China - Second Privatization And Industrial Reform Crdit : Credit 2523 - Credit Agreement - Conformed

CREDIT NUMBER 2523 ZA Development Credit Agreement (Second Privatization and Industrial Reform Credit) between REPUBLIC OF ZAMBIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated J0 , 1993 CREDIT NUMBER 2523 ZA DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated 3o , 1993, between REPUBLIC OF ZAMBIA (the Borrower) fid INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS: (A) the Borrower and the Association have entered into a Development Credit Agreement (Privatisation and Industrial Reform Adjustment Credit) dated July 13, 1992 (Credit No. 2405 ZA) pro- viding for assistance from the Association to the Borrower in the financipg of urgently needed imports required during the execution of a Program (hereinafter called the First Program) described in a letter (hereinafter called the First Letter of Development Policy) dated May 28, 1992 from the Borrower to the Association; (B) the Association has received a letter dated Hay 14, 1993, (hereinafter called the Second Letter of Development Policy) from th; Borrower providing an update on the progress achieved in the execution of the First Program and describing a program of actions, objectives and policies designed to achieve further structural adjustment of the Borrower's economy (hereinafter called the Second Program), declaring the Borrower's commitment to the execution of the Second Program, and requesting further assistance from the Association in the financing of urgently needed imports required during such execution; and (C) on the basis, inter alia, of the foregoing, the Association has decided in support of the Second Program to provide such further assistance to the Borrower by making the Credit in three tranches as hereinafter provided; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Development Credit Agreements" of the Association, dated Jcniuary 1, 1985, with the modifications thereof set forth below (the general Conditions) constitute an integral part of this Agreement: (a) Section 2.01, paragraph 9, shall be modified to read: "'Project' means the imports and other activities that may be financed out of the proceeds of the Credit pursuant to -2- the provisions of Schedule 1 to the Development Credit Agreement."; (b) Section 9.06 (c) shall be modified to read: "(c) Not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Association, the Borrower shall prepare and furnish to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution of the Second Program referred to in the Preamble to the Development Credit Agreement, the performance by the Borrower and the Association of their respective obligations under the Development Credit Agreement and the accomplishment of the purposes of the Credit."; and (c) the last sentence of Section 3.02 is deleted. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Bank of Zambia" means the Central Bank of Zambia established under the Bank of Zambia Act (Act No. 24 of 1985 of the laws of the Borrower), as amended to the date of this Agreement; (b) "ZIMCO" ameans the Zambia Industrial and Mining Corporation Limited, a holding company established and operating under the laws of the Borrower; (c) "ZIMOIL" means the oil import division of ZIMCO or the division's successor; (d) "Public Utilities" means Posts and Telecommunications Corporation Limited, Zambia Railways Limited, Zambia Electricity Supply Corporation Lmited, ZIMOIL, Tazama Pipelines Limited, Indeni Iatroleum Refinery Company Limited, and any successor entities to any of the above; (e) "SITC" means the Standard International Trade Classification, Revision 3 (SITC, Rev. 3), published by the United Nations in Statistical Papers, Series H, No. 343 (1986); -3- (f) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; (g) "ZCCM" means the Zambia Consolidated Copper Mines Ltd., a company established and operating under the laws of the Borrower; and (h) "Cabinet Legislation Committee" means the Borrower's ministerial sub-committee on legislation which is responsible for the review of legislation prior to final governmental approval. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, an amount in various currencies equivalent to seventy- nine million one hundred thousand Special Drawing Rights (SDR 79,100,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement. (b) The Borrower shall, for the purposes of the Program, open and maintain in United States dollars a special deposit account in a commercial bank on terms and conditions satisfactory to the Association, including appropriate protection against set-off, seizure or attachment. Deposits into, and payments out of, the Siacial Account shall be made in accordance with the provisions of S'V,hedule 5 to this Agreement. Section 2.03. The Closing Date shall be June 30, 1995, 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 commitmen.. charge on the principal amount of the Credit not withdrawn 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. -4- (b) The commitment charge shall accrue: (i) from the 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 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 from the next payment date in that year specified in Section 2.06 of this Agreement. (e) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions 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 2.05. 