REDIT NUMBER 974 PAK LDOCUTS Development Credit Agreement (Third Highway Project) between ISLAMIC REPUBLIC OF PAKISTAN and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated April 9, 1980 CREDIT NUMBER 974 PAK DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated April 9, 1980, between ISLAMIC REPUBLIC OF PAKISTAN, acting by its President (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) the Borrower has requested the Association to assist in the financing of the Project described in Schedule 2 to this Agreement by extending the Credit as hereinafter provided; (B) the Borrower is seeking from the Government of the United Kingdom of Great Britain and Northern Ireland a grant (hereinafter referred to as the UK Grant) for the Province of Punjab in an aggregate amount equivalent to £2,200,000 to assist in financing a road maintenance project on terms and conditions to be set forth in an exchange of letters between the Government of the United Kingdom of Great Britain and Northern Ireland and the Borrower (hereinafter referred to as the UK Grant Document); (C) by agreements of even date herewith between the Associa- tion and the Baluchistan and North West Frontier Provinces of the Borrower (hereinafter referred to as Baluchistan and NWFP), Baluchistan and NWFP have each agreed to undertake certain obliga- tions in respect of Part B of the Project; (D) by an agreement of even date herewith between the Association and the Industrial Development Bank of Pakistan (hereinafter referred to as IDBP), IDBP has agreed to undertake certain obligations in respect of Part C of the Project; and (E) the Association is willing to make the Credit available upon the terms and conditions set forth hereinafter and in the agreements referred to in Recitals (C) and (D) above; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Development Credit Agreements of the Association, dated March 15, 1974, with the same force and effect as if they were fully set forth -2- herein, subject, however, to the following modifications thereof (said General Conditions Applicable to Development Credit Agree- ments of the Association, as so modified, being hereinafter called the General Conditions): (a) The following subparagraph is added to Section 2.01: "13. The term 'IDBP Project Agreement' has the meaning set forth in paragraph (1) of Section 1.02 of the Development Credit Agreement." (b) The words "Investment Projects" are added to the words "the Project" at the end of Section 5.03. (c) Section 6.03 is deleted and replaced by the following new Section: "Section 6.03. Cancellation by the Association. If (a) the right of the Borrower to make withdrawals from the Credit Account shall have been suspended with respect to any amount of the Credit for a continuous period of thirty days or (b) (i) with respect to Parts A and B of the Project, at any time the Association determines, after consultation with the Borrower, that an amount of the Credit will not be required to finance the Project's costs to be financed out of the proceeds of the Credit, and (ii) with respect to Part C of the Project, by the date specified in Section 2.03 (d) of the IDBP Project Agreement no applica- tions for approval or requests for authorization to withdraw from the Credit Account in respect of any portion of the Credit shall have been received by the Association, or having been so received, shall have been denied or (c) after the Closing Date an amount of the Credit shall remain unwithdrawn from the Credit Account, the Association may, by notice to the Borrower, terminate the right to request such approvals and authorizations or to make withdrawals from the Credit Account, as the case may be, with respect to such amount or portion of the Credit. Upon the giving of such notice such amount or portion of the Credit shall be cancelled." (d) The words "and the IDBP Project Agreement" are added after the words "the Development Credit Agreement" in Section 6.06; and (e) The words "or the IDBP Project Agreement" are added after the words "the Development Credit Agreement" in Section 10.02. -3- Section 1.02. Wherever used in this Agreement, 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) "Punjab" means the Province of Punjab, a political subdivision of the Borrower, or any successor thereto; (b) "Sind" means the Province of Sind, a political subdivi- sion of the Borrower, or any successor thereto; (c) "Baluchistan" means the Province of Baluchistan, a political subdivision of the Borrower, or any successor thereto; (d) "NWFP" means the North West Frontier Province, a politi- cal subdivision of the Borrower, or any successor thereto; (e) "the Provinces" mean the Provinces referred to in paragraphs (a) to (d) of this Section; (f) "Baluchistan Project Agreement" means the agreement between the Association and Baluchistan of even date herewith as the same may be amended from time to time; (g) "NWFP Project Agreement" means the agreement between the Association and NWFP of even date herewith as the same may be amended from time to time; (h) "the Provinces Project Agreements" mean the agreements