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23 December 2006
[Federal Register: December 20, 2006 (Volume 71, Number 244)]
[Notices]
[Page 76439-76486]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20de06-166]
[[Page 76439]]
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Part II
Millennium Challenge Corporation
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Notice of Entering Into a Compact With the Government of the Republic
of El Salvador; Notice
[[Page 76440]]
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MILLENNIUM CHALLENGE CORPORATION
[MCC FR 06-21]
Notice of Entering Into a Compact With the Government of the
Republic of El Salvador
AGENCY: Millennium Challenge Corporation.
ACTION: Notice.
-----------------------------------------------------------------------
SUMMARY: In accordance with Section 610(b)(2) of the Millennium
Challenge Act of 2003 (Pub. L. 108-199, Division D), the Millennium
Challenge Corporation (MCC) is publishing a summary and the complete
text of the Millennium Challenge Compact between the United States of
America, acting through the Millennium Challenge Corporation, and the
Government of the Republic of El Salvador. Representatives of the
United States Government and the Government of the Republic of El
Salvador executed the Compact documents on November 29, 2006.
Dated: December 8, 2006.
William G. Anderson Jr.,
Vice President & General Counsel (Acting), Millennium Challenge
Corporation.
Summary of Millennium Challenge Compact With the Government of the
Republic of El Salvador
I. Introduction
In 1992, El Salvador entered into the peace accord that ended a
decade of civil conflict. The conflict cost over 70,000 lives and left
nearly two-thirds of the country's population in poverty. During the
war, human capital formation lagged, public investment was deferred,
and deterioration of the natural resource base accelerated. The
northern zone of El Salvador (the ``Northern Zone'') fared the worst;
its mountainous territory served as a primary staging ground for the
conflict, thereby increasing violence and instability in the area and
causing an exodus of large numbers of the region's inhabitants. Despite
the significant national economic growth that followed the peace
accord, progress has stagnated in recent years and the poverty rate in
the Northern Zone (53 percent) remains higher than the national average
(34 percent). Today, approximately 450,000 of the country's 2.33
million poor people reside in the Northern Zone.
Overcoming these obstacles and unifying the Northern Zone with the
rest of the country have become national priorities. The Northern Zone
serves as a primary source of water, energy, biodiversity and other key
resources for El Salvador and neighboring countries in Central America.
Halting, and indeed reversing, the deterioration of these resources,
and ensuring more sustainable approaches to economic development,
comprise strategic goals. The population of the Northern Zone requires
a comprehensive development program to enable it to fully participate
in El Salvador's growth, the benefits of regional integration, and the
economic opportunities brought about by the recently signed Central
America-Dominican Republic-United States Free Trade Agreement.
The five-year, $460.94 million Compact provides an historic
opportunity to fulfill these goals and transform El Salvador's economic
development.
II. Program Overview, Budget, and Impact
The program supported by the Compact (the ``Program'') is comprised
of three strategic and interdependent projects: (1) Human development;
(2) productive development; and (3) connectivity.
Multi-Year Financial Plan Summary
----------------------------------------------------------------------------------------------------------------
(USD millions)
Component -----------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5 Total
----------------------------------------------------------------------------------------------------------------
Human Development Project..................... $5.62 $23.18 $24.04 $21.02 $21.22 $95.07
Productive Development Project................ 13.55 18.28 20.76 22.01 12.87 87.47
Connectivity Project.......................... 16.44 82.79 111.58 18.80 3.95 233.56
Accountability................................ 2.85 5.65 6.67 4.27 4.82 24.26
Program Administration........................ 4.35 4.07 4.18 4.03 3.95 20.59
-----------------------------------------------------------------
Total estimated MCC Contribution.......... 42.82 133.97 167.22 70.12 46.81 460.94
----------------------------------------------------------------------------------------------------------------
The Program is projected to directly alleviate the poverty of over
150,000 Salvadorans and enhance the livelihoods and welfare of over
850,000 people in the target area. It is expected that as a result of
the Program, incomes in the region will increase by 20 percent over the
five-year term of the Program, and by 30 percent within ten years of
the start of the Program.\1\ Increased investment, trade, and
productivity in the Northern Zone are expected to have spillover
benefits for the country as a whole, as well as for the entire Central
American region.
---------------------------------------------------------------------------
\1\ Without the Program, income in the Northern Zone is expected
to increase by only 2 percent over the period of the Program and by
4 percent within 10 years of the start of the Program.
