Page  1
CONFORMED COPY
CREDIT NUMBER 3007 AM
Development Credit Agreement
(Education Financing and Management Reform Project)
between
REPUBLIC OF ARMENIA
and
INTERNATIONAL DEVELOPMENT ASSOCIATION
Dated February 4, 1998
CREDIT NUMBER 3007 AM
DEVELOPMENT CREDIT AGREEMENT
AGREEMENT, dated February 4, 1998, between REPUBLIC OF ARMENIA (the 
Borrower) and the INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association).
WHEREAS (A) the Borrower, having satisfied itself as to the feasibility 
and priority of the Project described in Schedule 2 to this Agreement, has 
requested the Association to assist in the financing of the Project; and
(B)
in order to assist in the financing of the Project, the Borrower: 
(i) has obtained from the United Nations Development Program (UNDP) a grant (the 
UNDP Grant) in an amount equivalent to $500,000 on the terms and conditions set 
forth in the agreement between the Borrower and UNDP (the UNDP Grant Agreement) 
dated June 30, 1997; and (ii) has obtained from the United Nations Children’s 
Fund (UNICEF) a grant (the UNICEF Grant) in an amount equivalent to $75,000 on 
the terms and conditions set forth in the agreement between the Borrower and 
UNICEF (the UNICEF Grant Agreement) dated June 30, 1997.
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:
Page  2
ARTICLE I
General Conditions; Definitions
Section 1.01. The "General Conditions Applicable to Development Credit 
Agreements" of the Association, dated January 1, 1985, with the modifications 
set forth below (the General Conditions) constitute an integral part of this 
Agreement:
(a)
The last sentence of Section 3.02 is deleted.
(b)
The second sentence of Section 5.01 is modified to read:
"Except as the Association and the Borrower shall otherwise agree, 
no withdrawals shall be made: (a) on account of expenditures in the 
territories of any country which is not a member of the Bank or for 
goods produced in, or services supplied from, such territories; or 
(b) for the purpose of any payment to persons or entities, or for 
any import of goods, if such payment or import, to the knowledge of 
the Association, is prohibited by a decision of the United Nations 
Security Council taken under Chapter VII of the Charter of the 
United Nations."
(c)
Section 6.03 is modified to read:
"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 (30) days, or (b) 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, 
or (c) at any time, the Association determines, with respect to any 
contract to be financed out of the proceeds of the Credit, that 
corrupt or fraudulent practices were engaged in by representatives 
of the Borrower or of a beneficiary of the Credit during the 
procurement or the execution of such contract, without the Borrower 
having taken timely and appropriate action satisfactory to the 
Association to remedy the situation, and establishes the amount of 
expenditures in respect of such contract which would otherwise have 
been eligible for financing out of the proceeds of the Credit, or 
(d) at any time, the Association determines that the procurement of 
any contract to be financed out of the proceeds of the Credit is 
inconsistent with the procedures set forth or referred to in the 
Development Credit Agreement and establishes the amount of 
expenditures in respect of such contract which would otherwise have 
been eligible for financing out of the proceeds of the Credit, or 
(e) 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 of the Borrower to make 
withdrawals with respect to such amount.  Upon the giving of such 
notice, such amount of the Credit shall be canceled."
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)
"Microproject" means a specific school project, under SIP (as 
hereinafter defined), selected and approved  in accordance with the eligibility 
criteria and procedures set forth in the Operational Manual (as hereinafter 
defined) and eligible for financing under Part B.3 of the Project;
(b)
"MOES" means the Borrower’s Ministry of Education and Science;
(c)
"Operational Manual" means the manual for SIP (as hereinafter 
Page  3
defined) defining, inter alia, eligibility criteria and appraisal, approval and 
supervision rules and procedures for Microprojects to be financed under Part B.3 
of the Project, as the same may be amended from time to time upon the agreement 
with the Association;
(d)
"PMU" means Project Management Unit established within MOES;
(e)
"Project Account" means the account referred to in Section 3.01(c) 
of this Agreement;
(f)
"Project Preparation Advance" means the project preparation advance 
granted by the Association to the Borrower pursuant to an exchange of letters 
dated December 9, 1996 and January 7, 1997, between the Borrower and the 
Association;
 (g)
"SIP" means School Improvement Program to be financed from the 
proceeds of the Credit under Part B.3 of the Project; 
(h)
"Special Account" means the account referred to in Section 2.02 (b) 
of this Agreement; and
(i)
"Textbook Fund" means the fund established pursuant to its Charter 
registered by the Borrower’s Ministry of Justice on August 29, 1997 
(Registration Certificate No. 267).
