Page 1 CONFORMED COPY CREDIT NUMBER 3976 UG GRANT NUMBER H122 UG Development Financing Agreement (Road Development Program Phase III) between THE REPUBLIC OF UGANDA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated February 23, 2005 Page 2 CREDIT NUMBER 3976 UG GRANT NUMBER H122 UG DEVELOPMENT FINANCING AGREEMENT AGREEMENT, dated February 23, 2005, between the REPUBLIC OF UGANDA (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS (A) the Association has received a letter from the Borrower, dated June 25, 2004, describing a program of actions, objectives and policies designed to improve the Borrower’s road infrastructure, access to rural and economically productive areas of its territory, and to enhance its efforts towards the promotion of affordable, efficient and reliable transport services as a means of facilitating economic development (the Program), and declaring the Borrower’s commitment to the execution of such program; (B) the Borrower has requested that the Association support the Borrower’s execution of the Program through a series of grants or credits over a period of approximately eight years to be utilized by the Borrower in the implementation of the Program; (C) the Borrower and the Association have entered into two previous Development Credit Agreements (the Agreements) in support of the Program: the first Agreement dated November 22, 1999, under which the Association has provided SDR 67,200,000 (the First Credit) and the second Agreement dated August 16, 2001, under which the Association has provided SDR 50,900,000 (the Second Credit); (D) 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 which constitutes the third phase of the Program; (E) the Borrower and the Association intend, to the extent practicable, that the proceeds of the Grant be disbursed on account of expenditures in respect of the Project before disbursements of the proceeds of the Credit are made; and WHEREAS the Association has agreed, on the basis, inter alia , of the foregoing, to extend the Credit and the Grant to the Borrower upon the terms and conditions set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: Page 3 - 2 - ARTICLE I General Conditions; Definitions Section 1.01. The “General Conditions Applicable to Development Credit Agreements” of the Association, dated January 1, 1985 (as amended through May 1, 2004), with the modifications set forth in Schedule 7 to this Agreement (the General Conditions), constitute an integral part of this Agreement. 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) “BOU” means the Bank of Uganda, the Borrower's central bank; (b) “Displaced Person” means a person who, on account of the execution of the Project, has experienced or would experience direct economic and social impacts caused by the involuntary taking of land, resulting in: (i) relocation or loss of shelter; (ii) loss of assets or access to assets; or (iii) loss of income sources or means of livelihood, whether or not such person must move to another location; and “Displaced Persons” means more than one Displaced Person; (c) “Environment Management Plan” and “EMP” mean the set of mitigation, enhancement, monitoring, and institutional measures to be taken during implementation of the Project to mitigate adverse environmental and social impacts, offset them, or reduce them to acceptable levels, or to enhance positive impacts; (d) “Environmental Impact Assessment” and “EIA” mean the specific environmental assessment undertaken in respect to the Project activities for: (i) Atiak- Moyo road, dated December 2003; (ii) Soroti-Lira road, dated February 2004; (iii) Kampala-Gayaza-Zirobwe-Wobulenzi road, dated January 2004; and (iv) Busega- Mityana road in accordance with paragraph 2 (b) (i) of Schedule 1 to this Agreement; (e) “Financial Management Manual” means the finance, accounting and administration manual referred to in Section 6.01 (c) of this Agreement, including internal control procedures relating to the civil works and technical advisory services to be carried out under the Project, a chart of accounts, and the format and content of financial reports and cash flow forecasts; (f) “Financial Monitoring Report” and “FMR” mean each report prepared in accordance with Section 4.02 of this Agreement; (g) “Financial Year” and “FY” mean the Borrower’s financial year commencing on July 1 and ending on June 30 of the subsequent year; Page 4 - 3 - (h) “MOWHC” means the Borrower’s Ministry of Works, Housing and Communications; (i) “Project Account” means the account referred to in Section 3.03 of this Agreement; (j) “Project Implementation Plan” and “PIP” mean the implementation plan referred to in Section 6.01 (a) of this Agreement, and consisting of, inter alia , guidelines and procedures to be used for the purpose of implementation of the Project, including a financial manual and procurement plan, and such other administrative, financial, organizational arrangements, as such plan may be amended from time to time, and such term includes any schedules to the PIP; (k) “Procurement Plan” means the Borrower’s procurement plan, dated June 16, 2004, covering the initial 18 month period (or longer) of Project implementation, as the same shall be updated from time to time in accordance with the provisions of Section 3.02 to this Agreement, to cover succeeding 18 month periods (or longer) of Project implementation; (l) “Road Agency Formation Unit” and “RAFU” mean the unit established within MOWHC in September 1998; (m) “Resettlement Action Plan” and “RAP” mean the plans for implementing involuntary resettlement of Displaced Persons under Project activities on: (i) Atiak-Moyo road, dated December 2003; (ii) Soroti-Lira road, dated February 2004; (iii) Kampala- Gayaza-Zirobwe-Wobulenzi road, dated January 2004; and (iv) Busega-Mityana road in accordance with paragraph 2 (b) (ii) of Schedule 1 to this Agreement; (n) “Resettlement Policy Framework” and “RPF” mean the framework dated May 2002, outlining the modalities for land taking and/or expropriation, resettlement, compensation and rehabilitation of Displaced Persons under the Project; (o) “Road Authority” means the Road Authority referred to in paragraph 3 of Schedule 4 to this Agreement, to be established by the Borrower with the responsibility for management and development of the natural roads network; (p) “Special Accounts” means the accounts referred to in Section 2.02 (b) of this Agreement; and (q) “Uganda Shilling” and “UShs” mean the currency of the Borrower. Page 5 - 4 - ARTICLE II The Financing Section 2.01. The Association agrees to make available to the Borrower, on the terms and conditions set forth or referred to in this Agreement: (a) an amount in various currencies equivalent to forty five million nine hundred seventy thousand Special Drawing Rights (SDR 45,970,000) (the Credit); and (b) an amount in various currencies equivalent to twenty seven million two hundred one thousand Special Drawing Rights (SDR 27,201,000) (the Grant). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account and the amount of the Grant may be withdrawn from the Grant 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 works and services required for the Project and to be financed out of the proceeds of the Financing. (b) The Borrower may, for the purposes of the Project, open and maintain in Dollars in BOU, two separate special deposit accounts, on terms and conditions satisfactory to the Association. Deposits into, and payments out of, each respective Special Account shall be made in accordance with the provisions of Schedule 5 to this Agreement. Section 2.03. The Closing Date shall be December 31, 2009 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: (i) 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, such rate not to exceed the rate of one-half of one percent (1/2 of 1%) per annum; and (ii) a commitment charge on the principal amount of the Grant not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, such rate not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) Each commitment charge shall accrue: (i) from the date sixty 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 the Grant Account (as the case may be), or canceled; and (ii) at the respective 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 respective rate set as of June 30 in Page 6 - 5 - each year shall be applied from the next date in that year specified in Section 2.06 of this Agreement. (c) Each 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 March 15 and September 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 March 15 and September 15 commencing September 15, 2014 and ending March 15, 2044. Each installment to and including the installment payable on March 15, 2024 shall be one percent (1%) of such principal amount, and each installment thereafter shall be two percent (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 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 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, Page 7 - 6 - that there shall be a grace period of a minimum of five 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 Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objective 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, engineering, environmental and technical 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. Section 3.02. (a) Except as the Association shall otherwise agree, procurement of the works and consultants’ services required for the Project and to be financed out of the proceeds of the Financing shall be governed by the provisions of Schedule 3 to this Agreement, as said provisions may be further elaborated in the Procurement Plan. (b) the Borrower shall update the Procurement Plan in accordance with guidelines acceptable to the Association, and furnish such update to the Association not later than 12 months after the date of the preceding Procurement Plan, for the Association’s approval. Page 8 - 7 - Section 3.03. Without limitation to its obligations under Section 3.01 of this Agreement, the Borrower shall: (a) open and thereafter maintain, until completion of the Project, an account (the Project Account) in UShs in BOU, on terms and conditions acceptable to the Association; (b) promptly thereafter, make an initial deposit of UShs equivalent to $2,500,000 into the Project Account to finance the Borrower’s contribution to the costs of the Project; (c) thereafter, on a monthly basis during Project Implementation, timely replenish the Project Account with such adequate amounts as shall be required to carry out the Project; and (d) use the Project Account funds exclusively to finance expenditures under the Project in addition to those financed from the proceeds of the Credit. Section 3.04. For the purposes of Section 9.06 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 the Association not later than six (6) months before 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 a financial management system, including records and accounts, and prepare financial statements in accordance with consistently applied accounting standards acceptable to the Association, adequate to reflect the operations, resources and expenditures related to the Project. (b) The Borrower shall: (i) have the financial statements referred to in paragraph (a) of this Section and the records and accounts for the Special Accounts, for each fiscal year (or other period agreed to by the Association), audited, in accordance with consistently applied auditing standards acceptable to the Association, by independent auditors acceptable to the Association; Page 9 - 8 - (ii) furnish to the Association as soon as available, but in any case not later than six months after the end of each such year (or such other period agreed to by the Association): (A) certified copies of the financial statements referred to in paragraph (a) of this Section for such year (or other period agreed to by the Association), as so audited; and (B) an opinion on such statements by said auditors, in scope and detail satisfactory to the Association; and (iii) furnish to the Association such other information concerning such records and accounts, and the audit of such financial statements, and concerning said auditors, as the Association may from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Financing Accounts were made on the basis of statements of expenditure, the Borrower shall: (i) retain, until at least one year after the Association has received the audit report for, or covering, the fiscal year in which the last withdrawal from the Financing Accounts was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (ii) enable the Association’s representatives to examine such records; and (iii) ensure that such statements of expenditure are included in the audit for each fiscal year (or other period agreed to by the Association), referred to in paragraph (b) of this Section. Section 4.02. (a) Without limitation upon the Borrower’s progress reporting obligations set out in paragraphs 6 and 7 of Schedule 4 to this Agreement the Borrower shall prepare and furnish to the Association a Financial Monitoring Report, in form and substance satisfactory to the Association, which: (i) sets forth sources and uses of funds for the Project, both cumulatively and for the period covered by said report, showing separately funds provided under the Credit, and explains variances between the actual and planned uses of such funds; (ii) describes physical progress in Project implementation, both cumulatively and for the period covered by said report, and explains variances between the actual and planned Project implementation; and Page 10 - 9 - (iii) sets forth the status of procurement under the Project, as at the end of the period covered by said report. (b) The first FMR shall be furnished to the Association not later than 45 days after the end of the first calendar quarter after the Effective Date, and shall cover the period from the incurrence of the first expenditure under the Project through the end of such first calendar quarter; thereafter, each FMR shall be furnished to the Association not later than 45 days after each subsequent calendar quarter, and shall cover such calendar quarter. Section 4.03. The Borrower shall not later than March 31, 2005, appoint the auditors referred to in Section 4.01 (b) (i) of this Agreement in accordance with the provisions of Section III of Schedule 3 to this Agreement. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (l) of the General Conditions, the following additional event is specified, namely that an extraordinary situation shall have arisen which shall make it improbable that the Program or a significant part thereof will be carried out. Section 5.02. Pursuant to Section 7.01 (h) of the General Conditions, the following additional event is specified, namely, that the event specified in 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. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Development Financing Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Borrower has adopted a Project Implementation Plan, in form and substance satisfactory to the Association; (b) the Borrower has established the Project Account and deposited therein the initial deposit referred to in Section 3.03 (b) of this Agreement; (c) the Borrower has adopted a Financial Management Manual in form and substance satisfactory to the Association; and Page 11 - 10 - (d) the Borrower has: (i) demonstrated the ability to produce an FMR; and (ii) opened books of accounts and completed the chart of accounts for the Project, all in form and substance satisfactory to the Association. Section 6.02. The date ninety (90) days after the date of this Agreement 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 Borrower’s Minister for Finance 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, Planning and Economic Development P. O. Box 8147 Kampala Uganda Cable address: Telex: FINSEC 61170 Kampala For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: Facsimile: INDEVAS 248423 (MCI) or (202) 477-6391 Washington, D.C. 64145 (MCI) Page 12 - 11 - IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in Kampala, The Republic of Uganda, as of the day and year first above written. THE REPUBLIC OF UGANDA By /s/ Ezra Suruma Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Judy O’Connor Authorized Representative Page 13 - 12 - SCHEDULE 1 Withdrawal of the Proceeds of the Financing 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Financing, the allocation of the amounts of the Financing to each Category and the percentage of expenditures for items so to be financed in each Category: Category Amount of the Credit Allocated (Expressed in SDR Equivalent) Amount of the Grant Allocated (Expressed in SDR Equivalent) % of Expenditure (1) Civil works 80% (a) for Parts A.1, A.2, A.3 and B of the Project (b) for Part A.4 of the Project 20,884,000 16,530,000 22,876,000 (2) Consultants' services, including audit fees 3,105,000 4,325,000 90% (3) Unallocated 5,451,000 TOTAL ======== 45,970,000 ======== 27,201,000 2. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made in respect of: (a) payments made for expenditures prior to the date of this Agreement; and (b) Category (1) (b), unless the Borrower shall have furnished to the Association: (i) the EIA for implementation of Project activities on Busega-Mityana road; and (ii) the RAP for involuntary resettlement of Displaced Persons under Project Page 14 - 13 - activities on Busega-Mityana road, all in a form and substance satisfactory to the Association. 3. The Association may require withdrawals from the Financing Accounts to be made on the basis of statements of expenditure for expenditures under contracts for: (a) works costing less than $250,000 equivalent per contract; (b) services of consulting firms under contracts costing less than $200,000 equivalent per contract; and (c) services of individual consultants costing less than $100,000 equivalent per contract; all under such terms and conditions as the Association shall specify by notice to the Borrower. Page 15 - 14 - SCHEDULE 2 Description of the Project The objective of the Project is to support the Borrower in implementing the third phase of the Program, including improving access to rural and economically productive areas of its territory, and building a sustainable road sector planning, design and program management, and road safety management. 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 objective: Part A : Civil Works for Upgrading, Rehabilitation and Reconstruction : Upgrading of national roads including: 1. carrying out of civil works for upgrading of about 125 km to paved (bitumen) standards, including, reconstruction, drainage improvement and construction of pavement on Soroti-Lira road; 2. carrying out of civil works for upgrading of about 68 km on Kampala –Gayaza- Zirobwe-Wobulenzi road, including: (a) about 11 km on Gayaza-Kiwenda road; (b) about 19 km on Kiwenda-Zirobwe road; (c) about 23 km on Zirobwe-Wobulenzi road, all gravel to bitumen standard; and (d) reconstruction of about 15 km on Kampala-Gayaza road; 3. carrying out of civil works for rehabilitation and regravelling of about 91km on Atiak-Moyo road; and 4. carrying out of civil works for reconstruction and upgrading of about 57km on Busega-Mityana road. Part B : Civil Works for Construction of Buildings Carrying out the construction of headquarters’ building for MOWHC and the Road Authority. Part C : Roads Construction Services Carrying out: 1. supervision services for construction of roads referred to in Parts A.1 through A.4 of the Project; and Page 16 - 15 - 2. review and updating of detailed engineering design and preparation of tender documents, verification of economic feasibility for reconstruction of the paved road and completion of environmental and social assessments for Busega-Mityana road, all through the provision of technical advisory services. Part D: Roads Feasibility and Design Carrying out of: 1. detailed designs for upgrading of about 300 km of district gravel roads to national roads at paved (bitumen) standard; and 2. feasibility studies for upgrading of about 600 km of national roads to paved (bitumen) standard and detailed design of selected roads thereof, all through the provision of technical advisory services. Part E : Institutional Support and Establishment of the Road Authority 1. Provision of training and technical advisory services to consolidate the institutional reform process, including establishment and commencing operations of the Road Authority, through, inter alia, developing a performance agreement and a business plan, establishing a financial management system and internal audit function, restructuring internal office organization and staffing, and developing management information systems. 2. Strengthening institutional support for implementation of Parts A through E of the Project, including the provision of external audit services. ** * The Project is expected to be completed by June 30, 2009. Page 17 - 16 - SCHEDULE 3 Procurement Section I . General A. All works and services (other than consultants’ services) shall be procured in accordance with the provisions of Section I of the “Guidelines for Procurement under IBRD Loans and IDA Credits” dated May 2004 (the Procurement Guidelines), and with the provisions of this Schedule. B. All consultants’ services shall be procured in accordance with Sections I and IV of the “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004 (the Consultant Guidelines), and with the provisions of this Schedule. C. The capitalized terms used below in this Schedule to describe particular procurement methods or methods of review by the Association of particular contracts, have the meanings ascribed to them in the Procurement Guidelines, or Consultant Guidelines, as the case may be. Section II. Particular Methods of Procurement of Works and Services (other than Consultants’ Services)International Competitive Bidding Contracts shall be awarded on the basis of International Competitive Bidding. The provisions of paragraphs 2.55 and 2.56 of the Procurement Guidelines, providing for domestic preference in the evaluation of bids, shall apply to works to be carried out by domestic contractors. Section III . Particular Methods of Procurement of Consultants’ services A. Quality- and Cost-based Selection Except as otherwise provided in Part B of this Section, consultants’ services shall be procured under contracts awarded on the basis of Quality- and Cost-based Selection. For purposes of paragraph 2.7 of the Consultant Guidelines, the short list of consultants for services estimated to cost less than $200,000 equivalent per contract may comprise entirely national consultants. Page 18 - 17 - B. Other Procedures 1. Least-cost Selection Services for assignments which the Association agrees meet the requirements of paragraph 3.6 of the Consultant Guidelines may be procured under contracts awarded on the basis of Least-cost Selection in accordance with the provisions of paragraphs 3.1 and 3.6 of the Consultant Guidelines. 2. Single Source Selection Services for tasks in circumstances which meet the requirements of paragraph 3.10 of the Consultant Guidelines for Single Source Selection, may, with the Association's prior agreement, be procured in accordance with the provisions of paragraphs 3.9 through 3.13 of the Consultant Guidelines. 3. Individual Consultants Services for assignments that meet the requirements set forth in the first sentence of paragraph 5.1 of the Consultant Guidelines may be procured under contracts awarded to individual consultants in accordance with the provisions of paragraphs 5.2 through 5.3 of the Consultant Guidelines. Under the circumstances described in paragraph 5.4 of the Consultant Guidelines, such contracts may be awarded to individual consultants on a sole-source basis. Section IV. Review by the Association of Procurement Decisions Except as the Association shall otherwise determine by notice to the Borrower, the following contracts shall be subject to Prior Review by the Association: (a) each contract for works and services (other than consultants’ services) estimated to cost the equivalent of $1,000,000 or more procured on the basis of International Competitive Bidding; (b) each contract for consultants’ services provided by a firm estimated to cost the equivalent of $200,000 or more; and (c) each contract for consultants’ services provided by individuals estimated to cost the equivalent of $100,000 or more. All other contracts shall be subject to Post Review by the Association. Page 19 - 18 - SCHEDULE 4 Implementation Program A. Institutional Arrangements : 1. The Borrower shall implement the Project or cause the Project to be implemented in accordance with the Project Implementation Plan, the Financial Management Manual and the Environmental Management Plan, and, except as the Borrower and the Association shall otherwise agree, the Borrower shall not amend or waive any provision of the Project Implementation Plan, the Financial Management Manual and the Environmental Management plan, if in the opinion of the Association, such amendment or waiver may materially and adversely affect the carrying out of the Project or the achievement of the objective thereof. 2. The Borrower shall: (a) maintain at all times during Project implementation, MOWHC with the overall responsibility for the implementation of the Project through RAFU; and (b) cause MOWHC to maintain RAFU with functions, staffing, terms and conditions of service satisfactory to the Association. 3. The Borrower shall: (a) not later than December 31, 2005, establish the Road Authority. To this end the Borrower shall take all measures necessary, including, if required, the preparation of appropriate legislation; and (b) upon establishment of the Road Authority: (i) notify the Association; (ii) in consultation with the Association designate the Road Authority, to carry out the responsibilities of RAFU set forth in paragraph 2 (a) of this Schedule; and (iii) recruit to the Road Authority staff, having terms of reference and conditions of employment satisfactory to the Association. B. EMP and EIA , RPF and RAP 4. EMP and EIA The Borrower shall carry out the EIA, and shall: (a) prior to: (i) commencement of the civil works for upgrading, rehabilitation, reconstruction or construction of any roads infrastructure; and (ii) construction of the headquarters’ building, implement the EIA in accordance with the procedures set forth in the EIA, and in the form and substance satisfactory to the Association; (b) in the event that an environmental impact assessment determines that such civil works, if carried out, would have in the opinion of the Association a potential Page 20 - 19 - for negative environmental impact, the Borrower shall not carry out such civil works until an appropriate action has been discussed and agreed upon by the Borrower and the Association to mitigate such potential negative impact; (c) thereafter the Borrower shall carry out such agreed mitigation plan referred to in sub-paragraph (b) above; and (d) in carrying out civil works for the upgrading, rehabilitation, and reconstruction of Atiak-Moyo road, Soroti-Lira road and Kampala-Gayaza-Zirobwe- Wolubenzi road, implement specific EIAs in accordance with the environmental impact assessment reports. 5. RPF and RAP The Borrower shall: (a) prior to commencement of any civil works for rehabilitation, construction, reconstruction or upgrading a road infrastructure, or construction of the headquarters’ building, involving resettlement or involuntary resettlement or acquisition of land, prepare and implement, in accordance with the initial works program, appropriate resettlement plans for compensation, resettlement and rehabilitation of Displaced Persons, in accordance with the Resettlement Policy Framework, and in form and substance satisfactory to the Association; and (b) (i) carry out the RAP, in involuntary resettlement of Displaced Persons under Project activities on Atiak-Moyo road, Soroti-Lira road and Kampala-Gayaza- Zirobwe-Wobulenzi road; and (ii) ensure appropriate compensation, resettlement and rehabilitation of such Displaced Persons. C. Monitoring, Evaluation and Reporting 6. 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 set forth in Schedule 6 to this Agreement, the carrying out of the Project and the achievement of the objective thereof; (b) prepare, under terms of reference satisfactory to the Association, and furnish to the Association, on or about March 31 of each year, an annual 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 objective thereof during the period following such date; and Page 21 - 20 - (c) review with the Association, by June 30 of each year or such later date as the Association shall request, the report referred to in paragraph (d) above, and, thereafter, take all measures required for the achievement of the Project objectives based on the conclusions and recommendations of the said report and the Association’s view on the matter. 7. Midterm Review (a) The borrower shall not later than March 31, 2007, or such later date as shall be agreed by the Association, prepare, under terms of reference satisfactory to the Association, and furnish to the Association, a midterm review report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph 6 of this Schedule, 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 (b) review with the Association, by June 30, 2007, or such later date as the Association shall request, the report referred to in paragraph (a) above, 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 Associations views on the matter. Page 22 - 21 - SCHEDULE 5 Special Account 1. For the purposes of this Schedule: (a) the term “Eligible Categories” means Categories (1) and (2) 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 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 (c) the term “Authorized Allocation” means: (i) an amount equivalent to $2,000,000 in respect of the Special Account for Parts A, B, C, D and E of the Project to be withdrawn from the Credit Account and deposited into the said Special Account pursuant to paragraph 3 (a) of this Schedule, provided, however, that unless the Association shall otherwise agree, the said Authorized Allocation shall be limited to an amount equivalent to $1,000,000 until the aggregate amount of withdrawals from the Credit Account allocated to Categories (1)(a), 1(b) and (2) plus the total amount of all outstanding special commitments entered into by the Association pursuant to Section 5.02 of the General Conditions for Parts A, B, C, D and E of the Project shall be equal to or exceed the equivalent of SDR3,000,000. (ii) an amount equivalent to $1,000,000 in respect of the Special Account for Parts A.1, A.2, A.3, B, C, D and E of the Project to be withdrawn from the Grant Account and deposited into the said Special Account pursuant to paragraph 3 (a) of this Schedule, provided, however, that unless the Association shall otherwise agree, the said Authorized Allocation shall be limited to an amount equivalent to $500,000 until the aggregate amount of withdrawals from the Grant Account allocated to Categories (1)(a) and (2) plus the total amount of all outstanding special commitments entered into by the Association pursuant to Section 5.02 of the General Conditions for Parts A.1, A.2, A.3, B, C, D and E shall be equal to or exceed the equivalent of SDR2,000,000. Page 23 - 22 - 2. Payments out of the respective 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 respective Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the respective 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 respective 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 or the Grant Account and deposit into the respective Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the respective Special Account, the Borrower shall furnish to the Association requests for deposits into the respective 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 or Grant Account and deposit into the respective 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 or Grant 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 respective 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 any Special Account: Page 24 - 23 - (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 or Grant 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 Accounts; (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 and the Grant Account pursuant to the provisions of Section 6.02 of the General Conditions; or (d) once the total unwithdrawn amount of the Credit and the Grant allocated to the Eligible Categories for the respective Special Account 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 and the Grant Account of the remaining unwithdrawn amount of the Credit and the Grant 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 respective 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 any 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 respective 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 any 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 any 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. Page 25 - 24 - (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 Accounts. (d) Refunds to the Association made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Credit Account or the Grant Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. Page 26 - 25 - SCHEDULE 6 Performance Indicators Unless otherwise agreed to by the Association, for the purpose of this Agreement, the performance indicators for implementation of the Project are as follows: 1. Road Authority operational and fully staffed by end of 2005. 2. 167 km of national roads upgraded from gravel to bitumen standard, by the end of the Project. 3. 82 km of bitumen standard national roads reconstructed, by the end of the Project. 4. 91 km of gravel standard national roads reconstructed, by the end of the Project. 5. Detailed designs completed for 300 km of district roads for upgrading to bitumen standard and reclassification as national roads, by the end of the Project. 6. Feasibility Studies completed on upgrading of 600 km of national roads to bitumen standard, by the end of the Project. 7. Road Authority headquarter’s building: (a) design completed by end of 2005; and (b) construction completed by end of 2008. 8. The Borrower’s transport sector investment and recurrent expenditure program updated on annual basis by March 31 of each year, providing domestic financial resources adequate to at least cover its Project contribution and maintenance requirements on the national road network. Page 27 - 26 - SCHEDULE 7 Modifications to the General Conditions For the purpose of this Agreement, the provisions of the General Conditions are modified as follows: 1. Section 1.01 is modified to read: “Section 1.01. Application of General Conditions These General Conditions set forth the terms and conditions generally applicable to the Development Financing Agreement to the extent and subject to any modifications set forth in such agreement. 