Page 1 CONFORMED COPY CREDIT NUMBER 3335-YEM Development Credit Agreement (Civil Service Modernization Project) between REPUBLIC OF YEMEN and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated May 12, 2000 CREDIT NUMBER 3335-YEM DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated May 12, 2000, between REPUBLIC OF YEMEN (the Borrower) and the INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) the Association has received a letter dated March 1, 2000, from the Borrower describing the Borrower’s civil service modernization program (the Program), setting out certain measures required to carry out the Program and declaring the Borrower's commitment to the execution of the Program; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: 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 December 2, 1997) with the modifications set forth below (the General Conditions) constitute an integral part of this Agreement: Page 2 (a) A new paragraph (c) is added to Section 3.04 to read: “If the Association shall at any time receive less than the full amount then due and payable to it under the Development Credit Agreement, the Association shall have the right to allocate and apply the amount so received in any manner and for such purposes under the Development Credit Agreement as the Association shall in its sole discretion determine.”; and (b) Section 11.01 is modified by replacing, in the second sentence, the word “radiogram” with the word “facsimile” and adding a new sentence at the end of the said Section to read: “Deliveries made by facsimile transmission shall also be confirmed by mail.” 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) “Civil Service Fund” means the fund referred to under Part D of the Project, established pursuant to the Borrower’s Presidential Decree No. 1 of 1999, and funded out of the Borrower’s own resources, whose purpose is to finance, for a limited period of time, the wage bill of surplus staff, identified as such under Part C.1 of the Project, prior to providing buy-out packages to said staff in accordance with guidelines to be developed by the Borrower and to be acceptable to the Association; (b) “Eligible Categories” means, in respect of the Special Account for Part B of the Project, Categories (1) (a), (2) (a), (3) (a), and (4) (a) set forth in the table in Part A.1 of Schedule 1 to this Agreement and, in respect of the Special Account for Parts A, C, D, E and F of the Project, Categories (1) (b), (2) (b), (3) (b) and (4) (b) set forth in the table in Part A.1 of Schedule 1 to this Agreement; (c) “Eligible Expenditures” means, in respect of the Special Account for Part B of the Project, the expenditures for goods and services referred to in Section 2.02 (a) of this Agreement and to be financed out of the proceeds of the Credit allocated from time to time to said Special Account’s respective Eligible Categories; and in respect of the Special Account for Parts A, C, D, E and F of the Project, the expenditures for goods and services referred to in Section 2.02 (a) of this Agreement and to be financed out of the proceeds of the Credit allocated from time to time to said Special Account’s respective Eligible Categories; (d) “Innovation Fund” means the fund referred to under Part C.2 (a) of the Project whose purpose is to provide an alternative track for ad hoc initiatives under Part C.1 of the Project that shall not have been initially contemplated to take place under the Program and shall be deemed to have a clear benefit to the population at large; (e) “Project Implementation Plan" means the Borrower’s plan, agreed between the Borrower and the Association, for the implementation of the Project which sets out the targets and indicators to be used in evaluating progress toward the achievement of the objectives of the Project; (f) “Project Management Report” means each report prepared in accordance with the provisions of Section 4.02 of this Agreement; (g) “Project Preparation Advance” means the Project preparation advance granted by the Association to the Borrower pursuant to the letter agreement signed on behalf of the Association on February 12, 1998, and on behalf of the Borrower on February 25, 1998; (h) “SCCSAR” means the Supreme Council for Civil Service and Administrative Reform, established pursuant to the Borrower’s Presidential Decree No. 250 of 1997, as the same may be amended from time to time; (i) “Special Accounts" means the accounts referred to in Part B of Schedule 1 Page 3 to this Agreement; (j) “TS” means the Technical Secretariat created, structured and operating pursuant to the TS Decree (as this term is hereinafter defined); and (k) “TS Decree” means Decree No. 74 of 1997, as the same may be amended from time to time. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, an amount in various currencies equivalent to twenty two million four hundred thousand Special Drawing Rights (SDR22,400,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Credit. (b) Promptly after the Effective Date, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and pay itself the amount required to repay the principal amount of the Project Preparation Advance withdrawn and outstanding as of such date and to pay all unpaid charges thereon. The unwithdrawn balance of the authorized amount of the Project Preparation Advance shall thereupon be canceled. Section 2.03. The Closing Date shall be December 31, 2005, or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from the date sixty days (60) after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or canceled; and (ii) at the rate set as of the June 30 immediately preceding the accrual date and at such other rates as may be set from time to time thereafter pursuant to paragraph (a) above. The rate set as of June 30 in each year shall be applied from the next date in that year specified in Section 2.06 of this Agreement. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semi-annually on April 15 and October 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 April 15 and October 15 commencing October 15, 2010, and ending April 15, 2040. Each installment to and including the installment payable on April 15, 2020, shall be one percent (1%) of such principal amount, and each installment thereafter shall be two percent (2%) of such principal amount. Page 4 (b) Whenever: (i) the Borrower's per capita gross national product (GNP), as determined by the Association, shall have exceeded for three (3) consecutive years the level established annually by the Association for determining eligibility to access the Association's resources; and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due consideration by them of the development of the Borrower's economy, modify the repayment of installments under paragraph (a) above by: (A) requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid; and (B) requiring the Borrower to commence repayment of the principal amount of the Credit as of the first semiannual payment date referred to in paragraph (a) above falling six (6) months or more after the date on which the Association notifies the Borrower that the events set out in this paragraph (b) have occurred, provided, however, that there shall be a grace period of a minimum of five (5) years on such repayment of principal. (c) If so requested by the Borrower, the Association may revise the modification referred to in paragraph (b) above to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (d) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, shall carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, technical and civil service standards and 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 and consultants' services required for the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to this Agreement. Section 3.03. For the purposes of Section 9.07 of the General Conditions and without limitation thereto, the Borrower shall: (a) prepare, on the basis of guidelines acceptable to the Association and furnish to 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 for the continued achievement of the objectives of the Project; and (b) afford the Association a reasonable opportunity to exchange views with the Borrower on said plan. Page 5 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 its records, accounts and financial statements referred to in paragraph (a) of this Section and the records and accounts for the Special Accounts for each fiscal year audited, in accordance with appropriate 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 (6) 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 statement 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 said records, accounts and financial statements, 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 Credit Account were made on the basis of Project Management Reports or 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 (1) year after the Association has received the audit report for the fiscal year in which the last withdrawal from the Credit Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association’s representatives to examine such records; and (iv) Ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. Section 4.02. (a) Without limitation upon the provisions of Section 4.01 of this Agreement, the Borrower shall carry out a time-bound action plan acceptable to the Association for the strengthening of its financial management system for the Project in order to enable the Borrower, not later than June 30, 2001, or such later date as the Association shall agree, to prepare quarterly Project Management Reports, acceptable to the Association, each of which shall: (i) (A) set forth actual sources and applications of funds for the Project, both cumulatively and for the period covered by said report, and projected sources and applications of funds for the Project for the six-month period following the period covered by said Page 6 report, and (B) show separately expenditures financed out of the proceeds of the Credit during the period covered by said report and expenditures proposed to be financed out of the proceeds of the Credit during the six-month period following the period covered by said report; (ii) (A) describe progress in Project implementation, both cumulatively and for the period covered by said report, and (B) explain variances between actual and previously forecast implementation targets; and (iii) set forth the status of procurement under the Project and expenditures under contracts financed out of the proceeds of the Credit, as at the end of the period covered by said report. (b) Upon the completion of the action plan referred to in paragraph (a) of this Section, the Borrower shall prepare, in accordance with guidelines acceptable to the Association, and furnish to the Association not later than forty-five (45) days after the end of each calendar quarter a Project Management Report for such period. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (l) of the General Conditions, the following additional events are specified: (a) that a situation shall have arisen which shall make it improbable that the Program or a significant part thereof will be carried out; and (b) that the Borrower, or any authority having jurisdiction, shall have taken any action for the dissolution or disestablishment of the Civil Service Fund or for the suspension of its operations. 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 (b) shall have occurred. ARTICLE VI Effective Date; Termination Section 6.01. The following event is specified as an additional condition to the effectiveness of this Agreement within the meaning of Section 12.01 (b) of the General Conditions, namely, that the financial management system referred to under Section 4.01 (a) of this Agreement has been established. Section 6.02. The date one hundred twenty (120) 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 Minister of Planning and Development of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: P.O. Box 175 Sana'a Republic of Yemen Page 7 Cable address: Telex: 2266CENPLAN YE For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 248423 (MCI) or Washington, D.C. 64145 (MCI) IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. REPUBLIC OF YEMEN By /s/ Abdulwahab Al-Hajjri Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Inder K. Sud Acting Regional Vice President Middle East and North Africa SCHEDULE 1 Withdrawal of the Proceeds of the Credit A. General 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures SDR Equivalent) to be Financed (1) Goods 100% of foreign expenditures, (a) under Part B 2,900,000 100% of local of the Project expenditures (ex- factory cost); and (b) under other Parts 3,500,000 80% of local expen- of the Project ditures for other items procured locally (2) Consultants' services (a) under Part B of 2,600,000 100% of foreign Page 8 the Project expenditures and 80% of local expenditures (b) under other Parts 6,600,000 100% of foreign of the Project expenditures and 80% of local expenditures (3) Training, including study tours and workshops (a) under Part B of 285,000 100% of foreign the Project expenditures and 80% of local expenditures (b) under other Parts 2,900,000 100% of foreign of the Project expenditures and 80% of local expenditures (4) Incremental Operating Expenditures (a) under Part B 170,000 80% of the Project (b) under other Parts of the Project 1,000,000 80% (5) Refunding of Project 1,500,000 Amount due pursuant Preparation Advance to Section 2.02 (b) of this Agreement (6) Unallocated 945,000 TOTAL 22,400,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower; and \0c (c) the term "Incremental Operating Expenditures" means expenditures incurred by TS on account of utility charges, rent for office space, maintenance of vehicles, fuel, office supplies, banking charges, communication services, audit costs, travel costs, labor costs and other consumables but excluding salaries of officials of the Borrower. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made: (a) in respect of payments made for expenditures prior to the date of this Agreement; and (b) in respect of Categories (1) (a), (2) (a), (3) (a) and (4) (a) unless suitable bidding documents, acceptable in substance to the Association, concerning the installation and customization of the system referred to under Part B of the Project, have been prepared and issued. 4. The Association may require withdrawals from the Credit Account to be made on the basis of statements of expenditure for expenditures for: (a) goods under contracts costing less than $200,000 equivalent; (b) services under contracts for consulting firms costing less than $100,000 equivalent; (c) services under contracts for individual consultants costing less than $50,000 equivalent; (d) training; and (e) Incremental Operating Expenditures, all under such terms and conditions as the Association shall specify by notice to the Borrower. B. Special Accounts Page 9 1. The Borrower shall, for the purposes of each of Part B of the Project, and Parts A, C, D, E and F of the Project, open and maintain in dollars two (2) separate special deposit accounts in its Central Bank, on terms and conditions satisfactory to the Association. 