Zambia - Urban Restructuring And Water Supply Project : Credit 2725 - Credit Agreement - Conformed

CREDIT NUMBER 2725 ZA Development Credit Agreement (Urban Restructuring and Water Supply Project) between REPUBLIC OF ZAMBIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated /e ,1995 CREDIT NUMBER 2725 ZA DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated /2 , 1995, between the REPUBLIC OF ZAMBIA (thlorrler) and the 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 Association has received a letter dated April 7, 1995 from the Borrower describing a program of policies and the institutional framework designed to strengthen the provision of water supply and sanitation services in the territory of the Borrower (hereinafter called the Program); and (C) the Borrower intends to obtain from the Norwegian Agency for Development Cooperation (NORAD) a grant (the NORAD Grant) in an aggregate principal amount equivalent to approximately $12,000,000 to assist in financing the Project on the terms and conditions set forth in an agreement to be entered into between the Borrower and NORAD (the NORAD Grant 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; 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 January 1, 1985, with the modifications thereto set forth below (the General Conditions) constitute an integral part of this Agreement: (a) The last sentence of Section 3.02 is deleted. (b) The second sentence of Section 5.01 is modified to read: "Except as the Association and the Borrower shall otherwise agree, no withdrawals shall be made: (a) on account of expenditures in the territories of any country which is not a member of the Association or for goods produced in, or services supplied from, such territories; or (b) for the purpose of any payment to persons or entities, or for any import of goods, if such payment or import, to the knowledge of the -2- Association, is prohibited by a decision of the United Nations Security Council taken under Chapter VII of the Charter of the United Nations." 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) "Beneficiary Settlement Community" means an informal settlement community that will be served by a Demonstration Project; (b) "Copperbelt Councils" means, collectively, the City Councils of Kitwe and Ndola and the Municipal Councils of Chingola, Kalulushi, Luanshya and Mufulira; (c) "Councils" means, collectively, the City Councils of Lusaka, Kitwe and Ndola, the District Councils of Kafue and Mazabuka and the Municipal Councils of Chingola, Kalulushi, Livingstone, Luanshya and Mufulira, all established under the Local Government Act No. 22 of 1991 of the Laws of Zambia; (d) "Demonsiration Project" means any of the sub-projects to be financed in whole or in part out of the proceeds of the Credit under Part B of the Project; (e) "DISS" means the Department of Infrastructure and Support Services in MLGH; (f) "Kwacha" means the currency of the Borrower; (g) "Mid-Term Review" means the review referred to in paragraph 1 of Part C of Schedule 4 to this Agreement; (h) "MLGH" means the Borrower's Ministry of Local Government and Housing; (i) "Project Account" means the account referred to in Section 3.04 (a) of this Agreement; (j) "Project Design and Training Consultant" means one of the consultants to be employed by the Borrower to assist the Beneficiary Settlement Community to design Settlement Technical Plans for purposes of implementation of Part B of the Project; (k) "Project Implementation Plan" means the plan covering procurement, disbursement and other organizational arrangements for the implementation of the Project to be adopted by the Borrower pursuant to Section 6.01 (d) of this Agreement as the same may be amended from time to time by the Borrower with the consent of the Association, and such term includes all schedules supplemental to the Project Implementation Plan; -3- (1) "Project Preparation Advance" means the project preparation advance granted by the Association to the Borrower pursuant to a letter dated November 30, 1994 and countersigned on January 31, 1995 between the Association and the Borrower. (m) "Settlement Technical Plan" means the plan to be developed by a Beneficiary Settlement Community for a Demonstration Project; (n) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; and (o) "Subsidiary Agreement" means one of the agreements to be entered into between the Borrower and each of the Councils pursuant to Section 3.02 (a) of this Agreement, as the same may be amended from time to time, and such term includes all schedules supplemental to the Subsidiary Agreement. ARTICLE H 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 twenty-one million three hundred thousand Special Drawing Rights (SDR 21,300,000). 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 described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Credit. (b) The Borrower may, for the purposes of the Project, open and maintain in dollars a special deposit account in a commercial bank acceptable to the Association on terms and conditions satisfactory to the Association, 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 5 to this Agreement. (c) Promptly after the Effective Date, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and pay to itself the amount required to repay the principal amount of the Project Preparation Advance withdrawn and outstanding as of such date and to pay all unpaid charges thereon. The unwithdrawn balance of the authorized amount of the Project Preparation Advance shall thereupon be canceled. Section 2.03. The Closing Date shall be December 31, 2001 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. -4- 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 Boirower from the Credit Account or canceled; 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. (c) 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 per cent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on March 1 and September 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 March I and September 1 commencing September 1, 2005 and ending