Page 1 CONFORMED COPY GRANT NUMBER TF053555 IND RELATED LOAN NUMBER 4786 IND Japan PHRD Project Co-financing Grant Agreement (Urban Sector Development Reform Project) between REPUBLIC OF INDONESIA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Acting as Administrator of Grant Funds Provided by Japan Dated October 20, 2005 Page 2 2 Page 3 GRANT NUMBER TF053555-IND GRANT AGREEMENT AGREEMENT, dated October 20, 2005, between THE REPUBLIC OF INDONESIA (the Recipient) and INTERNATIONAL BANK OF RECONSTRUCTION AND DEVELOPMENT, acting as Administrator in respect of grant funds provided by Japan (the Bank). WHEREAS (A) the Recipient, having satisfied itself as to the feasibility and priority of the project described in Schedule 2 to the Loan Agreement (the Project), has requested the Bank to assist in the financing of the Project; (B) the Recipient, has also requested assistance from the resources of the Policy and Human Resources Development Fund (PHRD) of Japan for funding Part A.1 of the Project (except for civic participation and transparency activities under Part A.1(a)(i) and studies under Part A.1(b)), and said request has been approved by Japan (the PHRD Grant); WHEREAS the Bank, as Administrator of the PHRD grant funds provided by Japan has agreed, on the basis of the foregoing, to extend a PHRD Grant to the Recipient to upon the terms and conditions set forth in this Agreement; and WHEREAS, the Recipient and the Bank intend, to the extent practicable, that the proceeds of the PHRD Grant provided for in this Agreement be disbursed on account of expenditures in respect of Part A.1 of the Project, except for civic participation and transparency activities under Part A.1(a)(i) and studies under Part A.1(b), before disbursement of the proceeds of the Loan provided for in the Loan Agreement are made; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. (a) The following provision of the “General Conditions Applicable to Development Credit Agreements” of the International Development Association, dated January 1,1985 (as amended through May 1, 2004), with the modifications set forth in paragraph (b) of this Section (the General Conditions), constitute an integral part of this Agreement: Page 4 - 2 - 2 (i) Article I; (ii) Sections 2.01 except (11), 2.02 and 2.03; (iii) Section 3.01; (iv) Sections 4.01 and 4.05; (v) Article V; (vi) Sections 6.01, 6.02, 6.03, 6.04 and 6.06; (vii) Section 8.01 (b); (viii) Sections 9.01, 9.03, 9.04, 9.05, 9.06, 9.07, and 9.08; (ix) Article X; (x) Article XI; and (xi) Sections 12.01 (b), 12.02 (b), 12.03 and 12.04. (b) The General Conditions shall be modified as follows: (i) the term “Association” wherever used in the General Conditions, means the Bank acting as Administrator of the PHRD Grant, except that in Section 6.02, the term “Association” shall also include the Bank acting in its own capacity; (ii) the term “Borrower” wherever used in the General Conditions, means the Recipient; (iii) the term “Development Credit Agreement,” wherever used in the General Conditions, means this PHRD Grant Agreement; (iv) the term “Credit,” wherever used in the General Conditions, means the PHRD Grant; Page 5 - 3 - 3 (v) the term “Credit Account” wherever used in the General Conditions, means the PHRD Grant Account, an account opened by the Administrator on its books in the name of the Recipient to which the amount of the PHRD Grant is credited; and (vi) Section 4.01 shall be modified to read: “Withdrawals from the PHRD Grant Account shall be made in Dollars; provided, however, that if the expenditures to be financed out of the proceeds of the PHRD Grant have been paid or are payable in another currency, the Administrator shall, at the request of the Recipient, purchase such currency with the proceeds of such withdrawal.” (vii) Section 6.03(c) shall be modified to read: “at any time, the Bank determines, with respect to any contract to be financed out of the proceeds of the PHRD Grant, that corrupt, fraudulent, collusive or coercive practices were engaged in by representatives of the Recipient or of a beneficiary of the PHRD Grant during the procurement or the execution of such contract, without the Recipient having taken timely and appropriate action satisfactory to the Bank to remedy the situation, and establishes the amount of expenditures in respect of such contract which would otherwise have been eligible for financing out of the proceeds of the PRHD Grant, or”. Section 1.02. Unless the context otherwise requires, the several terms defined in the Loan Agreement, the Preamble to this Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth, with the following modifications thereto: (a) The term “Eligible Categories” means Category (1) set forth in the table in Part A.1 of Schedule 1 to this Agreement. (b) The term “Eligible Expenditures” means the expenditures for services referred to in Section 2.02 of this Agreement. ARTICLE II Page 6 - 4 - 4 The PHRD Grant Section 2.01. The Bank