Page 1 CONFORMED COPY CREDIT NUMBER 2484 CE Development Credit Agreement (Private Financial Development Project) between DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated May 7, 1993 CREDIT NUMBER 2484 CE DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated May 7, 1993, between DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS: (A) the Borrower has issued a Statement of Financial Sector Policy dated March 5, 1993 (the Statement), describing objectives and policies designed for the development and expansion of the financial sector, and declaring the Borrower's commitment to the implementation of said policies; (B) the Borrower has requested the Association to assist in the financing of measures to be undertaken pursuant to, or in furtherance of, the provisions of the Statement through the Project described in Schedule 2 to this Agreement by extending the Credit as hereinafter provided; (C) the Borrower intends to contract from the Kingdom of the Netherlands (Netherlands) a grant (the Netherlands Grant) in an amount equivalent to $5,000,000 to assist in financing the Project on the terms and conditions set forth in an agreement (the Netherlands Grant Agreement) to be entered into between the Borrower and the Association as Administrator of Grant Funds provided by the Minister for Development Cooperation of the Netherlands; (D) by an agreement dated June 30, 1992, (the USAID Grant Page 2 Agreement), the Agency for International Development of the United States of America (USAID) has agreed to extend a grant (the USAID Grant) to the Borrower in an amount of $7,000,000 to assist in financing the Project on the terms and conditions set forth in the USAID Grant Agreement; 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, with the last sentence of Section 3.02 deleted (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) "Participating Credit Institution" means any private credit institution incorporated and operating under the laws of the Borrower, which has entered into a participation agreement with the Borrower pursuant to the provisions of Part II(4) of Schedule 3 to this Agreement; (b) "Sub-loan" means a loan made or proposed to be made by a Participating Credit Institution out of the proceeds of the Credit to an Investment Enterprise for an Investment Project, and "free- limit Sub-loan" means a Sub-loan, as so defined, which qualifies as a free-limit Sub-loan pursuant to the provisions of Part II(1)(b) of Schedule 3 to this Agreement; (c) "Investment Enterprise" means a private enterprise to which a Participating Credit Institution proposes to make or has made a Sub-loan; (d) "Investment Project" means a specific development Project in such sectors as may be agreed upon between the Association and the Borrower, to be carried out by an Investment Enterprise utilizing the proceeds of a Sub-loan; (e) "AWDR" means the Average Weighted Deposit Rate, namely the weighted average of the interest rates paid to depositors by branches in the Greater Colombo area of domestic commercial banks (other than the National Savings Bank) on interest-bearing term deposits, as issued weekly by the Central Bank of Sri Lanka, calculated on the basis of the previous 26 week period; (f) "Project Unit" means the unit, appointed by the Borrower with the concurrence of the Association, responsible for implementation of the Project; (g) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; and (h) "Rs" means Rupees, the currency of the Borrower. 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 the Development Credit Agreement, an amount in various currencies equivalent to forty-three million two hundred thousand Special Page 3 Drawing Rights (SDR 43,200,000). 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: (i) amounts paid (or, if the Association shall so agree, amounts to be paid) by a Participating Credit Institution on account of withdrawals made by an Investment Enterprise under a Sub-loan to meet the reasonable cost of goods and works required for the Investment Project in respect of which the withdrawal from the Credit Account is requested; and (ii) expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for Parts B and C of the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Credit. (b) The Borrower shall, for the purposes of the Project, open and maintain in dollars a special deposit account in a bank and on terms and conditions satisfactory to the Association. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 6 to this Agreement. Section 2.03. The Closing Date shall be June 30, 1999 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. (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 Credit Account or cancelled; 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-fourths of one per cent (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 semiannually on February 15 and August 15 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi- annual installments payable on each February 15 and August 15 commencing August 15, 2003 and ending February 15, 2033. Each installment to and including the installment payable on February 15, 2013 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 gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years 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 Page 4 consideration by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by 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. If so requested by the Borrower, the Association may revise such modification 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. (c) 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 or cause the Project to be carried out with due diligence and efficiency and in conformity with appropriate administrative, financial and industrial 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. 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 5 to this Agreement. Section 3.03. (a) The Borrower undertakes that, unless the Association shall otherwise agree, Sub-loans will be made in accordance with the procedures and on terms and conditions set forth or referred to in Schedule 3 to this Agreement. (b) The Borrower shall exercise its rights in relation to each Investment Project in such manner as to (i) protect the interests of the Association and the Borrower; (ii) comply with its obligations under this Agreement; and (iii) achieve the purposes of the Project. 