March 1, 2035. Each installment to and including the installment payable on March 1, 2015 shall be one percent (1%) of such principal amount, and each installment thereafter 'hall be two percent (2%) of such principal amount. (b) Whenever: (i) the Borrower's gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years; and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due consideration by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid. If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit Withdrawn and outstanding from time to time, provided that, in the -5- judgment of the Association, such revision shall no 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 m 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: (i) shall carry out Parts A and C of the Project through the DISS with due diligence and efficiency and in conformity with appropriate administrative, urban management and water supply practices, and environmental norms, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project; and (ii) shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable the Councils to carry out Part B of the Project and shall not take or permit to be taken any action which would prevent, or interfere with, such performance. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Borrower and the Association shall otherwise agree, the Borrower shall carry out Parts A and C of the Project and cause the Councils to carry out Part B of the Project, all in accordance with the Implementation Program set out in Schedule 4 to this Agreement and with the Project Implementation Plan in a manner satisfactory to the Association. Section 3.02. (a) The Borrower shall enter into a Subsidiary Agreement with each of the Councils wishing to participate in, or benefit from, the implementation of activities under the Project as provided for in Part A of Schedule 4 to this Agreement. (b) For the purposes of Part B of the Project, the Borrower shall make the proceeds of the Credit available to the respective Council as a grant under the Subsidiary Agreement. (c) The Borrower shall exercise its rights under each Subsidiary Agreement in such manner as to protect the interests of the Borrower and the Association and to accomplish the purposes of the Credit, and except as the Association shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Agreement or any provision thereof. -6- Section 3.03. Except as the Association shall otherwise agree, procurement of the works and consultants' services required for the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to this Agreement. Section 3.04. Without limitation to its obligations under Section 3.01 of this Agreement, the Borrower shall for the purposes of Parts A and B of the Project: (a) open and maintain in Kwacha in the name of the DISS an account (the Project Account) in a commercial bank acceptable to the Association on terms and conditions satisfactory to the Association; (b) deposit into the Project Account an initial amount equivalent to $100,000; (c) thereafter, deposit into the Project Account not later than March 31, June 30, September 30 and December 31 in each year during the implementation of Parts A and B of the Project, the amount necessary to replenish the Project Account to the amount of $100,000 equivalent or such greater amount as may be required for the purposes of the Project; and (d) ensure that amounts deposited into the Project Account pursuant to paragraphs (b) and (c) above shall be used only to make payments to meet expenditures made or to be made in respect of the reasonable cost of works, goods and services for Parts A and B of the Project not financed or to be financed out of the proceeds of the Credit. Section 3.07. Without limitation upon the provisions of Article IX of the General Conditions, the Borrower shall: (a) prepare and furnish to the Association not later than six (6) months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Association, a plan, of such scope and in such detail as the Association shall reasonably request, for the future operation of the Project; (b) afford the Association a reasonable opportunity to exchange views with the Borrower on said plan; and (c) thereafter, carry out said plan with due diligence and efficiency and in accordance with appropriate practices, taking into account the Association's comments thereon. -7- ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of the Project of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section including those for the Special Account for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association, as soon as available, but in any case not later than 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, accounts and the audit thereof as the Association shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Association has received the audit report for the fiscal year in which the last withdrawal from the Credit Account or payment out of the Special Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during -8- 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 Association Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional events are specified: (a) A situation has arisen which shall make it improbable that the Program, or a significant part thereof, will be carried out. (b) As a result of events which have occurred after tht date of this Agreement, an extraordinary situation shall have arisen which shall make it improbable that the Councils, or any of them, will be able to perform their obligations under the Subsidiary Agreements. (c) The Local Government Act No. 22 of 1991 of the Laws of Zambia, or any other law of the Borrower, shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the operations or financial condition of any Council or its ability to carry out Part B of the Project, to benefit from Part A or C of the Project, or to perform any of its obligations under the respective Subsidiary Agreement. (d) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of any of the Councils or for the suspension of their operations. (e) (i) Subject