Page 1 CONFORMED COPY CREDIT NUMBER 3568-1-AM Financing Agreement (Additional Financing for Irrigation Development Project) between REPUBLIC OF ARMENIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated September 19, 2007 Page 2 2 Page 3 FINANCING AGREEMENT Agreement dated September 19, 2007, entered into between REPUBLIC OF ARMENIA ( “Recipient”) and INTERNATIONAL DEVELOPMENT ASSOCIATION (“Association”) for the purpose of providing additional financing for activities related to the Original Project (as defined in the Appendix to this Agreement). The Recipient and the Association hereby agree as follows: ARTICLE I - GENERAL CONDITIONS; DEFINITIONS 1.01. The General Conditions (as defined in the Appendix to this Agreement) constitute an integral part of this Agreement. 1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the General Conditions or in the Appendix to this Agreement. ARTICLE II - FINANCING 2.01. The Association agrees to extend to the Recipient, on the terms and conditions set forth or referred to in this Agreement, a credit in an amount equivalent to three million three hundred thousand Special Drawing Rights (SDR 3,300,000) (variously, “Credit” and “Financing”) to assist in financing the project described in Schedule 1 to this Agreement (“Project”). 2.02. The Recipient may withdraw the proceeds of the Financing in accordance with Section IV of Schedule 2 to this Agreement. 2.03. The Maximum Commitment Charge Rate payable by the Recipient on the Unwithdrawn Financing Balance shall be one-half of one percent (1/2 of 1%) per annum. 2.04 The Service Charge payable by the Recipient on the Withdrawn Credit Balance shall be equal to three-fourths of one percent (3/4 of 1%) per annum. 2.05. The Payment Dates are January 15 and July 15 in each year. 2.06. The principal amount of the Credit shall be repaid in accordance with the repayment schedule set forth in Schedule 3 to this Agreement. Page 4 2 2.07. The Payment Currency is United States Dollars. ARTICLE III - PROJECT 3.01. The Recipient declares its commitment to the objectives of the Project. To this end, the Recipient shall carry out the Project through the PIU in accordance with the provisions of Article IV of the General Conditions. 3.02. Without limitation upon the provisions of Section 3.01 of this Agreement, and except as the Recipient and the Association shall otherwise agree, the Recipient shall ensure that the Project is carried out in accordance with the Procedures for Implementation for the Rehabilitation Program and the provisions of Schedule 2 to this Agreement. ARTICLE IV - TERMINATION 4.01. The Effectiveness Deadline is the date one hundred twenty (120) days after the date of this Agreement. ARTICLE V - REPRESENTATIVE; ADDRESSES 5.01. The Recipient’s Representative is the Minister of Finance and Economy. 5.02. The Recipient’s Address is: 1 Melik-Adamyan Street Republic Square Yerevan 375010 Republic of Armenia Telex: 243331 LADA SU 5.03. The Association’s Address is: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Page 5 3 Cable: Telex: Facsimile: INDEVAS 248423 (MCI) 1-202-477-6391 Washington, D.C. AGREED at Yerevan, Republic of Armenia, as of the day and year first above written. REPUBLIC OF ARMENIA By /s/ Vardan Khachatryan Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Aristomene Varoudakis Authorized Representative Page 6 4 SCHEDULE 1 Project Description The objective of the Project is to contribute to improvements in the standard of living in rural Armenia through enhanced profitability and sustainability of irrigated agriculture. The Project consists of the Original Project and the following additional part: Part E : Provision of works and c onsultants’ services for the rehabilitation of tertiary canals and training and technical assistance for the WUAs, including their annual audit. Page 7 5 SCHEDULE 2 Project Execution Section I. Implementation Arrangements A. Institutional Arrangements 1. The Recipient shall maintain the PIU until completion of the Project, with staff, resources and terms of reference satisfactory to the Association, and assign to it responsibility for overall management of Project implementation and coordination, including: (a) preparation of disbursement applications under the Credit; (b) management of the Designated Account; (c) maintenance of records and accounts related to the Project and arranging for the audit thereof; (d) preparation of bidding documents and participation in administration of bidding procedures and of contracts under the Project; (e) preparation of quarterly progress reports and submission thereof to the Recipient and the Association in accordance with Section II.A. of this Schedule, the first such report to be furnished to the Association not later than December 31, 2007; and (f) management and supervision of all Project activities. 