Page 1 CONFORMED COPY LOAN NUMBER 4457 KZ Loan Agreement (Health Project) between REPUBLIC OF KAZAKHSTAN and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated May 20, 1999 LOAN NUMBER 4457 KZ LOAN AGREEMENT AGREEMENT, dated May 20, 1999, between the REPUBLIC OF KAZAKHSTAN (the Borrower) and the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Bank has received a letter dated March 6, 1999, from the Borrower, outlining the Borrower’s Health of the Nation Program, 1998 (the Program), designed to reform and develop the Borrower’s health sector, and declaring the Borrower’s commitment to the execution of the Program; (B) the Borrower has requested the Bank’s support for the execution of the Program through a series of loans up to $162,000,000 over a period of up to eight years to assist the Borrower in the implementation of the Program; (C) the Borrower, having satisfied itself as to the feasibility and priority of the project described in Schedule 2 to this Agreement (the Project), has requested the Bank to assist in the financing of the Project; and WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan 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 Page 2 Section 1.01. The “General Conditions Applicable to Loan and Guarantee Agreements for Single Currency Loans” of the Bank, dated May 30, 1995 (as amended through December 2, 1997), with the modification set forth below (the General Conditions), constitute an integral part of this Agreement: Paragraph (c) of Section 9.07 of the General Conditions is modified to read as follows: “(c) Not later than six (6) months before the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Bank, the Borrower shall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by the Borrower and the Bank of their respective obligations under the Loan Agreement and the accomplishment of the purposes of the Loan.” 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 and herein set forth and the following additional terms have the following meanings: (a) “Annual Work Programs” means the year-specific project work programs and budgets adopted by the Borrower and each of the Participating Regions, in accordance with Section 3.01(b)(i)(A) of this Agreement and Part B of Schedule 5 to this Agreement. (b) “AR” means the Almaty Region, an administrative sub-division of the Borrower and includes any successor or successors thereto. (c) “COH” means the Committee of Health established within MHES or any successor or successors thereto. (d) “EKR” means the East Kazakhstan Region, an administrative sub-division of the Borrower and includes any successor or successors thereto. (e) “MHES” means the Borrower’s Ministry of Health, Education, and Sports or any successor or successors thereto. (f) “MOF” means the Borrower’s Ministry of Finance or any successor or successors thereto. (g) “Participating Regions” and “Participating Region” mean collectively the AR and EKR and individually any one of the said regions. (h) “PCU” means the Borrower’s Project Coordination Unit referred to in paragraph 2 of Part A of Schedule 5 to this Agreement. (i) “PIM” means the Project Implementation Manual referred to in Section 5.01 (b) of this Agreement, as amended from time to time with the concurrence of the Bank. (j) “Project Management Report” means each report prepared in accordance with Section 4.02 of this Agreement. (k) “Project Preparation Advance” means the project preparation advance granted by the Bank to the Borrower pursuant to an exchange of letters, dated December 21, 1998 and January 5, 1999, between the Bank and the Borrower. (l) “RCUs” means the regional coordinating units referred to in paragraph 2 of Part A of Schedule 5 to this Agreement. (m) “Special Account” means the account referred to in Section 2.02(b) of this Agreement. ARTICLE II The Loan Page 3 Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement, an amount equal to forty-two million five hundred thousand Dollars ($42,500,000). Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan 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 goods, works and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan. (b) The Borrower may, for the purposes of each of Parts A, B, C and D of the Project, open and maintain in Dollars a special deposit account (Special Account) in a commercial bank, acceptable to the Bank, on terms and conditions satisfactory to the Bank, including appropriate protection against set-off, seizure or attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 6 to this Agreement. (c) Promptly after the Effective Date, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to 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, 2003, or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.04. The Borrower shall pay to the Bank a fee in an amount equal to one percent (1%) of the amount of the Loan. On or promptly after the Effective Date, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amount of the said fee. Section 2.05. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.06. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Interest Period equal to LIBOR Base Rate plus LIBOR Total Spread. (b) For the purposes of this Section: (i) “Interest Period” means the initial period from and including the date of this Agreement to, but excluding, the first Interest Payment Date occurring thereafter, and after the initial period, each period from and including an Interest Payment Date to, but excluding the next following Interest Payment Date. (ii) “LIBOR Base Rate” means, for each Interest Period, the London interbank offered rate for six-month deposits in Dollars for value the first day of such Interest Period (or, in the case of the initial Interest Period, for value the Interest Payment Date occurring on or next preceding the first day of such Interest Period), as reasonably determined by the Bank and expressed as a percentage per annum. (iii) “LIBOR Total Spread” means, for each Interest Period: (A) three-fourths of one percent (3/4 of 1%); (B) minus (or plus) the weighted average margin, for such Interest Period, below (or above) the London interbank offered rates, or other reference rates, for six-month deposits, in respect of the Bank’s outstanding borrowings or portions thereof allocated by the Bank to fund single currency loans or portions thereof made by it that include the Loan; as reasonably determined by the Bank and expressed as a percentage per annum. Page 4 (c) The Bank shall notify the Borrower of LIBOR Base Rate and LIBOR Total Spread for each Interest Period, promptly upon the determination thereof. (d) Whenever, in light of changes in market practice affecting the determination of the interest rates referred to in this Section 2.06, the Bank determines that it is in the interest of its borrowers as a whole and of the Bank to apply a basis for determining the interest rates applicable to the Loan other than as provided in said Section, the Bank may modify the basis for determining the interest rates applicable to the Loan upon not less than six (6) months’ notice to the Borrower of the new basis. The basis shall become effective on the expiry of the notice period unless the Borrower notifies the Bank during said period of its objection thereto, in which case said modification shall not apply to the Loan. Section 2.07. Interest and other charges shall be payable semiannually in arrears on April 15 and October 15 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project and, to this end, shall carry out Parts C and D of the Project through COH, Part A of the Project through EKR, and Part B of the Project through AR, all with due diligence and efficiency and in conformity with appropriate administrative, financial, environmental, and health 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 Sub-section (a) hereof, and except as the Borrower and the Bank shall otherwise agree, the Borrower shall: (i) (A) for the purpose of carrying out the Project, adopt, and ensure that the Participating Regions adopt, Annual Work Programs in accordance with the procedures and on terms and conditions satisfactory to the Bank, including those set forth in Part B of Schedule 5 to this Agreement; (B) for the purpose of carrying out Parts A and B of the Project, make available to each Participating Region the funds, facilities, services, and other resources required and appropriate under the respective Annual Work Program with such Participating Region; and (ii) carry out the Project in accordance with the Implementation Program set forth in Schedule 5 to this Agreement. Section 3.02. Except as the Bank shall otherwise agree, procurement of the goods, works, and consultants’ services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to this Agreement. Section 3.03. For the purposes of Section 9.08 of the General Conditions and without limitation thereto, the Borrower shall: (a) prepare, on the basis of guidelines acceptable to the Bank and furnish to the Bank not later than six (6) months before the Closing Date or such later date as may be agreed for this purpose between the Borrower and the 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 Borrower on said plan. ARTICLE IV Financial Covenants Page 5 Section 4.01. (a) The Borrower shall establish and maintain a financial management system, including records and accounts, and prepare financial statements in a format acceptable to the Bank, adequate to reflect the operations, resources and expenditures related to the Project of the departments or agencies of the Borrower responsible for and in connection with the carrying out of the Project, or any part thereof. (b) The Borrower shall: (i) have the records, accounts and financial statements referred to in paragraph (a) of this Section, and the records and accounts for the Special Account, for each fiscal year audited, in accordance with appropriate auditing standards acceptable to the Bank consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year, (A) certified copies of the financial statements referred to in paragraph (a) of this Section for such year so audited, and (B) an opinion on such statements, records and accounts, and report of such audit by said auditors of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning such records and accounts, and the audit thereof, and concerning said auditors, as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and separate accounts reflecting such expenditures; (ii) retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank’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. The Borrower shall prepare, in accordance with guidelines acceptable to the Bank, and furnish to the Bank not later than 45 days after the end of each calendar quarter, a Project management report for such period, which: (a) (i) sets 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 report; and (ii) shows separately expenditures financed out of the proceeds of the Loan during the period covered by said report and expenditures proposed to be financed out of the proceeds of the Loan during the six-month period following the period covered by said report; (b) (i) describes physical progress in Project implementation, both Page 6 cumulatively and for the period covered by said report; and (ii) explains variances between the actual and previously forecast implementation targets; and (c) sets forth the status of procurement under the Project and expenditures under contracts financed out of the proceeds of the Loan, as at the end of the period covered by said report. ARTICLE V Effective Date; Termination Section 5.01. The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) that COH has submitted to the Bank a combined evaluation report, in form and substance satisfactory to the Bank, for the provision of technical assistance to PCU for Project management; (b) that MHES has adopted a project implementation manual satisfactory to the Bank; and (c) that COH has submitted the draft 1999 Annual Work Programs to the Bank. Section 5.02. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VI Representative of the Borrower; Addresses Section 6.01. The Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 6.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance 60 Republic Avenue 473000, Astana Republic of Kazakhstan Telex: 264126 (FILIN) 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: INTBAFRAD 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 Astana, Republic of Kazakhstan, as of the day and year first above written. Page 7 REPUBLIC OF KAZAKHSTAN By /s/ K. Kusherbayev Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Kiyoshi Kodera Acting Regional Vice President Europe and Central Asia SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollars) to be Financed (1) Civil works 90% (a) under Part A of 3,750,000 the Project (b) under Part B of 3,750,000 the Project (c) under Part C of 600,000 the Project (2) Consultants' services 4,150,000 100% (3) Training 3,600,000 100% (4) Publications 1,200,000 100% (5) Goods 100% of foreign expenditures, 100% (a) under Part A of 5,900,000 of local expendi- the Project tures (ex-factory cost) and 85% of (b) under Part B of 5,800,000 local expenditures the Project for other items procured locally (c) under Parts C and 7,300,000 D of the Project (6) Incremental operating 1,200,000 100% costs (7) Refunding of Project 620,000 Amount due under Page 8 Preparation Advance Section 2.02 (c) of this Agreement (8) Fee 425,000 Amount due under Section 2.04 of this Agreement (9) Unallocated 4,205,000 TOTAL 42,500,000 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; (c) the term “Incremental operating costs” means the incremental expenses incurred by the project implementing and coordinating agencies on account of Project implementation, management and monitoring, including office supplies, vehicle operation, travel and supervision costs, and consultancy fees but excluding salaries of officials of the Borrower; and (d) the term “Publications” means training materials, tuberculosis monitoring forms, health promotion materials, and print and broadcast media costs. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement. 4. The Bank may require withdrawals from the Loan Account to be made on the basis of statements of expenditure for expenditures for: (a) works, under contracts costing less than $200,000 equivalent each; (b) goods, under contracts costing less than $200,000 equivalent each; (c) services provided by firms, under contracts costing less than $100,000 equivalent each and services provided by individuals, under contracts costing less than $50,000 equivalent each; (d) training and publications, under contracts costing less than $10,000 equivalent each; and (e) incremental operating costs, all under such terms and conditions as the Bank shall specify by notice to the Borrower. SCHEDULE 2 Description of the Project The Project is a part of the Program, the objective of which is to achieve a sustainable performance-oriented health system, through: (a) modernization and improvement of the quality and efficiency of the health care system at the national level; and (b) (i) implementation of integrated health reform; (ii) strengthening of the quality and cost effectiveness of primary health care; and (iii) improvement of financing and management capacity at service delivery level, in the East Kazakhstan Region and Almaty Region. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Bank may agree upon from time to time to achieve such objectives: PART A: EKR COMPONENT 1. Primary Health Care (PHC). Development of primary health care system through the provision of assistance to implement a program for: (a) training general practitioners and upgrading the facilities in which they function, providing continuing medical education to upgrade skills on a continuous basis and introduction of new concepts of medical care and case management, and extension of training to medical staff associated with PHC complexes, including nurses, laboratory technicians and feldshers; and (b) upgrading of PHC Page 9 facilities through the provision of civil works, supply of pharmaceuticals, medical, laboratory and communication equipment, vehicles and development and improvement of information systems. 2. Financial and Management Strengthening. Financial and management strengthening of primary care and secondary or hospital care through the provision of technical assistance, training, computers and related equipment for management information systems. 3. Hospital Rationalization and Rehabilitation. Undertaking specific rationalization and rehabilitation of hospitals through the provision of assistance to: (a) upgrade and provide equipment to district hospitals which, by their location, are not subject to inclusion in any hospital consolidation program; (b) help develop and evaluate options for consolidating hospital facilities; (c) implement and manage the consolidation process; and (d) physically upgrade hospital facilities to integrate functions. PART B: AR COMPONENT 1. Primary Health Care (PHC). Development of primary health care system through the provision of assistance to implement a program for: (a) training general practitioners and upgrading the facilities in which they function, providing continuing medical education to upgrade skills on a continuous basis and introduction of new concepts of medical care and case management, and extension of training to medical staff associated with PHC complexes, including nurses, laboratory technicians and feldshers; and (b) upgrading of PHC facilities through the provision of civil works, supply of pharmaceuticals, medical and laboratory equipment, vehicles and development and improvement of information systems. 