Conformed Copy - TF021931 - Montreal Protocol Ozone Depleting Substances Phase Out Investment Project - Ozone Projects Trust Fund Grant Agreement

Page 1 CONFORMED COPY OTF GRANT NUMBER TF021931-PH OZONE PROJECTS TRUST FUND GRANT AGREEMENT (Montreal Protocol Ozone Depleting Substances Phase Out Investment Project) between THE REPUBLIC OF THE PHILIPPINES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT acting as Trustee of the Ozone Projects Trust Fund Dated October 6, 1994 OZONE PROJECTS TRUST FUND GRANT AGREEMENT AGREEMENT, dated October 6, 1994, between the REPUBLIC OF THE PHILIPPINES (the "Recipient") and the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT, acting as Trustee of grant funds provided by Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer into the Ozone Projects Trust Fund ("OTF") (the "Trustee"). WHEREAS (A): The International Bank for Reconstruction and Development (the "Bank"), pursuant to Resolution No. 91-5 of March 14, 1991, of the Executive Directors of the Bank (the "Resolution"), established a facility (the "Facility"), including the OTF, to assist in the protection of the global environment and thereby promote environmentally sound and sustainable economic development; WHEREAS (B): The Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer to the Vienna Convention for the Protection of the Ozone Layer have established the Interim Multilateral Fund (the "Fund") for the Implementation of the Montreal Protocol to operate under the authority of the said Parties to provide the financing of agreed incremental costs to enable the Parties operating under paragraph 1 of Article 5 of the Protocol to comply with control measures provided for in the Protocol; WHEREAS (C): The Executive Committee of the Fund and the Bank have entered into an agreement effective on July 9, 1991, pursuant to which the Executive Committee has agreed to provide funds into the OTF to be administered by the Bank as Trustee in Page 2 accordance with the provisions of the said agreement and the Resolution; WHEREAS (D): The Recipient, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested assistance from the resources of the OTF in the financing of the Project, and the Trustee has determined that such assistance would be in accordance with the provisions of the Resolution; and WHEREAS (E): The Trustee has agreed, on the basis, inter alia, of the foregoing, to extend a grant (the "OTF Grant") to the Recipient 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 1.01. (a) The following provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated January 1, 1985, with the modifications set forth in paragraph (b) of this Section (the "General Conditions") constitute an integral part of this Agreement: (i) Article I; (ii) Sections 2.01 (1), (2), (3), (4), (6), (8), (9), (10), (11), (15), (18) and (20), 2.02 and 2.03; (iii) Section 3.01; (iv) Section 4.01 and the first sentence of Section 4.09; (v) Article V; (vi) Sections 6.01, 6.02 (c), (d), (e), (f), (i) and (k), 6.03, 6.04 and 6.06; (vii) Section 8.01 (b); (viii)Sections 9.01 (a) and (c), 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09; (ix) Sections 10.01, 10.03 and 10.04; (x) Article XI; and (xi) Sections 12.01, 12.02, 12.03 and 12.04. (b) The General Conditions shall be modified as follows: (i) The term "Bank", wherever used in the General Conditions, other than in Sections 2.01 (8) and 6.02 (f) thereof and the last use of such term in Section 5.01 thereof, means the Trustee except that in Section 6.02, the term "Bank" shall also include the International Bank for Reconstruction and Development acting in its own capacity; (ii) The term "Borrower", wherever used in the General Conditions, means the Recipient; (iii) The term "Loan Agreement", wherever used in the General Conditions, means this Agreement; (iv) The term "Loan" and "loan" wherever used in the General Conditions, means the OTF Grant; and (v) The term "Loan Account" wherever used in the General Conditions, means the OTF Grant Account. Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in the Recitals to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: Page 3 (a) "Beneficiary" means any public or private enterprise which consumes ODS (as such term is defined hereinafter) and proposes to carry out a Sub-project (as such term is also defined hereinafter); (b) "Country Program" means the Recipient's Country Program for the Phase Out of Ozone-Depleting Substances, dated May 15, 1993, as adopted by the Recipient's Government on June 23, 1993, and as approved by the Executive Committee, referred to in WHEREAS Clause (C) of the Preamble to this Agreement, on June 30, 1993; (c) "DENR" means the Recipient's Department of Environment and Natural Resources established pursuant to the Recipient's Executive Order No. 192 of 1987, and such term also means any successor thereto; (d) "DOF" means the Recipient's Department of Finance