defined in paragraphs (f) and (g) of this Section and "the respective Province Project Agreement" means in relation to any one of the Provinces, any such agreement to which that Province is a party; (i) "Ordinance" means the Industrial Development Bank of Pakistan Ordinance, 1961, as modified from time to time; (j) "IDBP" means the Industrial Development Bank of Pakistan, established by the Ordinance; (k) "IDBP Project Agreement" means the agreement between the Association and IDBP of even date herewith as the same may be amended from time to time; -4- (1) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and IDBP pursuant to Section 3.02 (b) of this Agreement; (m) "Sub-loan" means a loan or credit made or proposed to be made under Part C of the Project by IDBP to an Investment Enterprise for an Investment Project out of the equivalent of the proceeds of the Credit relent to IDBP under the Subsidiary Loan Agreement, and "free-limit sub-loan" means a sub-loan, as so defined, which qualifies as a free-limit sub-loan pursuant to the provisions of Section 2.03 (a) of this Agreement; (n) "Investment Enterprise" means an eligible highway or road contractor to which IDBP proposes to make or has made a sub-loan; (o) "Investment Project" means a specific development project to be carried out by an Investment Enterprise utilizing the proceeds of a sub-loan primarily to undertake works under Parts A and B of the Project; (p) "Statement of Policy" means the statement of policy of IDBP as adopted and approved by its Board of Directors on April 15, 1976, as amended to date and as further amended from time to time; (q) "Subsidiary" means any company of which a majority of the outstanding voting stock or other proprietary interest is owned or effectively controlled by IDBP or by any one or more subsidiaries of IDBP or by IDBP and one or more of its sub- sidiaries; (r) "UNDP Project Document" means the document number PAK/79/003/A//01/42, signed by the Borrower, the International Bank for Reconstruction and Development, and the United Nations Developments Programme on April 1, 1979; (s) "Rs" and "rupees" mean the currency of the Borrower; and (t) "foreign currency" means any currency other than the currency of the Borrower. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions in the Development Credit Agreement -5- set forth or referred to, an amount in various currencies equiva- lent to fifty million dollars ($50,000,000). Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Associ- ation: (a) 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 Parts A and B of the Project and to be financed out of the proceeds of the Credit; and (b) for any Investment Project included in Part C of the Project, to finance disbursements under a sub-loan on account of expenditures in a currency other than the currency of the Borrower in respect of the reasonable cost of goods and services supplied from outside the territory of the Borrower, required for the Investment Project and to be financed out of the proceeds of the Credit; provided, however, that no withdrawal shall be made in respect of a sub-loan unless (i) the sub-loan shall have been approved by the Association, or (ii) the sub-loan shall be a free-limit sub-loan for which the Association shall have authorized withdrawals from the Credit Account. Section 2.03. (a) A free-limit sub-loan shall be a sub-loan for an Investment Project in an amount to be financed out of the proceeds of the Credit which shall not exceed the sum of (i) $150,000 equivalent, when added to any other outstanding amounts financed or proposed to be financed out of the proceeds of the Credit for said Investment Project or (ii) $3,500,000 equivalent, when added to all other free-limit sub-loans financed or proposed to be financed out of the proceeds of the Credit, the foregoing amounts being subject to change from time to time as determined by the Association in consultation with IDBP. (b) Except as the Association shall otherwise agree, no withdrawals shall be made on account of expenditures made by an Investment Enterprise in respect of a sub-loan subject to the Association's approval if such expenditures shall have been made before the date of this Agreement or more than ninety days prior to the date on which the Association shall have received in respect of such sub-loan the application and information required by Section 2.03 (b) of the IDBP Project Agreement or, under a -6- free-limit sub-loan, more than ninety days prior to the date on which the Association shall have received in respect of such free-limit sub-loan the request and information required by Section 2.03 (c) of the IDBP Project Agreement. Section 2.04. Except as the Association shall otherwise agree, procurement of the goods and civil works required for Parts A and B of the Project to be financed out of the proceeds of the Credit, shall be governed by the provisions of Schedule 3 to this Agreement. Section 2.05. The Closing Date shall be June 30, 1984 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.06. 