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 and service charges shall be payable semiannually on February 1 and August 1 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 February 1 and August 1 commencing August 1, 2003 and ending Feburary 1, 2033. Each installment to and including the installment payable on February 1, 2013, shall be one percent (1%) of such principal amount, and each installment thereafter shall be two percent (2%) cf 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 Borrover to repay twice the amount of each such installment not yet due until the principal amount of the -5- 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 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. Section 2.09. (a) The Governor of the Bank of Zambia is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. (b) Without limitation or restriction to the foregoing, the Borrower hereby entrusts the Bank of Zambia with responsibility for the preparation of withdrawal applications under the Credit and for the collection of the documents and other evidence to be furnished to the Association in support of such applications; such withdrawal applications shall, to the extent practicable, be consolidated so as to apply for withdrawal of aggregate amounts of not less than $3,000,000 equivalent. ARTICLE III Particular Covenants Section 3.01. (a) The Borrower and the Association shall from time to time, at the request of either party, exchange views on the progress achieved in the carrying out of the Second Program and the actions specified in Schedules 3 and 4 to this Agreement. -6- (b) Prior to each such exchange of views, the Borrower shall furnish to the Association for its review and comment a report on the progress achieved in the carrying out of the Second Program, in such detail as the Association shall reasonably request. Section 3.02. Except as the Association shall otherwise agree, procurement of the goods to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 2 to this Agreement. Section 3.03. The Borrower shall: (a) at the beginning of each year with effect from 1994 until 1997 submit to the Association for review its updated annual privatization plan satisfactory to the Association; and (b) implement the said privatization plan taking into account the views of the Association. Section 3.04. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with consistently maintained sound accounting practices the expenditures financed out of the proceeds of the Credit. (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 six 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 and accounts and the audit thereof as the Association shall from time to time reasonably request. -7- (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 Association has received the audit report for the fiscal year in which the last withdrawal from the Credit Account was made, all records (contracts, orders, invoices, bills, receipts ard other documents) evidencing such expenditureo; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audits 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 involve4 in their preparation, can be relied upon to support the related withdrawals. ARTICLE IV Additional Event of Suspension Section 4.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional event: is specified, namely, that a situation has arisen which shall make it improbable that the Second Program, or a significant part thereof, will be carried out. ARTICLE V Effective Date; Termination Section 5.01. The following events are specified as additional conditions to the effectiveness of this Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Borrower has submitted to the Association a timetable for the tariff reform referred to in paragraph 6 of the Second Letter of Development Policy; (b) the Borrower has furnished to the Cabinet Legislation Committee drafts, acceptable to the Association, of laws providing for: (i) the licensing and prudential supervision by the Bank of Zambia of financial institutions accepting deposits within the territory of the Borrower or otherwise offering financlal services therein; (ii) the licensing and regulation by a competent body of a stock exchange, brokers, investment advisers, mutual funds, unit trusts and other entities engaged in a securities business, and the issuance and trading of securities in the territory of the Borrower; (iii) the removal of all constraints which inhibit trading, manufacturing or service activities except for those related to taxation, healch, safety and environment; (iv) amendment of the Companies Act (Chapter 686 of the laws of the Borrower) so as to modernize and simplify legislation relating to the formation, operations, reorganization and winding-up of companies registered in the territory of the Borrower, and for the registration and powers of foreign companies carrying on business therein; and (v) the control of restrictive trade practices and the limitation of monopoly powers. -9- (a) the Borrower has prepared guidelines satisfactory to the Association for the regulation of capital market transactions and the operation of a stock exchange; (d) the Borrower has completed all measures within its control to achieve the objective of privatizing at least twenty government-owned companies who total size is equal to about 10% of the aggregate size of all companies to be privatized under the First Program as agreed between the Borrower and the Association; (e) the Borrower has furnished to the Association evidence that cash compensation has been paid to entitled individuals made redundant by parastatal organizations and enterprises privatized from November 1, 1991 to April 30, 1993 and has made arrangements for counselling and offering training to persons made redundant after the Effective Date; (f) the Borrower has recruited the key staff for the Zambia Privatization Agency; (g) the Borrower has adopted an automatic adjustment mechanism for the establishment of prices and tariffs by the Public Utilities; (h) the Borrower has made arrangements for the regulation of the Public Utilities through the establishment and staffing of a Public Utilities secretariat, whi'"h would oversee their operational efficiency and sound financial performance; and (i) the Borrower has furnished evidence satisfactory to the Association that it has secured financial commitments to cover substantially its external financial requirements through December 31, 1993. Section 5.02. 