Page 1 CONFORMED COPY CREDIT NUMBER 4260-IND Development Credit Agreement (Farmer Empowerment through Agricultural Technology and Information Project) between REPUBLIC OF INDONESIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated March 28, 2007 Page 2 - 2 - Page 3 CREDIT NUMBER 4260-IND DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated March 28, 2007, between the REPUBLIC OF INDONESIA (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) the Borrower has also requested the International Bank for Reconstruction and Development (the Bank) to provide additional assistance towards the financing of the Project and by an agreement of even date herewith between the Borrower and the Bank (the Loan Agreement), the Bank is making a loan to the Borrower in the amount of thirty two million eight hundred thousand Dollars ($32,800,000) (the Loan); and (C) the Borrower and the Association intend, to the extent practicable, that the proceeds of the Credit provided for in this Agreement be disbursed on account of expenditures in respect of the Project before disbursements of the proceeds of the Loan provided for in the Loan Agreement are made; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The “General Conditions Applicable to Development Credit Agreements” of the Association, dated January 1, 1985 (as amended through May 1, 2004) (the General Conditions), constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: a) “Anti-Corruption Action Plan” or “ACAP” means a stand-alone chapter of the Project Management Manual exclusively dedicated to the Borrower’s anti- Page 4 - 2 - corruption action plan, giving details of a program of actions, measures and policies designed to reduce or eliminate fraud and corruption in all its forms under the Project, including enhanced information disclosure provisions, civil society oversight provisions, mitigation measures to deal with the risks associated with collusion, forgery and fraud, a complaint handling mechanism, and an appropriate regime of sanctions and remedies; b) “AAHRD” means the Borrower’s Agency for Agricultural Human Resources Development, or any successor thereto; c) “AARD” means the Borrower’s Agency for Agricultural Research and Development, or any successor thereto; d) “AIAT” means Assessment Institute for Agricultural Technology, or any successor thereto; e) “AISI” means Agricultural In-Service Institute, or any successor thereto; f) “ATC” means Agribusiness Training Center, or any successor thereto; g) “BBPPTP” means Balai Besar Pengkajian dan Pengembangan Teknologi Pertanian , the Borrower’s Center for Agricultural Technology Assessment and Development at the central level of AARD, or any successor thereto; h) “BPP” means Balai Penyuluhan Pertanian, an Agricultural Extension Office at the Sub-District level; i) “CADI” means the Borrower’s Center for Agricultural Data and Information, or any successor thereto; j) “CPMU” means Central Project Management Unit referred to in paragraph 1(b) of Schedule 4 to this Agreement; k) “DEC” means the District Extension Committee referred to in paragraph 2(a)(ii)(A) of Schedule 4 to this Agreement; l) “District” means an administrative subdivision of a Province; m) “DPIU” means the District Project Implementation Unit referred to in paragraph 2(a)(ii)(B) of Schedule 4 to this Agreement; n) “Eligible Categories” means Categories (1) through (3) set forth in the table in Part A.1 of Schedule 1 to this Agreement; Page 5 - 3 - o) “Eligible Expenditures” means the expenditures for goods, works and services, as well as amounts paid under Grants, referred to in Section 2.02 of this Agreement; p) “Environmental Management Plan” or “EMP” means the Environmental Management Plan adopted by the Borrower, dated February 16, 2006, giving details of a program of actions, measures and policies designed to maximize the benefits of the Project, eliminate or offset any adverse environmental impacts or reduce such impacts to acceptable levels, and promote proper pest management under the Project, as such Environmental Management Plan may be amended from time to time with the prior agreement of the Association; q) “Financial Monitoring Report” or “FMR” means a report prepared in accordance with Section 4.02 of this Agreement; r) “Fiscal Year” or “FY” means the Borrower’s fiscal year commencing January 1 and ending December 31; s) “FMA” means Farmer-Managed Extension Activities; t) “FO” means farmer organization; u) “Grant” means a grant designed to finance FMAs under Part A.2 of the Project, and to be financed out of the proceeds of the Credit; v) “Loan Agreement” means the agreement of even date herewith between the Borrower and the Bank for the Project, as such agreement may be amended from time to time; and such term includes the “General Conditions applicable to Loan and Guarantee Agreements for Fixed-Spread Loans” of the Bank dated September 1, 1999 (as amended through May 1, 2004), as applied to such agreement, and all schedules and agreements supplemental to the Loan Agreement; w) “MoA” means the Borrower’s Ministry of Agriculture or any successor thereto; x) “Participating District” means any District of a Participating Province which is selected to participate in the Project in accordance with the provisions of the Project Management Manual; y) “Participating Province” means any Province which is selected to participate in the Project in accordance with the provisions of the Project Management Manual; Page 6 - 4 - z) “Participating Village” means any Village of a Participating District which is selected to participate in the Project in accordance with the provisions of the Project Management Manual; aa) “PEC” means the Provincial Extension Committee referred to in paragraph 2(a)(i)(A) of Schedule 4 to this Agreement; bb) “PPIU” means Provincial Project Implementation Unit referred to in paragraph 2(a)(i)(C) of Schedule 4 to this Agreement; cc) “PPMU” means Provincial Project Management Unit referred to in paragraph 2(a)(i)(B) of Schedule 4 to this Agreement; dd) “Project Management Manual” means the Project Management Manual referred to in paragraph 3 of Schedule 4 to this Agreement, as same may be amended from time to time in agreement with the Association, and such term includes any schedules to the Project Management Manual; ee) “Project Performance Indicators” means the indicators designed to measure the Borrower’s performance in achieving Project objective as set forth in Schedule 5 to this Agreement; ff) “Procurement Plan” means the Borrower’s procurement plan, dated November 7, 2006, covering the initial twelve (12) month period (or longer) of Project implementation, as the same shall be updated from time to time in