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: Page 5 (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 Association; (ii) furnish to the Association, as soon as available, but in any case not later than four 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 Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning said records, accounts and the audit thereof as the Association shall 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, 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 Association has received the audit report for the fiscal year in which the last withdrawal from the 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 Association'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) A situation has arisen which shall make it improbable that the objectives and policies included in the Statement, or a significant part thereof, will be implemented. (b) The Netherlands Grant Agreement and the USAID Grant Agreement shall have failed to become effective by June 30, 1994, or such later date as the Association may agree; provided, however, that the provisions of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association 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. (c) (i) Subject to subparagraph (ii) of this paragraph, the Page 6 right of the Borrower to withdraw the proceeds of the Netherlands Grant or the USAID Grant shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the Netherlands Grant Agreement or the USAID Grant Agreement, respectively. (ii) Subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association that: (A) such suspension, cancellation or termination is not caused by the failure of the Borrower to perform any of its obligations under such 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 events are specified: (a) any event specified in paragraph (b) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Association to the Borrower; and (b) any event specified in paragraph (a) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) arrangements satisfactory to the Association have been made to implement the Project through the Project Unit; and (b) agreements have been entered into with at least two Participating Credit Institutions in accordance with the provisions of Part II (4) of Schedule 3 to this Agreement. Section 6.02. 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 6.03. The obligations of the Borrower under Section 5.02 of this Agreement shall cease and determine on the date on which this Agreement shall terminate or on the date twenty years after the date of this Agreement, whichever shall be the earlier. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. The Secretary, Ministry 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 Democratic Socialist Republic of Sri Lanka Colombo, Sri Lanka Cable address: Telex: SECMINFIN FINMIN 21409 Colombo FORAID 21232 Page 7 For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) 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. DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA By /s/ Ananda W. P. Gurughungarumlaut\0d Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Paul Isenman Acting Regional Vice President South Asia SCHEDULE 1 Withdrawal of the Proceeds of the Credit 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) Sub-loans 40,900,000 60% (2) Expenditures 2,300,000 under Parts B and C of the Project: (a) Goods 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 80% of local Page 8 expenditures for other items procured locally (b) Works 70% (c) Consultants' 100% services and training ____________ TOTAL 43,200,000 ============ 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; and (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. 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 3 to this Agreement; and (b) payments made for expenditures prior to the date of this Agreement. SCHEDULE 2 Description of the Project The objectives of the Project are: (i) to improve the efficiency of financial intermediation; (ii) to promote domestic resource mobilization for term financing; (iii) to enhance provision of private sector investment finance; and (iv) to deepen the financial system and strengthen its main participants. 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: Enterprise Credit Financing by Participating Credit Institutions of Investment Projects through Sub-loans to Investment Enterprises. Part B: Policy Framework Improvements Support for reform of the financial sector, especially those areas that assist in mobilization of domestic resources for long- term investments through commercial channels. Part C: Support Systems Technical assistance for: 1. institutional development of: (a) Central Bank of Sri Lanka; (b) Participating Credit Institutions; Page 9 (c) State Commercial Banks; (d) Savings institutions; and (e) Other main participants in term finance, including the insurance institutions. 2. policy development in: (a) bond markets; (b) accounting and auditing; (c) debt recovery; and (d) environmental standards. Part D: Pollution Control A program to provide credit and technical assistance for pollution control and abatement. * * * The Project is expected to be completed by December 31, 1998. SCHEDULE 3 Terms and Conditions of and Procedures for Sub-loans I. Sub-Loan Terms and Conditions A. Terms for on-lending by the Borrower to Participating Credit Institutions 1. Interest rate : AWDR 2. Amortization period : 15 years, inclusive of 5 years of grace 3. Foreign exchange risk : to be borne by the Borrower 4. Administration fee : 1% per annum of to be paid by Credit proceeds Borrower to Project outstanding Unit B. Terms of Sub-loans 1. Interest rate : to be determined by the respective Participat- ing Credit Institution 2. Amortization period : up to 10 years including grace periods of up to 2 years 3. Maximum amount to be : $2,000,000 equivalent disbursed out of per Investment Project Credit Account 4. Investment Enterprise : at least 30% of Invest- equity contribution ment Project cost C. Adjustment of Terms 1. The mechanisms for establishing interest rates and administrative fees referred to above, shall be reviewed annually and, if necessary, adjusted, based on procedures agreed upon between Page 10 the Borrower and the Association. 