2. Section 2.01 is modified to read as follows: (a) Paragraph 3 of Section 2.01 is modified to read as follows: “3. “Borrower” means the party to the Development Financing Agreement to which the Financing is made.” (b) Paragraph 8 of Section 2.01 is modified to read as follows: “8. “Development Financing Agreement” means the particular Development Financing Agreement to which these General Conditions apply, as such agreement may be amended from time to time. Development Financing Agreement includes these General Conditions as applied thereto, and all schedules and agreements supplemental to the Development Financing Agreement.” (c) The following new paragraphs are added after paragraph 11 of Section 2.01, and paragraphs 12 through 14 are renumbered as paragraphs 16 through 18 accordingly: “12. “Grant” means the development grant provided for in the Development Financing Agreement.” “13. “Grant Account” means the account opened by the Association on its books in the name of the Borrower to which the amount of the Grant is credited.” Page 28 - 27 - “14. “Financing” means, collectively, the Credit and the Grant.” “15. “Financing Accounts” means, collectively, the Credit Account and the Grant Account (or, where the context so requires, either of the Credit Account or the Grant Account).” 3. The term “Credit”, wherever used in the following Articles and Sections of the General Conditions, is modified to read “Financing”: Sections 2.01(3), 2.01(12), 4.01, Article V, Article VI (excluding Section 6.05), Section 7.01(d), Article VIII, and Article IX. 4. The term “Credit Account”, wherever used in the following Articles and Sections of the General Conditions, is modified to read “Financing Accounts”: Section 2.01(6), the heading of Article III, 4.01, Article V, Article VI, and Section 12.03. 5. The term “Development Credit Agreement”, wherever used in the General Conditions, is modified to read “Development Financing Agreement”. 6. Article III is modified as follows: (a) Section 3.01 is modified to read as follows: “Section 3.01. Financing Accounts The amount of the Credit shall be credited to the Credit Account and may be withdrawn from the Credit Account by the Borrower as provided in the Development Financing Agreement and in these General Conditions. The amount of the Grant shall be credited to the Grant Account and may be withdrawn from the Grant Account by the Borrower as provided in the Development Financing Agreement and in these General Conditions.” (b) The words “The principal of, and service charges on, the Credit” in Section 3.05 are modified to read “All amounts required to be paid under the Development Financing Agreement”. 7. Article IV is modified as follows: (a) Section 4.02(a) and the heading of Section 4.02 are modified to read as follows: “Section 4.02. Currencies in which Payments are to be Made (a) The Borrower shall pay all amounts required to be paid by it under the Development Financing Agreement in the currency specified in such agreement or in such other eligible currency or currencies as may Page 29 - 28 - from time to time be designated or selected pursuant to paragraph (c) or (e) of this Section.” (b) Wherever used in Section 4.02(c) and (e) of the General Conditions, the words “principal and service charges” are modified to read “amounts”. (c) Section 4.06(b) is modified to read as follows: “(b) All amounts which the Borrower shall be required to pay under the Development Financing Agreement shall be paid without restrictions of any kind imposed by, or in the territory of, the Borrower.” 8. Section 6.02 is modified as follows: (a) The words “development credit” in Section 6.02(a)(ii) are deleted. (b) The words “loan or guarantee” in Section 6.02(a)(iii) are deleted. (c) The words “development credit” and the word “loan”, wherever used in Section 6.02(c), are deleted. 9. Section 6.05 is modified to read as follows: “Except as the Borrower and the Association shall otherwise agree, any cancellation of any amount of the Credit shall be applied pro rata to the several installments of the principal amount of the Credit maturing after the date of such cancellation.” 10. Section 7.01 is modified to read as follows: (a) The words “principal or interest or any other amount” in Section 7.01(b) are modified to read “any amount”. (b) The words “development credit” in Section 7.01(b)(i) are deleted. (c) The words “loan or guarantee” in Section 7.01(b)(ii) are deleted. 11. Section 8.01(a) is modified to read as follows: “(a) All amounts which the Borrower shall be required to pay under the Development Financing Agreement shall be paid without deduction for, and free from, any taxes levied by, or in the territory of, the Borrower.” 12. Paragraph (c) of Section 9.06 is modified to read as follows: Page 30 - 29 - “(c) Not later than six months before 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 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 Financing Agreement and the accomplishment of the purposes of the Financing.”