2. After the Association has received evidence satisfactory to it that a Special Account has been opened, withdrawals from the Credit Account of amounts to be deposited into the said Special Account shall be made as follows: (a) until the Association shall have received: (i) the first Project Management Report referred to in Section 4.02 (b) of this Agreement, and (ii) a request from the Borrower for withdrawal on the basis of Project Management Reports, withdrawals shall be made in accordance with the provisions of Annex A to this Schedule 1; and (b) upon receipt by the Association of a Project Management Report pursuant to Section 4.02 (b) of this Agreement, accompanied by a request from the Borrower for withdrawal on the basis of Project Management Reports, all further withdrawals shall be made in accordance with the provisions of Annex B to this Schedule 1. 3. Payments out of each Special Account shall be made exclusively for Eligible Expenditures. For each payment made by the Borrower out of a 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. 4. Notwithstanding the provisions of Part B.2 of this Schedule, the Association shall not be required to make further deposits into any Special Account: (a) if the Association determines at any time that any Project Management Report does not adequately provide the information required pursuant to Section 4.02 of this Agreement; (b) if the Association determines at any time that all further withdrawals should be made by the Borrower directly from the Credit Account; or (c) 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 (A) the records and accounts for any Special Account, or (B) the records and accounts reflecting expenditures with respect to which withdrawals were made on the basis of Project Management Reports. 5. The Association shall not be required to make further deposits into any Special Account in accordance with the provisions of Part B.2 of this Schedule if, at any time, the Association shall have notified the Borrower of its intention to suspend in whole or in part the right of the Borrower to make withdrawals from the Credit Account pursuant to Section 6.02 of the General Conditions. Upon such notification, the Association shall determine, in its sole discretion, whether further deposits into the Special Accounts may be made and what procedures should be followed for making such deposits, and shall notify the Borrower of its determination. 6. (a) If the Association determines at any time that any payment out of any Special Account was made for an expenditure which is not an Eligible Expenditure, or was not justified by the evidence furnished to the Association, the Borrower shall, promptly upon notice from the Association, provide such additional evidence as the Association may request, or deposit into said Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment. 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 determines at any time that any amount outstanding in any Special Account will not be required to cover payments for Eligible Expenditures during the six-month period following such determination, the Borrower shall, promptly upon notice from the Association, refund to the Association such outstanding amount. Page 10 (c) The Borrower may, upon notice to the Association, refund to the Association all or any portion of the funds on deposit in a Special Account. (d) Refunds to the Association made pursuant to sub-paragraph (a), (b) or (c) of this paragraph 6 shall be credited to the Credit Account for subsequent withdrawal or for cancellation in accordance with the provisions of the Credit Agreement. Annex A to SCHEDULE 1 Operation of Special Accounts When Withdrawals Are Not Made On the Basis of Project Management Reports 1. For the purposes of this Annex, the term "Authorized Allocation" means: (i) in respect of the Special Account for Part B of the Project, an amount equivalent to $500,000 to be withdrawn from the Credit Account and deposited into the Special Account pursuant to paragraph 2 of this Annex; and (ii) in respect of the Special Account for Parts A, C, D, E and F of the Project, an amount equivalent to $500,000 to be withdrawn from the Credit Account and deposited into the Special Account pursuant to paragraph 2 of this Annex. 2. Withdrawals of a Special Account’s Authorized Allocation and subsequent withdrawals to replenish said Special Account shall be made as follows: (a) For withdrawals of said Special Account’s Authorized Allocation, the Borrower shall furnish to the Association a request or requests for deposit into said Special Account of an amount or amounts which in the aggregate do not exceed said Authorized Allocation. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into said Special Account such amount as the Borrower shall have requested. (b) For replenishment of said Special Account, the Borrower shall furnish to the Association requests for deposit into said Special Account at such intervals as the Association shall specify. 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 Part B.3 of Schedule 1 to this Agreement for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into said 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 said Special Account for Eligible Expenditures. Each such deposit into said Special Account shall be withdrawn by the Association from the Credit Account under one or more of said Special Account’s Eligible Categories. 