Page  1
CONFORMED COPY
TF020018
Canadian Grant Agreement
Enterprise and Financial Sector Restructuring Project
between
LATVIA
and
INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT
as Administrator of Grant Funds
provided by CANADA
Dated Februry 16, 1995
TF020018
CANADIAN GRANT AGREEMENT
AGREEMENT, dated February 16, 1995, between LATVIA (the Recipient) and the 
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) acting as 
Administrator (the Administrator) of grant funds provided by CANADA (Canada).
WHEREAS (A) pursuant to a letter agreement dated February 6, 1995 between Canada 
and the Bank, Canada has requested the Bank, and the Bank has agreed, to administer 
grant funds to be made available by Canada for the financing of technical assistance 
for the implementation of the Enterprise and Financial Sector Restructuring Project 
(Loans 3795 and 3796 LV); and 
WHEREAS (B) Canada has agreed to make available to the Recipient a grant out of 
said grant funds (the Grant) to finance the cost of carrying out the technical 
assistance described in Schedule 2 to this Agreement (the Technical Assistance) on the 
terms and conditions hereinafter set forth;
NOW THEREFORE the parties hereto hereby agree as follows:
ARTICLE I
General Conditions; Definitions
Section 1.01. (a) The following provisions of the General Conditions Applicable 
to Loan and Guarantee Agreements of the Bank, dated January 1, 1985, with the 
Page  2
modifications set forth in paragraph (b)  of this Section (the General Conditions) 
constitute an integral part of this Agreement:
(i)
Article I;
(ii)
Sections 2.01 (1), (2), (3), (4), (6), (8), (9), (10), (11), (18) 
and (20), 2.02 and 2.03;
(iii)
Section 3.01;
(iv)
Section 4.01 and the first sentence of Section 4.09;
(v)
Article V;
(vi)
Sections 6.01, 6.02 (a), (c), (d), (e), (f), (i) and (k), 6.03, 
6.04 and 6.06;
(vii)
Section 8.01 (b);
(viii)Sections 9.01 (a) and (c), 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09;
(ix)
Sections 10.01, 10.03 and 10.04; and
(x)
Article XI.
(b)   The General Conditions shall be modified as follows:
(i)
the term "Bank," wherever used in the General Conditions, other 
than in Sections 2.01 (8) and 6.02 (f) thereof and the last use of 
such term in Section 5.01 thereof, means the International Bank 
for Reconstruction and Development acting as Administrator of the 
Grant pursuant to the letter agreement between Canada and the Bank 
referred to in Recital (A) of this Agreement, except that in 
Section 6.02, the term "Bank" shall also include the International 
Bank for Reconstruction and Development acting in its own 
capacity;
(ii)
the term "Borrower," wherever used in the General Conditions, 
means the Recipient;
(iii)
the term "Loan Agreement," wherever used in the General 
Conditions, means this Agreement;
(iv)
the term "Loan," wherever used in the General Conditions, means 
the Grant;
(v)
the term "Loan Account," wherever used in the General Conditions, 
means the Grant Account, an account opened by the Administrator on 
its books in the name of the Recipient to which the amount of the 
Grant is credited;
(vi)
the term "Project," wherever used in the General Conditions, means 
the technical assistance described in Schedule 2 to this 
Agreement; and
(vii)
Section 4.01 shall be modified to read:
     "Withdrawals from the Grant Account shall be made in Dollars; 
provided, however, that if the expenditures to be financed out of 
the Grant have been paid or are payable in another currency, the 
Administrator shall, at the request of the Recipient, purchase 
such currency with the proceeds of such withdrawal."
Section 1.02. Wherever used in this Agreement, unless the context otherwise 
requires, the several terms defined in the General Conditions and in the Recitals to 
this Agreement have the respective meanings therein set forth and the following 
additional term has the following meaning:  "LPA" means the Latvian Privatization 
Agency.