to subparagraph (ii) of this paragraph: (A) the right of the Borrower to withdraw the proceeds of any loan or grant made to the Borrower for the financing of the Project shall have been suspended, canceled or terminated in whole or in part, pursuant to the terms of the agreement providing therefor, or (B) any such loan shall have become due and payable prior to the agreed maturity thereof. (ii) Paragraph (i) of this Section shall not apply if the Borrower establishes to the satisfaction of the Association that: (A) such suspension, cancellation, termination or pre-maturing is not caused by the failure of the Borrower to perform any of its obligations under such agreement; and (B) adequate funds for the Project are available to the Borrower from other sources on -9- terms and conditions consistent with the obligations of the Borrower under this Agreement. Section 5.02. Pursuant to Section 7.01 (d) of the General Conditions, the following additional events are specified: (a) any event specified in paragraph (c) or (d) of Section 5.01 of this Agreement shall occur; and (b) the event specified in paragraph (e) (i) (B) of Section 5.01 of this Agreement shall occur, subject to the proviso of paragraph (e) (ii) of that Section. ARTICLE VI Effective Date; Termination Section 6.01. 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 appointed the following staff to the DISS: a Director; an Assistant Director; a Principal Economist/Financial Specialist; and a Principal Engineer for Water and Sanitation; (b) the Borrower has appointed a community development specialist in accordance with the provisions of Section II of Schedule 3 to this Agreement to assist the DISS in the implementation of the Project; (c) the Borrower has adopted a Project Implementation Plan, satisfactory to the Association; (d) all conditions precedent to the initial disbursement of funds under the NORAD Grant Agreement have been satisfied with the exception of those relating to the effectiveness of this Agreement; and (e) The Borrower has entered into Subsidiary Agreements acceptable to the Association with at least two Councils. Section 6.02. 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 Subsidiary Agreements referred to in paragraph (d) of Section 6.01 to this Agreement have been duly authorized or ratified by, and are legally binding upon, the Borrower and the respective Councils in accordance with their respective terms. Section 6.03. 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 VII Representatives of the Borrower; Addresses Section 7.01. 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 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance P. 0. Box 50062 Lusaka, Zambia Cable address: Telex: MINFIN 42221 Lusaka Telefax: 222440 For the Association: International Development Association 1818 H Street, N.W. 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 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 ZAMBIA By /d/PUW*IWC Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By Regiona Vice Pr /~.4~i.qRegional Vice President *9 Africa -12- 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 13,000,000 90% (2) Consultants services and training 4,900,000 100% (3) Refunding of Project Preparation Advance 600,000 Amount due pursuant to Section 2.02 (c) of this Agreement (4) Unallocated 2Q800.000 TOTAL 21.300000 2. Notwithstanding the provisions of paragraph I above, no withdrawals shall be made: (a) in respect of payments made for expenditures prior to the date of this Agreement; (b) in respect of payments for expenditures under Category (1) until: (i) the Borrower has established the Project Account and deposited therein the initial amount referred to in Section 3.04 (b) of this Agreement; and (ii) for the first Demonstration Project to be carried out by a Council unless the Demonstration Project has been approved by the Association; (c) in respect of payments for expenditures within the jurisdiction, or for the benefit, of a Council unless the Council has entered into a Subsidiary Agreement acceptable to the Association, with the Borrower in accordance with the provisions of Part A of Schedule 4 tc this Agreement. - 13 - 3. The Association may require withdrawals from the Credit Account to be made on the basis of statements of expenditure for expenditures for works and services under contracts not exceeding $100,000 equivalent, under such terms and conditions as the Association shall specify by notice to the Borrower. -14- SCHEDULE 2 Description of the Project The objectives of the Project are to assist the Borrower: (a) to deal with severe water and sewage infrastructure deficiencies in key urban areas in its teitory; (b) to test out community-generated and managed water and sanitation sub-projects; and (c) to initiate broader institutional and financial reforms required to provide organizational incentives for investing in, operating and maintaining, infrastructure based on perceived needs and willingness to pay of residents. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: Water Supply and Sanitation Rehabilitation 1. Rehabilitation, replacement and management of water treatment facilities and equipment in order to ensure potability of water supplied to the urban centers of the Councils, excluding the City Council of Lusaka. 2. Provision of training to staff of the Councils, excluding the City Council of Lusaka, and to other personnel responsible for the operation and maintenance of the water distribution systems of such Councils, in leak detection and remedial measures. 3. Rehabilitation of the water treatment and distribution systems and of the sewage collection and treatment systems of the Councils, excluding the City Council of Lusaka. 