3. The Association shall not be required to make further deposits into a Special Account, once the total unwithdrawn amount of the Credit allocated to said Special Account’s Eligible Categories minus the total amount of all outstanding special commitments entered into by the Credit pursuant to Section 5.02 of the General Conditions in respect of expenditures to be financed out of the proceeds of the Credit allocated to said Categories, shall equal the equivalent of twice the amount of said Special Account’s Authorized Allocation. Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit allocated to said 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 said Special Account as of the date of such notice will be utilized in making payments for Eligible Expenditures. Annex B to SCHEDULE 1 Operation of Special Accounts When Withdrawals Are Made On the Basis of Project Management Reports 1. Except as the Association may otherwise specify by notice to the Borrower, all withdrawals from the Credit Account shall be deposited by the Association into the respective Special Account in accordance with the provisions of Schedule 1 to this Agreement. Each such deposit into a Special Account shall be withdrawn by the Credit from the Credit Account under one or more of said Special Account’s Eligible Page 11 Categories. 2. Each application for withdrawal from the Credit Account for deposit into a Special Account shall be supported by a Project Management Report. 3. Upon receipt of each application for withdrawal of an amount of the Credit, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the respective Special Account an amount equal to the lesser of: (a) the amount so requested; and (b) the amount which the Association has determined, based on the Project Management Report accompanying said application, is required to be deposited in order to finance Eligible Expenditures during the six-month period following the date of such report; provided, however, that the amount so deposited, when added to the amount indicated by said Project Management Report to be remaining in said Special Account, shall not exceed the equivalent of $1,500,000 in respect of the Special Account for Part B of the Project and $3,000,000 in respect of the Special Account for Parts A, C, D, E and F of the Project. SCHEDULE 2 Description of the Project The objectives of the Project are to assist the Borrower in creating capacity, and putting in place institutions and systems, for sustained and improved utilization of human and financial resources. 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: Improvement of Core Systems Provision of technical assistance, including goods and consultants’ services, to the Borrower to: (i) design and put in place an information management framework to ensure compatibility and consistency among the various civil service functions to be computerized under the Program; (ii) revise existing employment policies and practices with a view to converting the existing civil service system into a merit-based system; (iii) compile and verify personnel records, conduct an employee census, and develop and put in place an employee database, together with a suitable system to update said database, for purposes of eliminating person duplicates and aliases; and (iv) streamline and standardize payroll preparation procedures to enable the Borrower to accurately measure the cost savings realized as a result of the staff reductions and redeployment contemplated under the Program. Part B: Accounting and Financial Management Information System Provision of technical assistance, including goods, training and consultants’ services, to the Borrower to design and put in place a suitable accounting and financial management information system to upgrade the payment and accounting systems, and improve financial management. Part C: Streamlining and Rationalization 1. Carrying out a pilot program to streamline and rationalize the organizational structure of ministries and agencies of the Borrower selected pursuant to the criteria referred to under paragraph B of Schedule 4 to this Agreement. 2. Provision of technical assistance, including goods and consultants’ services, to (a) design and establish a fund and develop suitable policies, oversight mechanisms and operating guidelines and procedures therefor; (b) carry out periodic reviews and assessments of the Innovation Fund’s operations with a view to improving its effectiveness in promoting and encouraging innovation within the public sector; and (c) evaluate and finance specific proposals submitted to the Innovation Fund for implementation. Part D: Civil Service Fund Provision of technical assistance, including goods and consultants’ services, to Page 12 the Borrower to design and establish a fund, develop suitable policies, oversight mechanisms and operating guidelines and procedures therefor, and carry out periodic reviews and assessments of the operations thereof, all with a view to enabling the Borrower to achieve the objectives of Part C.1 of the Project. Part E: Training and Capacity Building Development and carrying out of a suitable training program for mid- and senior- level managers in the public sector in the area of public sector management, together with training in the areas of project