Conformed Copy - C1881 - Education Sector Development Project - Development Credit Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 1881 BU (Education Sector Development Project) between REPUBLIC OF BURUNDI and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated March 28, 1988 CREDIT NUMBER 1881 BU DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated March 28, 1988, between REPUBLIC OF BURUNDI (the "Borrower") and INTERNATIONAL DEVELOPMENT ASSOCIATION (the "Association"). WHEREAS (A) the Association has received a letter dated December 2, 1987 from the Borrower describing a program of policies, goals and actions designed to achieve an adjustment of the Borrower's education sector (the "Program") and declaring the Borrower's commitment to the execution of the Program; (B) the Borrower, having committed itself to the execution of the Program and, as part of the Program, having undertaken to carry out the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (C) the Borrower has obtained from the United Nations Development Program ("UNDP") a grant (the "UNDP Grant") in an aggregate amount of five hundred Page 2 ninety-nine thousand three hundred eighty-nine dollars ($599,389) to assist in financing part of the Project on the terms and conditions set forth in two agreements (the "UNDP Grant Agreements") entered into between the Borrower and UNDP on June 30, 1987 and December 4, 1987, respectively; and (D) the Borrower has obtained from the United Nations Children's Fund ("UNICEF") a grant (the "UNICEF Grant") in an amount of one million dollars ($1,000,000) to assist in financing part of the Project on the terms and conditions set forth in a letter (the "UNICEF Grant Letter") dated October 29, 1987 from UNICEF to the Borrower; 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 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) "BPE" means Bureau des Projets Education, the Education Project Unit of the Borrower's Ministry of Education, having the task, inter alia, of monitoring and evaluating execution of the Project; (b) "DCS" means Direction des Constructions Scolaires, the School Construction Unit of BPE to be established within BPE with the task of constructing and maintaining the Borrower's education facilities; (c) "DPE" means Direction de la Planification de l'Education, the Directorate of Educational Planning of the Borrower's Ministry of Education, having the task, inter alia, of monitoring and implementing the Borrower's education development plans; (d) "MEN" means Ministere de l'Education Nationale, the Borrower's Ministry of Education; (e) "PEP" means the Borrower's three-year rolling Public Expenditure Program encompassing all public expenditures for the education sector for each succeeding three-year period; (f) "PIP" means the Borrower's three-year rolling Public Investment Program encompassing all investment expenditures included in a given PEP; (g) "Project Preparation Advance" means the advance granted by the Association to the Borrower pursuant to an exchange of letters dated May 12, 1987 and June 18, 1987 between the Borrower and the Association; (h) "RPP" means Regie des Productions Pedagogiques, the Borrower's entity responsible for the editing, printing and distributing of educational materials to the schools in the Borrower's territory; and (i) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement. ARTICLE II Page 3 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 Development Credit Agreement, an amount in various currencies equivalent to twenty-three million Special Drawing Rights (SDR 23,000,000). 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 shall, for the purposes of the Project, open and maintain in dollars a special account in the Bank of the Republic of Burundi 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 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 cancelled. Section 2.03. The Closing Date shall be June 30, 1994 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 at the rate of one-half of one percent (1/2 of 1%) per annum on the principal amount of the Credit not withdrawn from time to time. The commitment charge shall accrue from a date sixty days after the date of the Development Credit Agreement to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or shall be cancelled. (b) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on February 1 and August 1 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each February 1 and August 1 commencing August 1, 1998 and ending February 1, 2028. Each installment to and including the installment payable on February 1, 2008, shall be one percent (1%) of such principal amount, and each installment thereafter shall 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 Page 4 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. The Borrower 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 MEN with due diligence and efficiency and in conformity with appropriate administrative, financial and educational practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 3.02. (a) The Borrower and the Association shall, from time to time, and in any case not later than March 31 of each year, starting on March 31, 1989, exchange views on the progress achieved in carrying out the Program and the actions specified in Schedule 3 to this Agreement. (b) Prior to each such exchange of views, the Borrower shall furnish to the Association for its review and comments a report on the progress achieved in carrying out the Program, in such detail as the Association shall reasonably request. Section 3.03. In order to carry out Part B of the Project, the Borrower shall: (a) not later than September 30, 1988 submit to the Association the PIP for the years 1989 through 