Page 1 CONFORMED COPY LOAN NUMBER 7026-LE Loan Agreement (First Municipal Infrastructure Project) between THE LEBANESE REPUBLIC and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated June 27, 2000 LOAN NUMBER 7026-LE LOAN AGREEMENT AGREEMENT, dated June 27, 2000, between the LEBANESE REPUBLIC (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS the Borrower, having satisfied itself as to the feasibility and priority of the project described in Schedule 2 to this Agreement (the Project), has requested the Bank to assist in the financing of the Project; WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan 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 Loan and Guarantee Agreements for Fixed-Spread Loans” of the Bank dated September 1, 1999 (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: Page 2 (a) “Action Plan” means the action plan of even date herewith, referred to in Section 4.02 of this Agreement; (b) “Eligible Categories” means the categories (1),(2), (3),(4), and (5) set forth in the table in Part A.1 of Schedule 1 to this Agreement; (c) “Eligible Expenditures” means the expenditures for goods, works and consultant services referred to in Section 2.02 of this Agreement; (d) “Environmental Assessment Review Procedures” means the Borrower’s procedures, set out in the Project’s Operations Manual dated May 2000, furnished by the Borrower to the Bank, as the same may be updated from time to time by agreement of the Borrower and the Bank, for the implementation of the Project in accordance with appropriate environmental standards and guidelines, and including, inter alia, the preparation of environmental assessment reports for Sub-projects (as this term is hereinafter defined) under Part A(ii) of the Project; (e) “Cour des Comptes” means the Borrower’s court of account established under Legislative Decree No. 82 of the Borrower dated September 16, 1983, as the same may be amended from time to time; (f) “Independent Municipal Fund” means the account held in trust, as part of the account of the Borrower’s Treasury for the benefit of the municipalities and municipal associations, pursuant to Decree No. 1917 of April 6, 1979 as amended by Decree No. 1783 of October 10, 1991; (g) “Local Account” means the local bank account to be opened by the Borrower and funded out of the Borrower’s own resources to ensure the availability and timely provision of counterpart funds required for financing the Project; (h) “MOMRA” means the Ministry of Municipal and Rural Affairs of the Borrower or any successor thereof; (i) “MOPW” means the Ministry of Public Works of the Borrower; (j) “Memoranda of Understanding” means the two memoranda of understanding entered into between MOMRA and the Cour des Comptes, and between MOMRA and the Ministry of Public Works, pursuant to the first of which the Cour des Comptes shall carry out ex-ante review of the procurement process under the Project and pursuant to the second of which the Ministry of Public Works shall carry out technical review of the Sub-projects; each a Memorandum of Understanding; (k) “Operations Manual” means the Operations Manual including the annexes thereto, dated May 2, 2000, and agreed upon by the Borrower and the Bank, setting forth the procedures, eligibility, appraisal and allocation criteria and guidelines for identifying, planning, monitoring and controlling Sub-project implementation, as the same may be revised from time to time in agreement with the Bank; (l) “PCU” means the Project Coordinating Unit established pursuant to the provisions of Section 5.01 of this Agreement; (m) “PMIS’ means the Project Management Information System to be established within the PCU pursuant to Section 5.01(d) of this Agreement and thereafter maintained at all times until completion of the Project; (n) “Special Account” means the account referred to in Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank; and (o) “Sub-project” means a specific development project to be carried out under the Project, which the Bank shall consider eligible for financing under the Project. ARTICLE II The Loan Page 3 Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, an amount equal to eighty million United States dollars (US$80,000,000), as such amount may be converted from time to time through a Currency Conversion in accordance with the provisions of Section 2.09 of this Agreement. Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of works, goods and services required for the Project and to be financed out of the proceeds of the Loan and in respect of interest and other charges in respect of the Loan, the front-end fee referred to in Section 2.04 of this Agreement and any premium in respect of an Interest Rate Cap or Interest Rate Collar payable by the Borrower in accordance with Section 4.04(c) of the General Conditions. Section 2.03. The Closing Date shall be December 31, 2005 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.04. The Borrower shall pay to the Bank a front-end fee in an amount equal to eight hundred thousand United States dollars (US$800,000), on or promptly after the effectiveness date. Section 2.05. The Borrower shall pay to the Bank a commitment charge on the principal amount of the Loan not withdrawn from time to time, at a rate equal to: (i) eighty five one-hundredths of one per cent (0.85%) per annum from the date on which such charge commences to accrue in accordance with the provisions of Section 3.02 of the General Conditions to but not including the fourth anniversary of such date; and (ii) seventy five one-hundredths of one per cent (0.75%) per annum thereafter. Section 2.06. The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, in respect of each Interest Period at the Variable Rate; provided, that upon a Conversion of all or any portion of the principal amount of the Loan, the Borrower shall, during the Conversion Period, pay interest on such amount in accordance with the relevant provisions of Article IV of the General Conditions. Section 2.07. Interest and other charges shall be payable semiannually in arrears on January 15th and July 15th in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the provisions of Schedule 3 to this Agreement. Section 2.09. (a) The Borrower may at any time request any of the following Conversions of the terms of the Loan in order to facilitate prudent debt management: (i) a change of the Loan Currency of all or any portion of the principal amount of the Loan, withdrawn or unwithdrawn, to an Approved Currency; (ii) a change of the interest rate basis applicable to all or any portion of the principal amount of the Loan from a Variable Rate to a Fixed Rate, or vice versa; and (iii) the setting of limits on the Variable Rate applicable to all or any portion of the principal amount of the Loan withdrawn and outstanding by the establishment of an Interest Rate Cap or Interest Rate Collar on said Variable Rate. (b) Any conversion requested pursuant to paragraph (a) of this Section that is accepted by the Bank shall be considered a “Conversion”, as defined in Section 2.01(7) of the General Conditions, and shall be effected in accordance with the provisions of Article IV of the General Conditions and of the Conversion Guidelines. (c) Promptly following the Execution Date for an Interest Rate Cap or Interest Rate Collar in respect of which the Borrower has requested that the premium Page 4 be paid out of the proceeds of the Loan, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amounts required to pay any premium payable in accordance with Section 4.04(c) of the General Conditions up to the amount allocated from time to time for such purpose in the table in paragraph 1 of Schedule 1 to this Agreement. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project, and, to this end, shall carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, economic, engineering, environmental, financial, municipal and technical practices, and shall provide, promptly as needed, the funds, facilities, services and other sources required for the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Borrower and the Bank shall otherwise agree, the Borrower shall carry out the Project in accordance with the Implementation Program set forth in Schedule 5 to this Agreement, the provisions of the Environmental Assessment Review Procedures and those of the Operations Manual. (c) In order to ensure the timely provision of funds required as counterpart funds from the Borrower’s Independent Municipal Fund, the Borrower shall: (i) maintain the Local Account in accordance with terms and conditions acceptable to the Bank, exclusively for the financing of expenditures under the Project; and (ii) deposit into said Local Account within the first week of each quarter the amount required to ensure that the amount on deposit in said Local Account at such time shall not be less than the estimated amount of expenditures required for the Project during such quarter, determined in accordance with terms and conditions acceptable to the Bank. Section 3.02. Except as the Bank 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 Loan shall be governed by the provisions of Schedule 4 to this Agreement. Section 3.03. For the purposes of Section 9.08 of the General Conditions and without limitation thereto, the Borrower shall: (a) prepare, on the basis of guidelines acceptable to the Bank, and furnish to the Bank 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 Bank, a plan for the future operation of the Project; and (b) afford the Bank a reasonable opportunity to exchange views with the Borrower on said plan. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall, at all times, maintain a financial management system, including records and accounts, and prepare financial statements in a format acceptable to the Bank, adequate to reflect the operations, resources and expenditures related to the Project. (b) The Borrower shall: (i) have the records, accounts and financial statements referred to in paragraph (a) of this Section and the records and accounts for the Special Account for each fiscal year audited, in accordance with 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 Page 5 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 such records and accounts, and the audit thereof, and concerning said auditors, as the Bank may from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan 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 separate 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 Loan 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 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 Bank for the strengthening of the financial management system referred to in paragraph (a) of said Section 4.01 in order to enable the Borrower, not later than December 31, 2000, or such later date as the Bank shall agree, to prepare quarterly Project Management Reports, acceptable to the Bank, 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 Loan during the period covered by said report and expenditures proposed to be financed out of the proceeds of the Loan 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 Loan, 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 Bank, and furnish to the Bank not later than forty-five (45) days after the end of each calendar quarter a Project Management Report for such period. ARTICLE V Effective Date; Termination Page 6 Section 5.01. The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01(c) of the General Conditions: (a) the PCU has been established under contractual arrangements and terms of reference acceptable to the Bank; (b) the financial management system referred to under Section 4.01 of the Agreement has been established; (c) PMIS has been established under procedures and in accordance with guidelines satisfactory to the Bank; (d) MOMRA has entered into the Memoranda of Understanding with each of the Cour des Comptes and MOPW; and (e) the Borrower shall have appointed a financial manager and a procurement manager for the Project with qualifications and under terms of references and contractual arrangements acceptable to the Bank. Section 5.02. The date one hundred and twenty (120) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VI Representative of the Borrower; Addresses Section 6.01. 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 6.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance Beirut, Lebanese Republic Facsimile: 961 1 642 762 For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: Facsimile: INTBAFRAD 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 Beirut, Lebanese Republic, as of the day and year first above written. THE LEBANESE REPUBLIC Page 7 By /s/ Michael El Murr Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Padmanabha Hari Prasad Authorized Representative SCHEDULE 1 Withdrawal of the Proceeds of the Loan A. General 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category US Dollars) to be Financed (1) Civil Works under: (a) Part A(i) of 62,000,000 78% the Project (b) Part A(ii) of 5,000,000 78% the Project (2) Goods 1,000,000 100% of foreign expenditures; 100% of local expenditures (ex-factory cost); and 85% of local expenditures for other items procured locally (3) Consultants' 5,000,000 100% services and training (4) Project Management 2,000,000 100% Costs (5) Premia for Interest 0 Amount due under Rate Caps and Interest Section 2.09(c) of Rate Collars this Agreement (6) Unallocated 5,000,000 TOTAL 80,000,000 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 Page 8 Borrower or for goods or services supplied from the territory of the Borrower; and (c) the term “Project Management Costs” means expenditures under Part C of the Project incurred by the PCU in relation to maintenance of vehicles and equipment, fuel, utility charges, office supplies, international communications, local transport costs and fees of PCU staff excluding salaries of officials of the Borrower. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not exceeding the equivalent of $8,000,000, may be made in respect of Categories (1)(a), (2), (3), and (4) set forth in the table in paragraph 1 of this Schedule on account of payments made for expenditures before that date but after March 31, 2000; (b) expenditures under Category 1(b) of the Project related to any Sub-project identified by the Environmental Assessment Review Procedures as requiring an environmental assessment report, unless (i) the Borrower shall have first submitted to the Bank an environmental assessment report, procurement documents and contractual agreements in connection with such Sub-project, in form and substance satisfactory to the Bank and in accordance with the Environmental Assessment Review Procedures; and (c) any expenditure under the Project unless the Bank shal l have received the fee referred to in Section 2.04 of this Agreement. 4. The Bank may require withdrawals from the Loan Account to be made on the basis of statements of expenditure for expenditures for: (a) goods under contracts costing less than $50,000 equivalent each; (b) works under contracts costing less than $200,000 equivalent each; (c) services under consultant firms contracts costing less than $100,000 equivalent each and under individual consultant contracts costing less than $50,000 equivalent each; (d) training; and (e) Project Management Costs, under such terms and conditions as the Bank shall specify by notice to the Borrower. B. Special Account 1. The Borrower shall open and maintain in United States dollars a special deposit account, in its Central Bank, on terms and conditions satisfactory to the Bank. 2. After the Bank has received evidence satisfactory to it that the Special Account has been opened, withdrawals from the Loan Account of amounts to be deposited into the Special Account shall be made as follows: (a) until the Bank 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 Bank 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 Bank shall reasonably request, furnish to the Bank 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 Bank shall not be required to make further deposits into the Special Account: (a) if the Bank 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 Bank determines at any time that all further withdrawals should be made by the Borrower directly from the Loan Account; or (c) if the Borrower shall have failed to furnish to the Bank within the period of time specified in Section 4.01(b)(ii) of this Agreement, any of the audit Page 9 reports required to be furnished to the Bank 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 Bank 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 Bank shall have notified the Borrower of its intention to suspend in whole or in part the right of the Borrower to make withdrawals from the Loan Account pursuant to Section 6.02 of the General Conditions. Upon such notification, the Bank 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 Bank 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 Bank, the Borrower shall, promptly upon notice from the Bank, provide such additional evidence as the Bank may request, or 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. Unless the Bank shall otherwise agree, no further deposit by the Bank into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Bank 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 Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Bank made pursuant to sub-paragraph (a), (b) or (c) of this paragraph 6 shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the provisions of the Loan 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: (a) the term “Authorized Allocation” means an amount equivalent to four million United States dollars (US$4,000,000) to be withdrawn from the Loan Account and deposited into the Special Account pursuant to paragraph 2 of this Annex; provided, however, that unless the Bank shall otherwise agree, said Authorized Allocation shall be limited to an amount equivalent to two million United States dollars (US$2,000,000), until the aggregate amount of withdrawals from the Loan Account, plus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions shall equal or exceed the equivalent of eight million United States dollars (US$8,000,000). 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 Bank 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 Bank shall, on behalf of the Borrower, withdraw from the Loan 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 Bank requests for deposit into the Special Account at such intervals as the Bank shall specify. Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to Part B.3 of Page 10 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 Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for Eligible Expenditures. Each such deposit into the Special Account shall be withdrawn by the Bank from the Loan Account under one or more of the Special Account’s Eligible Categories. 3. The Bank shall not be required to make further deposits into the Special Account, once the total unwithdrawn amount of the Loan allocated to the Special Account’s Eligible Categories minus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions in respect of expenditures to be financed out of the proceeds of the Loan allocated to said Categories, shall equal the equivalent of twice the amount of the Special Account’s Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of the Loan allocated to said Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for Eligible Expenditures. Annex B to SCHEDULE 1 Operation of Special Account When Withdrawals Are Made On the Basis of Project Management Reports 1. Except as the Bank may otherwise specify by notice to the Borrower, all withdrawals from the Loan Account shall be deposited by the Bank 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 Bank from the Loan Account under one or more of the Special Account’s Eligible Categories. 2. Each application for withdrawal from the Loan 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 Loan, the Bank shall, on behalf of the Borrower, withdraw from the Loan 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 Bank 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 ten million United States dollars (US$10,000,000). SCHEDULE 2 Description of the Project The objectives of the Project are to: (i) restore selected basic municipal infrastructure and services at the local level to improve living conditions; and (ii) enhance the capacity of municipalities in addressing local infrastructure maintenance and rehabilitation needs. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Bank may agree upon from time to time to achieve such objectives: Part A: Upgrading and Rehabilitating Basic Municipal Infrastructure Carrying out a program for the rehabilitation and upgrading of essential infrastructure in all the municipalities of the Borrower (with the exclusion of the four largest municipalities of Beirut, Tripoli, Sidon and Zahle), including: (i) constructing, upgrading, rehabilitating and maintaining essential roads and sidewalks, retaining walls, pedestrian crossings, street lighting, safety barriers, road signs, Page 11 urgent repairs to potable water and sewerage pipes, pavement surfacing, storm water drains and drainage systems; and (ii) construction, rehabilitating, upgrading and repairing new roads, potable water sources, potable wells, water reservoirs, potable water treatment facilities, pumping facilities, small water supply and sewerage systems. Part B: Capacity Building 1. Developing, implementing and maintaining a program for infrastructure rehabilitation, including feasibility studies, tender document preparation, Sub-project technical design and supervision and maintenance programming, through the provision of consultant services to the municipalities. 2. Strengthening the capacity of MOMRA to manage the Project and monitor the municipal sector, through the provision of consultant services. Part C: Project Coordination Unit Establishment and operation of the PCU, including the provision of equipment and consultant services thereto. * * * The Project is expected to be completed by December 31, 2005. SCHEDULE 3 Amortization Schedule 1. The following table sets forth the Principal Payment Dates of the Loan and the percentage of the total principal amount of the Loan payable on each Principal Payment Date (Installment Share). If the proceeds of the Loan shall have been fully withdrawn as of the first Principal Payment Date, the principal amount of the Loan repayable by the Borrower on each Principal Payment Date shall be determined by the Bank by multiplying: (a) the total principal amount of the Loan withdrawn and outstanding as of the first Principal Payment Date; by (b) the Installment Share for each Principal Payment Date, such repayment amount to be adjusted, as necessary, to deduct any amounts referred to in paragraph 4 of this Schedule, to which a Currency Conversion applies. Installment Share Payment Date (Expressed as a %) On each January 15 and July 15 Beginning July 15, 2005 through January 15, 2015 5% 2. If the proceeds of the Loan shall not have been fully withdrawn as of the first Principal Payment Date, the principal amount of the Loan repayable by the Borrower on each Principal Payment Date shall be determined as follows: (a) To the extent that any proceeds of the Loan shall have been withdrawn as of the first Principal Payment Date, the Borrower shall repay the amount withdrawn and outstanding as of such date in accordance with paragraph 1 of this Schedule. (b) Any withdrawal made after the first Principal Payment Date shall be repaid on each Principal Payment Date falling after the date of such withdrawal in amounts determined by the Bank by multiplying the amount of each such withdrawal by a fraction, the numerator of which shall be the original Installment Share specified in the table in paragraph 1 of this Schedule for said Principal Payment Date (the Original Installment Share) and the denominator of which shall be the sum of all remaining Original Installment Shares for Principal Payment Dates falling on or after such date, such repayment amounts to be adjusted, as necessary, to deduct any amounts referred to in paragraph 4 of this Schedule, to which a Currency Conversion applies. 3. (a) Withdrawals made within two calendar months prior to any Principal Page 12 Payment Date shall, for the purposes solely of calculating the principal amounts payable on any Principal Payment Date, be treated as withdrawn and outstanding on the second Principal Payment Date following the date of withdrawal and shall be repayable on each Principal Payment Date commencing with the second Principal Payment Date following the date of withdrawal. (b) Notwithstanding the provisions of sub-paragraph (a) of this paragraph 3, if at any time the Bank shall adopt a due date billing system under which invoices are issued on or after the respective Principal Payment Date, the provisions of such sub-paragraph shall no longer apply to any withdrawals made after the adoption of such billing system. 4. Notwithstanding the provisions of paragraphs 1 and 2 of this Schedule, upon a Currency Conversion of all or any portion of the withdrawn principal amount of the Loan to an Approved Currency, the amount so converted in said Approved Currency that shall be repayable on any Principal Payment Date occurring during the Conversion Period, shall be determined by the Bank by multiplying such amount in its currency of denomination immediately prior to said Conversion by either: (i) the exchange rate that reflects the amounts of principal in said Approved Currency payable by the Bank under the Currency Hedge Transaction relating to said Conversion; or (ii) if the Bank so determines in accordance with the Conversion Guidelines, the exchange rate component of the Screen Rate. 5. If the principal amount of the Loan withdrawn and outstanding from time to time shall be denominated in more than one Loan Currency, the provisions of this Schedule shall apply separately to the amount denominated in each Loan Currency, so as to produce a separate amortization schedule for each such amount. SCHEDULE 4 Procurement Section I. Procurement of Goods and Works Part A: General Goods and works shall be procured in accordance with 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 (the Guidelines) and the following provisions of Section I of this Schedule. Part B: International Competitive Bidding 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. Part C: Other Procurement Procedures 1. National Competitive Bidding Works estimated to cost less than $2,500,000 equivalent per contract, up to an aggregate amount not to exceed $55,000,000 equivalent, may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. 2. International Shopping Goods estimated to cost more than $50,000 equivalent per contract, up to an aggregate amount not to exceed $1,000,000 equivalent, may be procured under contracts awarded on the basis of international shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. 3. National Shopping Goods estimated to cost the equivalent of $50,000 or less per contract, up to an aggregate amount not to exceed $1,000,000 equivalent, may be procured under contracts Page 13 awarded on the basis of national shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. 4. Procurement of Small Works with Community Participation Works required under Part A(i) of the Project shall be procured in accordance with procedures acceptable to the Bank, including simplified bidding and contract documents with basic description and specifications of the required small works, posting of Invitations to Bid in a public place within the community, transparent procedures for accepting sealed bids, public bid opening, bid evaluation, and contract award to the bidder with the lowest price who can provide the requisite skills, equipment and other resources to complete the contract satisfactorily. The contracts for small works awarded on this basis shall be for fixed prices or lump sums, with estimated contract values of less than $40,000 equivalent per contract, up to an aggregate amount not to exceed $25,000,000 equivalent. Part D: Review by the Bank 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 Bank 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 Bank, and with the provisions of said paragraph 1. 2. Prior Review (a) With respect to each contract for goods and works estimated to cost the equivalent of $200,000 or more and any contract for works under Part A(ii) of the Project, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply. (b) With respect to each contract for goods estimated to cost the equivalent of $50,000 or more, the following procedures shall apply: (i) prior to the selection of any supplier under shopping procedures, the Borrower shall provide to the Bank a report on the comparison and evaluation of quotations received; (ii) prior to the execution of any contract procured under shopping procedures, the Borrower shall provide to the Bank a copy of the specifications and the draft contract; and (iii) the procedures set forth in paragraphs 2(f), 2(g) 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 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 Section II of this Schedule. 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 Page 14 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 under Part C of the Project, estimated to cost less than $200,000 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. Quality-based Selection Services estimated to cost less than $200,000 equivalent per contract, shall be procured under contracts awarded in accordance with the provisions of paragraphs 3.1 through 3.4 of the Consultant Guidelines. 2. Selection Based on Consultants’ Qualifications Services for estimated to cost less than $100,000 equivalent per contract 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 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 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 Project 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 $200,000 or more, the procedures set forth in paragraphs 1, 2 (other than the third subparagraph of paragraph 2(a)) and 5 of Appendix 1 to the Consultant Guidelines shall apply. (b) With respect to each contract for the employment of consulting firms estimated to cost the equivalent of $100,000 or more, but less than the equivalent of $200,000, 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 $25,000 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 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. Page 15 SCHEDULE 5 Implementation Program 1. The Borrower shall vest the responsibility for Project implementation in MOMRA. For the purpose of ensuring the proper execution of the Project, the Borrower shall maintain the PCU within MOMRA with qualified staff in adequate number whose qualifications and experience shall be satisfactory to the Bank. 2. The Borrower shall: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with indicators acceptable to the Bank, the carrying out of the Project and the achievement of the objectives thereof; (b) prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank, on or about June 30, 2001 an early assessment report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section, to assess the progress towards meeting the objectives of the Project, identify areas where adjustments need to be made and set 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; (c) prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank, on or about October 31, 2002, a mid-term report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section, on the progress achieved in the carrying out of the Project during the period preceding the date of said report and setting out the measures recommended to ensure the efficient carrying out of the Project and the achievement of the objectives thereof during the period following such date; (d) review with the Bank, by December 31, 2002, or such later date as the Bank shall request, the report referred to in paragraph (c) 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 Bank’s views on the matter; and (e) prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank, on or about January 31 of each year, a report 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. 3. In order to achieve the objectives of the Project, the Borrower shall cause to be carried out, not later than June 30, 2001, until completion of the Project, independent technical audits covering 30% of the Sub-projects to be carried out under the Project, such audit to assess the extent to which the Sub-projects are compliant with the design, selection and specification criteria set forth in the Operations Manual, the consistency of the methodology used to carry out the Project and the effectiveness of the services of consultants employed under the Project.