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CONFORMED COPY
CREDIT NUMBER 3567 MAG
Development Credit Agreement
(Second Private Sector Development Project)
between
REPUBLIC OF MADAGASCAR
and
INTERNATIONAL DEVELOPMENT ASSOCIATION
Dated October 5, 2001
CREDIT NUMBER 3567 MAG
DEVELOPMENT CREDIT AGREEMENT
AGREEMENT, dated October 5, 2001, between REPUBLIC OF MADAGASCAR (the Borrower) 
and 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 9, 
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):
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"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 8, 1999; 
and ‘Participating Countries’ means, collectively, all such countries." ; and
(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."
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)
"ACM" means Aviation Civile de Madagascar, the Borrower’s civil aviation 
regulatory agency, established and operating under the laws of the Borrower;
(b)
"Administrative, Accounting and Financial Manual" means the Borrower’s 
Administrative, Accounting and Financial Manual, dated September 2000, giving details 
of administrative, accounting and financial procedures, and procurement and 
disbursement arrangements, as shall have been agreed with the Association for purposes 
of the implementation of the Project, as same may be amended from time to time, and 
such term includes any schedules to the Administrative, Accounting and Financial 
Manual;
(c)
"CFCE" means Centre de Facilitation pour la Création d’Entreprises, a 
Center for the Facilitation of Enterprise Creation, established and operating under 
the laws of the Borrower;
(d)
"CNaPS" means Caisse Nationale de Prévoyance Sociale, the Borrower’s 
National Social Security Fund, established and operating under the laws of the 
Borrower;
(e)
"Eligible Categories" means Categories (1) through (6) set forth in the 
table in Part A.1 of Schedule 1 to this Agreement;
(f)
"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;
(g)
"FPP" means Fonds de Portage et de Privatisation, a privatization trust 
fund established and existing under the Privatization Law for the purpose of 
establishing a share warehousing scheme to hold minority shares in privatized public 
enterprises pending their sale to employees of privatized public enterprises, members 
of the public, local enterprises and institutional investors;
(h)
"MDSPP" means Ministère du Développement du Secteur Privé et de la 
Privatisation, the Borrower’s Ministry of Private Sector Development and 
Privatization;
(i)
"OMERT" means Office Malgache pour l’Etude et la Régulation des 
Télécommunications, the Borrower’s regulatory body for the telecommunications sector, 
established and operating under the laws of the Borrower;
(j)
"OMH" means Office Malgache des Hydrocarbures, the Borrower’s regulatory 
body for the energy sector established and existing under the laws of the Borrower;
(k)
"OMPE" means Office des Micros et Petites Entreprises, an office of the 
Borrower established and existing under the laws of the Borrower to be responsible for 
the promotion of micro and small enterprises;
(l)
"PASERP" means Programme d’Action Sociale et Economique pour la 
Réinsertion Professionelle, a retraining and redeployment scheme established under the 
laws of the Borrower for the benefit of employees adversely affected by the 
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Privatization Program;
(m)
"Privatization Committee" means the privatization committee, established 
under the Privatization Law to be responsible for the Privatization Program (as 
hereinafter defined);
(n)
"Privatization Law" means the Borrower’s Law No. 96-011, dated August 13, 
1996, as amended by Law No. 98-014, dated November 14, 1998, defining the 
Privatization Program and defining the rules governing such program;
(o)
"Privatization Program" means the Borrower’s privatization program which 
is the subject matter of the Privatization Law;
(p)
"Project Account" means the Project Account referred to in Section 3.04 
(a) of this Agreement;
(q)
"Project Implementation Manual" means the Project Implementation Manual, 
dated August 15, 1997, adopted by the Borrower, and giving details of procurement and 
disbursement arrangements, performance indicators and other administrative, financial 
and organizational arrangements, as shall have been agreed with the Association for 
purposes of the implementation of privatization activities under the Privatization 
Program, as same may be amended from time to time, and such term includes any 
schedules to the Project Implementation Manual;
(r)
"Project Management Report" means each report prepared in accordance with 
Section 4.02 of this Agreement; 
(s)
"SOLIMA" means Solitany Malagasy, the Borrower’s national oil company 
established and existing under the laws of the Borrower;
(t)
"Special Account" means the account referred to in Part B of Schedule 1 
to this Agreement;
(u)
"STP" means Secrétariat Technique à la Privatisation, the Borrower’s 
Technical Secretariat for Privatization established under the Privatization Law (as 
hereinafter defined) to be responsible for the day-to-day implementation of the 
Privatization Program; and
(v)
"UCP" means Unité de Coordination du Projet, the Project Coordinating 
Unit referred to in paragraph 1 (b) of Schedule 4 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 the Development Credit Agreement, an amount in 
various currencies equivalent to nineteen million Special Drawing Rights                  
(SDR 19,000,000).
