OFFICIAL DOCUMENTS. LOAN NUMBER 8380-GE Project Agreement (Second Regional and Municipal Infrastructure Development Project) between INTERNATIONAL BAN FOR RECONSTRUCTION AND DEVELOPMENT and MUNICIPAL DEVELOPMENT FUND Dated L33, 2014 LOAN NUMBER 8380-GE PROJECT AGREEMENT Agreement dated , 2014, entered into between the INTERNATIONAL BANK FR RECQNSTRUCTION AND DEVELOPMENT ("Bank") and the MUNICIPAL DEVELOPMENT FUND ("Project Implementing Entity") ("Project Agreement") in connection with the Loan Agreement ("Loan Agreement") of same date between Georgia ('1Borrower") and the Bank. The Bank and the Project Implementing Entity hereby agree as follows: ARTICLE I - GENERAL CONDITIONS; DEFINITIONS 1.01. The General Conditions (as defined in the Appendix to the Loan Agreement) constitute an integral part of this Agreement. 1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the Loan Agreement or the General Conditions. ARTICLE II- PROJECT 2.01. The Project Implementing Entity declares its commitment to the objectives of the Project. To this end, the Project Implementing Entity shall carry out the Project in accordance with the provisions of Article V of the General Conditions, and shall provide promptly as needed, the funds, facilities, services and other resources required for the Project. 2.02. Without limitation upon the provisions of Section 2.01 of this Agreement, and except as the Bank and the Project implementing Entity shall otherwise agree, the Project Implementing Entity shall carry out the Project in accordance with the provisions of the Schedule to this Agreement. ARTICLE III - REPRESENTATIVE; ADDRESSES 3.01. The Project Implementing Entity's Representative is its Executive Director. 3.02. The Bank's Address is: International Bank for Reconstruction and Development 1818 H Street, NW Washington, DC 20433 United States of America Cable: Telex: Facsimile: INTBAFRAD 248423(MCI) or 1-202-477-6391 Washington, D.C. 64145(MCI) -2- 3.03. The Project Implementing Entity's Address is: Municipal Development Fund 150, D. Agmashenebeli Avenue Tbilisi 0112 Georgia Facsimile: 995-32-2437077 AGREED at Tbilisi, Georgia, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Authorized Representative Name: ___ Title: 1 L MUNICIPAL DEVELOPMENT FUND By X1 orized Representative Name: -3- SCHEDULE Execution of the Project Section 1. Implementation Arrangemeots A. Institutional Arrangements and Eligibility Criteria for a Participating LSG Eligibility of a Participating LSG shall be determined on the basis of eligibility criteria set forth in the Operations Manial and monitoring to be carried out by the Project Implementing Entity in accordance with the provisions of Section L.A.1 of Schedule 2 to the Loan Agreemellt, with respect to a Participating LSG's performance under their respective Invostment Financing Agreement. B. Anti-Corruption The Project Implementing Entity shall ensure that the Project is carried out in accordance with the provisions of the Anti-Corruption Guidelines. C. Selection Procedures for and Terms and Conditions of Investment Subproject Financing: 1. The Project Implementing Entity shll select the Investment Subprojects in accordance with the selection criteria sot forth in the Operations Manual. 2. Investment Subproject Financing shall be made in accordance with terms and conditions set forth in the Operations Manual, and unless otherwise agreed by the Project Implementing Entity and the B4nk, shall include the following terms: (a) The minimum financial contribution to be made available by each Participating LSG out of its own resources shall be 15% of total cost of Investment Subprojects financed under Part A of the Project. (b) The Investment Subproject Financing shall be extended in Lari. (c) Repayment terms and interest rate for the Investment Subproject Financing under Part A. I (a) of the Project are: (i) 50% of amount of the Investment Subproject Financing shall be repayable over a period not to exceed ten (10) years following a grace period not to exceed eighteen (18) months at an interest rate of 11%; (ii) 30% of the Investment Subproject Financing shall be made available on a grant basis; and (iii) the remaining 20% of the Investment Subproject Financing shall be equal to the contributions made by a Participating LSG out of its own resources as defined in 2(b) above. (d) Under Part A. 1 (b) of the Project, 85% of the Investment Subproject Financing shall be made on a grant basis and 15% of such Investment -4- Subproject Financing shall be equal to the contributions made by a Participating LSG out of its oWn resources. 3. No expenditures for goods, works or services required for an Investment Subproject shall be eligible for financing out of the proceeds of the Loan unless the Investment Subproject Financing for such Investment Subprojects shall have been approved by the Bank, except asiprovided for in paragraph 4 below. 4. Investment Subprojects costing less than two million five hundred thousand Dollars ($2,500,000) equivalent shall not require prior approval by the Bank, except in those cases where such Investment Subprojects would require a RAP, in accordance with the provisions of the Operations Manual. 5. When presenting an Investment Subproject Financing to the Bank for approval, the Project Implementing Entity shall furnish to the Bank an Investment Subproject appraisal report (SAR), in form satisfactory to the Bank, which includes: (i) the description of the proposed Investment Subproject and the respective expenditures proposed to be financed out of the proceeds of the Loan; (ii) the environmental category assigIied to the proposed Investment Subproject as per the Environmental Screening and confirmation that all relevant requirements for carrying out of the Environmental Impact Assessment, Environmental Management Plan and/or Resettlement Action Plan, if applicable, have been met; (iii) technical, finan ial and economic analysis of the proposed Investment Subproject; and (iv) the proposed terms and conditions of the Investment Subproject Financing, including the schedule of amortization of the Investment Subproject Financing to be used for the Investment Subprojects. 6. For the purpose of carrying out of the Investment Subproject, the Project Implementing Entity shall make the proceeds of the Investment Subproject Financing available to the Participating LSG by virtue of a written contract, under terms and conditions acceptable to the Bank (the Investment Financing Agreement), including the right of the Project Implementing Entity to: (a) require the Participating LSG to operate the Investment Subprojects with due diligence and efficienc and in accordance with sound technical, financial, managerial and environmental standards and practices including in accordance with the provisions of Anti-Corruption Guidelines applicable to the recipients of the loan proceeds other than the Borrower, and to maintain adequate records; (b) require that: (i) the goods, works and consultants' services to be financed out-of the proceeds of the Lpan shall be procured in conformity with the provisions of Schedule 2 to the Loan Agreement; and (ii) such goods, works and services shall be used exclusively in the carrying out of the Investment Subprojects; (c) require the Participating L$G to carry out the EMP(s) related to the respective Investment Subproject in a manner satisfactory to the Bank. -5- (d) inspect, by itsclf or jointly with representatives of the Bank if the Bank shall so request, such goods, works, plants and construction included in the Investment Subprojects, the operation thereof, and any relevant records and documents; (e) obtain all such information as the Bank or the Project Implementing Entity shall reasonably requst relating to the foregoing and to the administration, operations aq1d financial condition of the Participating LSG and to the benefits to be derived from the Investment Subprojects; (f) require that the Participating (.SG, under Part A.1(a) of the Project, shall repay 50% of the Investment Subproject Financing and the interest accrued in accordance with the amortization schedule; (g) suspend or terminate the right of the Participating LSG to the benefits of the Project upon failure by such Participating LSG to perform its obligations under its agreement with the Project Implementing Entity; and (h) require that: the Participating LSG shall provide for the further maintenance of the Project output, shall not sell or burden it with any legal obligations towards third parties without the written consent of the Project Implementing Entity, prior to full repayment of the principal and the interest of the sub-loan (or the purpose of Investment Subprojects under Part A. I (a) of the Project. D. Safeguards 1. The Project Implementing Entity shall take all measures necessary for the carrying out of an Environmental and Social Screening as defined in the Operations Manual in a timely man er for all the Investment Subprojects, and shall include adequate information on the carrying out of such measures as part of the reporting requirements outlined in the Operations Manual. 2. The Project Implementing Entity shll carry out the Environmental and Social Impact Assessments, and prepare tIe Environmental Management Plans in a timely manner for all Investment Sutbprojects requiring such assessments and/or planning, and shall provide and mai tain adequate information on the carrying out of such Environmental and Soc(al Impact Assessments and implementing such Environmental Management Plans as part of the supervision responsibilities referred to in Section I.A.1 of Schedule 2 to the Loan Agreement. For Investment Subprojects determined to be eligible for financing under the Project, completion of Environmental and Social Screening preparation and disclosure of, and stakeholder consultation on, the Environmental Management Plan satisfactory to the Bank shall be requited prior to commencement of any works. 3. The Project Implementing Entity shall ensure that for any activity to be undertaken under the Project involving the involuntary acquisition of land or the -6- temporary or permanent involuntary resettlement or displacement of the occupants or owners of such land, a Resettlement Action Plan satisfactory to the Bank shall be prepared, completed and fully implemented in accordance with the Resettlement Policy Framework prior to the commencement of any works. 4. The Project Implementing Entity shall establish and implement, throughout the Project implementation, an easily accessible grievance redress mechanism, acceptable to the Bank, to address feedback and grievances relating to the Project. Section II. Project Monitoring, Reporting and Evaluation A. Project Reports 1. The Project Implementing Entity shall monitor and evaluate the progress of the Project and prepare Project Reports for the Project in accordance with the provisions of Section 5.08 (b) of the General Conditions and on the basis of indicators acceptable to the Bank. Each such Project Report shall cover the period of one calendar semester, and shall be furnished to the Borrower not later two weeks after the end of the period covered by such report for incorporation and forwarding by the Borrower, through the Project Implementing Entity, to the Bank of the overall Project Report. 2. The Project Implementing Entity shall provide to the Borrower not later than September 30, 2019, for incorporation in the report referred to in Section 5.08 (c) of the General Conditions, all such information as the Borrower or the Bank shall reasonably request for the purposes of such Section. B. Financial Management, Financial Reports and Audits I1. The Project Implementing Entity shall maintain a financial management system and prepare financial statements in accordance with consistently applied accounting standards acceptable to the Bank, both in a manner adequate to reflect the operations and financial cond tion of the Project Implementing Entity, including the operations, resources and expenditures related to the Project. 2. The Project Implementing Entity shall have its financial statements referred to above, audited by independent aud ors acceptable to the Bank, in accordance with consistently applied auditing standards acceptable to the Bank. Each audit of these financial statements shall cover the period of one fiscal year of the Project Implementing Entity. The Project Implementing Entity shall ensure that the audited financial statements fop each period shall be: (a) furnished to the Borrower and the Bank not later than six months after the end of the period; and (b) made publicly available in a timely fashion and in a manner acceptable to the Bank. -7- Section III. Procurement All goods, works and services required for the Project and to be financed out of the proceeds of the Loan shall be proured in accordance with the provisions of Section IIl of Schedule 2 to the Loan Agreement.