OFFICIAL JT-aofig DOCUMENTS The World Bank 1818 H Street NW (202) 477-1234 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD INTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS 1 ,2015 H.E. Aivaras Abromavicius Minister Ministry of Economic Development and Trade 12/2, Hrushevskogo Str., Kyiv, Ukraine Re: Ukraine: Strengthening the Capacity of Ukrtransgaz PIU under the Joint EC-WB Facility to Support the Ministry of Energy and Coal Industry of Ukraine and NJSC "Naftogaz of Ukraine" for Modernization of Ukraine's Gas Transit System European Union, represented by the European Commission, Grant No. TF018284 Excellency: In response to the request for financial assistance made on behalf of Ukraine ("Recipient"), I am pleased to inform you that the International Bank for Reconstruction and Development ("World Bank"), acting as administrator of grant funds provided by the European Union, represented by the European Commission ("Donor") under the Joint EC-WB Facility to Support the Ministry of Energy and Coal Industry of Ukraine and NJSC "Naftogaz of Ukraine" for Modernization of Ukraine's Gas Transit System (TFO71703), proposes to extend to the Recipient a grant in an amount not to exceed eight hundred and fifty thousand Euros (E850,000) ("Grant") on the terms and conditions set forth or referred to in this letter agreement ("Agreement"), which includes the attached Annex, to assist in the financing of the project described in the Annex ("Project"). This Grant is funded out of the abovementioned trust fund for which the World Bank receives periodic contributions from the Donor. In accordance with Section 3.02 of the Standard Conditions (as defined in the Annex to this Agreement), the World Bank's payment obligations in connection with this Agreement are limited to the amount of funds made available to it by the Donor under the abovementioned trust fund, and the Recipient's right to withdraw the Grant proceeds is subject to the availability of such funds. The Recipient represents, by confirming its agreement below, that it is authorized to enter into this Agreement and to carry out the Project in accordance with the terms and conditions set forth or referred to in this Agreement. 1 Please confirm the Recipient's agreement to the foregoing by having an authorized official of the Recipient sign and date the enclosed copy of this Agreement, and returning it to the World Bank. Upon receipt by the World Bank of this countersigned copy, this Agreement shall become effective as of the date specified by the World Bank in accordance with Section V of the Annex to this Agreement. Very truly yours, INTERNATIONAL BANK FOR RECONSTRUCTIO AND DEVELOPMENT By Qimiao Fan Country Director Belarus, Moldova and Ukraine Europe and Central Asia Region AGREED: UKRAINE By Authori sentative Name / NW 1bra viciu Title Ainis8ee pf Eor nic IDevelo1Pment /and T40E of ee-6TAIE Date: Sep-tem -. 1G 2o1 Enclosures: (1) Standard Conditions for Grants Made by the World Bank Out of Various Funds, dated February 15, 2012; (2) Disbursement Letter of the same date as this Agreement, together with World Bank Disbursement Guidelines for Projects, dated May 1, 2006; (3) "Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants", dated October 15, 2006 and revised in January 2011; and (4) "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers", dated January 2011 and revised July 2014 2 Grant No. TF018284 ANNEX Article I Standard Conditions; Definitions 1.01. Standard Conditions. The Standard Conditions for Grants Made by the World Bank out of Various Fundsdated February 15, 2012 ("Standard Conditions") constitute an integral part of this Agreement. 1.02. Definitions. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the Standard Conditions or in this Agreement, and the following additional terms have the following meanings: (a) "Establishing Documents" means (i) Decree of the Cabinet of Ministers of Ukraine "On Reorganisation of Subsidiaries of Naftogaz Ukrainy, a National Joint-Stock Company", dated June 13, 2013 under No. 360-p, (ii) Order of the Ministry of Power Engineering and Coal Industry of Ukraine "On Reorganisation of Ukrtransgaz, a Subsidiary in Naftogaz Ukrainy, a National Joint-Stock Company", dated July 18, 2012 under No. 530 and (iii) Enactment of the Cabinet of Ministers of Ukraine On Distribution of Functions concerning Extraction, Transportation, Storage and Realisation of Natural Gas dated 24.07.1998 under No. 1173. (b) "IFI' means the following international financial institutions: the European Bank for Reconstruction and Development (EBRD), European Investment Bank (EB), and the World Bank, and any other international financial institution agreed between the Recipient, EBRD, EIB and World Bank. (c) "PIU" means the Project Implementation Unit established within UTG. (d) "Subsidiary Agreement" means the agreement between the Recipient, through Ministry of Finance (MOF), and UTG, referred to in Section 2.03(a) below, pursuant to which the proceeds of the Grant shall be made available to UTG. (e) "Steering Committee" means