Section 2.02. 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 and services required for the Project and to be financed out of the 
proceeds of the Credit.
Section 2.03. The Closing Date shall be June 30, 2006 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 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.
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(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 
semiannually on January 15 and July 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 semiannual installments payable on 
each January 15 and July 15 commencing January 15, 2012 and ending July 15, 2041. Each 
installment to and including the installment payable on July 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 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 semiannual payment 
date referred to in paragraph (a) above falling six 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 years on such repayment of principal.
(c)
If so requested by the Borrower, the Association may revise the 
modification referred to in paragraph (b) above to include, in lieu of some or all of 
the increase in the amounts of such installments, the payment of interest at an annual 
rate agreed with the 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 through STP with due diligence and efficiency and in conformity with 
appropriate administrative, technical and financial practices, and with due regard to 
environmental and ecological considerations, and 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 
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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 designed to ensure 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.
Section 3.04. Without limitation upon its obligations under Section 3.01 of this 
Agreement, the Borrower shall 
(a)
maintain, in a commercial bank and on terms and conditions satisfactory 
to the Association, an advance account in the currency of the Borrower (hereinafter 
referred to as the Project Account), to be operated and maintained by STP, into which 
it shall deposit from time to time its local counterpart contribution to the cost of 
the Project;
(b)
deposit into the Project Account an initial advance equivalent to 
$200,000, and thereafter replenish the Project Account on a quarterly basis, or 
whenever the balance thereof equals not more than one third of the amount of the 
initial deposit, whichever occurs first; and
(c)
ensure that funds deposited into the Project Account shall be used only 
for the purposes of defraying the cost of expenditures incurred in the execution of 
the Project which are not financed out of the proceeds of the Credit.
ARTICLE IV
Financial Covenants
Section 4.01. (a) The Borrower shall maintain or cause to be maintained a 
financial management system, including records and accounts adequate to reflect in 
accordance with sound accounting practices the operations, resources and expenditures 
in respect of the Project of the departments or agencies of the Borrower responsible 
for carrying out the Project or any part thereof.
(b) 
The Borrower shall:
(i)
have the records and accounts referred to in paragraph (a) of this 
Section, including those for the Special Account for each fiscal 
year, audited in accordance with appropriate auditing principles 
consistently applied by independent auditors acceptable to the 
Association;
(ii)
furnish to the Association as soon as available, but in any case 
not later than six 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 statements and reports of such audit, by 
said auditors, of such scope and in such detail as the Association 
shall have reasonably requested, including as part of the 
information to be provided in each such report, a management 
letter concerning the Borrower's internal controls, and
(iii)
furnish to the Association such other information concerning said 
records and 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 Project Management Reports or 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 
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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 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 Project Management Reports or 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 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 December 31, 2002, or such 
later date as the Association shall agree, to prepare quarterly Project management 
reports, acceptable to the Association, each of which:
(i)
(A) sets forth actual sources and applications of funds for the 
Project, both cumulatively and for the period covered by said 
report, and projected sources and applications of funds for the 
Project for the six-month period following the period covered by 
said report, and (B) shows separately expenditures financed out of 
the proceeds of the Credit during the period covered by said 
report and expenditures proposed to be financed out of the 
proceeds of the Credit during the six-month period following the 
period covered by said report;
(ii)
(A) describes physical progress in Project implementation, both 
cumulatively and for the period covered by said report, and (B) 
explains variances between the actual and previously forecast 
implementation targets; and
(iii)
sets forth the status of procurement under the Project and 
expenditures under contracts financed out of the proceeds of the 
Credit, as at the end of the period covered by said report.
