OFFICIAL DOCUMENTS LOAN NUMBER 8365-HR Loan Agreement (Improving Quality and Efficiency of Health Services Program) between REPUBLIC OF CROATIA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated W e- ) , 2014 LOAN NUMBER 8365-HR LOAN AGREEMENT Agreement dated = 10 , 2014, between the REPUBLIC OF CROATIA ("Borrower") and the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ("Bank"). The Borrower and the Bank hereby agree as follows: ARTICLE I - GENERAL CONDITIONS; DEFINITIONS 1.01. The General Conditions (as defined in the Appendix to this Agreement) constitute an integral part of this Agreement. 1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the General Conditions or in the Appendix to this Agreement. ARTICLE II- LOAN 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, the amount of seventy five million Euro (EUR 75,000,000) ("Loan"), to assist in financing the program described in Schedule I to this Agreement ("Program"). 2.02. The Borrower may withdraw the proceeds of the Loan in accordance with Section IV of Schedule 2 to this Agreement. All withdrawals from the Loan Account shall be deposited by the Bank into an account specified by the Borrower and acceptable to the Bank. 2.03. The Front-end Fee payable by the Borrower shall be equal to one quarter of one percent (0.25%) of the Loan amount. The Borrower shall pay the Front-end Fee not later than sixty (60) days after the Effective Date. 2.04. The interest payable by the Borrower for each Interest Period shall be at a rate equal to the Reference Rate for the Loan Currency plus the Fixed Spread; provided, that upon a Conversion of all or any portion of the principal amount of the Loan, the interest payable by the Borrower during the Conversion Period on such amount shall be determined in accordance with the relevant provisions of Article IV of the General Conditions. Notwithstanding the foregoing, if any amount of the Withdrawn Loan Balance remains unpaid when due and such non- payment continues for a period of thirty (30) days, then the interest payable by the Borrower shall instead be calculated as provided in Section 3.02 (e) of the General Conditions. -2- 2.05. The Payment Dates are May 15 and November 15 in each year. 2.06. The principal amount of the Loan shall be repaid in accordance with the provisions of Schedule 3 to this Agreement. 2.07. (a) The Borrower may at any time request any of the following Conversions of the terms of the Loan in order to facilitate prudent debt management: a change of the interest rate basis applicable to: (A) all or any portion of the principal amount of the Loan withdrawn and outstanding from a Variable Rate to a Fixed Rate, or vice versa; or (B) all or any portion of the principal amount of the Loan withdrawn and outstanding from a Variable Rate based on a Reference Rate and the Variable Spread to a Variable Rate based on a Fixed Reference Rate and the Variable Spread, or vice versa; or (C) all of the principal amount of the Loan withdrawn and outstanding from a Variable Rate based on a Variable Spread to a Variable Rate based on a Fixed Spread. (b) Any conversion requested pursuant to paragraph (a) of this Section that is accepted by the Bank shall be considered a "Conversion", as defined in the General Conditions, and shall be effected in accordance with the provisions of Article IV of the General Conditions and of the Conversion Guidelines. ARTICLE III - PROGRAM 3.01. The Borrower declares its commitment to the objectives of the Program. To this end, the Borrower shall carry out the Program, through MOH and MOF, and with the assistance of HZZO and AQAHS, in accordance with the provisions of Article V of the General Conditions. 3.02. Without limitation upon the provisions of Section 3.01 of this Agreement, and except as the Borrower and the Bank shall otherwise agree, the Borrower shall ensure that the Program is carried out in accordance with the provisions of Schedule 2 to this Agreement. ARTICLE IV - EFFECTIVENESS; TERMINATION 4.01. The Additional Condition of Effectiveness consists of the following, namely that the Implementation Agreement has been executed on behalf of the Borrower, through MOH, HZZO and AQAHS. 4.02. The Additional Legal Matter consists of the following, namely that the Implementation Agreement has been duly authorized or ratified by the Borrower, -3- through MOH, HZZO and AQAHS and is legally binding upon the Borrower and HZZO and AQAHS in accordance with its respective terms. 