the steering committee established on April 16, 2015, for strategic oversight of the Grant. (f) "UTG" means Public Joint Stock Company (PJSC) UKRTRANSGAZ, the gas transmission operator in Ukraine, established and operating pursuant to the Establishing Documents. Article II Project Execution 2.01. Project Objectives and Description. The objective of the Project is to strengthen the capacity of UTG's PIU. The Project consists of the following parts: Part 1: Training and Capacity Building for UTG's PIU 1.1 Training to the PIU in all aspects related to IFI-supported projects including advice on staffing profile and experience; and 3 1.2 Capacity building to the PIU in order to enable the PIU to perform the following tasks for 1I-supported projects in accordance with the applicable IFI's policies, rules and procedures: (a) finalization of technical designs and technical project support; (b) procurement under the project; (c) management and finalization of the required environmental and social impact assessment process and assistance in the development and implementation of required environmental and social mitigation measures and instruments; (d) setting up a project accounting and financial management system; (e) setting up a project control and quality system; (f) contract and claim management including final acceptance/testing; and (g) compliance with 1I's documentary requirements for project preparation and implementation issues. Part 2: Project audit and operating expenses Financing of Operating Costs and annual audit costs. 2.02. Project Execution Generally. The Recipient declares its commitment to the objectives of the Project. To this end, the Recipient shall cause the Project to be carried out by UTG in accordance with the provisions of: (a) Article II of the Standard Conditions; (b) the "Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants", dated October 15, 2006 and revised in January 2011 ("Anti-Corruption Guidelines"); (c) this Article II., and (d) the agreement dated on or around the date of this Agreement between the World Bank and UTG, as such agreement may be amended from time to time ("Project Agreement"). 2.03. Institutional and Other Arrangements. (a) Subsidiary Agreement (i) To facilitate the carrying out of the Project, the Recipient shall make the proceeds of the Grant available to UTG under the Subsidiary Agreement between the Recipient and UTG, under terms and conditions approved by the World Bank, which shall include that the Recipient shall cause UTG to: (A) perform in accordance with the provisions of the Subsidiary Agreement all of the obligations of UTG therein set forth; (B) carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, economic, financial and environmental practices; (C) to take all action, including the provision of funds, facilities, services and other resources, necessary or appropriate for the carrying out of the Project; (D) carry out the Project in accordance with the provisions of this Agreement and in accordance with the Anti- Corruption Guidelines and (E) not to take or permit to be taken any action which would prevent or interfere with the carrying out of the Project. (ii) The Recipient shall exercise its rights under the Subsidiary Agreement in such manner as to protect the interests of the Recipient and the World Bank and to accomplish the purposes of the Grant. Except as the World Bank shall otherwise agree, the Recipient shall not assign, amend, abrogateor waive the Subsidiary Agreement or any of its provisions. (b) Project Implementation Unit The Recipient shall cause UTG to maintain the PIU, throughout the duration of the Project, in a form and with functions, staffing, resources, terms of reference and qualifications satisfactory to the World Bank. 2.04. Donor Visibility and Visit. (a) The Recipient shall take or cause to be taken all such measures as the World Bank may reasonably request to identify publicly the Donor's support for the Project. 4 V (b) For the purposes of Section 2.09 of the Standard Conditions, the Recipient shall, upon the World Bank's request, take all measures required on its part to enable the representatives of the Donor to visit any part of the Recipient's territory for purposes related to the Project. 2.05. Documents; Records. In addition and without limitation to the obligations set forth in Section 2.05 of the Standard Conditions, the Recipient shall ensure that: (a) all records evidencing expenditures under the Project are retained for seven years and six months after the Closing Date, such records to include: (i) this Agreement, all addenda thereof, and any amendments thereto; (ii) the Recipient's financial and narrative progress reports submitted to the World Bank; (iii) the Recipient's financial information related to the Grant, including audit reports, invoices and payroll records; (iv) the Recipient's implementation documentation (including sub-agreements, procurement files, contracts, purchase orders); and (v) the corresponding supporting evidence referred to in Section 3.04 of the Standard Conditions; and (b) the representatives of the World Bank are: (i) able to examine all records referred to above in paragraph (a); (ii) provided all such information concerning such records as they may from time to time reasonably request; and (iii) able to disclose such records and information to the Donor. 