established pursuant to the Recipient's Executive Order No. 127 dated June 30, 1987, and such term also means any successor thereto; (e) "Eligible Beneficiary" means any public or private enterprise which consumes ODS (as such term is defined hereinafter), has proposed a Sub-project and with which LBP (as such terms are defined hereinafter) has concluded a Sub-grant Agreement (as such term is also defined hereinafter) pursuant to the provisions of Section 3.03 of, and Part B of Schedule 4 to, this Agreement for the carrying out of the corresponding Sub-project (as such term is also defined hereinafter); (f) "Fiscal Year" means the twelve (12) month period corresponding to any of the Recipient's fiscal years, which period commences on January 1 and ends on December 31 in each calendar year; (g) "LBP" means the Recipient's Land Bank of the Philippines, a government financial institution owned and controlled by the Recipient, established and operating pursuant to the Recipient's Republic Act No. 3844 dated August 8, 1963, as amended to the date of this Agreement; (h) "MOA" means the Memorandum of Agreement to be entered into between DOF, DENR and LBP, referred to in Sections 3.02 of, and Part A (1) of Schedule 4 to, this Agreement; (i) "ODS" means ozone depleting substances; (j) "OPG" means the Recipient's Operating Policy Guidelines to be prepared by DENR and LBP for the preparation, contracting, processing, financing, implementation and monitoring and supervision of Sub-projects (as such term is defined hereinafter), referred to in Section 3.05 of, and Part A (1) of Schedule 4 to, this Agreement; (k) "Special Account" means the account referred to in Section 2.02(b) of this Agreement; (l) "Sub-grant" means a grant, denominated in dollars made, or proposed to be made, by LBP to an Eligible Beneficiary for the purposes of carrying out a corresponding Sub-project (as such term is defined hereinafter); (m) "Sub-grant Agreement" means any of the agreements to be entered into between LBP and an Eligible Beneficiary for the purposes of making a Sub-grant for carrying out a Sub-project, pursuant to the provisions of Section 3.03 of, and Part B (1) of Schedule 4 to, this Agreement; and (n) "Sub-project" means a specific ozone depleting substances phase out investment project prepared in accordance with the OPG, and approved by the Trustee, consisting of investments and other activities eligible under the Protocol which result in the reduction of ODS use or in the substitution of non-ozone depleting technologies for ozone depleting technologies, referred to in Schedule 2 to this Agreement. ARTICLE II The OTF Grant Section 2.01. The Trustee agrees to make available to the Recipient, on the terms and conditions set forth or referred to in this Agree-ment, the OTF Grant in an amount not to exceed the equivalent of fifteen million and forty-nine thousand dollars ($15,049,000). Page 4 Section 2.02. (a) The amount of the OTF Grant may be withdrawn from the OTF Grant Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Trustee shall so agree, to be made) in respect of the reasonable cost of goods and services required for carrying out the Project, and to be financed out of the proceeds of the OTF Grant. (b) The Recipient may, for the purposes of the Project, open and maintain in dollars a special deposit account in its Bangko Sentral ng Pilipinas, in the name of the Treasurer of the Philippines, on terms and conditions satisfactory to the Trustee, including appropriate protection against set off, seizure or attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 6 to this Agreement. Section 2.03. The Closing Date shall be June 30, 1998, or such later date as the Trustee shall establish. The Trustee shall promptly notify the Recipient of such later date. Section 2.04. The Trustee shall not be obligated to make any payment under this Agreement, except to the extent it shall have received funds for the purposes of the Project from the Executive Committee referred to in WHEREAS Clause (C) of the Preamble to this Agreement. ARTICLE III Execution of the Project Section 3.01. (a) The Recipient 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 DENR and LBP with due diligence and efficiency and in conformity with appropriate administrative, economic, engineering and financial practices, and with due regard to ecological and environmental factors, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Recipient and the Trustee shall otherwise agree, the Recipient, through DENR and LBP, shall carry out the Project in accordance with the Implementation Program set forth in Schedule 4 to this Agreement. Section 3.02. (a) The Recipient shall make the proceeds of the Grant available to LBP to carry out the Project, as the financial intermediary of the Recipient, all under a Memorandum of Agreement ("MOA") to be entered into between the Recipient, as represented by DOF and