(b)
Upon the completion of the action plan referred to in paragraph (a) of 
this Section, the Borrower shall prepare, in accordance with guidelines acceptable to 
the Association, and furnish to the Association not later than 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 a situation has arisen which 
shall make it improbable that the Privatization Program, or a significant part 
thereof, will be carried out;
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)
the Project Account has been duly opened, and the amount of the initial 
advance deposited therein in accordance with Section 3.04 (a) of this Agreement;
(b)
the Borrower has appointed the auditors referred to in Section 4.01 (b) 
of this Agreement, under terms, conditions and terms of reference acceptable to the 
Association, and in accordance with the provisions of Section II of Schedule 3 to this 
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Agreement;
(c)
a financial management and accounting system, acceptable to the 
Association, has been established by STP and made operational;
(d)
the Project Implementation Manual and Administrative, Accounting and 
Financial Manual have been duly updated and revised to take account of the scope and 
specific requirements of the Project;
(e)
the project coordinator, internal auditor and assistant, procurement 
advisor, chief accountant and accountant, referred to in paragraph 3 of Schedule 4 to 
this Agreement, have been duly recruited under terms, conditions and terms of 
reference acceptable to the Association, and in accordance with the provisions of 
Section II of Schedule 3 to this Agreement; and
(f)
the Borrower has established operational guidelines acceptable to the 
Association governing the divestiture process, and giving details of the 
organizational structure of STP and functional responsibilities thereunder. 
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 Article IV of this Agreement 
shall cease and determine on the date on which the Development Credit Agreement shall 
terminate or on the date fifteen years after the date of this Agreement, whichever 
shall be the earlier.  
ARTICLE VII
Representative of the Borrower; Addresses
Section 7.01. The Minister of Finance of the Borrower is designated as 
representative of the Borrower for the purposes of Section 11.03 of the General 
Conditions.
Section 7.02. The following addresses are specified for the purposes of Section 
11.01 of the General Conditions:
For the Borrower:
Ministry of Finance and Economy
BP 121
Antananarivo, 101
Madagascar
Cable address:
Telex:
Facsimile:
MINFIN
22489
(261-20) 2222920   
Antananarivo
(261-20) 2234530   
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)
IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized 
representatives, have caused this Agreement to be signed in their respective names in 
Antananarivo, Madagascar, as of the day and year first above written.
REPUBLIC OF MADAGASCAR
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By /s/ Tantely  Gabrio Andrianarivo
Authorized Representative
INTERNATIONAL DEVELOPMENT ASSOCIATION
By /s/ Hafez Ghanem
Acting Authorized Representative
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)
Works
   1,220,000
100% of foreign
expenditures and
80% of local
expenditures
(2)
Goods
   3,300,000
100% of foreign
expenditures and
80% of local
expenditures
(3)
Consultants’ services
  10,110,000
100% of foreign
and audits
expenditures and
83% of local
expenditures
(4) 
Training and 
   1,410,000
100%
study tours
(5)
Retraining Fund
   1,430,000
100%
under Part B.4 
of the Project
(6) 
Operating costs
   1,230,000
90%
(7)
Unallocated
     300,000
TOTAL
  19,000,000
2.
For the purposes of this Schedule:
(a)
the term "foreign expenditures" means expenditures in the currency of any 
country other than that of the Borrower for goods or services supplied from the 
territory of any country other than that of the Borrower; 
(b)
the term "local expenditures" means expenditures in the currency of the 
Borrower or for goods or services supplied from the territory of the Borrower; 
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(c)
the term "retraining fund" means expenditures incurred under the PASERP 
on account of services in support of redeployment of employees affected under the 
Privatization Program, including training, placement services and aptitude tests; and
(d) 
the term "operating costs" means incremental expenditures incurred under 
the Project on account of salaries and allowances of local contractual staff; travel 
costs and allowances; operation and maintenance of vehicles and equipment; banking 
charges; and office rental, supplies and utilities.
