Page 1 CONFORMED COPY CREDIT NUMBER 3575-YEM DEVELOPMENT CREDIT AGREEMENT (Taiz Municipal Development and Flood Protection Project) between REPUBLIC OF YEMEN and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated November 26, 2001 Page 2 CREDIT NUMBER 3575-YEM DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated November 26, 2001, between REPUBLIC OF YEMEN (the Borrower) and the INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; and WHEREAS the Association has agreed, on the basis, inter alia , of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Development Credit Agreements" of the Association, dated January 1, 1985 (as amended through October 6, 1999) with the modifications set forth below (the General Conditions) constitute an integral part of this Agreement. (a) A new paragraph (12) is added to Section 2.01 to read as set forth below, and the existing paragraphs (12) through (14) of said Section are accordingly renumbered as paragraphs (13) through (15): “12. ‘Participating Country’ means any country that the Association determines meets the requirements set forth in Section 11 of Resolution No. 194 of the Board of Governors of the Association, adopted on April 18, 1999; and ‘Participating Countries’ means, collectively, all such countries.” (b) The second sentence of Section 5.01 is modified to read: “Except as the Borrower and the Association 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 Association, is prohibited by a decision of the United Nations Security Council taken under Chapter VII of the Charter of the United Nations.” Page 3 - 2 - 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) “Affected Persons” means individuals who, as a result of the implementation of the Project, have had, or shall have, their: (i) standard of living adversely affected; (ii) right, title, interest in any house, land (including premises, agricultural and grazing land), or right in annual or perennial crops and trees, or any other fixed or movable asset acquired or possessed, temporarily or permanently; (iii) access to productive assets adversely affected, temporarily or permanently; and (iv) business, occupation, work or place of residence or habitat adversely affected; each, an “Affected Person;” (b) “Eligible Categories” means Categories (1), (2), (3), (4) and (5) set forth in the table in Part A.1 of Schedule 1 to this Agreement; (c) “Eligible Expenditures” means the expenditures for goods, works and services referred to in Section 2.02 (a) of this Agreement and to be financed out of the proceeds of the Credit allocated from time to time to the Special Account; (d) “Environmental Management Plan” and “EMP” mean the Borrower’s plan set out in the environmental assessment report submitted by the Borrower to the Association in April 2001, as such plan may be updated from time to time by agreement of the Borrower and the Association, for implementation of the Project in accordance with certain institutional, mitigating and monitoring measures to offset or reduce adverse environmental impacts to acceptable levels; (e) “Fiscal Year” means the fiscal year of the Borrower commencing on January 1 and ending on December 31; (f) “Governorate” means an administrative division of the Republic of Yemen; (g) “Local Authorities Law” means Law No. 4 of the Borrower promulgated by a Presidential Decree dated February 10, 2000, as the same may be amended from time to time; (h) “MOF” means the Ministry of Finance of the Borrower or any successor thereof; (i) “MLG” means the Ministry of Local Government of the Borrower or any successor thereof; (j) “PMU” means the Project management unit to be maintained in accordance with the provisions of paragraph A.1 of Schedule 4 to this Agreement; (k) “MPWUD” means the Ministry of Public Works and Urban Development of the Borrower, or any successor thereof; (l) “Project Management Report” means each report prepared in accordance with the provisions of Section 4.02 of this Agreement; (m) “Project Preparation Advance” means the Project preparation advance granted by Page 4 - 3 - the Association to the Borrower pursuant to the Letter Agreement signed on behalf of the Association and the Borrower on June 28, 2000, as supplemented by a supplementary Project preparation advance granted by the Association to the Borrower pursuant to the Letter Agreement signed on behalf of the Association and the Borrower on January 8, 2001; (n) “RAP” means the Borrower’s resettlement action plan for carrying out Part B of the Project, satisfactory to the Association, furnished to the Association on April 16, 2001, and updated on November 8, 2001, as such plan may be amended from time to time by agreement of the Borrower and the Association, which sets out, inter alia , the principles and objectives of the RAP, the Affected Persons’ eligibility criteria, compensation, assistance and rehabilitation entitlements, as well as the monitoring and reporting arrangements to ensure compliance with the provisions of the RAP; and (o) “Special Account” means the account referred to in Part B of Schedule 1 to this Agreement. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, an amount in various currencies equivalent to thirty five million six hundred thousand Special Drawing Rights (SDR 35,600,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods, works and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Credit. (b) Promptly after the Effective Date, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and pay itself the amount required to repay the principal amount of the Project Preparation Advance withdrawn and outstanding as of such date and to pay all unpaid charges thereon. The unwithdrawn balance of the authorized amount of the Project Preparation Advance shall thereupon be canceled Section 2.03. The Closing Date shall be December 31, 2005, or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not 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. Page 5 - 4 - (b) The commitment charge shall accrue: (i) from the date sixty days (60) after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or canceled; and (ii) at the rate set as of the June 30 immediately preceding the accrual date and 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 date in that year specified in Section 2.06 of this Agreement. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semi-annually on April 15 and October 15 in each year. Section 2.07. (a) Subject to paragraphs (b), (c) and (d) below, the Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each April 15 and October 15 commencing April 15, 2012, and ending October 15, 2041. Each installment to and including the installment payable on October 15, 2021, shall be one percent (1%) of such principal amount, and each installment thereafter shall be two percent (2%) of such principal amount. (b) Whenever: (i) the Borrower's per capita gross national product (GNP), as determined by the Association, shall have exceeded for three (3) 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 Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due consideration by them of the development of the Borrower's economy, modify the 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 Credit shall have been repaid; and (B) requiring the Borrower to commence repayment of the principal amount of the Credit as of the first semi-annual payment date referred to in paragraph (a) above falling six (6) months or more after the date on which the Association notifies the Borrower that the events set out in this paragraph (b) have occurred, provided, however, that there shall be a grace period of a minimum of five (5) years on such repayment of principal. (c) If so requested by the Borrower, the Association may revise the modification Page 6 - 5 - 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 Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (d) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (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, technical, engineering and environmental standards and 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 Association shall otherwise agree, the Borrower shall carry out the Project in accordance with the Implementation Program set forth in Schedule 4 to this Agreement and the provisions of the Environmental Management Plan. Section 3.02. 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 3 to this Agreement. Section 3.03. For the purposes of Section 9.06 of the General Conditions and without limitation thereto, the Borrower shall: (a) 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 Borrower and the Association, a plan for the continued achievement of the objectives of the Project; and (b) afford the Association a reasonable opportunity to exchange views with the Borrower on said plan. Page 7 - 6 - ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower 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 related to the Project. (b) The Borrower shall: (i) have its 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 appropriate 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 such 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 statement and report of such audit, by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning said records, accounts and financial statements, and the audit thereof, and concerning said auditors, as the Association may from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditure or Project Management Reports, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and separate accounts reflecting such expenditures; (ii) retain, until at least one (1) year after the Association has received the audit report for the Fiscal Year in which the last withdrawal from the Credit Account was made, all records and documents (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association’s representatives to examine such records and documents; and (iv) ensure that such records, documents 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, Page 8 - 7 - together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. 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 the Borrower, not later than April 1, 2002, or such later date as the Association shall agree, to prepare quarterly Project Management Reports, acceptable to the Association, each of which shall: (i) (A) set 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) show 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) describe progress in Project implementation, both cumulatively and for the period covered by said report, and (B) explain variances between actual and previously forecast implementation targets; and (iii) set 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, the Borrower 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. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (l) of the General Conditions, the following additional event is specified, namely, that the Local Authorities Law shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of the Borrower to perform any of its obligations under this Agreement. Section 5.02. Pursuant to Section 7.01 (h) of the General Conditions, the following additional event is specified, namely, that the event specified in Section 5.01 of this Agreement shall occur. Page 9 - 8 - ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of this Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) that the financial management system referred to under Section 4.01 (a) of this Agreement has been established; and (b) that the Borrower has furnished to the Association a Project implementation plan satisfactory in substance to the Association. Section 6.02. The following is specified as an additional matter, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association, namely, that the performance by the Borrower of its obligations under the RAP does not contravene any statute, rule or regulation currently in force in the Republic of Yemen. Section 6.03. The date one hundred twenty (120) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister of Planning and Development 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: P.O. Box 175 Sana'a Republic of Yemen Cable address: Telex: CENPLAN 2266 Sana'a CENPLAN YE Page 10 - 9 - For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: Facsimile: INDEVAS 248423 (MCI); or (202) 477-6391 Washington, D.C. 64145 (MCI) Page 11 - 10 - 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 YEMEN By /s/ Abdulwahab Al-Hajjri Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Jean-Louis Sarbib Regional Vice President Middle East and North Africa Page 12 - 11 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit A. General 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Goods 1,340,000 100% of foreign expenditures, 100% of local expenditures (ex-factory cost); and 85% of local expenditures for other items procured locally (2) Civil works 27,990,000 90% (3) Construction supervision 830,000 100% services under Parts A.1 and B of the Project (4) Expert services and training 3,700,000 100% for capacity building of local councils under Part C.1 of the Project (5) Project Management Costs 290,000 85% (6) Refunding of Project 400,000 Amount due pursuant to Preparation Advance Section 2.02 (b) of this Agreement (7) Unallocated 1,050,000 _________ TOTAL 35,600,000 Page 13 - 12 - 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 Borrower or for goods or services supplied from the territory of the Borrower; and (c) the term "Project Management Costs" means expenditures incurred by PMU on account of utility charges, rent for office space, maintenance of vehicles, fuel, office supplies, banking charges, communication services, audit costs, travel costs, salaries and labor costs and other consumables but excluding salaries of officials of the Borrower. 3. 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. 4. The Association may require withdrawals from the Credit Account to be made on the basis of statements of expenditure for expenditures for: (a) goods under contracts costing less than $200,000 equivalent; (b) works under contracts costing less than $1,000,000 equivalent; (c) services under contracts for consulting firms costing less than $100,000 equivalent; (d) services under contracts for individual consultants costing less than $50,000 equivalent; (e) training; and (f) Project Management Costs, all under such terms and conditions as the Association shall specify by notice to the Borrower. B. Special Account 1. The Borrower shall, for the purposes of the Project, open and maintain in dollars a separate special deposit account in the Central Bank of Yemen, on terms and conditions satisfactory to the Association. 2. After the Association has received evidence satisfactory to it that the Special Account has been opened, withdrawals from the Credit Account of amounts to be deposited into the Special Account shall be made as follows: (a) until the Association shall have received: (i) the first Project Management Report referred to in Section 4.02 (b) of this Agreement, and (ii) a request from the Borrower for withdrawal on the basis of Project Management Reports, withdrawals shall be made in accordance with the provisions of Annex A to this Schedule 1; and (b) upon receipt by the Association of a Project Management Report pursuant to Section 4.02 (b) of this Agreement, accompanied by a request from the Borrower for withdrawal on the basis of Project Management Reports, all further withdrawals shall be made in accordance with the provisions of Annex B to this Schedule 1. 3. Payments out of the Special Account shall be made exclusively for Eligible Expenditures. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Association shall reasonably request, furnish to the Association such documents and Page 14 - 13 - other evidence showing that such payment was made exclusively for Eligible Expenditures. 