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CONFORMED COPY
February
14,
2002
H.E. Miroljub Labus
Deputy Prime Minister
Belgrade
11000
Federal Republic of Yugoslavia
Re:
Dutch Grant for Co-financing of the Private Sector Development Technical 
Assistance Project Grant Number TF
050259
Excellency:
I
am writing on behalf of the International Bank for Reconstruction and Development (the Bank) 
and International Development Association (IDA) (IBRD and IDA being hereinafter collectively 
referred to as the Bank) to indicate the Bank
’s agreement, as administrator of grant funds provided by 
the Netherlands, to make a grant in an amount not exceeding two million United States dollars 
equivalent
(US$2,000,000) not exceeding two million two hundred eighty-seven thousand forty-six 
Euro
(Euro 2,287,046) (the Grant) to the Federal Republic of Yugoslavia (the Recipient).
The Grant is made in response to the Recipient's request for financial assistance and for the 
purposes and on the terms and conditions set forth in the Annex to this Letter Agreement. The 
Recipient represents, by confirming its agreement below, that it is authorized to contract and 
withdraw the Grant for the said purposes and on the said terms and conditions.
Please confirm your agreement with the foregoing, on behalf of the Recipient, by signing, 
dating, and returning to us the enclosed copy of this Letter Agreement.  Upon receipt by the Bank of 
the copy of this Letter Agreement countersigned by you, this Letter Agreement will become effective 
as of the date of the countersignature.
Sincerely,
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
AND INTERNATIONAL DEVELOPMENT ASSOCIATION
By
/s/ Christiaan J. Poortman
Country Director and Regional Coordinator
for South East Europe
Europe and Central Asia
AGREED:
FEDERAL REPUBLIC OF YUGOSLAVIA
By  Miroljub Labus
Title Deputy Prime Minister
Date: 2/26/2002
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ANNEX
Purposes, Terms, and Conditions of the Grant
1.
Purposes and Activities
1.1.
The purpose of the Grant is co-finance the Private Sector Development Technical Assistance 
Project, which has as its main objective to strengthen private sector production and economic activity 
in the Republic of Serbia (the Project).  The activities (the Activities) for which the Grant is given are 
as follows:
(a) provision of support in identification and selection of sales agents to support rapid 
privatization of enterprises;
(b) provision of selection and placement of additional PMU staff and its incremental 
operating costs;
(c) provision of financing for the implementation of the sales agents terms of references 
(TORs); and
(d) provision of financing for the audit of the Grant.
2.
Implementation Generally
2.1. The Recipient shall, and shall  cause Republic of Serbia (RS) to: (a) carry out the Activities with 
due diligence and efficiency; (b) promptly provide the funds, facilities, services and other resources 
required for that purpose; (c) furnish all information covering the Activities and the use of the 
proceeds of the Grant as the Bank shall reasonably request;
(d) from time to time exchange views with 
the Bank's representatives on the progress and results of the Activities; and (e) take all necessary 
measures required to enable the Bank to visit the territory of the Recipient for purposes related to the 
Grant.  Without limitation on the foregoing, the Recipient shall, if the Bank shall so request, prepare 
and furnish to the Bank promptly upon completion of the Activities a report, in form and substance 
satisfactory to the Bank, on the results and impact of the Activities.
2.2. The Recipient shall make available to RS the proceeds of the Grant for purposes of carrying out 
the Activities in accordance with subsidiary grant agreement (the Subsidiary Grant Agreement) to be 
entered between the Recipient and RS.
3.
Procurement
3.1.
Except as the Bank shall otherwise agree, procurement of the consultants
’
services required 
for the carrying out of the Activities and to be financed out of the proceeds of the Grant shall be 
governed by the provisions of Attachment I to this Annex.
4.
Withdrawal of Grant Proceeds
4.1.
The amount of the Grant shall be credited to an account opened by the Bank on its books in 
the name of the Recipient (the Grant Account), and may be withdrawn therefrom by the Recipient in 
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accordance with the provisions of this Section 4, for expenditures in respect of the reasonable cost of 
services required for the Activities and to be financed out of the proceeds of the Grant.