---------------------------------------------------------------------------
A. Human Development Project
This project is based on the foundations and ongoing work achieved
in two existing Government of El Salvador (``GOES'') programs--the
Solidarity Network and the National Education Plan 2021. It is divided
into two broad activities:
Education and Training will support both formal and non-
formal technical training programs, secondary and post-secondary
technical and vocational education with related infrastructure and
equipment; over 27,000 people will benefit directly; and
Community Development will provide improved access to
potable water systems for 90,000 people and improved sanitation
services for over 50,000. Electricity coverage in the Northern Zone
will increase from 70 percent to no less than 97 percent, benefiting
235,000 individuals. Through construction and improvement of community
infrastructure (e.g., tertiary roads, improved drainage, small bridges)
over 130,000 people will have greater access to markets, employment,
and facilities supporting health and education.
[[Page 76441]]
B. Productive Development Project
This project includes provision of technical assistance, training,
and financial services to farmers to help them shift from basic grains
to higher value crops and to micro, small and medium businesses to make
efficient, productivity improving investments. It is expected to lead
to increases in net income for 55,000 beneficiaries, and is organized
into three activities:
Production and Business Services will provide technical
assistance to farmers and business development services to micro, small
and medium enterprises, all on a cost-sharing basis;
Investment Support will provide investment capital on
market terms to competitively selected applicants for commercially-
viable activities by the private sector; and
Financial Services will provide credit guarantees and
technical assistance to financial institutions to generate increased
lending activity by banks and non-bank financial institutions to
farmers and rural enterprises. In addition, crop insurance will help
mitigate risks for small producers in the Northern Zone.
C. Connectivity Project
This project addresses the issue of the Northern Zone's physical
isolation with two activities:
The Northern Transnational Highway includes the design,
construction, and rehabilitation of a 289-kilometer two-lane secondary
road, forming a transportation corridor from Guatemala to Honduras
across the Northern Zone of El Salvador. More than 80 percent of the
highway span involves rehabilitation; new roads are expected to
comprise approximately 50 kilometers; and
The Connecting Road Network includes paving and
improvement of 240 kilometers of unpaved roads that will enable
increased access to markets, health, and education services, and
integrate the Northern Zone with national and regional highway systems.
Increased connectivity is expected to lead to new economic
opportunities for rural households, lower transportation costs, and
decrease travel times to markets and social service delivery points for
upwards of 600,000 beneficiaries.
III. Program Management
Through an act of its legislature, the GOES will create Fondo del
Milenio (``FOMILENIO'') to serve as the accountable entity for the
Program. FOMILENIO will be governed by an independent board of
directors (the ``Board'') which will make strategic decisions, provide
oversight, and ultimately be responsible for the results of the
Program. The Board will be comprised of seven voting members--four
members designated by GOES, one private-sector member, and two
representatives of nongovernmental organizations. The Board also will
benefit from the participation of an advisory council, consisting of
members of the National Development Commission and other stakeholders.
An executive director will manage the day-to-day activities of
FOMILENIO and will be supported by key officers, technical staff, and
administrative personnel.
FOMILENIO will engage line ministries, other public agencies, a
second-tier development bank, and contractors/consultants for direct
execution of the Program activities. However, as the accountable
entity, FOMILENIO will remain responsible for the successful
implementation of the Program. The financial management unit within
FOMILENIO and the Ministry of Finance will share the financial
management responsibilities for the Program. FOMILENIO will utilize
outside procurement and fiscal oversight agents. As a governmental
entity, FOMILENIO will be subject to GOES audit requirements as well as
audits required by the Compact.
IV. Other Highlights
A. Consultative Process
The National Development Commission has led a public dialogue on a
new vision for El Salvador's development. As a result of this dialogue,
the National Development Commission produced a shared national
development strategy, known as the Plan of the Nation, setting forth a
vision for development of each of the five regions of El Salvador,
including the Northern Zone. In response to the Plan of the Nation, and
based on local, regional, and national level consultations, GOES
created a plan for developing the Northern Zone (the ``Northern Zone
Investment Plan'').