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 2.07. Service charges shall be payable semiannually on April 15 and October 15 in each year. Section 2.08. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each April 15 and October 15 commencing April 15, 1990, and ending October 15, 2029, each installment to and including the installment payable on October 15, 1999, to be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter to be one and one-half per cent (1-1/2%) of such principal amount. Section 2.09. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. Section 2.10. (a) Secretary, Economic Affairs Division, or his nominee is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 (a) of this Agreement and Article V of the General Conditions. (b) Managing Director, IDBP, or his nominee, is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of -7- Section 2.02 (b) of this Agreement and Article V of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower shall carry out Part A of the Project, cause each of the Provinces to carry out those parts of Part B of the Project for which each Province is responsible, and cause IDBP to carry out Part C of the Project, all with due diligence and efficiency and in conformity with appropriate engineering, administrative and financial practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. To that end, the Borrower shall make and cause the Provinces to make, adequate and timely budgetary provisions for the implementation of the Project. (b) Without any limitation or restriction upon any of its other obligations under this Agreement, the Borrower shall take and cause to be taken all action wnich shall be necessary on its part to enable the Provinces to perform all their obli- gations under the Provinces Project Agreements and shall not take or permit to be taken any action which would prevent or interfere with such performance. (c) Without any limitation or restriction upon any of its other obligations under the Development Credit Agreement, the Borrower shall cause IDBP to perform in accordance with the provisions of the IDBP Project Agreement and the Subsidiary Loan Agreement all the obligations therein set forth, shall take and cause to be taken all action necessary or appropriate to enable IDBP to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. Section 3.02. (a) In order to assist the Provinces in carry- ing out those parts of the Project for which the Provinces are responsible, the Borrower shall make available to the Provinces the proceeds of the Credit allocated to them under Schedule 1 to this Agreement, under terms and conditions which shall have been approved by the Association. (b) The Borrower shall relend to IDBP under a subsidiary loan agreement to be entered into between the Borrower and IDBP -8- the proceeds of the Credit allocated to IDBP under Category (4) of Schedule 1 to this Agreement, under terms and conditions which shall have been approved by the Association, and which shall include those outlined in the Schedule to the IDBP Project Agreement. (c) The Borrower shall exercise its rights under the Subsidiary Loan 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 Loan Agreement or any provision thereof. Section 3.03. In order to assist in carrying out the Project, the Borrower shall employ or cause to be employed, consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. Section 3.04. Except as the Association shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Credit, other than goods and services financed under a sub-loan, to be used exclusively for Parts A and B of the Project. Section 3.05. (a) With respect to Parts A and B.1 of the Project, the Borrower shall furnish to the Association, promptly upon their preparation, the plans, specifications, reports, contract documents, training programs, and work and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) With respect to Parts A and B.1 of the Project, the Borrower: (i) shall maintain records and procedures adequate to record and monitor the progress of the Project (including its cost and the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Credit, and to disclose their use in the Project; (ii) shall enable the Associ- ation's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Credit and any relevant records and documents; and (iii) shall furnish to the Association at regular intervals all such information as the Association shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure -9- of the proceeds of the Credit and the goods and services financed out of such proceeds. (c) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Association, the Borrower shall prepare and furnish to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by the Borrower and the Association of their respective obligations under the Development Credit Agreement and the accomplishment of the purposes of the Credit. Section 3.06. The Borrower shall take or cause to be taken all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for carrying out the Project and shall furnish to the Association, promptly after such acquisition, evidence satis- factory to the Association that such land and