CONFORMED COPY

CREDIT NUMBER 4379-BO

Financing Agreement(Lakc Titicaca Local Sustainablc Devclopmcnt Project)

bctwccn

REPUBLIC OF BOLIVIA

and

INTERNATIONAL DEVELOPMENT ASSOCIATION

Dated Fcbruary 11,2008

ln, /vr." B.llt Kalteis.rtq rolro ot COlYltl0S 3tl,arltt\ .i.$rtrtcrr"Ys@i,

CREDIT NUMBER 4379.BO

FINANCING AGREEMENT

AGREEMENT datcd Fcbruary I l, 2008, cntcrcd into bctwccn REpUBLIC OFBOLIVIA ("Rccipicnt") and INTERNATIONAL DEVELOPMENT ASSOCIATION("Association"). The Recipient and thc Association hereby agree as follows:

ARTICLE I - GENERAL CONDITIONS; DEFINITIONS

1.01. Thc Gencal Conditions (as defined in thc Appcndix to this Agrccmenr)constitute an integral part of this Agrecment.

1.02. Unless the context requires othcrwise, thc capitalizcd tcrms uscd in thisAgreement have the meanings ascribed to them in the Geneal Conditions o inthe Appendix to this Agreement.

ARTICLE II - FINANCING

2.01. Thc Association agrees to cxtcnd to thc Recipient, on thc tcrms and conditionssct foth or cfcrrcd to in this Agrecment, a crcdit in an amount cquivalent totwelve rnill ion cight hundrcd thousand Spccial Drawing fughts (SDR12,800,000) (variously, "Credit" and "Financing") to assisr in financing thcproject dcscribed in Schcdule I to this Agrccmcnt ("Projcct'..

2.02. Thc Rccipient may withdraw the procceds of thc Financing in accordancc withSection IV of Schcdulc 2 to this Asrecment.

2.03. Thc Maximum Commitment Chargc Rate payablc by the Rccipicnt on thcUnwithdrawn Financing Balancc shall bc onc-halfofone pcrccnt (l12 of l%) pcrannum.

2.04. The Scrvice Chargc payable by thc Rccipient on thc Withdrawn Crcdit Balanccshall bc cqual to thrcc-fourths of onc pcrccnt (3/4 of I %) pcr annum.

2.05. Thc Payrcnt Datcs arc Fcbruary l5 and August l5 in cach ycar.

22.06. The principal amount of thc Crcdit shall bc rcpaid in accordance with thcrepaymcnt schedulc sct forth in Schcdulc 3 to this Agrccmcnt.

2.07. Thc Paymcnt Currcncy is Dollars.

ARTICLE III - PROJECT

3.01. The Recipient declarcs its commitment to the objective of thc Project. To thiscnd, the Recipicnt shall carry out thc Projcct though MPM and VMT and withthe assistance of FPS, the Recipient's Ministry of Watcr through its Vicc-Ministry of Basic Scrvices, and the Implcmenting Entities, in accordance withthc provisions of Aficle IV ofthe Gcneral Conditions.

3.02. Without limitation upon thc provisions of Section 3.01 of this Agrcemcnt, andexcept as thc Rccipicnt and the Association shall otherwise agrcc, thc Recipientshall ensure that thc Projcct is carricd out in accordancc with the provisions ofSchcdulc 2 to this Asrcemcnt.

ARTICLE IV - REMEDIES OF THE ASSOCIATION

4.01. Thc Additional Evcnts ofSuspcnsion consist ofthc following;

FPS or the Lnplcmcnting Entities shall have failed, in thc opinion of thcAssociation, to pcrform any of their obligations undcr the SubsidiaryAgreement or the Implementation Agreements, as thc case may be.

The Procuremcnt Supreme Decrcc has bccn amcndcd, suspended,abrogatcd, rcpcalcd or waivcd so as to rcndcr its Aiclc 42 (a)ineffective, in thc opinion of the Association, and no provision analogousto such Article 42 (a) has becn adoptcd to rcplacc said provision.

(c) Any Implementation Agrcemcnt or any of its provisions has bcenamended, suspcnded, abrogated, tenninatcd, waived or not cnforccd, soas to affect materially and advcrsely, in thc opinion of the Association,the abiliiy of the FPS and thc Implementing Entrties to perfonn theirobligations as contemplatcd under thc provisions of this Agrcemcnt.

4.02- The Additional Evcnt of Acceleration consists ofthc following, namcly, that anyevent spccified in Section 4.01 of this Agreemcnt occus and is continuing for apcriod of 60 days after noticc of the cvcnt has been given by the Association tothe Recipient.