agrees to make available to the Recipient, on the terms and conditions set forth or referred to in this Agreement, the PHRD Grant in an amount equal to five million United States dollars (US$5,000,000). Section 2.02. The amount of the PHRD Grant may be withdrawn from the PHRD Grant Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of services required for Part A.1 (except for civic participation and transparency activities under Part A.1(a)(i) and studies under Part A.1(b)) of the Project described in Schedule 2 to this Agreement, and to be financed out of the proceeds of the PHRD Grant. Section 2.03. The Closing Date shall be June 30, 2011, or such later date as the Bank shall establish. The Bank shall promptly notify the Recipient of such later date. ARTICLE III Execution of the Project Section 3.01. (a) The Recipient 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, through MPW, the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and land management practices, and social and environmental standards acceptable to the Bank, 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 Recipient and the Bank shall otherwise agree, the Recipient shall carry out Part A.1 (except for the civic participation and transparency activities under Part A.1(a)(i) and studies under Part A.1(b)) of the Project in accordance with the Implementation Program set forth in Schedule 4 to this Agreement. Section 3.02. (a) Except as the Bank shall otherwise agree, procurement of the services required for Part A.1 (except for the civic participation and transparency activities under Part A.1(a)(i) and studies under Part A.1(b)) of the Project and to be financed out of the proceeds of the PRHD Grant shall be governed by the provisions of Schedule 3 to this Agreement, as said provisions may be further elaborated in the Procurement Plan. Page 7 - 5 - 5 Section 3.03. For the purposes of Section 9.06 of the General Conditions and without limitation thereto, the Recipient shall: (a) prepare, on the basis of guidelines acceptable to the Bank, and furnish to the Bank not later than six (6) months after the Closing Date or such later date as may be agreed for this purpose between the Recipient and the Bank, a plan designed to ensure the continued achievement of the Project’s objectives; and (b) afford the Bank a reasonable opportunity to exchange views with the Recipient on said plan. ARTICLE IV Financial Covenants Section 4.01. (a) The Recipient shall establish and maintain a financial management system, including records and accounts, and prepare financial statements in accordance with consistently applied accounting standards acceptable to the Bank, adequate to reflect the operations, resources and expenditures related to the Project; Page 8 - 6 - 6 (b) The Recipient shall: (i) have the financial statements referred to in paragraph (a) of this Section for each fiscal year (or other period agreed to by the Bank), audited, in accordance with consistently applied auditing standards acceptable to the Bank, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six (6) months after the end of each such year (or such other period agreed to by the Bank): (A) certified copies of the financial statements referred to in paragraph (a) of this Section for such year (or other period agreed to by the Bank), as so audited; and (B) an opinion on such statements by said auditors, in scope and detail satisfactory to the Bank; and (iii) furnish to the Bank such other information concerning such records and accounts, and the audit of such financial statements, and concerning said auditors, as the Bank may from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the PHRD Grant Account were made on the basis of reports referred to in Part A.4 of Schedule 1 to this Agreement (Report-based Disbursements) or on the basis of statements of expenditure, the Recipient shall: (i) retain, until at least one (1) year after the Bank has received the audit report for, or covering, the fiscal year in which the last withdrawal from the PHRD Grant Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (ii) enable the Bank ’s representatives to examine such records; and (iii) ensure that such reports and statements of expenditure are included in the audit for each fiscal year (or other period agreed to by the Bank), referred to in paragraph (b) of this Section. Section 4.02. (a) Without limitation upon the Recipient’s progress reporting obligations set out in paragraph 8 of Schedule 4 to this Agreement, the Recipient shall Page 9 - 7 - 7 prepare and furnish to the Bank a financial monitoring report, in form and substance satisfactory to the Bank, which: (i) sets forth sources and uses of funds for Part A.1 (except for the civic participation and transparency activities under Part A.1(a)(i) and studies under Part A.1(b)) of the Project, both cumulatively and for the period covered by said report, showing separately funds provided under the PHRD Grant, 