4.2. The expenditures for the following items may be financed out of the proceeds of the Grant and 
shall be used exclusively in the carrying out of the Activities:
Amount of the Grant
% of
Allocated
(in U.S. dollars
Expenditures to
Item
equivalent
)
be Financed
(1) Consultants
’
services
(a)
Services by individuals
185,000
84%
(b)
Services by firms, 
1,615,000
97%
including auditing services
(2) Incremental operating costs:
(a) Cost of incremental PIU
150,000
86%
staff
(b)
All other incremental
50,000
100%
operating costs
TOTAL
2,000,000
For the purposes of this paragraph the term “Incremental operating costs”
 
means reasonable 
incremental expenses incurred on account of Project implementation, management and monitoring, 
including Agency for Privatization staff salaries, office space, office supplies, publication of 
procurement notices, vehicle maintenance and operation, utilities, communications expenses, travel 
and supervision costs, but excluding salaries of officials and employees of the Recipient and RS.
4.3.
Notwithstanding the provisions of paragraph
4.2 above:
(a)
No withdrawals shall be made from the Grant Account
:
(i) for payments made for 
expenditures prior to the date of signature of this Letter Agreement by the Bank; (ii) on account of 
payments for any taxes levied by or in the territory of the Recipient; (iii) on account of expenditures 
in the territories of any country which is not a member of the Bank or for services supplied from such 
territories; or
(iv) for the purpose of any payment to persons or entities  if such payment, to the Bank’s 
knowledge, is prohibited by a decision of the United Nations Security Council taken under Chapter 
VII of the Charter of the United Nations;
(b)
No withdrawals shall be made from the Grant Account after August
31, 2003 or such 
later date that the Bank shall establish by notice to the Recipient (the Closing Date). However, 
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withdrawals may be made after the Closing Date for expenditures incurred prior to the Closing Date if 
the corresponding withdrawal application is received by the Bank within four months after the 
Closing Date, after which time any amount of the Grant remaining unwithdrawn from the Grant 
Account shall be canceled; and
(c)
If, in the Bank
’s opinion, an amount of the Grant allocated to any of the items in the 
table in paragraph 4.2 above will be insufficient to finance the expenditures for such item, the Bank 
may, by written notice to the Recipient, reallocate to such item an amount of the Grant then allocated 
to another item which, in the Bank’s opinion, will not be necessary to meet other expenditures.
4.4.
When the Recipient shall desire to withdraw any amount from the Grant Account, it shall 
deliver to the Bank a written application for withdrawal of such amount in the form specified by the 
Bank.  Withdrawal applications shall be: (a) signed on behalf of the Recipient by the Minister of 
Finance of the Recipient or such other person as he or she shall have authorized in writing; and (b) 
accompanied by such evidence in support of the application as the Bank shall reasonably request.
Authenticated specimen signatures of the person authorized to sign withdrawal applications shall be 
provided with the first application bearing his or her signature.  Each withdrawal application for an 
amount of the Grant and its supporting evidence must be sufficient in form and substance to satisfy 
the Bank that the Recipient is entitled to withdraw such amount from the Grant Account and that such 
amount is to be used in the carrying out of the Activities.  The Bank shall pay the amounts withdrawn 
by the Recipient from the Grant Account only to or on the order of the Recipient.
4.5.
The Bank may require withdrawals from the Grant Account to be made on the basis of 
statements of expenditure for expenditures under contracts for: (a) services of consulting firms costing 
less than US$100,000 equivalent each;  (b) services of individual consultants costing less than 
US$50,000 equivalent each;  and (c) incremental operating costs, all under such terms and conditions 
as the Bank shall specify by notice to the Recipient. 
4.6.
Withdrawals of the proceeds of the Grant shall be made in the currency of the Grant.  The 
Bank, at the Recipient’s request and acting as an agent of the Recipient, shall purchase with the 
currency of the Grant withdrawn from the Grant Account such currencies as shall be required to pay 
for expenditures to be financed out of the proceeds of the Grant.  Whenever it shall be necessary, for 
the purposes of this Letter Agreement, to determine the value of one currency in terms of another, 
such value shall be as reasonably determined by the Bank.
4.7.
To facilitate the carrying out of the Activities, the Recipient may open and maintain in U. S. 
dollars a special deposit account (the Special Account) in a commercial bank on terms and conditions 
satisfactory to the Bank, including appropriate protection against set-off, seizure or attachment.
Deposits into, and payments out of, the Special Account shall be made in accordance with the 
provisions of Attachment II to this Annex.
5.
Accounts and Audits
5.1.
(a)
The Recipient shall, and shall cause RS to maintain a financial management system, 
including records and accounts, and prepare financial statements in a format acceptable to the Bank, 
adequate to reflect in accordance with sound accounting practices the operations, resources and 
expenditures related to the Activities.
(b)
The Recipient shall, and shall cause RS to : (i) have the records, accounts and financial 
statements referred to in subparagraph (a) above and the records and accounts for the Special 
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Account] for each fiscal year audited, in accordance with auditing standards acceptable to the Bank, 
consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank 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, records and accounts and report of such audit, by said 
auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) 
furnish to the Bank such other information concerning said records and accounts and the audit 
thereof, and concerning said auditors, as the Bank shall from time to time reasonably request.
(c)
For all expenditures with respect to which withdrawals from the Grant Account were 
made on the basis of statements of expenditure, the Recipient shall, and shall cause RS to: (i) maintain 
or cause to be maintained, in accordance with subparagraph
(a) above, records and accounts reflecting 
such expenditures;
(ii) retain, until at least one year after the Bank has received the audit report for the 
fiscal year in which the last withdrawal from the Grant Account was made, all records (contracts, 
orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the 
Bank
’s representatives to examine such records; and (iv) ensure that such records and accounts are 
included in the annual audit referred to in subparagraph (b) above 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.
6.
Suspension and Cancellation
6.1. The Bank may at any time, by notice to the Recipient, suspend the right of the Recipient to make 
further withdrawals from the Grant Account if any of the following events has occurred and is 
continuing: (a) the Recipient has failed to comply with any of its obligations herein specified; or (b) 
the right of the Recipient, or any other entity to which the Bank has made a loan with the guarantee of 
the Recipient, to make withdrawals under any loan agreement with the Bank or any development 
credit agreement with the International Development Association shall have been suspended. 
6.2. The Bank may, by written notice to the Recipient, terminate the right of the Recipient to make 
further withdrawals from the Grant Account: (a) at any time after the right of the Recipient to make 
withdrawals from the Grant Account shall have been suspended pursuant to the provisions of 
paragraph
6.1
above; or (b) if the Recipient shall have failed to take action, satisfactory to the Bank, 
within six months after the effective date hereof, to carry out the Activities.
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Attachment I
Procurement
Consultants
’
Services
Part A
:
General
Consultants’ services shall be procured in accordance with the provisions of the Introduction 
and Section IV of the “Guidelines: Selection and Employment of Consultants by World Bank 
Borrowers”, published by the Bank in January 1997 and revised in September 1997 and January 1999 
(the Consultant Guidelines), and the following provisions of this Section.
Part B
:
Procedures for the Selection of Consultants
1.
Least
-
cost Selection
Services for the identification and  selection of sales agents under paragraph 1.1 (a) of the Annex 
estimated to cost US$60,000 equivalent per contract or more may be procured under contracts 
awarded in accordance with the provisions of paragraphs 3.17 of the Consultant Guidelines. Services 
for the audit of the Grant under paragraph 1.1 (a) of the Annex estimated to cost less than US$10,000 
equivalent may be procured under contracts awarded in accordance with the provisions of paragraph 
3.1 and 3.6 of the Consultant Guidelines.
2.
Individual Consultants
Services for identification and selection of sales agents  under paragraph 1.1 (a) of the Annex 
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 C
:
Review by the Bank 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 Activities shall be furnished to the Bank for its review and 
approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Consultant 
Guidelines.  Selection of all consultants’ services shall be undertaken in accordance with such 
selection plan as shall have been approved by the Bank, 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 US$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 individual consultants estimated to 
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cost the equivalent of US$50,000 or more, the qualifications, experience, terms of reference and terms 
of employment of the consultants shall be furnished to the Bank for its prior review and approval.
The contract shall be awarded only after 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.
Attachment II
Special Account
1.
For the purposes of this Attachment:
(a)
the term "eligible items" means the item(s) set forth in the table in paragraph 4.2 of the 
Annex to this Letter Agreement;
(b)
the term "eligible expenditures" means expenditures in respect of the reasonable cost of 
services required for the Activities and to be financed out of the proceeds of the Grant; and
(c)
the term "Authorized Allocation" means an amount equivalent to US$400,000 to be 
withdrawn from the Grant Account and deposited into the Special Account pursuant to paragraph 3 
(a) of this Attachment.