ARTICLE II
The Credit
Section 2.01. The Association agrees to lend to the Borrower, on the terms 
and conditions set forth or referred to in the Development Credit Agreement, an 
amount in various currencies equivalent to eleven million one hundred thousand 
Special Drawing Rights (SDR  11,100,000).
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, works and services required for the 
Project described in Schedule 2 to this Agreement and to be financed out of the 
proceeds of the Credit.
(b)
The Borrower may, for the purposes of the Project, open and 
maintain in Dollars a special deposit account in a commercial bank on terms and 
conditions satisfactory to the Association including appropriate protection 
against set-off, seizure and attachment.  Deposits into, and payments out of, 
the Special Account shall be made in accordance with the provisions of Schedule 
5 to this Agreement.
(c)
Promptly after the Effective Date, the Association shall, on behalf 
of the Borrower, withdraw from the Credit Account and pay to itself the amount 
required to repay the principal amount of the Project Preparation Advance 
withdrawn and outstanding as of such date and to pay all unpaid charges thereon. 
The unwithdrawn balance of the authorized amount of the Project Preparation 
Advance shall thereupon be canceled.
Section 2.03. The Closing Date shall be June 30, 2002, 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 on the principal amount of the Credit not withdrawn from time to time at 
a rate to be set by the Association as of June 30 of each year, but not to 
exceed the rate of one-half of one percent (1/2 of 1%) per annum.
Page  4
(b)
The commitment charge shall accrue: (i) from the date sixty (60) 
days after the date of this Agreement (the accrual date) to the respective dates 
on which amounts shall be withdrawn by the Borrower from the Credit Account or 
canceled; and (ii) at the rate set as of the June 30 immediately preceding the 
accrual date and at such other rates as may be set from time to time thereafter 
pursuant to paragraph (a) above. The rate set as of June 30 in each year shall 
be applied from the next date in that year specified in Section 2.06 of this 
Agreement.
(c)
The commitment charge shall be paid: (i) at such places as the 
Association shall reasonably request; (ii) without restrictions of any kind 
imposed by, or in the territory of, the Borrower; and (iii) in the currency 
specified in this Agreement for the purposes of Section 4.02 of the General 
Conditions or in such other eligible currency or currencies as may from time to 
time be designated or selected pursuant to the provisions of that Section.
Section 2.05. The Borrower shall pay to the Association a service charge 
at the rate of three-fourths of one 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 June 15 and December 15 in each year.
Section 2.07. (a) Subject to paragraphs (b), (c) and (d) below, the 
Borrower shall repay the principal amount of the Credit in semiannual 
installments payable on each June 15 and December 15 commencing December 15, 
2007 and ending June 15, 2032. Each installment to and including the installment 
payable on June 15, 2017 shall be one and one-fourth percent (1-1/4%) of such 
principal amount, and each installment thereafter shall be two and one-half 
percent (2-1/2%) of such principal amount.
(b)
Whenever (i) the Borrower's per capita gross national product 
(GNP), as determined by the Association, shall have exceeded for three (3) 
consecutive years the level established annually by the Association for 
determining eligibility to access the Association's resources; 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 repayment of installments under paragraph (a) 
above by: (A) 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; and (B) requiring the Borrower to commence repayment of the principal 
amount of the Credit as of the first semiannual payment date referred to in 
paragraph (a) above falling six (6) months or more after the date on which the 
Association notifies the Borrower that the events set out in this paragraph (b) 
have occurred, provided, however, that there shall be a grace period of a 
minimum of five (5) years on such repayment of principal.
(c)
If so requested by the Borrower, the Association may revise the 
modification referred to in paragraph (b) above 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.