(a)

(b)

3ARTICLE V - EFFECTIVENESS; TERMINATION

5.01 . The Additional Conditions of Effcctivcncss consist of thc following:

(a) The Subsidiary Agrecment has bccn executcd on bchalf of the Recipicntand FPS.

Thc Opcrational Manual has bccn adoptcd in a anncr satisfactory ro rncAssociation.

ARTICLE VI - REPRXSENTATIVE; ADDRESSES

6.01 . The Recipient's Representative is its Minister of Dcvelopment planning.

6.02. Thc Rccipient's Addrcss is:

Ministerio de Planificacin del DcsarrolloViccministcrio dc Invcrsin Pblica y Financiamicnto Extcmo (VIPFE)Palacio dc Comunicaciones, piso I ILa Paz, Bolivia

Facsimilc:

0l I-591-2-231-7408 (with a copy ro: 0tI-591_2_239_289 t)

(b)

5.02. The Additional Legal Mattcr consists of the following, namcly, that thcSubsidiary Agrccment has been duly authorizcd o ratificd by thc Rccipicnt andFPS and is lcgally binding upon the Recipicnt and the FpS in accordancc with itstcns.

5.03. without prcjudicc to the provisions of thc Gencral conditions, the EffectivcncssDeadline is thc datc onc hundred twenty (120) days aftcr thl: datc of thisAgrccment, but in no case later than thc eightcen (lg) months aftcr thcAssociation's approval ofthe Credit which expire on June 22, 2009.

46.03. The Association's Address is:

Intcrnational Dcvclopmcnt Associationl8 l8 H Strect , N.W.Washingron, D.C.20433Unitcd Statcs of Arncrica

Cable: Telcx: Facsimilc:

INDEVAS 248423 (MCt) t-202477 _6391Washington, D.C.

AGREED at thc District of Columbia, Unitcd States of Amcrica, as of thc dayand year first abovc writtcn.

REPUBLIC OF BOLIVIA

By /s/ Mario Gustavo Guznrn Saldaa

Authorizcd Rcprcscntativc

INTERNATIONAL DEVELOPMENT ASSOCIATION

By /s / C. Fc l ipc Jarami l loAuthorized Rcprcscntativc

5SCHEDULE I

Projcct Dcscription

Thc objcctivc of thc Projcct is to contributc to Iocl sustainabli dcvclopmcnt inthe Recipient's sidc of thc Lake Titicaca watcrshed.

Thc Projcct consists of thc following parts:

Part l.

(a)

Part 2.

(a)

(b)

(cJ

(d)

Support to Tourism Devcloomcnt and Cultural Potection

Carrying out by Municipalitics and Rccipicnt's community groups withFPS support, of infrastructurc investments to facilitatc thc cnhancemcntof cultural, social, economic and cnvironmcntal asscts, including iirrclalia: (i) the impovement of tourist sitcs; (ii) the provision of public rcstareas and bathroorns; and (iii) thc cstablishment of interpretation ccntcrs,bike paths and small docks.

Carrying out of communify investments with VMT support to cniancccultural, social, economic, and cnvironmental assets, including, lirlcralia: (i) local environmental improvcmcnts; (ii) gucst houscs; and (iii)markets and tourist ttractions.

(i) Protcction of cultural hcritagc monumcnts in Lakc Titicaca's Islq del.So1 and .Is/a de la Luna; and (ii) rcstoration of prc-Hispanic agriculturallandscapcs, trails and artistic and historic assets in colonial churches

Provision of grants for community dcvclopmcnt for tourism activitcs,including thc production of handicrafts and thc financing of cultualcvcnts and stratcgic studics.

Basic Scrviccs

Carrying out of: (i) water and sanitation infrastructurc for Lakc Titicaca'ssrnall rural communitics; and (ii) training and provision of tcchnicalassistance to thc EPSA.

Provision of technical assistance, goods and works to devclop sanitarionfacilities and cxtend and rchabilitatc existing scweragc networks andtreatment plans in thc cities of Copacabana, Tiquina, Achacachi,Tiwanaku and Viacha.

Provision of technical assistancc, goods and works to improve solidwaste collection for the cities of Copacabana, Achacachi and Tirvanaku,including: (i) street cleaning: (ii) transponation; (ii i) recycling; and (iv)final disposal in sanitary landfills.

(b)

(c)

(d) Povision of tcchnical assistancc to ensurc sustainablc service provision,through thc crcation of EPSA that will rnanagc watcr, wastcwatcr andsolid wastc scrviccs and whosc opcrating and maintenancc costs arc to bccovcrcd by thc uscs fccs by thc cnd of thc projcct.

(e) Provision of FPS Operating Costs for the carrying out of basic serviccactivitics undcr Parts 2 and I (a) of the project and financing ofaudits forthc pans of the Projcct cxecutcd by FpS.

Part 3. Institutional Strcngthenins and Proiect Managcment

(a) Provision of teclurical assistance to: (i) carry out tourism studics tosupport a long tcrm program for tourism devclopment in thc LakcTiticaca basin and neighboring areas; and (ii) devclop a nurKenngstrategy to promote the Recipicnt's intcrnational tourism potcntial,including the provision oftraining in communications and tcchnology forVMT.

(b)

(cl

(d)

Provision of tecturical assistance to strcngthcn thc Rccipicnt'srnunicipalitics' capacity, including thc dcsign of mcdium tcnn and lonqtcrm plans fo their sustainable dcvclopment.

Provision of tcchnical assistance to strengthen the local communitics'capacity to participate in tourism developmcnt activitics.

Provision of technical assistancc to strengthcn thc capacity of theImplemcnting Entitics, including thc crcation of an advisory group onlakc managcment compriscd of Rccipient's rcprcscntatives andinternational expcrts.

(i) Provision of tcchnical assistancc to update annually thc technrcar,touism and social data ofthe State ofthe Lakc Reportt and (ii) executionof a communication stratgy summarizing thc State of thc Lakc Rcporr,with a spccific focus on thc community living within rhc projcct Area.Provision of technical assistance to thc VMT to strcngthcn its capacrryfor projcct coordination and nanagemcnt, including thc opcration of itsPCU and thc carrying out ofaudits

(e)

(0

lSCHEDULE 2

Projcct ExccutionScction I. I mDlcnrcntaton Arrrnqcnrcnts

A. Subsidiary Agrecmcnt and Implemcntation Agrccmcnts

l. To facilitatc the carrying out of thc Projcct, the Recipient shall make part of theprocccds of the Financing available to FPS through a subsidiary agrecmenrbetween tbe Recipient and FPS, under tcnns satisfactory to the Association("Subsidiary Agecrnent"), including, inter alia, FPS's obligation to providc allthe necessary information and documentation to VMT relatcd to FPS'sresponsibilities undr the Project (including but not limited to, thc informationrequired for compliancc with Section III.D of Schcdulc 2 to this Agreemcnt).

2. The Recipicnt shall maintain all of thc nccessary conditions for FPS to complywith its obligations undcr thc Subsidiary Agrecmcnt.

3. Without lirl itation to the provisions ofparagraph I abovc, FPS shall cntcr into anagrcemcnt with cach of thc Implcmcnting Entities ("ImplcmentationAgrecment"), under tenns and conditions satisfactory to the Association,including those set forth in thc Operational Manual, with respcct to thc role andresponsibilities of thc Implcmcnting Entitics.

4. Thc Recipient shall exccise its rights under the Subsidiary Agrccment, and causcFPS to cxercisc its rights undcr the Implemcntation Agrecmcnts, in such amanncr as to protect the interests of thc Rccipient and thc Association and toaccomplish thc purposcs of thc Financing. Exccpt as thc Association shallotherwisc agrce, the Recipicnt shall not assign, amend, abrogatc, waivc or fail toenfoce thc Subsidiary Agreemcnt or any of its provisions.

5. In thc case of a conflict bctween the provisions of the Subsidiary Agrccmcnt orthe Implcmcntation Agrcements and the provisions of this Agcemcnt, thcRecipicnt will ensure that the provisions of this Agrccmcnt will prevail.

B. Institutional and Othcr Arrangcmcnts

l. The Recipient shall, with thc assistance of FPS and thc Implcmcnting Entities,carry out thc Project, or causc thc Projcct to bc caricd out, in accordancc withthe povisions of:

(a) this Agrecment;(b) the Subsidiary Agreement;

2.

U

(c) the Implementation Agrcemcnts; and

(d) thc Opcrational Manual.

At all tinlcs during thc cxccution of thc Projcct, VMT shll maintain a qualificdteam responsible fo the implementation of thc Project ("PCU"), with staffingqualifications, functions and responsibilities satisfactory to the Association,including, inter alia, the following rcsponsibilities:

(a) overall planning, coordination, monitoring and evaluation of Projcctactivities; and

(b) the updating of the Procurement Plan and the elaboration of thc annualimplementation plan.

At all times during the execution of the Projcct, the Rccipient shall cause FPS tomaintain qualified staff responsiblc fol thc implemcntation ofParts I (a) and 2 ofthe Poject with staffing qualifications, functions and responsibilitics satisfactoryto the Association. The above-mentioncd staff shall carry out quality controlactivities, coordination, monitoring and oversight of Parts 1 (a) and 2 of thcPrqect.