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. - 10 - ARTICLE VI Representatives of the Borrower; Addresses Section 6.01. Except as provided in Section 2.09 (a) of this Agzeement, the Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 6.02. The following addresses are specified for the purposes of Section 11,01 of the General Conditions: For the Borrower: Ministry of Finance P.O. Box 50062 Ridgeway Lusaka, Zambia Cable address: Telex: MINFIN 42221 Lusaka For the Association: International Development Association 1818 H Street, NW. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) - 11 - IN WITNESS WHEREO, 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. REPUBLIC OF ZAMBIA By /j/ &n4xg /9"IV Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By// Regionaf Vi e President Africa - 12 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. Subject to the provisions set forth or referred to in this Schedule, the proceeds of the Credit may be withdrawn from the Credit Account for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods required during the execution of the Second Program and to be financed out of such proceeds. 2. Notwithstanding the provisions of paragraph I above, no withdrawals shall be made in respect of: (a) expenditures for goods included in the following SITC groups or subgroups, or any successor groups or subgroups under future revisions to the SITC, as designated by the Association by notice to the Borrower: GrMR SubgroMR Description of Items 112 -- Alcoholic beverages 121 -- Tobacco, unmanufactured, tobacco refuse 122 -- Tobacco, manufactured (whether or not containing tobacco substitutes) 525 -- Radioactive and associated materials 667 -- Pearls, precious and semi- precious stones, unworked or worked 718 718.1 Nuclear reactors, and parts thereof, fuel elements (cartridges), nonirradiated for nuclear reactors - 13 - Grop Subgroup Description of Items 728 728.43 Tobacco processing machinery 897 897.3 Jewelry of gold, silver or platinum group metals (except watches and watch cases) and goldsmiths' or silversmiths' wares (including set gems) 971 -- Gold, nonmonetary (excluding gold ores and concentrates) (b) expenditures in the currency of the Borrower or for goods supplied from the territory of the Borrower; (c) expenditures for goods procured under contracts costing less than $5,000 equivalent; (d) expenditures for goods supplied under a contract which ony national or international financing institution or agency other than the Association shall have financed or agreed to finance; (e) expenditures for goods intended for a military or paramilitary purpose or for luxury consumption; and (f) expenditures in excess of an aggregate amount equivalent to SDR 14,500,000 for petroleum products and foodstuffs. 3. Withdrawals for expenditures under contracts for the procurement of goods estimated to cost less than $500,000 equivalent may be required by the Association upon the basis of statements of expenditure under such terms and conditions as the Association shall specify. 4. No withdrawal shall be made and no commitment shall be entered into to pay amounts to or on the order of the Borrower in respect of expenditures to be financed out of the proceeds of the Credit after the aggregate of the proceeds of the Credit withdrawn from the Credit Account and the total amount of such commitments shall have reached the equivalent of SDR 35,900,000, unless the Association shall be satisfied, after an exchange of views as described in Section 3.01 of this Agreement based on evidence satisfactory to the Association: (a) with the progress achieved by the Borrower in the carrying out of the Second Program; (b) that the actions described - 14 - in Schedule 3 to this Agreement have been taken; and (c) the macro- economic policy framework of the Borrower is consistent with the objectives of the Second Program. 5. No withdrawal shall be made and no comitment shall be entered into to pay amounts to or on the order of the Borrower in respect of expenditures to be financed out of the proceeds of the Credit after the aggregate of the proceeds of the Credit withdrawn from the Credit Account and the total amount of such commitments shall have reached the equivalent of SDR 57,500,000, unless the Association shall be satisfied, after an exchange of views as described in Section 3.01 of this Agreement based on evidence satisfactory to the Association: (a) with the progress achieved by the Borrower in the carrying out of the Second Program; (b) that the actions described in Schedule 4 to this Agreement have been taken; and (c) the macro- economic policy framework of the Borrower is consistent with the objectives of the Second Program. 6. If, after the exchange of views described in paragraphs 4 and 5 above, the Association shall have given notice to the Borrower that the progress achieved and actions taken are not satisfactory and, within 90 days after such notice, the Borrower shall not have achieved progress and taken actions satisfactory to the Association, then the Association may, by notice to the Borrower, cancel the unwithdrawn amount of the Credit or any part thereof. - 15 - SCHEDULE 2 Procurement 1. Except as provided in paragraphs 4, 5 and 6 below, contracts for the procurement of goods estimated to cost the equivalent of $1,000,000 or more each shall be awarded through international competitive bidding 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 1992 (the Guidelines), subject to the modifications set forth in paragraph 2 below. (a) For fixed-price contracts, the invitation to bid referred to in paragraph 2.13 of the Guidelines shall provide that, when contract award is delayed beyond the original bid validity period, the successful bidder's bid price will be increased for each week of delay by two predisclosed correction factors acceptable to the Association, one to be applied to all foreign currency