3.
Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be 
made:
(a)
in respect of payments made for expenditures prior to the date of this 
Agreement; 
(b)
in respect of payments under category (4) of the table in paragraph 1 
above, involving overseas training or study tours in excess of three months’ duration 
or training or study tours under contracts in excess of $100,000, unless the prior 
approval of the Association has been sought and obtained; or
(c)
in respect of payments under category (5) of the table in paragraph 1 
above, except in accordance with rules and procedures acceptable to the Association 
governing the utilization of the retraining fund.
4.
The Association may require withdrawals from the Credit Account to be made on 
the basis of statements of expenditure for expenditures for: (i) goods and works under 
contracts not exceeding $100,000 equivalent; (ii) consultants services under contracts 
not exceeding $100,000 equivalent, in the case of consulting firms, and $50,000, in 
the case of individual consultants; (iii) training and study tours (other than 
overseas training and study tours in excess of three months’ duration) under contracts 
not exceeding $100,000 equivalent; and (iv) operating costs, 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 special deposit account in a commercial bank on terms and conditions 
satisfactory to the Association, including appropriate protection against set-off, 
seizure or attachment.
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 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 
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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 subparagraph (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 Development Credit 
Agreement.
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, provided, however, that 
unless the Association shall otherwise agree, the Authorized Allocation shall be 
limited to an amount equivalent to $750,000 until the aggregate amount of withdrawals 
from the Credit Account plus the total amount of all outstanding special commitments 
entered into by the Association pursuant to Section 5.02 of the General Conditions 
shall be equal to or exceed the equivalent of SDR 1,750,000.
2.
Withdrawals of the Special Account’s Authorized Allocation and subsequent 
withdrawals to replenish the Special Account shall be made as follows:
(a)
For withdrawals of the Special Account’s 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 
Page  11
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 Special 
Account’s 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 Association pursuant to Section 
5.02 of the General Conditions, shall equal the equivalent of twice the amount of the 
Special Account’s Authorized Allocation. Thereafter, withdrawal from the Credit 
Account of the remaining unwithdrawn amount of the Credit 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.
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 Association from 
the Credit Account under one or more of the Special Account’s Eligible Categories.
2.
Each application for withdrawal from the Credit Account for deposit into the 
Special Account shall 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 $4,000,000.
SCHEDULE 2
Description of the Project
The objectives of the Project is to assist the Borrower to improve access, 
reliability and affordability of key utilities, through completion of the divestiture 
program of key state-owned enterprises, and capacity building initiatives to 
strengthen the capacity of autonomous regulators and privatization agencies, and 
facilitate entry of new operators in the deregulated sectors.
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:
Regulatory Reforms
1.
Provision of support and assistance to build the capacity of regulators in the 
energy, air transport, telecommunications and financial sectors, including but not 
limited to:
(a)
in the case of OMH, 
(i)
establishment of twinning arrangements to provide assistance to 
develop and implement award licensing procedures, and monitor 
quality and safety standards, 
(ii)
provision of legal and technical advisory services as needed to: 
(A) carry out an environmental baseline audit to identify 
pre-existing environmental problems encountered prior to the 
privatization of SOLIMA in order to assess environmental impact, 
identify risk sharing arrangements, and propose a remedial action 
plan and risk mitigating measures; (B) monitor compliance with the 
Page  12
resettlement action plan for squatters on the oil pipeline in 
Tamatave; and (C) develop environmental regulations, and monitor 
the application of environmental standards and regulations; and
(iii)
provision of equipment, and civil works construction, for the 
establishment of a laboratory to measure and monitor compliance 
with environmental standards;
(b)
in the case of OMERT: (i) provision of training in the areas of price 
regulation, interconnection, universal service, competition, licensing, dispute 
settlement and other areas pertaining to regulation of the sector; (ii) establishment 
of a frequency management system; and (iii) establishment of a rural 
telecommunications strategy; 
(c)
in the case of ACM, provision of technical advisory services and material 
support to: (i) facilitate a public information campaign to promote reform of its 
regulatory framework; and (ii) develop an information management system to enable ACM 
to monitor sector operations and information in a timely and reliable manner, and 
adopt preventive measures as necessary;
(d) 
in the case of the financial sector, provision of technical advisory 
services, training and study tour programs, and other material support, to establish a 
regulatory framework governing the insurance sector, strengthen capacity to control 
and supervise the insurance sector, and undertake reform of the CNaPS; and
(e)
in the case of CFCE, provision of technical advisory services to 
strengthen its capacity to streamline business procedures pertaining to the creation 
of companies and, in so doing, facilitate enterprise registration and reduce the 
transaction costs of entry in the private sector.
