THE WORLD BANK OFFICIAL IBRD* IDA I WORLDBANKGROUP South Caucasus Regional Office DO CUM ENT, Mercy Tembon Regional Director May 31, 2019 Mr. Ivane Matchavariani Minister of Finance Ministry of Finance 16 Gorgasali Street Tbilisi, Georgia Re: GEORGIA: Loan No. 8595-GE (National Innovation Ecosystem Project) First Amendment to the Loan Agreement Excellency: We refer to the Loan Agreement for the above-referenced Loan between Georgia (the Borrower) and the International Bank for Reconstruction and Development (the Bank) dated March 28, 2016 (the Loan Agreement). We also refer to your letters dated January 21, 2019, received by the Bank on January 23, 2019, requesting: (i) certain amendments to the Loan Agreement; and (ii) cancellation of US$16,500,000 from Loan No. 8595-GE, in accordance with paragraph 7.01 of the General Conditions for Loans, dated March 12, 2012. We are pleased to inform you that the Bank, after due consideration, has acceded to your request. Accordingly, the Loan Agreement is amended as follows: 1. Part 2 of Schedule 1 is amended to read as follows: "Carry out outreach and communication activities, and provide training and technical assistance in support of developing: (a) digital economy skills of individuals; and (b) innovation capacity of firms." 2. Part 3 of Schedule 1 is amended to read as follows: "(a) Provision of Matching Grants, selection of eligible MSMEs for receipt of Matching Grants and supervision of Matching Grants; (b) provision of technical assistance to Eligible MSMEs to prepare and implement Sub-Projects; (c) provision of Applied Research Grants to selected scientists through the Shota Rustaveli National Science Foundation (the Foundation); and (d) provision of technical assistance and related costs to the Foundation for the administration of the Applied Research Grants program, as well as to GITA, in administering support to MSMEs." 3. Part 4 of Schedule 1 is amended to read as follows: "Provision of support for strengthening Project management capabilities and fiduciary oversight, monitoring and evaluation, and impact evaluation activities." 4. Paragraph 1 of Section I.B of Schedule 2 is amended to read as follows: "1. Without limited to the provisions of Article V of the General Conditions, the Borrower, through GITA and the Foundation, shall carry out their respective parts of the Project in accordance with a manual acceptable to the Bank (the Project Operations Manual (POM)) and the Applied Research Manual (ARG Manual) respectively, which shall include, inter alia, (a) a detailed description of the Project and its implementation arrangements; (b) detailed Project cost estimates; (c) detailed financial management arrangements; (d) roles and responsibilities of staff working on the Project; (e) the Matching Grants Manual; and (f) the Applied Research Grants Manual, including criteria for the recipients of the Applied Research Grants." 5. Paragraph (C) of Section 1.F 2(a)(ii) of Schedule 2 is amended to read as follows: "procure the goods and services to be financed out of Matching Grants and Applied Research Grants in accordance with the provisions of this Agreement and the provisions set forth in "Matching Grants" and "Applied Research Grants" manuals. 6. Paragraph 1 of Section IH. A of Schedule 2 is amended to read as follows: "Goods, Works and Non-consulting Services. All goods, works and non-consulting services required under the Project (excluding those to be procured under Matching Grants and Applied Research Grants by eligible MSME and selected scientists) and to be financed out of 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." 7. Paragraph 2 of Section IH. A of Schedule 2 is amended to read as follows: "Consultants' Services. All consultants' services required for the Project (excluding those to be procured under Matching Grants and Applied Research Grants by eligible MSME and selected scientists) and to be financed out of proceeds of the Loan shall be procured in accordance with the requirements set forth or referred to in Section I and IV of the Consultant Guidelines and with the provisions of this Section." 8. Paragraph 19 of the Appendix to the Loan Agreement is amended to read as follows: "19. "Operating Costs" means the reasonable incremental expenses incurred on account of the implementation of the Project, for office supplies and other consumable goods, office rent, internet connection and communications costs, support for information systems, translation costs, bank charges, utilities, reasonable travel, transportation, per diem, accommodation costs (lodging), IP registration costs, grant implementation costs, and other reasonable expenditures directly associated with the implementation of the Project, as agreed between the Borrower and the Bank on the basis of semi-annual budgets acceptable to the Bank, excluding salaries of the Borrower's civil servants." 