1991 with terms and conditions satisfactory to the Association; (b) not later than December 31, 1988, submit to the Association the PEP for the same years indicated in subparagraph (a) above with terms and conditions satisfactory to the Association; (c) not later than September 30 and December 31, respectively, of each year thereafter until Project completion, submit to the Association the revised PIP and PEP with terms and conditions satisfactory to the Association; and (d) ensure that any new investment in the education sector, not included in the PIPs, and worth more than $500,000, be previously reviewed and agreed with the Association regardless of the source of financing of such investment. Section 3.04. In order to carry out Parts B and C of the Project, the Borrower shall: (a) reorganize BPE by establishing DCS; (b) select candidates for fellowships for training abroad in accordance with criteria agreed upon with the Association; and (c) make all the necessary arrangements to retain the services of such candidates upon completion of their studies. Section 3.05. In order to carry out Part D of the Project, the Borrower shall: (a) not later than September 30 of each year until Project completion and beginning with September 30, 1988, submit to the Association an annual school Page 5 construction plan indicating, inter alia, the number and sites of schools to be built in accordance with the existing school maps for the following calendar year; (b) under the responsibility of MEN's Department of Planning, with the assistance of BPE, control and monitor the use of maintenance funds by the local community administrators to provide financing for primary schools and by the school principals for secondary schools; (c) ensure that a sufficient percentage of parents' contributions be reserved for primary school maintenance financing; and (d) ensure that adequate funds from the annual secondary school budget be reserved for secondary schools maintenance. Section 3.06. Except as the Association 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 Credit shall be governed by the provisions of Schedule 4 to this Agreement. 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 for the fiscal year in which the last withdrawal from the Credit 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 such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related Page 6 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) 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 the Program, or a significant part thereof, will be carried out. (b) Subject to subparagraph (c) of this paragraph, the right of the Borrower to withdraw the proceeds of any of the UNDP Grant or the UNICEF Grant shall have been suspended, cancelled or terminated in whole or in part, pursuant to any of the UNDP Grant Agreements or the UNICEF Grant Letter, as the case may be. (c) Subparagraph (b) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association that: (i) such suspension, cancellation or termination is not caused by the failure of the Borrower to perform any of its obligations under such agreement; and (ii) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Borrower has submitted a PEP for the years 1988 through 1990 and the corresponding financial plan for the year 1988 with terms and conditions satisfactory to the Association; and (b) the Borrower has reorganized BPE by establishing DCS in due form. 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. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister of the Borrower at the time responsible for Education 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: Ministere de l'Education Nationale B.P. 1990 Bujumbura Republique du Burundi Cable address: Telex: MINEDUC 5166 MINEDUC BDI Page 7 Bujumbura For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) 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 BURUNDI By /s/ Edouard Kadigiri Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Paul Isenman Acting Regional Vice President Africa 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) Phase I of 2,200,000 100% primary school civil works, furniture, equip- ment, building materials and construction operating costs of DCS relating thereto (2) Phase II of 2,200,000 100% of primary school civil works, Page 8 furniture, equip- ment, building materials and construction operating costs of DCS relating thereto (3) Phase I of 5,600,000 100% secondary school civil works, furniture, equipment, building materials and construction operating costs of DCS relating thereto (4) Phase II of 4,000,000 100% secondary school civil works, furniture, equipment, building materials and construction operating costs of DCS relating thereto (5) Furniture, 2,600,000 100% equipment, mate- rials, vehicles, textbooks and operating costs not included in the primary and secondary school components (6) Technical 2,600,000 100% Assistance and training not included in the primary and secondary school com- ponents (7) Education 150,000 100% related studies (8) Project Administration: (a) operating 150,000 100% costs (b) salaries 150,000 50% (9) Higher education 1,100,000 100% scholarships for the 1987-1988 academic year Page 9 (10) Refunding of 220,000 Amount due pur- Project Prepara- suant to Section tion Advance 2.02 (c) of this Agreement (11) Unallocated 2,030,000 __________ TOTAL 23,000,000 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; and (b) under Categories 2 and 4 of paragraph 1 above, unless the Association shall be satisfied, after an exchange of views as described in Section 3.02 of this Agreement based on evidence satisfactory to the Association: (i) with the progress achieved by the Borrower in the carrying out of the Program; and (ii) that the actions described in Schedule 3 to this Agreement have been taken. SCHEDULE 2 Description of the Project The objectives of the Project are: (i) to implement measures to control education costs to facilitate the sector's adjustment; (ii) to strengthen MEN's planning, budgeting and cost-control capacity; (iii) to improve the quality and efficiency of education at the primary and general secondary levels; and (iv) to improve access to education. 