2. The Recipient shall maintain the Project Management Board until completion of the Project with composition and responsibilities satisfactory to the Association. B. Anti-Corruption The Recipient shall ensure that the Project is carried out in accordance with the provisions of the Anti-Corruption Guidelines. C. Safeguards The Recipient shall ensure that all measures necessary for the carrying out of the EMP shall be taken in a timely manner and shall include adequate information on Page 8 6 the carrying out of such measures in the Project Reports referred to in Section II.A. of this Schedule. Section II. Project Monitoring, Reporting and Evaluation A. Project Reports The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 4.08 of the General Conditions and on the basis of the indicators agreed with the Association. Each Project Report shall cover the period of one calendar quarter, and shall be furnished to the Association not later than one month after the end of the period covered by such report. B. Financial Management, Financial Reports and Audits 1. The Recipient shall maintain or cause to be maintained a financial management system in accordance with the provisions of Section 4.09 of the General Conditions. 2. Without limitation on the provisions of Part A of this Section, the Recipient shall prepare and furnish to the Association not later than forty-five (45) days after the end of each calendar quarter, interim unaudited financial reports for the Project covering the quarter, in form and substance satisfactory to the Association. 3. The Recipient shall have its Financial Statements audited in accordance with the provisions of Section 4.09 (b) of the General Conditions. Each audit of the Financial Statements shall cover the period of one fiscal year of the Recipient, commencing with the fiscal year in which the first withdrawal under the Project Preparation Advance was made. The audited Financial Statements for each such period shall be furnished to the Association not later than six (6) months after the end of such period. 4. The Recipient shall cause the WUAs to prepare their Financial Statements to reflect their operations and financial condition and to register separately the operations, resources and expenditures of the WUAs related to the Project. The Recipient shall have the Financial Statements of the WUAs audited in accordance with the provisions of Section 4.09 (b) of the General Conditions. Each audit of the Financial Statements of the WUAs shall cover the period of one fiscal year of the Recipient, commencing with the fiscal year in which the first withdrawal under the Project Preparation Advance was made. The audited Financial Statements of the WUAs for each such period shall be furnished to the Association not later than six (6) months after the end of such period. Page 9 7 Section III. Procurement A. General 1. Works. All works required for the Project and to be financed out of the proceeds of the Financing shall be procured in accordance with the requirements set forth or referred to in Section I of the Procurement Guidelines, and with the provisions of this Section. 2. Consultants’ Services. All consultants’ services required for the Project and to be financed out of the proceeds of the Financing shall be procured in accordance with the requirements set forth or referred to in Sections I and IV of the Consultant Guidelines, and with the provisions of this Section. 3. Definitions. The capitalized terms used below in this Section to describe particular procurement methods or methods of review by the Association of particular contracts, refer to the corresponding method described in the Procurement Guidelines, or Consultant Guidelines, as the case may be. B. Particular Methods of Procurement of Works 1. International Competitive Bidding. Except as otherwise provided in paragraph 2 below, works shall be procured under contracts awarded on the basis of International Competitive Bidding. 2. Other Methods of Procurement of Works. The following table specifies the methods of procurement, other than International Competitive Bidding, which may be used for works. The Procurement Plan shall specify the circumstances under which such methods may be used: Procurement Method (a) National Competitive Bidding, subject to the following additional provisions: (i) entities in which the Recipient owns a majority shareholding shall not be invited to participate in tenders for the Government unless they are and can be shown to be legally and financially autonomous and operate under commercial law; (ii) pre-qualification shall be conducted for large works projects; (iii) pre- and post-qualification criteria shall only pertain to past contract performance, financial, managerial and technical capabilities of bidders; ( iv) j oint venture partners shall be jointly and severally liable for Page 10 8 their obligations; (v) estimated contract prices shall not be advertised; (vi) no bids shall be rejected at bid opening; (vii) no bids shall be rejected solely because they exceed the estimated price. Bids can be cancelled and new bids invited, only if the conditions of clause 2.61 of the Procurement Guidelines are met; (viii) all bid evaluation criteria shall be quantifiable in monetary terms or expressed as a pass/fail criteria; and (ix) advance Association approval is required for any modifications in the contract scope/conditions during implementation. (b) Shopping (c) Direct Contracting C. Particular Methods of Procurement of Consultants’ Services 1. Quality- and Cost-based Selection. Except as otherwise provided in paragraph 2 below, consultants’ services shall be procured under contracts awarded on the basis of Quality and Cost-based Selection. 