4. Provision of training to staff of the Councils, excluding the City Council of Lusaka, and to other personnel responsible for the operation and maintenance of the water supply and sewage disposal facilities of such Councils, in essential operational and maintenance skills. Part B: Community Based Demonstration Projects Carrying out of community generated Demonstration Projects designed to extend water supply to low income communities in peri-urban areas within the jurisdiction of the City Council of Lusaka and the Copperbelt Councils. Part C: Reform and Capacity Building 1. Carrying out a study of the feasibility of commercially oriented organizations providing water supply and sanitation services in the areas within the jurisdiction of the Copperbelt Councils and recommending modalities for their establishment. -15- 2. Developing national and regional management strategies for water allocation, conservation and appropriate use, through carrying out of studies, including issuing recommendations and, if required, drafting appropriate environmental legislation. 3. Strengthening the capacity of the Councils in financial management by developing revenue enhancement action plans and systems improvement action plans including, if required, drafting legislation. 4. Carrying out a diagnostic study of the planning and resource allocation procedures 'of the Councils and developing appropriate capital investment programs for each Council for the next five years, including, if required, drafting enabling legislation. The Project is expected to be completed by June 30, 2001. -16- SCHEDULE 3 Procurement and Corsultants' Services Section 1. Procurement of Works Part A: General Works shall be procured in accordance with the provisions of Section I of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Association in January 1995 (the Guidelines) and the following provisions of this Section, as applicable. Part B: International Competitive Bidding 1. Except as otherwise provided in Part C of this Section, works shall be procured under contracts awarded in accordance with the provisions of Section II of the Guidelines and paragraph 5 of Appendix 1 thereto. 2. Preference for domestically manufactured goods and domestic contractors With respect to works to be procured under contracts awarded in accordance with the provisions of paragraph I of this Part B, the provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 2 thereto shall apply to goods manufactured in the territory of the Borrower and works to be carried out by domestic contractors. Part C: Other Procurement Procedures 1. National Competitive Bidding Works estimated to cost $500,000 equivalent or less per contract and $4,800,000 equivalent or less in the aggregate, may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. 2. National Shopping and Force Account Works estimated to cost $30,000 equivalent or less per contract and $4,500,000 equivalent or less in the aggregate, may be procured under lumpsum, fixed price contracts awarded on the basis of quotations obtained from three qualified domestic contractors in response to a written invitation. The invitation shall include a detailed description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to the Association and, where applicable, relevant drawings. The award shall be made to the contractor who offers the lowest price quotation for the required work, and who has the experience and resources to -17- successfully complete the contract. If such works meet the requirements of paragraph 3.8 of the Guidelines, they may be carried out by force account in accordance with the provisions of said paragraph of the Guidelines with the Association's prior agreement. Part D: Review by the Association of Procurement Decisions 1. Procurement Planning Prior to the issuance of any invitations to prequalify for bidding or to bid for contracts, the proposed procurement plan for the Project shall be furnished to the Association for its review and approval, in accordance with the provisions of paragraph I of Appendix 1 to the Guidelines. Procurement of all goods and works shall be undertaken in accordance with such procurement plan as shall have been approved by the Association, and with the provisions of said paragraph 1. 2. Prior Review With respect to each contract awarded under the provisions of paragraph 1 of Part B of this Schedule, and to the first three contracts awarded under the provisions of Paragraph 1 of Part C of this Schedule, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply. 3. Post Review With respect to each contract not governed by paragraph 2 of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply. Section II. Employment of Consultants 1. Consultants' services shall be procured under contracts awarded in accordance with the provisions of the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Association in August 1981 (the Consultant Guidelines). For complex, time-based assignments, such contracts shall be based on the standard form of contract for consultants' services issued by the Bank, with such modifications thereto as shall have been agreed by the Association. Where no relevant standard contract documents have been issued by the Bank, other standard forms acceptable to the Association shall be used. 2. Notwithstanding the provisions of paragraph I of this Section, the provisions of the Consultant Guidelines requiring prior Association review or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and -18- 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 individual consultants estimated to cost less than $50,000 equivalent each. 3. The exceptions to prior Association review 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 Association, (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. -19- SCHEDULE 4 Implementation Program Part A: Subsidiary Agreements 1. For the purposes of the Project, the Borrower, through MLGH, shall enter into a Subsidiary Agreement with each Council before commencing any works or provision of training or technical assistance within the jurisdiction, or for the benefit, of that Council. 