2.06. Project Monitoring, Reporting and Evaluation. (a)The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators acceptable to the World Bank. Each Project Report shall cover the period of one calendar quarter, and shall be furnished to the World Bank not later than forty-five (45) days after the end of the period covered by such report. (b) The Recipient shall cause UTG to share the Project Reports with the Steering Committee. (c) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. 2.07. Financial Management. (a) The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (b) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty-five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (c) The Recipient shall have its Financial Statements audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Such audit of the Financial Statements shall cover the entire period during which withdrawals from the Grant Account were made. The audited Financial Statements for such period shall be furnished to the World Bank not later than six months after the end of such period. 2.08. Procurement. General. (a) All consulting services required for the Project and to be financed, fully or partially, out of the proceeds of the Grant shall be procured in accordance with the requiirements set forth or referred to in the "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers", dated January 2011 (revised July 2014) ("Consultant 5 Guidelines") and the provisions of this Section, as the same shall be elaborated in the procurement plan prepared and updated from time to time by the Recipient for the Project in accordance with paragraph 1.25 of the Consultant Guidelines ("Procurement Plan"). (b) Definitions. The capitalized terms used in the following paragraphs of this Section to describe particular procurement methods or methods of review by the World Bank of particular contracts, refer to the corresponding method described in Sections II, III, IV and V of the Consultant Guidelines. (c) Particular Methods of Procurement of Consultants' Services (i) Except as otherwise provided in item (ii) below, consultants' services shall be procured under contracts awarded on the basis of Quality- and Cost-based Selection. (ii) The following methods, other than Quality- and Cost-based Selection, may be used for the procurement of consultants' services for those assignments which are specified in the Procurement Plan (A) Selection based on Consultants' Qualifications; and (B) Selection of Individual Consultants. (d) Review by the World Bank of Procurement Decisions. The Procurement Plan shall set forth those contracts which shall be subject to the World Bank's Prior Review. All other contracts shall be subject to Post Review by the World Bank. (e) Document Retention. Notwithstanding the provisions of paragraphs 2(k) and 5 of Appendix 1 to the Consultant Guidelines, the Recipient: (i) shall retain all documentation with respect to each contract as described in said paragraphs for at least seven years and six months after the Closing Date set forth in Section 3.03 of this Agreement; (ii) shall furnish such documentation to the World Bank at any time upon request; and (iii) hereby authorizes the World Bank to disclose such documentation to the Donor. Article III Withdrawal of Grant Proceeds 3.01. Eligible Expenditures.The Recipient may withdraw the proceeds of the Grant in accordance with the provisions of: (a) Article III of the Standard Conditions; (b) this Section; and (c) such additional instructions as the World Bank may 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 World Bank and as made applicable to this Agreement pursuant to such instructions), to finance 100% of Eligible Expenditures consisting of consultants' services (including audits), Training and Operating Costs, exclusive of Taxes. For the purposes of this paragraph, the term: (i) "Training" means the reasonable costs, as shall have been approved by the World Bank, for training and workshops conducted under the Project, including tuition, travel and subsistence costs for training and workshop participants, costs associated with securing the services of trainers and workshop speakers, rental of training and workshop facilities, preparation and reproduction of training and workshop materials, and other costs directly related to training course and workshop preparation and implementation (but excluding goods and consultants' services) ; and (ii) "Operating Costs" means the reasonable costs, as shall have been approved by the World Bank, for the incremental expenses incurred on account of Project implementation, consisting of, communication costs, office rent, office supplies and 6 equipment and equipment maintenance, utilities, document duplication/printing, consumables, travel cost and per diem for Project staff for travel linked to the implementation of the Project, (but excluding consultants' services and salaries of officials of the Recipient's civil service). 