Page 1 CONFORMED COPY CREDIT NUMBER 2161 ET (Second Addis Ababa Urban Development Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and ADDIS ABABA ADMINISTRATIVE REGION Dated August 13, 1990 CREDIT NUMBER 2161 ET PROJECT AGREEMENT AGREEMENT, dated August 13, 1990, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and ADDIS ABABA ADMINISTRATIVE REGION (AAAR). WHEREAS (A) by the Development Credit Agreement of even date herewith between the People's Democratic Republic Ethiopia (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to twenty-seven million one hundred thousand Special Drawing Rights (SDR 27,100,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that AAAR agree to undertake such obligations toward the Association as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and AAAR, part of the proceeds of the credit Page 2 provided for under the Development Credit Agreement will be made available to AAAR on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS AAAR, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Development Credit Agreement, the Preamble to this Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. AAAR declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Development Credit Agreement and, to this end, shall carry out Parts A.1, B.1, B.3, C, D, E and G.1 the Project with due diligence and efficiency and in conformity with appropriate administrative, financial and engineering practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 2.02. 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 the Development Credit Agreement. Section 2.03. AAAR shall carry out the obligations set forth in Sections 9.03 through 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of this Agreement and Parts A.1, B.1, B.3, C, D, E and G.1 of the Project. Section 2.04. AAAR shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, AAAR shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.05. (a) AAAR shall, at the request of the Associa- tion, exchange views with the Association with regard to the progress of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Credit. (b) AAAR shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Credit, or the performance by AAAR of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of AAAR Section 3.01. AAAR shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, and engineering practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Page 3 Section 3.02. AAAR shall at all times operate and maintain its plant, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and administrative practices. Section 3.03. AAAR shall take out and maintain with respon- sible insurers, or make other provision satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 3.04. In carrying out Part B of the Project, AAAR shall take all necessary measures to implement in a manner satis- factory to the Association the resettlement plan for the people to be relocated under the Project. ARTICLE IV Financial Covenants Section 4.01. (a) AAAR shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations, resources and expenditures of AAAR in respect of Parts A.1, B.1, B.3, C, D, E and G.1 of the Project (Project Accounts). (b) AAAR shall: (i) have its records, accounts and financial state- ments (statements of income and expenditures and related statements) including the Project Ac- counts and the Special Account for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Associa- tion; (ii) furnish to the Association as soon as available, but in any case not later than twelve months after the end of each of the first two years and thereafter, not later than nine months after the end of each such year (A) certified copies of its financial statements and the Project Accounts for such year as so audited, and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reason- ably requested; and (iii) furnish to the Association such other information concerning said records, accounts and financial statements as well as the audit thereof, as the 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, AAAR shall: (i) maintain or cause to be maintained in accordance with sound accounting practices, records and accounts reflecting such expenditures; (ii) ensure that all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures are retained 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; (iii) enable the Association's representatives to examine such records; and Page 4 (iv) ensure that such records and accounts are includ- ed 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 audi- tors 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. Section 4.02. AAAR shall take all appropriate measures to recover on site infrastructure costs associated with carrying out Part A.1 of the Project from the beneficiaries through levying of plot development, land lease and other charges. Section 4.03. AAAR shall allocate land under Part A of the Project to beneficiaries under eligibility criteria set out in Schedule 1 to this Agreement. Section 4.04. (a) AAAR shall, out of the proceeds of the Kebele Development Fund, extend sub-loans to Kebeles for the construction of community facilities and other revenue-generating sub-projects. AAAR shall submit the applications of the first four sub-loans to the Association for review and shall obtain the Association's approval prior to granting said sub-loans. AAAR shall make subsequent sub-loans in accordance with criteria acceptable to the Association. (b) AAAR shall, out of the proceeds of the Kebele Develop- ment Fund, extend sub-loans to women in the Kebeles for revenue- generating projects under eligibility criteria and terms and conditions acceptable to the Association. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Association and of AAAR thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agree- ment shall terminate in accordance with its terms; or (ii) the date 26 years after the date of this Agree- ment. (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify AAAR of this event. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, Page 5 telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 197688 (TRT) Washington, D.C. 248423 (RCA) 64145 (WUI) or 82987 (FTCC) For AAAR: Addis Ababa Administrative Region P.O. Box 6921 Addis Ababa, Ethiopia Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of AAAR, or by AAAR on behalf of the Borrower under the Development Credit Agreement, may be taken or executed by the Administrator or such other person or persons as AAAR shall designate in writing, and AAAR shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively but one instrument. 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. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Ismail Serageldin Acting Regional Vice President Africa ADDIS ABABA ADMINISTRATIVE REGION By /s/ Girma Amare Authorized Representative SCHEDULE 1 Eligibility Criteria for Allocating Plots (Section 4.03) Addis Ababa Sites and Services Schemes: A. Residential Plots Page 6 1. Beneficiaries shall: (a) be age 18 or over; (b) show willingness to participate in a self-help program, preferably in a cooperative arrangement; (c) have a reasonably regular formal household monthly income (either salaried or licensed self-employed) of- - up to Birr 165 or about 50th percentile of the 1988 urban income distribution for about 20% of the units (cores), - up to Birr 220 or about 70th percentile of the 1988 urban income distribution for about 50% of units (cores + 1 room), and - about Birr 300 for about 30% of the units (cores + 3 rooms); (d) not own any other residential property; and (e) meet all other HSB standard requirements (e.g., insurance, mortgage redemption, etc.). 2. The housing loan repayment plus plot development charge and land lease charge will not exceed 25% of monthly household income; B. Commercial Plots: 1. Beneficiaries shall: (a) have a license from the relevant government institution; (b) not own any other commercial property; (c) demonstrate financial viability, administrative capacity and employment generating potential of the business; (d) have a source of finance for the construction of the commercial structure; (e) demonstrate ability to pay the plot development charge and land lease charge. C. Small-scale Industrial Plots: 1. Beneficiaries shall: (a) have a license from the relevant government institution; (b) demonstrate financial viability, administrative capa- bility and employment generating potential of the industry; (c) demonstrate ability to pay the plot development charge and land lease charge; and (d) have a source of finance for the construction of the industrial facility. 2. The industry shall have a neutral or positive environmental impact. Akaki Sites and Services Scheme: Residential Plots in Akaki 1. Beneficiaries shall: (a) be age 18 or over; Page 7 (b) be willing to participate in a self-help program, preferably in a cooperative arrangement; (c) have a reasonably regular formal household monthly income (either salaried or licensed self-employed) of- - up to Birr 195 or about 50th percentile of the 1988 urban income distribution for about 20% of the units (cores), - up to Birr 235 or about 70th percentile of the 1988 urban income distribution for about 50% of units (cores + 1 room), and - about Birr 305 for about 30% of the units (cores + 3 rooms); (d) not own any other residential property; and (e) meet all other HSB standard requirements (e.g., insurance, mortgage redemption, etc.). 2. The housing loan repayment plus plot development charge and land lease charge will not exceed 25% of monthly household income.