ARTICLE II
The Grant
Page  3
     Section 2.01. The Administrator agrees to make available to the Recipient, on the 
terms and conditions set forth or referred to in this Agreement, the Grant in an 
amount of $480,420 (four hundred thousand four hundred twenty dollars).
     Section 2.02. (a) The amount of the Grant may be withdrawn from the Grant Account 
in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule 
may be amended from time to time by agreement between the Recipient and the 
Administrator, for expenditures made (or, if the Administrator shall so agree, to be
made) in respect of the reasonable cost of carrying out the Project and to be financed 
out of the Grant.
(b)
The Recipient shall, for the purposes of the Project, open and maintain 
in dollars a special deposit account in a commercial bank acceptable to the 
Administrator 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 4 to this Agreement.
Section 2.03. The Closing Date shall be July 31, 1998 or
such later date as the Administrator shall establish.  The Administrator shall 
promptly notify the Recipient of such later date.
ARTICLE III
Execution of the Project
     Section 3.01. The Recipient shall carry out the Project with due diligence and 
efficiency and in conformity with appropriate financial, banking and administrative 
practices, and shall provide, promptly as needed, the funds, facilities, services and 
other resources required for the Project.
     Section 3.02. Except as the Administrator shall otherwise agree, procurement of 
the goods and consultants' services required for the Project and to be financed out of 
the Grant shall be governed by the provisions of Schedule 3 to this Agreement.
     Section 3.03. (a) The Recipient 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 Recipient responsible for carrying out the Project or any part 
thereof.
(b)  The Recipient shall:
(i)
have the records and accounts referred to in paragraph (a) of this 
Section 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, the 
report of such audit by said auditors, of such scope and in such 
detail as the Administrator shall have reasonably requested; and
(iii)
furnish to the Administrator such other information concerning 
said records and 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 Grant 
Account were made on the basis of statements of expenditure, the Recipient shall:
(i)
maintain or cause to be maintained, in accordance with paragraph 
(a) of this Section, records and accounts reflecting such 
expenditures;
(ii)
retain, until at least one year after the Administrator has 
received the audit report for the fiscal year in which the last 
withdrawal from the Grant 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 
Page  4
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.
Section 3.04. The Recipient shall prepare quarterly reports to the Bank on the 
progress of the Project, including report on the actual versus planned activities, and 
a final narrative report within six months of the completion of the Project, including 
analysis of the activities and results from the Project, problems during the 
implementation of the Project and conclusions and recommendations.
ARTICLE IV
Effectiveness; Termination
     Section 4.01. This Agreement shall become effective upon its execution by the 
parties hereto.
     Section 4.02. This Agreement shall continue in effect until the Grant has been 
fully disbursed and the parties to this Agreement have fulfilled all their obligations 
hereunder.
ARTICLE V
Representation
     Section 5.01. The Minister of Finance of the Recipient is designated as 
representative of the Recipient for the purposes of Section 11.03 of the General 
Conditions.
     Section 5.02. The following addresses are specified for the purposes of Section 
11.01 of the General Conditions:
For the Recipient:
Ministry of Finance
1 Smilsu Street
Riga, LV 1919
Latvia
Telex:
871 161 299
For the Administrator:
Director
Country Department IV
Europe and Central Asia
International Bank for
Reconstruction and Development
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Cable  address:
Telex:
      INTBAFRAD
197688 (TRT),
      Washington, D.C.
248423 (RCA),
 
 64145 (WUI)or
 82987 (FTCC)
     IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized 
representatives, have caused this Agreement to be signed in their respective names as 
of the day and year first above written.
Page  5
LATVIA
By /s/ Andris Pielbalgs
Authorized Representative
INTERNATIONAL BANK FOR RECONSTRUCTION 
   AND DEVELOPMENT 
   as Administrator of the Grant
By /s/ Paul Siegelbaum
Authorized Representative
SCHEDULE 1
Withdrawal of the Grant
1.