To develop their proposal for Millennium Challenge Account
(``MCA'') assistance, GOES refined the Northern Zone Investment Plan
based on input received in a series of consultations with various
stakeholders and interested parties. Consultations included local
mayors, private-sector representatives, academic experts, international
donors, multilateral development organizations, sector specialists, and
the general public. In total, GOES held more than 50 formal workshops
and informal discussions with over 2,200 Salvadorans. GOES, through
FOMILENIO, plans to continue engaging civil society, local government,
and other key constituencies in oversight and guidance through Program
implementation. It will do this via private sector and civil society
representation on the Board, and through ongoing participation by the
National Development Commission, local mayoral commission, government
representatives, and other stakeholders on FOMILENIO's Advisory
Council.
B. GOES Commitment and Contribution to the Program
GOES has demonstrated substantial commitment to the Compact
development process since first becoming eligible for MCA assistance in
November 2005. Under the guidance of a high-level oversight commission,
and with the leadership of the executive director of the MCA-El
Salvador team, GOES presented a comprehensive proposal just over five
months after becoming eligible. The President and other high-level
officials have been directly engaged in developing the Program,
providing the political leadership necessary for its success. Recent
progress on policy reform, and ongoing efforts by GOES to strengthen
rule of law, administration of justice, and other relevant areas,
contributed to El Salvador being re-selected as an MCA-eligible country
in November of 2006.
Pursuant to Section 609(b)(2) of MCC's legislation applicable to a
lower middle income country receiving Compact funds, GOES will make an
appropriate contribution, relative to its national budget and taking
into account prevailing economic conditions, towards meeting the
objectives of the Compact. The GOES contribution will be in addition to
the government's spending allocated towards such objectives in the
country's budget for the year immediately preceding the establishment
of the Compact. GOES expects to make a qualifying contribution to the
Northern Zone Investment Plan of approximately $327 million over the
five-year term of the Compact. In addition, GOES invested over $1.7
million in proposal preparation and has committed another approximately
$9 million to fund up-front feasibility, design and environmental
impact studies related to the Connectivity Project.
C. Sustainability
MCC is requiring assurances from GOES that it will provide the
staffing, equipment and other recurrent costs of new (and, in some
cases, existing)
[[Page 76442]]
facilities and infrastructure investments necessary for the
sustainability of the Program. The education and training activity will
include strong private-sector involvement and will engender local and
civil society ownership. As part of the technical assistance activity,
an assessment will be made of alternative revenue sources needed to
cover recurring costs. These elements will support more sustainable
impact of this activity.
Selection criteria for the water and sanitation and community
infrastructure activities under the Human Development Project will
stipulate a minimum level of community contribution to investment in
and maintenance of new infrastructure. Municipalities and/or community-
level entities will be responsible for system operation and
maintenance. System designs will reflect lowest cost alternatives in
order to reflect users' ability to pay tariffs for operation and
maintenance costs. For the rural electrification and water and
sanitation activities, user fees that correspond with system operation
and maintenance needs will be applied.
The Productive Development Project will provide support to
encourage alliances, joint ventures, and other collaborations between
more established enterprises and smaller/disadvantaged organizations
and individuals. In addition to technical assistance provided to micro,
small, and medium sized enterprises, support will be provided to
financial institutions to enable them to better serve new clients.
These activities are expected to accelerate start-up of productive
activities, and improve prospects for success and sustainability.
Sustainability of MCC investments in transportation infrastructure
is contingent upon proper and effective road maintenance. El Salvador
possesses substantial road maintenance capabilities in the Fondo de
Conservaci[oacute]n Vial. Disbursement of MCC funding for the
Connectivity Project will depend on the satisfaction of conditions
related to road maintenance of all roads within the Connectivity
Project for the life of such roads.
D. Environment and Social Impacts
Environmental and social sustainability of the Program will be
enhanced through oversight, ongoing public consultation and
institutional capacity building. A strategic environmental assessment
funded by the World Bank will be performed in the Northern Zone to
address the project components and the need to strengthen land use
plans. To address the lack of institutional capacity for effective
monitoring and oversight, GOES will commit to increasing environmental
staff in the implementing and regulatory entities and creating an
inter-departmental task force, focused on the Northern Zone
investments, in the Ministry of Environment and Natural Resources. GOES
will also strengthen the environmental management system to help in the
enforcement of land use plans and participation of Salvadoran
communities in the sustainable management of natural resources. MCC is
providing funding for training in environmental management to further
improve the institutional capacity.