accordance with the provisions of Section 3.02 to this Agreement, to cover succeeding eighteen (18) month periods (or longer) of Project implementation; gg) “Province” means an administrative subdivision of the Borrower’s territory; hh) “Recipient” means the farmer group or organization or other entity which is party to a Sub-project Grant Agreement and the recipient of a Grant; ii) “Report-based Disbursements” means the Borrower’s option for withdrawal of funds from the Credit Account referred to in Part A.5 of Schedule 1 to this Agreement; jj) “Rupiah” and “Rp” means the currency of the Borrower; kk) “Special Account” means the account referred to in Part B of Schedule 1 to this Agreement; ll) “Sub-District” means an administrative subdivision of a District; Page 7 - 5 - mm) “Sub-PMU” means a Sub-Project Management Unit referred to in paragraph 1(c) of Schedule 4 to this Agreement; nn) “Sub-project” means a specific investment activity referred to under Parts A.2 of the Project, and to be financed in whole or in part out of the proceeds of a Grant; oo) “Sub-project Grant Agreement” means the Sub-project Grant Agreement referred to in paragraph 5 of the Annex to Schedule 4 to this Agreement; pp) “Village” means an administrative subdivision of a District; and qq) “VEMU” means the Village Extension Management Unit referred to in paragraph 2(a)(iii) of Schedule 4 to this Agreement. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Development Credit Agreement, an amount in various currencies equivalent to thirty nine million nine hundred thousand Special Drawing Rights (SDR 39,900,000). Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement: (a) for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project, and to be financed out of the proceeds of the Credit; and (b) for amounts paid (or, if the Association shall so agree, to be paid) on account of Grants to meet the reasonable cost of goods, works and services required for implementation of Sub-projects, and in respect of which the withdrawal from the Credit Account is requested. Section 2.03. The Closing Date shall be June 30, 2012, or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from the date sixty (60) days after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or canceled; and Page 8 - 6 - (ii) at the rate set as of the June 30 immediately preceding the accrual date and at such other rates as may be set from time to time thereafter pursuant to paragraph (a) above. The rate set as of June 30 in each year shall be applied from the next date in that year specified in Section 2.06 of this Agreement. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on March 1 and September 1 in each year. Section 2.07. (a) Subject to paragraphs (b), (c) and (d) below, the Borrower shall repay the principal amount of the Credit in semiannual installments payable on each March 1 and September 1, commencing March 1, 2017, and ending September 1, 2041. Each installment to and including the installment payable on September 1, 2026, shall be one and one-fourth percent (1-1/4%) of such principal amount, and each installment thereafter shall be two and one-half percent (2-1/2%) of such principal amount. (b) Whenever: (i) the Borrower ’s per capita gross national product (GNP), as determined by the Association, shall have exceeded for three (3) consecutive years the level established annually by the Association for determining eligibility to access the Association’s resources; and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due consideration by them of the development of the Borrower’s economy, modify the repayment of installments under paragraph (a) above by: (A) requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid; and (B) requiring the Borrower to commence repayment of the principal amount of the Credit as of the first semiannual payment date referred to in paragraph (a) above falling six (6) months or more after the date on which the Association notifies the Borrower that the events set out in this paragraph (b) have occurred, provided, Page 9 - 7 - however, that there shall be a grace period of a minimum of five (5) years on such repayment of principal. (c) If so requested by the Borrower, the Association may revise the modification referred to in paragraph (b) above to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (d) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower ’s economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objective of the Project as set forth in Schedule 2 to this Agreement and, to this end, shall carry out the Project through MoA with due diligence and efficiency, in conformity with appropriate technical, administrative and financial practices, and with due regard to social, environmental and ecological considerations, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Borrower and the Association shall otherwise agree, the Borrower shall carry out the Project in accordance with the Implementation Program set forth in Schedule 4 to this Agreement. Section 3.02. (a) Except as the Association shall otherwise agree, procurement of the goods, works and services required for the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to this Agreement, as said provisions may be further elaborated in the Procurement Plan. (b) The Borrower shall update the Procurement Plan in accordance with guidelines acceptable to the Association, and furnish such update to the Association not later than twelve (12) months after the date of the preceding Procurement Plan, for the Association’s approval. Page 10 - 8 - Section 3.03. For the purposes of Section 9.06 of the General Conditions and without limitation thereto, the Borrower shall: (a) prepare, on the basis of guidelines acceptable to the Association, and furnish to the Association not later than six (6) months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Association, a plan designed to ensure the continued achievement of the objective of the Project; and (b) afford the Association a reasonable opportunity to exchange views with the Borrower on said plan. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall maintain a financial management system, including records and accounts, and prepare financial statements in accordance with consistently applied accounting standards acceptable to the Association, adequate to reflect the operations, resources and expenditures related to the Project. (b) The Borrower 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 Association) audited, in accordance with consistently applied auditing standards acceptable to the Association, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than six (6) months after the end of each such year (or such other period agreed to by the Association): (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 Association) as so audited; and (B) an opinion on such statements by said auditors, in scope and detail satisfactory to the Association; and (iii) furnish to the Association such other information concerning such records and accounts, and the audit of such financial statements, and concerning said auditors, as the Association may from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of reports referred to in Part A.5 of Schedule 1 to this Page 11 - 9 - Agreement (Report-based Disbursements) or on the basis of statements of expenditure, the Borrower shall: (i) retain, until at least one (1) year after the Association has received the audit report for, or covering, the fiscal year in which the last withdrawal from the Credit Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (ii) enable the Association’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 Association), referred to in paragraph (b) of this Section. Section 4.02. (a) Without limitation upon the Borrower’s progress reporting obligations set out in paragraph 7 of Schedule 4 to this Agreement, the Borrower shall prepare and furnish to the Association a financial monitoring report, in form and substance satisfactory to the Association, which: (i) sets forth sources and uses of funds for the Project, both cumulatively and for the period covered by said report, showing separately funds provided under the Credit, 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 FMR shall be furnished to the Association 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 Association not later than forty-five (45) days after each subsequent calendar quarter, and shall cover such calendar quarter. Section 4.03. The Borrower shall make publicly available, and agrees that the Association may also make publicly available, each final audit report referred to in Page 12 - 10 - Section 4.01 of this Agreement, promptly after its issuance by the independent auditors referred to therein. ARTICLE V Effective Date; Termination Section 5.01. The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01(b) of the General Conditions: (a) the Project Management Manual, acceptable to the Association, has been approved by the Borrower, and adopted by all Participating Provinces and Participating Districts; (b) the Borrower has issued decrees, in form and substance acceptable to the Association, establishing the organizational structure and staffing requirements for the Project, respectively, and has appointed a project manager, a procurement officer and a financial management officer, all of whom shall have qualifications and experience acceptable to the Association; (c) not less than 12 Participating Provinces and not less than 50 Participating Districts have issued decrees, in form and substance acceptable to the Association, establishing the organizational structure and staffing requirements of their respective PPMUs, PPIUs and DPIUs, including provisions for the recruitment of suitably qualified and experienced procurement and financial management officers; (d) not less than 12 Participating Provinces and not less than 50 Participating Districts have issued decrees, in form and substance acceptable to the Association, establishing the mandate, composition and terms of reference of the PECs and DECs, respectively; (e) the Borrower has submitted terms of reference, acceptable to the Association, for the recruitment of project management consultants under Part E of the Project, including financial management consultants; (f) the Loan Agreement has been executed and delivered and all conditions precedent to its effectiveness, except only the effectiveness of this Agreement, have been fulfilled. 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. Page 13 - 11 - 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 c/o Directorate General of Debt Management Jalan Lapangan Banteng Timur 2-4 Jakarta 10710 Indonesia Cable address: Telex: Facsimile: FINMINISTRY 45799 DJMLN-IA (21) 381 2859 Jakarta 44319 DEPKEU-IA For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: Facsimile: INDEVAS 248423 (MCI) or (202) 477-6391 Washington, D.C. 64145 (MCI) Page 14 - 12 - 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/ Rahmat Waluyanto Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ William E. Wallace Authorized Representative Page 15 - 13 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit Part A : General 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit and the Loan, the allocation of the amounts of the Credit and the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Category Amount of the Credit Allocated (Expressed in SDR Equivalent ) Amount of the Loan Allocated (Expressed in Dollars ) % of Expenditures to be Financed (1) Goods, works, training and operating costs under the Project (other than Grants) 24,250,000 19,950,000 80% (2) Grants 12,050,000 9,900,000 100% of Grant amount disbursed (3) Consultants’ services 2,550,000 2,100,000 100% (4) Unallocated 1,050,000 850,000 (5) Fee N.A. 0 Amount due under Section 2.04 of the Loan Agreement TOTAL 39,900,000 32,800,000 2. For purposes of this Schedule, the term “operating costs” means the incremental costs incurred under the Project on account of salaries and honoraria of local contractual staff other than full time employees of the Borrower; travel and other travel-related expenditures; materials and supplies; and information technology subscription services. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments: (a) made for expenditures prior to the date of this Agreement; or (b) under Category (1) of the table in paragraph 1 of this Part, for any Participating Province or Participating District, unless the Participating Province or Participating District, as the case may be, has satisfied the Page 16 - 14 - requirements of paragraphs (c) and (d) of Section 5.01 of this Agreement. 4. The Association may require withdrawals from the Credit Account to be made on the basis of statements of expenditure for expenditures under: (a) Grants; (b) goods under contracts costing less than $100,000 equivalent each; (c) works under contracts costing less than $300,000 equivalent each; and (d) contracts for the employment of consultants costing less than $100,000 equivalent, in the case of consulting firms, and $50,000 equivalent, in the case of individuals; all under such terms and conditions as the Association shall specify by notice to the Borrower. 