F OFFICIL~T The World Bank 1818 H Street N.W. (202) 477-1234 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD INTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS June 19, 2012 His Excellency Slavko Linic Minister of Finance Zagreb Republic of Croatia Re: Republic of Croatia: SAFE Grant No. TFO 12382 Modernizing Treasury Systems in Croatia Excellency: In response to the request for financial assistance made on behalf of the Republic of Croatia ("Recipient"), I am pleased to inform you that the International Bank for Reconstruction and Development ("World Bank"), acting as administrator of grant funds provided by the European Union, represented by the European Commission (the "Commission") ("Donor)" under the Trust Fund for Strengthening Accounting and the Fiduciary Environment (SAFE), proposes to extend to the Recipient a grant in an amount not to exceed one hundred sixty-five thousand one hundred eleven Euros (EUR 165,111) ("Grant") on the terms and conditions set forth or referred to in this letter agreement ("Agreement"), which includes the attached Annex, to assist in the financing of the project described in the Annex ("Project"). This Grant is funded out of the abovementioned trust fund for which the World Bank receives periodic contributions from the Donor. In accordance with Section 3.02 of the Standard Conditions (as defined in the Annex to this Agreement), the World Bank's payment obligations in connection with this Agreement are limited to the amount of funds made avail,ble to it by the Donor under the abovementioned trust fund, and the Recipient's right to withdraw the Grant proceeds is subject to the availability of such funds. The Recipient represents, by confirming its agreement below, that it is authorized to enter into this Agreement and to carry out the Project in accordance with the terms and conditions set forth or referred to in this Agreement. Please confirm the Recipient's agreement to the foregoing by having an authorized official of the Recipient sign and date the enclosed copy of this Agreement, and returning it to the World Bank. Upon receipt by the World Bank of this countersigned copy, this Agreement shall become effective as of the date of the countersignature; provided, however, that the offer of this Agreement shall be deemed withdrawn if the World Bank has not received the countersigned copy of this Agreement within ninety (90) days after the date of signature of this Agreement by the World Bank, unless the World Bank shall have established a later date for such purpose. Very truly yours, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Hongj o Hahm Country Manager World Bank Office Croatia AGREED: REPUBLIC OF CROATIA Enclosures: (1) Standard Conditions for Grants Made by the World Bank Out of Various Funds, dated February 15, 2012 (2) Disbursement Letter of the same date as this Agreement, together with World Bank Disbursement Guidelines for Projects, dated May 1, 2006 2 EU SAFE Grant No. TF012382 ANNEX Article I Standard Conditions; Definitions 1.01. Standard Conditions. The Standard Conditions for Grants Made by the World Bank out of Various Funds dated February 15, 2012 ("Standard Conditions") constitute an integral part of this Agreement. 1.02. Definitions. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the Standard Conditions or in this Agreement. Article II Project Execution 2.01. Project Objectives and Description. The objective of the Project is to assist the Recipient in strengthening and modernizing its Treasury System which will lead to further efficiency improvements in budgeting process and its execution by ensuring the availability of accurate commitments and payments arrears data in real time. The Project consists of the following parts: Part A: Financial Management Information System (FMIS) Review and Integration. Provision of technical assistance in conducting an analysis of current status of the FMIS of the third-level central budget users (i.e., universities, state government offices of the Recipient, social care institutions, hospitals, prisons, courts and state attorney's offices, national and nature parks, national cultural institutions), currently exempt from the Single Treasury Account (TSA), and recommendations for their integration with an assessment of financial impact such solutions would entail. Part B: FMIS Integration Incidents Management Provision of technical assistance in conducting an analysis of current unplanned interruptions or reduction in the quality of FMIS services ("incidents") management processes and tools, developing methodology based on specific needs of beneficiary and stakeholders, and developing and testing IT (IT) tools and training users so that during the FMIS integration of current 90 regional treasuries that currently represent third-level central budget users with the central State Treasury SAP system, incidents are properly managed and avoided. Part C: Change Management Methodology and IT Tool Provision of technical assistance in developing change management methodology, and developing IT tool for change management in complex IT systems. Provision of training for budget users so that future changes in budgeting processes and FMIS upgrades are conducted without service interruptions. 2.02. Project Execution Generally. The Recipient declares its commitment to the objectives of the Project. To this end, the Recipient shall carry out the Project in accordance with the provisions of: (a) Article II of the Standard Conditions; (b) the "Guidelines on Preventing and 3 Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants", dated October 15, 2006 and revised in January 2011 ("Anti-Corruption Guidelines"); and (c) this Article II. 2.03. Institutional and Other Arrangements. The Recipient shall provide funds for: (i) office space, (ii) computer and training facilities, (iii) administrative cost; (iv) operating cost; and (v) local travel. 2.04. Donor Visibility and Visit. (a) The Recipient shall take or cause to be taken all such measures as the World Bank may reasonably request to identify publicly the Donor's support for the Project. (b) For the purposes of Section 2.09 of the Standard Conditions, the Recipient shall, upon the World Bank's request, take all measures required on its part to enable the representatives of the Donor to visit any part of the Recipient's territory for purposes related to the Project. 2.05. Project Monitoring, Reporting and Evaluation. (a) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators set forth below in paragraph (b) of this Section. Each Project Report shall cover the period of one calendar semester, and shall be furnished to the World Bank not later than one month after the end of the period covered by such report. (b) The performance indicators referred to above in paragraph (a) consist of the following: (i) Availability and comprehensiveness of real time data on commitments and payment arrears by March 1, 2014. (ii) Improved comprehensiveness of budget report, Open Budget Index Score of 60 percent, by February 28, 2014. (c) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six months after the Closing Date. 2.06. Financial Management. (a) The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (b) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank as part of the Project Report not later than forty- five (45) days after the end of each six month, covering the six month, in form and substance satisfactory to the World Bank. (c) The Recipient shall, upon the World Bank's request, have its Financial Statements audited in accordance with the provisions of Section 2.07 (b) of the Standard 4 Conditions. Such audit of the Financial Statements shall cover the entire period during which withdrawals from the Grant Account were made. The audited Financial Statements for such period shall be furnished to the World Bank not later than six months after the date of the World Bank's request. 2.07. Procurement (a) General. All consultants' services required for the Project and to be financed out of the proceeds of the Grant shall be procured in accordance with the requirements set forth or referred to in Sections I and IV of the "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers" dated January 2011 ("Consultant Guidelines"). (b) Definitions. The capitalized terms used in the following paragraphs of this Section to describe particular procurement methods or methods of review by the World Bank of particular contracts, refer to the corresponding method described in Sections II, III, IV and V of the Consultant Guidelines. (c) Particular Methods of Procurement of Consultants' Services (i) Except as otherwise provided in item (ii) below, consultants' services shall be procured under contracts awarded on the basis of Quality- and Cost-based Selection. (ii) The following methods, other than Quality- and Cost-based Selection, may be used for the procurement of consultants' services for those assignments which are specified in the Procurement Plan: (A) Selection based on Consultants' Qualifications; and (B) Selection of Individual Consultants. (e) Review by the World Bank of Procurement Decisions. Except as the World Bank shall otherwise determine by notice to the Recipient, all contracts shall be subject to Prior review by the World Bank. Article III Withdrawal of Grant Proceeds 3.01. Eligible Expenditures. The Recipient may withdraw the proceeds of the Grant in accordance with the provisions of: (a) Article III of the Standard Conditions; (b) this Section; and (c) such additional instructions as the World Bank may specify by notice to the Recipient (including the "World Bank Disbursement Guidelines for Projects" dated May 2006, as revised from time to time by the World Bank and as made applicable to this Agreement pursuant to such instructions), to finance 100% of Eligible Expenditures consisting of Consultants' Services inclusive of Taxes. 3.02. Withdrawal Conditions. Notwithstanding the provisions of Section 3.01 of this Agreement, no withdrawal shall be made for payments made prior to the date of countersignature of this Agreement by the Recipient. 5 3.03. Withdrawal Period The Closing Date referred to in Section 3.06 (c) of the Standard Conditions is April 30, 2014. Article IV Recipient's Representative; Addresses 4.01. Recipient's Representative. The Recipient's Representative referred to in Section 7.02 of the Standard Conditions is the Minister of Finance. 4.02. Recipient's Address. The Recipient's Address referred to in Section 7.01 of the Standard Conditions is: Ministry of Finance Katan6ieva 5 10000 Zagreb Republic of Croatia Facsimile: 385-1-4922-598 4.03. World Bank's Address. The World Bank's Address referred to in Section 7.01 of the Standard Conditions is: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable: Telex: Facsimile: INTBAFRAD 248423 (MCI) or 1-202-477-6391 Washington, D.C. 64145 (MCI) 6