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 (FMR) shall be furnished to the Bank 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 FMR shall be furnished to the Bank not later than forty-five (45) days after each subsequent calendar quarter, and shall cover such calendar quarter. Section 4.03. The Recipient shall make publicly available, and agrees that the Bank may also make publicly available, each final audit report referred to in Section 4.01 of this Agreement, promptly after its issuance by the independent auditors referred to therein. ARTICLE V Remedies of the Bank Section 5.01. Pursuant to Section 6.02(l) of the General Conditions, the following additional events are specified: (a) any of Law No. 32 of 2004 Regarding Regional Governance, Law No. 33 of 2004 Regarding Fiscal Balance between the Central Government and the Regions, or Decree MOF-No. 35/KMK.072/2002, shall have been amended, suspended, abrogated, Page 10 - 8 - 8 repealed or waived so as to affect materially and adversely the ability of the Recipient to perform any of its obligations under this Agreement; or (b) (i) Subject to sub-paragraph (ii) of this paragraph (b): (A) the right of the Recipient to withdraw the proceeds of the Loan made to the Recipient for the financing of the Project shall have been suspended, canceled or terminated in whole or in part, pursuant to the terms of the Loan Agreement; or (B) the Loan shall have become due and payable prior to the agreed maturity thereof; (ii) Sub-paragraph (i) of this paragraph (b) shall not apply if the Recipient establishes to the satisfaction of the Bank that: (A) such suspension, cancellation or termination is not caused by the failure of the Recipient to perform any of its obligations under the Loan Agreement; and (B) adequate funds for the Project are available to the Recipient from other sources on terms and conditions consistent with the obligations of the Recipient under this Agreement. Section 5.02. Pursuant to Section 7.01(h) of the General Conditions, the following additional events are specified, namely that any of the events specified in paragraphs (a) and (b)(i) of Section 5.01 of this Agreement shall occur, subject to the provisions of paragraph (b)(ii) of that Section. ARTICLE VI Effective Date; Termination Section 6.01. This agreement shall become effective upon its execution by the parties hereto or the Effective Date of the Loan Agreement, whichever is later. Section 6.02. This Agreement shall continue in effect until disbursement under this Agreement has been completed and the parties to this Agreement have fulfilled all Page 11 - 9 - 9 their obligations hereunder, provided, however, that if the Loan Agreement terminates prior to the termination of this Agreement, this Agreement shall terminate automatically and shall cease to have any further force or effect. Section 6.03. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representative of the Recipient; Addresses Section 7.01. The Minister of Finance of the Recipient is designated as representative of the Recipient 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 Recipient: Ministry of Finance c/o Directorate General of Treasury Jalan Lapangan Banteng Timur 2-4 P.O. Box 1139 Jakarta 10710 Indonesia Cable address: Telex: Facsimile: FINMINISTRY 45799 DJMLN-IA (21) 381 2859 Jakarta 44319 DEPKEU-IA For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: Facsimile: Page 12 - 10 - 10 INDEVAS 248423 (MCI) or (202) 477-6391 Washington, D.C. 64145 (MCI) Page 13 - 11 - 11 IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in Jakarta, Republic of Indonesia, as of the day and year first above written. REPUBLIC OF INDONESIA By: /s/ Mulia Nasution Authorized Representative INTERNATIONAL BANK FOR RECONSTRACTION AND DEVELOPMENT By: /s/ Andrew Steer Authorized Representative Page 14 - 12 - 12 SCHEDULE 1 Withdrawal of the Proceeds of the PHRD Grant A. General 1. The table below sets forth the Categories of items to be financed out of the proceeds of the PHRD Grant, the allocation of the amounts of the PHRD Grant to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the PHRD Grant Allocated % of (Expressed in Expenditures Category US$ Equivalent) to be Financed (1) Consultants’ services under Part A.1, 5,000,000 100% except for the civic participation and transparency activities under Part A.1(b) ________ TOTAL 5,000,000 2. 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. 3. The Bank may require withdrawals from the PHRD Grant Account to be made on the basis of statements of expenditure for expenditures under contracts for services of individual consultants costing less than US$50,000 equivalent per contract, all under such terms and conditions as the Bank shall specify by notice to the Recipient. 