components and the other to the local currency component of the bid price. Such an increase shall not be taken into account in the bid evaluation. (b) In the procurement of goods in accordance with this paragraph 1, the relevant standard bidding documents issued by the Association, with such modifications thereto as the Association shall have agreed to be necessary, shall be used. Where no relevant standard bidding documents have been issued by the Association, bidding documents based on other international recognized standard forms agreed with the Association shall be used. 2. (a) Paragraph 2.8 of the Guidelines is deleted and the following is substituted therefor: "2.8 Notification and Advertising The international community should be notified in a timely manner of the opportunity to bid. This will be done by advertising invitations to apply for inclusion in a bidder's invitation list, to apply for prequalification, or to bid; such advertisements should be placed in at least one newspaper - 16 - of general circulation in the Borrower's country and, in addition, in at least one of the following forms: (i) a notice in the United Nations publication, Development Forum, Business Edition; or (ii) an advertisement in a newspaper, periodical or technical journal of wide international circulation; or (iii) a notice to local representatives of countries and territories referred to in the Guidelines, that are potential suppliers of the goods required." (b) The following is added at the end of paragraph 2.21 of the Guidelines: "As a further alternative, bidding documents may require the bidder to state the bid price in a single currency widely used in international trade and specified in the bidding documents." (c) Paragraphs 2.55 and 2.56 of the Guidelines are deleted. 3. Goods procured under international competitive procedures shall be exempted from pre-shipment price inspection by a third party inspection firm. 4. Contracts for the procurement of goods estimated to cost the equivalent of less than $1,000,000 shall be awarded: (a) by purchasers required to follow the Borrower's public procurement procedures for the importation of goods, on the basis of such procedures, provided that such procedures shall have been found acceptable by the Association; and (b) by other purchasers, in accordance with established commercial practice, provided that such contracts shall be awarded on the basis of evaluation comparison of quotations obtained from suppliers from at least two countries, except that direct contracting procedures acceptable to the Association may be used where considered appropriate under paragraph 3.5 of the Guidelines. - 17 - 5. Subject to the prior approval of the Association, commonly traded commodities may be procured through organized international commodity markets or other channels of competitive procurement acceptable to the Association, in accordance with procedures acceptable to the Association. 6. Spare parts and other proprietary items may be procured directly from suppliers in accordance with procedures satisfactory to the Association. 7. With respect to each contract referred to in paragraph I of this Schedule, the Borrower shall furnish to the Association, prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids and recommendations for award, a description of the advertising and tendering procedures followed and such other information as the Association shall reasonably request. Where payments under a contract are to be made out cA: the proceeds of the Special Account, such copies together with the other information required to be furnished to the Association pursuant to this paragraph shall be furnished to the Association as part of the evidence required under paragraph 4 of Schedule 5 to this Agreement. 8. With respect to each contract referred to in paragraphs 4, 5 and 6 of this Schedule, the Borrower shall furnish to the Association, prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect thereof, such documentation and information as the Association may reasonably request to support withdrawal applications in respect of such contract. Where payments under a contract are to be made out of the proceeds of the Special Account, the documentation and the information to be furnished to the Association pursuant to the provisions of this paragraph shall be furnished to the Association as part of the evidence required under paragraph 4 of Schedule 5 to this Agreement. 9. The provisions of the preceding paragraph 8 of this Schedule shall not apply to contracts on account of which withdrawals from the Credit Account are to be made on the basis of statements of expenditure. - 18 - SCHEDULE 3 Actions Referred to in Paragraph 4 (b) of Schedule 1 to this Agreement 1. In accordance with the Second Program, the Borrower has: (a) appointed a managing institution for the Privatization Trust Fund (the PTF) in accordance with procedures satisfactory to the Association, and has transferred to the PTF the shareholdings reserved by it for sale to the public in at least one of the companies being privatized; (b) furnished to the Association a report on the privatization options for ZCCM; (c) adopted a comprehensive program of assistance and compensation for staff made redundant by parastatal organizations and privatized enterprises, including the possibility of using non- cash payments, such as company shares, housing and other assets in providing such compensation; (d) on the basis of the recommendations of the studies referred to in paragraph 12 of the Second Letter of Development Policy, adopted an action plan for the development of investment financing and for the future roles of the Development Bank of Zambia, the Lima Bank and Eximbank; (e) completed a study and furnished to the Association its plans for the revision of the regulations governing insurance companies, pension funds and other contractual savings institutions in such a manner as to facilitate investment of their resources in capital market instruments; and (f) enacted or amended, as the case may be, the legislation referred to in Section 5.01 (b) of the Development Credit Agreement. 2. The competent body referred to in Section 5.01 (b) (ii) of the Development Credit Agreement has issued all necessary regulations for the operation of a stock exchange and such exchange is operational. - 19 - SCHEDULE 4 Actions Referred to in Paragraph 5 (b) of Schedule I to this Agreement In accordance with the Second Program, the following measures have been taken: 1. The Borrower has, under terms of reference agreed upon with the Association, completed an assassment of the impact of the privatization aspects of the First Program and the Second Program and has reviewed the results of such assessment with the Association. 2. The Manager of the Privatization Trust Fund (PTF) referred to in paragraph 1 (a) of Schedule 3 to the Development Credit Agreement has furnished to the Trustees of the PTF and the Association, a detailed plan for divestiture of shares held by the PTF. 3. The Borrower has adopted: (a) the action plan referred to in paragraph 26 of the Second Letter of Development Policy designed to strengthen the regulatory framework for the Public Utilities; (b) operational frameworks based on the reviews referred to in paragraphs 25 and 26 of the Second Letter of Development Policy for the Post and Telecommunication Corporation, Zambia Railways and the Zambia Electricity Supply Corporation; and (c) an action plan for a drvelopment of a land market, including proposals relating to ownership and transfer of land. 4. The Borrower has completed: (a) a review of the effectiveness of the Investment Act (Act 19 of 1991 of the laws of the Borrower) and of the Investment Center and has adopted a time-bound action plan for correcting any shortcomings identified by the review; and (b) a review of the regulatory framework for small-scale enterprises (SSEs) and has adopted a time-bound action plan, satisfactory to the Association, for reducing and streamlining the regulatory and licensing requirements for SSEs and for easing their access to credit. - 20 - 5. In accordance with the privatization program referred to in paragraph 18 of the Second Letter of Development Policy, the Borrower has: (a) completed the sale or liquidation of at least 15 enterprises; (b) taken all steps within its control to bring to the point of sale a further 20 enterprises; and (c) offered for sale a total of not less than 60 enterprises under the First and Second Programs. For the purposes of this paragraph, "taking all steps within its control to bring to the point of sale" requires the Borrower to have (i) carried out a valuation of the enterprise, (ii) prepared a prospectus or dossier for the enterprise in question as the case may be, (iii) solicited offers directly or through advertisement(s) in appropriate newspapers, (iv) evaluated any offers and selected successful bidder(s), and (v) invited the successful bidder(s) to enter into good faith negotiations. Further, "offer for sale" means any case where the Borrower has undertaken the steps specified in (i), (ii) and (iii) above. - 21 - SCHEDULE 5 Special Account 1. For the purposes of this Schedule: (a) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods required during the execution of the Program and to be financed out of the proceeds of the Credit in accordance with the proisions of Schedule 1 to this Agreement; and (b) the term "Authorized Allocation" means an amount equivalent to $20,000,000 to be withdrawn from the Credit Account and deposited into 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 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 shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Association a request or requests for a deposit or deposits which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Association requests for deposits into the Special Account at such intervals as the Association shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Association the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which - 22 - replenishment is requested. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit 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 Association from the Credit Account under the respective eligible Categories, 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 Association shall reasonably request, furnish to the Association 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 Association shall not be required to make further deposits into the Special Account: (a) if, at any time, 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 (b) once the total unwithdrawn amount of the Credit, less 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 Program, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit follows 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. - 23 - 6. (a) If the Association 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 Association, the Borrower shall, promptly upon notice from the Association: (A) provide such additional evidence as the Association may request; or (B) 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. Unless the Association shall otherwise agree, no further deposit by the Association 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 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 noti!e from the Association, refund to the Association such outstanding amount. (c) The Borrower may, upon notice to the Association, refund to the Association all or any portion of th'e funds on deposit in the Special Account. (d) Refunds to the Association made pursuant to paragraph 6 (a), (b) and (c) of this Schedule shall be credited to the Credit Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. ......... INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the International Development Association. FOR SECRETARY