5. The Borrower may request withdrawals from the Credit Account to be made on the basis of reports to be submitted to the Association in form and substance satisfactory to the Association, such reports to include the FMR and any other information as the Association shall specify by notice to the Borrower (Report-based Disbursements). In the case of the first such request submitted to the Association before any withdrawal has been made from the Credit Account, the Borrower shall submit to the Association 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. Part B : Special Account 1. The Borrower may, for the purposes of the Project open and maintain in Dollars a special deposit account in Bank Indonesia or in a commercial bank acceptable to the Association, on terms and conditions satisfactory to the Association, including, in the case of a commercial bank, appropriate protection against set-off, seizure and attachment. 2. After the Association has received evidence satisfactory to it that the Special Account has been opened, withdrawals from the Credit Account of amounts to be deposited into the Special Account shall be made as follows: (a) if the Borrower 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 Borrower 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 Special Account shall be made exclusively for Eligible Expenditures. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Association shall reasonably request, furnish to the Association such documents and other evidence showing that such payment was made exclusively for Eligible Expenditures. 4. Notwithstanding the provisions of paragraph 2 of Part B of this Schedule, the Association shall not be required to make further deposits into the Special Account: Page 17 - 15 - (a) if the Association, at any time, is not satisfied that the reports referred to in Part A.5 of this Schedule adequately provide the information required for Report-based Disbursements; (b) if the Association determines at any time that all further withdrawals for payment of Eligible Expenditures should be made by the Borrower directly from the Credit Account; or (c) if the Borrower shall have failed to furnish to the Association, within the period of time specified in Section 4.01(b)(ii) of this Agreement, any of the audit reports required to be furnished to the Association pursuant to said Section in respect of the audit of: (A) the records and accounts for the Special Account; or (B) the records and 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 Association shall not be required to make further deposits into the Special Account in accordance with the provisions of paragraph 2 of Part B of this Schedule if, at any time, the Association shall have notified the Borrower of its intention to suspend in whole or in part the right of the Borrower to make withdrawals from the Credit Account pursuant to Section 6.02 of the General Conditions. Upon such notification, the Association shall determine, in its sole discretion, whether further deposits into the Special Account may be made and what procedures should be followed for making such deposits, and shall notify the Borrower of its determination. 6. (a) If the Association determines at any time that any payment out of the Special Account was made for an expenditure which is not an Eligible Expenditure, or was not justified by the evidence furnished to the Association, the Borrower shall, promptly upon notice from the Association, provide such additional evidence as the Association may request, or deposit into the Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment. Unless the Association shall otherwise agree, no further deposit by the Association into 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 Association determines at any time that any amount outstanding in the Special Account will not be required to cover payments for Eligible Expenditures during the six-month period following such determination, the Borrower shall, promptly upon notice from the Association, refund to the Association such outstanding amount. Page 18 - 16 - (c) The Borrower may, upon notice to the Association, refund to the Association all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Association made pursuant to subparagraph (a), (b) or (c) of this paragraph 6 shall be credited to the Credit Account for subsequent withdrawal or for cancellation in accordance with the provisions of the Credit Agreement. Page 19 - 17 - Annex A to SCHEDULE 1 Operation of Special Account When Withdrawals Are Not Report-based Disbursements 1. For the purposes of this Annex, the term “Authorized Allocation” means the amount of $10,000,000 to be withdrawn from the Credit Account and deposited into the Special Account pursuant to paragraph 2 of this Annex. 2. 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 Association a request or requests for deposit into the 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 Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount as the Borrower shall have requested. (b) For replenishment of the Special Account, the Borrower shall furnish to the Association requests for deposit into the Special Account at such intervals as the Association shall specify. Prior to or at the time of each such request, the Borrower shall furnish to the Association the documents and other evidence required pursuant to paragraph 3 of Part B of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into 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. Each such deposit into the Special Account shall be withdrawn by the Association from the Credit Account under one or more of the Eligible Categories. 3. The Association shall not be required to make further deposits into the Special Account, once the total unwithdrawn amount of the Loan minus the total amount of all outstanding special commitments entered into by the Association pursuant to Section 5.02 of the General Conditions shall equal the equivalent of twice the amount of Page 20 - 18 - the Authorized Allocation. Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Loan shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for Eligible Expenditures. Page 21 - 19 - Annex B to SCHEDULE 1 Operation of Special Account When Withdrawals Are Report-based Disbursements 1. Withdrawals from the Credit Account shall be deposited by the Association into the Special Account in accordance with the provisions of this Schedule. Each such deposit into the Special Account shall be withdrawn by the Association from the Credit Account under one or more of the Eligible Categories. 2. Upon receipt of each application for withdrawal of an amount of the Credit, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account an amount equal to the lesser of: (a) the amount so requested; and (b) the amount which the Association has determined, based on the reports referred to in paragraph 4 of Part A of this Schedule 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 22 - 20 - SCHEDULE 2 Description of the Project The objective of the Project is to develop a demand-driven, market-oriented agricultural services system, based on partnerships among farmer groups, public agencies and private sector enterprises at all levels. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objective: Part A : Strengthening Farmer-Driven Extension 1. Provision of technical advisory services and training, and related material support, to support farmer groups at the level of Participating Villages, Participating Districts and Participating Provinces, and empower them in the process of preparation, selection and management of Grants. 2. Provision of Grants to farmer groups and associations to scale up FMAs at the level of Participating Villages, Participating Districts and Participating Provinces, and promote agribusiness partnerships with private sector. 3. Provision of technical advisory services and training, and related material support, to strengthen the capacity of existing farmer organizations at the level of Participating Villages, Participating Districts and Participating Provinces, to enhance their accountability procedures, and provide additional support to those participating in the schemes supported under Grants. Part B : Institutional Strengthening and Capacity Building 1. Provision of technical advisory services and training, and related material support, to support human resource development, and improve capacity and skills of extension managers and field extension staff, in Participating Districts and Participating Provinces. 2. Provision of technical advisory services and training, and related material support, and implementation of civil works, to enhance extension facilities, including construction or rehabilitation of Sub-District extension centers, and rehabilitation of the working environment of public and private extension services. 3. Provision of technical advisory services and training, and related material support to strengthen agribusiness training centers (ATCs) and Agricultural In-Service Institutes (AISIs), and improve the working capacity and curriculum of ATCs and AISIs in order to better serve the demand from farmers and markets. Page 23 - 21 - Part C : Enhancing Technology Assessment and Dissemination 1. Provision of technical advisory services and training, and related material support, to strengthen the institutional capacity of Assessment Institutes of Agricultural Technology (AIATs), and facilitate the transition from on-station research and limited scale field research to wider dissemination of technology to farmer groups. 2. Provision of technical advisory services and training, and related material support, to improve research quality and relevance, and strengthen linkages to the private sector, universities, and NGOs as well as with its traditional extension and farmer partners, through better extension and dissemination techniques, training of extension and research staff, and support for FMAs at the level of Participating Villages, Participating Districts and Participating Provinces. 3. Provision of technical advisory services, and related material support, to strengthen coordination and management support for research and development activities. Part D : Knowledge and Information Services Provision of technical advisory services and training, and related material support, to improve access to knowledge of agricultural technologies and strengthen linkages among service providers themselves, and between service providers and the user community, through the development or consolidation of new applications, including: (1) e-Petani - a web-based advice online application for individualized technical and market assistance; (2) commodity price and market information, for up-to-date information on local prices and markets; and (3) an application designed to enable agribusiness service users and providers to post offers to sell or buy agricultural inputs, products and other services. Part E : Extension Policy and Project Implementation Support 1. Provision of technical advisory services and training, and related material support, to support the implementation of the new extension law designed to provide clear guidelines for the implementation of decentralized agricultural extension systems through multiple service providers. 2. Provision of technical advisory services and training, and related material support, to support the establishment and operations of the units and agencies involved in the implementation of the Project, including the CPMU, Sub-PMUs, PPMUs, PPIUs, Page 24 - 22 - and DPIUs, to assist them in their respective functions, including their fiduciary functions, monitoring and evaluation, and implementation and supervision of the EMP and ACAP, and upgrade the skills of key staff involved in areas relevant to their responsibilities. * * * The Project is expected to be completed by December 31, 2011. Page 25 - 23 - SCHEDULE 3 Procurement Section I. General A. All goods, works and services (other than consultants’ services) shall be procured in accordance with the provisions of Section I of the “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004 (the Procurement Guidelines), and with the provisions of this Schedule and Annex A to this Schedule. B. 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), and with the provisions of this Schedule. C. The capitalized terms used below in this Schedule to describe particular procurement methods or methods of review by the Association 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 Goods, Works and Services (other than Consultants’ Services) A. International Competitive Bidding . Except as otherwise provided in Part B of this Section, contracts for goods shall be awarded on the basis of International Competitive Bidding. B. Other Procurement Procedures 1. National Competitive Bidding . Goods estimated to cost less than $200,000 equivalent per contract, and works, may be procured under contracts awarded on the basis of National Competitive Bidding, and the provisions of Annex B to this Schedule 3. 2. Shopping . Goods and works estimated to cost less than $25,000 equivalent per contract may be procured under contracts awarded on the basis of Shopping. 3. Direct Contracting . Goods which the Association agrees meet the requirements for Direct Contracting may be procured in accordance with the provisions of said procurement method. 4. Community Participation in Procurement . Goods, works and services required for Grants under Part A of the Project may be procured on the basis of community participation in accordance with procedures acceptable to the Association as set out in the Project Management Manual. Page 26 - 24 - Section III. 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 under the Project, 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, subject to prior approval of the Association. 3. Single Source Selection . Services for tasks in circumstances which meet the requirements of paragraph 3.10 of the Consultant Guidelines for Single Source Selection, may, with the Association ’s prior agreement, be procured in accordance with the provisions of paragraphs 3.9 through 3.13 of the Consultant Guidelines. Section IV. Review by the Association of Procurement Decisions The Procurement Plan shall set forth those contracts which shall be subject to the Association’s Prior Review. If the Procurement Plan provides for prior review of contracts for the employment of individual consultants, the report on the qualifications and experience of all evaluated candidates, the terms of reference and the terms of employment of the consultants shall be subject to prior approval by the Association. All other contracts shall be subject to Post Review by the Association. Page 27 - 25 - Annex A to SCHEDULE 3 Without limitation on the provisions of Schedule 3 to this Agreement (Schedule 3) and of the Procurement Guidelines and the Consultant Guidelines (as such terms are defined in said schedule and referred to hereafter as the Guidelines), the following provisions shall apply in respect of goods, works and consultants’ services to be procured under the Project: 1. To ensure end-user participation in the procurement of goods, works and consultants’ services under this Project, the requester/user of such goods, works or consultants’ services (as the case may be) to be acquired shall be represented on a relevant procurement/selection committee. The criteria for the selection of procurement/selection committee members shall in all cases be consistent with the provisions of the Guidelines and the PMM. In the event of any inconsistency between the PMM and the Guidelines, the provisions of the Guidelines shall prevail. 2. The Procurement Plan, including all updates thereof, shall be made publicly available promptly after their finalization. 3. All bidding documents and requests for proposals issued in accordance with Schedule 1 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. In the case of requests for proposals, 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 goods, works or consultants’ services in question. 4. All short lists of consultants and, in cases of pre-qualification, lists of pre- qualified contractors and suppliers shall be made available to any member of the public promptly upon request. 5. A summary of the evaluation of all bids and proposals for specific contracts shall be disclosed to all bidders and parties submitting proposals therefor, promptly after the notification of award to the successful bidder/consultant. Information in such summaries will be limited to a list of bidders/consultants, all bid prices and financial proposals as read out at public openings for bids and financial proposals, all bids and proposals declared non responsive (together with reasons for such an assessment), the name of winning bidder/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 goods estimated to cost $100,000 equivalent or more, all contracts for works estimated to cost $500,000 equivalent or more and all contracts for consultants’ services estimated to cost $100,000 equivalent or more, in the case of consulting firms, and $50,000 equivalent or more, in the case of Page 28 - 26 - individuals, shall be made publicly available and published widely, and be made available to any member of the public upon request, promptly after such award. 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 contractor/consultant selected, the contract amount, the number of bidders/makers of proposals in respect thereof, the procurement method followed and the purpose of such contract shall be made available, promptly upon request by any member of the public. 8. Representatives of the end-users of goods and works being procured shall be permitted to attend public bid openings in respect thereof. Page 29 - 27 - Annex B to SCHEDULE 3 1. General Subject to the provisions of paragraph B(1) of Section II of Schedule 3 to this Agreement, the procedures to be followed for national competitive bidding shall be those set forth in Presidential Decree No.80/2003 and Presidential Regulation No.8/2006 of the Republic of Indonesia with the clarifications and modifications described in the following paragraphs required for compliance with the provisions of the “Guidelines for Procurement under IBRD Loans and IDA Credits” dated May 2004 (the “Procurement Guidelines”). 2. Registration (a) Bidding shall not be restricted to pre-registered firms and shall not be a condition for participation in the bidding process. (b) Where registration is required prior to award of contract, bidders: (i) shall be allowed a reasonable time to complete the registration process; and (ii) shall not be denied registration for reasons unrelated to their capability and resources to successfully perform the contract, which shall be verified through post-qualification. 3. Pre-qualification Pre-qualification shall not be used for simple goods and works. Normally, post- qualification shall be used. Pre-qualification shall be required only for large or complex works with the prior no-objection of the Association. When pre-qualification shall be required: (a) eligible bidders (both national and foreign) shall not be denied pre- qualification; and (b) invitations to pre-qualify for bidding shall be advertised in at least one widely circulated national daily newspaper a minimum of thirty (30) days prior to the deadline for the submission of pre-qualification applications. 4. Joint Ventures A bidder declared the lowest evaluated responsive bidder shall not be required to form a joint venture or to sub-contract part of the supply of goods as a condition of award of the contract. 5. Preferences (a) No preference of any kind shall be given to national bidders. Page 30 - 28 - (b) Regulations issued by a sectoral ministry, provincial regulations and local regulations which restrict national competitive bidding procedures to a class of contractors or a class of suppliers shall not be applicable to procurement procedures under this Agreement. 6. Advertising (a) Invitations to bid shall be advertised in at least one widely circulated national daily newspaper allowing a minimum of thirty (30) days for the preparation and submission of bids and allowing potential bidders to purchase bidding documents up to 24 hours prior the deadline for the submission of bids. (b) Bid documents shall be made available, by mail or in person, to all who are willing to pay the required fee. (c) Bidders domiciled outside the area/district/province of the unit responsible for procurement shall be allowed to participate regardless of the estimated value of the contract. (d) Foreign bidders shall not be precluded from bidding. If a registration process is required, a foreign firm declared the lowest evaluated bidder shall be given a reasonable opportunity for registering. 7. Bid Security Bid security, at the bidder’s option, shall be in the form of a bank guarantee from a reputable bank. 8. Bid Opening and Bid Evaluation (a) Bids shall be opened in public, immediately after the deadline for submission of bids, and if bids are invited in two envelopes, both envelopes (technical and price) shall be opened at the same time. (b) Evaluation of bids shall be made in strict adherence to the criteria declared in the bidding documents and contracts shall be awarded to the lowest evaluated bidder. (c) Bidders shall not be eliminated from detailed evaluation on the basis of minor, non-substantial deviations. (d) No bidder shall be rejected merely on the basis of a comparison with the owner’s estimate and budget ceiling without the Bank’s prior concurrence. Page 31 - 29 - 9. Rejection of Bids (a) Bids sh all not be rejected and new bids solicited without the Bank’s prior concurrence. (b) When the number of responsive bids is less than three (3), re-bidding shall not be carried out without the Bank’s prior concurrence. Page 32 - 30 - SCHEDULE 4 Implementation Program 1. The Borrower shall establish and maintain throughout the period of implementation of the Project: (a) a National Steering Committee (NSC), whose mandate, composition and terms of reference shall be acceptable to the Association, to be responsible for providing overall guidance and strategic direction in the implementation of the Project; (b) a Central Project Management Unit (CPMU) to be located in the AAHRD, whose mandate, composition and terms of reference shall be acceptable to the Association, to be responsible for coordination with Sub-PMUs, PPMUs, PPIUs, and DPIUs in view of the collection, monitoring, evaluation and consolidation of required data and information, and preparation of reports to be submitted to the Borrower and the Association; and (c) individual Sub-Project Management Units (Sub-PMUs) to be located in (i) BBPPTP; and (ii) CADI/Office of the Secretary General, respectively, to be responsible for the collection, monitoring and evaluation of data and information in their respective areas of responsibility, in view of preparing and submitting reports required by the CPMU and for internal purposes. 2. The Borrower shall ensure that: (a) there shall be established and maintained throughout the period of implementation of the Project: (i) at the level of each Participating Province, (A) a provincial extension committee (PEC), whose mandate, composition and terms of reference shall be acceptable to the Association, to be responsible for recommendations for identification and evaluation of agricultural priorities, and allocation of Grants at the level of the Participating Province, and coordination with the CPMU in view of aligning Province-level extension priorities with national policy; (B) a Provincial Project Management Unit (PPMU) to be responsible for collecting, monitoring, evaluating and consolidating provincial and District data and information in view of preparing and submitting reports Page 33 - 31 - required by the CPMU and the Participating Province; and (C) a Provincial Project Implementation Unit (PPIU) for each AIAT to be responsible for collecting, monitoring and evaluating data and information in its respective areas of responsibility in view of preparing and submitting reports required by the Sub-PMU; (ii) at the level of each Participating District, (A) a district extension committee (DEC), whose mandate, composition and terms of reference shall be acceptable to the Association, to be responsible for providing recommendations for allocation of Village-level and District-level Grants, identification and evaluation of District-level agricultural priorities, and coordination with the PEC in the formulation of Province-level extension priorities; (B) a District Project Implementation Unit (DPIU) to be responsible for gathering, collecting, monitoring, evaluating and consolidating District and Sub-District data (through the BPP at the Sub-District level) and information in view of preparing reports required by the PPMU and the Participating District, respectively; (iii) at the level of each Participating Village, a Village Extension Management Unit (VEMU) to be the implementing unit at the Village level and, as such, to be responsible for gathering, collecting, monitoring, evaluating and consolidating FO and Village data and information for purposes of preparing reports required by the BPP and DPIU, and the Participating District; (b) each PPMU, PPIU and DPIU shall be headed by a Project Manager, having qualifications and experience acceptable to the Association, who shall be assisted by suitably qualified and experienced staff in adequate numbers, including procurement and financial management officers, and environmental specialists as required. 3. The Borrower shall: (a) adopt a Project Management Manual, acceptable to the Association, giving details of guidelines and procedures agreed with the Association for the implementation, supervision, and monitoring and evaluation, of the Project, including: (i) implementation arrangements; (ii) procurement procedures as set forth in Schedule 3 to Page 34 - 32 - this Agreement, along with standard procurement documentation; (iii) reporting requirements, financial management procedures and audit procedures as set forth in Article IV of this Agreement; (iv) details of the Environmental Management Plan; (v) Project Performance Indicators; (vi) criteria for the selection of proposals for Grants and eligibility criteria for selection of Recipients, as well as the additional terms and conditions governing Grants as set forth in the Annex to this Schedule; and (vii) details of the Anti-Corruption Action Plan; and (b) implement the Project in accordance with the Project Management Manual and, except as the Association shall otherwise agree, shall not amend or waive any provision thereof if, in the opinion of the Association, such amendment or waiver may materially and adversely affect the implementation of the Project. 4. The Borrower shall: (a) prior to the beginning of each new Fiscal Year, provide to the Association, for review and comments, a proposed annual work program and budget for that Fiscal Year; and (b) proceed thereafter to implement such annual work program and budget, taking into consideration any comments that may have been made thereon by the Association. 5. For purposes of providing Grants under the Project, the Borrower shall apply the proceeds of the Credit allocated to finance Grants in accordance with the guidelines, procedures and criteria set forth in the Project Management Manual, and the additional terms and conditions set forth in the Annex to this Schedule. 6. The Borrower shall cause CPMU to prepare under terms of reference acceptable to the Association, and submit to the Association, semiannual reports on the progress of the Project to be submitted not later than forty-five (45) days after the end of each semester, beginning not later than forty-five (45) days after the end of the first semester after the Effective Date, and until completion of the Project. 7. The Borrower shall: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with the Project Performance Indicators, the carrying out of the Project and the achievement of the objective thereof; (b) prepare, under terms of reference satisfactory to the Association, and furnish to the Association, on or about June 1, 2009, a report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this paragraph, 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 objective thereof during the period following such date; Page 35 - 33 - (c) review with the Association, not later than July 31, 2009, or such later date as the Association shall request, the report referred to in sub-paragraph (b) of this paragraph, and, thereafter, take all measures required to ensure the efficient completion of the Project and the achievement of the objective thereof, based on the conclusions and recommendations of the said report and the Association’s views on the matter; and (d) make publicly available the report referred to in sub-paragraph (b) of this paragraph, at the same time as it is furnished to the Association pursuant to said sub- paragraph. Page 36 - 34 - Annex to SCHEDULE 4 Additional Terms and Conditions for Grants 1. No Grant shall be eligible for financing out of the proceeds of the Credit unless the corresponding calls for proposals for the Grants, the review of proposals and the award of Grants have been undertaken in accordance with the guidelines, procedures and selection criteria set forth in the Project Management Manual. 2. No Grant shall be made to finance expenditures involving or likely to involve: (a) a military or paramilitary purpose; (b) capital expenditure for buildings or equipment beyond the requirements of demonstration; (c) the manufacture or use of tackle or dynamite; (d) the financing of government salaries; (e) the purchase of non-approved pesticides, ozone-depleting substances, or the use of pesticides or herbicides without an approved basic integrated pesticides management plan and monitoring procedures; (f) the manufacture or use of environmentally hazardous goods (including asbestos, pesticides and herbicides), arms or drugs; (g) the production, processing, handling, storage or sale of tobacco or products containing tobacco; (h) activities within a nature reserve or any other area designated by the Borrower for the management and/or the protection of biodiversity, except with the prior written approval of the Borrower’s agency responsible for the management and/or protection of such area; (i) agricultural extensification into natural areas or activities with the potential for significant conversion or degradation of critical forest areas or related critical natural habitats; (j) mining or excavation of live coral; (k) water resources development on rivers which flow into or out of another country; (l) alterations to river courses; (m) land reclamation covering an area in excess of 50 hectares; (n) new irrigation schemes covering an area in excess of 50 hectares; (o) construction of water retaining or storage structures of a capacity greater than 10,000 cubic meters; (p) over-exploitation of water resources and/or contamination of domestic water supplies; or (p) the provision of goods, works or services, directly or through intermediaries, by suppliers or contractors, as the case may be, who have been declared ineligible to participate in the procurement of any Association-financed contract. 3. Grants shall consist of Village-level and District-level Grants which shall be approved by DEC, and Province-level Grants which shall be approved by PEC. 4. Grants shall be awarded: (a) in the case of Province-level Grants, to facilitate the application of technologies considered appropriate to improvement of agriculture across the Participating Province and on the basis of proposals based on public consultations, experience of the Districts and the Participating Province’s own priorities; (b) in the case of District-level Grants, to facilitate the scaling up of Village- level activities which have demonstrated success and are judged to be both socially and environmentally sustainable. Page 37 - 35 - 5. (a) For purposes of every Grant, a Sub-project Grant Agreement shall be signed with the Recipient, setting forth the respective obligations of the parties thereunder, including: (i) details of agreed disbursement schedules; (ii) procurement procedures consistent with the provisions of Schedule 3 to this Agreement; (iii) provisions for audits of the Grants; (iv) the amount of the Recipient ’s counterpart contribution, if any; (v) details of the Environmental Management Plan; and (vi) an undertaking on the part of the Recipient to execute the Grant with due diligence and efficiency and, upon its completion, to ensure the continued achievement of the objectives of the Grant. (b) No Sub-project shall be eligible for financing out of the proceeds of a Grant unless a Sub-project Grant Agreement has been concluded to this effect on terms and conditions set forth in this Agreement and the Project Management Manual. Page 38 - 36 - SCHEDULE 5 Performance Indicators · number and types of services provided to FO members – to be assessed through beneficiary surveys. · percentage of members of participating FOs with improved household expenditure rates. · number of technology packages developed by AIATs that are used in FMAs. · number of farmers benefiting from e-Petani and other information and communication technology (ICT) services - to be assessed through beneficiary surveys. · increased skills and capacity of farmer organizations and agribusiness development - measured by number of joint activities/ventures.