The Connectivity Project is classified as Category A under MCC's
Environmental Guidelines. An environmental impact assessment,
environmental management plans, resettlement action plans, and HIV/AIDS
awareness plans will be undertaken and funded by GOES. GOES and MCC
also have conducted multiple consultations with non-governmental
organizations in El Salvador and in the U.S. to review concerns and
ensure they are adequately addressed in advance of implementation.
As part of the Human Development Project, classified as Category B
under MCC's Environmental Guidelines, the education and training
activity will require a gender assessment to address issues of access
and meaningful participation. The community development activity will
require selection criteria for provision of community services that
take into account environmental sensitivity and social impact
considerations and site-specific environmental analysis as needed.
The Productive Development Project, classified as Category D under
MCC's Environmental Guidelines, will adhere to guidelines contained in
an operations manual that defines environmental and social/gender
requirements. Specifically, potentially adverse environmental impacts
may result from new or expanded activities supported by the Project. To
address these and other potential impacts, technical assistance will
involve the dissemination of environmental sustainability principles,
and selection criteria for eligible proposals will include
environmental sensitivity and social impact considerations.
E. Donor, Multilateral, and Interagency Coordination
The Program was developed in collaboration with a wide variety of
donors and multilateral finance institutions. Several Program
components will build upon activities pioneered by other donors (such
as the Inter-American Development Bank's rural roads program, and the
U.S. Agency for International Development's water and sanitation and
rural productivity projects). MCC worked with the European Union and
the Japanese International Cooperation Agency as it reviewed proposed
transportation infrastructure activities. MCC also worked closely with
the World Bank to ensure proper coordination on the strategic
environmental assessment, and on matters related to land tenure, land
administration, and protected areas management.
To further advance understanding of the proposed Program, MCC held
numerous meetings with representatives from various U.S. Government
agencies. MCC looked primarily to USAID and the U.S. Department of
State for information on the development context in El Salvador. For
insight into the integrity of GOES financial management systems, MCC
received detailed reviews and recommendations from USAID's Regional
Inspector General's office in El Salvador. On specific technical
issues, MCC met with specialists from the U.S. Department of
Agriculture, Federal Highway Administration, Inter-American Foundation,
U.S. Department of Justice, and the Army Corps of Engineers. MCC also
held meetings with key representatives from the U.S. Commercial
Service, U.S. Trade Representative, U.S. Trade and Development Agency,
Export-Import Bank of the United States, and the Overseas Private
Investment Corporation. These sessions provided useful context to the
Compact development process and alerted MCC staff to potential
challenges and opportunities for positive collaboration.
Millennium Challenge Compact Between the United States of America
Acting Through the Millennium Challenge Corporation and the Government
of the Republic of El Salvador
Table of Contents
Article I. Purpose and Term
Section 1.1 Compact Goal; Objectives
Section 1.2 Projects
Section 1.3 Entry into Force; Compact Term
Article II. Funding and Resources
Section 2.1 MCC Funding
Section 2.2 Government Resources
Section 2.3 Limitations on the Use or Treatment of MCC Funding
Section 2.4 Incorporation; Notice; Clarification
Section 2.5 Refunds; Violation
[[Page 76443]]
Section 2.6 Bilateral Agreement
Article III. Implementation
Section 3.1 Creation of the ``Fondo del Milenio''
Section 3.2 Responsibilities
Section 3.3 Fundamental Objectives
Section 3.4 Board and Management Generally
Section 3.5 Board
Section 3.6 Executive Director
Section 3.7 Patrimony and Budget
Section 3.8 Oversight and Control
Section 3.9 Audits
Section 3.10 Reglamento
Section 3.11 Implementation Framework
Section 3.12 Government Responsibilities
Section 3.13 Government Deliveries
Section 3.14 Government Assurances
Section 3.15 Implementation Letters; Supplemental Agreements
Section 3.16 Procurement; Awards of Assistance
Section 3.17 Policy Performance; Policy Reforms
Section 3.18 Records and Information; Access; Audits; Reviews
Section 3.19 Insurance; Performance Guarantees
Section 3.20 Domestic Requirements
Section 3.21 No Conflict
Section 3.22 Reports
Article IV. Conditions Precedent; Deliveries
Section 4.1 Conditions Prior to Entry Into Force and Deliveries
Section 4.2 Conditions Precedent to MCC Disbursement or Re-
Disbursements
Article V. Final Clauses
Section 5.1 Communications
Section 5.2 Representatives
Section 5.3 Amendments
Section 5.4 Termination; Suspension
Section 5.5 Privileges and Immunities
Section 5.6 Attachments
Section 5.7 Inconsistencies
Section 5.8 Indemnification
Section 5.9 Headings
Section 5.10 Interpretation
Section 5.11 Signatures
Section 5.12 Designation
Section 5.13 Survival
Section 5.14 Consultation
Section 5.15 MCC Status
Section 5.16 Language
Section 5.17 Publicity; Information and Marking
Exhibit A: Definitions
Exhibit B: List of Certain Supplemental Agreements
Schedule 2.1(a)(iii) Description of Compact Implementation
Funding
Annex I: Program Description
Schedule 1: Human Development Project
Schedule 2: Productive Development Project
Schedule 3: Connectivity Project
Annex II: Summary of Multi-Year Financial Plan
Annex III: Description of the M&E Plan
Millennium Challenge Compact
This Millennium Challenge Compact (the ``Compact'') is made between
the United States of America, acting through the Millennium Challenge
Corporation, a United States Government corporation (``MCC'') and the
Government of the Republic of El Salvador (the ``Government'')
(referred to herein individually as a ``Party'' and collectively, the
``Parties''). A compendium of capitalized terms defined herein is
included in Exhibit A attached hereto.
