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CONFORMED COPY 
 
LOAN NUMBER 7477-PAN 
 
Loan Agreement 
 
(Water Supply and Sanitation in Low-Income Communities Project) 
 
between 
 
REPUBLIC OF PANAMA 
 
and 
 
INTERNATIONAL BANK FOR RECONSTRUCTION 
AND DEVELOPMENT 
 
Dated November 8, 2007  
 
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LOAN NUMBER 7477-PAN 
 
LOAN AGREEMENT 
 
Agreement dated November 8, 2007, between REPUBLIC OF PANAMA 
(
“Borrower”) and INTERNATIONAL BANK FOR RECONSTRUCTION AND 
DEVELOPMENT (“Bank”).  The Borrower and the Bank hereby agree as follows: 
 
ARTICLE I 
—
GENERAL CONDITIONS; DEFINITIONS 
 
1.01. 
The General Conditions (as defined in the Appendix to this Agreement) 
constitute an integral part of this Agreement. 
 
1.02. 
Unless the context requires otherwise, the capitalized terms used in this 
Agreement have the meanings ascribed to them in the General Conditions or in 
the Appendix to this Agreement. 
 
ARTICLE II 
—
LOAN 
 
2.01. 
The Bank agrees to lend to the Borrower, on the terms and conditions set forth or 
referred to in this Agreement, the amount of thirty two million Dollars 
($32,000,000) as such amount may be converted from time to time through a 
Currency Conversion in accordance with the provisions of Section 2.07 of this 
Agreement
 (“Loan”), to assist in financing the project described in Schedule 1 to 
this Agreement (“Project”). 
 
2.02. 
The Borrower may withdraw the proceeds of the Loan in accordance with 
Section IV of Schedule 2 to this Agreement.
 
2.03. 
The Front-end Fee payable by the Borrower shall be equal to one quarter of one 
per cent (0.25%) of the Loan amount.  The Borrower shall pay the Front-end Fee 
not later than sixty (60) days after the Effective Date. 
 
2.04. 
The interest payable by the Borrower for each Interest Period shall be at a rate 
equal to LIBOR for the Loan Currency plus the Fixed Spread, provided, that 
upon a Conversion of all or any portion of the principal amount of the Loan, the 
interest payable by the Borrower during the Conversion Period on such amount 
shall be determined in accordance with the relevant provisions of Article IV of 
the General Conditions. Notwithstanding the foregoing, if any amount of the 
Withdrawn Loan Balance remains unpaid when due and such non-payment 
continues for a period of thirty (30) days, then the interest payable by the 
Borrower shall instead be calculated as provided in Section 3.02 (d) of the 
General Conditions. 
 
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2.05. 
The Payment Dates are May 15 and November 15 in each year. 
2.06. 
The principal amount of the Loan shall be repaid in accordance with the 
amortization schedule set forth in Schedule 3 to this Agreement. 
 
2.07. 
(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 the 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 the General Conditions, and shall be effected in accordance with the 
provisions of Article IV of the General Conditions and of the Conversion 
Guidelines.  
 
2.08 
Without limitation upon the provisions of paragraph (a) of Section 2.07 of this 
Agreement and unless otherwise notified by the Borrower to the Bank in 
accordance with the provisions of the Conversion Guidelines, the interest rate 
basis applicable to the aggregate principal amount of the Loan withdrawn during 
each Interest Period shall be changed from the initial Variable Rate to a Fixed 
Rate for the full maturity of such amount  in accordance with the provisions of 
Article IV of the General Conditions and of the Conversion Guidelines. 
 
ARTICLE III 
—
PROJECT
 
3.01. 
The Borrower declares its commitment to the objective of the Project. To this 
end, the Borrower shall carry out the Project through MINSA in accordance with 
the provisions of Article V of the General Conditions. 
 
3.02. 
Without limitation upon the provisions of Section 3.01 of this Agreement, and 
except as the Borrower and the Bank shall otherwise agree, the Borrower shall 
ensure that the Project is carried out in accordance with the provisions of 
Schedule 2 to this Agreement. 
 
