Conformed Copy - C2509 - Uttar Pradesh Basic Education Project - Development Credit Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2509 IN Development Credit Agreement (Uttar Pradesh Basic Education Project) between INDIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated July 7, 1993 CREDIT NUMBER 2509 IN DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated July 7, 1993, between INDIA, acting by its President, (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) the Project will be carried out by the State of Uttar Pradesh (Uttar Pradesh) with the assistance of the Uttar Pradesh Sabhee Ke Liye Siksha Pariyojana Parishad (EFAPB) and with the assistance of the Borrower and, as part of such assistance, the Borrower will make available to Uttar Pradesh the proceeds of the Credit as provided in this Agreement; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement and in the Project Agreement of even date between the Association of one part and Uttar Pradesh and EFAPB of the other part; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Page 2 General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Develop- ment Credit Agreements" of the Association, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. Section 1.02. 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) "BSP" means Basic Shiksha Parishad, established under the Uttar Pradesh Basic Education Act, 1974 (Uttar Pradesh Act Number 34 of 1972), as amended; (b) "basic education" or "elementary education" means primary (grades 1 through 5) and upper primary (grades 6 through 8) schooling and non-formal primary and upper primary education; (c) "block" means the administrative unit of the Borrower referred to by that name into which each district of each state of the Borrower is divided for the purposes of development administra- tion; (d) "DBE" means Uttar Pradesh's Directorate of Basic Education; (e) "DIET" means District Institute for Education and Training; (f) "DEPC" means District Education Project Committee established in each Project District under this Project; (g) "ECCE" means Early Childhood Care and Education; (h) "EFAPB" means Uttar Pradesh Sabhee Ke Liye Siksha Pariyojana Parishad, also known as the Uttar Pradesh Education For All Project Board, a society established under the Borrower's Societies Registration Act, 1860 as applied to Uttar Pradesh; (i) "Project Agreement" means the agreement of even date herewith between the Association of the one part and the State of Uttar Pradesh and EFAPB of the other part, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Project Agreement; (j) "Project Districts" means the following districts in Uttar Pradesh: Aligarh, Allahabad, Banda, Etawah, Gorakhpur, Nainital, Pauri, Saharanpur, Sitapur and Varanasi; (k) "SIEMT" means Uttar Pradesh's State Institute for Educational Management and Training, to be established pursuant to Part A(1)(b) of the Project; (l) "Scheduled Castes" refers to the population groups specified as "Scheduled Castes" pursuant to Article 341 of the Constitution of India; (m) "Scheduled Tribes" refers to the population groups specified as "Scheduled Tribes" pursuant to Article 342 of the Constitution of India; (n) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; (o) "Uttar Pradesh" means the Borrower's state of Uttar Pradesh, or any successor thereto; and (p) "VEC" means Gaon Shiksha Samiti, or Village Education Committee, established under the Uttar Pradesh Basic Education Act, Page 3 1972 (Uttar Pradesh Act Number 34 of 1972), as amended, in any village in which the Project is being, or is to be, carried out. 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 one hundred sixteen million five hundred thousand Special Drawing Rights (SDR 116,500,000). 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 for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit. (b) The Borrower shall, for the purposes of the Project, open and maintain in dollars a special deposit account in the Reserve Bank of India on terms and conditions satisfactory to the Association. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 3 to this Agreement. Section 2.03. The Closing Date shall be September 30, 2000 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not 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. (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 and 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 date in that year specified in Section 2.06 of this Agreement. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restric- tions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. 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 charges and service charges shall be payable semi-annually on May 15 and November 15 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi- annual installments payable on each May 15 and November 15, commencing November 15, 2003 and ending May 15, 2028. Each install- ment to and including the installment payable on May 15, 2013 shall be one and one-fourth percent (1-1/4%) of such principal amount, and each installment thereafter shall be two and one-half percent (2-1/2%) of such principal amount. Page 4 (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 consider- ation by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid. If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (c) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, without any limitation or restriction upon any of its other obligations under this Agreement, shall cause Uttar Pradesh and EFAPB to perform in accordance with the provisions of the Project Agreement all the respective obligations of Uttar Pradesh and EFAPB set forth, shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable Uttar Pradesh and EFAPB to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall make the proceeds of the Credit available to Uttar Pradesh in accordance with the Borrower's standard arrangements for developmental assistance to the States of India. Section 3.02. Except as the Association shall otherwise agree, procurement of the goods, works and services required for the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 1 to the Project Agreement. Section 3.03. The Borrower and the Association hereby agree that the obligations set forth in Section 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the Project shall be carried out jointly and severally by Uttar Pradesh and EFAPB pursuant to Section 2.03 of the Project Agreement. ARTICLE IV Financial and Other Covenants Section 4.01. (a) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of Page 5 statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained in accordance with sound accounting practices, records and accounts reflecting such expenditures; (ii) ensure that all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures are retained 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; and (iii) enable the Association's representatives to examine such records. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) (i) of this Section and those for the Special Account for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than nine months after the end of each such year the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested, including 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; 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. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional events are specified: (a) Either Uttar Pradesh or EFAPB shall have failed to perform any of its respective obligations under the Project Agreement. (b) As a result of events which have occurred after the date of this Agreement, an extraordinary situation shall have arisen which shall make it improbable that Uttar Pradesh or EFAPB will perform its respective obligations under the Project Agreement. (c) Uttar Pradesh shall have reduced the level of its budgetary expenditure for basic education (net of Project expendi- tures) below the level, in constant terms, of such expenditure in the fiscal year 1992-1993. Section 5.02. Pursuant to Section 7.01 (d) of the General Conditions, the following additional event is specified, namely, that the event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Association to the Borrower, Uttar Pradesh and EFAPB. Page 6 ARTICLE VI Effective Date; Termination Section 6.01. The following is specified as an additional matter, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association, namely, that the Project Agreement has been duly authorized or ratified by Uttar Pradesh and EFAPB respectively and is legally binding upon each of them in accordance with its terms. Section 6.02. 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. Section 6.03. The provisions of Section 5.02 of this Agreement shall cease and determine on the date on which this Agreement shall terminate or on the date twenty years after the date of this Agreement, whichever shall be the earlier. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. The Secretary, Additional Secretary, Director, Deputy Secretary or Under Secretary of the Department of Economic Affairs in the Ministry of Finance of the Borrower is designated as representative of the Borrower 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 Borrower: The Secretary to the Government of India Ministry of Finance Department of Economic Affairs New Delhi, India Cable address: Telex: ECOFAIRS 953-3166175 New Delhi For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 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. INDIA Page 7 By /s/ N. Valluri Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ D. Joseph Wood Regional Vice President South Asia SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Civil Works: (a) construction 19,800,000 90% of new schools (b) other civil works 20,700,000 90% (2) Equipment, 11,900,000 100% of foreign material, expenditures, books 100% of local expenditures (ex-factory cost) and 80% of local expenditures for other items procured locally (3) Vehicles 200,000 65% (4) Architectural and 4,200,000 100% Engineering Services Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (5) Consultants' 300,000 100% services (6) Local fellowships 3,200,000 100% and studies (7) Local training, 5,500,000 100% grants under Part B(1) and stipends under Part D(1) Page 8 (8) Services of non- 1,200,000 100% governmental organizations (9) Incremental staff 38,900,000 90% of local salaries, honoraria expenditures for instructors, until March 31, operation and 1995; 80% of maintenance costs expenditures from April 1, 1995 until March 31, 1998 and 65% thereafter (10)Unallocated 10,600,000 ___________ TOTAL 116,500,000 =========== 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower; and (c) the term "incremental operation and maintenance costs" means operation and maintenance costs for the Project incurred on or after March 31, 1993; and "incremental staff salaries" means salaries paid in respect of posts, including consulting or contractual services, created on or after March 31, 1993. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expendi- tures incurred prior to the date of this Agreement except that withdrawals, in an aggregate amount not exceeding the equivalent of SDR 500,000, may be made on account of payments made for expendi- tures before that date but after March 31, 1993. SCHEDULE 2 Description of the Project The main objective of the Project is to assist Uttar Pradesh in increasing enrollment in, and completion of, basic education and to improve its quality. To this end, the Project would also aim to strengthen institutional capacity in Uttar Pradesh for the planning and management of basic education. The Project would aim, for primary and upper primary schools in Project Districts, to reduce drop out and repetition by 50% relative to baseline estimates, to reduce the percentage of children not in school by 50% relative to baseline estimates and to increase learning achievement by 50% relative to baseline estimates, particularly with reference to Scheduled Caste, Scheduled Tribe and female students; to increase enrollment in non-formal primary education by at least 150,000 children; and to create at least 450,000 additional primary and upper primary school places. The Project will be carried out in Project Districts and consists of the following parts, subject to such modifications thereof as may be agreed upon between the Borrower and the Association from time to time: Part A: Building Institutional Capacity Page 9 (1) Improving Institutional Structures (a) EFAPB: Institutional strengthening of EFAPB to enable it to assist Uttar Pradesh to implement the Project as well as undertake planning and management of the basic education program. (b) SIEMT: Establishment of SIEMT to support basic education by developing and providing training for State and district level educational planners and managers, carrying out operations and policy research, as well as preparing a plan for the extension of the basic education program throughout the State. (c) DIET: Establishment and strengthening of District Institutes of Education and Training (DIET) in Project Districts to serve as the principal professional support agencies for schools and provide pre-service and in-service teacher training, develop curriculum and materials and carry out evaluation studies. (d) BRC: Establishment and strengthening of Block Resource Centers (BRC), each managed by an experienced upper primary school teacher, to provide facilities for decentralized training and teacher support activities. (2) Improving Information Flows; Research and Planning (a) School mapping and micro-planning: Carrying out school mapping and micro planning through annual household surveys to be carried out by VECs and the preparation of village education plans by VECs. (b) Management information system: Establishment by DBE, with assistance from EFAPB as well as other expert Indian institu- tions, of a computerized management information system for the Project, including computerization of the current manual information system for school statistics and expenditure data, including the establishment of monitoring cells by EFAPB at the district level to assist in collecting school level statistics. (c) Assessment of learning achievement: Developing and carrying out of a program of systematic assessment of learning achievement in Project districts as well as strengthening the capacity of Uttar Pradesh to undertake state-wide surveys of learning achievement. (d) Research and evaluation studies: Carrying out of a program of studies on research topics relevant to the Project, to be coordinated by EFAPB with the assistance of a Policy Research Advisory Committee. Part B: Improving Quality and Completion (1) Community Participation: Expansion of the membership of VECs to increase representation of women as well as members of scheduled castes and scheduled tribes, enhancement of the responsibilities of VECs to include supervision of all basic education activities in villages, including early childhood education and non-formal education, as well as provision of training for VEC members and grants for school improvements to selected VECs showing significant success in achieving Project objectives. (2) Improving Readiness to Learn: Establishment of about 1,000 ECCE centers in existing as well as newly constructed primary schools in about 25 selected blocks in which the Borrower's Integrated Child Development Services Program (ICDS) is not operational. (3) Improving Teacher and Staff Performance: (a) Training: Training of teachers, other education officials at the block, district and state levels, members of community groups such as VECs, women's groups and staff and members of non-governmental organizations involved in the implementation of Page 10 the Project, provision of additional training and library facilities for lead schools to serve clusters of 8-10 schools each, as well as publication of a teachers' journal by EFAPB. (b) Additional Teachers and Other Personnel: Appointment of about 1,000 additional teachers in existing rural schools to maintain appropriate student-teacher ratios, the provision of the services of cluster resource teachers for each cluster of schools referred to in Part B(3)(a) above, as well as the provision of Block Resource Center coordinators. (4) Improving Curriculum, Textbooks and Teaching Materials: The development of simplified teaching and learning materials, in particular for language and mathematics instruction in Grades 1 through 3, inter alia by developing the full primary curriculum to minimum levels of learning standards, the development and testing of new textbooks and supplementary reading materials specific to the conditions of each Project district; improvement of the quality of textbook writing, design, layout and printing; and the development of teacher handbooks. (5) Improving School Management: Upgrading of selected teachers to head teachers and the appointment of new head teachers in all primary and upper primary schools in Project districts; and training of head teachers by Teacher Training Institutes (TTIs) and eventual- ly by DIET including in-service training. (6) Rehabilitation of Facilities: Rehabilitation of facilities in schools including construction of about 1,400 additional classrooms, toilets for about 10,100 primary and upper primary schools, drinking water facilities for about 5,250 schools and carrying out minor repairs in about 3,100 schools. Part C: Strengthening Programs for Women's Education (1) Increasing the Proportion of Women Teachers: Increasing the proportion of women teachers in rural schools in Project districts to about 22% and in upper primary schools to over 50%, by appointing women to at least 50 per cent of posts created in new and expanded schools as well as to posts created as a result of turnover. (2) Expanding the Mahila Samakhya Program: Expansion of the Mahila Samakhya program to an additional seven Project districts covering about 1,400 villages, in a manner consistent with the Borrower's national program guidelines for that program. Part D: Supporting Pilot Projects and Innovations (1) Carrying out of pilot programs for the establishment or strengthening of community libraries in schools, the provision of targeted stipends for assisting girl students belonging to scheduled castes and scheduled tribes, the provision of non-formal upper primary education, and for providing work experience for students of upper primary schools. (2) Carrying out a program of innovative activities, on a pilot basis, selected in accordance with criteria satisfactory to the Association, including for improved delivery of education services to migratory scheduled tribe groups, children in small and isolated hamlets and children of communities with alternative education systems, and enhancing involvement of non-governmental organizations in Project implementation and monitoring. Part E: Improving Access (1) Expansion of Primary and Upper Primary Schooling: (a) Establishment of schools: Establishment of primary and upper primary schools (with at least 50 per cent of such upper primary schools being single-sex girls' schools), to be financed through and constructed by VECs, in about 2,050 habitations which satisfy norms for establishment of primary schools but do not have Page 11 such schools, as well as in about 1,070 habitations which satisfy norms for establishment of upper primary schools but do not have such schools, so as to create about 300,000 primary and 150,000 upper primary student places. (b) Grants to VECs: Provision of facility maintenance grants to VECs for maintenance of schools established pursuant to Part E(1)(a) above. (2) Improving Non-Formal Primary Education: Establishment of about 5,000 non-formal primary education classes to benefit about 265,500 students including provision of instructor training, supervision and honoraria for instructors. * * * The Project is expected to be completed by March 31, 2000. SCHEDULE 3 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1), (2), (3), (4), (5) (6), (7), (8) and (9) set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $6,800,000 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 in 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 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 Page 12 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. (a) Notwithstanding the provisions of paragraph 3 of this Schedule, the Association shall not be required to make further deposits into the Special Account: (i) 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 (ii) once the total unwithdrawn amount of the Credit allocated to the eligible Categories less the amount of any outstanding special commitment entered into by the Association pursuant to Section 5.02 of the respective General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. (b) Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit allocated to the eligible Categories shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Association shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; and (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 notice 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 the funds on deposit in the Special Account. (d) Refunds to the Association made pursuant to paragraphs 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. Page 13