2. The actual rate charged to the Participating Credit Institution by the Borrower, shall be amended every 3 or 6 months based on an index satisfactory to the Borrower and the Association. II. Procedures 1. No expenditures for goods or works required for an Investment Project shall be eligible for financing out of the proceeds of the Credit unless: (a) the Sub-loan for such Investment Project shall have been approved by the Association and such expenditures shall have been made not earlier than 120 days prior to the date on which the Association shall have received the application and information required under Part II paragraph (2) (a) of this Schedule in respect of such Sub-loan; or (b) the Sub-loan for such Investment Project shall have been a free-limit Sub-loan for which the Association has authorized withdrawals from the Credit Account and such expenditures shall have been made not earlier than 120 days prior to the date on which the Association shall have received the request and information required under Part II paragraph (2) (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 a Sub-loan as determined by the Association for each Participating Credit Institution in terms of the amount to be financed out of the proceeds of the Credit for an Investment Project. 2. (a) When presenting a Sub-loan (other than a free-limit Sub- loan) to the Association for approval, the Borrower shall furnish or cause the Participating Credit Institutions to furnish, to the Association, an application in form satisfactory to the Association, together with: (i) a description of the Investment Enterprise and an appraisal of the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Credit; (ii) the proposed terms and conditions of the Sub-loan, including the schedule of amortization of the Sub-loan; and (iii) such other information as the Association shall reasonably request. (b) Each request by the Borrower for authorization to make withdrawals from the Credit Account in respect of a free-limit Sub- loan shall contain: (i) a summary description of the Investment Enterprise and the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Credit; and (ii) the terms and conditions of the Sub-loan, including the schedule of amortization therefor. (c) Applications and requests made pursuant to the provisions of sub-paragraphs (a) and (b) of this paragraph shall be presented to the Association on or before December 31, 1997. 3. Sub-loans and Investments shall be made on terms whereby the Borrower shall obtain or cause the Participating Credit Institution to obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Association and the Borrower, including, the right to: (a) require the Investment Enterprise to carry out and operate the Investment 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 and works to be financed out of the proceeds of the Credit shall be procured in accordance with the provisions of Schedule 5 to this Agreement, and (ii) such goods and services shall be used exclusively in the carrying out of the Investment Project; Page 11 (c) require the Investment Enterprise to maintain records adequate to reflect in accordance with sound accounting practices its operation and financial condition. (d) inspect, by itself or jointly with representatives of the Association if the Association 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; (e) 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 practices; 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 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; (f) obtain all such information as the Association or the Borrower 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 Investment Project; and (g) suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the Credit upon failure by such Investment Enterprise to perform its obligations under its contract with the Borrower or with the Participating Credit Institutions. 4. The Borrower shall enter into a participation agreement with each Participating Credit Institution providing for its participation in the Project, on terms and conditions satisfactory to the Association including those outlined in this Schedule. 5. Each Participating Credit Institution shall comply with eligibility criteria satisfactory to the Association. 6. After commencing to participate in the Project, each Participating Credit Institution shall continue to satisfy the performance entry criteria which shall be monitored semiannually and modified if appropriate by mutual agreement between the Borrower and the Association. If any Participating Credit Institution fails to satisfy the above specified criteria, the Association reserves the right to suspend Sub-loan authorizations under the Project until the Participating Credit Institution has taken specific steps to address its problems in a manner satisfactory to the Association. 7. The Borrower shall ensure that each participation agreement include provisions for the relevant Participating Credit Institution: (a) to retain responsibilities and staff satisfactory to the Association to appraise Investment Projects and extend Sub-loans under Part A of the Project; (b) to apply procedures and criteria satisfactory to the Association in the appraisals of Investment Project; and (c) to complete environmental impact assessments satisfactory to the Association for each Sub-loan. SCHEDULE 4 Implementation Program 1. For the purposes of carrying out the Project, the Borrower shall: Page 12 (a) maintain the Project Unit with responsibilities, resources and staff satisfactory to the Association; and (b) cause the Project Unit to implement the Project in accordance with the arrangements referred to in Section 6.01 (a) of this Agreement. 2. The Borrower shall carry out activities under Parts B and C of the Project, in accordance with a program and timetable satisfactory to the Association. 3. The Borrower shall by August 31, 1994 or such other date as the Association shall determine, conduct a review with the Association with regard to the actions taken pursuant to the Statement and the implementation of the Project. 