2. Financial and Management Strengthening. Financial and management strengthening of primary care and secondary or hospital care through the provision of technical assistance, training, computers and related equipment for management information systems. 3. Hospital Rationalization and Rehabilitation. Undertaking specific rationalization and rehabilitation of hospitals through the provision of assistance to: (a) upgrade and provide equipment to district hospitals which, by their location, are not subject to inclusion in any hospital consolidation program; (b) help develop and evaluate options for consolidating hospital facilities; (c) implement and manage the consolidation process; and (d) physically upgrade hospital facilities to integrate functions. PART C: NATIONAL COMPONENT 1. Tuberculosis Control. Support on a national basis for improved diagnosis and treatment of tuberculosis, based on the system for case management recommended by World Health Organization (WHO), through the provision of pharmaceuticals, laboratory equipment and supplies, vehicles, technical assistance and training. 2. General Practitioner Training. Support of the medical higher education institutions and post-graduate institutes in establishing general practitioner training for doctors, and establishing training centers, through the provision of civil works, medical, computer and office equipment, and vehicles. 3. Health Promotion. Support of health promotion programs including: (a) development, publication and Page 10 dissemination of a national health promotion action plan; (b) undertaking of baseline and follow-up surveys on healthy lifestyle indicators among adult and children; (c) professional development and competence building of health and communication professionals; (d) conducting public education and communication campaign using print and broadcast media; and (e) development and implementation of national action plans on alcohol and tobacco, through the provision of technical assistance, training, publications and computer and office equipment. 4. Health Policy and Evaluation. (a) Review and evaluation of national health policy and regional health programs, provision of assistance to disseminate recommendations to various regions, and preparation of a proposal for replication throughout the country; (b) training of regional and health facility administrators in evaluating and measuring indicators for Project evaluation; (c) enhancement of clinical information in Kazakhstan and the use of evidence based medicine; (d) provision of recent medical literature and materials at selected places; and (e) provision of technical assistance to develop a framework for evaluating and updating medical protocols. PART D: PROJECT MANAGEMENT Support for project management, including institutional strengthening of the PCU and RCUs through the provision of fees of foreign and local consultants, including for provision of external audits, computer and office equipment, vehicles and part of the incremental operating costs. * * * The Project is expected to be completed by June 30, 2003. SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in Dollars)* October 15, 2004 920,000 April 15, 2005 945,000 October 15, 2005 970,000 April 15, 2006 1,000,000 October 15, 2006 1,025,000 April 15, 2007 1,055,000 October 15, 2007 1,085,000 April 15, 2008 1,115,000 October 15, 2008 1,150,000 April 15, 2009 1,180,000 October 15, 2009 1,215,000 April 15, 2010 1,250,000 October 15, 2010 1,285,000 April 15, 2011 1,320,000 October 15, 2011 1,355,000 April 15, 2012 1,395,000 October 15, 2012 1,435,000 April 15, 2013 1,475,000 October 15, 2013 1,515,000 April 15, 2014 1,560,000 October 15, 2014 1,605,000 April 15, 2015 1,650,000 October 15, 2015 1,695,000 April 15, 2016 1,745,000 October 15, 2016 1,795,000 April 15, 2017 1,845,000 October 15, 2017 1,895,000 April 15, 2018 1,950,000 October 15, 2018 2,005,000 April 15, 2019 2,065,000 Page 11 _______________________________ * The figures in this column represent the amount in Dollars to be repaid, except as provided in Sections 4.04 (d) of the General Conditions. SCHEDULE 4 Procurement and Consultants’ Services Section I. Procurement of Goods and Works Part A: General Goods and works shall be procured in accordance with the provisions of Section I of the "Guidelines for Procurement under IBRD Loans and IDA Credits” published by the Bank in January 1995 and revised in January and August 1996, September 1997, and January 1999 (the Guidelines) and the following provisions of this Section. 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: 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. Part C: Other Procurement Procedures 1. National Competitive Bidding Except as otherwise provided in paragraph 5 hereof, works estimated to cost less than $1,000,000 equivalent per contract, up to an aggregate amount not to exceed $4,310,000 equivalent, shall be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. 2. International Shopping Except as otherwise provided in paragraphs 3 and 4 hereof, goods estimated to cost less than $200,000 equivalent per contract, up to an aggregate amount not to exceed $2,610,000 equivalent, may be procured under contracts awarded on the basis of international shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. 3. National Shopping Except as otherwise provided in paragraph 4 hereof, goods estimated to cost less than $75,000 equivalent per contract, up to an aggregate amount not to exceed $1,130,000 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. 4. Procurement from UN Agencies Off-the-shelf medical equipment, training materials and tuberculosis monitoring forms may be procured from UNICEF and WHO in accordance with the provisions of paragraph 3.9 of the Guidelines. 5. Procurement of Minor Works Works estimated to cost less than $200,000 equivalent per contract, up to an amount not to exceed $5,650,000 equivalent, may be procured under lump-sum, fixed-price contracts awarded on the basis of quotations obtained from three (3) Page 12 qualified domestic contractors in response to a written invitation. The invitation shall include a detailed description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to the Bank, and relevant drawings, where applicable. The award shall be made to the contractor who offers the lowest price quotation for the required work, and who has the experience and resources to complete the contract successfully. Part D: Review by the Bank of Procurement Decisions 1. Procurement Planning Prior to the issuance of any invitations to bid for contracts, the proposed procurement plan for the Project shall be furnished to the Bank for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods and works shall be undertaken in accordance with such procurement plan as shall have been approved by the Bank, and with the provisions of said paragraph 1. 2. Prior Review (a) With respect to each contract under Parts B.1, C.1, C.2 and C.3 hereof, 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. (b) With respect to the first two contracts for civil works, in each of the Participating Regions, under Part C.1 hereof and the first two contracts for civil works, in each of the Participating Regions, under Part C.5 hereof, or such other number of said contracts as may be required by the Bank, 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 Bank 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 1. Except as otherwise provided in Part C of this Section, consultants’ services shall be procured under contracts awarded in accordance with the provisions of Section II of the Consultant Guidelines, paragraph 3 of Appendix 1 thereto, Appendix 2 thereto, and the provisions of paragraphs 3.13 through 3.18 thereof applicable to quality- and cost-based selection of consultants. 2. The following provisions shall apply to consultants services to be procured under contracts awarded in accordance with the provisions of the preceding paragraph. Part C: Other Procedures for the Selection of Consultants 1. Least-cost Selection Services for auditing, 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 and 3.6 of the Consultant Guidelines. 2. Individual Consultants Page 13 Services for tasks that meet the requirements set forth in paragraph 5.01 of the Consultant Guidelines shall be procured under contracts awarded to individual consultants in accordance with the provisions of paragraphs 5.1 through 5.3 of the Consultant Guidelines. Part D: Review by the Bank of the Selection of Consultants 1. Selection Planning Prior to the issuance to consultants of any requests for proposals, the proposed plan for the selection of consultants under the Project shall be furnished to the Bank 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 Bank, 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 $100,000 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 Bank 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 5 Implementation Program PART A General 1. The Borrower shall: (a) develop, adopt and 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 Bank, the carrying out of the Project and the achievement of the objectives thereof; (b) prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank, on or about September 30, 2001, a report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section, on the progress achieved in the carrying out of the Project during the period preceding the date of said report and setting out the measures recommended to ensure the efficient carrying out of the Project and the achievement of the objectives thereof during the period following such date; and (c) review with the Bank, by December 31, 2001, or such later date as the Bank 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 Bank views on the matter. 2. The Borrower shall establish and, until the completion of the Project, maintain Page 14 a project coordination unit (PCU), regional coordinating units (RCUs) in the Participating Regions, and a Technical Evaluation Unit (TEU) and shall ensure that the PCU, RCUs and TEU function at all times in a manner and with staffing, funds, facilities and other resources satisfactory to the Bank. 3. The Borrower agrees that: (a) the PCU shall be headed by a director who shall report to the Deputy Chairman of COH and be responsible for the overall coordination of the Project activities, including accounting, auditing, procurement, disbursement, consolidation of draft Annual Work Programs and budgets, and preparation of progress reports and annual reports in respect of or related to the Project; and (b) the RCUs shall be headed by regional coordinators who shall report to the deputy head of the regional administration of the Participating Regions. 4. The Borrower shall, in consultation with the Participating Regions and the Bank, prepare and, by July 15, 1999, submit to the Bank an agreed strategic plan for each Participating Region for the implementation of Parts A.2 and B.2 of the Project which shall include specific actions to be taken by the Participating Regions for each year of the Project. PART B Annual Work Programs 5. (a) The following procedures shall apply and be followed in connection with Annual Work Programs to be prepared for each calendar year commencing in 2000 during which the Participating Regions and the COH shall participate in carrying out Parts A, B, C and D of the Project: (i) by June 1 of each year, the RCUs shall prepare proposed Annual Work Programs for Parts A and B of the Project for the next year which shall contain the terms and conditions set forth in sub-paragraph (b) hereof and shall submit such proposed Annual Work Programs to the respective administrations of the Participating Regions; (ii) by June 15 of each year, the Participating Regions shall agree on the terms and conditions of the proposed Annual Work Program for Parts A and B of the Project for the next year and shall submit such proposed Annual Work Programs to the PCU; (iii) by July 15 of each year, the PCU shall prepare proposed Annual Work Programs for Parts C and D of the Project for the next year which shall contain the terms and conditions set forth in sub-paragraph (b) hereof and consolidate all the proposed Annual Work Programs, including those submitted to it by the Participating Regions, and shall submit them to COH and the Bank for review and comment; and (iv) by August 15 of each year, COH, following its review of the proposed Annual Work Programs and upon the Bank’s review of and no objection to such proposed Annual Work Programs, and taking into account the performance of the Participating Regions under the preceding Annual Work Programs, shall formally adopt the Annual Work Programs and shall ensure that the Participating Regions formally adopt such Annual Work Programs. (b) Each Annual Work Program shall contain such terms and conditions as shall be necessary and appropriate for the implementation of Parts A, B, C and D of the Project by the Participating Regions and the COH, and shall include terms and conditions regarding, inter alia: (i) objectives of the Annual Work Program; (ii) activities to be performed under the Annual Work Program to reach such objectives; Page 15 (iii) facilities (numbers and description) to be rehabilitated during the year, and rationalization measures; (iv) budget, including an estimate of the costs necessary to carry out the Annual Work Program, broken down, for each medical facility to be rehabilitated, equipment and supplies to be procured during the year; (v) financing plan for the activities to be performed under the Annual Work Program, which describe, inter alia, funds to be contributed by the Participating Regions for civil works, funds to be provided by the Borrower, including those provided under the Loan; and (vi) criteria for the selection and numbers of staff to be trained through study tours and fellowships, and estimated costs of such activities. 6. The Borrower shall carry out its Annual Work Program, and cause each of the Participating Regions to carry out their respective Annual Work Program, in a manner satisfactory to the Bank. SCHEDULE 6 Special Account 1. For the purposes of this Schedule: (a) the term “eligible Categories” means Categories (1), (2), (3), (4), (5) and (6) set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term “eligible expenditures” means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term “Authorized Allocation” means an amount equivalent to $1,000,000 to be withdrawn from the Loan Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule, provided, however, that unless the Bank shall otherwise agree, the Authorized Allocation shall be limited to an amount equivalent to $500,000 until the aggregate amount of withdrawals from the Loan Account plus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions shall be equal to or exceed the equivalent of $4,000,000. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Bank has received evidence acceptable to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Bank a request or requests for deposit into the Special Account of an amount or amounts which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Bank requests for deposits into the Special Account at such intervals as the Bank shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, Page 16 the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Bank from the Loan Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Bank shall reasonably request, furnish to the Bank such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shall not be required to make further deposits into the Special Account: (a) if, at any time, the Bank shall have determined that all further withdrawals should be made by the Borrower directly from the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; (b) if the Borrower shall have failed to furnish to the 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 the records and accounts for the Special Account; (c) if, at any time, the Bank 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 Loan Account pursuant to the provisions of Section 6.02 of the General Conditions; or (d) once the total unwithdrawn amount of the Loan allocated to the eligible Categories, minus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of the Loan allocated to the eligible Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Bank shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Bank, the Borrower shall, promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; or (B) deposit into the Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further deposit by the Bank into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Bank shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. Page 17