ARTICLE IV 
—EFFECTIVENESS-TERMINATION 
 
4.01. 
The Additional Conditions of Effectiveness consist of the following: 
 
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(a) 
the Borrower, through MINSA, shall have: (i) selected, in accordance 
 
with the provisions of Section III.C of Schedule 2 to this Agreement and 
 
pursuant to terms of reference previously agreed with the Bank, an agent 
 
acceptable to the Bank, and thereafter; (ii) entered into an agreement for 
 
the administration of Loan proceeds (the Fiduciary Agency Agreement) 
 
with the agent finally retained, under terms and conditions satisfactory to 
 
the Bank;  
 
(b) 
the Borrower, through MINSA,
 
shall have adopted and furnished to the 
 
Bank, the OM for the Project; and 
 
(c) 
the Borrower, through MINSA, shall have adopted and furnished to the 
 
Bank, the Procurement Plan for the Project. 
 
4.02 
Without prejudice to the provisions of the General Conditions, the Effectiveness 
Deadline is the date ninety (90) days after the date of this Agreement, but in no 
case later than the eighteen (18) 
months after the Bank’s approval of the Loan 
which expire on January 19, 2009. 
 
ARTICLE V
—
REPRESENTATIVE; ADDRESSES
 
5.01. 
The Representative of the Borrower is its Minister of Economy and Finance.   
 
5.02. 
The Borrower’s Address is: 
 
Ministerio de Economía y Finanzas 
Dirección de Crédito Público 
Vía España, Calle 52 
Edificio OGAWA, 4to Piso 
Panamá, República de Panamá 
Facsímile: (507) 507-7200 
 
5.03. 
The Bank’s Address is: 
 
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 
1-202-477-6391 
Washington, D.C. 
 64145(MCI) 
 
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AGREED at Panama City, Panama, as of the day and year first above written. 
 
REPUBLIC OF PANAMA 
 
By /s/ 
Héctor E. Alexander H. 
 
 
 
 
Authorized Representative 
 
INTERNATIONAL BANK FOR 
 
RECONSTRUCTION AND DEVELOPMENT 
 
By /s/ Jane Armitage 
 
Authorized Representative 
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SCHEDULE 1 
 
Project Description 
 
The objective of the Project is to increase access to sustainable water supply and 
sanitation services in participating communities of the territory of the Borrower.  
 
Part 1:
 
Rural Water Supply, Sanitation and Hygiene
1.1. 
Carrying out of activities needed to ensure expanded coverage and quality of 
service to rural areas through:  
 
(a) 
the provision of enhanced support to the establishment and/or operation 
and management of the Water Boards, promoting their implementation 
of selected delegated operation models; 
 
(b) 
(i) the carrying out of studies and analyses of water sources at the 
national level to support preventive protection measures in relation 
thereto; and (ii) the subsequent design and implementation of adapted 
remedial measures and activities; and 
 
(c) 
the provision of support for the establishment of water, sanitation and 
hygiene specialized units in MINSA regional directorates. 
 
1.2. 
(a) 
carrying out of physical investments and infrastructure in water and 
 
sanitation for selected rural communities of various provinces of the 
 
territory of the Borrower;  
 
(b) 
carrying out of selected community-driven investments and 
infrastructure in water and sanitation in selected rural communities of 
various provinces of the territory of the Borrower through  the provision 
of Grants to Beneficiary Communities for the preparation, 
implementation and supervision of Community Subprojects in integrated 
rural water supply and sanitation investments, therewith piloting  new 
approaches and processes; and  
 
(c) 
strengthening the implementing capacity of MINSA to provide assistance 
in the context of the implementation of the Community Subprojects. 
 
Part 2: Urban Water Supply and Sanitation 
2.1. 
The building of improved capacity in IDAAN for a more strategic planning and 
management of investments. 
 
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2.2. 
The provision of support for the design and implementation of institutionally and 
technically innovative ways to provide water and sanitation services to the 
populations of marginalized urban areas of the territory of the Borrower. 
 
2.3. 
The elaboration of innovative management models for the carrying out, on a pilot 
basis, of water and sanitation physical and infrastructure investments in selected 
small towns of the territory of the Borrower, including in relation thereto, 
assisting in the establishment and/or strengthening of specialized water and 
sanitation service providers. 
 
Part 3: Policy Development 
3.1. 
Strengthening of coordination and cooperation among key actors in the sector,  
thereby contributing to building consensus on operational and institutional 
choices, plans and strategies, through, 
inter alia
:
(a) 
the provision of support for the establishment and operationalization of 
an inter-institutional committee for water and sanitation matters; 
 
(b) 
the preparation of a national strategic plan for water and sanitation; 
 
(c) 
the design and carrying out of an IEC campaign on water and sanitation 
issues; 
 
(d) 
the carrying out of various surveys, assessments and diagnostic work on 
water and sanitation services; and 
 
(e) 
the building of relevant capacity for various staff of stakeholder 
institutions and for the media by way of study tours for staff and 
informational workshops about Project progress and survey results for 
the media. 
 