Thc Recipient shall cstablish not later than three months aftcr the Effcctivc Datc,and thercaftc maintain throughout the implementation of the Project, acommittcc (lnter-lnstitutional Comrnittec) to facilitatc information sharingamong rclevant stakcholdes. The Intcrlnstitutional Comrnittcc shall rnect atlcast twicc per yea to discuss activities in the Lake Titicaca watcrshcd andprogress on the ProJect.

Opcrational Manual

Thc Recrpicnt, through MPM and VMT, shall carry out thc Projcct, or cause thcProjcct to be canied out, in accodancc with thc tcrms of a manual satisfactory tothe Association (the Operational Manual). Except as the Association shallotherwise agree, the Recipicnt shall not amcnd, waive or fail to cnforcc tbcOperational Manual or any provision thercof. In case of any conflict between thctenns of this Agrcement and those of the Operational Manual, thc tcrms of thisAgreemcnt shall prevail.

The Opcrational Manual shall include provisions dctailing proccdurcs andguidclincs for thc carrying out ofthc Projcct, including, inler ala:

(a) thc procedures fo the preparation, rcview and approval of rcportspursuant to thc Projcct's financial managcmcnt arrangcmcnts;

4.

3 .

c.

2.

l .

(b) procuement and contracting procedurcs consistent with Schedule 2 tothis Agrccment, to bc applicablc to tltc contracts for thc works, goods,and consultants'serviccs required for thc Projcct and to bc financcd outof Lhc procccds of thc Crcdit;

(c) Project impact and implementation indicators and the procedures for themonitoring and evaluation of the Projcct, including for compliancc withScction II ofSchedulc 2 to this Agrecment;

(d) the procedurcs for the Recipicnt's preparation, rcvicw and approval ofCrcdit procccds withdrawal applications to thc Association, inconformity with the instructions that the Association may givc to theRecipient in this rcspect; and

(e) the cnvironmental managcmcnt criteria and procedures for thc carryingout of rehabilitation and construction works undcr the Projcct, thcResettlement Framework, and thc mcchanisms to address the culturallyspecific nceds of the Aymara to ensurc that the bcnefits of thc Project arcculturally appropriate and that there is broad community support for theProjcct.

Anti-Corruption

The Recipient shall cnsue that the Projcct is carried out in accordancc with thcprovisions of tbe Anti-Corruption Guidclincs.

Othcr Covcnants

2.

Not latcr than one year aftcr thc Effcctive Datc, thc Rccipient and thcAssociation shall carry out a comprehensive review of thc Projcctfocused on Project pcrfomancc. Aftcr said rcvicw is complctcd, thcRecipient shall take, if necessary, any actions recommendcd to cmedyany problcrns idcntificd during thc revicw.

Thc Recipient shall maintain throughout thc implementation of thcProject, thc units referred to in paragraph B.4 of Scction IV to thisSchedulc.

Scction II. Proicct Monitorinq. Rcoorting and Evaluation

A, Projcct Rcports

Thc Rccipicnt shall rronitor and cvaluatc thc progrcss of thc Projcct and prcparcor cause to be preparcd Projcct Rcports in accordance with thc provisions ofSection 4.08 of the Gcncral Conditions and on thc basis of the Indicators. Eacb

D.

E.

l .

t 0

Projcct Rcport shall cover the period of one calcnda scmester, and shall befumished to thc Association not later than one month aftcr thc cnd of thc pcriodcovered by such report. Thc Rccipicnt shall rcvicw thc mosl rcccnt ProjectRcport with thc Association during thc Association's sctni-annual ncctngs withthe Rccipicnt, or on such latcr datcs as thc Association lnay rcqtlcst.

B. Financial Managcmcnt, Financial Reports and Audits

l. Thc Rccipient shall maintain (or causc to be maintained) a financial managcmcntsystcm in accodancc with thc provisions of Scction 4.09 of thc GeneralConditions.

2. The Recipient shall prepare (or cause to bc prcparcd) and fumish to thcAssociation not latcr than 45 days after the end of cach calendar qualer, intcrimun-auditcd financial reports for each Part of the Projcct covcring the calcndarquartcr, in form and substancc satisfactory to the Association.

3. The Rccipient shall, though VMT, and cause FPS to, ltave thc FinancialStatements for each part of the projcct to be audiied in accodancc with thcprovisions of Section 4.09 (b) of the Gcncral Conditions. Each audit of thcFinancial Statemcnts shall cover the period of one fiscal year of the Rccipicnt forthe respcctive part of the Project, commencing with the carlier of: (a) the fiscalyear in which thc first withdrawal undcr the Project Prcparation Advancc wasmade; and (b) the fiscal ycar in which the first withdrawal under this Agreemcntwas made. The audited Financial Statements for cach such pcriod shall bcfumishcd to the Association not later than six months afte the end of suchperiod.