Recitals
Whereas, MCC, acting through its Board of Directors, has selected
the Republic of El Salvador as eligible to present to MCC a proposal
for the use of Millennium Challenge Account (``MCA'') assistance to
help facilitate poverty reduction through economic growth in El
Salvador;
Whereas, the Government has carried out a consultative process with
the country's private sector and civil society to outline the country's
priorities for the use of MCA assistance and developed a proposal,
which was submitted to MCC in May 2006 (the ``Proposal'');
Whereas, the Proposal focused on interrelated objectives of
supporting knowledge and skills development, expanding community
infrastructure, developing productive potential, and improving
connectivity in the northern zone of El Salvador (the ``Northern
Zone'') as important national priorities to foster national integration
and sustainable economic and social development;
Whereas, MCC has evaluated the Proposal and related documents and
determined that the Proposal is consistent with core MCA principles and
includes a coherent structure of integrated activities that will
advance the progress of El Salvador towards achieving lasting economic
growth and poverty reduction;
Whereas, based on MCC's evaluation of the Proposal and related
documents and subsequent discussions and negotiations between the
Parties, the Government and MCC determined to enter into this Compact
to implement a program using MCC Funding to advance El Salvador's
progress towards economic growth and poverty reduction (the
``Program''); and
Whereas, the Parties agree that the Government shall establish, in
accordance with Article III and Annex I, Fondo del Milenio
(``FOMILENIO''), the entity that shall be responsible for the oversight
and management of the implementation of this Compact on behalf of the
Government;
Now, Therefore, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the Parties hereby agree as
follows:
Article I. Purpose and Term
Section 1.1 Compact Goal; Objectives
The goal of this Compact is to advance economic growth and poverty
reduction in the Northern Zone of El Salvador (the ``Compact Goal'').
The Parties have identified the following project-level objectives
(collectively, the ``Objectives'') to advance the Compact Goal, each of
which is described in more detail in the Annexes attached hereto:
(a) Increase human and physical capital of residents of the
Northern Zone to take advantage of employment and business
opportunities (the ``Human Development Objective'');
(b) Increase production and employment in the Northern Zone (the
``Productive Development Objective''); and
(c) Reduce travel cost and time within the Northern Zone, with the
rest of country, and within the region (the ``Connectivity
Objective'').
The Government expects to achieve, and shall use its best efforts
to ensure the achievement of, the Compact Goal and these Objectives
during the Compact Term.
Section 1.2 Projects
The Annexes attached hereto describe the component projects of the
Program, the policy reforms and other activities related thereto (each,
a ``Project'') that the Government will carry out, or cause to be
carried out, in furtherance of this Compact to achieve the Objectives
and the Compact Goal.
Section 1.3 Entry into Force; Compact Term
This Compact shall enter into force on the date of the last letter
in an exchange of letters between the Principal Representatives of each
Party confirming that (i) each Party has completed its domestic
requirements for entry into force of this Compact (including as set
forth in Section 3.20) and (ii) all conditions set forth in Section 4.1
have been satisfied by the Government and MCC (``Entry into Force'').