Part B: 
Implementation and Transaction Support to STP
1.
Provision of technical advisory services to streamline the privatization 
process, review institutional arrangements and procedures, strengthen the in-house 
capacity of STP and the relevant environmental agency to efficiently manage the 
environmental screening and audit process, and monitor compliance with environmental 
guidelines and performance indicators, and strengthen the in-house capacity of PASERP 
in view of the extension of its activities.
2.
Provision of technical advisory services to: (a) strengthen the in-house 
capacity of the FPP, (b) monitor compliance with basic rules governing FPP, and (c) 
implement an intensive information campaign to promote consultations and 
communications in the privatization process.
3.
Provision of legal and other technical advisory services to facilitate the 
completion of the privatization program, including provision of legal advisory 
services to address issues of ownership and transfer of title, and carrying out of 
environmental audits of environmentally sensitive companies being privatized.
4. 
Provision of financial support to the retraining fund established under the 
PASERP to finance the training and redeployment of employees adversely affected under 
the Privatization Program.
Part C: 
Support for New Initiatives of the Private Sector
1.
Provision of technical advisory services and material support to promote the 
growth of micro and small enterprises through the establishment of OMPE and the 
maintenance of its operations. 
2.
Provision of technical advisory services and material assistance to support 
development and implementation of pilot projects in priority sectors targeted by the 
Borrower and considered as potential sources of growth.
* * *
The Project is expected to be completed by December 31, 2005.
SCHEDULE 3
Procurement and Consultants’ Services
Section I.
Procurement of Good and Works
Page  13
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 Bank in January 1995 and revised in January and August 1996, 
September 1997 and January 1999, subject to the modifications thereto set forth in 
paragraph 2 of this Part A (the Guidelines), and (b) the provisions of the following 
Parts of this Section I.
2.
In paragraphs 1.6 and 1.8 of the Guidelines, the references to "Bank member 
countries" and "member country" shall be deemed to be references, respectively, to 
"Participating Countries" and "Participating Country".
Part B:
International Competitive Bidding
1.
Except as otherwise provided in Part C of this Section, goods and works shall be 
procured under contracts awarded in accordance with the provisions of Section II of 
the Guidelines and paragraph 5 of Appendix 1 thereto.
2.
The following provisions shall apply to goods and works to be procured under 
contracts awarded in accordance with the provisions of paragraph 1 of this Part B.
(a)
Grouping of contracts
To the extent practicable, contracts for goods and works shall be grouped in bid 
packages estimated to cost, respectively, $100,000 and $200,000 equivalent or more 
each.
(b)
Preference for domestically manufactured goods and domestic contractors
The provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 2 
thereto shall apply to goods manufactured in the territory of the Borrower and works 
to be carried out by domestic contractors.
Part C:
Other Procurement Procedures 
1.