DENR, and LBP, under terms and conditions which shall have been approved by the Trustee; and (b) The Recipient shall cause DENR to exercise its rights under the MOA in such a manner as to protect the interests of the Recipient and the Trustee and to accomplish the purposes of the Grant, and, except as the Trustee shall otherwise agree, the Recipient shall cause DENR not to assign, amend, abrogate or waive the MOA or any provision thereof. Section 3.03. (a) On the basis of the MOA, the Recipient shall cause LBP, as the financial intermediary of the Recipient, to make the appropriate proceeds of the Grant available to each Eligible Beneficiary to carry out its respective Sub-project, under Part A of the Project, under a Sub-grant Agreement, which shall have been approved by the Trustee, to be entered into between LBP and each Eligible Beneficiary in accordance with the provisions of Schedule 5 to this Agreement; and (b) On the basis of the MOA, the Recipient shall cause LBP to exercise its rights under each Sub-grant Agreement in such a manner as to protect the interests of the Recipient and the Trustee and to accomplish the purposes of the Grant, and, except as the Trustee shall otherwise agree, the Recipient shall ensure that LBP does not assign, amend, abrogate or waive any Sub-grant Agreement, or any provision thereof. Section 3.04. (a) The Recipient shall cause DENR and LBP to prepare, or cause to be prepared, Operational Policy Guidelines ("OPG"), which shall have been approved by the Trustee, setting forth the terms and conditions and related procedures for the conditions of effectiveness of Sub-projects, and for the contracting, processing, financing, implementation and monitoring and supervision of the Sub-projects; and (b) When submitting a Sub-project to the Trustee, for approval by the Trustee Page 5 pursuant to Part B of Schedule 4 to this Agreement, the Recipient, through DENR, shall furnish to the Trustee an application, in form and substance satisfactory to the Trustee, containing inter alia: (a) an appraisal of the Sub-project, and a description of the expenditures proposed to be financed out of the proceeds of the OTF Grant; (b) a detailed description of how such Sub-project meets the criteria and requirements set forth in the OPG; and (c) such other information as the Trustee, or the Executive Committee, referred to in WHEREAS Clause (C) of the Preamble to this Agreement, shall reasonably request in respect of such Sub-project. Section 3.05. For each Sub-project approved by the Trustee in accordance with the provisions of this Agreement, LBP shall be entitled to an agency fee in an amount not to exceed the equivalent of three percent (3.0%) of the amounts disbursed under each Sub-grant Agreement, such fee to be paid out of the proceeds of the OTF Grant in the following proportion: (a) one percent (1%) of the Sub-grant amount (excluding contingencies) after approval of the Sub-project by the Trustee; and (b) the remaining two percent (2%), pro-rata, on the dates of disbursement of the Sub-grant proceeds under the Sub-grant Agreement. Section 3.06. Except as the Trustee 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 OTF Grant shall be governed by the provisions of Schedule 3 to this Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) The Recipient shall cause DENR and LBP to: (i) maintain, or cause to be maintained, separate 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 (including, but without limitation, LBP and DENR) of the Recipient responsible for carrying out the Project or any part thereof; and (ii) cause each Eligible Beneficiary to maintain separate records and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures of such Eligible Beneficiary in respect of its corresponding Sub-project. (b) The Recipient shall cause DENR and LBP to: (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 Trustee; (ii) furnish to the Trustee as soon as available, but in any case not later than six (6) months after the end of each such year, the report of such audit by said auditors, of such scope and in such detail as the Trustee shall have reasonably requested; and (iii) furnish to the Trustee such other information con-cerning said records and accounts and the audit thereof as the Trustee shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the OTF Grant Account were made on the basis of statements of expenditure, the Recipient shall cause DENR and LBP to: (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 (1) year after the Trustee has received the audit report for the Fiscal Year in which the last withdrawal from the OTF Grant Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Trustee'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 Page 6 report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such Fiscal Year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. ARTICLE V Remedies of the Trustee Section 