3.2. 
Implementation of a nationwide hand washing campaign.  
 
3.3. 
Enhancement of required information on investment needs, investment plans by 
various stakeholders and sector outcomes through
 
the development of a sector 
information system. 
 
Part 4: Support for Project Management
The provision of support for the administration of the Project to: (a) PCU, including in 
respect of monitoring and evaluation activities, and (b) MINSA and its regional offices. 
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SCHEDULE 2
 
Project Execution 
 
Section I. 
Implementation Arrangements
A. Institutional 
Arrangements 
 
1. 
The Borrower shall:  
 
(a) 
Maintain in MINSA, throughout Project implementation,  the Project 
coordination unit (PCU) establis
hed by Ministerial Resolution Nº01523, 
dated April 13 1994, with personnel: (i) adequate in numbers and with 
functions and resources at all times satisfactory to the Bank including a 
coordinator, a financial management specialist and a procurement
 
specialist; and (ii) responsible for the effective administration and 
coordination of Parts 1 and 4 of the Project, notably the procurement, 
financial management, audit, reporting and monitoring and evaluation in 
relation thereto. 
 
(b) 
Maintain in MINSA, throughout Project implementation, a water and 
sanitation directorate with staff adequate in numbers and with functions 
and resources at all times satisfactory to the Bank to carry out the 
relevant orientation, coordination, assistance to, and supervision of all 
technical aspects related to the implementation of Parts 2 and 3 of the 
Project. 
 
(c) 
Maintain, throughout Project implementation, the inter-institutional 
committee to be established by the Borrower under Part 3.1(a) of the 
Project with membership consisting, 
inter alia
,
of representatives of the 
relevant units in MINSA, IDAAN and MEF, all as further set forth in the 
OM, to provide guidance and orientation in the implementation of the 
Project and address potential execution constraints in relation thereto.  
 
(d) 
Ensure that, PCU, through MINSA, submits Project annual operating 
plans and budgets to the Bank for its prior review and approval. 
 
B. Implementation 
Documents 
 
1. 
(a)  
The Borrower, through MINSA, shall adopt, not later than the Effective 
 
Date, a Project operational manual satisfactory to the Bank, therein 
 
setting forth rules, methods, guidelines, standard documents and 
 
procedures for the carrying out of the Project, including the following: 
 
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(i) 
(A) the detailed description of Project implementation activities, 
their sequencing and the prospective timetable and benchmarks 
in relation thereto; and (B) the detailed institutional 
arrangements in respect thereof;  
 
(ii) 
the Project administrative, accounting, auditing, reporting, 
financial, procurement and disbursement procedures, including 
all pertinent standard documents and model contracts in relation 
thereto;  
 
(iii) 
the EMF, the RPF and the IPP for the Project; 
 
(iv) 
the plan for the training and capacity building activities under the 
Project;  
 
(vi) 
the plan for the monitoring and supervision of the Project, 
including all environmental, economic and social aspects in 
relation thereto; and 
 
(vii) 
the performance indicators for the Project. 
 
(b) 
The Borrower shall, through MINSA, carry out the Project, and/or cause 
it to be carried out, in accordance with the OM. 
 
2. 
In the event that any provision of the OM shall conflict with any one under this 
Agreement, the terms of this Agreement shall prevail. 
 
3. 
The OM may only be amended from time to time with the
 Bank’s prior written 
consent. 
 
C. 
Other Implementation Arrangements 
 
1. 
The Borrower shall, within 18 (eighteen) months of the Effective Date, adopt 
guidelines for the implementation of Community Subprojects, to include, 
inter 
alia
,
the following: (a) the criteria for the eligibility of Beneficiary Communities; 
(b) the selection, approval, implementation, monitoring and evaluation of the 
Community Subprojects; (c) the terms and conditions for the Grants, including 
the model forms for the Grant Agreements; and (d) the arrangements and 
conditions for the disbursement of funds under each Grant Agreement. 
 