rights in respect of land are available for purposes related to the Project. Section 3.07. The Borrower shall: (a) from time to time consult with the Association on the size and composition of its investment plans and programs in the highway sector; (b) refrain from construction activity on the new Indus Highway during its fiscal years 1978-1983; and (c) commence work by June 30, 1980, on the overlay of the Karachi-Hyderabad highway, and complete such work by June 30, 1984. Section 3.08. The Borrower shall take all actions as may be necessary to adequately maintain its highway system and road network, to make promptly all necessary repairs thereof in accordance with sound engineering practices, and to maintain and renew, as and when needed, the highway and road maintenance equipment required for the purpose and shall provide, as and when needed, the funds, facilities, services and other resources required therefor. For that purpose, the Borrower shall make, and cause the Provinces to make, adequate and timely budgetary pro- visions. - 10 - Section 3.09. The Borrower shall promptly grant approval to Investment Projects submitted by IDBP to the Borrower in accor- dance with the Ordinance. Section 3.10. Except as the Borrower and the Association shall otherwise agree, the general design standards to be used under Parts A and B of the Project, shall be as set forth in Schedule 4 to this Agreement. ARTICLE IV Other Covenants Section 4.01. The Borrower shall: (a) carry out a detailed study by September 30, 1980, of alternative methods of dealing with vehicle overloading; (b) thereafter, prepare a plan of action in respect of such overloading and timetable of implementation in consultation and agreement with the Association by December 31, 1980; and (c) commence to implement the appropriate recommendations of such plan satisfactory to the Association by March 31, 1981. Section 4.02. The Borrower shall: (a) by March 31, 1980, implement a maintenance monitoring system satisfactory to the Association, for its national highways; (b) by December 31, 1980 implement a highway and road maintenance training program satisfactory to the Association; and (c) not later than June 30, 1980, prepare a periodic main- tenance program, satisfactory to the Association, which will be suitable for contractors and by December 31, 1980, begin the implementation of said program. Section 4.03. The Borrower shall collect in accordance with appropriate statistical and technical methods and procedures such information concerning traffic on, and construction and maintenance costs for, the highway system and road network as shall be reasonably required for proper planning of maintenance, improvements and extensions of such system. - 11 - ARTICLE V Remedies of the Association Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) any Province shall have failed to perform any covenant, agreement or other obligation of such Province under the respec- tive Province Project Agreement; (b) IDBP shall have failed to perform any covenant, agree- ment or other obligation of IDBP under the IDBP Project Agreement; (c) a change shall have been made in the Ordinance or other legislation has been enacted or is implemented which mate- rially and adversely affects the responsibilities or operations of IDBP; (d) a change shall have been made in the Statement of Policy which materially and adversely affects IDBP's obligations or responsibilities under Part C of the Project without the Association's consent; (e) a subsidiary or any other entity shall have been created or acquired or taken over by IDBP, if such creation, acquisition or taking over would adversely affect the conduct of IDBP's business or IDBP's financial condition or the efficiency of IDBP's management and personnel or the carrying out of the Project; (f) an extraordinary situation shall have arisen which shall make it improbable that: (i) one or more of the Provinces shall be able to perform its obligations under the respective Province Project Agreement; or (ii) IDBP will be able to perform its obligations under the IDBP Project Agreement; (g) the Borrower shall have failed to perform any covenant, agreement or other obligation of the Borrower under the UNDP Project Document; and - 12 - (h) (i) subject to subparagraph (ii) of this paragraph the right of the Borrower to withdraw the proceeds of the UK Grant shall have been suspended, can- celled or terminated in whole or in part, pursuant to the terms of the UK Grant Document; (ii) subparagraph (i) of this paragraph shall not apply if: (A) such suspension, cancellation or termination 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 terms and conditions consistent with the obligations of the Borrower under this Agreement. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (d) thereof: (a) any event specified in paragraphs (a), (b), (e) or (g) of Section 5.