5.01. Pursuant to Section 6.02 (k) of the General Conditions, the following additional events are specified, namely: (a) The Recipient, or any other authority having jurisdiction, shall have taken any action for the dissolution or disestablishment of either DENR or LBP, or for the suspension of any of their operations, so as to affect materially and adversely any of their respective ability to perform any of their obligations under this Agreement, or to otherwise carry out any of their respective parts of the Project or any part thereof; (b) The Recipient, or any other authority, shall have taken any action, including but without limitation the enactment or issuance of legislation or regulations, which, in the opinion of the Trustee, may adversely affect, prevent or interfere with the carrying out of the Project, or any part thereof; or (c) DOF, DENR or LBP shall have failed to perform any of their respective obligations under the MOA. ARTICLE VI Effectiveness; Termination Section 6.01. The following events are specified as conditions to the effectiveness of this Agreement: (a) The MOA, satisfactory to the Trustee, shall have been entered into and become effective between DOF, DENR and LBP, pursuant to the provisions of Section 3.02 of this Agreement; and (b) The Recipient shall have prepared and approved the OPG, satisfactory to the Trustee, pursuant to the provisions of Section 3.04 of this Agreement. Section 6.02. The following matter is specified as an additional matter, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Trustee, namely, that the MOA has been duly authorized or ratified by each of DOF, DENR and LBP, and is legally binding upon each party thereto in accordance with its terms. Section 6.03. The date one hundred and twenty (120) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 6.04. This Agreement shall continue in effect until parties to this Agreement have fulfilled all their obligations hereunder. ARTICLE VII Representative of the Recipient; Addresses Section 7.01. The Secretary of Finance of the Recipient is designated as representative of the Recipient for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Recipient: Department of Finance Manila Republic of the Philippines Page 7 Cable address: Telex: SECFIN 40268 CB-CONF Manila 27550 CBP-PH For the Trustee: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 197688 (TRT), Washington, D.C. 248423 (RCA), 64145 (WUI) or 82987 (FTCC). IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. REPUBLIC OF THE PHILIPPINES By /s/ Raul Ch. Rabe Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT as Trustee of the Ozone Projects Trust Fund By /s/ J. Shivakumar Authorized Representative SCHEDULE 1 Withdrawal of the Proceeds of the OTF Grant 1. The table below sets forth the Categories of items to be financed out of the proceeds of the OTF Grant, the allocation of the amounts of the OTF Grant to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the OTF Grant Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Sub-grants 14,369,000 100% of amounts disbursed (2) Consultants' 300,000 100% services and training (3) LBP Agency fee 380,000 Amount due pursuant to Section 3.05 of this Agreement Total 15,049,000 Page 8 2. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not to exceed the equivalent of one million five hundred thousand dollars ($1,500,000), may be made in respect of Categories (1) and (2) on account of payments made for expenditures before that date but after March 31, 1993, provided, however, that the Sub-project has been approved by the Trustee; or (b) any Sub-project, unless the Trustee shall have given its approval, in accordance with the provisions of this Agreement, and corresponding the Sub-grant Agreement, as approved by the Trustee, has been entered into between the parties thereto. 3. If the Trustee shall have determined at any time that any payment made from the OTF Grant Account was used for any expenditure not consistent with the provisions of this Agreement, the Recipient shall, promptly upon notice from the Trustee, refund to the Trustee for deposit into the OTF Grant Account, an amount equal to the amount so used or the portion thereof as specified by the Trustee. 4. The Trustee may require withdrawals from the Grant Account to be made on the basis of statements of expenditures for expenditures under contracts for (a) goods not exceeding the equivalent of two hundred thousand dollars ($200,000), (b) services by firms not exceeding the equivalent of one hundred thousand dollars ($100,000), and (c) services by individuals not exceeding the equivalent of fifty thousand dollars ($50,000), all under such terms and conditions as the Trustee shall specify by notice to the Recipient. SCHEDULE 2 Description of the Project The overall objective of the Project is to assist the Recipient to phase-out the use of ODS within its territory by the Year 2000 through, inter alia: (a) the introduction of appropriate technology measures; (b) the institutional strengthening of responsible governmental entities; and (c) the implementation of specific cost-effective priority investments to reduce consumption of ozone depleting substances. The Project consists of the following parts, subject to such modifications thereof as the Recipient and the Trustee may agree upon from time to time to achieve such objectives: Part A: Carrying out of Specific Sub-projects. Carrying out of the following sixteen (16) Sub-projects by the Eligible Beneficiaries, on the basis of the OPG and in accordance with the terms and conditions of the corresponding Sub-grant Agreements. (a) Conversion of the tobacco fluffing process from CFC-11 to CO2 at the Fortune Tobacco Corporation; (b) Conversion of blowing agents used in the refrigerator insulating foam at the Philippines Appliance Corporation; (c) Conversion of blowing agents used in the refrigerator insulating foam at the Conception Industries Incorporated; (d) Conversion of blowing agents used in the refrigerator insulating foam at the Sanyo Philippines Company; (e) Conversion of blowing agents used in the refrigerator insulating foam at the Federal Electric Company; (f) Conversion of the electronic cleaning process from CFC-113/alcohol blended solvents to semi-aqueous cleaning solvents at Ionics Circuits Incorporated; (g) Conversion of the electronic cleaning process from CFC-113 and 1-1-1 trichloroethane (TCA or methyl chloroform) solvents to low emission processes using non-ODS organic solvents at Pacific Semiconductors Incorporated; (h) Conversion of the electronic cleaning process from CFC-113/alcohol blended solvents to semi aqueous and aqueous cleaning solvents at the Electronic Page 9 Assemblies Incorporated; (i) Conversion of the electronic cleaning process from CFC-113/alcohol blended solvents to high purity water cleaning at the Integrated Microelectronics Incorporated; (j) Conversion of the electronic cleaning process from CFC-113/alcohol blended solvents to semi aqueous cleaning solvents at the Solid Circuits Incorporated; (k) Establishment of a central recycling scheme throughout Metro Manila; (l) Establishment of a mobile air-conditioning recycling scheme throughout the Recipient's territory; (m) Engineering design and technical assistance for the use of HFC-134a refrigerant in the household refrigerators at the Philippines Appliance Corporation; (n) Engineering design and technical assistance for the use of HFC-134a refrigerant in the household refrigerators at the Conception Industries Incorporated; (o) Engineering design and technical assistance for the use of HFC-134a refrigerant in the household refrigerators at Sanyo Philippines Company; and (p) Engineering design and technical assistance for the use of HFC-134a refrigerant in the household refrigerators at the Federal Electric Company. Part B: Institutional Strengthening. Enhancing the overall implementation capabilities and particularly the capacity to deal with ODS issues, including Sub-project appraisal, monitoring and implementation, of DENR and LBP through, inter alia, provision of consultants' services, training and equipment (including vehicles), for the purposes of: (a) Strengthening DENR's institutional capacity to implement the Country Program satisfactorily and on a timely basis; and (b) Strengthening LBP's institutional capacity to appraise and monitor the successful implementation of Sub-projects. * * * * * * The Project is expected to be completed by December 31, 1997. SCHEDULE 3 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: International Competitive Bidding Except as provided in Part C hereof, goods 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 1992 (the "Guidelines"), and in accordance with the following additional procedures: (a) When contract award is delayed beyond the original bid validity period, such period may be extended once, subject to and in accordance with the provisions of paragraph 2.59 of the Guidelines, by the minimum amount of time required to complete the evaluation, obtain necessary approvals and clearances and award the contract. The bid validity period may be extended a second time only if the bidding documents or the request for extension shall provide for appropriate adjustment of the bid price to reflect the changes in the cost of inputs for the contract over the period of extension. Such an increase in bid price shall not be taken into account in the bid evaluation. With respect to each contract made subject to prior review by the Trustee in accordance with the provisions of Part D.1.(a) of this Section, prior approval by the Trustee will be required for (i) a first extension of the bid validity period if the period of extension exceeds sixty (60) days and (ii) any subsequent extension of the bid validity period. (b) In the procurement of goods and works in accordance with this Part A, the Page 10 Recipient shall cause DENR and LBP to use the relevant standard bidding documents issued by the Bank, with such modifications thereto as the Trustee shall have agreed to be necessary for the purposes of the Project. Where no relevant standard bidding documents have been issued by the Bank, the Recipient shall cause DENR and LBP to use bidding documents based on other internationally recognized standard terms agreed with the Trustee. Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A hereof, goods manufactured within the territory of the Recipient 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: Other Procurement Procedures 1. Items or groups of items estimated to cost more than the equivalent of two hundred thousand dollars ($200,000) and less than the equivalent of two million dollars ($2,000,000) per contract may be procured under contracts awarded on the basis of comparison of price quotations solicited from a list of at least three (3) suppliers from at least two (2) different countries eligible under the Guidelines, in accordance with procedures acceptable to the Trustee. 2. Items or groups of items estimated to cost less than the equivalent of two hundred thousand dollars ($200,000) may be procured under contracts awarded on the basis of comparison of price quotations solicited from a list of at least three (3) suppliers eligible under the Guidelines, in accordance with procedures acceptable to the Trustee. 3. Proprietary items may be procured directly from the supplier in accordance with procedures acceptable to the Trustee. Part D: Review by the Trustee of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract estimated to cost the equivalent of two million dollars ($2,000,000) or more, and with respect to each contract for a proprietary item, 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 Special Account, such procedures shall be modified to ensure that the two (2) conformed copies of the contract required to be furnished to the Trustee pursuant to said paragraph 2 (d) shall be furnished to the Trustee 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 preceding 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, said procedures shall be modified to ensure that the two (2) conformed copies of the contract together with the other information required to be furnished to the Trustee pursuant to said paragraph 3 shall be furnished to the Trustee as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 5 to this Agreement. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the OTF Grant Account are to be made on the basis of statements of expenditure. 2. The figure of fifteen percent (15%) is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants 1. In order to assist the Recipient in causing the Sub-projects to be carried out, the Recipient shall cause DENR and LBP to employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Trustee. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Trustee on the basis of the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Bank in August 1981. For complex, time-based assignments, the Recipient shall cause DENR and LBP to employ such consultants under contracts using the standard forms of contract for consultants' services issued by the Bank, with such modifications as shall have been agreed by the Trustee. Where no relevant standard Page 11 contract documents have been issued by the Bank, the Recipient shall cause DENR and LBP to use other standard forms agreed with the Trustee. 2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions of the Consultant Guidelines requiring prior review or approval by the Trustee of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts, shall not apply to: (a) contracts for the employment of consulting firms estimated to cost less than $100,000 equivalent each; or (b) contracts for the employment of individuals estimated to cost less than $50,000 equivalent each. However, said exceptions to prior review by the Trustee shall not apply to: (a) the terms of reference for such contracts; (b) single-source selection of consulting firms; (c) assignments of a critical nature, as reasonably determined by the Trustee; (d) amendments to contracts for the employment of consulting firms raising the contract value to $100,000 equivalent or above; or (e) amendments to contracts for the employment of individual consultants raising the contract value to $50,000 equivalent or above. SCHEDULE 4 Implementation Program Part A: Project Implementation Arrangements 1. Without any restriction or limitation of any other provision of this Agreement, the Recipient shall cause DOF, DENR and LBP to enter into the MOA, on terms and conditions which shall have been approved by the Trustee pursuant to the provisions of this Agreement, under which, inter alia: (a) DENR shall coordinate the overall implementation of Part A of the Project (carrying out of specific Sub-projects) and Part B of the Project (institutional strengthening of DENR and LBP), ensuring that all Project activities (including Sub-projects) remain consistent with the Country Program; (b) LBP shall be responsible for Sub-project appraisal, contracting under the Sub-grant Agreement, disbursement and monitoring and supervision, all in accordance with the procedures set forth in this Agreement and the OPG; and (c) DOF shall ensure that the proceeds of the Grant are made available to LBP in a timely manner, all in accordance with the provisions of Section 3.02 of this Agreement. 