National Competitive Bidding
Office furniture and supplies estimated to cost less than $100,000 equivalent 
per contract, up to an aggregate amount not to exceed $500,000 equivalent, and works 
estimated to cost less than $200,000 equivalent per contract, up to an aggregate 
amount not to exceed $500,000 equivalent, may be procured under contracts awarded in 
accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines; provided, 
however, that: (i) any bidder shall be given adequate response time (four weeks) for 
preparation and submission of bids; (ii) bid evaluation and bidder qualification 
criteria shall clearly be specified in bidding documents and not applied arbitrarily; 
(iii) eligible firms shall not be precluded from participation; (iv) no preference 
margin shall be granted to domestic contractors and suppliers; (v) the award shall be 
made to the lowest evaluated bidder in accordance with pre-determined and transparent 
methods; and (vi) bid evaluation reports shall clearly state the reasons for rejection 
of any non-responsive bid.
2.
National Shopping
Goods estimated to cost less than $30,000 equivalent per contract, up to an 
aggregate amount not to exceed $100,000 equivalent, may be procured under contracts 
awarded on the basis of national shopping procedures in accordance with the provisions 
of paragraphs 3.5 and 3.6 of the Guidelines.
Part D:
Review by the Association of Procurement Decisions
1.
Procurement Planning
Prior to the issuance of any invitations 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
Page  14
With respect to each contract for goods and works estimated to cost the 
equivalent of $100,000 or more, the procedures set forth in paragraphs 2 and 3 of 
Appendix 1 to the Guidelines shall apply.
3.
Post Review
With respect to each contract not governed by paragraph 2 of this Part, the 
procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply.
Section II.
Employment of Consultants
Part A:
General
1. 
Consultants’ services shall be procured in accordance with (a) 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, subject to the modifications thereto set 
forth in paragraph 2 of this Part A (the Consultant Guidelines), and (b) the 
provisions of the following Parts of this Section II.
2.
In paragraph 1.10 of the Consultant Guidelines, the references to "Bank member 
countries" and "member country" shall be deemed to be references, respectively, to 
"Participating Countries" and "Participating Country".
Part B:
Quality- and Cost-based Selection
1.
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.
2.
The following provisions shall apply to consultants’ services to be procured 
under contracts awarded in accordance with the provisions of the preceding paragraph.  
The short list of consultants for services estimated to cost less than $50,000 
equivalent per contract may comprise entirely national consultants in accordance with 
the provisions of paragraph 2.7 of the Consultant Guidelines.
Part C:
Other Procedures for the Selection of Consultants 
1.
Least-cost Selection
Services for standard financial audits under the Project estimated to cost less 
than $100,000 equivalent per contract, up to an aggregate amount not to exceed 
$400,000 equivalent, may be procured under contracts awarded in accordance with the 
provisions of paragraphs 3.1 and 3.6 of the Consultant Guidelines.
2.
Selection Based on Consultants’ Qualifications
Services of consultants for training and other minor assignments under the 
Project estimated to cost less than $100,000 equivalent per contract, up to an 
aggregate amount not to exceed $1,000,000 equivalent, may be procured under contracts 
awarded in accordance with the provisions of paragraphs 3.1 and 3.7 of the Consultant 
Guidelines.
3.
Individual Consultants
Services for small studies, short-term assignments and other 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.
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 
Page  15
approved by the Association, and with the provisions of said paragraph 1.
2.
Prior Review
(a)
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 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 $50,000 or more, but less than the equivalent of 
$100,000, 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, and the higher level 
staff of STP, 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 the said approval shall 
have been given.
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 Consultant Guidelines shall 
apply.
SCHEDULE 4
Implementation Program
1.
(a) 
The Borrower shall maintain a Privatization Committee, whose mandate, 
terms of reference and composition shall be acceptable to the Association, to be 
responsible for overall coordination and general oversight of the Privatization 
Program.
(b)
Subject to the role and functions of the Privatization Committee, the 
Borrower shall establish and maintain a Project Coordination Unit (UCP), to be chaired 
by MDSPP, to be responsible for overall coordination of the Project and, as such, to 
be responsible for review of work programs, consolidation of budgets and financial 
reports, contracting out of audits, and generally to ensure that the proceeds of the 
Credit are used in accordance with the objectives of the Credit and other modalities 
specified in this Agreement.