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: Education Costs Helping MEN to defray temporary cost increases relating to the granting of higher education scholarships in the academic year 1987-1988. Part B: Strengthening of MEN's Capabilities. 1. Strengthening of DPE to implement and monitor the Program and to prepare subsequent sectoral adjustment plans and cost-effectiveness measures, including the preparation of PEPs and PIPs and education related studies. 2. Strengthening and coordination of school administration and planning including: (a) familiarization of regional inspectors and primary and secondary school headmasters with their responsibilities and provision of training support; (b) granting of fellowships for training abroad; (c) establishment of regional coordinating committees to monitor in-service teacher training; and (d) organization within BPE of DCS and of a Project Coordination Unit. Part C: Improvement of the Quality and Efficiency of Education. 1. Strengthening of the role of inspectors, teacher trainers and headmasters in providing teachers with pedagogical and administrative support. 2. Training of primary education teachers including: (a) in-service training; (b) weekly seminars; (c) three-month upgrading courses; (d) on-the-job monitoring by inspectors and headmasters; and (e) supply of teacher guides. 3. Training of secondary education teachers including: (a) in-service training seminars and training sessions; (b) on-the-job monitoring by education specialists; (c) supply of teacher guides; and (d) equipment and supplies for the teaching of Page 10 physical sciences. 4. Improvement of science and technology instruction in the secondary schools by the supply of adequate facilities and equipment. 5. Strengthening of RPP including the supply of equipment and materials. 6. Granting of fellowships to primary and secondary education specialists for training abroad. Part D: Access to Education. 1. Strengthening of MEN's school construction, rehabilitation and maintenance capacity, through the reorganization of BPE. 2. Primary school construction and rehabilitation, including: (a) construction, furniture and equipment of rural primary schools; (b) construction, furniture and equipment of about six urban primary schools in the following centers: Gitega, Ngozi, Kayanza, Rumonge and Bujumbura (Gasenyi and Kanyosha suburbs); and (c) rehabilitation of existing primary schools. 3. Secondary school construction and rehabilitation including: (a) building of three lower secondary schools; and (b) renovation of about 10 existing secondary schools. 4. Implementation and monitoring of a school maintenance program. * * * Parts D.2 and D.3 are to be implemented in two phases. The first will include: (i) construction of rural primary schools and rehabilitation of primary and secondary schools up to an amount corresponding to 50% of the amount of the credit allocated to Categories (1) through (4) of Schedule 1 hereof; and (ii) construction of two secondary schools. The second phase will include the remaining construction and rehabilitation work both for primary and secondary schools. * * * The Project is expected to be completed by December 31, 1993. SCHEDULE 3 Actions referred to in Paragraph 3 (b) of Schedule 1 to this Agreement 1. Reduction in real terms of the budgetary cost per student by 9.5% at the primary level, 7% at the general secondary level, 7.5% at the technical secondary level and 10% at the higher level in relation to the 1986-1987 costs. 2. Restructuring of the education budget by changing the distribution of actual public expenditures, as follows: (a) increase in primary education from 45% to 50%; (b) reduction in secondary education from 30% to 28%; and (c) reduction in higher education from 22% to 20%. SCHEDULE 4 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: International Competitive Bidding 1. Except as provided in Part D hereof, goods and works 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 1985 (the "Guidelines"). Page 11 2. To the extent practicable, contracts shall be grouped in bid packages estimated to cost the equivalent of $50,000 or more each. Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A.1 hereof, goods manufactured in the Borrower's territory 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: Preference for Domestic Contractors In the procurement of works in accordance with the procedures described in Part A.1 hereof, the Borrower may grant a margin of preference to domestic contractors in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraph 5 of Appendix 2 thereto. Part D: Other Procurement Procedures 1. Civil works, furniture, building materials, equipment, vehicles and textbooks which could not be grouped in bid packages of more than the equivalent of $50,000 may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with the Borrower's applicable procedures and paragraph 3.3 of the Guidelines, up to an aggregate amount not to exceed the equivalent of $600,000. 2. Civil work contracts for primary schools (with exclusion of the building materials and equipment relating thereto) may be procured under force accounts, in accordance with paragraph 3.6 of the Guidelines, to local communities acting under the supervision of DCS. 3. Civil works contracts for primary schools, in an amount not to exceed the equivalent of $2,500,000 and of not less than $2,000,000, shall be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with the Borrower's procedures and paragraph 3.3 of the Guidelines, provided, however, that works for which no substantially responsive bids have been received or there is a lack of effective competition may be carried out by force accounts in accordance with paragraph 2 above. 4. Civil works contracts for secondary schools (with the exclusion of the building materials and equipment relating thereto) may be procured to DCS under force accounts, in accordance with paragraph 3.6 of the Guidelines, and DCS may subcontract them up to an aggregate amount not to exceed $800,000 on the basis of competitive bidding, advertised locally, in accordance with the Borrower's procedures and paragraph 3.3 of the Guidelines. 5. Civil works contracts for secondary schools in an amount not to exceed the equivalent of $5,000,000 and of not less than $4,000,000 shall be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with the Borrower's procedures and paragraph 3.3 of the Guidelines, provided, however, that works for which no substantially responsive bids have been received or there is a lack of effective competition may be carried out by force accounts, in accordance with paragraph 4 above. 6. Items which cannot be grouped, or groups of items, estimated to cost less than the equivalent of $20,000 per contract, up to an aggregate amount not to exceed $200,000, may be procured under contracts awarded on the basis of comparison of price quotations solicited from a list of at least three suppliers eligible under the Guidelines, in accordance with paragraph 3.4 of the Guidelines. Part E: Review by the Association of Procurement Decisions 1. (a) With respect to each contract for civil works estimated to cost the equivalent of $500,000 or more and to each contract for furniture, building materials, equipment, vehicles and textbooks estimated to cost the equivalent of $50,000 or more, 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 Page 12 Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Association pursuant to said paragraph 2 (d) shall be furnished to the Association 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, such procedures shall be modified to ensure that the two conformed copies of the contract together with the other information required to be furnished to the Association pursuant to said paragraph 3 shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 5 to this Agreement. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Association has authorized withdrawals from the Credit Account on the basis of statements of expenditure. Such contracts shall be retained in accordance with Section 4.01 (c) (ii) of this Agreement. 2. The figure of 10% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants and Experts In order to assist the Borrower in carrying out the Project, the Borrower shall employ consultants and experts whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. Such consultants and experts shall be selected in accordance with principles and procedures satisfactory to the Association 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. SCHEDULE 5 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1) through (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 $500,000 to be withdrawn from the Credit Account and deposited in the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Except as the Association shall otherwise agree, 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 may be made as follows: (a) On the basis of a request or requests by the Borrower for a deposit or deposits which add up to the aggregate amount of the Authorized Allocation, 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) The Borrower shall furnish to the Association requests for replenishment of the Special Account at such intervals as the Association shall specify. On the basis of such requests, the Association shall withdraw from the Credit Account and Page 13 deposit into the Special Account such amounts as shall be required to replenish the Special Account with amounts not exceeding the amount of payments made 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 the evidence supporting the request for such deposit furnished pursuant to paragraph 4 of this Schedule. 4. For each payment made by the Borrower out of the Special Account for which the Borrower requests replenishment pursuant to paragraph 3 (b) of this Schedule, the Borrower shall furnish to the Association, prior to or at the time of such request, such documents and other evidence as the Association shall reasonably request, showing that such payment was made for eligible expenditures. 5. (a) Notwithstanding the provisions of paragraph 3 of this Schedule, no further deposit into the Special Account shall be made by the Association when either of the following situations first arises: (i) 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) the total unwithdrawn amount of the Credit allocated to the eligible Categories minus 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 be equal to 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 any expenditure or in any amount not eligible pursuant to paragraph 2 of this Schedule, or (ii) was not justified by the evidence furnished pursuant to paragraph 4 of this Schedule, the Borrower shall, promptly upon notice from the Association 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. No further deposit by the Association into the Special Account shall be made until the Borrower has made such deposit or refund. (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 for crediting to the Credit Account.