2. To carry out DENR's responsibilities under paragraph 1 above, and also under the Country Program, the Recipient shall cause DENR: (a) to designate to its Undersecretary for Environment the primary responsibility for the overall management of the Recipient's ozone projects and for the maintenance of a Montreal Protocol secretariat, all with functions and responsibilities acceptable to the Trustee; and (b) to ensure that said secretariat is at all times staffed with competent staff in adequate numbers and with the necessary resources. Part B: Carrying out of Sub-projects 1. On the basis of the MOA, the Recipient, through DENR, shall cause LBP to: (a) Prepare and to furnish to the Trustee, through DENR, for its approval an appraisal report for each Sub-project in form agreed with the Trustee, including a financing plan and environmental assessment related thereto, together with a finalized draft of the corresponding Sub-grant Agreement; (b) Upon approval by the Trustee of each such Sub-project appraisal report, enter into a Sub-grant Agreement, in accordance with a model sub-grant agreement acceptable to the Trustee, under which the Eligible Beneficiary carrying out the Sub-project shall agree to, inter alia: (i) implement the Sub-project in accordance with the provisions and requirements set forth in this Agreement and the OPG, and in a manner which conforms to the Country Program; (ii) provide the necessary funds and resources required for implementing the Sub-project; and (iii) maintain a satisfactory financial condition based on indicators acceptable to the Trustee; and Page 12 (c) Furnish to the Trustee all such information concerning the Sub-projects as it shall reasonably request. 2. The Recipient shall cause DENR and LBP to ensure that: (a) All Sub-grants are made on a grant basis to cover the incremental costs of the Sub-projects; (b) all necessary action is taken to ensure that each Sub-grant is used for the purposes and objectives intended therefor, and in accordance with the terms and conditions of the corresponding Sub-grant Agreement; and (c) funding for Sub-project implementation from sources other than the OTF Grant shall be made on terms and conditions acceptable to the Trustee. SCHEDULE 5 Terms and Conditions of Subgrants Sub-grants shall be provided on terms whereby the Recipient shall obtain, through the Sub-grant Agreements, rights adequate to protect the interests of the Trustee and the Recipient, including but without limitation, the right to: (a) Require the Eligible Beneficiary to carry out and operate the Sub-project with due diligence and efficiency and in accordance with sound technical, financial, managerial, environmental and ecological standards; (b) Require that: (i) The goods, works and services to be financed out of the proceeds of the OTF Grant shall be procured in accordance with the provisions of Schedule 3 to this Agreement; and (ii) Such goods, works and services shall be used exclusively for the purposes and in furtherance of the objectives of the Project; (c) Require the Eligible Beneficiary to comply with the obligations set forth in Section 4.01 of this Agreement; (d) Inspect, by itself or jointly with representatives of the Trustee, if the Trustee shall so request, the goods and plants included in the Sub-project, the operation thereof and any relevant records and documents; (e) Require that: (i) The Eligible Beneficiary shall take out and maintain with responsible insurers such insurance against such risks and in such amounts, as shall be consistent with sound business practices; and (ii) Without any limitation upon the foregoing, such insurance shall cover the hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the OTF Grant to the place of use or installation, any indemnity thereunder to be made payable in a currency freely useable by the Beneficiary to replace or repair such goods; (f) Obtain all such information as the Trustee shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Eligible Beneficiary and to the benefits derived from the Sub-project; (g) Obtain upon demand the refund of any part of the proceeds of the OTF Grant which, in the opinion of the Recipient or the Trustee, has been misused by the Eligible Beneficiary; and (h) Suspend or terminate the right of the Eligible Beneficiary