Scct ionI I I . Procurcmcnt

2.

l .

Gcncral

Goods, Works and Non-Consultant Scrvices, All goods, works and non-consultant serviccs rcquircd for thc Projcct and to be financcd out of the proceedsof the Financing shall be procured in accordance with the rcquircmcnts sct forthor rcfcrred to in Section I of thc Procurcmcnt Guidclincs, and with thc provisionsof this Scction.

Consultants' Scrviccs. All consultants' services requircd for thc Project and tobe financcd out of thc procccds of thc Financing shall bc procurcd in accordanccwith thc rcquircments sct forth or cferred to in Sections I and IV of theConsultant Guidclincs, with the provisions of this Section and with the provisionsof Scction II of Anncx A to this Schcdulc.

B.

3 .

2.

2 .

c.

l .

Dcfinitions. The capitalized tcrms used bclow in this Section to describeparticular procurcmcnt mcthods or rethods of rcview by thc Association ofparticular contracts, refcr to the corrcsponding method dcscribcd in thcProcurcnrcnt Guidclircs, or Consultant Cuidclincs, as thc casc rrray trc.

Particulr Mcthods of Procurcmcnt of Goods, Works and Non-ConsultantScrviccs

Intcrnational Compctitivc Bidding. Except as orherwise provided in paragraph2 bclow, goods and works shall be procured under contracts awardcd on the basisof Iternational Compctitive Bidding.

Othcr Mcthods of Procurcmcnt of Goods, Works and Non-ConsultantScrvices. The following table specifies the methods of procurement, other thanIntemational Competitive Bidding, which may be uscd for goods, works andnon-consultant serviccs. The Procurcmcnt Plan shall spccify thc cicumstancesunder which such methods may be uscd:

Procuremcnt Mcthod

(a) National Compctitivc Bidding, subjccr to theadditional provisions set forth in Scction I of AnnexA to this Schcdulc 2.

(b) Shopping.

(c) DirectContracting.

(d) Community Participation in Procurement.

Particular Mcthods of Procurcmcnt of Consultants' Scrviccs

Quality- and Cost-bascd Sclcction. Exccpt as othcrwise provided in paragraph2 bclow, consultants'scrvices shall be procurcd undcr contacts awarded on thcbasis of Quality and Cosrbased Sclcction.

Othcr Mcthods of Procurcmcnt of Consultants' Scrviccs. Thc follorving tablcspecifics rnethods of procuremcnt, othe than Quality and Cost-based Sclection,which may be used for consultants' seviccs. The Procuremcnt Plan shall soccithe circunstances undcr which such mcthods may bc used.

D.

l 2

I Procu romcnt McthodI

(a) Quality-bascdSclcction.(b) Sclcction undc a Fixcd Budgcr.(c) Least Cost Selection.(d) Sclcction Based on Consultant's eualifications.(c) Single Source Sclection.(t) Procedures set forth in paragraphs 5.2 and 5.3

the Consultant Guidelines fo thc SclcctionIndividual Consultants.

(S) Sole Source Proccdurcs for thcIndividual Consultants.

ofof

Sclcction of

Revicw by thc Association of procurcmcnt Dccisions

Thc Pocurcment Plan shall set forth thosc contracts which shall bcAssociation's Prior Rcview. All othcr contracts shall bc subjcct toby the Association.

Annual Procurement Audits. The Rccipient, through VMT shall:2 .

l . subjcct to thePost Rcvicw

(a)

(b)

not later than April 30 of cach ycar during thc implctncntation of thcProjcct, beginning on April 30,2009, contrait indepcndcnt auditors witl.)expenence and qualifications satisfactory to the Association, opcratingunde terms of efeence satisfactory to the Association, to'perform aprocurcment audit of all thc procurcment records and documcntation lorthe

_

Project, relating to thc Recipient's previous fiscal year ofilnplcmentation of the projcct, in accdance with procurcmcnt iuditingprinciples acceptable to the Association (..procurement Audit,,);not latcr.than July 3l ofeach year during thc implcmcntation of thel'roject, beglnnng on July 31, 2009 and continuing for cach yearthcreafte during thc implcmentation of the projccf furnish to thcAssociation thc report, in fonn and substance satisfactory to thcAssociation, on thc Pocurcmcnt Audit completcd for thc Rcipicnt,sprior fiscal year;

(c,

(d)

J

at all times during the implcmentation of thc Project, funish to thcAssociation and to the auditors pcrforming a Procurcmcnt Audit, suchother information conccrning thc procurcmcnt rccords anddocumcntation for thc Projcct as thc Association or thc auditors nrayll onr timc to tinlc fcasonably rccucst; lnd

not latcr than Septembcr 30 of each year during the implemcntation ofthe Project, beginning on September 30,2009, cxchangc views with thcAssociation on thc rcsults of thc Procurcmcnt Audit cornolctcd for thcRecipient's prior fiscal ycar and thereafter implerncnt such iccommendedmeasurcs, taking into account thc Association's vicws on thc mattcr.