management, change management and skills needed to implement the core systems referred to under Part A of the Project. Part F: Project Management Support Support to TS, and to ministries and agencies selected under Part C.1 of the Project, through the provision of expert services, goods, training and the carrying out of performance audits, to strengthen their capabilities to implement the Project and the Program. * * * The Project is expected to be completed by June 30, 2005. SCHEDULE 3 Procurement and Consultants' Services Section I. Procurement of Goods Part A: General Goods shall be procured in accordance with (a) the provisions of Section I of the “Guidelines for Procurement under IBRD Loans and IDA Credits”, published by the Association in January 1995 and revised in January and August 1996, in September 1997 and in January 1999, subject to the modifications thereto set forth in paragraph 2 of this Part A (the Guidelines), and (b) the provisions of the following Parts of this Section I. Part B: International Competitive Bidding 1. Except as otherwise provided in Part C of this Section, goods shall be procured under contracts awarded in accordance with the provisions of Section II of the Guidelines and paragraph 5 of Appendix 1 thereto. 2. The following provisions shall apply to goods to be procured under contracts awarded in accordance with the provisions of paragraph 1 of this Part B. (a) Grouping of contracts To the extent practicable, contracts for goods shall be grouped in bid packages estimated to cost $200,000 equivalent or more each. (b) Preference for domestically manufactured goods The provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 2 thereto shall apply to goods manufactured in the territory of the Borrower. (c) Notification and Advertising The invitation to pre-qualify or bid for each contract estimated to cost $200,000 equivalent or more shall be advertised in accordance with the procedures applicable to large contracts under paragraph 2.8 of the Guidelines. Part C: Other Procurement Procedures 1. National Competitive Bidding Page 13 Goods estimated to cost the equivalent of less than $200,000 per contract may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. 2. National Shopping Goods estimated to cost less than $50,000 equivalent per contract, up to an aggregate amount not to exceed $200,000 equivalent, may be procured under contracts awarded on the basis of national shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. Part D: Review by the Association of Procurement Decisions 1. Procurement Planning Prior to the issuance of any invitations to pre-qualify for bidding or to bid for contracts, the proposed procurement plan for the Project shall be furnished to the Association for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods shall be undertaken in accordance with such procurement plan as shall have been approved by the Association, and with the provisions of said paragraph 1. 2. Prior Review With respect to each contract for goods estimated to cost the equivalent of $200,000 or more, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply. 3. Post Review With respect to each contract not governed by paragraph 2 of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply. Section II. Employment of Consultants Part A: General Consultants’ services shall be procured in accordance with the provisions of the Introduction and Section IV of the "Guidelines: Selection and Employment of Consultants by World Bank Borrowers", published by the Association in January 1997 and revised in September 1997 and January 1999 (the Consultant Guidelines) and the following provisions of Section II of this Schedule. Part B: Quality- and Cost-based Selection Except as otherwise provided in Part C of this Section, consultants’ services shall be procured under contracts awarded in accordance with the provisions of Section II of the Consultant Guidelines, paragraph 3 of Appendix 1 thereto, Appendix 2 thereto, and the provisions of paragraphs 3.13 through 3.18 thereof applicable to quality- and cost-based selection of consultants. Part C: Other Procedures for the Selection of Consultants 1. Selection Based on Consultants Qualifications Services estimated to cost less than $100,000 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. 2. Single Source Selection Services which are estimated to cost less than $100,000 equivalent per contract, 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 Page 14 1. Selection Planning Prior to the issuance to consultants of any requests for proposals, the proposed plan for the selection of consultants under the Project shall be furnished to the Association for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Consultant Guidelines. Selection of all consultants’ services shall be undertaken in accordance with such selection plan as shall have been approved by the Association, and with the provisions of said paragraph 1. 