2.
The Borrower shall maintain STP to be responsible for day-to-day management of 
the Project and, as such, to be responsible for preparation of work programs and 
budgets, management of procurement and disbursement activities, record-keeping and 
preparation of progress reports and other relevant documents required under the 
Project.
3.
The Borrower shall take steps to ensure that:
(a)
UCP shall be headed by a Project Coordinator, who shall be assisted by an 
internal auditor responsible for monitoring and evaluation of the project and an 
assistant, and other suitably qualified and experienced staff in adequate numbers;
(b)
STP shall recruit a procurement advisor, a chief accountant and an 
accountant, and other suitably qualified and experienced staff in adequate numbers, to 
strengthen the skills and capacity of STP in financial management and procurement 
matters; and
(c) 
the positions of project coordinator, internal auditor and assistant, 
procurement advisor, chief accountant and accountant, which are referred to in this 
paragraph, shall be kept filled at all times by persons having qualifications and 
experience acceptable to the Association.
4.
The Borrower shall carry out the Project in accordance with procedures set out 
in the Project Implementation Manual and, except as the Association shall otherwise 
agree, shall not amend or waive any provision thereof, if such amendment or waiver 
may, in the opinion of the Association, materially or adversely affect the 
implementation of the Project.
Page  16
5.
The Borrower shall:
(a)
maintain policies and procedures adequate to enable it to monitor and 
evaluate on an ongoing basis, in accordance with indicators satisfactory to the 
Association, the carrying out of the Project and the achievement of the objectives 
thereof;
(b)
prepare, under terms of reference satisfactory to the Association, and 
furnish to the Association, on or about June 30, 2002, a report integrating the 
results of the monitoring and evaluation activities performed pursuant to 
sub-paragraph (a) of this paragraph, 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 November 30, 2002 or such later date as 
the Association shall request, the report referred to in paragraph (b) of this 
Section, and, thereafter, take all measures required to ensure the efficient 
completion of the Project and the achievement of the objectives thereof, based on the 
conclusions and recommendations of the said report and the Association’s views on the 
matter.
6. 
(a) 
The Borrower shall, not later than November 30 of each year, beginning 
November 30, 2001, furnish to the Association, for review and approval, proposed 
annual work programs and budgets for the forthcoming fiscal year, giving details of 
proposed disbursement estimates, proposed procurement activities, and such other 
particulars as the Association may require. 
(b) 
The Borrower shall furnish to the Association, for review,
(i)
quarterly progress reports on the status of the Project, to be 
submitted not later than one month after the end of each quarter, 
and
(ii) 
reports as needed on the award of contracts under the Project.
7.
For purposes of Part A.1 (a) (ii) (A) of the Project, the Borrower shall:
(a)
not later than December 31, 2001, conclude a management contract with a 
suitably qualified and experienced consultant to undertake an environmental baseline 
audit to identify pre-existing environmental problems encountered prior to the 
privatization of SOLIMA in order to assess environmental impact, identify risk sharing 
arrangements, and propose a remedial action plan and environmental risk mitigating 
measures; 
(b)
engage in a process of regular consultations with interested parties, on 
the basis of full disclosure of relevant available information and meaningful 
consultations, on the purpose and objectives of the audit, the progress and outcome 
thereof, and the elements of the proposed action plan and remedial measures; and
(c)
based on the findings of the audit and the results of the consultative 
process, draw up a remedial action plan and risk mitigating measures, acceptable to 
the Association, and agreed upon by other interested parties; and take appropriate 
steps in view of executing the action plan and risk mitigating measures, in accordance 
with the time table and other modalities agreed upon under the action plan and risk 
mitigating measures.
8.
The Borrower shall cause STP to have an independent procurement and quality 
audit carried out at six-monthly intervals and on a sampling basis by an external 
auditor, and to ensure that the recommendations of such audit shall be implemented as 
necessary and appropriate under the supervision of the procurement advisor referred to 
in paragraph 3 of this Schedule.