5. The Recipient may request withdrawals from the PHRD Grant Account to be made on the basis of reports to be submitted to the Bank in form and substance satisfactory to the Bank, such reports to include the FMR and any other information as the Bank shall specify by notice to the Recipient (Report-based Disbursements). In the case of the first such request submitted to the Bank before any withdrawal has been made from the PHRD Grant Account, the Recipient shall submit to the Bank only a statement with the projected sources and applications of funds for the Project for the six-month period following the date of such request. Page 15 - 13 - 13 B. PHRD Grant Special Account 1. The Recipient may, for the purpose of Part A.1 (except for the civic participation and transparency activities under Part A.1(a)(i) and studies under Part A.1(b)) of the Project, open and maintain in United States dollars a special deposit account (the PRHD Grant Special Account) in Bank Indonesia or in a commercial Bank acceptable to the Bank, on terms and conditions satisfactory to the Bank, including, in the case of the commercial bank, appropriate protection against set-off, seizure and attachment. 2. After the Bank has received evidence satisfactory to it that the PHRD Grant Special Account has been opened, withdrawals from the PHRD Grant Account of amounts to be deposited into the PHRD Grant Special Account shall be made as follows: (a) if the Recipient is not making Report-based Disbursements, withdrawals shall be made in accordance with the provisions of Annex A to this Schedule 1; and (b) if the Recipient is making Report-based Disbursements, withdrawals shall be made in accordance with the provisions of Annex B to this Schedule 1. 3. Payments out of the PHRD Grant Special Account shall be made exclusively for Eligible Expenditures. For each payment made by the Recipient out of the PHRD Grant Special Account, the Recipient shall, at such time as the Bank shall reasonably request, furnish to the Bank 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 Bank shall not be required to make further deposits into the PHRD Grant Special Account: (a) if the Bank, at any time, is not satisfied that the reports referred to in Part A.5 of this Schedule 1 adequately provide the information required for Report-based Disbursements; (b) if the Bank determines at any time that all further withdrawals for payment of Eligible Expenditures should be made by the Recipient directly from the PHRD Grant Account; or (c) if the Recipient shall have failed to furnish to the Bank, 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 Bank pursuant to said Section in respect of the audit of: (A) the records and accounts for the PHRD Grant Special Account; or (B) the records and Page 16 - 14 - 14 accounts reflecting expenditures with respect to which withdrawals were Report-based Disbursements or were made on the basis of statements of expenditure, as the case may be. 5. The Bank shall not be required to make further deposits into the PHRD Grant Special Account in accordance with the provisions of Part B.2 of this Schedule if, at any time, the Bank shall have notified the Recipient of its intention to suspend in whole or in part the right of the Recipient to make withdrawals from the PHRD Grant Account pursuant to Section 6.02 of the General Conditions. Upon such notification, the Bank shall determine, in its sole discretion, whether further deposits into the PHRD Grant Special Account may be made and what procedures should be followed for making such deposits, and shall notify the Recipient of its determination. 6. (a) If the Bank determines at any time that any payment out of the PHRD Grant Special Account was made for an expenditure which is not an Eligible Expenditure, or was not justified by the evidence furnished to the Bank, the Recipient shall, promptly upon notice from the Bank, provide such additional evidence as the Bank may request, or deposit into the PHRD Grant Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment. Unless the Bank shall otherwise agree, no further deposit by the Bank into the PHRD Grant Special Account shall be made until the Recipient has provided such evidence or made such deposit or refund, as the case may be. (b) If the Bank determines at any time that any amount outstanding in the PHRD Grant Special Account will not be required to cover payments for Eligible Expenditures during the six-month period following such determination, the Recipient shall, promptly upon notice from the Bank, refund to the Bank such outstanding amount. (c) The Recipient may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the PHRD Grant Special Account. (d) Refunds to the Bank made pursuant to sub-paragraph (a), (b) or (c) of this paragraph 6 shall be credited to the PHRD Grant Account for subsequent withdrawal or for cancellation in accordance with the provisions of the PHRD Grant Agreement. Page 17 - 15 - 15 Annex A to SCHEDULE 1 Operation of PHRD Grant Special Account When Withdrawals Are Not Report-based Disbursements 1. For the purposes of this Annex, the term “Authorized Allocation” means the amount of US$500,000 to be withdrawn from the PHRD Grant Account and deposited into the PHRD Grant Special Account pursuant to paragraph 2 of this Annex. 2. Withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the PHRD Grant Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Recipient shall furnish to the Bank a request or requests for deposit into the PHRD Grant Special Account of an amount or amounts which in the aggregate do not exceed the Authorized Allocation. On the basis of each such request, the Bank shall, on behalf of the Recipient, withdraw from the PHRD Grant Account and deposit into the PHRD Grant Special Account such amount as the Recipient shall have requested. (b) For replenishment of the PHRD Grant Special Account, the Recipient shall furnish to the Bank requests for deposit into the PHRD Grant Special Account at such intervals as the Bank shall specify. Prior to or at the time of each such request, the Recipient shall furnish to the Bank 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 Bank shall, on behalf of the Recipient, withdraw from the PHRD Grant Account and deposit into the PHRD Grant Special Account such amount as the Recipient shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the PHRD Grant Special Account for Eligible Expenditures. Each such deposit into the PHRD Grant Special Account shall be withdrawn by the Bank from the PHRD Grant Account under one or more of the Eligible Categories. 3. The Bank shall not be required to make further deposits into the PHRD Grant Special Account, once the total unwithdrawn amount of the PHRD Grant minus the total amount of all outstanding special commitments entered into by the Bank 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 PHRD Grant Account of the remaining unwithdrawn amount of the PHRD Grant shall follow such procedures as the Bank shall specify by notice to the Recipient. Such further withdrawals shall be made Page 18 - 16 - 16 only after and to the extent that the Bank shall have been satisfied that all such amounts remaining on deposit in the PHRD Grant Special Account as of the date of such notice will be utilized in making payments for Eligible Expenditures. Page 19 - 17 - 17 Annex B to SCHEDULE 1 Operation of PHRD Grant Special Account When Withdrawals Are Report-based Disbursements 1. Withdrawals from the PHRD Grant Account shall be deposited by the Bank into the PHRD Grant Special Account in accordance with the provisions of Schedule 1 to this Agreement. Each such deposit into the Special Account shall be withdrawn by the Bank from the PHRD Grant Account under one or more of the Eligible Categories. 2. Upon receipt of each application for withdrawal of an amount of the PHRD Grant, the Bank shall, on behalf of the Recipient, withdraw from the PHRD Grant Account and deposit into the PHRD Grant Special Account an amount equal to the lesser of: (a) the amount so requested; and (b) the amount which the Bank has determined, based on the reports referred to in Part A.5 of this Schedule 1 applicable to such withdrawal application, is required to be deposited in order to finance Eligible Expenditures during the six-month period following the date of such reports. Page 20 - 18 - 18 SCHEDULE 2 Description of the Project The objective of the Project is to assist the Recipient in improving the provision of urban services by Participating ULGs and Additional Participating ULGs. The Project consists of the following parts, subject to such modifications thereof as the Recipient and the Bank may agree upon from time to time to achieve such objectives: Part A: Urban Reform 1. Strengthening institutional capacity in Participating ULGs and Additional Participating ULGs and at the national government level to develop and implement urban reform programs through: (a) the provision of technical assistance and training to Participating ULGs and Additional Participating ULGs for: (i) the carrying out of core governance reform programs in the areas of civic participation and transparency, public procurement and financial management; (ii) the preparation and implementation of long-term urban development strategies and plans, including local economic development and urban poverty reduction strategies; and (iii) carrying out institutional and capacity development programs identified by ULGs; and (b) the provision of technical assistance to central government ministries and state agencies and the carrying out of studies, to improve: (i) national urban strategy formulation and the development and implementation of national urban reform programs; and (ii) their capacity to support urban reform in Kabupatens and Kotas. 