Page 1 CONFORMED COPY CREDIT NUMBER 3799 - AF GRANT NUMBER H054 - AF DEVELOPMENT FINANCING AGREEMENT (National Emergency Employment Program For Rural Access Project) between TRANSITIONAL ISLAMIC STATE OF AFGHANISTAN and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated June 30, 2003 Page 2 CREDIT NUMBER 3799 - AF GRANT NUMBER H054 -AF DEVELOPMENT FINANCING AGREEMENT AGREEMENT, dated June 30, 2003, between TRANSITIONAL ISLAMIC STATE OF AFGHANISTAN (the Borrower) and 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) 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; 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: 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 October 6, 1999), 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) “AACA” means the Afghanistan Assistance Coordination Authority, an authority established pursuant to a Decree of the Borrower dated March 30, 2002, as the same may be amended from time to time; (b) “Beneficiary” means a village or neighborhood community or group which meets the criteria specified in the Project Implementation Manual for the making Page 3 - 2 - of Sub-Grants and to which or for whose benefit a Sub-Grant is made or proposed to be made; (c) “Environmental and Social Safeguards Framework” means the Borrower’s Environmental and Social Safeguards Framework, as amended, furnished to the Association in April 2003, which includes: (i) key policy principles for social and environmental management; (ii) tools to (A) guide the screening of Subprojects for significant social and environmental impacts, and (B) assist in the mitigation of such impacts; (iii) procedures to ensure that these principles and tools are appropriately applied; and (iv) guidelines and an action plan for capacity building and monitoring, as such Environmental and Social Safeguards Framework may be amended from time to time by agreement between the Borrower and the Association; (d) “Financial Monitoring Report” means each report prepared in accordance with Section 4.02 of this Agreement; (e) “JPMU” means the Joint Program Management Unit referred to in paragraph 3 (b) of Part A of Schedule 4 to this Agreement; (f) “Mid-term Review” means the Mid-term Review referred to in paragraph 9 of Part C of Schedule 4 to this Agreement; (g) “MIS” means Management Information System; (h) “MPW” means the Borrower’s Ministry of Public Works or any successor thereof; (i) “MRRD” means the Borrower’s Ministry of Rural Rehabilitation and Development or any successor thereof; (j) “NEEP” means the Borrower’s National Emergency Employment Program launched in 2002 by the Borrower to provide a timely, efficient, self-targeting and widespread cash-for-work based social safety net for the poor; (k) “NEEP Framework” means the framework for the carrying out of NEEP activities developed with various stakeholder ministries of the Borrower, as the same may be amended from time to time by agreement between the Borrower and the Association; (l) “NGO” means a non-governmental organization registered and operating under the laws of the Borrower or those of another jurisdiction; (m) “NIB” means the National Inter-ministerial Board referred to in paragraph 3 (a) of Part A of Schedule 4 to this Agreement; Page 4 - 3 - (n) “Project Implementation Manual” means the Project Implementation Manual referred to in paragraph 1 (a) of Part A of Schedule 4 to this Agreement which sets out details of all procedures, guidelines, timetables and criteria required for the Project, including the financial, administrative and operational arrangements relating to the carrying out of the Project, as such Project Implementation Manual may be amended from time to time by agreement between the Borrower and the Association; (o) “Province” means an administrative division within the Borrower’s territory; (p) “Special Account” means the account referred to in Section 2.02 (b) of this Agreement; (q) “Sub-Grant” means a Sub-Grant made under the Project for the carrying out of one or more Subprojects; (r) “Sub-Grant Agreement” means the agreement referred to in paragraph 5 of Part B of Schedule 4 to this Agreement; (s) “Sub-Project” means a project or activity to be carried out under the Project which, having met the eligibility criteria set out in the Project Implementation Manual and the provisions of Schedule 4 to this Agreement, shall be eligible for financing, on a grant basis, in accordance with the provisions of the Project Implementation Manual; and (t) “TSUs” means the Technical Support Units referred to in paragraph 3 (c) of Part A of Schedule 4 to this Agreement. ARTICLE II The Financing Section 2.01. The Association agrees, on the terms and conditions set forth or referred to in this Agreement: (a) to lend to the Borrower an amount in various currencies equivalent to fourteen million eight hundred thousand Special Drawing Rights (SDR 14,800,000); and (b) to make available to the Borrower an amount in various currencies equivalent to thirteen million six hundred thousand Special Drawing Rights (SDR 13,600,000). 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 Page 5 - 4 - (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, and amounts paid (or, if the Association shall so agree, to be paid) under Sub-grants, 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 a special deposit account in its central bank on terms and conditions satisfactory to the Association. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 5 to this Agreement. Section 2.03. The Closing Date shall be September 30, 2006, 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, but 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 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) 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 June 15 and December 15 in each year. Page 6 - 5 - 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, 2013 and ending June 15, 2043. Each installment to and including the installment payable on June 2023 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, 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. Page 7 - 6 - ARTICLE III 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 through MRRD and MPW with due diligence and efficiency and in conformity with appropriate administrative, financial, technical and environmental 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. 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 Financing shall be governed by the provisions of Schedule 3 to this Agreement. Section 3.03. 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 after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Association, a plan designed to ensure sustainability 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 a format acceptable to the Association, adequate to reflect the operations, resources and expenditures related to the Project. (b) The Borrower shall: (i) have the records, accounts and financial statements referred to in paragraph (a) of this Section and the records and accounts for Page 8 - 7 - the Special Account for each fiscal year audited, in accordance with auditing standards acceptable to the Association, 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 months after the end of each such year, (A) certified copies of the financial statements referred to in paragraph (a) of this Section for such year as so audited, and (B) an opinion on such statements, records and accounts and 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 such records and accounts, and the audit thereof, 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) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and separate 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 Financing Accounts 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. Section 4.02. (a) Without limitation upon the Borrower’s progress reporting obligations set out in Part C of Schedule 4 to this Agreement, the Borrower shall prepare Page 9 - 8 - 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 Financing, 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 (iii) sets forth the status of procurement under the Project, as at the end of the period covered by said report. (b) The first Financial Monitoring Report shall be furnished to the Association not later than forty-five (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 Financial Monitoring Report shall be furnished to the Association not later than forty-five (45) days after each subsequent calendar quarter, and shall cover such calendar quarter. ARTICLE V Termination Section 5.01. The date one hundred and twenty (120) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VI Representative of the Borrower; Addresses Section 6.01. The Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Page 10 - 9 - Section 6.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance Kabul Transitional Islamic State of Afghanistan 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) IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in Dubai, United Arab Emirates, as of the day and year first above written. TRANSITIONAL ISLAMIC STATE OF AFGHANISTAN By /s/ Abdul Salam Rahimi Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Alastair McKechnie For Regional Vice President South Asia Region Page 11 - 10 - 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 Credit and the amounts of the Grant to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Amount of the Credit Allocated Grant Allocated % of (Expressed in (Expressed in Expenditures Category SDR Equivalent) SDR Equivalent) to be Financed (1) Sub-Grants: 100% of amounts disbursed (a) under Part A.1 8,000,000 of the Project (b) under Part A.2 11,100,000 of the Project (c) under Part B 150,000 of the Project (2) Goods: 100% (a) under Part A.1 300,000 of the Project (b) under Part A.2 1,700,000 of the Project (c) under Part B 720,000 of the Project (3) Consultants’ 100% services, training and audits: (a) under Part A.1 1,600,000 of the Project Page 12 - 11 - Amount of the Amount of the Credit Allocated Grant Allocated % of (Expressed in (Expressed in Expenditures Category SDR Equivalent) SDR Equivalent) to be Financed (b) under Part A.2 1,600,000 of the Project (c) under Part B 1,700,000 of the Project (4) Incremental 100% Operating Costs: (a) under Part A.1 100,000 of the Project (b) under Part A.2 400,000 of the Project (c) under Part B 1,030,000 of the Project _________ ________ TOTAL 14,800,000 13,600,000 2. For the purposes of this Schedule, the term “Incremental Operating Costs” means the incremental expensed incurred on account of Project implementation and management, including the installation, operation and maintenance of vehicles, computers and office equipment, communication and insurance costs, office administration costs, Special Account banking charges, utility charges, domestic travel and per diem allowances, but excluding salaries of the officials of the Borrower’s civil service. 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, except that withdrawals may be made, in an aggregate amount not exceeding the equivalent of SDR 2,840,000 in respect of Categories (1), (2), (3) and (4) on account of payments made for expenditures before that date but after April 20, 2003. 4. The Association may require withdrawals from the Credit Account and the Grant Account to be made on the basis of statements of expenditure for expenditures for: (a) all contracts for Sub-Grants under Parts A.1 and B of the Project ; (b) Sub-Grants for civil works under Part A.2 of the Project costing less than $500,000 equivalent; (c) goods under contracts costing less than $100,000 equivalent each; (d) consultants services provided by firms under contracts costing less than $100,000 equivalent each; Page 13 - 12 - (e) consultants services provided by individuals under contracts costing less than $50,000 equivalent each; and (f) all training, audits and Incremental Operating Costs, all under such terms and conditions as the Association shall specify by notice to the Borrower. Page 14 -13- SCHEDULE 2 Description of the Project The objective of the Project, which forms part of the Borrower’s National Emergency Employment Program (NEEP), is to assist the Borrower in providing targeted social protection, and in the improvement of key rural access infrastructure, for the improvement of livelihoods of the rural poor in the Borrower’s territory through the provision of: (i) emergency short-term employment opportunities for the poor on labor- based rural access infrastructure improvement Subprojects; and (ii) technical assistance for the implementation of NEEP. 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 : Labor-based Rural Access Infrastructure 1. The carrying out by MRRD, utilizing the services of an implementation consultant, of Sub-projects for the maintenance and rehabilitation of tertiary rural access infrastructure, including: (i) the provision of consultants’ service and training; (ii) the acquisition of equipment and goods; and (iii) the making of grants for the Subprojects. 2. The carrying out by MPW, utilizing the services of an implementation consultant, of Sub-projects for secondary rural access infrastructure in all Provinces of the Borrower’s territory, including: (i) the provision of consultants’ services and training and the acquisition of equipment and goods; (ii) the erection of removable bridge structures for the restoration of rural access in critical locations; and (iii) the making of grants for the Sub-projects. Part B : Technical Assistance for NEEP 1. The provision by MRRD, utilizing the services of an implementation consultant, of assistance to the Joint Program Management Unit (JPMU) and its provincial structures, namely the Technical Support Units (TSUs) for the strengthening of JPMU. 2. The establishment and strengthening of the TSUs through: (i) the provision of technical advisory services; (ii) the making of grants for Sub-projects; (iii) the provision of training; (iv) the acquisition of equipment and goods; and (v) the carrying out of studies and surveys. * * * The Project is expected to be completed by March 31, 2006. Page 15 - 14 - SCHEDULE 3 Procurement and Consultants’ Services Section I . Procurement of Goods 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, September 1997 and January 1999 (the Guidelines); and the following provisions of Section I of this Schedule. Part B : Other Procurement Procedures 1. Limited International Bidding The following items may be procured under contracts awarded in accordance with the provisions of paragraph 3.2 of the Guidelines, namely: (i) goods estimated to cost $200,000 equivalent or more per contract; (ii) goods which the Association agrees can only be purchased from a limited number of suppliers, regardless of the cost thereof; and (iii) works involving the construction of cross drainage structures, such as bridges and culverts. Bidding documents may provide that bidders may send their bids by facsimile, in which case, bid security shall not be required. Furthermore, the entity responsible for the procurement of the above-mentioned goods or works shall be required to put in place arrangements satisfactory to the Association to ensure confidentiality of the bids received by facsimile. 2. National Competitive Bidding (a) Goods estimated to cost more than $50,000 equivalent per contract but less than $200,000 equivalent per contract, up to an aggregate amount not to exceed $900,000 equivalent, may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines and the procedures set out in the Annex to this Schedule. (b) Works included in Subprojects which have engineering or implementation complexity and estimated to cost more than $30,000 equivalent per Subproject, may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines and the procedures set out in the Annex to this Schedule. Page 16 - 15 - 3. International or National Shopping Goods estimated to cost less than $50,000 equivalent per contract, may be procured under contracts awarded on the basis of international or national shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. 4. Direct Contracting Goods estimated to cost less than $10,000 equivalent per contract may, with the Association’s prior agreement, be procured in accordance with the provisions of paragraph 3.7 of the Guidelines. 5. Community Participation under Subprojects Works estimated to cost the equivalent of $30,000 or less per contract, up to an aggregate amount not exceeding $2,000,000 equivalent, may be carried out directly by the community or be procured through either of the following methods and in accordance with paragraph 3.15 of the Guidelines: (i) direct contracting of all or part of the works to NGOs, community organizations, and qualified domestic contractors and/or suppliers; or (ii) obtaining quotations from qualified domestic contractors with respect to all or part of the works. Part C : Review by the Association of Procurement Decisions 1. Procurement Planning Prior to the issuance of any invitations 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 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 (a) The procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply with respect to: (i) the first three Subprojects under Part A.1 of the Project with minor engineering requirements; (ii) the first two Subprojects under Part A.1 of the Project with engineering and implementation complexity; (iii) the first two Subprojects under Part A.2 of the Project for secondary rural access infrastructure; and (iv) works estimated to cost the equivalent of $500,000 or more. Page 17 - 16 - (b) With respect to each contract for goods estimated to cost the equivalent of $100,000 or more; and (ii) each contract to be procured in accordance with the provisions of Parts B.3 and B.4 of this Schedule, the following procedures shall apply: (i) prior to the selection of any supplier or contractor, the Borrower shall provide to the Association a report on the comparison and evaluation of quotations received; (ii) prior to the execution of any contract procured under shopping procedures, through direct contracting or from a UN Agency, the Borrower shall provide to the Association a copy of the specifications and the draft contract; and (iii) the procedures set forth in paragraphs 2(f), 2(g) 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 Part A : General Consultants’ services shall be procured in accordance with the provisions of Sections I and IV of the “Guidelines: Selection and Employment of Consultants by World Bank Borrowers”, published by the Bank in January 1997 and revised in September 1997, January 1999 and May 2002 (the Consultant Guidelines), paragraph 1 of Appendix 1 thereto, Appendix 2 thereto and the following provisions of Section II of this Schedule. Part B : Quality- and Cost-based Selection 1. 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. 2. The following provisions shall apply to consultants’ services to be procured under contracts awarded in accordance with the provisions of the preceding paragraph. The short list of consultants for services for the Project, estimated to cost less than $50,000 equivalent per contract, may comprise entirely national consultants in Page 18 - 17 - accordance with the provisions of paragraph 2.7 and footnote 8 of the Consultant Guidelines. Part C : Other Procedures for the Selection of Consultants 1. Quality-based Selection Services for the inventory and mapping of secondary and tertiary roads and services for irrigation inventory costing $200,000 equivalent or more per contract may be procured under contracts awarded in accordance with the provisions of paragraphs 3.1 and 3.4 of the Consultant Guidelines. 2. Selection Based on Consultants’ Qualifications Services costing less than $200,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions of paragraphs 3.1 and 3.7 of the Consultant Guidelines. 3. Individual Consultants Expert financial services required under 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. 4. Single Source Selection Services costing less than $100,000 equivalent per contract and the services of a United Nations Agency for Implementation Consultancy may, with the Association’s prior agreement, be procured in accordance with the provisions of paragraphs 3.8 through 3.11 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. Page 19 - 18 - 2. Prior Review (a) With respect to each contract for: (i) the employment of consulting firms estimated to cost the equivalent of $100,000 or more; and (ii) the procurement of services under single source selection procedures, the procedures set forth in paragraphs 1, 2, 3 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 the said approval shall have been given. The provisions of paragraph 3 of Appendix 1 to the Consultant Guidelines shall also apply to such contracts. 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 Consultant Guidelines shall apply. Page 20 - 19 - ANNEX to SCHEDULE 3 Procedures for National Competitive Bidding A. Advertising 1. The invitation for bids shall be advertised in a newspaper of local circulation in the areas where the civil works are to be provided, and the goods are to be supplied. In those areas where this is not possible, the invitation for bids shall be posted at such place or places as shall be appropriate. 2. The invitation for bids shall be in local language and in such other language as may be deemed appropriate by the Borrower’s department or agency concerned, and shall include the information referred to in the model invitation for bids set forth in the Association’s sample bidding documents for procurement of small works (in the case of civil works contracts) and for procurement of goods (in the case of goods), published by the Association on January 1995 and January 2001, respectively. 3. With due regard to the nature of the civil works to be provided and the goods to be supplied, the time period for bid submission from the date of invitation shall be sufficient to allow potential bidders a reasonable time to prepare and submit their bids. It shall be no less than thirty (30) calendar days, unless otherwise agreed with the Association. B. Eligibility 1. The eligibility of bidders and the origin of goods supplied shall be as defined under the “Guidelines for Procurement under IBRD Loans and IDA Credits”, published by the Association in January 1995 and revised in January and August 1996, September 1997 and January 1999 (the Guidelines). 2. Foreign bidders shall be allowed to bid, if they wish to do so. 3. Joint ventures between foreign and local firms shall not be a condition for eligibility. Foreign bidders shall be allowed to bid alone. Nevertheless, foreign bidders may be required to have a local agent/intermediary in the Borrower’s territory. C. Bidding 1. In addition to the invitation for bids, the bidding documents shall include the following: Page 21 - 20 - (a) instructions to bidders, including the criteria to be used for bid evaluations; (b) conditions of contract; (c) technical specifications; (d) bid form and price schedules; and (e) performance security (optional for bids below a dollar equivalent sum to be agreed with the Association). 2. In case of civil works, the bidding documents shall also include a bill of quantities or a breakdown of the lump sum price, as the case may be. 3. Bids may be expressed in local currency or in such other foreign currency as may be set forth in the invitation for bids. If the currency of payment set forth in the invitation for bids is the local currency, the invitations may indicate that there is no obligation on the part of the Borrower’s department or agency requesting the bids to convert into foreign currency the amounts to be paid. 4. Bidding documents shall be prepared in the local language or in such other language as may be deemed appropriate by the Borrower’s department or agency concerned. 5. Bids may be delivered by mail or by hand at the place set forth for such purposes in the invitation for bids. 6. Bids shall be opened publicly to allow representatives of the bidders to attend if they so desire. Bids shall not be modified after the opening of bids except to correct arithmetical errors. All bids shall be opened at the same time. 7. Bids may not be rejected for the sole purpose of obtaining lower bids. The Borrower shall consult with the Association prior to rejecting all bids or soliciting new bids. All bids may not be rejected and new bids invited on the same specifications solely for the purposes of obtaining lower prices, except in cases where the lowest evaluated bid exceeds the cost estimates by a substantial amount. In such cases, the Borrower may, as an alternative to rebidding and with the prior concurrence of the Association, negotiate with the lowest evaluated bidder to try to obtain a satisfactory contract, and, failing a satisfactory response, with the next lowest evaluated bidder. Rejection of all bids may be permissible when bids are not substantially responsive or in case of a lack of effective competition. Page 22 - 21 - 8. In the comparison of bids between local and foreign bidders, no domestic or regional preference to local bidders shall apply. Bids shall be compared on the basis of delivered price, inclusive of any prevailing duties. 9. Contracts shall be awarded to the lowest evaluated responsive bidder. Price negotiation with bidders shall not be undertaken before the contract is awarded except as provided in paragraph 6 above. 10. The award of contract shall be made within the period specified in the bidding documents. This period shall be determined in each case (goods or works) depending on the complexity of the contract and the approval. 11. A bid evaluation report shall be prepared by the Borrower’s department or agency requesting the bids setting out a record of all bids submitted, the reasons for disqualification of any bids, the criteria, weighing and evaluation of all responsive bids, the recommended award, and, if recommended award is to other than the lowest price bidder, the reasons therefore. The concerned Borrower’s department or agency shall furnish to the Association a translation in the English language of such bid evaluation report in accordance with paragraphs 2 and 3 or Appendix 1 to the Guidelines. Page 23 - 22 - SCHEDULE 4 Implementation Program A. General 1. (a) The Borrower shall maintain the Project Implementation Manual, the Environmental and Social Safeguards Framework and the NEEP Framework each in a form and substance satisfactory to the Association. (b) The Borrower shall carry out the Project in accordance with the Project Implementation Manual, the Environmental and Social Safeguards Framework and the NEEP Framework and, except as the Association shall otherwise agree, the Borrower shall not amend or waive any provision of either the Project Implementation Manual, the Environmental and Social Safeguards Framework and the NEEP Framework 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 objectives thereof. (c) The Borrower shall cause AACA to assist MRRD and MPW in the carrying out of the procurement process under the Project. (d) MRRD shall be responsible for the tertiary rural access infrastructure included in the Project and MPW for the secondary rural access infrastructure included in the Project. MRRD and MPW shall each under arrangements satisfactory to the Association engage competent implementation consultants to assist in the carrying out of various tasks relating to the preparation and implementation of Sub-Projects. 