The table below sets forth the Categories of items to be financed out of the 
Grant, the allocation of the amount of the Grant to each Category and the percentage 
of expenditures for items so to be financed in each Category:
   % of
 Amount of the
Expenditures
Category
Grant Allocated
to be Financed
(1)
Consultants'
     471,620      100%
Services
(2)
Equipment and
materials
             8,800
100% of foreign
      expenditures;
      100% of local
      (ex-factory cost)
      expenditures;
      80% of local
      expenditures for
      other items procured
      locally
Total
            480,420
2.
Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be 
made in respect of payments made for expenditures prior to the date of this Agreement.
SCHEDULE 2
Description of Technical Assistance
     The Technical assistance will consist of consultants' services to the LPA.  The 
consultant employed under the Grant Agreement will have the following functions:
1.
Consultation to the Head of the Latvian Privatization Agency (LPA) on strategic, 
management and operational issues related to the implementation of mass privatization 
program through the auctioning of shares of privatized companies to the general 
public.
2.
Supervision of the preparation of the terms of reference and the performance of 
the consultants working on mass privatization with the LPA, negotiation of the 
contracts with the consultants on behalf of the LPA, supervision and evaluation of the 
work of the consultants.
3.
Negotiation with bilateral and multilateral donors of the contracts for 
assistance of the operations of the LPA.
Page  6
4.
Supervision of the cooperation between the LPA and the enterprises selected for 
privatization, including developing the procedures for selection of the enterprises 
for privatization.
5.
Consultation in the selection, supervision and evaluation of
the staff of the LPA, including the design of system for staff appraisal and 
remuneration.
6.
Consultation and advice to the Head of the LPA in intergovernmental and external 
relations.
*    *    *
The Consultant will report to the Head of the Latvian Privatization Agency.
SCHEDULE 3 
Procurement and Consultants' Services
1.
In order to assist the Recipient in the implementation of the technical 
assistance, the Recipient shall employ consultants, nationals of Canada, whose 
qualifications, experience and terms and conditions of employment shall be 
satisfactory to the Bank, and local support staff. Such consultants shall be selected 
in accordance with principles and procedures satisfactory to the Bank on the basis of 
the "Guidelines for the Use of Consultants by World Bank Borrowers and by The World 
Bank as Executing Agency" published by the Bank in August 1981.  Support staff should 
be selected from local nationals under terms and conditions acceptable to the Bank.
2.
Contracts for the procurement of goods estimated to cost the equivalent of less 
than $8,800 shall be awarded in accordance with established commercial practice of the 
Recipient, 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.
SCHEDULE 4
Special Account
1.
For the purposes of this Schedule:
(a) the term "eligible Categories" means Categories 1 and 2 as 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 Grant allocated to the eligible Categories in accordance with 
the provisions of Schedule 1 to this Agreement; and
(c) the term "Authorized Allocation" means an amount equivalent to $48,000 to be 
withdrawn from the Loan Account and deposited in the Special Account pursuant to 
paragraph 3 (a) of this Schedule.
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 Allocations, the Borrower shall furnish 
to the Bank a request or requests for a deposit into the Special Account of an amount 
or amounts determined by the Bank to be required to pay for eligible expenditures 
during the four months following the date of each such request, which amount shall 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 Grant 
Account and deposit in the Special Account such amount or amounts as the Bank shall 
have determined to be so required.
(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.
Page  7
(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 Grant 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 Grant Account 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 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 Grant 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 Bank, within the period 
of time specified in Section 3.03 (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 
Grant Account pursuant to the provisions of Section 6.02 of the General Conditions; or
(d) once the total unwithdrawn amount of the Grant allocated to the eligible 
Categories, minus the total amount of all outstanding special commitments entered into 
by the Bank 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 Grant Account of the remaining unwithdrawn amount of 
the Grant 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 
a 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.
(d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this 
Schedule shall be credited to the Grant Account for subsequent withdrawal or for 
cancellation in accordance with the relevant provisions of this Agreement, including 
the General Conditions.
Page  8