2. Prior Review (a) With respect to each contract for the employment of consulting firms estimated to cost the equivalent of $200,000 or more, the procedures set forth in paragraphs 1, 2 (other than the third subparagraph of paragraph 2(a)) and 5 of Appendix 1 to the Consultant Guidelines shall apply. (b) With respect to each contract for the employment of consulting firms estimated to cost the equivalent of $100,000 or more, but less than the equivalent of $200,000, the procedures set forth in paragraphs 1, 2 (other than the second subparagraph of paragraph 2(a)) and 5 of Appendix 1 to the Consultant Guidelines shall apply. (c) With respect to each contract for the employment of individual consultants estimated to cost the equivalent of $50,000 or more, the qualifications, experience, terms of reference and terms of employment of the consultants shall be furnished to the Association for its prior review and approval. The contract shall be awarded only after said approval shall have been given. 3. Post Review With respect to each contract not governed by paragraph 2 of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Consultant Guidelines shall apply. SCHEDULE 4 Implementation Program A. Overall Project Implementation and Coordination 1. For purposes of ensuring proper coordination and execution of the Project, the Borrower shall maintain TS with professional staff in adequate numbers whose qualifications, experience and terms of reference shall be acceptable to the Association. TS shall operate under such principles and guidelines as may be established by SCCSAR from time to time. The functions of TS shall include, inter alia: (i) the day-to-day management and coordination of Project implementation; (ii) assistance in the development and review of work plans to ensure consistency within the overall objectives of the Program; (iii) responsibility for the procurement and disbursement processes under the Project; (iv) monitoring Project performance and implementation progress in accordance with the targets and indicators set forth in the Project Implementation Plan; (v) preparation, for submission to the Association, of annual work programs and updated procurement plans; and (vi) preparation, for submission to the Association, of the reports referred to under paragraph D (b) (i) of this Schedule. 2. Key staff of TS shall include: (a) a Project Coordinator responsible for the implementation of the Project, except for Part B thereof; (b) a coordinator responsible for the implementation of Part B of the Project; (c) a re-engineering coordinator responsible for the implementation of Part C of the Project; (d) a Civil Service Fund manager responsible for the implementation of Part D of the Project; and (e) a training coordinator responsible for the implementation of Part E of the Project. B. Selection Criteria Under Part C.1 of the Project In order to achieve the objectives of Part C.1 of the Project, the Borrower shall select ministries and agencies on the basis of the following criteria: (i) the Page 15 ministry or agency’s size, to be technically suitable in terms of number of employees; (ii) the extent of the ministry or agency’s interface with the general public or the private sector; and (iii) the ministry or agency’s willingness, commitment and motivation to streamline and rationalize its organizational structure. C. Performance Audits Under Part F of the Project In order to achieve the objectives of Part F of the Project, the Borrower shall cause to be carried out, not later than December 31 of each year, commencing December 31, 2001, until completion of the Project, an independent audit of the effectiveness and efficiency of the Project, such audit to assess the extent to which the Project is likely to achieve its objectives, the integrity of the processes used to attain said objectives, the consistency of the methodology used to carry out the Project and the effectiveness of the services of consultants employed under the Project. D. Progress Reports and Mid-Term Review The Borrower shall: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with the indicators agreed upon between the Borrower and the Association, the carrying out of the Project and the achievement of the objectives thereof; (b) prepare, under terms of reference satisfactory to the Association, and furnish to the Association: (i) on a quarterly basis, commencing December 31, 2000, a report on the progress achieved in the implementation of the Project and the achievement of the objectives thereof; and (ii) on or about December 31, 2002, a report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section and consolidating the results of the reports referred to under sub-paragraph (b) (i) of this Section, on the progress achieved in the carrying out of the Project during the period preceding the date of said report and setting out the measures recommended to ensure the efficient carrying out of the Project and the achievement of the objectives thereof during the period following such date; and (c) review with the Association, by February 28, 2003, or such later date as the Association shall request, the report referred to in subparagraph (b) of this paragraph, and, thereafter, take all measures required to ensure the efficient completion of the Project and the achievement of the objectives thereof, based on the conclusions and recommendations of the said report and the Association’s views on the matter.