3.02. Withdrawal Conditions. Notwithstanding the provisions of Section 3.01 of this Agreement, no withdrawal shall be made for payments made prior to the date of countersignature of this Agreement by the Recipient. 3.03. Withdrawal Period. The Closing Date referred to in Section 3.06 (c) of the Standard Conditions is October 21, 2016. Article IV Additional Remedies 4.01. The Additional Events of Suspension referred to in Section 4.02 (k) of the Standard Conditions consists of the following: (a) The Recipient has taken or permitted to be taken any action which would prevent or interfere with the performance by UTG of its obligations under the Project Agreement. (b) UTG has failed to perform any obligation under the Project Agreement. (c) IBRD or IDA has declared UTG ineligible to receive proceeds of any financing made by IBRD or IDA, or otherwise to participate in the preparation or implementation of any project financed in whole or in part by IBRD or IDA (including as administrator of funds provided by another financier), as a result of: (i) a determination by IBRD or IDA that UTG has engaged in fraudulent, corrupt, coercive or collusive practices in connection with the use of the proceeds of any financing made by IBRD or IDA; and/or (ii) a declaration by another financier that UTG is ineligible to receive proceeds of financings made by such financier or otherwise to participate in the preparation or implementation of any project financed in whole or in part by such financier as a result of a determination by such financier that UTG has engaged in fraudulent, corrupt, coercive or collusive practices in connection with the use of the proceeds of a financing made by such financier. (d) As a result of events which have occurred after the date of this Agreement, an extraordinary situation has arisen which makes it improbable that UTG will be able to perform its obligations under the Project Agreement. (e) The Establishing Documents pursuant to which UTG has been established and is operating have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of UTG to perform any of its obligations under the Project Agreement. (f) The World Bank has determined after the Effective Date referred to in Section 5.03 of this Agreement that prior to such date but after the date of this Agreement, an event has occurred which would have entitled the World Bank to suspend the Recipient's right to make withdrawals from the Grant Account if this Agreement had been effective on the date such event occurred. Article V Effectiveness; Termination 5.01. This Agreement shall not become effective until evidence satisfactory to the World Bank has been furnished to the World Bank that the conditions specified below have been satisfied. 7 (a) The execution and delivery of this Agreement on behalf of the Recipient, and of the Project Agreement on behalf of UTG have been duly authorized or ratified by all necessary governmental and corporate action. (b) If the World Bank so requests, the condition of UTG, as represented or warranted to the World Bank at the date of this Agreement, has undergone no material adverse change after such date. (c) The Subsidiary Agreement referred to in Section 2.03(a) has been executed on behalf of the Recipient and UTG. 5.02. Except as the Recipient and the World Bank shall otherwise agree, this Agreement shall enter into effect on the date upon which the World Bank dispatches to the Recipient notice of its acceptance of the evidence required pursuant to Section 5.01 ("Effective Date"). If, before the Effective Date, any event has occurred which would have entitled the World Bank to suspend the right of the Recipient to make withdrawals from the Grant Account if this Agreement had been effective, the World Bank may postpone the dispatch of the notice referred to in this Section until such event (or events) has (or have) ceased to exist. 5.03. Termination for Failure to Become Effective. This Agreement and all obligations of the parties under it shall terminate if it has not entered into effect by the date 90 days after the date of this Agreement, unless the World Bank, after consideration of the reasons for the delay, establishes a later date for the purpose of this Section. The World Bank shall promptly notify the Recipient of such later date. Article VI Recipient's Representative; Addresses 6.01. Recipient's Representative. The Recipient's Representative referred to in Section 7.02 of the Standard Conditions is its Minister of Economic Development and Trade. 6.02. Recipient's Address. The Recipient's Address referred to in Section 7.01 of the Standard Conditions is: Ministry of Economic Development and Trade 12/2, Hrushevskogo Str., Kyiv, Ukraine 6.03. World Bank's Address. The World Bank's Address referred to in Section 7.01 of the Standard Conditions is: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Facsimile: 1-202-477-6391 8