(d)
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
Page  5
Execution of the Project
Section 3.01. (a) The Borrower declares its commitment to the objectives 
of the Project as set forth in Schedule 2 to this Agreement, and, to this end, 
shall carry out the Project 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.
(b)
Without limitation upon the provisions of paragraph (a) of this 
Section and except as the Borrower and the Association shall otherwise agree, 
the Borrower shall carry out the Project in accordance with the Implementation 
Program set forth in Schedule 4 to this Agreement.
(c)
Without limitation upon the provisions of paragraph (a) of this 
Section, the Borrower shall: (i) open a Project Account in a bank on terms and 
conditions acceptable to the Association and deposit therein an initial amount 
equivalent to $35,000; (ii) thereafter maintain and replenish said account at 
the beginning of each semester to ensure that adequate funds are available to 
meet expected local expenditures for the next eight (8) months; and (iii) use 
the funds so deposited on said Account exclusively for financing the Borrower’s 
contribution to Project expenditures.
Section 3.02. 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 3 to this Agreement.
Section 3.03. For the purposes of Section 9.07 of the General Conditions 
and without limitation thereto, the Borrower shall:
(a)
prepare, on the basis of guidelines acceptable to the Association 
and furnish to Association not later than six (6) months after the Closing Date 
or such later date as may be agreed for this purpose between the Borrower and 
the Association, a plan for the future operation of the Project; and
(b)
afford the Association a reasonable opportunity to exchange views 
with the Borrower on said plan.
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 (6) months after the end of each 
such year, 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 and accounts and the audit thereof as the 
Page  6
Association shall from time to time reasonably request.
(c)
For all expenditures with respect to which withdrawals from the 
Credit Account were made on the basis of statements of expenditure, the Borrower 
shall:
(i)
maintain or cause to be maintained, in accordance with 
paragraph (a) of this Section, records and accounts 
reflecting such expenditures;
(ii)
retain, until at least one year after the Association has 
received the audit report for the fiscal year in which the 
last withdrawal from the Credit Account 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 
withdrawals.
ARTICLE V
Remedies of the Association
Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the 
following additional event is specified:
(a)
Subject to paragraph (b) of this Section, the right of the Borrower 
to withdraw the proceeds of the UNDP Grant and/or the UNICEF Grant made to the 
Borrower for the financing of the Project shall have been suspended, canceled or 
terminated in whole or in part, pursuant to the terms of the UNDP Grant 
Agreement or the UNICEF Grant Agreement, respectively;
(b)
Paragraph (a) of this Section 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 shall have adopted an Operational Manual satisfactory 
to the Association; and
(b)
the Project Account shall have been opened and an initial deposit 
of the amount equivalent to $35,000 shall have been made by the Borrower into 
said Account.
Section 6.02. The date ninety (90) days after the date of this Agreement 
Page  7
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 Finance and Economy of the Borrower is 
designated as representative of the Borrower for the purposes of Section 11.03 
of the General Conditions.
Section 7.02. The following addresses are specified for the purposes of 
Section 11.01 of the General Conditions:
For the Borrower:
Ministry of Finance and Economy
1, Government House
Republic Square
Yerevan 375010
Republic of Armenia
Telex:
243331 LADA SU 
For the Association:
International Development Association
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Cable address: 
Telex:
INTBAFRAD
248423 (MCI) or
Washington, D.C.
 64145 (MCI)
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 ARMENIA
By /s/ Ruben Shugarian
Authorized Representative
INTERNATIONAL DEVELOPMENT ASSOCIATION
By /s/ Judy O’Connor
Acting Regional Vice President
Europe and Central Asia
SCHEDULE 1
Page  8
Withdrawal of the Proceeds of the Credit 
1.
The table below sets forth the Categories of items to be financed out of 
the proceeds of the Credit, the allocation of the amounts of the Credit to each 
Category and the percentage of expenditures for items so to be financed in each 
Category:
Amount of the
Credit Allocated
   % of
(Expressed in
Expenditures
Category
SDR Equivalent)
to be Financed
(1)
Civil works
   73,000
80%
(2)
Textbooks (including
5,218,000
100% of foreign expendi-
printing and delivery
tures, 100% of local
services)
expenditures (ex-factory
cost) and 80% of local
expenditures for other 
items procured locally
(3)
Goods other than
1,911,000
100% of foreign expendi-
textbooks
tures, 100% of local
expenditures (ex-factory
cost) and 80% of local
expenditures for other
items procured locally
(4)
Consultants' services,
1,837,000
100%
training, fellowships
and studies
(5)
Incremental operating
  588,000
100%
costs
(6)
Refunding of
  661,000
Amounts due pursuant
Project Preparation
to Section 2.02 (c)
Advance
of this Agreement
(7)
Unallocated
  812,000
TOTAL
     11,100,000
2.