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Association to the Borrower; and (b) any event specified in paragraphs (c), (d) or (h) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as addi- tional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the execution and delivery of each of the Provinces Project Agreements on behalf of the respective Province has been duly authorized or ratified by all necessary corporate and govern- mental action; (b) the execution and delivery of the IDBP Project Agreement on behalf of IDBP have been duly authorized or ratified by all necessary corporate and governmental action; - 13 - (c) the Borrower and IDBP have entered into the Subsidiary Loan Agreement in form satisfactory to the Association, and the Subsidiary Loan Agreement has become fully effective and binding on the parties thereto in accordance with its terms, subject only to the effectiveness of this Agreement; (d) the Borrower has entered into contracts with consultants for the supervision of the carrying out of the civil works under the Project; and (e) the Borrower has entered into contracts, satisfactory to the Association, with contractors to carry out the civil works under the Project. Section 6.02. The following are specified as additional matters, 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: (a) that each of the Provinces Project Agreements has been duly authorized or ratified by, and executed and delivered on behalf of, the respective Province, and is legally binding upon such Province in accordance with its terms; (b) that the IDBP Project Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, IDBP and is legally binding upon IDBP in accordance with its terms; and (c) that the Subsidiary Loan Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower and IDBP and is legally binding upon the Borrower and IDBP in accordance with its terms. Section 6.03. The date July 9, 1980 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 Secretary to the Government of Pakistan, Economic Affairs Division is designated as representative of the Borrower for the purposes of Section 11.03 of the General Condi- tions. Section 7.02. The following addresses are specified for the purpose of Section 11.01 of the General Conditions: - 14 - For the Borrower: The Secretary to the Government of Pakistan Economic Affairs Division Islamabad Pakistan Cable address: Telex: ECONOMIC ECDIV-05-634 Islamabad 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 representatives thereunto duly authorized, 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. ISLAMIC REPUBLIC OF PAKISTAN By Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By Acting Regional Vice President South Asia - 15 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out the 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 Dollar Equivalent) to be Financed (1) Civil works under 32,2009000 100% of foreign Part A of the expenditures and Project 40% of local ex- pendi ture s (2) Civil works under Part B of the Project 1,500,000 100% of foreign for NWFP expenditures and 40% of local ex- penditures (3) Equipment, materials, 600,000 100% of foreign spare parts and tools expenditures for under Part A.3 of the imported items Project and 100% of lo- cal expenditures (ex-factory) for locally manufac- tured items and 60% of expendi- tures for items procured locally (4) Equipment, materials 100% of foreign spare parts and expenditures for tools under Part B.2 imported items of the Project and 100% of lo- cal expenditures (ex-factory) for locally manufac- tured items and 60% of expendi- tures for items procured locally - 16 - Amount of the Credit Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (a) NWFP 600,000 (b) Baluchistan 400,000 (5) Loans under Part C 5,000,000 100% of amounts of the Project disbursed on ac- count of foreign expenditures (6) Consultants' services 100% (a) Supervision or 3,900,000 rehabilitation work (b) Technical assis- 200,000 tance to Federal Government (c) Technical assis- 700,000 tance to Provin- cial Governments (d) Project preparation 1,500,000 (7) Unallocated 3,400,000 TOTAL 50,000,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than the Borrower and for goods or services supplied from the territory of any country other than the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower and for goods or services supplied from the territory of the Borrower. - 17 - 3. The disbursement percentages have been calculated in com- pliance with the policy of the Association that no proceeds of the Credit shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Credit decreases or increases, the Association may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Association. 4. Notwithstanding the provisions of paragraph 1 above, no with- drawals shall be made in respect of payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not exceeding the equivalent of $1,000,000 may be made in respect of Category (6) (d) on account of payments made for such expenditures, incurred in the preparation of this Project, before that date but after March 1, 1978. 