2. The terms and conditions of the Subsidiary Agreements shall be subject to the Association's approval and shall include details of all implementation arrangements agreed between the parties thereto and rights adequate to protect the interests of the Borrower and the Association, including, inter alia, the following: (a) a description of the respective roles, responsibilities and obligations of each of the parties under the Subsidiary Agreement; (b) the financial management, accounting and reporting requirements of the Councils, including the obligation of the Council to report on the progress in implementing Demonstration Projects under Part B of the Project; (c) the financial, legal and contractual obligations of each of the parties to the Subsidiary Agreement; and (d) the requirement that the Council shall maintain competent staff in adequate numbers to ensure the smooth operation of the Project in the areas within its jurisdiction. For the purposes of Part A of the Project: (e) that the Councils shall, for the duration of the Project, protect informal settlements within their jurisdiction from demolition of dwellings except in cases where such demolition is required for the provision of essential services or for health and safety reasons; and, in any event, shall not demolish any dwellings inhabited by settlement communities without prior consultation with the Association; and shall ensure that any demolition is conducted in accordance with resettlement plans which shall have been approved by the Borrower and the Association; (f) that the Council shall, if necessary and in cooperation with MLGH, take all actions within its authority to enable the legalization of the Beneficiary Settlement Communities within its jurisdiction. -20- For the purposes of Part B of the Project (g) that the Councils shall follow the procedures set out in Part B of this Schedule in the preparation, appraisal, approval and implementation of Demonstration Projects; (h) that the Council shall carry out each Demonstration Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and maintain adequate records; (i) that the funds provided to the Councils by the Borrower to finance Demonstration Projects shall not be used for any other purpose and that the civil works to be financed out of the proceeds of the Credit for the Demonstration Projects shall be procured in accordance with the provisions of Schedule 3 to this Agreement; (j) that the Council shall allow the DISS to inspect, by itself or jointly with the Association, the sites, works, plant and construction included in the Demonstration Project, the operation thereof and any relevant records and documents; (k) that the Council shall provide to the DISS all such information as the DISS or the Association shall reasonably request regarding the administration, operations and financial condition of the Demonstration Project and the benefits to be derived therefrom; (1) that the DISS shall have the right to suspend or terminate the right of the Council to use the proceeds of the Credit for the Demonstration Project upon failure by the Council to perform any of its respective obligations under the Subsidiary Agreement; (m) an agreed formula for adjusting budget and works allocations based on actual performance; and (n) that Demonstration Projects shall be financed on the following terms and conditions: (i) financing shall be provided on a grant basis; (ii) the Borrower shall finance no more than $25 per capita for each Demonstration Project, or such other larger amount as may be set by the Association upon the request of the Borrower. Any costs above that amount shall be borne by the Beneficiary Settlement Community; and (iii) no payments shall be made out of the proceeds of the Credit for a Demonstration Project until the Beneficiary Settlement Community has paid to the contractor all investment costs to be borne by the Beneficiary Settlement Community. -21- Part B: Procedures for carrying out Part B of the Project Except as the Association shall otherwise agree, the Borrower shall adopt the following procedures in carrying out Part B of the Project: 1. The following criteria shall be utilized in the selection of Demonstration Projects: (a) The Beneficiary Settlement Community must have no reliable connection to a formal water supply system and must reside in an informal peri-urban area. (b) The Beneficiary Settlement Community must either have formed an existing community organization with the capacity to develop a Settlement Technical Plan or be willing to work with one or more Project Design and Training Consultants for that purpose. (c) The Beneficiary Settlement Community must be able and willing to finance the investment cost of the Demonstration Project above the amount to be financed under the Credit in accordance with Paragraph 2 (n) (ii) of Part A of this Schedule and to undertake the post-investment operation and maintenance of the Demonstration Project in a manner acceptable to the Borrower and the Association. (d) The Beneficiary Settlement Community must have played a key role in the design of the Demonstration Project, and must be willing and able to play a key role in the implementation, monitoring and management of the Demonstration Project. (e) The Demonstration Project must be within the technical, financial and managerial capacity of the Beneficiary Settlement Community. 2. The following procedures shall be followed in approving and processing Demonstration Projects: (a) The DISS shall, in consultation with the Councils, select and appoint one or more Project Design and Training Consultants in accordance with the provisions of Section II of Schedule 3 to this Agreement to assist the Beneficiary Settlement Communities to prepare Settlement Technical Plans. (b) Each Beneficiary Settlement Community shall prepare a Settlement Technical Plan for the Demonstration Project with the assistance of the Councils and, if required, the Project Design and Training Consultant. The Settlement Technical Plan shall include: (i) a description of the Demonstration Project with cost, including contingencies; -22- (ii) information on the beneficiaries, including proof of their ability to undertake the post-investment operation and maintenance responsibilities and, where required, to finance the investment cost of the Demonstration Project above the amount to be financed under the Credit; and (iii) a statement of the post investment operation and maintenance arrangements for the Demonstration Project. (c) The Settlement Technical Plan shall be submitted to the relevant Council for appraisal, evaluation, review and approval. (d) The Council shall submit all Settlement Technical Plans approved by it to the DISS. The Council shall include evidence that it has the legal authority and logistical capacity to carry out the Demonstration Project. (e) The DISS shall submit the first Settlement Technical Plan reviewed by it from each Council to the Association for approval. 