4.03. The Effectiveness Deadline is the date ninety (90) days after the date of this Agreement. ARTICLE V - REPRESENTATIVE; ADDRESSES 5.01. The Borrower's Representative is its Minister of Finance. 5,02. The Borrower's Address is: Ministry of Finance Katan6i6eva 5 10000 Zagreb Republic of Croatia Telex: Facsimile: 862-21215 (385-1) 4922-598 862-21833 5.03. The Bank's Address is: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: Facsimile: INTBAFRAD 248423(MCI) or 1-202-477-6391 Washington, D.C. 64145(MCI) -4- AGREED at Zagreb, Republic of Croatia, as of the day and year first above written. REPUBLIC OF CROATIA By Authorized Representative Name: 0bo. L 0 VLC Title: H/Ali ( Te- &F 4 /Ce INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Authorized Representative Name:-tyitfTA t1L/i ft - Title: 2GICAAL l2Q2Tc, -5- SCHEDULE 1 Program Description The objective of the Program is to improve the quality of health care and efficiency of health services in the Republic of Croatia. The Program consists of the following activities to be implemented by the Borrower, through MOF, MOH and with the assistance of HZZO and AQAHS, from April 30, 2013 to June 30, 2018, falling within priorities iii, iv, v, vi and vii of the Borrower's National Health Care Strategy: Part 1: Strengthening management capacity in health care and Reorganizing_the structure and activities of health care institutions (a) Implementation of the Hospital Master Plan, hospital reforms and governance and management changes. (b) Promoting group practices for primary healthcare doctors. (c) Expanding secondary- level outpatient services, including high- resolution outpatient centers. (d) Redefining long-term health care services and palliative care. Part 2: Fostering quality in health care and Strengthening preventive activities (a) Implementation of a hospital accreditation mechanism. (b) Implementation of a health technology assessment (HTA) to selected new health technologies. (c) Building a body of clinical protocols and care pathways. (d) Detecting and proper recording of specific "sentinel events for quality". (e) Implementation of technical audits and of a payment mechanism to incentivize the use of clinical guidelines. (f) Making use of the existing e-prescription system for quality control purposes. -6- Part 3: Preserving financial stability of health care (a) Development of central procurement of medical and non-medical supplies. (b) Rationalizing of non-medical services. (c) Strengthening the performance-linked component in payments to hospitals and outpatient services. (d) Strengthening the MOH's capacity to develop and present proposals to be financed by European Union structural funds. -7- SCHEDULE 2 Program Execution Section I. Implementation Arrangements A. Program Fiduciary, Environmental and Social Systems Without limitation on the provisions of Article V of the General Conditions, the Borrower shall carry out the Program, or cause the Program to be carried out, in accordance with financial management, procurement and environmental and social management systems acceptable to the Bank ("Program Fiduciary, Environmental and Social Systems") which are designed to ensure that: 1. the Loan proceeds are used for their intended purposes, with due attention to the principles of economy, efficiency, effectiveness, transparency, and accountability; and 2. the actual and potential adverse environmental and social impacts of the Program are identified, avoided, minimized, or mitigated, as the case may be, all through an informed decision-making process. B. Anti-Corruption Without limitation on the provisions of Part A of this Section, the Borrower shall carry out the Program, or cause the Program to be carried out, in accordance with the provisions of the Anti-Corruption Guidelines. C. Other Program Institutional and Implementation Arrangements 1. Program Institutions Without limitation on the generality of Part A of this Section I, the Borrower shall: (a) maintain or cause to be maintained during the implementation of the Program, the offices, units and branches within MOH and MOF and/or under any other relevant ministries, each assigned with technical, environmental and social safeguards, fiduciary and other Program related responsibilities for implementing the Program, all with powers, functions, capacity, staffing and resources satisfactory to the Bank to fulfill their respective functions under the Program; and -8- (b) through the Implementation Agreement, cause HZZO and AQAHS to: (i) assist MOH and MOF in carrying out the Program in the manner set forth in the Implementation Agreement, and to maintain appropriate responsibilities required for such assistance; and (ii) comply with the Anti- Corruption Guidelines. The Borrower shall exercise its rights under the Implementation Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan. Except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Implementation Agreement or any of its provisions. 2. Additional Program Implementation Arrangements Without limitation on the generality of Part A of this Section 1, the Borrower shall: (a) carry out the Action Plan, or cause the Action Plan to be carried out, in accordance with the schedule set out in the said Action Plan in a manner satisfactory to the Bank, and shall ensure that the Action Plan is not amended, revised, waived, voided, suspended, terminated or abrogated, without the prior written consent of the Bank; and (b) carry out the Program in accordance with the POM, or cause the Program to be carried out in accordance with the POM, and shall ensure that the POM is not amended, revised, waived, voided, suspended, terminated or abrogated, without the prior written consent of the Bank. 3. Independent assessment or audit The Bank may, at its discretion and if it deems necessary, from time to time request assessments or audits by independent agencies acceptable to the Bank to verify the data supporting the achievement of one or more DLIs. Section II. Excluded Activities The Borrower shall ensure that the Program excludes any activities which: A. in the opinion of the Bank, are likely to have significant adverse impacts that are sensitive, diverse, or unprecedented on the environment and/or affected people; or B. involve the procurement of: (1) works, estimated to cost fifty million Dollars ($50,000,000) equivalent or more per contract; (2) goods, estimated to cost thirty million Dollars ($30,000,000) equivalent or more per contract; (3) non- -9- consulting services, estimated to cost twenty million Dollars ($20,000,000) equivalent or more per contract; or (4) consultants' services, estimated to cost fifteen million Dollars (15,000,000) equivalent or more per contract. Section III. Program Monitoring, Reporting and Evaluation; Audits A. Program Reports The Borrower shall monitor and evaluate the progress of the Program and prepare Program Reports in accordance with the provisions of Section 5.08 of the General Conditions. Each Program Report shall cover the period of one calendar semester, and shall be furnished to the Bank not later than forty-five (45) days after the end of the period covered by such report. B. Program Financial Audits Without limitation on the generality of Section l.A of this Schedule 2 and Section 5.09 of the General Conditions, the Borrower shall have the Financial Statements audited in accordance with the provisions of Section 5.09 (b) of the General Conditions. Each audit of the Financial Statements shall cover the period of one fiscal year of the Borrower. The audited Financial Statements for each such period shall be furnished to the Bank not later than twelve (12) months after the end of such period. Section IV. Withdrawal of Loan Proceeds A. General 1. The Borrower may withdraw the proceeds of the Loan in accordance with the provisions of Article II of the General Conditions, this Section, and such additional instructions as the Bank may specify from time to time by notice to the Borrower to: (a) pay the Front-end Fee; and (b) finance the Program Expenditures, on the basis of the results ("Disbursement Linked Results" or "DLRs") achieved by the Borrower, as measured against specific indicators ("Disbursement Linked Indicators" or "DLIs"); all as set forth in the table in paragraph 2 of this Part A. 2. The following table specifies each category of withdrawal of the proceeds of the Loan (including the Disbursement Linked Indicators as applicable) ("Category"), the baseline against which each Disbursement Linked Results is to be measured ("DLR Baseline") (as applicable), the Disbursement Linked Results for each Category (as applicable), and the allocation of the amounts of the Loan to each Category: - 10- Amount of the Category Loan (including Disbursement Disbursement Allocated Linked Indicator as DLR Baseline (as Linked Result (as (expressed in applicable) applicable) applicable) EUR) (1) DLI #1: 15,930 DLR#1.1: DLR#1.1: 15,000 EUR3,750,000 Total number of hospital beds in Rationalized Hospitals classified as Acute Care Beds DLR#1.2: 12,800 DLR#1.2: EUR3,750,000/ (15,000- 12,800) X actual number of Acute Care Beds reduced from the 15,000 achieved under DLR 1.1, up to a maximum amount not to exceed EUR3,750,000 (2) DLI #2: Number of 0 DLR#2. I:First DLR#2. 