4. Notwithstanding the provisions of Part B.2 of this Schedule, the Association shall not be required to make further deposits into the Special Account: (a) if the Association determines at any time that any Project Management Report does not adequately provide the information required pursuant to Section 4.02 of this Agreement; (b) if the Association determines at any time that all further withdrawals should be made by the Borrower directly from the Credit Account; or (c) if the Borrower shall have failed to furnish to the Association within the period of time specified in Section 4.01 (b) (ii) of this Agreement, any of the audit reports required to be furnished to the Association pursuant to said Section in respect of the audit of: (A) the records and accounts for the Special Account, or (B) the records and accounts reflecting expenditures with respect to which withdrawals were made on the basis of Project Management Reports. 5. The Association shall not be required to make further deposits into the Special Account in accordance with the provisions of Part B.2 of this Schedule if, at any time, the Association shall have notified the Borrower of its intention to suspend in whole or in part the right of the Borrower to make withdrawals from the Credit Account pursuant to Section 6.02 of the General Conditions. Upon such notification, the Association shall determine, in its sole discretion, whether further deposits into the Special Account may be made and what procedures should be followed for making such deposits, and shall notify the Borrower of its determination. 6. (a) If the Association determines at any time that any payment out of the Special Account was made for an expenditure which is not an Eligible Expenditure, or was not justified by the evidence furnished to the Association, the Borrower shall, promptly upon notice from the Association, provide such additional evidence as the Association may request, or deposit into the Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment. Unless the Association shall otherwise agree, no further deposit by the Association into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Association determines at any time that any amount outstanding in the Special Account will not be required to cover payments for Eligible Expenditures during the six- month period following such determination, the Borrower shall, promptly upon notice from the Association, refund to the Association such outstanding amount. (c) The Borrower may, upon notice to the Association, refund to the Association all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Association made pursuant to sub-paragraph (a), (b) or (c) of this paragraph 6 shall be credited to the Credit Account for subsequent withdrawal or for cancellation in accordance with the provisions of the Credit Agreement. Page 15 - 14 - Annex A to SCHEDULE 1 Operation of Special Account When Withdrawals Are Not Made On the Basis of Project Management Reports 1. For the purposes of this Annex, the term "Authorized Allocation" means an amount equivalent to $1,500,000 to be withdrawn from the Credit Account and deposited into the Special Account pursuant to paragraph 2 of this Annex. 2. Withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Association a request or requests for deposit into the Special Account of an amount or amounts which in the aggregate do not exceed the Authorized Allocation. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount as the Borrower shall have requested. (b) For replenishment of the Special Account, the Borrower shall furnish to the Association requests for deposit into the Special Account at such intervals as the Association shall specify. Prior to or at the time of each such request, the Borrower shall furnish to the Association the documents and other evidence required pursuant to Part B.3 of Schedule 1 to this Agreement for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for Eligible Expenditures. Each such deposit into the Special Account shall be withdrawn by the Association from the Credit Account under one or more of the Eligible Categories. 3. The Association shall not be required to make further deposits into the Special Account, once the total unwithdrawn amount of the Credit minus the total amount of all outstanding special commitments entered into by the Credit pursuant to Section 5.02 of the General Conditions, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit allocated to said Categories shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for Eligible Expenditures. Page 16 - 15 - Annex B to SCHEDULE 1 Operation of Special Account When Withdrawals Are Made On the Basis of Project Management Reports 1. Except as the Association may otherwise specify by notice to the Borrower, all withdrawals from the Credit Account shall be deposited by the Association into the Special Account in accordance with the provisions of Schedule 1 to this Agreement. Each such deposit into the Special Account shall be withdrawn by the Credit from the Credit Account under one or more of the Eligible Categories. 2. Each application for withdrawal from the Credit Account for deposit into the Special Account 0shall be supported by a Project Management Report. 3. Upon receipt of each application for withdrawal of an amount of the Credit, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account an amount equal to the lesser of: (a) the amount so requested; and (b) the amount which the Association has determined, based on the Project Management Report accompanying said application, is required to be deposited in order to finance Eligible Expenditures during the six-month period following the date of such report; provided, however, that the amount so deposited, when added to the amount indicated by said Project Management Report to be remaining in the Special Account, shall not exceed the equivalent of $3,000,000. Page 17 - 16 - SCHEDULE 2 Description of the Project The objectives of the Project are to assist the Borrower in: (a) strengthening the institutional capacity of the local government in the Taiz Governorate to carry out its mandate under the Local Authorities Law; and (b) protecting the residents and businesses of the city of Taiz, as well as the city’s infrastructure, from seasonal destructive flooding. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A : Flood Protection Structures 1. Construction of flood structures measuring about 8.7 kilometers in length. 2. Carrying out maintenance activities on an existing agricultural dam and existing flood structures located in the vicinity of the city of Taiz. Part B : Resettlement of Affected Persons Implementation and monitoring of the resettlement and rehabilitation process of the Affected Persons in accordance with the RAP, including the construction of roads, potable water systems, sewage collection and treatment systems, and housing units for the benefit of Affected Persons. Part C : Capacity Building 1. Carrying out a capacity building program for local councils established under the Local Authorities Law, consisting of the provision of goods, experts’ services and training, whose objective is to: (a) enable MPWUD, MOF and MLG to implement the Borrower’s decentralization policies espoused by the Local Authorities Law; (b) enable MOF to develop local revenue sources; (c) enable the city of Taiz to develop a municipal department of finance and a department of public works; and (d) enable the city of Taiz to develop a solid waste strategy, including the identification of potential solid waste dumps. 2. Support to PMU, through the provision of experts’ services, goods and training, to strengthen its Project implementation capabilities. * * * The Project is expected to be completed by June 30, 2005. Page 18 - 17 - SCHEDULE 3 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, in September 1997 and in 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 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 shall be grouped in bid packages estimated to cost $200,000 equivalent or more each. (b) Preference for domestically manufactured goods 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. (c) Prequalification Bidders for civil works under Part A of the Project shall be prequalified in accordance with the provisions of paragraphs 2.9 and 2.10 of the Guidelines. (d) Notification and Advertising The invitation to pre-qualify or bid for each contract estimated to cost $100,000 equivalent or more shall be advertised in accordance with the procedures applicable to large contracts under paragraph 2.8 of the Guidelines. Page 19 - 18 - Part C : Other Procurement Procedures 1. National Competitive Bidding Works estimated to cost the equivalent of less than $1,000,000 per contract, up to an aggregate amount equivalent to $1,200,000, and goods estimated to cost the equivalent of less than $200,000 per contract, up to an aggregate amount equivalent to $500,000, may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. 2. International and National Shopping Goods estimated to cost less than $50,000 equivalent per contract, up to an aggregate amount not to exceed $1,000,000 equivalent, may be procured under contracts awarded on the basis of international or national shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 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 contract for works procured in accordance with the provisions of Part C.1 of this Schedule, each contract for works estimated to cost the equivalent of $1,000,000 or more and each contract for goods estimated to cost the equivalent of $200,000 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. Page 20 - 19 - Section II . Employment of Consultants Part A : General Consultants’ services shall be procured in accordance with the provisions of the Introduction and Section IV of the "Guidelines: Selection and Employment of Consultants by World Bank Borrowers", published by the Association in January 1997 and revised in September 1997 and January 1999 (the Consultant Guidelines) and the following provisions of Section II of this Schedule. 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. Selection Based on Consultants Qualifications Services in the areas of environmental management, financial management and public work management may be procured under contracts awarded in accordance with the provisions of paragraphs 3.1 and 3.7 of the Consultant Guidelines. 2. Individual Consultants Services for tasks that meet the requirements set forth in paragraph 5.1 of the Consultant Guidelines shall be procured under contracts awarded to individual consultants in accordance with the provisions of paragraphs 5.1 through 5.3 of the Consultant Guidelines. 