2. 
The Borrower shall, not later than 60 (sixty) days after the Effective Date, enter 
into a Memorandum of Understanding with IDAAN, pursuant to terms and 
conditions specified
 
in the OM to ensure IDAAN’s participation in selected 
activities of the Project. 
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3. 
Not later than 6 (six) months after the Effective Date, the Borrower shall, through 
MINSA, take appropriate steps, including the carrying out of an action plan 
agreed with the Bank for the strengthening of its fiduciary capacity in respect of 
financial administration of the Loan, to ensure that the administration of Loan 
proceeds reverts to the Borrower within 36 (thirty six) months thereof. 
 
4. 
Without limitation to the provisions of paragraph 3 above, the Borrower shall 
cause MINSA to abide by all the terms and conditions of the Fiduciary Agency 
Agreement and effectively utilize the services of the fiduciary agent until the 
relevant date of the transfer of the administration of Loan proceeds to MINSA, as 
referred to in paragraph 3 of this Section.  
 
5. 
The Borrower shall, under each budget proposal to its legislature for each year 
during Project implementation, make adequate arrangements to fund the 
operating costs and personnel charges of the PCU
 and MINSA’s water and 
sanitation directorate, as set forth in the OM. 
 
D. Subprojects 
 
1. 
For purposes of Part 1.2 (b) of the Project, the Borrower shall, through MINSA, 
enter into an agreement, satisfactory to the Bank, with a Beneficiary Community, 
therein setting forth the respective obligations of the parties thereunder, with 
respect to the preparation and implementation of the Community Subproject. 
 
2. 
The Borrower shall, through MINSA, make a Grant to a Beneficiary Community 
in accordance with eligibility criteria and procedures acceptable to the Bank as 
set forth in the OM and which shall include the following: 
 
(a) 
Subject to the provisions of paragraph (c) (i) hereunder, the Grants shall 
be made on a non-reimbursable basis. 
 
(b) 
 
The Grants shall be made to Beneficiary Communities for the 
preparation and carrying out of integrated rural water supply and 
sanitation investments. 
 
(c)  
The Borrower shall, through MINSA, obtain rights adequate to protect its 
interests and those of the Bank, including the right to: 
 
(i) 
suspend or terminate the right of any Beneficiary Community to 
use the proceeds of a Grant, or obtain a refund of all or any part 
of the amount of a Grant then withdrawn, upon the Beneficiary 
Community’s failure to perform any of its obligations under the 
Grant Agreement; and  
 
(ii) 
require each Beneficiary Community to:  
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(A) 
carry out the relevant Community Subproject with due 
diligence and efficiency and in accordance with sound 
technical, economic, financial, managerial, 
environmental and social standards and practices 
satisfactory to the Bank , including in accordance with 
the provisions of the Anti-Corruption Guidelines 
applicable to recipients of loan proceeds other than the 
Borrower;  
 
(B) 
provide, promptly as needed, the resources required for 
the purpose;  
 
(C) 
procure the goods, works and services to be financed out 
of the Grant in accordance with the provisions of this 
Agreement;  
 
(D) 
maintain policies and procedures adequate to enable it to 
monitor and evaluate in accordance with indicators 
acceptable to the Bank, the progress of the Community 
Subprojects and the achievement of their objectives; 
 
(E)  
(1) maintain a financial management system and prepare 
financial statements in accordance with consistently 
applied accounting standards acceptable to the Bank, 
both in a manner adequate to reflect the operations, 
resources and expenditures related to the Community 
Subprojec
t; and (2) at the Bank’s or the request of the 
Borrower, have such financial statements audited by 
independent auditors acceptable to the Bank, in 
accordance with consistently applied auditing standards 
acceptable to the Bank, and promptly furnish the 
statements as so audited to the Borrower and the Bank; 
 
(F) 
enable the Borrower and the Bank to inspect the relevant 
Community Subproject and any relevant records and 
documents; and  
 
(G) 
prepare and furnish to the Borrower and the Bank all 
such information as the Borrower or the Bank shall 
reasonably request relating to the foregoing. 
 
3. 
The Borrower shall, through MINSA, exercise its rights under each Grant 
Agreement in such manner as to protect the interests of the Borrower and the 
Bank and to accomplish the purposes of the Loan. Except as the Bank shall 
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otherwise agree, the Borrower shall not assign, amend, abrogate, waive or fail to 
enforce the Grant Agreements or any of their provisions.
 
E. Anti-Corruption 
 
The Borrower, through MINSA, shall carry out the Project and shall ensure that 
the Project is carried out, including by Beneficiary Communities, in accordance 
with the provisions of the Anti-Corruption Guidelines. 
 