For the purposes of this Schedule:
(a)
the term "foreign expenditures" means expenditures in the currency 
of any country other than that of the Borrower for goods or services supplied 
from the territory of any country other than that of the Borrower;
(b)
the term "local expenditures" means expenditures in the currency of 
the Borrower or for goods or services supplied from the territory of the 
Borrower; and
(c)
the term "incremental operating costs" means the incremental costs 
relating to the operation of PMU, including PMU staff salaries and allowances 
(except for government officials) based on the salary scale acceptable to the 
Association, office rent and maintenance, minor office equipment and consumable 
supplies, communication and transportation.
3.
Notwithstanding the provisions of paragraph 1 above, no withdrawals shall 
be made in respect of payments made for expenditures prior to the date of this 
Agreement.
4.
The Association may require withdrawals from the Credit Account to be made 
on the basis of statements of expenditure for expenditures for: (a) textbooks, 
goods and works under contracts not exceeding $200,000 equivalent, (b) services 
provided by consulting firms under contracts not exceeding $100,000 equivalent; 
Page  9
(c) services provided by individual consultants under contracts not exceeding 
$50,000 equivalent; (d) training, fellowships and studies under contracts not 
exceeding $50,000 equivalent; and (e) operating costs, all under such terms and 
conditions as the Association shall specify by notice to the Borrower.
SCHEDULE 2
Description of the Project
The objectives of the Project are: (i) to help build the institutional 
framework at the central, local and school levels for more efficient and 
sustainable operation of the basic education system; and (ii) to facilitate 
improvements in school performance by promoting school-level initiatives, and by 
improving the supply of textbooks and teaching materials.
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:
Textbook Production and Distribution
1.
The purchase and distribution to schools of core general education 
textbooks for grades 1-10 over a four-year period.
2.
Provision of technical assistance and training in curriculum reform and 
preparation of publishers’ guidelines.
3.
Provision of technical assistance, training and materials for bid 
administrators, bid evaluators, authors and publishers in the Borrower’s new 
competitive system of book procurement.
4.
Training and information dissemination for school directors, teachers and 
parents in the management of school-based revolving funds for the purchase of 
textbooks and in the allocation of subsidies to poor students.
5.
Provision of equipment, technical assistance and training to establish a 
computerized system for consolidation of textbook orders from individual 
schools.
Part B:
Capacity Building for Reform Management
1.
Development and implementation of the strategy for reform of the education 
sector finance and management  through:
(a)
Provision of equipment, technical assistance and training to MOES 
for the development of the strategy for reform of education finance and 
management.
(b)
Provision of assistance in carrying out surveys, public 
consultations and information dissemination about the reform process in the 
education sector.
(c)
Provision of equipment and technical assistance for the development 
of a database of school level data and establishment of a computer network at 
the central and regional levels for managing of such data.
(d)
Provision of assistance for carrying out of pilot projects for 
school consolidation in selected regions.   
2.
Capacity Building for School Autonomy 
Provision of technical assistance for the implementation of the Borrower’s 
policy on school autonomy, including: (a) defining new institutional 
Page  10
relationships and accountability mechanisms for autonomous schools; (b) training 
of principals and other school board members in school management, budgeting, 
accounting, and performance monitoring; and (c) building capacity at the 
regional level in monitoring of school performance.
3.
School Improvement Program (SIP)
(a)
Carrying out SIP through financing of goods, works, and services 
under Microprojects.  
(b)
Provision of technical assistance and training to the regional 
education authorities for the promoting of SIP and supervising of its 
implementation.
Part C:
Support for Project Implementation
Provision of equipment, technical assistance and institutional support to 
the PMU.
* * *
The Project is expected to be completed by December 31, 2001.
SCHEDULE 3
Procurement
Section I.
Procurement of Good and Works
Part A:
General
Goods and works shall be procured in accordance with the provisions of 
Section I of the "Guidelines for Procurement under IBRD Loans and IDA Credits" 
published by the Bank in January 1995 and revised in January and August 1996 
(the Guidelines) and the following provisions of this Section.
Part B:
International Competitive Bidding
1.
Except as otherwise provided in Part C of this Section, goods and foreign 
language textbooks shall be procured under contracts awarded in accordance with 
the provisions of Section II of the Guidelines and paragraph 5 of Appendix 1 
thereto.
2.
The following provisions shall apply to goods and foreign language 
textbooks to be procured under contracts awarded in accordance with the 
provisions of paragraph 1 of this Part B:
(a)
Grouping of contracts
To the extent practicable, contracts for computers and office equipment 
shall be grouped in bid packages estimated to cost $200,000 equivalent or more 
each.
(b)
Preference for domestically manufactured goods
The provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 
2 thereto shall apply to goods manufactured in the territory of the Borrower.
Part C:
Other Procurement Procedures
Page  11
1.
National Competitive Bidding
Textbooks in the Armenian language may be procured under contracts awarded 
in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines.
2.
International Shopping
Goods estimated to cost less than $200,000 equivalent per contract, up to 
an aggregate amount not to exceed $950,000 equivalent, may be procured under 
contracts awarded on the basis of international shopping procedures in 
accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines.
3.
National Shopping
Goods estimated to cost less than $30,000 equivalent per contract, up to 
an aggregate amount not to exceed $1,100,000 equivalent, may be procured under 
contracts awarded on the basis of national shopping procedures in accordance 
with the provisions of paragraphs 3.5 and 3.6 of the Guidelines.  
4.
Direct Contracting
Goods which are of proprietary nature and costing $50,000 or less in the 
aggregate, may, with the Association’s prior Agreement, be procured in 
accordance with the provisions of paragraph 3.7 of the Guidelines.
5.
Procurement of Small Works
Works  may be procured under lump-sum fixed-price contracts awarded on the 
basis of quotations obtained from three (3) qualified domestic contractors in 
response to a written invitation.  The invitation shall include a detailed 
description of the works, including basic specifications, the required 
completion date, a basic form of agreement acceptable to the Association, and 
relevant drawings where applicable.  The award shall be made to the contractor 
who offers the lowest price quotation for the required work, and who has the 
experience and resources to complete the contract successfully.
Part D:
Review by the Association of Procurement Decisions
1.
Procurement Planning
Prior to the issuance of any invitations to prequalify for bidding or to 
bid for contracts, the proposed procurement plan for the Project shall be 
furnished to the Association for its review and approval, in accordance with the 
provisions of paragraph 1 of Appendix 1 to the Guidelines. Procurement of all 
goods and works shall be undertaken in accordance with such procurement plan as 
shall have been approved by the Association, and with the provisions of said 
paragraph 1.
2.
Prior Review
With respect to each contract for goods and textbooks estimated to cost 
the equivalent of $200,000 or more, the procedures set forth in paragraphs 2 and 
3 of Appendix 1 to the Guidelines shall apply.
3.
Post Review
With respect to each contract not governed by paragraph 2 of this Part, 
the procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall 
apply.
Section II:
Employment of Consultants 
Page  12
Part A:
General
Consultants’ services shall be procured in accordance with the provisions 
of the Introduction and Section IV of the "Guidelines: Selection and Employment 
of Consultants by World Bank Borrowers" published by the Bank in January 1997 
(the Consultant Guidelines) and the following provisions of Section II of this 
Schedule.
Part B:
Quality- and Cost-based Selection
Except as otherwise provided in Part C of this Section, consultants’ 
services shall be procured under contracts awarded in accordance with the 
provisions of Section II of the Consultant Guidelines, paragraph 3 of Appendix 1 
thereto, Appendix 2 thereto, and the provisions of paragraphs 3.13 through 3.18 
thereof applicable to quality- and cost-based selection of consultants.
Part C:
Other Procedures for the Selection of Consultants
1.
Selection Based on Consultants’ Qualifications
Services for providing training and fellowships under Parts A and B of the 
Project may be procured under contracts awarded in accordance with the 
provisions of paragraphs 3.1 and 3.7 of the Consultant Guidelines.
2.
Individual Consultants
Services for the preparation of the rationalization plan under Part B.1 of 
the Project, for curriculum development and implementation of school autonomy 
under Part A.2 of the Project, and for carrying out SIP under Part B.3 of the 
Project shall be procured under contracts awarded to individual consultants in 
accordance with the provisions of paragraphs 5.1 through 5.3 of the Consultant 
Guidelines.
Part D:
Review by the Association of the Selection of Consultants
1.
Selection Planning
Prior to the issuance to consultants of any requests for proposals, the 
proposed plan for the selection of consultants under the Project shall be 
furnished to the Association for its review and approval, in accordance with the 
provisions of paragraph 1 of Appendix 1 to the Consultant Guidelines.  Selection 
of all consultants’ services shall be undertaken in accordance with such 
selection plan as shall have been approved by the Association, and with the 
provisions of said paragraph 1.
2.
Prior Review
(a)
With respect to each contract for the employment of consulting 
firms estimated to cost the equivalent of $100,000 or more, the procedures set 
forth in paragraphs 1, 2 (other than the second subparagraph of paragraph 2(a)) 
and 5 of Appendix 1 to the Consultant Guidelines shall apply.
(b)
With respect to each contract for the employment of individual 
consultants estimated to cost the equivalent of $50,000 or more, the 
qualifications, experience, terms of reference and terms of employment of the 
consultants shall be furnished to the Association for its prior review and 
approval. The contract shall be awarded only after said approval shall have been 
given.
3.
Post Review
With respect to each contract not governed by paragraph 1 of this Part, 
the procedures set forth in paragraph 4 of Appendix 1 to the Consultant 
Page  13
Guidelines shall apply.
SCHEDULE 4
Implementation Program
1.
The Borrower shall maintain the PMU within MOES with staff and other 
resources and terms of reference, satisfactory to the Association, which shall 
be responsible for the overall implementation of the Project.
2.
The Borrower shall maintain a Project Steering Committee, during the 
execution of the Project which shall include, inter alia, representatives from 
MOES, the Ministry of Finance and Economy and regional education administration, 
and which shall be responsible for overseeing the Project implementation and 
approval of annual work programs for the Project.
3.
For the purposes of carrying out Part B.3 of the Project, the Borrower 
shall:
(a)
adopt the Operational Manual and shall not amend, abrogate or waive 
the provisions of the Operational Manual without  prior consent of the 
Association; and shall thereafter, follow the procedures and criteria set forth 
in the Operational Manual for selection of Microprojects;
(b)
maintain a SIP Unit within the PMU which shall be responsible for 
management of SIP, including: (i) promotion of SIP and dissemination of 
information on the purpose and operation of SIP; (ii) assistance to schools in 
preparation of proposals for Microprojects; (iii) appraisal of Microprojects and 
submission of the selected Microprojects to the SIP Steering Committee for 
approval; (iv) preparation and signing of framework agreements for selected 
Microprojects with the schools; (v) assistance in procurement of small equipment 
and consumables for selected Microprojects; (vi) monitoring Microprojects 
implementation; and (vii) maintaining the SIP accounts and monitoring the 
overall progress of SIP; and 
(c)
maintain a SIP Steering Committee within MOES which shall be 
responsible for approval of Microprojects selected by the SIP Unit and for the 
supervision of SIP implementation.
4.
(a)
The Borrower shall maintain a Working Group on Education Management 
and Finance within MOES which shall be responsible for: (i) reassessment of 
norms and standards for allocation of resources for general education; (ii) 
liaison with the regional education authorities in preparation and 
implementation of pilot rationalization plans and of new management information 
systems; (iii) liaison with the Minister of Finance and Economy and the regional 
education authorities concerning the legal, managerial and financial framework 
for autonomous schools, training of school principals and monitoring of pilot 
implementation of the autonomous status for schools; and (iv) design and 
coordination of information dissemination and consultation programs to support 
the education sector reform process.
(b)
Not later than July 31 of each year during the Project execution, 
the Working Group on Education Management and Finance shall prepare and submit 
to the Association an evaluation report on policy development in the education 
sector, including the proposed work program for the next 12-month period, and 
thereafter take all measures to implement the conclusions and recommendations of 
the said report and the Association’s comments on it.
5. 
The Borrower shall maintain a Working Group on Textbooks within MOES which 
shall be responsible for: (i) coordination of the preparation of the curriculum 
for grades 1-10 with the schedule for textbook publishing; (ii) provision of 
necessary technical specifications and curriculum, syllabus and methodological 
guidelines for incorporation in bidding documents for textbooks; (iii) 
dissemination of information to parents and schools on management of the 
textbook rental scheme and revolving funds; (iv) liaison with the regional 
education authorities to consolidate the textbook requirements of individual 
Page  14
schools; and (v) establishment of a computerized system for future coordination 
of orders from schools.
6.
The Borrower shall maintain the Textbook Fund referred to in Section 1.02 
(i) during the Project execution.
7.
Not later than February 28, 1998, the Borrower shall submit to the 
Association the guidelines for allocation and administration of subsidies for 
textbooks to vulnerable groups, satisfactory to the Association.
8.
Not later than September 30 of each year, the Borrower shall provide its 
cash contribution to the Textbook Fund in the amount equivalent to at least ten 
percent (10%) of the total requirements of the Textbook Fund for the next 
nine-month period, as such annual requirements are estimated by MOES.
9.
The Borrower shall:
(a)
maintain policies and procedures adequate to enable it to monitor 
and evaluate on an ongoing basis, in accordance with the indicators agreed upon 
between the Borrower and the Association, the carrying out of the Project and 
the achievement of the objectives thereof;
(b)
prepare, under terms of reference satisfactory to the Association, 
and furnish to the Association, on or about October 31, 1999, a report 
integrating the results of the monitoring and evaluation activities performed 
pursuant to paragraph (a) of this Section, on the progress achieved in the 
carrying out of the Project during the period preceding the date of said report 
and setting out the measures recommended to ensure the efficient carrying out of 
the Project and the achievement of the objectives thereof during the period 
following such date; and
(c)
review with the Association, by December 31, 1999, or such later 
date as the Association shall request, the report referred to in subparagraph 
(b) of this paragraph, and, thereafter, take all measures required to ensure the 
efficient completion of the Project and the achievement of the objectives 
thereof, based on the conclusions and recommendations of the said report and the 
Association’s views on the matter.
10.
The Borrower shall ensure that during the execution of the Project:
(a)
no revisions shall be made to the schedule on textbook publishing 
and curriculum development for grades 1-10 without prior consultation with the 
Association; and
(b)
no revision shall be made, without an approval by the Association, 
to  the curricula/syllabi for those subjects for which the textbooks are 
financed under the Project after the bidding process for said textbooks shall 
have been initiated by the Borrower.
SCHEDULE 5
Special Account
1.
For the purposes of this Schedule:
(a)
the term "eligible Categories" means Categories (1), (2), (3), (4), 
and (5)  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, works 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 
Page  15
(c)
the term "Authorized Allocation" means an amount equivalent to 
$600,000 to be withdrawn from the Credit Account and deposited into the Special 
Account pursuant to paragraph 3 (a) of this Schedule, provided, however, that 
unless the Association shall otherwise agree, the Authorized Allocation shall be 
limited to an amount equivalent to $300,000 until the aggregate amount of 
withdrawals from the Credit Account plus the total amount of all outstanding 
special commitments entered into by the Association pursuant to Section 5.02 of 
the General Conditions shall be equal to or exceed the equivalent of SDR 
2,000,000.
2.
Payments out of the Special Account shall be made exclusively for eligible 
expenditures in accordance with the provisions of this Schedule.
3.
After the Association has received evidence satisfactory to it that the 
Special Account has been duly opened, withdrawals of the Authorized Allocation 
and subsequent withdrawals to replenish the Special Account shall be made as 
follows:
(a)
For withdrawals of the Authorized Allocation, the Borrower shall 
furnish to the Association a request or requests for deposit into the Special 
Account of an amount or amounts which do not exceed the aggregate amount of the 
Authorized Allocation.  On the basis of such request or requests, the 
Association shall, on behalf of the Borrower, withdraw from the Credit Account 
and deposit into the Special Account such amount or amounts as the Borrower 
shall have requested.  