Wi thdrawal of thc Procccds of thc FnancinsScction IV.

2.

Gencral

The Recipient may withdraw the proceeds of thc Financing in accordance rviththe provisions of Article II of the Gcneral Conditions, this Section, and suchadditional instructions as the Association shall spccif by notice to thc Rccipicnt(including the "World Bank Disbusement Guidelines for Projects" dated May2006, as revised fom time to time by thc Association and as made applicablc tothis Agrccment pursuant to such instructions), to financc Eligiblc Expcnditurcs asset forth in the table in paragraph 2 below.

Thc following table specifies thc categorics of Eligiblc Expenditurcs that may bcfinanced out of the proceeds of thc Financing ("Category"), the allocations of theamounts of thc Crcdit to each Catcgory, and thc pcrccntagc of cxpcnditurcs to bcfinanccd for Eligible Expenditurcs in each Category:

Catcgory

Amount of the CrcditAllocatcd

Gp$!sdi!-SDB)

Pcrccntagc ofExpcnditurcs

to bc Financcd(inclusivc of Taxes)

(l) (a) Works, goods, Training,consultants services undcr Part I (a)of the Project; and

(b) Works, goods, Training,consultants services and \A4TOperating Costs undcr Parts I (b),(c) and (d) of thc Project

3,450,000

1,650,000

t00%

t00%

t 4

Catcsorv

Amount of thc CrcditAllocatcd

(cxnrcsscd in SDR)

Pcrccntagc ofExpcnditurcs

to bc Financcd( inc lus ive of Taxcs)

(2) Works, goods, consultants servrcesand Training under Part 2 of theProject, includrng audits 5,300,000 100%

(3) Goods, consultants services,Training and VMT OperatingCosts undcr Part 3 ofthc Projcct,including audits

1,300,000 t00%

(4) FPS Operating Costs 500,000 5% of the total costof thc woks underthc Projcct paid intranches as sct forthin the OperationalManual

(5) Refund of Project PreparationAdvance

600,000 Amount payablcpursuant to Section2-07 ofthc GcncralConditions

TOTAL AMOUNT 12,800,000

l. For purposes ofthe table in paragraph 2 abovc, thc tcrms:

"Training" means reasonable cxpcnditures (other than thosc forconsultants' scrviccs) incurred by VMT for the purposcs of thc Projcctand directly rclated to training activities describcd in the Projccr,including, inter aliq, costs elatcd to workshops, seminars, conferenccs,study tous, training registration fecs, facility rcntals, and travcl costs andper dienrs for \44T and FPS civil scrvicc officials or cmployccs;"FPS Opcrating Costs" means reasonablc recurrcnt expcnditures (orncrthan thosc for consultants' scrvices) incurrcd by FPS for thc purposes ofthc Projcct and directly relatcd to thc activities dcscribcd in the Projcct,includrng, inter alia, salaics of staff, officc matcials and supplics,operation and maintcnancc of office cquipmcnt, insurance, vchiclc andequipment opcration, bank chargcs on thc Dcsignatcd Accounr,

(4,

(b)

B.

t )

transportation, phonc and fax charges, mcdia campaigns, travcl and per/ir of FPS officials for purposes of Project supervision and printing ofmaterials; and

(c) "VMT Operating Costs" means reasonable recurrent expenditures (otherthan thosc for consultants' services) incurred by VMT for the purposesof the Project and directly related to the activities described in theProject, including, inler alia, office materials and supplies, oPeration andmaintcnance of officc equipment, insurancc' vehicle and equipmentoperation, bank chargcs on the Designated Account, util ities, rental ofoifi". ,pu"", transportation, phone and fax charges, media campaigns'travel a;d per diem of YMT and the Recipient's Vice Ministry of BasicServices officials for purposes of Project supervision and printing ofmaterials.

Withdrarval Conditions; Withdrarval Pcriod

Notwithstanding the provisions of Part A of this Scction, no withdrawals shall bcmade for payments made prior to the date of this Agreement, exccpt thatrvithdrawals up to an aggregate amount not to exceed $1,000,000 equivalent maybe made for payrnents made one year prior to such date but in no case beforeNovember 9, 2007 for Eligible Expcnditures.