F. Safeguards
 
The Borrower, through MINSA, shall carry out and shall ensure that Beneficiary 
Communities carry out the Community Subprojects in accordance with the EMF, 
the RPF and the IPP prepared for the Project.  
 
Section II. 
Project Monitoring, Reporting and Evaluation
A. 
Project Reports   
 
1. 
The Borrower shall monitor and evaluate the progress of the Project and prepare  
Project Reports in accordance with the provisions of Section 5.08 of the General 
Conditions and on the basis of indicators agreed with the Bank.  Each Project 
Report shall cover the period of one calendar semester, and shall be furnished to 
the Bank not later than forty five days after the end of the period covered by such 
report.  
 
2. 
For purposes of Section 5.08 (c) of the General Conditions, the report on the 
execution of the Project and related plan required pursuant to that Section shall 
be furnished to the Bank not later than November 30, 2012. 
 
B.
 
Financial Management, Financial Reports and Audits   
 
1. 
The Borrower shall maintain within MINSA, through 
MINSA’s water and 
sanitation directorate and PCU, and shall cause to be maintained with Beneficiary 
Communities, a financial management system in accordance with the provisions 
of Section 5.09 of the General Conditions. 
 
2. 
Without limitation on the provisions of Part A of this Section, the Borrower shall 
prepare and furnish to the Bank as part of the Project Report not later than forty 
five days after the end of each calendar semester, interim unaudited financial 
reports for the Project covering the semester, in form and substance satisfactory 
to the Bank. 
 
3. 
The Borrower shall have its Financial Statements and the financial statements for 
Beneficiary Communities audited in accordance with the provisions of Section 
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5.09 (b) of the General Conditions.  Each audit of the Financial Statements of the 
Borrower and of the financial statements of the Beneficiary Communities shall 
cover the period of one fiscal year of the Borrower and one fiscal year of the 
Beneficiary Communities concerned.  The audited Financial Statements of the 
Borrower and those of the Beneficiary Communities in respect of each such 
period shall be furnished to the Bank not later than six months after the end of 
such period.
 
Section III. 
Procurement
A. General
 
1.
 
Goods, Works and Non-consultant Services.  
 All goods, works and Non-
consultant services required for the Project and to be financed out of the proceeds 
of the Loan shall be procured in accordance with the requirements set forth or 
referred to in Section I of the Procurement Guidelines, and with the provisions of 
this Section. 
 
2.
 
Consultants’ Services.  
All consultants’ services required for the Project and to 
be financed out of the proceeds of the Loan shall be procured in accordance with 
the requirements set forth or referred to in Sections I and IV of the Consultant 
Guidelines and with the provisions of this Section.   
 
3. 
Definitions.
 
The capitalized terms used below in this Section to describe 
particular procurement methods or methods of review by the Bank of particular 
contracts refer to the corresponding method described in the Procurement 
Guidelines, or Consultant Guidelines, as the case may be. 
 
B. 
Particular Methods of Procurement of Goods, Works and Non-consultant 
Services 
 
1. 
International Competitive Bidding.
 
Except as otherwise provided in paragraph 
2
below, goods, works and Non-consultant services shall be procured under 
contracts awarded on the basis of International Competitive Bidding and subject 
to the following special provisions: 
 
(a) 
prior registration, obtaining a license or an authorization shall not be a 
requirement for any bidder to participate in bidding procedures; 
 
(b) 
no bids shall be rejected, and no provisional awards shall be made at the 
time of bid opening; 
 
(c) 
the invitation to bid shall not establish, for purposes of acceptance of 
bids, minimum or maximum amounts for the contract prices; and 
 
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(d) 
the invitation to bid shall not require mandatory attendance to a pre-bid 
meeting as a condition to bid.  
 
2. 
Other Methods of Procurement of Goods, Works and Non-Consultant 
Services
.
The following table specifies the methods of procurement, other than 
International Competitive Bidding, which may be used for goods, works and 
Non-consultant services.  The Procurement Plan shall specify the circumstances 
under which such methods may be used. 
 
Procurement Method 
(a)  National Competitive Bidding (NCB)  subject to the following  
 provisions: 
 
(i)   standard bidding documents for NCB, acceptable to the Bank, should 
 be 
used; 
 
(ii)  foreign bidders shall not be required to be registered with local 
 
authorities as a prerequisite for bidding; 
 
(iii)  
no
bids of proposals shall be rejected, and no provisional awards shall 
 
be made at the time of bid opening; 
 
(iv)  the invitation to bid shall not establish, for purposes of acceptance of 
 
bids, minimum or maximum amounts for the contract prices; 
 
(v)  the invitation to bid shall not require mandatory attendance to a pre-
 
bid meeting as a condition to bid; and 
 
(vi)  potential bidders shall be allowed adequate time to prepare bids 
 
which should not be less than 30 days, except for commodities and 
 
contracts for small goods and Non-consultant services. 
 
(b)  Shopping, subject to the following provisions: 
 
(i) foreign bidders shall not be required to be registered with local 
 
authorities as a prerequisite for submitting quotations; and 
 
(ii) a minimum of three quotations shall be obtained as a condition to 
 award 
the 
contract. 
 
(c)  Direct Contracting, sub
ject to the Bank’s prior consent 
 
(d) Community Participation for Part 1.2(b) of the Project, as further set 
 
forth in the OM. 
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C. 
Particular Methods of Procurement of Consultants’ Services 
 
1.
 Quality- 
and 
Cost-based 
Selection.
 
Except as otherwise provided in paragraph 
2
below, consultants’ services shall be procured under contracts awarded on the 
basis of Quality and Cost-based Selection.
 
2.
 
Other Methods of Procurement of Consultants’ Services
.
The following table 
specifies the methods of procurement, other than Quality and Cost-based 
Selection, which may be used for consultants’ services.  The Procurement Plan 
shall specify the circumstances under which such methods may be used. 
 
Procurement Method
(a)  Quality-Based Selection  
(b)  Selection under a Fixed Budget 
(c)  Least Cost Selection 
(d)  Procedures for the Selection of Individual Consultants 
3. 
Special provisions. 
All methods of procurement of consultants’ services shall be 
carried out
 
subject to the following special provisions: 
 
(a) 
foreign firms shall not be required to be registered with local authorities 
 
as a prerequisite for submitting proposals; 
 
(b) 
foreign consultants shall not be required to furnish any certificate issued 
 
by a local authority about their legal capacity or tax status for the 
 
purposes of submitting a proposal; and 
 
(c) 
foreign consultants shall not be required to submit their proposals in 
 person. 
 
D.
 
Review by the Bank of Procurement Decisions
 
1. 
Except as the Bank shall otherwise determine by notice to the Borrower, the 
following contracts shall be subject to Prior Review by the Bank:  
 
(a) 
each contract for goods and/or Non-consultant services estimated to cost 
the equivalent of $250,000 (two hundred fifty thousand Dollars) or more 
procured on the basis of International Competitive Bidding; 
 
(b) 
each contract for works estimated to cost the equivalent of $3,000,000 
(three million Dollars)or more procured on the basis of International 
Competitive Bidding; 
 
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(c) 
each contract for goods or Non-consultant services estimated to cost 
$100,000 (one hundred thousand Dollars) or more, irrespective of the 
method it was procured under; 
 
(d) 
each contract for works estimated to cost $500,000 (five hundred 
thousand Dollars) or more, irrespective of the method it was procured 
under; and 
 
(e) 
each contract f
or consultants’ services estimated to cost the equivalent of 
$50,000 (fifty thousand Dollars) or more.   
 
2. 
All other contracts shall be subject to Post Review by the Bank. 
 
Section IV. 
Withdrawal of Loan Proceeds
A. 
General   
 
1.
 
The Borrower may withdraw the proceeds of the Loan in accordance with the 
provisions of Article II of the General Conditions, this Section, and such 
additional instructions as the Bank may specify by notice to the Borrower 
(including the “World Bank Disbursement Guidelines for Projects” dated May 
2006, as revised from time to time by the Bank and as made applicable to this 
Agreement pursuant to such instructions) to finance Eligible Expenditures as set 
forth in the table in paragraph 2 below.  
 
2. 
The following table specifies the categories of Eligible Expenditures that may be 
financed out of the proceeds of the Loan (“Category”), the allocation of the 
amounts of the Loan to each Category, and the percentage of expenditures to be 
financed for Eligible Expenditures in each Category. 
 