2. (a) The Borrower shall: (i) maintain each of the following Frameworks in a form and substance satisfactory to the Association, namely, the Environmental and Social Safeguards Framework and the NEEP Framework; and (ii) implement the Environmental and Social Safeguards Framework in accordance with the objectives, policies, procedures, time schedules and other provisions set forth in the Framework. (b) The Borrower shall refrain from taking any action which shall prevent or interfere with the implementation of the Environmental and Social Safeguards Framework. (c) The Borrower shall: (i) continue to conduct annual monitoring of the environmental impacts of Project implementation for at least the two years immediately following the Closing Date; and (ii) employ not later than the Closing Date qualified consultants to complete an independent impact evaluation report with respect to the implementation of the Environmental and Social Safeguards Framework and the outcomes thereof, all in accordance with time schedules and format agreed with the Association. Page 24 - 23 - (d) The Borrower shall ensure that at all times: (i) archaeological finds and other cultural property are appropriately handled and monitored; and (ii) potential impacts of Project activities on archaeological finds are appropriately mitigated in accordance with the guidelines and safeguard procedures set forth in the Social and Environmental Safeguards Framework. (e) The Borrower shall ensure that procedures, satisfactory to the Association, for mine risk management as detailed in the Social and Environmental Safeguards Framework are followed at all times in the course of Project implementation and that all risk assessment and clearance tasks relating to mines are implemented in coordination with the Mine Action Center for Afghanistan. 3. (a) The Borrower shall, no later than August 31, 2003 establish, and thereafter maintain, with functions, staffing and resources satisfactory to the Association the National Inter-ministerial Board (NIB) to be responsible for policy development, overall resource allocations and oversight of NEEP. (b) The Borrower shall maintain, with functions, staffing and resources satisfactory to the Association the Joint Program Management Unit (JPMU) to be responsible for the day to day management of NEEP. (c) The Borrower shall, no later than January 31, 2004 establish at the Provincial level, and thereafter maintain, with functions, staffing and resources satisfactory to the Association Technical Support Units (TSUs) to coordinate and supervise the labor-based rural access infrastructure improvement Sub-Projects within the NEEP framework. B. Sub-Projects 4. (a) To be eligible for a Sub-Grant, a Beneficiary must furnish a Sub-Project proposal to the Borrower that fully satisfies the criteria specified in the Project Implementation Manual for Sub-Grant financing. (b) In the evaluation of each Sub-Project proposal, consideration shall be given to the Beneficiary’s capacity to carry out, manage and maintain the Sub-Project in conformity with appropriate administrative, financial, technical, environmental and managerial standards. 5. The Borrower shall, through MRRD and MPW, make appropriate amounts of the proceeds of the Grant available, as a Sub-Grant, to a Beneficiary under a Sub-Grant Agreement to be entered into by the Beneficiary and: (i) MRRD, or its Implementation Consultant on behalf of MRRD, with respect to tertiary rural access infrastructure included in the Project; and (ii) MPW, or its Implementation Consultant on behalf of MPW, with respect to secondary rural access infrastructure included in the Project. The Page 25 - 24 - Sub-Grant Agreement shall provide for rights adequate to protect the interests of the Association and the Borrower including to the extent that it shall be appropriate the right to: (i) require the Beneficiary to carry out the Sub-Project with due diligence and efficiency and in accordance with sound administrative, financial, technical and managerial standards; and maintain adequate records for the Sub- Project concerned; (ii) require that all goods and services required for the Sub-Project shall be procured in accordance with the provisions of Schedule 3 to this Agreement; (iii) require that such goods and services shall be used exclusively in the carrying out of the Sub-Project; (iv) inspect, by itself or jointly with representatives of the Association if the Association shall so request, any goods, works, plants and construction included in the Sub-Project, the operation thereof, and any relevant records and documents; and (v) suspend or terminate the right of the Beneficiary to the use of the proceeds of the Sub-Grant upon the failure by the Beneficiary to perform any of its obligations under the Sub-Grant Agreement. C. Reports and Reviews 6. The Borrower shall maintain within JPMU policies and procedures, including a management information system (MIS) for the Project, 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 objectives thereof. 7. The Borrower shall prepare, under terms of reference satisfactory to the Association, and furnish to the Association on a quarterly basis, commencing December 31, 2003 a report on the progress achieved in the implementation of the Project and the achievement of the objectives thereof. 8. The Borrower shall no later than April 30, 2003, prepare and furnish to the Association a report (the Mid-term Review Preparatory Report) to constitute the basis upon which the Midterm Review shall take place. The Mid-term Review Preparatory Report shall: (i) integrate and set out the results of the monitoring and evaluation activities performed pursuant to paragraph 6 of Part C of this Schedule; (ii) consolidate the results of the reports referred to in paragraph 7 of Part C of this Schedule on the progress achieved in the carrying out of the Project during the period preceding the date Page 26 - 25 - of said report; and (iii) set out the measures recommended for the efficient carrying out of the Project and the achievement of the objectives thereof during the period following the date of the Mid-term Review Preparatory Report. 9. The Borrower shall: (i) carry out a review (the Mid-term Review) of the Project with the Association by May 31, 2005, or such later date as the Association shall request of the conclusions and recommendations set out in the Mid-term Review Preparatory Report; (ii) after a review of the contents of said Report prepare a Mid-term Review Report setting out the conclusions and recommendations of the Mid-term Review; and (iii) thereafter, take all measures required to ensure the efficient completion of the Project and the achievement of the objectives thereof on the basis of the said conclusions and recommendations and the Association’s views thereon. Page 27 - 26 - SCHEDULE 5 Special Account 1. For the purposes of this Schedule: (a) the term “eligible Categories” means Categories (1), (2), (3) and (4) 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 Financing 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 an amount equivalent to $1,000,000 to be withdrawn from the Credit Account or the Grant Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule. 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 or the Grant 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 or the Grant 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 Page 28 - 27 - 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 the 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 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 or the 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 Account; (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, minus the total amount of all outstanding special commitments entered into by the Association pursuant to Section 5.02 of the General Conditions, 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 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 Page 29 - 28 - 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. Page 30 - 29 - SCHEDULE 6 Performance Indicators The performance indicators for the Project shall include the following said indicators being subject to modification from time to time by agreement of the Borrower and the Association: Outputs : 1. A minimum of 2,000 km of roads rehabilitated. 2. A minimum of 2,300 m of bridges rehabilitated. 3. A minimum of 6 million unskilled labor days of employment generated. Page 31 - 30 - SCHEDULE 7 Modifications of General Conditions For the purpose of this Agreement, the provisions of the General Conditions are modified as follows: 1. Section 1.01 is amended to read: “These General Conditions set forth certain terms and conditions generally applicable to development financing granted by the Association as a development credit and development grant to its members. They apply to any development financing agreement providing for any such development finance to the extent and subject to any modifications set forth in such agreement. 2. Paragraph 8 of Section 2.01 is amended 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. 3. The following new paragraphs are added to Section 2.01: ‘15. “Grant” means the development grant provided for in the Development Financing Agreement; 16. “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; 17. “Financing” means, collectively, the Credit and the Grant; and 18. “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).’ 4. The term “Credit”, wherever used in the following Articles and Sections of the General Conditions, is amended 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. 5. The term “Credit Account”, wherever used in the following Articles and Sections of the General Conditions, is amended to read “Financing Accounts”: Section 2.01(6), 4.01, Article V, Article VI, and Section 12.03. Page 32 - 31 - 6 . The term “Development Credit Agreement”, wherever used in the General Conditions, is amended to read the Development Financing Agreement. 7. 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.” 8. The phrase in parentheses “(including any development financing agreement or development grant agreement)” is added to: (i) Section 6.02(a)(ii) after the words “any development credit agreement” and before the words “between the Borrower and the Association”; (ii) Section 6.02(c)(i) after the words “any development credit agreement” and before the words “with the Association”; and (iii) Section 7.01(b)(i) after the words “any other development credit agreement” and before the words “between the Borrower and the Association”. 9. Section 6.05 is amended 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”.