9. In the Appendix to the Loan Agreement, the following new Definitions are added immediately following paragraph 27 as follows: "28. "Applied Research Grants" means a grant to be made out of the proceeds of the Loan to a selected research scientist for the purpose of financing the costs of goods, services, training and/or operating costs, and consulting services of a research project as described in the POM." "29. "Applied Research Grants Manual" means the manual, satisfactory to the Bank (which is included in the POM), setting forth the procedures for evaluating proposals for selecting, administering, monitoring, and reporting on implementation of applied research grants, awarded to individual researchers by the Foundation." 2 "30. "Shota Rustaveli National Science Foundation" means the entity responsible for innovation policy development under the Borrower's Ministry of Education and Science, established by Presidential Decree No. 428 of June 16, 2010." 10. Pursuant to Section 7.01 of the General Conditions for Loans, the Bank hereby cancels as of January 23, 2019, an amount of sixteen million five hundred thousand United States Dollars (US$16,500,000) from the Loan Account. Accordingly, the table in paragraph 2 of Section IV.A of Schedule 2 to the Loan Agreement is deleted and replaced with the following: Category Amount of the Loan Percentage of Allocated Expenditures to be (expressed in USD) financed (inclusive of Taxes) (1) Goods, works, non-consulting services, 18,600,000 100% consultants' services, Training and/or Operating Costs (as the case may be) for the Project, including Matching Grants and Applied Research Grants (excluding Part 1(c) and Part 3(c) of the Project). (2) Goods, non-consulting services, consultants' 1,800,000 100% services, Training and/or Operating Costs (as the case may be) for Part 1(c) of the Project, including BfD Payments (3) Front-end Fee 100,000 Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 2.07 (b) of the General Conditions (4) Interest Rate Cap or Interest Rate Collar 0 Amount due pursuant to premium Section 2.08(c) of this Agreement (5) Applied Research Grants under Part 3(c) of the 3,000,000 100% Project Cancelled as of January 23, 2019 16,500,000 TOTAL AMOUNT 40,000,000 11. Paragraph 1 of Section IV,B of Schedule 2 is amended to read as follows: "1. Notwithstanding the provisions of Part A of this Section, no withdrawal shall be made: (a) for payments made prior to the date of this Agreement, except that withdrawals up to an aggregate amount not to exceed $2,000,000 may be made for payments made prior to this date but on or after November 1, 2015 (provided, however, that no withdrawal shall be made for payments made more than one year prior to the date of this Agreement), for Eligible Expenditures under Category (1); or (b) under Category (2), until the Borrower, through GITA, has prepared and adopted the Broadband for Development Program Manual in a manner acceptable to the Bank; 3 (c) under Category (5), until the Borrower, through the Shota Rustaveli National Science Foundation: has: (i) appointed a financial management specialist, with qualifications, experience and terms of reference acceptable to the Bank; and (ii) adopted the Applied Research Grants Manual in a manner satisfactory to the Bank. 12. The Borrower and the Bank agree that the cancellation of the total undisbursed loan proceeds may be necessary if significant progress has not been made according to the agreed milestones and timeline. On this basis and in accordance with the Section 7.03 of the General Conditions, the Bank proposes to proceed as follows: if by June 30, 2020, the Borrower has not made fifty percent (50%) of projected disbursements (or $6,450,000), the Bank will cancel an amount of ten million Dollars ($10,000,000) out of the Loan effective July 1, 2020 from Category 1. Except as specifically amended in this letter, all other provisions of the Loan Agreement remain in full force and effect. Please confirm your agreement to the foregoing by countersigning and dating both copies of this amendment letter and returning one of the countersigned copies to us. This amendment letter will become effective upon receipt by the Bank of the copy of this amendment letter countersigned by you, and upon: (i) receipt of evidence acceptable to the Bank that the POM has been amended in a manner satisfactory to the Bank; (ii) receipt by the Bank of the notice of completion of internal procedures under the laws of the Borrower; and (iii) notification by the Bank to the Borrower of the Agreement' effectiveness. Very truly yours, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Mercy Miyang Tembon Regional Director AGREED GEORGIA By: / Name: -\fOY ay (o 0 a avo r i OR I4 Title: r)rs4Q C~~ 9-i6 -- Date: J½. Q.L