Category
Amount of the Loan 
Allocated 
(expressed in USD
)
Percentage of Expenditures 
to be financed 
(inclusive of Taxes
)
(1)  Works and Non-consultant 
 services: 
 
(a)  for Part 1 of the Project 
(b)  for Part 2 of the Project  
 
11,000,000 
 7,000,000 
 
100% 
100% 
(2)  Goods for Part 2 of the 
 Project 
 2,300,000 
 
100% 
 
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Category
Amount of the Loan 
Allocated 
(expressed in USD
)
Percentage of Expenditures 
to be financed 
(inclusive of Taxes
)
(3) Consultant services: 
 
(a)  for Part 1 of the Project 
(b)  for Part 2 of the Project 
(c)  for Part 3 of the Project 
(d)  for Part 4 of the Project 
 
5,520,000 
 1,690,000 
 1,860,000 
 260,000
 
100% 
100% 
100% 
100% 
(4) Operating Costs for Part 4 
 
of the Project 
 500,000 
100% 
(5) Training: 
 
(a)  for Part 1 of the Project 
(b)  for Part 2 of the Project 
(c)  for Part 3 of the Project 
 
170,000 
 150,000 
 50,000 
 
100% 
100% 
100% 
(6) Community Subprojects 
 
under Part 1.2 (b) of the 
 Project 
 500,000 
100% 
(7) Unallocated 
 
1,700,000 
 
TOTAL AMOUNT 
 32,000,000
B. 
Withdrawal Conditions; Withdrawal Period   
 
1.
 
Notwithstanding the provisions of Part A of this Section, no withdrawal shall be 
 made: 
 
(a) 
from the Loan Account until the Bank has received payment in full of the 
Front-end Fee referred to in section 2.03 of this Agreement;   
 
(b) 
for payments made prior to the date of this Agreement; and 
 
(c) 
for payments made under Category (6) in the table of paragraph A.2  
 
above until and unless: (i) Guidelines for the implementation of 
 
Community Subprojects shall have been adopted, satisfactory to the 
 
Bank,  by MINSA, as referred to in section C.1 of Schedule 2 to this 
 
Agreement; and (ii)  Grant Agreements, satisfactory to the Bank,  for the 
 
carrying out of Community Subprojects and including adequate 
 
environmental mitigation measures in relation with their implementation, 
shall have been entered into between MINSA and  Beneficiary Communities, all 
in accordance with the criteria, procedures, terms and conditions set forth in the 
OM.  
 
2.
 
The Closing Date is May 30, 2012. 
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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 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) Withdrawn Loan Balance as of the 
first Principal Payment Date; by (b) the Installment Share for each Principal 
Payment Date, such repayable amount to be adjusted, as necessary, to deduct any 
amounts referred to in paragraph 4 of this Schedule, to which a Currency 
Conversion applies. 
 
Principal Payment Date 
Installment Share 
(Expressed as a Percentage) 
 
On each May 15 and November 15 
 
 
Beginning November 15, 2011  
Through May 15, 2021 
 
4.38% 
From November 15, 2021 
Through November 15, 2026 
 
1.06% 
On May 15, 2027 
0.74% 
2.  
If the proceeds of the Loan have not 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 have been withdrawn as of 
the first Principal Payment Date, the Borrower shall repay the 
Withdrawn Loan Balance as of such date in accordance with paragraph 1 
of this Schedule. 
 
(b) 
Any amount withdrawn 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 is 
the original Installment Share specified in the table in paragraph 1 of this 
Schedule for said Principal Payment Date (“Original Installment Share”) 
and the denominator of which is the sum of all remaining Original 
Installment Shares for Principal Payment Dates falling on or after such 
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18
date, such amounts repayable 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) 
Amounts of the Loan withdrawn within two calendar months prior to any 
Principal 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, if 
at any time the Bank adopts 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 Loan Balance to an 
Approved Currency, the amount so converted in the Approved Currency that is 
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 the Conversion by either: (a) the 
exchange rate that reflects the amounts of principal in the Approved Currency 
payable by the Bank under the Currency Hedge Transaction relating to the 
Conversion; or (b) if the Bank so determines in accordance with the Conversion 
Guidelines, the exchange rate component of the Screen Rate.  
 
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APPENDIX 
 
Section I.  Definitions 
 
1. 
“Anti-Corruption Guidelines” means the “Guidelines on Preventing and 
Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA 
Credits and Grants”, dated October 15, 2006. 
2. 
“Beneficiary Community” means a community in selected areas of the territory 
of the Borrower specified in the OM which is found eligible under the Project to 
receive a Grant for the carrying out of a Community Subproject. 
3. 
“Category” means a category set forth in the table in Section IV of Schedule 2 to 
this Agreement. 
4. 
“Community Subproject” means specific community-level physical investments 
and infrastructure in water and sanitation made
 
during the Project, on a pilot 
basis, by Beneficiary Communities utilizing the proceeds of Grants made under 
Part 1.2(b) of the Project. 
 