5. Notwithstanding the allocation of an amount of the Credit or the disbursement percentages set forth in the table in para- graph 1 above, if the Association has reasonably estimated that the amount of the Credit then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Association may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Credit which are then allocated to another Category and which in the opinion of the Association are not needed to meet other expendi- tures, and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Association shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, ro expenditures for such item shall be financed out of the proceeds of the Credit and the Association may, without in any way restricting or limiting any other right, power or remedy of the Association under the Development Credit Agreement, by notice to - 18 - the Borrower, cancel such amount of the Credit as, in the Associ- ation's reasonable opinion, represents the amount of such expendi- tures which would otherwise have been eligible for financing out of the proceeds of the Credit. - 19 - SCHEDULE 2 Description of the Project The Project consists of the following Parts: Part A: Borrower 1. Rehabilitation and improvement of about 180 km of national highways as described in the Exhibit to this Schedule. 2. Preparation of future highway and road projects. 3. Maintenance of highways. Part B: Provinces 1. Rehabilitation and improvement of about 25 km of other roads as described in the Exhibit to this Schedule. 2. Maintenance of highways and roads. Part C: IDBP Term-loans to eligible highway and road contractors to permit them to acquire road construction and maintenance equipment, spare parts and tools, primarily to carry out works under the Project. The Project is expected to be completed by September 30, 1983. - 20 - EXHIBIT TO SCHEDULE 2 Province National Highway Sections Other Road Sections Punjab Part of Lahore - Sahewal (about 125 km) Sind Part of Rohri - Kandiaro (about 50-100 km) NWFP Khairabad - Nowshera Peshawar - Charsadda (about 30 km) (about 25 km) - 21 - SCHEDULE 3 Procurement for Parts A and B of the Project A. International Competitive Bidding 1. Except as provided in Part D hereof, goods and civil works shall be procured under contracts awarded in accordance with procedures consistent with those set forth in the 'Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of international competitive bidding as described in Part A of the Guidelines. 2. For goods and works to be procured on the basis of inter- national competitive bidding, in addition to the requirements of paragraph 1.2 of the Guidelines, the Borrower shall prepare and forward to the Association as soon as possible, and in any event not later than 60 days prior to the date of availability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Association shall reasonably request; the Association will arrange for the publication of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods and works in question. The Borrower shall provide the necessary information to update such notice annually so long as any goods or works remain to be procured on the basis of international compe- titive bidding. 3. Bidders for the works included under Parts A and B of the Project shall be prequalified as described in paragraph 1.3 of Part A of the Guidelines. 4. For the purpose of evaluation and comparison of bids for the supply of goods to be procured on the basis of international competitive bidding, (i) bidders shall be required to state in their bid the c.i.f. (Pakistan port of entry) price for imported goods, or the ex-factory price for domestically manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically supplied goods, shall be excluded; and (iii) the cost to the Borrower of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. - 22 - B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A of this Schedule, goods manufactured in Pakistan may be granted a margin of preference in accordance with, and subject to, the following provisions: 1. All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. 2. After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Pakistan if the bidder shall have established to the satisfaction of the Borrower and the Associa- tion that the manufacturing cost of such goods includes a value added in Pakistan equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other domestic bids. (3) Group C: bids offering any other goods. 3. All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evaluated bid of each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. 4. If, as a result of the comparison under paragraph 3 above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the evaluated bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to: (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such - 23 - group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph 3 is the lowest evaluated bid shall be selected. C. Preference for Domestic Contractors With respect to the evaluation of bids for any contract for civil works included under Categories (1) and (3) of the table set forth in Schedule 1 to the Development Credit Agreement and to be procured in accordance with the procedures described in Part A of this Schedule, the Borrower may grant a margin of preference of 7-1/2% to domestic contractors, in accordance with, and subject to, the following provisions: 1. Contractors shall be required to prequalify as provided in Part A of this Schedule and applicants for qualification applying for such preference shall be asked to provide, as part of the data for qualification, such information, including details of ownership, as shall be required to determine whether, according to the classification established by the Borrower and accepted by the Association, a particular firm or group of firms qualifies for a domestic preference. The bidding documents shall clearly indicate the preference and the method that will be followed in the evaluation and comparisnn of bids to give effect to such preference. 2. After bids have been received and reviewed by the Borrower, responsive bids will be classified into the following groups: (i) bids offered by domestic contractors eligible for preference; and (ii) bids offered by other contractors. For the purpose of evaluation and comparison of bids an amount equal to 7-1/2% of the bid amount shall be added to bids received under group (ii) above. D. Other Procurement Procedures Equipment (including laboratory equipment), materials, spare parts and tools for road maintenance under Part B.2 of the Project - 24 - with unit prices not exceeding the equivalent of $25,000 may be procured in accordance with the Borrower's procurement procedures satisfactory to the Association, provided that the aggregate expenditure of items so procured shall not exceed the equivalent of $200,000. E. Review of Procurement Decisions by the Association 1. Review of prequalification. The Borrower shall, before qualification is invited, inform the Association in detail of the procedure to be followed, and shall introduce such modi- fications in said procedure as the Association shall reasonably request. The list of prequalified bidders, together with a state- ment of their qualifications and, where applicable, of their eligibility for domestic preference under Part C above and of the reasons for the exclusion of any applicant for prequalifi- cation and for such eligibility shall be furnished by the Borrower to the Association for its comments before the applicants are notified of the Borrower's decision, and the Borrower shall make such additions to, deletions from, or modifications in, the said list as the Association shall reasonably request. 2. Review of invitations to bid and of proposed awards and final contracts: With respect to all civil works contracts, and contracts for equipment and materials estimated to cost the equivalent of $25,000 or more: (a) Before bids are invited, Borrower shall furnish to the Association, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedures as the Association shall reasonably request. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, the Bor- rower shall, before a final decision on the award is made, inform the Association of the name of the bidder to which it intends to award the contract and shall furnish to the Association, in sufficient time for its review, a detailed report, by the consul- tants referred to in Section 3.03 of this Agreement, on the - 25 - evaluation and comparison of the bids received, together with the recommendations for award of the said consultants and such other information as the Association shall reasonably request. The Association shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked or prequalification invited. (d) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract. 3. With respect to each contract not governed by the preceding paragraph, the Borrower shall furnish to the Association, promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, recommendations for award and such other information as the Association shall reasonably request. The Association shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. 4. Before agreeing to any material modification or waiver of the terms and conditions of a contract, or granting an exten- sion of the stipulated time for performance of such contract, or issuing any change order under such contract (except in cases of extreme urgency) which would increase the cost of the contract by more than 10% of the original price, the Borrower shall inform the Association of the proposed modification, waiver, extension or change order and the reasons therefor. The Association, if it determines that the proposal would be inconsistent with the provisions of this Agreement, shall promptly inform the Borrower and state the reasons for its determination. - 26 - SCHEDULE 4 Design Standards Design Speed 80 Kph Minimum Minimum Curve Radius 254 m Maximum Superelevation 8% Maximum Gradient 5% Safe Stopping Distance 107 m Minimum Vertical Curve Length 64 m Width of Surfaced Roadway 7.3 m or the existing width whichever is greater Width of Compacted Shoulders 1.7 m Crossfall 2% on Pavement 4% on Shoulders Side Slopes 2 Horizontal: 1 Vertical INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness. whereof I have signed this Certifi- cate and affixed the Seal of the Association thereunto the day of V A , 1F SC T FOR SECRETARY