1: Hospital Reshaping Scheme Hospital Reshaping EUR3,750,000 Projects implemented Scheme Project DLR#2.2: DLR#2.2: Second Hospital EUR3,750,000 Reshaping Scheme Project (3) DLl#3: Percentage of 0% DLR#3.1 DLR#3.l: Rationalized Hospitals without 40% EUR3,750,000 Arrears incurred during the preceding calendar year. DLR#3.2: 80% DLR#3.2: EUR3,750,000/ 40 X additional percentage points achieved after the 40% achieved under -1l- Amount of the Category Loan (including Disbursement Disbursement Allocated Linked Indicator as DLR Baseline (as Linked Result (as (expressed in applicable) applicable) applicable) EUR) DLR 3.1, up to a maximum amount not to exceed EUR3,750,000 (4) DLI#4: Percentage of all 0% DLR#4.1: DLR#4.1: surgeries included in the 30% EUR3,750,000 Elective Surgeries List performed as outpatient surgeries in the preceding six DLR#4.2: DLR#4.2: months 60% EUR3,750,000/ 30 X additional percentage points achieved after the 30% achieved under DLR 4.1 up to a maximum amount not to exceed EUR 3,750,000. (5) DLI#5: Percentage of Best- 0% DLR#5.1: DLR#5.1: Performing Rationalized 20% EUR3,750,000 Hospitals which are publicly disclosed (including results) based on the technical audit in DLR#5.2: DLR#5.2: the preceding twelve (12) 40% months EUR3,750,000/ 20 X additional percentage points achieved after the 20% achieved under DLR 5.1, up to a -12- Amount of the Category Loan (including Disbursement Disbursement Allocated Linked Indicator as DLR Baseline (as Linked Result (as (expressed in applicable) applicable) applicable) EUR) maximum amount not to exceed EUR 3,750,000. (6) DLI#6: Percentage of 0% DLR#6.1: DLR#6.1: Rationalized Hospitals 20% EUR3,750,000 accredited by AQAHS through DLR#6.2: the Acceptable Accreditation 50% DLR#6.2: Process EUR3,750,000/ 30 X additional percentage points achieved after the 20% achieved under DLR 6.1, up to a maximum amount not to exceed EUR 3,750,000. (7) DLI#7: Percentage of 20% DLR47.1: 75% DLR#7.1: Identified Doctors with whom EUR3,750,000 corrective course of action has been discussed on a person-to- person basis in the preceding six (6) months. EUR3,750,000/ 15 X additional percentage points achieved after the 75% achieved under DLR 7.1, up to a maximum amount not to exceed EUR3,750,000 - 13 - Amount of the Category Loan (including Disbursement Disbursement Allocated Linked Indicator as DLR Baseline (as Linked Result (as (expressed in applicable) applicable) applicable) EUR) (8) DLI#8: 0% DLR#8.1: DLR#8.1: 30% EUR3,750,000 Percentage of total public spending per fiscal year on medical consumables, drugs, DLR#8.2: 60% DLR#8.2: and devices for hospital EUR3,750,000/ (inpatient and outpatient) 30 X additional services made through percentage centralized procurement/ points achieved framework contracts and after the 30% disclosed on the MoH website. achieved under DLR 8.1, up to a maximum amount not to exceed EUR 3,750,000. (9) DLR#9: Percentage of 0% DLR#9. 1: DLR#9. 1: primary healthcare doctors in 30% EUR3,750,000 the Republic of Croatia working in Group Practices DLR#9.2: 50% DLR#9.2: EUR3,750,000/ 20 X additional percentage points achieved after the 30% achieved under DLR 9.1 up to a maximum amount not to exceed EUR 3,750,000. (10) DLR#10: 0% DLR#10.1: DLR#10.1: Percentage of hospitals with 30% EUR3,750,000 surgery wards that have established quality-and safety- related sentinel surveillance - 14- Amount of the Category Loan (including Disbursement Disbursement Allocated Linked Indicator as DLR Baseline (as Linked Result (as (expressed in applicable) applicable) applicable) EUR) schemes that are reporting the DLR#10.2: DLR# 10.2: rates of Specific Events. 60% EUR3,750,000/ 30 X additional percentage points achieved after the 30% achieved under DLR 10.1 up to a maximum amount not to exceed EUR 3,750,000. TOTAL AMOUNT 75,000,000 B. Withdrawal Conditions; Withdrawal Period 1. Notwithstanding the provisions of Part A of this Section, no withdrawal shall be made: (a) from the Loan Account until the Bank has received payment in full of the Front-end Fee; or (b) for purposes of Section 2.05 of the General Conditions, for payments for Program Expenditures made prior to the date of this Agreement. (c) for any DLR under Category (1), (2), (3), (4), (5), (6), (7), (8), (9), or (10), until and unless the Borrower has furnished evidence satisfactory to the Bank that said DLR has been achieved. The evidence shall be verified in accordance with the provisions of the Verification Protocol, and, if applicable, shall have been confirmed by the independent assessment or audit as may be requested from time to time by the Bank under Section I.C. 3 of Schedule 2 to this Agreement. 2. (a) Notwithstanding the provisions of Part B.1(c) of this Section: - 15 - (i) the Borrower may withdraw an amount not to exceed the equivalent of EUR7,500,000 as an advance; (ii) any further withdrawals requested as an advance shall be permitted only on such terms and conditions as the Bank shall specify by notice to the Borrower; and (iii) if any amount of the advance remains outstanding by the Closing Date, and any verified evidence required to be provided by the Borrower to the Bank under Part B. I (c) of this Section in relation to said amount has not been furnished to the Bank by the Closing Date, the Borrower shall refund said amount to the Bank promptly upon notice thereof by the Bank. Except as otherwise agreed with the Borrower, the Bank shall cancel the amount so refunded. 3. Notwithstanding the provisions of Part B.1(b) of this Section, if the Bank is not satisfied that any of the DLRs has been achieved by the Closing Date, the Bank may, at any time, by notice to the Borrower, decide, in its sole discretion, to (a) reallocate all or a portion of the proceeds of the Loan then allocated to said DLR to any other DLR; and/or (b) cancel all or a portion of the proceeds of the Loan then allocated to said DLR. 4. The Closing Date is June 30, 2018. 5. Notwithstanding the foregoing provisions of this Section IV, if at any time after the Closing Date the Borrower has failed to provide evidence satisfactory to the Bank that the Withdrawn Loan Balance does not exceed the total amount of Program Expenditures paid by the Borrower, exclusive of any such expenditures financed by any other financier or by the Bank or the Association under any other loan, credit or grant, the Borrower shall, promptly upon notice from the Bank, refund to the Bank such excess amount of the Withdrawn Loan Balance. The Bank shall cancel the refunded amount of the Withdrawn Loan Balance. -16- SCHEDULE 3 Amortization Schedule I. The following table sets forth the Principal Payment Dates of the Loan and the percentage of the total principal amount of the Loan payable on each Principal Payment Date ("Installment Share"). If the proceeds of the Loan have been fully withdrawn as of the first Principal Payment Date, the principal amount of the Loan repayable by the Borrower on each Principal Payment Date shall be determined by the Bank by multiplying: (a) Withdrawn Loan Balance as of the first Principal Payment Date; by (b) the Installment Share for each Principal Payment Date. Installment Share Principal Payment Date (Expressed as a Percentage) On each May 15 and November 15 3.13% Beginning May 15, 2018, Through May 15, 2033 On November 15, 2033 2.97% 2. If the proceeds of the Loan have not been fully withdrawn as of the first Principal Payment Date, the principal amount of the Loan repayable by the Borrower on each Principal Payment Date shall be determined as follows: (a) To the extent that any proceeds of the Loan have been withdrawn as of the first Principal Payment Date, the Borrower shall repay the Withdrawn Loan Balance as of such date in accordance with paragraph I of this Schedule. (b) Any amount withdrawn after the first Principal Payment Date shall be repaid on each Principal Payment Date falling after the date of such withdrawal in amounts determined by the Bank by multiplying the amount of each such withdrawal by a fraction, the numerator of which is the original Installment Share specified in the table in paragraph I of this Schedule for said Principal Payment Date ("Original Installment Share") and the denominator of which is the sum of all remaining Original Installment Shares for Principal Payment Dates falling on or after such date. - 17- 3. (a) Amounts of the Loan withdrawn within two calendar months prior to any Principal Payment Date shall, for the purposes solely of calculating the principal amounts payable on any Principal Payment Date, be treated as withdrawn and outstanding on the second Principal Payment Date following the date of withdrawal and shall be repayable on each Principal Payment Date commencing with the second Principal Payment Date following the date of withdrawal. (b) Notwithstanding the provisions of sub-paragraph (a) of this paragraph, if at any time the Bank adopts a due date billing system under which invoices are issued on or after the respective Principal Payment Date, the provisions of such sub-paragraph shall no longer apply to any withdrawals made after the adoption of such billing system. -18- APPENDIX Section 1. Definitions 1. "Acceptable Accreditation Process" means an MOH-defined but independently run accreditation process, in accordance with AQAHS' procedures, satisfactory to the Bank. 2. "Action Plan" means the Borrower's plan of actions to be carried out in furtherance of the Program, agreed with the Bank, dated March 21, 2014 and referred to in Section 1.C.2.(a) of Schedule 2 to this Agreement, as the same may be amended from time to time with the agreement of the Bank. 3. "Acute Care Beds" means beds that are being used by hospitals for treatment of acute cases, as defined in the Hospital Master Plan. 4. "AQAHS" means the Agency for Quality and Accreditation in Health Care and Social Welfare, established by the Law on Quality of Health Care (OG 107/2007), and redefined by the Law on Quality of Health Care and Social Welfare (OG124/11)) to cover social welfare). 5. "Anti-Corruption Guidelines" means the Bank's "Guidelines on Preventing and Combating Fraud and Corruption in Program-for-Results Financing", dated February 1, 2012. 6. "Arrears" means any amounts shown as owing and overdue in the annual financial statements of the relevant hospitals. 7. "Best Performing" means, in relation to Rationalized Hospitals, best-performing hospitals based on explicit key performance indicators, as defined by HZZO, and quality indicators, as defined by AQAHS, as required under the Action Plan, and acceptable to the Bank. 8. "Category" means a category set forth in the table in Section IV.A.2 of Schedule 2 to this Agreement. 9. "Disbursement Linked Indicator" or "DLI" means in respect of a given Category, the indicator related to said Category as set forth in the table in Section IV.A.2 of Schedule 2 to this Agreement. 10. "Disbursement Linked Result" or "DLR" means in respect of a given Category, the result under said Category as set forth in the table in Section IV.A.2 of Schedule 2 to this Agreement, on the basis of the achievement of which, the -19- amount of the Loan allocated to said result may be withdrawn in accordance with the provisions of said Section IV. 11. "Elective Surgeries List" means abdominal hernia surgery, cataract surgery, local excision and removal of internal fixation, except on hip and femur, palmar fasciectomy for dupuytren's contracture, tonsillectomy. 12. "General Conditions" means the "International Bank for Reconstruction and Development General Conditions for Loans", dated March 12, 2012, with the modifications set forth in Section II of this Appendix. 13. "Group Practices" means a practice of two or more primary healthcare doctors under contract by HZZO as a group practice. 14. "Hospital Master Plan" means "National Plan for the Development of Clinical Hospital Centers, Clinical Hospitals, Clinics, and General Hospitals in the Republic of Croatia for the period 2014-2016" adopted by the Borrower. 15. "Hospital Reshaping Scheme Project" means a project designed to restructure or enhance the way two or more hospitals are organized, managed, and funded, so as to improve the access to, and the quality, effectiveness and efficiency of delivery of such services, as defined in the Hospital Master Plan, all in form and substance satisfactory to, and agreed with, the Bank. 16. "HZZO" means the Croatian Health Insurance Fund, established pursuant to the Health Insurance Act (OG75/93). 17. "Identified Doctors" means doctors identified by HZZO for whom HZZO- defined prescription patterns in the preceding six months were found to be "unsatisfactory" by HZZO on the basis of the defined key performance indicators for primary healthcare. 18. "Implementation Agreement" means the implementation agreement between MOH and HZZO and AQAHS, referred to in Section I.C.1(b) of Schedule 2 to the Agreement. 19. "MOF" means the Borrower's Ministry of Finance, and includes any successor thereto. 20. "MOH" means the Borrower's Ministry of Health, and includes any successor thereto. 21. "National Health Care Strategy" means the National Health Care Strategy 2012- 2020, adopted by the Borrower on September 28, 2012. - 20 - 22. "POM" means the Program Operational Manual for the Program, referred to in Section I.C.2.(b) of Schedule 2 to this Agreement, dated March 21, 2014, adopted by the Borrower to facilitate the fiduciary and coordination mechanisms under the Program, as the same may be amended from time to time with the agreement of the Bank. 23. "Program Fiduciary and Environmental and Social Systems" means the Borrower's systems for the Program referred to in Section LA of Schedule 2 to this Agreement. 24. "Rationalized Hospitals" means hospitals included in the Hospital Master Plan that are contracted by HZZO. 25. "Specific Events" means: (a) non-traumatic, diabetes-related lower-limb amputations; (b) surgery on the wrong patient or wrong body part; and (c) postoperative pulmonary embolism; and deep vein thrombosis. 26. "Verification Protocol" means the protocol setting forth the actions and mechanism required for verification of DLIs, agreed with the Bank, dated March 21, 2014, and referred to in Section IV.B.1(b) of Schedule 2 to this Agreement, as the same may be amended from time to time with the agreement of the Bank. Section II. Modifications to the General Conditions The modifications to the General Conditions are as follows: I. Wherever used throughout the General Conditions, the term "the Project" is modified to read "the Program", the term "the Project Agreement" is modified to read "the Program Agreement", the term "Project Implementing Entity" is modified to read "the Program Implementing Entity", the term "Project Report" is modified to read "Program Report"; and the term "Eligible Expenditures" is modified to read "Program Expenditures". 2. In the Table of Contents, the references to Sections, Section names and Section numbers are modified to reflect the amendments set out below. 3. Section 2.02, Special Commitment by the Bank, is deleted in its entirety, and the subsequent Sections in Article II are renumbered accordingly. 4. In Section 2.02 (originally numbered as Section 2.03), the heading "Applications for Withdrawal or for Special Commitment" is replaced with "Applications for Withdrawal", and the phrase "or to request the Bank to enter into a Special Commitment" is deleted. - 21 - 5. The section originally numbered as Section 2.04, Designated Accounts is deleted in its entirety, and the subsequent Sections in Article II are renumbered accordingly. 6. Paragraph (a) of Section 2.03 (originally numbered as Section 2.05), Eligible Expenditures (renamed "Program Expenditures" in accordance with paragraph I of this Section II), is modified to read: "(a) the payment is for the financing of the reasonable cost of expenditures required for the Program and to be financed out of the proceeds of the Loan in accordance with the provisions of the Legal Agreements;". 7. The last sentence of Section 2.04 (originally numbered as Section 2.06), Financing Taxes, is modified to read: "To that end, if the Bank at any time determines that the amount of any such Tax is excessive, or that such Tax is discriminatory or otherwise unreasonable, the Bank may, by notice to the Borrower, exclude such amount or such Tax from the Program Expenditures to be financed out of the proceeds of the Loan, as required to ensure consistency with such policy of the Bank." 8. Section 2.06 (originally numbered as Section 2.08), Reallocation, is modified to read: "Notwithstanding any allocation of an amount of the Loan to a withdrawal category under the Loan Agreement, the Bank may, by notice to the Borrower, reallocate any other amount of the Loan to such category if the Bank reasonably determines at any time that such reallocation is appropriate for the purposes of the Program. 9. Section 7.01, Cancellation by the Borrower, is modified to read: "The Borrower may, by notice to the Bank, cancel any amount of the Unwithdrawn Loan Balance." 10. Paragraph (d) of Section 7.03, Cancellation by the Bank, entitled "Misprocurement", is deleted, and subsequent paragraphs are re-lettered accordingly. 11. Section 7.04, Amounts Subject to Special Commitment not Affected by Cancellation or Suspension by the Bank, is deleted in its entirety, and subsequent Sections in Article VII and references to such Sections are renumbered accordingly. 12. In the Appendix, Definitions, all references to Section numbers are modified, as necessary, to reflect the modifications set forth above. In addition, the definition of the term "Special Commitment" is deleted in its entirety, and all subsequent paragraphs are renumbered accordingly.