5. 
“Consultant Guidelines” means the “Guidelines: Selection and Employment of 
Consultants by World Bank Borrowers” published by the Bank in May 2004 and 
revised in October 2006. 
 
6. 
“Environmental Management Framework” and “EMF” mean the framework of 
the Borrower for the management of social and environmental aspects of the 
Project dated
 
April 24, 2007 and disclosed to the public on even date therewith, 
as may be amended from time to time with the prior approval of the Bank. 
 
7. 
“Fiduciary Agency Agreement” means the agreement referred to in Section 4.01 
(a) (ii) of this Agreement. 
 
8. 
“General Conditions” means the “International Bank for Reconstruction and 
Development General Conditions for Loans”, dated July 1, 2005 (as amended 
through October 17, 2007). 
 
9. 
“Grant” means a non reimbursable transfer of resources proposed to be made out 
of the proceeds of the Loan to a Beneficiary Community under Part 1.2(b) of the 
Project, subject to the terms and conditions set forth in the OM and the relevant 
Grant Agreement between MINSA and the Beneficiary Community concerned. 
 
10. 
“Grant Agreement” means an agreement between MINSA and a Beneficiary 
Community as referred to in Section I.D.1 of Schedule 2 to this Agreement. 
 
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11. 
“IDAAN” means 
Instituto de Acueductos y Alcantarillados Nacionales
,
the 
National Water and Sewer Agency of the Borrower. 
 
12. 
“IEC” means Information Education Communication. 
 
13. 
“IPP” means the Indigenous People’s Plan of the Borrower for the Project dated
 
April 24, 2007 and disclosed to the public on even date therewith. 
 
14. “MEF” 
means 
Ministerio de Economía y Finanzas
,
the Ministry of Economy and 
Finance of the Borrower. 
 
15. 
“MINSA” means 
Ministerio de Salud
,
the Ministry of Health of the Borrower. 
 
16. 
“Non-consultant services” means, in respect of paragraphs A, B and D of Section 
III and Category (1) in the table of Section IV.A.2 of Schedule 2 to this 
Agreement, services to be contracted for the carrying out of activities related to 
the organization and carrying out of workshops. 
 
17. 
“OM” and “Operational Manual” mean a manual for Project implementation as 
referred to respectively in Section 4.01 (b) and Section I.B.1 (a) of Schedule 2 to 
this Agreement. 
 
18. 
“Operating Costs” means in respect of Category (4) in the table of Section 
IV.A.2 of Schedule 2 to this Agreement, the incremental expenses incurred on 
account of Project implementation, including office equipment and supplies, 
vehicle operation and maintenance, communication and insurance costs, office 
administration costs, utilities, travel, per diem and supervision costs and salaries 
of locally contracted employees. 
 
19. 
“PCU” means the Project Coordination Unit referred to in Section I.A.1 of 
Schedule 2 to this Agreement.  
 
20. 
“Procurement Guidelines” means the “Guidelines: Procurement under IBRD 
Loans and IDA Credits” published by the Bank in May 2004 and revised in 
October 2006. 
 
21. 
“Procurement Plan” means the procurement plan of the Borrower for the Project 
to be adopted not later than the Effective Date as referred to in paragraph 1.16 of 
the Procurement Guidelines and paragraph 1.24 of the Consultant Guidelines, as 
the same shall be updated from time to time in accordance with the provisions of 
said paragraphs. 
 
22. 
 “RPF” means Resettlement Policy Framework, the process framework of the 
Borrower for persons to be potentially displaced on account of Project 
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21
implementation dated
 
April 24, 2007 and disclosed to the public on even date 
therewith. 
 
23. 
“Training” means in respect of Category (5) in the table of Section IV.A.2 of 
Schedule 2 to this Agreement: (i) reasonable travel, room, board and per diem 
expenditures incurred by trainers and trainees in connection with their training 
and by non-consultant training facilitators; (ii) course fees; (iii) training facility 
rentals; and (iv) training material preparation, acquisition, reproduction and 
distribution expenses not otherwise covered under said section. 
 
24. 
“Water Board” means a
 Junta Administradora de Acueductos Rurales
 to be 
established or strengthened under the Project, as governed by the provisions of 
the Ministry of Health's Executive Decree No. 40, issued pursuant to the
 
Borrower’s 
Sanitary Law (Codigo Sanitario), Articles 84, 85 and 88, dated April 
18, 1994.