to the use of the proceeds of the OTF Grant upon failure by the Eligible Beneficiary to perform its obligations under the Sub-grant Agreement. SCHEDULE 6 Special Account 1. For the purposes of this Schedule: Page 13 (a) The term "Eligible Category means Categories (1), (2) and (3) 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 OTF Grant 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 one million five hundred thousand dollars ($1,500,000) to be withdrawn from the OTF Grant Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. (a) Payments out of the Special Account shall be made exclusively for Eligible Expenditures in accordance with the provisions of this Schedule. (b) Each payment (including a payment under a letter of credit) for an eligible expenditure in an amount equal to or less than the equivalent of fifty thousand dollars ($50,000) shall be made exclusively out of the Special Account. The Trustee may from time to time, by notice to the Recipient, revise the threshold amount specified in the preceding sentence. 3. After the Trustee 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 Recipient shall furnish to the Trustee a request or requests for a deposit or deposits into the Special Account of an amount or amounts determined by the Trustee to be required to pay for Eligible Expenditures during the four (4) months following the date of each such request, which amount shall not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Trustee shall, on behalf of the Recipient, withdraw from the OTF Grant Account and deposit in the Special Account such amount or amounts as the Trustee shall have determined to be so required. (b) (i) For replenishment of the Special Account, the Recipient shall furnish to the Trustee requests for deposits into the Special Account at such intervals as the Trustee shall specify. (ii) Prior to or at the time of each such request, the Recipient shall furnish to the Trustee the documents and other evidence required pursuant to para-graph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Trustee shall, on behalf of the Recipient, withdraw from the OTF Grant Account and deposit into the Special Account such amount as the Recipient 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 Trustee from the OTF Grant 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 Recipient out of the Special Account, the Recipient shall, at such time as the Trustee shall reasonably request, furnish to the Trustee 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 Trustee shall not be required to make further deposits into the Special Account: (a) If, at any time, the Trustee shall have determined that all further withdrawals should be made by the Recipient directly from the OTF Grant Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; (b) If the Recipient shall have failed to furnish to the Trustee, within the period of time specified in Section 4.01 (b) (ii) of this Agreement, any of the audit reports required to be furnished to the Bank pursuant to said Section in respect of the audit records and accounts for the Special Account; (c) If, at any time, the Trustee shall have notified the Borrower of its Page 14 intention to suspend in whole or in part the right of the Recipient to make withdrawals from the OTF Grant Account pursuant to the provisions of Section 6.02 of the General Conditions; or (d) Once the total unwithdrawn amount of the OTF Grant allocated to the Eligible Category, less the amount of any outstanding special commitment entered into by the Trustee pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the OTF Grant Account of the remaining unwithdrawn amount of the OTF Grant allocated to the Eligible Category shall follow such procedures as the Trustee shall specify by notice to the Recipient. Such further withdrawals shall be made only after and to the extent that the Trustee 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 Trustee 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 Trustee, the Recipient shall, promptly upon notice from the Trustee: (A) provide such additional evidence as the Trustee may request; or (B) deposit into the Special Account (or, if the Trustee shall so request, refund to the Trustee) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Trustee shall otherwise, no further deposit by the Trustee into the Special Account shall be made until the Recipient has provided such evidence or made such deposit or refund, as the case may be. (b) If the Trustee 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 Recipient shall, promptly upon notice from the Trustee, refund to the Trustee such outstanding amount. (c) The Recipient may, upon notice to the Trustee, refund to the Trustee all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Trustee made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the OTF Grant Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions.