OFFICIAL DOCUMENTS The World Bank 1818 H Street N.W (202) 473-1000 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD INTERNATIONAL DEVELOPMENT ASSOCIATION U.SA Cable Address: INDEVAS March 18, 2008 Michael Anderson Head of Iraq & Middle East Group Europe, Middle East, Americas, Central and East Asia Division (EMAAD) Department for International Development (DFID) I Palace Street London SWIE 5HE United Kingdom Trust Fund Administration Arrangement between the United Kingdom of Great Britain and Northern Ireland and the International Bank for Reconstruction and Development and the International Development Association concerning the Palestinian Recovery and Development Plan Multi-Donor Trust Fund ("PRDP-TF")(TFNo.071011) Dear Mr. Anderson: We are pleased to acknowledge on behalf of the International Bank for Reconstruction and Development ("IBRD") and the International Development Association ("IDA") (collectively, the "Bank") the intention of the United Kingdom of Great Britain and Northem Ireland (the "Donor") to make available as a grant the sum of twenty million Pound Sterling (GBP20,000,000) (the "Contribution") for the Palestinian Recovery and Development Plan Multi-Donor Trust Fund ("PRDP-TF") for the West Bank and Gaza (the "Project"). Other donors are also expected to contribute to this trust fund on the terms and conditions specified in the Annexes to this Arrangement The Contribution will be used to finance the activities and the categories of expenditure set forth in Section I (Objectives) and Section 2 (Eligible Expenditures) of the "Standard Provisions Applicable to the Palestinian Recovery and Development Plan Multi-Donor Trust Fund ("PRDP-TF") for the West Bank and Gaza" (the "Standard Provisions") attached hereto as Annex I and subject to Annex 2 (Items not eligible for financing under the PRDP-TF). The Contribution will be administered by the Bank on behalf of the Donor in accordance with the terms of this Arrangement and the Standard Provisions. The Standard Provisions constitute an integral part of this Arrangement. The Donor will deposit the Contribution into IBRD's Cash Account "T" number 39729123, Swift BIC Code MIDLGB22, maintained with the HSBC Bank PLC, -2- International Division, PO Box 181, 27-32, Poultry, London EC2P 2BX, United Kingdom promptly following countersignature of this Arrangement by the Donor. When making such deposit, the Donor will instruct its bank to include in its payment details information (remittance advice) field of its SWIFT payment message, information indicating: the amount paid, that the payment is made by the Donor for TFNo.071011(Palestinian Recovery and Development Plan Multi-Donor Trust Fund ("PRDP- TF')), and the date of the deposit. In addition, the Donor will provide a copy of the Donor's deposit instruction to the Bank's Accounting Trust Funds Division by e-mail sent to tfremitadvice(Aworldbank.org or by fax sent to (202) 614-1315. Immediately upon receipt of the Contribution funds, the Bank will convert such funds into United States dollars. The offices responsible for coordination of all matters related to the implementation of this Arrangement are: For the Bank: West Bank and Gaza Country Management Unit Middle East and North Africa Region The World Bank 1818 H Street, NW Washington, DC 20433 U.S.A. Tel: +1 202 473 4746 Fax: +1 202 477 7511 For the Donor: Head of Iraq & Middle East Group Europe, Middle East, Americas, Central and East Asia Division (EMAAD) Department for International Development (DFID) I Palace Street London SW I E 5HE United Kingdom Tel: +44 20 7023 0860 Fax: +44 20 7023 0744 This Arrangement may be amended only in writing by mutual consent of the Bank and the Donor; provided, however, that Annex I (Standard Provisions) and Annex 2 (items not eligible for financing under the PRDP-TF) to this Arrangement may only be amended in writing with the mutual consent of all Donors contributing to this trust fund. -3- Please confirm your acceptance with the foregoing, on behalf of the Donor, by signing, dating, and returning to us the enclosed copy of this Arrangement. Upon receipt by the Bank of the copy of this Arrangement countersigned by you, this Arrangement will become effective as of the date of the countersignature. Sincerely, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION By: * Faris Hadad-Zervos Acting Country Director West Bank and Gaza CONFIRMED AND ACCEPTED: By: Name: Michael Anderson Title: Head of Iraq & Middle East Group Date: V e -4- ANNEX I Standard Provisions Aplicable to the Palestinian Recovery and Development Plan Multi- Donor Trust Fund ("PRDP-TF") for the West Bank and Gaza The following provisions (hereinafter referred to as the "Standard Provisions") will be applicable to and form an integral part of all agreements entered into between the International Bank for Reconstruction and Development ("IBRD") and the International Development Association ("IDA") (collectively, the "Bank") and donor countries and/or organizations (hereinafter referred to as the "Donors") that provide grants (referred to as the "Contributions") to be administered by the Bank for the Palestinian Recovery and Development Plan Multi-Donor Trust Fund ("PRDP-TF") for the West Bank and Gaza (the "Project"). Definitions "Grant" means a grant made or to be made by the Bank, out of the PRDP-TF, to the Palestine Liberation Organization, for the benefit of the Palestinian Authority, for the purposes and on terms and conditions set forth in the Grant Agreement (as defined in Section 6). "PRDP" means the Palestinian Reform and Development Plan (PRDP 2008-2010) dated December 17, 2007, prepared by the Palestinian Authority, containing a 3-year fiscal framework, on the basis of which donors committed support at the Paris pledging conference. "Single Treasury Account" means the bank account of the Ministry of Finance of the Palestinian Authority. 1. Objectives The objectives of the PRDP-TF are to provide budget and development support for the Palestinian Authority's policy agenda as expressed in the PRDP in the period from 2008 until 2010, and include, but are not limited to, the following aims: (a) pooling different donor funds into one administrative mechanism that will reduce the transaction costs for the Palestinian Authority; and (b) helping to alleviate the Palestinian Authority's fiscal pressure by providing reliable disbursements on a regular basis. 2. Eligible Expenditures Grants made from the PRDP-TF will finance the recurrent expenditures by the Palestinian Authority with the exception of items described in Annex 2 which will not be eligible for financing. In addition, the PRDP-TF will finance the cost to the Bank to prepare and supervise the implementation of the Project, namely staff costs, consultants' fees and travel expenses relating to the PRDP-TF. -5- 3. Administration of the Contributions The Bank will be responsible only for performing those functions specifically set forth in this Arrangement and will not be subject to any other duties or responsibilities to the Donors, including, without limitation, any duties or obligations that might otherwise apply to a fiduciary or trustee under general principles of trust or fiduciary law. Nothing in this Arrangement will be considered a waiver of any privileges or immunities of the IBRD and IDA under their Articles of Agreement or any applicable law, all of which are expressly reserved. 4. Commingling, Exchange and Investment of the Contributions 4.1. The Contribution funds will be accounted for as a single trust fund and will be kept separate and apart from the funds of the Bank. The Contribution funds may be commingled with other trust fund assets maintained by the Bank. 4.2. The PRDP-TF will be maintained in United States dollars. The Contribution funds may be freely exchanged by the Bank into other currencies as may facilitate their disbursement. 4.3 The Bank will invest and reinvest the Contribution funds pending their disbursement in accordance with the Bank's policies and procedures for the investment of trust funds administered by the Bank. The Bank will credit all income from such investment to the trust fund established under this Arrangement to be used for the same purposes as the Contribution funds. 5. Administrative Cost Recovery In order to assist in the defrayment of the costs of program administration, supervision and other expenses incurred by the Bank under this Arrangement, the Bank may, following deposit of Contribution funds, deduct from the Contribution funds in the PRDP-TF and retain for the Bank's own account actual costs not exceeding eight hundred ninety-nine seven hundred and ninety-five United States dollars (US$899,795). 6. Grants to Recipient: Role of the Bank: Governance Structure of the PRDP-TF 6.1. The Bank will, as administrator of the PRDP-TF on behalf of the Donors, enter into a grant agreement (the "Grant Agreement") with the Palestine Liberation Organization (the "Recipient"), for the benefit of the Palestinian Authority, for the provision of Contribution funds for the purposes of this Arrangement and on the terms and conditions set forth in the Grant Agreement. The Bank will furnish a copy of the Grant Agreement to the Donors. 6.2. The Bank, in consultation with the International Monetary Fund ("IMF"), will be solely responsible for the supervision and monitoring of the progress towards implementation of the PRDP financed under the Grant Agreement. 6.3. In carrying out its responsibilities, the Bank will call consultation meetings with the IMF, the Donors, and the Palestinian Authority. Such meetings will be called at least quarterly in each calendar year. -6- 7. Disbursements Disbursements of the Grant will be made on a quarterly basis only after the Bank, in consultation with the IMF, has determined that the Palestinian Authority has made satisfactory progress towards the implementation of the PRDP (as further specified in the Grant Agreement), unless the Bank has granted a waiver following consultations with the IMF and the Donors. Disbursements will be made into a separate deposit account under the Single Treasury Account opened by the Palestinian Authority for the purposes of the PRDP-TF (the "Deposit Account"). 8. Accounting and Financial Reporting 8.1. The Bank will maintain separate records and ledger accounts in respect of the Contributions deposited in the trust fund account and disbursements made therefrom. 8.2. The Bank will furnish to the Donor current financial information relating to receipts, disbursements and fund balance in United States dollars with respect to the Contribution funds via the World Bank's Trust Funds Donor Center secure website. Within six (6) months of the final disbursement date specified in paragraph 10.1, the final financial information relating to receipts, disbursements and fund balance in United States dollars with respect to the Contribution funds will be made available to the Donor via the World Bank's Trust Funds Donor Center secure website. 8.3. The Bank will provide to the Donors, within six (6) months following the end of each Bank fiscal year, a management assertion together with an attestation from the Bank's external auditors concerning the adequacy of internal control over cash-based financial reporting for trust funds as a whole. The cost of such attestations will be borne by the Bank. 8.4. If a Donor wishes to request, on an exceptional basis, a financial statement audit by the Bank's external auditors of the trust fund established under this Arrangement, the Donor and the Bank will first consult as to whether such an external audit is necessary. The Bank and the Donor will agree on the most appropriate scope and terms of reference of such audit. Following agreement on the scope and terms of reference, the Bank will arrange for such external audit. The costs of any such audit, including the internal costs of the Bank with respect to such audit, will be paid by the Donor. 9. Coordination and Proiect Reporting 9.1. The Bank will maintain close consultation and coordination with the Donors, and will monitor, in close consultation with the IMF, on a quarterly basis the progress achieved by the Palestinian Authority in implementing the PRDP. The Bank will provide the Donors after each supervision mission with a progress report on the implementation of the PRDP. Within six (6) months of the final disbursement date specified in Section 10, the Bank will provide a final report on the Project to each Donor. 9.2. The Bank will promptly inform the Donors of any significant modification to the terms of the Grant Agreement and of any contractual remedy that is exercised by the Bank under the Grant Agreement. To the extent practicable, the Bank will afford the Donors the opportunity to exchange views before effecting any such modification or exercising any such remedy. -7- 10. Disbursement Deadline: Termination: Cancellation: Refund 10.1. It is expected that the Contribution funds will be fully disbursed by the Bank in accordance with the provisions of this Arrangement by August 1, 2011. The Bank will only disburse Contribution funds for the purposes of this Arrangement after such date with the written approval of the Donors. 10.2. Any Donor or the Bank may, upon three (3) months' prior written notice, cancel all or part of the Donor's pro rata share of any remaining balance of the Contribution funds that is not committed pursuant to any agreements entered into between the Bank and any consultants and/or other third parties for the purposes of this Arrangement prior to the receipt of such notice, including the Grant Agreement. 10.3. Upon the final disbursement date specified in paragraph 10.1, the Bank will return any remaining balance of the Contribution funds to the Donors on a pro rata basis. In the event of a cancellation of an individual Donor's pro rata share of uncommitted Contribution funds in accordance with paragraph 10.2, the Bank will return such cancelled balance to the Donor. I1. Disclosure The Bank may disclose this Arrangement and information on this trust fund in accordance with the Bank's policy on disclosure of information. -8- ANNEX 2 Items not eligible for financing under the PRDP-TF for the Palestinian Recovery and Development Plan for the West Bank and Gaza "Excluded Expenditure" means any expenditure: (a) for goods or services supplied under a contract which any national or international financing institution or agency other than the IBRD or IDA has financed or agreed to finance, or which the IBRD or IDA has financed or agreed to finance under another trust fund credit, or trust fund grant; (b) for goods included in the following groups or sub-groups of the Standard International Trade Classification, Revision 3 (SITC, Rev.3), published by the United Nations in Statistical Papers, Series M, No. 34/Rev.3 (1986) (the SITC), or any successor groups or subgroups under future revisions to the SITC, as designated by the Bank by notice to the Recipient: Group Sub-group Description of Item 112 Alcoholic beverages 121 Tobacco, un-manufactured, tobacco refuse 122 Tobacco, manufactured (whether or not containing tobacco substitutes) 525 Radioactive and associated materials 667 Pearls, precious and semiprecious stones, unworked or worked 718 718.7 Nuclear reactors, and parts thereof; fuel elements (cartridges), non-irradiated, for nuclear reactors -9- Group Sub-group Description of Item 728 728.43 Tobacco processing machinery 897 897.3 Jewelry of gold, silver or platinum group metals (except watches and watch cases) and goldsmiths' or silversmiths' wares (including set gems) 971 Gold, non-monetary (excluding gold ores and concentrates) (c) for goods intended for a military or paramilitary purpose or for luxury consumption; (d) for environmentally hazardous goods, the manufacture, use or import of which is prohibited under the laws in effect in the parts of the West Bank and Gaza under the jurisdiction of the Palestinian Authority or international agreements to which the Recipient or the Palestinian Authority is a party; (c) in the territories (other than the parts of the West Bank and Gaza under the jurisdiction of the Palestinian Authority) of any country which is not a member of the Bank or for goods procured in, or services supplied from, such territories; (f) on account of any payment prohibited by a decision of the United Nations Security Council taken under Chapter V1l of the Charter of the United Nations; and (g) with respect to which the Bank determines that corrupt, fraudulent, collusive or coercive practices were engaged in by representatives of the Recipient or the Palestinian Authority or of a beneficiary of a Grant without the Recipient having taken timely and appropriate action satisfactory to the Bank to address such practices when they occur.