2. Other Methods of Procurement of Consultants’ Services . The following table specifies methods of procurement, other than Quality and Cost-based Selection, which may be used for consultants’ services. The Procurement Plan shall specify the circumstances under which such methods may be used. Procurement Method (a) Least Cost Selection (b) Selection based on Consultants’ Qualifications (c) Single-source Selection (d) Procedures set forth in paragraphs 5.2 and 5.3 of the Consultant Guidelines for the Selection of Individual Consultants (e) Sole Source Procedures for the Selection of Individual Consultants Page 11 9 D. Review by the Association of Procurement Decisions The Procurement Plan shall set forth those contracts which shall be subject to the Association’s Prior Review. All other contracts shall be subject to Post Review by the Association. Section IV. Withdrawal of the Proceeds of the Financing A. General 1. The Recipient may withdraw the proceeds of the Financing in accordance with the provisions of Article II of the General Conditions, this Section, and such additional instructions as the Association shall specify by notice to the Recipient (including the “World Bank Disbursement Guidelines for Projects” dated May 2006, as revised from time to time by the Association and as made applicable to this Agreement pursuant to such instructions), to finance Eligible Expenditures as set forth in the table in paragraph 2 below. 2. The following table specifies the categories of Eligible Expenditures that may be financed out of the proceeds of the Financing (“Category”), the allocations of the amounts of the Financing to each Category, and the percentage of expenditures to be financed for Eligible Expenditures in each Category: Category Amount of the Financing Allocated (expressed in SDR) Percentage of Expenditures to be Financed (Inclusive of Taxes) (1) Works 2,530,000 85% (2) Consultants’ Services and Training 100,000 100% (3) Refund of Project Preparation Advance 670,000 Amount payable pursuant to Section 2.07 of the General Conditions TOTAL AMOUNT 3,300,000 Page 12 10 B. Withdrawal Conditions; Withdrawal Period 1. Notwithstanding the provisions of Part A of this Section, no withdrawal shall be made for payments made prior to the date of this Agreement. 2. The Closing Date is March 31, 2009. Page 13 11 SCHEDULE 3 Repayment Schedule Date Payment Due Principal Amount of the Credit repayable (expressed as a percentage)* On each January 15 and July 15, commencing January 15, 2018 to and including July 15, 2027: 5% _______________________ * The percentages represent the percentage of the principal amount of the Credit to be repaid, except as the Association may otherwise specify pursuant to Section 3.03 (b) of the General Conditions. Page 14 12 APPENDIX Definitions 1. “Anti-Corruption Guidelines” means the “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated October 15, 2006. 2. “Category” means a category set forth in the table in Section IV of Schedule 2 to this Agreement. 3. “Consultant Guidelines” means the “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” published by the Bank in May 2004 and revised in October 2006. 4. “EMP” means the Environmental Management Plan, dated April 20, 2007, satisfactory to the Association, describing the environmental mitigation, monitoring and institutional measures for the Project. 5. “General Conditions” means the “International Development Association General Conditions for Credits and Grants”, dated July 1, 2005 (as amended through October 15, 2006). 6. “Original Financing Agreement” means the development credit agreement for the Irrigation Development Project between the Recipient and the Association, dated September 6, 2001 as amended to the date of this Agreement (Credit No. 3569 AM). 7. “Original Project” means the Project described in the Original Financing Agreement. 8. “PIU” means the Project Implementation Unit established by the Recipient by Decree No. 577, dated December 15, 1994, or any successor thereto, for purposes of Project management. 9. “Procedures for Implementation for the Rehabilitation Program” means the procedures for carrying out rehabilitation works of tertiary canals under WUAs’ management, prepared by the State Committee for Water Management and agreed with the Association on May 3, 2007, as the same may be amended from time to time with the agreement of the Association. 10. “Procurement Guidelines” means the “Guidelines: Procurement under IBRD Loans and IDA Credits” published by the Bank in May 2004 and revised in October, 2006. Page 15 13 11. “Procurement Plan” means the Recipient’s procurement plan for the Project, dated June 25, 2007 and referred to in paragraph 1.16 of the Procurement Guidelines and paragraph 1.24 of the Consultant Guidelines, as the same shall be updated from time to time in accordance with the provisions of said paragraphs. 12. “Project Management Board” means the Project Management Board established by the Recipient by Decree No. 765, dated December 22, 1999, to provide policy guidance and oversight of Project implementation. 13. “Project Preparation Advance” means the advance referred to in Section 2.07 of the General Conditions, granted by the Association to the Recipient pursuant to the letter agreement signed by the Association and the Recipient on March 9, 2007. 14. “Training” means training for the staff of the WUAs. 15. “WUAs” means the Water User Associations, autonomous groups of water users with responsibility for operation and maintenance of secondary and tertiary irrigation infrastructure.