the Administrator an application, in form satisfactory to the Administrator, together with: (i) a description of the Investment Enterprise and an appraisal of the Sub-project, including a description of the expenditures proposed to be financed out of the proceeds of the Interim Fund Credit; (ii) the proposed terms and conditions of the Sub\1eloan, including the schedule of amortization of the Sub-loan and proposed security arrangements (collateral, guarantee, etc.); and (iii) such other information as the Administrator shall reasonably request. (b) Each request by PFI for authorization to make withdrawals from the Interim Fund Credit Account in respect of a free-limit Sub-loan shall contain: (i) a summary description of the Investment Enterprise and the Sub-project, including a description of the expenditures proposed to be financed out of the proceeds of the Interim Fund Credit, and (ii) the terms and conditions of the Sub-loan, including the schedule of amortization thereof. (c) Applications and requests made pursuant to the provisions of sub-paragraphs (a) and (b) of this paragraph shall be presented to the Administrator on or before January 1, 2002. 4. Sub-loans shall be made on terms whereby PFI shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Administrator and PFI, including the right to: (a) require the Investment Enterprise to carry out and operate the Sub-project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (b) require that: (i) the goods, works and services to be financed out of the proceeds of the Interim Fund Credit shall be procured in accordance with the provisions of Schedule 3 to this Agreement; and (ii) such goods and services shall be used exclusively in the carrying out of the Sub-project; (c) inspect, by itself or jointly with representatives of the Administrator if the Administrator shall so request, such goods and the sites, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (d) require that: (i) the Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (ii) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Interim Fund Credit to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Investment Enterprise to replace or repair such goods; (e) obtain all such information as the Administrator or PFI shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Investment Enterprise and to the benefits to be derived from the Page 18 Sub-project; and (f) suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the Interim Fund Credit upon failure by such Investment Enterprise to perform its obligations under its contract with PFI.