2.
Payments out of the Special Account shall be made exclusively for eligible expenditures in 
accordance with the provisions of this Attachment.
3.
After the Bank has received evidence satisfactory to it that the Special Account has been duly 
opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the 
Special Account shall be made as follows:
(a)
The Recipient shall furnish to the Bank a request or requests for a deposit into the 
Special Account of an amount or amounts which do not exceed the aggregate amount of the 
Authorized Allocation.  On the basis of such request or requests, the Bank shall, on behalf of the 
Recipient, withdraw from the Grant Account and deposit into the Special Account such amount or 
amounts as the Recipient shall have requested.
(b)
(i)
For replenishment of the Special Account, the Recipient shall furnish to the 
Bank requests for deposits into the Special Account at such intervals as the Bank shall specify.
(ii)
Prior to or at the time of each such request, the Recipient shall furnish to 
the Bank the documents and other evidence required pursuant to paragraph 4 of this Attachment for 
the payment or payments in respect of which replenishment is requested.  On the basis of each such 
request, the Bank shall, on behalf of the Recipient, withdraw from the Grant Account and deposit into 
the Special Account such amount as the Recipient shall have requested and as shall have been shown 
by said documents and other evidence to have been paid out of the Special Account for eligible 
expenditures.  All such deposits shall be withdrawn by the Bank from the Grant Account under the 
eligible item(s), and in the respective equivalent amounts, as shall have been justified by said 
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documents and other evidence.
4.
For each payment made by the Recipient out of the Special Account, the Recipient shall, at such 
time as the Bank shall reasonably request, furnish to the Bank such documents and other evidence 
showing that such payment was made exclusively for eligible expenditures.
5.
Notwithstanding the provisions of paragraph
3
of
this Attachment, the Bank shall not be required 
to make further deposits into the Special Account:
(a)
if, at any time, the Bank shall have determined that all further withdrawals should be 
made by the Recipient directly from the Grant Account;
(b)
if the Recipient shall have failed to furnish to the Bank, within the period of time 
specified in paragraph 5.1 (b) (ii) of the Annex to this Letter Agreement, any of the audit reports 
required to be furnished to the Bank pursuant to said paragraph in respect of the audit of the records 
and accounts for the Special Account;
(c)
if, at any time, the Bank shall have notified the Recipient of its intention to suspend in 
whole or in part the right of the Recipient to make withdrawals from the Grant Account pursuant to 
the provisions of paragraph
6.1
of the Annex to this Letter Agreement; or
(d)
once the total unwithdrawn amount of the Grant shall equal the equivalent of twice the 
amount of the Authorized Allocation.
Thereafter, withdrawals from the Grant Account of the remaining unwithdrawn amount of the Grant 
shall follow such procedures as the Bank shall specify by notice to the Recipient.  Such further 
withdrawals shall be made only after and to the extent that the Bank shall have been satisfied that all 
such amounts remaining on deposit in the Special Account as of the date of such notice will be 
utilized in making payments for eligible expenditures.
6.
(a)
If the Bank shall have determined at any time that any payment out of the Special 
Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this 
Attachment; or (ii) was not justified by the evidence furnished to the Bank, the Recipient shall, 
promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; 
or
(B) deposit into the Special Account (or, if the Bank shall so request, refund to the Bank) an 
amount equal to the amount of such payment or the portion thereof not so eligible or justified.  Unless 
the Bank shall otherwise agree, no further deposit by the Bank into the Special Account shall be made 
until the Recipient has provided such evidence or made such deposit or refund, as the case may be.
(b)
If the Bank shall have determined at any time that any amount outstanding in the Special 
Account will not be required to cover further payments for eligible expenditures, the Recipient shall, 
promptly upon notice from the Bank, refund to the Bank such outstanding amount.
(c)
The Recipient may, upon notice to the Bank, refund to the Bank all or any portion of the 
funds on deposit in the Special Account.
(d)
Refunds to the Bank made pursuant to sub-paragraphs 6 (a), (b) and (c) of this paragraph 
shall be credited to the Grant Account for subsequent withdrawal or for cancellation in accordance 
with the relevant provisions of this Agreement. 
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