3. Single Source Selection Services which are estimated to cost less than $50,000 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. Page 21 - 20 - 2. Prior Review (a) With respect to each contract for the employment of consulting firms estimated to cost the equivalent of $200,000 or more, 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. (b) With respect to each contract for the employment of consulting firms estimated to cost the equivalent of $100,000 or more, the procedures set forth in paragraphs 1, 2 (other than the second subparagraph of paragraph 2(a)) and 5 of Appendix 1 to the Consultant Guidelines shall apply. (c) With respect to each contract for the employment of individual consultants estimated to cost the equivalent of $50,000 or more, the qualifications, experience, terms of reference and terms of employment of the consultants shall be furnished to the Association for its prior review and approval. The contract shall be awarded only after said approval shall have been given. Page 22 - 21 - SCHEDULE 4 Implementation Program A. Overall Project Implementation and Coordination 1. The Borrower shall vest responsibility for the implementation of the Project in MPWUD which shall carry out the Project through MPWUD’s office in Taiz. For purposes of assisting MPWUD in the implementation of the Project, the Borrower shall maintain PMU, within MPWUD, with professional staff in adequate numbers whose qualifications, experience and terms of reference shall be acceptable to the Association. 2. The functions of PMU shall include, inter alia , responsibility for: (i) the procurement process and the preparation of withdrawal applications under the Project; (ii) monitoring, in accordance with indicators agreed upon with the Association, progress in the implementation of the Project; (iii) preparation, for submission to the Association, of annual work programs and updated procurement plans relating to the Project; and (iv) preparation, for submission to the Association, of the reports referred to under paragraph D (b) (i) of this Schedule. Key staff of PMU shall consist of a director, a flood protection specialist, a procurement officer, a financial management specialist, a resettlement specialist, an environmental and safety officer and a local government capacity building officer. B. Part B of the Project The Borrower shall carry out the resettlement and rehabilitation of the Affected Persons in accordance with the provisions set forth in the RAP in a manner satisfactory to the Association. Without limiting the generality of the foregoing, the Borrower shall: (i) take all necessary measures to minimize, to the extent possible, any loss by the Affected Persons of shelter, productive assets or access to productive assets, or of income or means of livelihood, temporarily or permanently; (ii) carry out the RAP in a manner designed to improve, or at least maintain, the living standard, income earning capacity and production levels of all Affected Persons; (iii) furnish to the Association any revisions proposed to be introduced to the RAP in order to achieve its objectives and, thereafter, introduce such revisions to the RAP as shall have been agreed with the Association; (iv) maintain policies and procedures adequate to enable the Borrower to monitor and evaluate, on an on-going basis, in accordance with guidelines acceptable to the Association, the implementation of the RAP and the achievement of the objectives thereof; (v) furnish to the Association, by June 30 and December 31 of each year until completion of the Project, commencing December 31, 2001, semi-annual reports prepared by PMU, on the results of such activities during the period preceding the date of said report; and (vi) furnish to the Association, by June 30 and December 31 of each year, commencing December 31, 2001, through the second year following completion of the Project, semi-annual reports prepared by an independent monitoring entity acceptable to the Association, on the results of the resettlement activities during the same six-month periods referred to under sub-paragraph (v) above. Page 23 - 22 - C. Environmental Management Plan The Borrower shall: (i) carry out the EMP in a manner designed to ensure that the Project is implemented in accordance with sound environmental practices and standards; (ii) maintain policies and procedures adequate to enable the Borrower to monitor and evaluate, on an on-going basis, in accordance with guidelines acceptable to the Association, the implementation of the EMP and the achievement of the objectives thereof; (iii) furnish to the Association semi-annual reports, commencing on June 30 and ending on December 31 of each year, until completion of the Project, each such report to incorporate the results of the monitoring and evaluation activities, together with any revisions proposed to be introduced to the EMP to achieve its objectives; and (iv) thereafter, introduce such revisions into the EMP as shall have been approved by the Association. D. Progress Reports and Mid-Term Review The Borrower shall: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with the indicators agreed upon between the Borrower and 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: (i) on a quarterly basis, commencing December 31, 2001, a report on the progress achieved in the implementation of the Project and the achievement of the objectives thereof; and (ii) on or about December 31, 2003, a report, to constitute the basis upon which the mid-term review shall take place, integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section and consolidating the results of the reports referred to under sub-paragraph (b) (i) 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 April 30, 2004, or such later date as the Association shall request, the report referred to in subparagraph (b) (ii) of this paragraph, 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.