3. The Council having jurisdiction over the Beneficiary Settlement Community shall carry out the Demonstration Project in collaboration with the Beneficiary Settlement Community. 4. MLGH, in cooperation with the relevant Council, shall take all actions within its authority to enable the legalization of the Beneficiary Settlement Communities. Part C Policy Seminar Without limitation upon the provisions of Section 9.06 of the General Conditions, the Borrower shall, by July 31, 1996, conduct a seminar (the Policy Seminar) to review the progress of Parts B and C. I of the Project. The Policy Seminar shall review, among other things: (a) the institutional structures for the water sector; (b) the business plan related to the institutional structure for the water sector; (c) the water tariff structure; (d) an assessment of the effectiveness of Part C. 1 of the Project and a decision as to remedial steps required to correct any shortcomings; and (e) an initial assessment of the impact of Part B of the Project. -23- Part D: Mid-Term Review 1. The Borrower shall carry out, jointly with the Association, not earlier than 21 months and not later than 27 months after the Effective Date, a review (the Mid-Term Review) of the progress made in carrying out the Project. The Mid-Term Review shal cover, among other things: (a) Project monitoring: an evaluation of the Project monitoring and evaluation system and of the performance of the Councils and the DISS against the monitoring and evaluation benchmarks agreed upon between the Borrower and the Association; (b) Part A of the Project: an assessment of completed works and of the performance of contractors under the construction, management and training contracts, and an evaluation of the timing and transition arrangements for handing over management of the facilities to the entities referred to in paragraph (d) below, or the Councils; (c) Part B of the Project: an assessment of completed and ongoing Demonstration Projects, including a decision on whether to expand the program to additional settlements and/or cities, and how to incorporate lessons learned regarding demand-based planning and participatory processes into a wider range of municipal planning management activities; (d) Part C. I of the Project: an evaluation of the progress achieved in establishing commercially-oriented water supply and sanitation organization(s) including implications for overall municipal management; (e) Part C. 2 of the Project: an assessment of the status of legislative reform and of the procedures in place for incorporating environmental concerns into municipal planning and management; (f) Part C.2 of the Project: an evaluation of the status of development of a water resource strategy and of baseline data for monitoring water quality and use; (g) Part C. 3 of the Project: an assessment of progress to date and identification of further training needs; (h) Part C. 4 of the Proiect: an evaluation of progress on reforms identified and of status of implementation; and (i) Part C. 5 of the Project: a review of the status of the capital investment plans of the Councils and an assessment of their suitability for a follow-up project. -24- 2. The Borrower shall, at least four (4) weeks prior to the Mid-Term Review, furnish to the Association a report describing the status of the items listed in paragraph I above and of Project implementation generally. 3. The Borrower shall, not later than four (4) weeks after the Mid-Term Review, prepare an action program, acceptable to the Association, for the further implementation of the Project having due regard to the findings of the Mid-Term Review and, thereafter, implement such action program. -25 - SCHEDULE 5 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1) and (2) set forth in the table in paragraph I 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 $1,500,000 to be withdrawn from the Credit Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule, provided, however, that unless the Association shall otherwise agree, the Authorized Allocation shall be limited to an amount equivalent to $ 800,000 until the aggregate amount of withdrawals from the Credit Account plus the total amount of all outstanding special commitments entered into by the Association pursuant to Section 5.02 of the General Conditions shall be equal to or exceed the equivalent of $10,000,000. 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 -26- 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 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; (b) if the Borrower shall have failed to furnish to the Association, 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 Association pursuant to said Section in respect of the audit of the records and accounts for the Special Account; (c) if, at any time, the Association shall have notified the Borrower of its intention to suspend in whole or in part the right of the Borrower to make withdrawals from the Credit Account pursuant to the provisions of Section 6.02 of the General Conditions; or (d) 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 General Conditions with respect to the Project, 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 allocated to the eligible Categories shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be -27- 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; 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 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, 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