2. Strengthening the institutional capacity of MPW to carry out its administration, supervision and monitoring responsibilities under the Project. Part B: Urban Investment Support Program for Participating ULGs and Additional Participating ULGs Carrying out Sub-Projects in Participating ULGs and Additional Participating ULGs, including the provision of Sub-project Loans therefor. Page 21 - 19 - 19 * * * The Project is expected to be completed by December 31, 2010. Page 22 - 20 - 20 SCHEDULE 3 Procurement Section I . General A. All consultants’ services shall be procured in accordance with Sections I and IV of the “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004 (the Consultant Guidelines), the provisions of the Annex to this Schedule 3, and with the provisions of this Schedule. B. The capitalized terms used below in this Schedule to describe particular procurement methods or methods of review by the Bank of particular contracts, have the meanings ascribed to them in the Procurement Guidelines, or Consultant Guidelines, as the case may be. Section II . Particular Methods of Procurement of Consultants’ Services A. Quality- and Cost-based Selection: Except as otherwise provided in Part B of this Section, consultants’ services shall be procured under contracts awarded on the basis of Quality- and Cost-based Selection. For purposes of paragraph 2.7 of the Consultant Guidelines, the short list of consultants for services estimated to cost less than $400,000 equivalent per contract may comprise entirely national consultants. B. Other Procedures 1. Selection Based on Consultants’ Qualifications: Services estimated to cost less than $200,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions of paragraphs 3.1, 3.7 and 3.8 of the Consultant Guidelines. 2. Individual Consultants: Services for assignments that meet the requirements set forth in the first sentence of paragraph 5.1 of the Consultant Guidelines may be procured under contracts awarded to individual consultants in accordance with the provisions of paragraphs 5.2 through 5.3 of the Consultant Guidelines. Under the circumstances described in paragraph 5.4 of the Consultant Guidelines, such contracts may be awarded to individual consultants on a sole-source basis in accordance with the provisions of paragraph 5.4 of the Consultant Guidelines, subject to prior approval of the Bank. Page 23 - 21 - 21 Section III . Review by the Bank of Procurement Decisions A. The Procurement Plan shall set forth those contracts which shall be subject to the Bank’s Prior Review. All other contracts shall be subject to Post Review by the Bank. Page 24 - 22 - 22 Annex to SCHEDULE 3 Without limitation on the provisions of Schedule 3 to the PHRD Grant Agreement (Schedule 3) and of the Consultant Guidelines (as such term is defined in said schedule), the following provisions shall apply in respect of the consultants’ services to be procured under the Project: 1. To ensure end-user participation in the procurement of consultant services under the Project, the requestor/user of such consultant services to be acquired, shall be represented on the relevant procurement/selection committee. The criteria for the selection of procurement committee/selection members shall in all cases be consistent with the provisions of the Consultant Guidelines and the Project Management Manual (provided, however, that in the event of any inconsistency between the Project Management Manual and the Consultant Guidelines, the provisions of the Consultant Guidelines shall apply). 2. The Procurement Plan, including all updates thereof; shall be made publicly available promptly after its finalization. 3. All requests for proposals issued in accordance with Schedule 3 to this Agreement shall be made available to any member of the public promptly upon request, subject only to payment of a reasonable fee to cover the cost of printing and delivery. The relevant documents will only be made available after notification of award to the successful firm. Each such document will continue to be made publicly available until a year after completion of the contract entered into for the consultants’ services in question. 4. All short lists of consultants shall be made available to any member of the public promptly upon request. 5. A summary of the evaluation of all proposals for specific contracts shall be disclosed to all parties submitting proposals therefor, promptly after the notification of award to the successful consultant. Information in such summaries will be limited to a list of consultants, all financial proposals as read out at public openings for bids and financial proposals, all proposals declared non responsive (together with reasons for such an assessment), the name of winning consultant and the contract price. Such summaries will be made available to any member of the public promptly upon request. 6. Contract award information for all contracts for consultants of $50,000 equivalent or more shall be made publicly available and published widely, and be made available to any member of the public upon request, promptly after such award. Page 25 - 23 - 23 7. A list of all contracts awarded in the three (3) months preceding the date of such request, including, with respect to each such contract, the name of the consultant selected, the contract amount, the number of makers of proposals in respect thereof, the procurement method followed and the purpose of such contract shall be made available, promptly upon request by member of the public. Page 26 - 24 - 24 SCHEDULE 4 Implementation Program The provisions of this Schedule shall apply for the purposes of Section 3.01(b) of this Agreement. 