No withdrawals shall be made for paymcnts under Categories ( l) and (2) of thetable in paragraph A above, until the respective Implementation Agreement witheach Implementing Entity has been executed.

No rvithdrarvals shall be made for payments under Categories ( l) (b) and (3) ofthe table in paragraph A above, until a financial management systcm withinVMT, satisfactory to the Association, is operational.

No withdrawals shall be made for payments under Categories I (a) and 2 of thetable in paragraph A abovc, until FPS has established to the satisfaction of thessociation: ii) ihe control and monitoring unit under FPS's executive officc; (ii)the environmcntal unil; and (iii.) the procurcmcnt monitoring unit'

The Clos ing Date is June 30,2013.

The Recipient shall rcviov and adjust annually, or at any other timc agreed withthc Association, thc FPS Opcrating Costs. Such adjustmcnt shall be unnccessaryif the Association is satisfied that said review revcals no change in FPSOpcrating Costs.

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SCHEDULE 2

Additional Provisions Rclating toParticular Methods of Procurcment

Scction I. Goods and Works

Without limitation upon thc provisions of Schedulc 2 to this Agreement or theProcurement Cuidelines, the following additional provisions shall apply to all goods andworks procured for the Project (pursuant to Section III.A.I of Schedule 2 to thisAgreement) under contracts awarded on the basis of National Competitive Bidding("NCB Contracts"):l. A merit point system shall not bc used in the pre-qualification ofbids.

2. The arvard of goods and works contracts shall be based exclusively on price and,whenever appropriate, shall also take into account factors similar to thoseeferred to in paragraph 2.51 of the Guidelines, providcd, however, that the bidcvaluation shall always be based on factors that can be quantified objectively,and the procedure for such quantification shall be disclosed in ths invitation tobid.

3. The Recipient shall open all bids at the stipulated time and place in accordancewith a procedure satisfactory to the Association.

4. Thc Recipient shall use a single envelope proccdure.

5. Wheneve there is a discrepancy between the amounts in figures and in words ofa bid, the amounts in words shall govem.

6. Except as the Associarion shall otherwise agree, the bidding process shall not bedeclared void if only three (3) bids or less have bcen submitted unless such bidshavc bccn dctcrmincd not to bc rcsponsivc.

7. Any standards and technical specifications (quoted in the bidding documents)tltat arc at least substantially cquivalent to thc national standards and technicalspecifications shall be acccptable.

8. Forcign bidders shall be allowed ro participate.

9. Forcign biddcrs shall not bc rcquircd to lcgalizc any docrmcntation rclatcd totheir bids with Bolivian authorities as a prerequisite for biddrng.

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No margin ofpreference shall be granted for any panicular category ofbidders.

The auction procedwe (Puja Abierta) shall not be used.

In the event that a bidder whosc bid was evaluated as the bid with the lowestevaluatcd price withdraws its bid, thc contract may be awardcd to the secondlou'est rcsponsive cvaluated bid.

Forcign biddcrs shall not, as a condition for submitting bids, bc required to enterinto a joint venture agreement with local bidders.

No other procurement rules or regulations of thc Recipient3 agcncies or of anystatc-owncd cntity shall apply without the prior review and consent of theAssociation.

Scction II. Selection of Consultant Serviccs

Without limitation upon the provisions of Schedule 2 to this Agreement or thc ConsultantGuidelines, the following additional provisions shall apply to all consultants' servicesprocured lbr the Projcct (pursuant to Section III.A.2 of Schedule 2 to this Agrcemcnt):l- As a condition for participating in the selection process, foreign consultants shall

not be required to cnte into a joint venture agreement with local consultants,unless the conditions stated in paragraph I.I.2 of the Consultant Guidelines aemet.

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As a condition for participating in the selection process, foreign consultants shallnot be required to legalize their proposals or any documcntation related to suchproposals with the Rccipient's authorities.

Forcign consultants shall not be requircd to be registered in the Recipient'sNational Registry ofConsultants (Iegistro Nacional de Consultora).

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SCHEDULE 3

Rcpaymcnt Schedulc

* The percentages reprcsent the pcrcentage of the principal amount of thc Credit to bercpaid, except as the Association may otherwise specify pursuant to Scction 3.03 (b) ofthe Gcncral Conditions.

Datc Pavmcnt Duc

Principal Amount of thc Creditrcpayablc

(cxprcsscd as a pcrcentagc)*On each February l5 and August 15:Commcncing Fcbruary 15, 2018to and including August 15, 2027.

| .251'/0

Commencing February 15,2028, to and includingAugust 15, 2042.

2.50%

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APPENDIX

Scction I. D cfi n itions

"Anti-Corruption Guidelines" means the "Guidelines on preventing andCombating Faud and Corruption in Projects Financed by IBRD Loans and IDACredits and Grants", dated Ocrobcr 15, 2006."Category" means a category sct forth in the table in Section IV of Schedule 2 tothis Agrecmcnt."Consultant Guidelines" means thc "Guidelines: Selection and Employment ofConsultants by World Bank Borowcrs" published by the Bank in May 2004 andreviscd in October 2006."EPSA" means a Entidqd Prestadora de Servicos de Agua Potable yAlcantarillado Sanitario, a public or private company with legal capacity whichprovides water and wastewater services in the Recipient's tenitory, and whichws crcatcd prsuant to thc Rccipicnt's law No. 2066, dated April 11, 2000, asamendcd and as in effect on tbe date ofthis Agrcement."FPS" means Fondo Nacional de Inversin Productiva y Social, thc Recipient'snational productive and social investment fund established pursuant to Article l4of the Recipient's Supreme Decree No.25984 ofNovember 16,2000;"General Conditions" means the "lntemational DeveloDment AssociationGcneral Conditions for Credits rnd Granrs", dated July l, 2005 (as amendedthrough October 15, 2006)."lmplementation Agreements" means the agreements refened to in Section I.A.3of Schedule 2 to this Agreement, to be entcred betwcen FpS and theImplementing Entities."lmplementing Entities" reans any of the Recipient's municipalities,Prefecturas, other public entitics and non-govemmcnt organizations, which meetthe eligibility crjteria set forth in the Operational Manual to carry out activitiesundcr thc Projcct."Indicators" mcans the impact and implementation indicators set lorth in theOperational Manual."lntcr-lnslilutionl Comrnittcc" is thc conrmittcc rcfcrrcd lo in Scction I.8.4 ofSchcdulc 2 to this Agrccmcnt, compriscd of: (i) relevant public scctor agencies;and (ii) community and private secto representatives, chaircd by the Vice

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Minister of Tourism, in coordination with othe Ministries such as thc Ministryof Wate.

"MPM" mcans the Recipient's Ministry of Production and Mico enterprise,created pursuant to the Recipient's Law No. 3351, dated February 8, 2006."Municipality" means en entity with legal personality established pursr.lant to theRecipicnt's Larv No. 2028, dated Octobcr 28, 1999."Operational Manual" means the manual refened to in Section I.C of Schedule 2to this Agreement."PCU" means the unit rcfened to in Section I.B.2 of Schcdule 2 to thisAgreement.

"Prefectura" means the departmcntal representations of the Recipient's executivebranch, as establishcd in thc Rccipicnt's Law No. 1654, dated July 28, 1995 andpublishcd in thc Recipient's Official Gazette on the same date.

16. "Procurcment Guidelines" means the "Cuidelincs: Procurement under IBRDLoans and IDA Credits" published by the Bank in May 2004 and revised inocrober,2006.

"Procurement PIan" means thc Recipient's procurement plan for the project,dated November 8,2007 and rcferred to in paragraph l.l6 of thc procurementCuidelines and paragraph I .24 of the Consultant Guidelines, as the same shall beupdated from time to time in accodance with the provisions of said paragraphs.

18. "Procurement Supreme Decree" means the Recipient's Supreme Decree No.29190 (Decreto Supremo N" 29190) of July 11,2007, as amended and as ineffect on the date of this Acrccment.

1 9 . "Poject Preparation Advancc" means the advance refcned to in Section 2.07 ofthe General Conditions, granted by the Association to the Recipient pursuant tothe letter agreement signed on behalf of the Association on December 20, 2006and on behaff of the Rccipient on January 22,2007 ."Resettlcment Framework" means Marco de Reasentamento, datcd October 4,2007, published in the VMT's wcbpage (http//lago.titikaka.googlcpages.com) onOctober 4. 2007."Statc of thc Llkc Rcport" mcans Reportc del Estado del Lago, rn annual rcpofpublished by VMT that includcs annual social, cnvironmental and tourismindicators for the Recipicnt's region of Lake Titicaca.

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"Subsidiary Agreement" mcans the agreement rcfened to in Section I.A.l ofSchedule 2 to this Agreement, pursuant to which the Rccipient shall make part ofthe procceds of thc Financing available to FPS."\4VfT" means the Recipient's Vice Ministry of Tourism, a unit within MpM,crcated pursuant to the Recipient's Law No. 1351. dared February 8,2006.