(b)
(i)
For replenishment of the Special Account, the Borrower shall 
furnish to the Association requests for deposits into the 
Special Account at such intervals as the Association shall 
specify.
(ii)
Prior to or at the time of each such request, the Borrower 
shall furnish to the Association the documents and other 
evidence required pursuant to paragraph 4 of this Schedule 
for the payment or payments in respect of which 
replenishment is requested.  On the basis of each such 
request, the Association shall, on behalf of the Borrower, 
withdraw from the Credit Account and deposit into the 
Special Account such amount as the Borrower shall have 
requested and as shall have been shown by said documents and 
other evidence to have been paid out of the Special Account 
for eligible expenditures.  All such deposits shall be 
withdrawn by the Association from the Credit Account under 
the respective eligible Categories, and in the respective 
equivalent amounts, as shall have been justified by said 
documents and other evidence.   
4.
For each payment made by the Borrower out of the Special Account, the 
Borrower shall, at such time as the Association shall reasonably request, 
furnish to the Association such documents and other evidence showing that such 
payment was made exclusively for eligible expenditures. 
5.
Notwithstanding the provisions of paragraph 3 of this Schedule, the 
Association shall not be required to make further deposits into the Special 
Account: 
(a)
if, at any time, the Association shall have determined that all 
further withdrawals should be made by the Borrower directly from the Credit 
Account in accordance with the provisions of Article V of the General Conditions 
and paragraph (a) of Section 2.02 of this Agreement;
(b)
if the Borrower shall have failed to furnish to the Association, 
within the period of time specified in Section 4.01 (b) (ii) of this Agreement, 
any of the audit reports required to be furnished to the Association pursuant to 
said Section in respect of the audit of the records and accounts for the Special 
Account;
Page  16
(c)
if, at any time, the Association shall have notified the Borrower 
of its intention to suspend in whole or in part the right of the Borrower to 
make withdrawals from the Credit Account pursuant to the provisions of Section 
6.02 of the General Conditions; or
(d)
once the total unwithdrawn amount of the Credit allocated to the 
eligible Categories, minus the total amount of all outstanding special 
commitments entered into by the Association pursuant to Section 5.02 of the 
General Conditions with respect to the Project, shall equal the equivalent of 
twice the amount of the Authorized Allocation. Thereafter, withdrawal from the 
Credit Account of the remaining unwithdrawn amount of the Credit allocated to 
the eligible Categories shall follow such procedures as the Association shall 
specify by notice to the Borrower.  Such further withdrawals shall be made only 
after and to the extent that the Association shall have been satisfied that all 
such amounts remaining on deposit in the Special Account as of the date of such 
notice will be utilized in making payments for eligible expenditures.
6.
(a)
If the Association shall have determined at any time that any 
payment out of the Special Account: (i) was made for an expenditure or in an 
amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not 
justified by the evidence furnished to the Association, the Borrower shall, 
promptly upon notice from the Association: (A) provide such additional evidence 
as the Association may request; or (B) deposit into the Special Account (or, if 
the Association shall so request, refund to the Association) an amount equal to 
the amount of such payment or the portion thereof not so eligible or justified. 
Unless the Association shall otherwise agree, no further deposit by the 
Association into the Special Account shall be made until the Borrower has 
provided such evidence or made such deposit or refund, as the case may be.
(b)
If the Association shall have determined at any time that any 
amount outstanding in the Special Account will not be required to cover further 
payments for eligible expenditures, the Borrower shall, promptly upon notice 
from the Association, refund to the Association such outstanding amount.
(c)
The Borrower may, upon notice to the Association, refund to the 
Association all or any portion of the funds on deposit in the Special Account.  
(d)
Refunds to the Association made pursuant to paragraphs 6 (a), (b) 
and (c) of this Schedule shall be credited to the Credit Account for subsequent 
withdrawal or for cancellation in accordance with the relevant provisions of 
this Agreement, including the General Conditions.