1. The Recipient shall maintain until completion of the Project: (a) the IMSC, with functions and responsibilities acceptable to the Bank; and (b) the CPMU, with functions and responsibilities, and headed by a Project Manager with qualifications and experience, acceptable in each case to the Bank, and provided with such facilities, staffing and funding as shall be necessary to accomplish its functions, responsibilities and objectives. 2. The Recipient shall, for purposes of the Project, employ management consultants at the national level with qualifications and experience and terms of reference satisfactory to the Bank and selected in accordance with the provisions of Part A of Section III of Schedule 3 to this Agreement, which provisions are included in the Project Management Manual, to provide management, administrative, supervisory and monitoring support to the CPMU under the Project and as described in the Project Management Manual. 3. The Recipient, through MPW, shall ensure that: (a) each Participating ULG and each Additional Participating ULG shall: (i) establish and thereafter maintain, with functions and responsibilities acceptable to the Bank: (A) a PIU in each local government department responsible for implementing a part of the Project; and (B) a PMU; and (ii) provide said PIU and PMU at all times with adequate funds and other resources, and with qualified and experienced personnel in adequate numbers; and (b) each PPMU Province shall, by no later than January 31, 2006; (i) establish and thereafter maintain, with functions and responsibilities acceptable to the Bank, a PPMU; and (ii) provide said PPMU at all times with adequate funds and other resources, and with qualified and experienced personnel in adequate numbers as shall be necessary to accomplish its functions, responsibilities and objectives. 4. The Recipient, through IMSC, shall adopt and thereafter, through MPW, apply, and cause each Participating ULG and each Additional ULG to adopt (through a Surat Keputusan) and thereafter apply, a Project Management Manual acceptable to the Bank for the carrying out of the Project and their respective responsibilities therefore. Such Project Management Manual shall include: Page 27 - 25 - 25 (a) the description of the institutional arrangements for carrying out the Project, including; (i) the functions and responsibilities of those entities referred to in paragraphs 1 and 3 above of this Schedule 4; (ii) the responsibilities of all relevant government (national and local) agencies within the Participating ULGs and Additional ULGs; and (iii) the terms of reference of the national-level consultants referred to in paragraph 2 of this Schedule 4; (b) the procurement procedures set out in Schedule 3 to this Agreement and in the Annex thereto; (c) the standard procurement documentation; (d) reporting requirements, financial management procedures and audit procedures as set out in Article 4 of this Agreement; (e) the Project Performance Indicators set out in Schedule 5 to this Agreement; (f) the eligibility criteria for Kabupatens and Kotas to qualify as Additional Participating ULGs and the eligibility criteria and preparation, appraisal and selection procedures for Additional Sub-projects, which criteria and procedures shall include those set out in the Annex to Schedule 5 to the Loan Agreement (g) the criteria for a urban reform action plan of a Kabupaten or a Kota to qualify as a Qualifying Urban Reform Action Plan; and (h) the Safeguards Framework. For the purposes of ensuring that said manual at all times facilitates the attaining of the objectives of the Project, the Recipient, through the IMSC, shall carry out regular reviews of said manual as part of, and in accordance with, its undertakings set forth in paragraph 8 of this Schedule 4. The Recipient shall not amend, suspend, abrogate or waive the Project Management Manual or any part thereof without the Bank’s agreement. Page 28 - 26 - 26 5. Without limitation upon the provisions and requirements of the Project Management Manual, the Recipient shall: (a) ensure that only those Kabupatens and Kotas that have met the eligibility criteria set forth in the Project Management Manual may participate in the Project as Additional Participating ULGs, which criteria include the adoption by the relevant Kabupaten or Kota of a Qualifying Urban Reform Action Plan; (b) approve a proposed urban reform action plan of an Additional Participating ULG as a Qualifying Urban Reform Action Plan only where: (i) said plan meets the criteria set out in the Project Management Manual; and (ii) upon the written confirmation by the Bank of its acceptance that said plan meets the relevant eligibility criteria set forth in the Project Management Manual; and (c) not approve or otherwise agree to any amendment, suspension, abrogation or waiver of a Qualifying Urban Reform Action Plan of any Participating U LG or Additional Participating ULG without the Bank’s prior agreement. 