4. The Borrower shall take all measures necessary to increase the volume and maturity of its competitively priced debt instruments (Treasury Bills and Rupee Securities) so that by August 30, 1994 at least Rupees four billion worth of such securities will have been issued and that the volume of such instruments will, by December 31, 1995, have increased to at least Rupees ten billion. 5. The Borrower shall carry out, for contractual savings institutions, an investment portfolio diversification plan satisfactory to the Association. 6. The Borrower shall implement a plan satisfactory to the Association, for improvements in the enforcement of auditing and accounting standards. 7. The Borrower shall, in accordance with terms of reference satisfactory to the Association: (a) (i) by October 31, 1993 commence a banking supervision study; and (ii) by March 31, 1994 complete such study; and (b) (i) by October 31, 1993 commence an insurance industry study; and (ii) by March 31, 1994 complete such study. SCHEDULE 5 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: International Competitive Bidding Except as provided in Part B hereof, goods shall be procured under contracts awarded in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1992 (the Guidelines). For fixed-price contracts, the invitation to bid referred to in paragraph 2.13 of the Guidelines shall provide that, when contract award is delayed beyond the original bid validity period, the successful bidder's bid price will be increased for each week of delay by two predisclosed correction factors acceptable to the Association, one to be applied to all foreign currency components and the other to the local currency component of the bid price. Such an increase shall not be taken into account in the bid evaluation. Part B: Other Procurement Procedures Under Part A of the Project: 1. The Borrower shall cause to be established procedures in line Page 13 with established commercial practice, to ensure that the goods and works procured shall be purchased at reasonable and competitive prices in accordance with procedures satisfactory to the Association, due account being taken also of other relevant factors such as time of delivery, quality and reliability of the goods and availability of maintenance facilities and spare parts therefor. Under Parts B and C of the Project: 2. Goods may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association. 3. Items or groups of items estimated to cost less than the equivalent of $50,000 per contract, up to an aggregate amount not to exceed the equivalent of $1,000,000, may be procured under contracts awarded on the basis of comparison of price quotations solicited from a list of at least three suppliers eligible under the "Guidelines", in accordance with procedures acceptable to the Association. 4. Works may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association. Section II. Employment of Consultants 1. In order to assist the Borrower in carrying out the Project, the Borrower shall employ or cause to be employed consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Association 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 (the Consultant Guidelines). 2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions of the Consultant Guidelines requiring prior Association review or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts shall not apply to contracts estimated to cost less than $100,000 equivalent each. However, this exception to prior Association review shall not apply to the terms of reference for such contracts nor to the employment of individuals, to single source selection of firms, to assignments of a critical nature as reasonably determined by the Association and to amendments of contracts raising the contract value to $100,000 equivalent or above. SCHEDULE 6 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1) and (2) 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 Credit allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $2,000,000 to be withdrawn from the Credit Account and deposited in the Special Account pursuant to paragraph 3 (a) of this Schedule. Page 14 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 Association 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 Association 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 Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit in the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Association requests for deposits into the Special Account at such intervals as the Association shall specify. (ii) 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 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 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. All such deposits shall be withdrawn by the Association from the 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 Association shall reasonably request, furnish to the Association 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 Association shall not be required to make further deposits into the Special Account: (a) if, at any time, the Association shall have determined that all further withdrawals should be made by the Borrower directly from the Credit Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or (b) once the total unwithdrawn amount of the Credit allocated to the eligible Categories, less the amount of any outstanding special commitment entered into by the Association 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 Credit Account of the remaining unwithdrawn amount of the Credit allocated to the eligible 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 Page 15 making payments for eligible expenditures. 6. (a) If the Association 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 Association, the Borrower shall, promptly upon notice from the Association: (A) provide such additional evidence as the Association may request; or (B) 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 or the portion thereof not so eligible or justified. 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 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 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 paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Credit Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions.