Page  1
CONFORMED COPY
TF022696
Japanese Grant Agreement
(Energy Conservation and Rehabilitation Project)
between
REPUBLIC OF LATVIA
and
INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT
 as Administrator of Grant Funds
provided by JAPAN
Dated July 5, 1995
TF022696
JAPANESE GRANT AGREEMENT
AGREEMENT, dated July 5, 1995, between the REPUBLIC OF LATVIA (the Recipient) 
and the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) acting as 
Administrator (the Administrator) of grant funds provided by JAPAN (Japan).
WHEREAS (A) pursuant to a letter agreement dated July 30, 1990 between Japan and 
the Bank and International Development Association (the Association), Japan has 
requested the Bank and the Association, and the Bank and the Association have agreed, 
to administer grant funds to be made available by Japan for the financing of certain 
programs and projects supported by the Bank and the Association, as the case may be, 
in accordance with the provisions of such letter agreement; and
WHEREAS (B) Japan has agreed to make available to the Recipient a grant out of 
said grant funds (the Grant) to finance the cost of carrying out the technical 
assistance described in Schedule 2 to this Agreement (the Technical Assistance) on the 
terms and conditions hereinafter set forth;
NOW THEREFORE the parties hereto hereby agree as follows:
ARTICLE I
General Conditions; Definitions
Section 1.01. (a) The following provisions of the General Conditions Applicable 
to Loan and Guarantee Agreements of the Bank, dated January 1, 1985, with the 
modifications set forth in paragraph (b) of this Section (the General Conditions) 
constitute an integral part of this Agreement:
Page  2
(i)
Article I;
(ii)
Sections 2.01 (1), (2), (3), (4), (6), (8), (9), (10), (11), (18) 
and (20), 2.02 and 2.03;
(iii)
Section 3.01;
(iv)
Section 4.01 and the first sentence of Section 4.09;
(v)
Article V;
(vi)
Sections 6.01, 6.02 (a), (c), (d), (e), (f), (i) and (k), 6.03, 
6.04 and 6.06;
(vii)
Section 8.01 (b);
(viii)Sections 9.01 (a) and (c), 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09;
(ix)
Sections 10.01, 10.03 and 10.04; and
(x)
Article XI.
(b)
The General Conditions shall be modified as follows:
(i)
the term "Bank", wherever used in the General Conditions, other 
than in Sections 2.01 (8) and 6.02 (f) thereof and the last use of 
such term in Section 5.01 thereof, means the International Bank 
for Reconstruction and Development acting as Administrator of the 
Grant pursuant to the letter agreement between Japan and the Bank 
and the Association referred to in Recital (A) of this Agreement, 
except that in Section 6.02, the term "Bank" shall also include 
the International Bank for Reconstruction and Development acting 
in its own capacity;
(ii)
the term "Borrower", wherever used in the General Conditions, 
means the Recipient;
(iii)
the term "Loan Agreement", wherever used in the General 
Conditions, means this Agreement;
(iv)
the term "Loan", wherever used in the General Conditions, means 
the Grant;
(v)
the term "Loan Account", wherever used in the General Conditions, 
means the Grant Account, an account opened by the Administrator on 
its books in the name of the Recipient to which the amount of the 
Grant is credited;
(vi)
the term "Project", wherever used in the General Conditions, means 
the technical assistance described in Schedule 2 to this 
Agreement; and
(vii)
Section 4.01 shall be modified to read:
"Withdrawals from the Grant Account shall be made in yen; 
provided, however, that if the expenditures to be financed out of the 
Grant have been paid or are payable in another currency, the 
Administrator shall, at the request of the Recipient, purchase such 
currency with the proceeds of such withdrawal."
Section 1.02. Wherever used in this Agreement, unless the context otherwise 
requires, the several terms defined in the General Conditions and in the Recitals to 
this Agreement have the respective meanings therein set forth; and the terms "yen" and 
"¥" mean the currency of Japan. The following additional terms have the following 
meanings:
(a)
"Special Account" means the account referred to in Section 2.02 (b) of 
this Agreement; and
(b)
"Yen" and "¥" mean the currency of Japan.
ARTICLE II
Page  3
The Grant
Section 2.01. The Administrator agrees to make available to the Recipient, on 
the terms and conditions set forth or referred to in this Agreement, the Grant in an 
amount of sixty million yen (¥60,000,000).
Section 2.02. (a) The amount of the Grant may be withdrawn from the Grant 
Account in accordance with the provisions of Schedule 1 to this Agreement, as such 
Schedule may be amended from time to time by agreement between the Recipient and the 
Administrator, for expenditures made (or, if the Administrator shall so agree, to be 
made) in respect of the reasonable cost of carrying out the Project and to be financed 
out of the Grant.
(b)
The Recipient may, for the purposes of the Project, open and maintain in 
dollars a special deposit account in a commercial bank acceptable to the Bank on terms 
and conditions satisfactory to the Administrator, 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 Schedule 4 to this 
Agreement.
Section 2.03. The Closing Date shall be December 31, 1996, or such later date as 
the Administrator shall establish.  The Administrator shall promptly notify the 
Recipient of such later date.
ARTICLE III
Execution of the Project
Section 3.01. (a) The Recipient shall carry out the Project with due diligence 
and efficiency and in conformity with appropriate engineering, financial, 
administrative and environmental practices, and shall provide, promptly as needed, the 
funds, facilities, services and other resources required for the Project.
(b)
Without limitation upon the provisions of paragraph (a) of this Section 
and except as the Recipient and the Administrator shall otherwise agree, the Recipient 
shall carry out the Project in accordance with the project description set forth in 
Schedule 2 to this Agreement.
Section 3.02. Except as the Administrator shall otherwise agree, procurement of 
the goods and consultants' services required for the Project and to be financed out of 
the Grant shall be governed by the provisions of Schedule 3 to this Agreement.
Section 3.03. (a) The Recipient shall maintain or cause to be maintained records 
and accounts adequate to reflect in accordance with sound accounting practices the 
operations, resources and expenditures in respect of the Project of the departments or 
agencies of the Recipient responsible for carrying out the Project or any part 
thereof.
(b)
The Recipient shall:
(i)
have the records and accounts referred to in paragraph (a) of this 
Section and those for the Special Account for each fiscal year 
audited, in accordance with appropriate auditing principles 
consistently applied, by independent auditors acceptable to the 
Administrator;
(ii)
furnish to the Administrator as soon as available, but in any case 
not later than six months after the end of each such year, the 
report of such audit by said auditors, of such scope and in such 
detail as the Administrator shall have reasonably requested; and
(iii)
furnish to the Administrator such other information concerning 
said records and accounts and the audit thereof as the 
Administrator 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:
(i)
maintain or cause to be maintained, in accordance with paragraph 
(a) of this Section, records and accounts reflecting such 
expenditures;
Page  4
(ii)
retain, until at least one year after the Administrator 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 Administrator's representatives to examine such 
records; and
(iv)
ensure that such records and accounts are included in the annual 
audit referred to in paragraph (b) of this Section and that the 
report of such audit contains a separate opinion by said auditors 
as to whether the statements of expenditure submitted during such 
fiscal year, together with the procedures and internal controls 
involved in their preparation, can be relied upon to support the 
related withdrawals.
ARTICLE IV
Effectiveness; Termination
Section 4.01. This Agreement shall become effective upon its execution by the 
parties hereto.
Section 4.02.  This Agreement shall continue in effect until the Grant has been 
fully disbursed and the parties to this Agreement have fulfilled all their obligations 
hereunder.
ARTICLE V
Representation
Section 5.01. The Ministry of Finance of the Recipient is designated as 
representative of the Recipient for the purposes of Section 11.03 of the General 
Conditions.
Section 5.02. The following addresses are specified for the purposes of Section 
11.01 of the General Conditions:
For the Recipient:
Ministry of Finance
1, Smilsu Street
LV 1919 Riga
Latvia
Telex:
161 232 NAUDA SU
For the Administrator:
International Bank for
  Reconstruction and Development
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Cable address:
Telex:
INTBAFRAD
197688 (TRT),
Washington, D.C.
248423 (RCA),
 64145 (WUI) or
 82987 (FTCC)
IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized 
representatives, have caused this Agreement to be signed in their respective names as 
of the day and year first above written.
Page  5
REPUBLIC OF LATVIA
By /s/ I. Samite
Authorized Representative
INTERNATIONAL BANK FOR RECONSTRUCTION
    AND DEVELOPMENT
    as Administrator of the Grant
By /s/ B.G. Kavalsky
Authorized Representative
SCHEDULE 1
Withdrawal of the Grant
1.
The table below sets forth the Categories of items to be financed out of 
the Grant, the allocation of the amount of the Grant to each Category and the 
percentage of expenditures for items so to be financed in each Category:
 Amount of the
 Grant allocated
   % of
  (Expressed in
Expenditures
Category
Yen Equivalent)
to be Financed
(1)
Equipment and
    5,000,000
100% of foreign
materials for
expenditures;
Part A of the 
100% of local
Project
expenditures
(ex-factory cost);
80% of local
expenditures for
other items procured
locally
(2)
Consultants'
   55,000,000
100%
Services for
Part B of the
Project
TOTAL
   60,000,000
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 Recipient for goods or services supplied from the 
territory of any country other than that of the Recipient; and
(b)
the term "local expenditures" means expenditures in the currency of the 
Recipient or for goods or services supplied from the territory of the Recipient.
3.
Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be 
made in respect of payments made for expenditures prior to the date of this Agreement.
4.
The Administrator may require withdrawals from the Grant Account to be made on 
the basis of statements of expenditure for expenditures for services under contracts 
not exceeding $50,000 equivalent, and for the services of individual consultants not 
exceeding $10,000 equivalent, under such terms and conditions as the Administrator 
shall specify by notice to the Recipient.
SCHEDULE 2
Page  6
Description of the Project
The objective of the Project is to help the Recipient with the energy 
conservation and rehabilitation of the district heating program and the improvement of 
the efficiency of the heating system.  The Project will consist of the following 
parts:
Part A:
Provision of equipment for the Jelgava District Heating Company.
Part B:
Technical assistance in the following areas:
1.
Energy sector tariff and pricing study:
The study will assist the Latvian government in its strategy of price 
liberalization in the energy sector, including the following major sub-sectors: 
electricity, district heating, natural gas, and oil and the absolute and relative 
price relationships in the sector.
2.
Institution building:
Identification of the institutional and technical bottlenecks within the newly 
created district heating enterprises, organizational design; technical know-how 
capability especially with regards to system maintenance and configuration; financial 
and economic capability especially as it affects decision-making to ensure viability 
of the enterprises.
3.
Training:
Training will be provided by the consultants in district heating management and 
financing for the local counterparts involved in the studies.
SCHEDULE 3
Procurement and Consultants' Services
I.
Procurement of Goods
Contracts for the procurement of goods estimated to cost the equivalent of less 
than $50,000 shall be awarded in accordance with established commercial practice of 
the Recipient, due account being taken also of other relevant factors such as time of 
delivery and efficiency and reliability thereof and availability of maintenance and 
spare parts.
II.
Employment of Consultants
1.
In order to assist the Recipient in the implementation of the Project, the 
Recipient shall employ consultants whose qualifications, experience and terms and 
conditions of employment shall be satisfactory to the Administrator.  Such consultants 
shall be selected in accordance with principles and procedures satisfactory to the 
Administrator on the basis of the "Guidelines for the Use of Consultants by World Bank 
Borrowers and by The World Bank as Executing Agency" published by the Bank in August 
1981 (the Consultant Guidelines).  For complex time-based assignments, the Recipient 
shall employ such consultants under contracts using the standard form of contract for 
consultants' services issued by the Bank, with such modifications as shall have been 
agreed by the Administrator. Where no relevant standard contract documents have been 
issued by the Bank, the Recipient shall use other standard forms agreed with the 
Administrator.
2.
Notwithstanding the provisions of paragraph 1 of this Section, the provisions of 
the Consultant Guidelines requiring prior Administrator review or approval of budgets, 
short lists, selection procedures, letters of invitation, proposals, evaluation 
reports and contracts, shall not apply to (a) contracts for the employment of 
consulting firms estimated to cost less than $100,000 equivalent each or (b) contracts 
for the employment of individuals estimated to cost less than $50,000 equivalent each.  
However, said exceptions to prior Administrator review shall not apply to (a) the 
terms of reference for such contracts, (b) single-source selection of consulting 
firms, (c) assignments of a critical nature, as reasonably determined by the 
Administrator, (d) amendments to contracts for the employment of consulting firms 
raising the contract value to $100,000 equivalent or above, or (e) amendments to 
contracts for the employment of individual consultants raising the contract value to 
$50,000 equivalent or above.
Page  7
SCHEDULE 4
Special Account
1.
For the purposes of this Schedule:
(a)
the term "eligible Categories" means Categories 1 and 2 as set forth in 
the table in paragraph 1 of Schedule 1 to this Agreement;
(b)
the term "eligible expenditures" means expenditures in respect of the 
reasonable cost of goods and services required for the Project and to be financed out 
of the proceeds of the Grant allocated to the eligible Categories in accordance with 
the provisions of Schedule 1 to this Agreement; and
(c)
the term "Authorized Allocation" means an amount equivalent to $70,000 to 
be withdrawn from the Loan Account and deposited in the Special Account pursuant to 
paragraph 3 (a) of this Schedule.
2.
Payments out of the Special Account shall be made exclusively for eligible 
expenditures in accordance with the provisions of this Schedule.
3.
After the 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)
For withdrawals of the Authorized Allocations, the Borrower shall furnish 
to the Bank a request or requests for a deposit into the Special Account of an amount 
or amounts determined by the Bank to be required to pay for eligible expenditures 
during the four months following the date of each such request, which amount shall not 
exceed the aggregate amount of the Authorized Allocation. On the basis of such request 
or requests, the Bank shall, on behalf of the Borrower, withdraw from the Grant 
Account and deposit in the Special Account such amount or amounts as the Bank shall 
have determined to be so required.
(b)
(i)
For replenishment of the Special Account, the Borrower 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 Borrower shall 
furnish to the Bank the documents and other evidence required 
pursuant to paragraph 4 of this Schedule for the payment or 
payments in respect of which replenishment is requested. On the 
basis of each such request, the Bank shall, on behalf of the 
Borrower, withdraw from the Grant Account and deposit into the 
Special Account such amount as the Borrower shall have requested 
and as shall have been shown by said documents and other evidence 
to have been paid out of the Special Account for eligible 
expenditures.
All such deposits shall be withdrawn by the Bank from the Grant Account and in the 
respective equivalent amounts, as shall have been justified by said documents and 
other evidence.
4.
For each payment made by the Borrower out of the Special Account, the Borrower 
shall, at such time as the 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 Schedule, 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 Borrower directly from the Grant Account in 
accordance with the provisions of Article V of the General Conditions and paragraph 
(a) of Section 2.02 of this Agreement;
(b)
if the Borrower shall have failed to furnish to the Bank, within the 
period of time specified in Section 3.03 (b) (ii) of this Agreement, any of the audit 
reports required to be furnished to the Bank pursuant to said Section 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 Borrower of its 
Page  8
intention to suspend in whole or in part the right of the Borrower to make withdrawals 
from the Grant Account pursuant to the provisions of Section 6.02 of the General 
Conditions; or
(d)
once the total unwithdrawn amount of the Grant allocated to the 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 with respect to the 
Project, shall equal the equivalent of twice the amount of the Authorized Allocation.
Thereafter, withdrawal from the Grant Account of the remaining unwithdrawn amount of 
the Grant allocated to the eligible 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.
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 Schedule; or (ii) was not justified by the evidence furnished 
to the Bank, the Borrower 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 Borrower 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 a Special Account will not be required to cover further payments for eligible 
expenditures, 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 paragraphs 6 (a), (b) and (c) of 
this Schedule shall be credited to the Grant Account for subsequent withdrawal or for 
cancellation in accordance with the relevant provisions of this Agreement, including 
the General Conditions.