6. Without limitation upon the provisions of paragraph 5 of this Schedule 4, the Recipient shall only declare: (i) a Kabupaten or Kota to be an Additional Participating ULG; and (ii) an urban reform action plan to be a Qualifying Urban Reform Action Plan, after certifying to the Bank in each case that the relevant eligibility criteria and other provisions set forth in the Project Management Manual have been met. 7. The Recipient shall ensure that auditing activities under the Project, including the audits referred to in Section 4.01 of this Agreement, are carried out in accordance with: (i) BPKP’s audit manual dated April 13, 1999, as such Manual may be amended from time to time with the prior agreement of the Bank; and (ii) in accordance with terms of reference agreed with the Bank. 8. The Recipient shall: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with the indicators set forth in Schedule 5 to this Agreement, the appropriateness of the Project Management Manual in furthering the attainment of the objectives of the Project, the carrying out of the Project and the achievement of the objectives thereof; (b) engage, by not later than March 31, 2006, consultants, each with terms of reference acceptable to the Bank, for the purpose of carrying out independent evaluation of the Project, including the Project Management Manual; Page 29 - 27 - 27 (c) prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank, by March 15 and October 15 of each year, commencing March 15, 2006, and until completion of the Project, a report integrating the results of the monitoring and evaluation activities performed pursuant to sub-paragraph (a) of this paragraph 8, on the progress achieved in the carrying out of the Project during the preceding six (6) months and setting out the measures recommended to ensure the efficient carrying out of the Project and the achievement of the objectives thereof during the six (6) months following such date, which measures shall include in each report due by March 15 in any year: (i) proposed modifications, where considered appropriate, to the Project Management Manual, for the Bank’s consideration and approval; and (ii) the proposed update of the Procurement Plan; (d) review with the Bank, on or about April 15 and November 15 of each year, commencing April 15, 2006, or such later date as the Bank shall request, the report referred to in sub-paragraph (c) of this paragraph 8, and, thereafter, take all measures required to ensure the efficient carrying out of the Project and the achievement of the objectives thereof during the twelve (12) months following the date of such report, based on the conclusions and recommendations of said report and the Bank’s views on the matter and subject to the provisions of paragraph 4 of this Schedule 4; (e) prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank, on or about March 15, 2008, a report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this paragraph 8, 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; (f) review with the Bank, by April 15, 2008, or such later date as the Bank shall request, the report referred to in paragraph (d) of this paragraph 8, 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 Bank’s views on the matter, subject to the provisions of paragraph 4 of this Schedule 5; and (g) make publicly available the report referred to in sub-paragraph (e) of this paragraph 8, at the same time as it is furnished to the Bank pursuant to said sub- paragraph. Page 30 - 28 - 28 SCHEDULE 5 Performance Indicators Outcome Indicators Baseline YR1 YR2 YR3 YR4 YR5 Frequency At least ten (10) ULGs improve priority urban services in areas financed with USDRP support. 0 5 10 Bi-annually Results Indicators for Each Part of Project Part A: Greater public availability of information, esp. related to plans, strategies, budgets, financial and procurement info, audits, service fees in at least ten (10) ULGs. Participating ULGs have public feedback mechanisms in place (consultations, grievance resolution etc.) Participating ULGs have participatory planning processes and public consultations/hearings held re: strategies, plans and budgets. Number of /ULGs practicing sound NA NA NA 0 5 5 5 5 10 10 10 10 Annually Annually Annually Annually Page 31 - 29 - 29 financial and procurement management practices The Borrower implements UIDP. Percentage of UIDP’s annual business plan undertaken 75% 75% 75% 75% 75% Annually Part B: ULGs prepare and implement sub- projects in infrastructure services worth a minimum of US$52.1 total during the Project period. $0.0M $10.4M $20.9M $15.6M $5.2M Annually