Page 1 CONFORMED COPY CREDIT NUMBER 1972 YDR (Second Health Development Project) between PEOPLE'S DEMOCRATIC REPUBLIC OF YEMEN and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated February 23, 1989 DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated February 23, 1989, between PEOPLE'S DEMOCRATIC REPUBLIC OF YEMEN (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) the Borrower has obtained: (i) a grant from the World Health Organization (WHO) in an amount equivalent to two hundred thousand dollars ($200,000); (ii) a grant from the United Nations Children's Fund (UNICEF) in an amount equivalent to two hundred thousand dollars ($200,000); (iii) a grant from the United Nations Capital Development Fund (UNCDF) in an amount equivalent to five hundred thousand dollars ($500,000); and (iv) a grant from the United Nations Fund for Population Activities (UNFPA) in an amount equivalent to two hundred thousand dollars ($200,000), to assist in financing part of the Project on the terms and conditions set forth in agreements entered into between the Borrower and WHO, UNICEF, UNCDF and UNFPA, respectively; and Page 2 WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.O1. The "General Conditions Applicable to Develop- ment Credit Agreements" of the Association, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. Section 1.O2. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "MOPH" means the Ministry of Public Health of the Borrower; (b) "PIU" means the Project Implementation Unit established within MOPH under the Development Credit Agreement for the Health Development Project (Credit No. 1377 YDR), concluded between the Borrower and the Association on July 14, 1983; and (c) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement. ARTICLE II The Credit Section 2.O1. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Development Credit Agreement, an amount in various currencies equivalent to three million five hundred thousand Special Drawing Rights (SDR 3,500,000). Section 2.O2. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Credit. (b) The Borrower shall, for the purposes of the Project, open and maintain in dollars a special account in its Central Bank on terms and conditions satisfactory to the Association. 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.O3. The Closing Date shall be June 30, 1994 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not with- drawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from a date sixty days after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or cancelled; and (ii) at the rate set as of the June 30 immediately preceding the accrual date Page 3 or at such other rates as may be set from time to time thereafter pursuant to paragraph (a) above. The rate set as of June 30 in each year shall be applied as of the next payment date in that year specified in Section 2.06 of this Agreement, except that the rate set as of June 30, 1988 shall not be applied as of July 1, 1988. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restric- tions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.O5. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on April 15 and October 15 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each April 15 and October 15 commencing April 15, 1999, and ending October 15, 2028. Each installment to and including the installment payable on October 15, 2008 shall be one percent (1%) of such principal amount, and each installment thereafter shall be two percent (2%) of such principal amount. (b) Whenever: (i) the Borrower's gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years; and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due consideration by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid. If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (c) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 2.O8. The currency of the United States of America is hereby specified for the purposes of Section 4.O2 of the General Conditions. ARTICLE III Execution of the Project Section 3.O1. The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, shall carry out the Project through its MOPH with due diligence and efficiency and in conformity with Page 4 appropriate public health care, administrative and financial practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 3.02. For purposes of coordinating the execution of the Project and without any limitation upon the provisions of Section 3.01 of this Agreement, the Borrower shall: (i) maintain the PIU and provide it with the resources and qualified and experienced staff required for the purpose; and (ii) cause the Regional Health Directorates to act as regional Project implementation units and provide them with the resources and qualified and experienced staff for the purpose. Section 3.03. The Borrower shall: (a) not later than June 30, 1992, furnish to the Association for review and comment, the findings and recommendations of the studies under Part D.4 of the Project; and (b) not later than December 31, 1992, based on such review, prepare and finalize an action plan, satisfactory to the Association, setting forth the measures to be taken by the Borrower to implement the recommendations agreed with the Association. Section 3.04. Except as the Association 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 Credit shall be governed by the provisions of Schedule 3 to this Agreement. ARTICLE IV Financial Covenants Section 4.O1. (a) The Borrower 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 Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section, including those for the Special Account for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association, as soon as available, but in any case not later than nine months after the end of each such year, a certified copy of the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning said records, accounts and the audit thereof as the Association shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Associa- tion has received the audit for the fiscal year in which the last withdrawal from the Credit Account was made, all records (contracts, orders, invoices, Page 5 bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the proce- dures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.O2 (h) of the General Conditions, the following additional event is specified: (a) Subject to paragraph (b) of this Section, the right of the Borrower to withdraw the proceeds of any grant made to the Borrower for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the agreement providing therefor. (b) Paragraph (a) of this Section shall not apply if the Borrower establishes to the satisfaction of the Association that: (i) such suspension, cancellation, or termination is not caused by the failure of the Borrower to perform any of its obligations under such agreement; and (ii) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. ARTICLE VI Termination Section 6.01. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Ministry of Planning of the Borrower is designated as representative of the Borrower for the purposes of Section 11.O3 of the General Conditions. Section 7.O2. The following addresses are specified for the purposes of Section 11.O1 of the General Conditions: For the Borrower: Ministry of Planning P.O. Box 1193 Aden People's Democratic Republic of Yemen Cable address: Telex: TAKHTEET 2289 TAKHTEET AD Aden Page 6 For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 2O433 United States of America Cable address: Telex: INDEVAS 44OO98 (ITT), Washington, D.C. 248423 (RCA) or 64145 (WUI) IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. PEOPLE'S DEMOCRATIC REPUBLIC OF YEMEN By /s/ H. S. Al-Alfi Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Ardy Stoutjesdijk Acting Regional Vice President Europe, Middle East and North Africa SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Civil works 2,000,000 70% under Parts A.1 through A.4 (except the new health units in Shabwa), and Parts B.1, B.2 and D.5 of the Project (2) Equipment, furni- 900,000 100% of foreign ture, materials, expenditures drugs and vehicles for directly (except the software imported items under Part D.3 and 100% of ex- of the Project) factory locally manufactured items and 85% Page 7 of local expendi- tures for other items procured locally (3) Training, studies 300,000 100% a nd consultants' services (4) Supervision travel 100,000 70% (5) Unallocated 200,000 ________ TOTAL 3,500,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower; and (c) the term "supervision travel" means expenditures for travel of MOPH staff within the Borrower's territory to supervise the implementation of the Project. 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. SCHEDULE 2 Description of the Project The objectives of the Project are to assist the Borrower in: (i) strengthening and extending its primary health care system in the Governorate of Shabwa (Shabwa), the Governorate of Al-Mahra (Al-Mahra) and the District of Socotra (Socotra); (ii) developing and upgrading health manpower in said areas; (iii) promoting family planning and health education in the Borrower's territory; and (iv) strengthening the public health sector management at the central and regional levels. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: Development of Basic Health Care Services Strengthening and extending services and infrastructure of primary health care by: 1. upgrading and repair of about 14 health units in Shabwa, about 5 health units in Al-Mahra and about 5 health units in Socotra and reconstruction of about 2 health units in Al-Mahra; 2. construction of about 11 health units in Shabwa, about 5 health units in Al-Mahra, about 2 health units in Socotra and 1 health unit in Berim; 3. construction and furnishing of about 11 housing facilities for staff in new health units located in villages with housing shortages; 4. construction and furnishing of medical storage facilities in Atag, Al-Ghaydah and Hadibo; and Page 8 5. extension of health service coverage through training of rural health personnel, health guides and traditional birth attendants. Part B: Development of Health Manpower Strengthening the health care personnel training system by: 1. construction and operation of a regional health institute in Ataq as a branch of the Health Manpower Development Institute with boarding facilities for about 60 students to provide training courses for nursing assistants and community midwives; 2. construction of about 3 new classrooms and auxiliary facilities in the District of Al-Ghaydah; 3. development and implementation by MOPH of continuing education programs for primary health care workers, traditional birth attendants and health guides and training of about 200 new health guides; and 4. organization among the MOPH staff of about 13 training supervision teams to monitor the performance of primary health care workers and provide them with technical assistance and continuing education. Part C: Promotion of Family Planning and Health Education 1. Organization of courses in family planning for the personnel of health units, health centers and district hospitals. 2. Training of midwives and other health personnel in safe motherhood. 3. Carrying out of a study on contraceptive knowledge, attitude and practice. 4. Organization of family planning workshops. 5. Provision of health education materials, audio-visual equipment and means of transport to service the Health Education Division of MOPH and the regional health units. 6. Provision of fellowships in health information, communication and education. Part D: Strengthening MOPH Management Capability 1. Strengthening the capabilities of MOPH in organization, planning, implementation, monitoring and evaluation of health services. 2. Provision of training courses in health administration. 3. Establishment in MOPH of a management information system for data information, including pharmaceutical supplies. 4. Carrying out of studies on: (i) health manpower requirements, and (ii) the performance of health guides and primary health care workers to determine the relevance of their training, effective- ness and incentives to increase recruitment of women to health professions. 5. Construction of 2 regional health directorates in Ataq and Al-Ghaydah and provision of furniture and vehicles to such health directorates. * * * The Project is expected to be completed by December 31, 1993. SCHEDULE 3 Page 9 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: International Competitive Bidding 1. Except as provided in Part D hereof, goods and works shall be procured under contracts awarded in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1985 (the Guidelines). 2. To the extent practicable, contracts for equipment, furniture, vehicles, materials, drugs and supplies shall be grouped in bid packages estimated to cost the equivalent of $50,000 or more each. Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A.1 hereof, goods manufactured in the People's Democratic Republic of Yemen may be granted a margin of preference in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraphs 1 through 4 of Appendix 2 thereto. Part C: Preference for Domestic Contractors In the procurement of works in accordance with the procedure described in Part A.1 hereof, the Borrower may grant a margin of preference to domestic contractors in accordance with, and subject to the provisions of paragraph 2.55 and 2.56 of the Guidelines and paragraph 5 of Appendix 2 thereto. Part D: Other Procurement Procedures 1. Works estimated to cost less than the equivalent of $80,000 per contract, up to an aggregate amount not to exceed the equi- valent of $3,100,000, and goods estimated to cost more than the equivalent of $10,000 per contract and less than the equivalent of $50,000 per contract, up to an aggregate amount not to exceed the equivalent of $200,000, may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accor- dance with procedures satisfactory to the Association. 2. Goods estimated to cost less than the equivalent of $10,000 per contract, up to an aggregate amount not to exceed the equi- valent of $100,000, may be procured under contracts awarded on the basis of comparison of price quotations solicited from at least three suppliers eligible under the Guidelines, in accordance with procedures satisfactory to the Association. 3. Works under Parts A.1, A.2 and A.3 of the Project to be carried out in remote areas, up to an aggregate amount not to exceed the equivalent of $400,000, may be carried out by force account with the Association's prior approval. 4. Goods estimated to cost more than the equivalent of $10,000 per contract, up to an aggregate amount not to exceed the equivalent of $600,000, may be procured from UNICEF. Part E: Review by the Association of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for goods estimated to cost the equivalent of $50,000 or more and for works for Part B.1 of the Project, described in Part A.1 hereof, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Page 10 Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Association pursuant to said paragraph 2 (d) shall be furnished to the Association prior to the making of the first payment out of the Special Account in respect of such contract. (b) With respect to each contract not governed by the pre- ceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract together with the other information required to be furnished to the Association pursuant to said paragraph 3 shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to this Agreement. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Association has authorized withdrawals from the Credit Account on the basis of statements of expenditure. Such contracts shall be retained in accordance with Section 4.01 (c) (ii) of this Agreement. 2. The figure of 15% is hereby specified for purposes of para- graph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants In order to assist the Borrower in carrying out Parts C.3, C.4 and D.4 of the Project, the Borrower shall employ administra- tive and health management consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Association on the basis of the "Guidelines for the Use of Consultants by the World Bank Borrowers and by The World Bank as Executing Agency" published by the Bank in August 1981. SCHEDULE 4 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1) to (4) 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 Credit allocated from time to time 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 $400,000 to be withdrawn from the Credit Account and deposited in the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Except as the Association shall otherwise agree, payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Association 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 may be made as follows: (a) On the basis of a request or requests by the Borrower for a deposit or deposits which add up to the aggregate amount of Page 11 the Authorized Allocation, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit in the Special Account such amount or amounts as the Borrower shall have requested. (b) The Borrower shall furnish to the Association requests for replenishment of the Special Account at such intervals as the Association shall specify. On the basis of such requests, the Association shall withdraw from the Credit Account and deposit into the Special Account such amounts as shall be required to replenish the Special Account with amounts not exceeding the amount of payments made out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Association from the Credit Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by the evidence supporting the request for such deposit furnished pursuant to paragraph 4 of this Schedule. 4. For each payment made by the Borrower out of the Special Account for which the Borrower requests replenishment pursuant to paragraph 3 (b) of this Schedule, the Borrower shall furnish to the Association, prior to or at the time of such request, such documents and other evidence as the Association shall reasonably request, showing that such payment was made for eligible expen- ditures. 5. (a) Notwithstanding the provisions of paragraph 3 of this Schedule, no further deposit into the Special Account shall be made by the Association when either of the following situations first arises: (i) the Association shall have determined that all further withdrawals should be made by the Borrower directly from the Credit Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or (ii) the total unwithdrawn amount of the Credit allocated to the eligible Categories, minus the amount of any outstanding special commitment entered into by the Association pursuant to Section 5.02 of the General Conditions with respect to the Project, shall be equal to the equivalent of twice the amount of the Authorized Allocation. (b) Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit allocated to the eligible Categories shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Association shall have determined at any time that any payment out of the Special Account (i) was made for any expenditure or in any amount not eligible pursuant to paragraph 2 of this Schedule, or (ii) was not justified by the evidence furnished to the Association, the Borrower shall, promptly upon notice from the Association deposit into the Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. No further deposit by the Association into the Special Account shall be made until the Borrower has made such deposit or refund. (b) If the Association shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Association, refund Page 12 to the Association such outstanding amount for crediting to the Credit Account.