This Compact shall remain in force for five (5) years from Entry into
Force, unless earlier terminated in accordance with Section 5.4 (the
``Compact Term''). Notwithstanding the foregoing, Sections 2.1(a)(iii),
3.1 to 3.10, 3.16 and 3.20 shall provisionally apply prior to Entry
into Force in accordance with the terms and conditions set forth in
each such Section and shall remain in full force
[[Page 76444]]
and effect throughout the Compact Term.
Article II. Funding and Resources
Section 2.1 MCC Funding
(a) MCC's Contribution. MCC hereby grants to the Government,
subject to the terms and conditions of this Compact, an amount not to
exceed Four Hundred Sixty Million Nine Hundred and Forty Thousand
United States Dollars (US $460,940,000) (``MCC Funding'') during the
Compact Term to enable the Government to implement the Program and
achieve the Objectives.
(i) Subject to Sections 2.1(a)(ii), 2.2(b) and 5.4(b), the
allocation of MCC Funding within the Program and among and within the
component Projects shall be as generally described in Annex II or as
otherwise agreed upon by the Parties from time to time.
(ii) If at any time MCC determines that a condition precedent to an
MCC Disbursement has not been satisfied, MCC may, upon written notice
to the Government, reduce the total amount of MCC Funding by an amount
equal to the amount estimated in the applicable Detailed Budget for the
Program, Project, Project Activity or sub-activity for which such
condition precedent has not been met. Upon the expiration or
termination of this Compact, (A) any amount of MCC Funding not
disbursed by MCC to the Government shall be automatically released from
any obligation in connection with this Compact, and (B) any amounts of
MCC Funding disbursed by MCC to the Government as provided in Section
2.1(b)(i), but not re-disbursed as provided in Section 2.1(b)(ii) or
otherwise incurred as permitted pursuant to Section 5.4(e) prior to the
expiration or termination of this Compact, shall be returned to MCC in
accordance with Section 2.5(a)(ii).
(iii) Notwithstanding any other provision of this Compact and
pursuant to the authority of Section 609(g) of the Millennium Challenge
Act of 2003, as amended (the ``Act''), upon the conclusion of this
Compact (and without regard to the satisfaction of all of the
conditions for Entry into Force required under Section 1.3), MCC shall
make available Nine Million Two Hundred and Eighteen Thousand United
States Dollars (US$ 9,218,000) (``Compact Implementation Funding'') to
facilitate certain aspects of Compact implementation as described in
Schedule 2.1(a)(iii) attached hereto; provided, however, such Compact
Implementation Funding shall be subject to (A) the limitations on the
use or treatment of MCC Funding set forth in Section 2.3, as if such
provision were in full force and effect, and (B) any other requirements
for, and limitations on the use of, such Compact Implementation Funding
as may be required by MCC in writing; provided, further, that any
Compact Implementation Funding granted in accordance with this Section
2.1(a)(iii) shall be included in, and not additional to, the total
amount of MCC Funding; and provided, further, any obligation to provide
such Compact Implementation Funding shall expire upon the expiration or
termination of this Compact or five (5) years from the conclusion of
this Compact, whichever occurs sooner and in accordance with Section
5.4(e). Notwithstanding anything to the contrary in this Compact, this
Section 2.1(a)(iii) shall provisionally apply, prior to Entry into
Force, upon execution of this Compact by the Parties and ratification
thereof by the Asamblea Legislativa and completion of the corresponding
Publication Period, and this Section 2.1(a)(iii) shall remain in full
force and effect throughout the Compact Term.
(b) Disbursements.
(i) Disbursements of MCC Funding. MCC shall from time to time make
disbursements of MCC Funding (each such disbursement, an ``MCC
Disbursement'') to a Permitted Account or through such other mechanism
agreed by the Parties under and in accordance with the procedures and
requirements set forth in a Supplemental Agreement to be entered into
by MCC, FOMILENIO and the Government (or a mutually acceptable
Government Affiliate) setting forth the specific terms and conditions
of MCC Disbursements and Re-Disbursements and the procurement policies
and procedures for the Program (the ``Disbursement Agreement'').
(ii) Re-Disbursements of MCC Funding. The release of MCC Funding
from a Permitted Account (each such release, a ``Re-Disbursement'')
shall be made in accordance with the procedures and requirements set
forth in the Disbursement Agreement or as otherwise provided in any
other Supplemental Agreement.
(c) Interest. Unless the Parties agree otherwise in writing, any
interest or other earnings on MCC Funding that accrue (collectively,
``Accrued Interest'') shall be held in a Permitted Account and shall
accrue in accordance with the requirements for the accrual and
treatment of Accrued Interest as specified in Annex I or any
Supplemental Agreement. On at least a quarterly basis and upon the
termination or expiration of this Compact, the Government shall return,
or ensure the return of, all Accrued Interest to any United States
Government account designated by MCC.
(d) Currency. The Government shall ensure that all MCC Funding that
is held in any Permitted Account shall be denominated in the currency
of the United States of America (``United States Dollars'') prior to
Re-Disbursement.
Section 2.2 Government Resources
(a) In accordance with Section 609(b)(2) of the Act, the Government
shall make a contribution towards meeting the Objectives of this
Compact. Section 6 of Annex II identifies such contribution.
(b) The Government shall provide or cause to be provided such
Government funds and other resources, and shall take or cause to be
taken such actions, including obtaining all necessary approvals and
consents, as are specified in this Compact or in any Supplemental
Agreement to which the Government is a party or as are otherwise
necessary and appropriate effectively to carry out the Government
Responsibilities or other responsibilities or obligations of the
Government under or in furtherance of this Compact during the Compact
Term and through the completion of any post-Compact Term activities,
audits or other responsibilities.
(c) If at any time during the Compact Term, the Government
materially reallocates or reduces the allocation in its national budget
or any other Salvadoran governmental authority at a departmental,
municipal, regional or other jurisdictional level materially
reallocates or reduces the allocation in its respective budget, of the
normal and expected resources that the Government or such other
governmental authority, as applicable, would have otherwise received or
budgeted, from external or domestic sources, for the activities
contemplated herein, the Government shall notify MCC in writing within
fifteen (15) days of such reallocation or reduction, such notification
to contain information regarding the amount of the reallocation or
reduction, the affected activities, and an explanation for the
reallocation or reduction. In the event that MCC independently
determines upon review of the executed national annual budget that such
a material reallocation or reduction of resources has occurred, MCC
shall notify the Government and, following such notification, the
Government shall provide a written explanation for such reallocation or
reduction and MCC may (i) reduce, in its sole discretion, the total
amount of MCC Funding or any MCC
[[Page 76445]]
Disbursement by an amount equal to the amount estimated in the
applicable Detailed Budget for the activity for which funds were
reduced or reallocated, or (ii) otherwise suspend or terminate MCC
Funding in accordance with Section 5.4(b).
(d) The Government shall use its best efforts to ensure that all
MCC Funding is fully reflected and accounted for in the annual budget
of the Republic of El Salvador on a multi-year basis.
Section 2.3 Limitations on the Use or Treatment of MCC Funding
(a) Abortions and Involuntary Sterilizations. The Government shall
ensure that MCC Funding shall not be used to undertake, fund or
otherwise support any activity that is subject to prohibitions on use
of funds contained in (i) paragraphs (1) through (3) of section 104(f)
of the Foreign Assistance Act of 1961 (22 U.S.C. 2151b(f)(1)-(3)), a
United States statute, which prohibitions shall apply to the same
extent and in the same manner as such prohibitions apply to funds made
available to carry out Part I of such Act; or (ii) any provision of law
comparable to the eleventh and fourteenth provisos under the heading
``Child Survival and Health Programs Fund'' of division E of Public Law
108-7 (117 Stat. 162), a United States statute.
(b) United States Job Loss or Displacement of Production. The
Government shall ensure that MCC Funding shall not be used to
undertake, fund or otherwise support any activity that is likely to
cause a substantial loss of United States jobs or a substantial
displacement of United States production, including:
(i) Providing financial incentives to relocate a substantial number
of United States jobs or cause a substantial displacement of production
outside the United States;
(ii) Supporting investment promotion missions or other travel to
the United States with the intention of inducing United States firms to
relocate a substantial number of United States jobs or a substantial
amount of production outside the United States;
(iii) Conducting feasibility studies, research services, studies,
travel to or from the United States, or providing insurance or
technical and management assistance, with the intention of inducing
United States firms to relocate a substantial number of United States
jobs or cause a substantial displacement of production outside the
United States;
(iv) Advertising in the United States to encourage United States
firms to relocate a substantial number of United States jobs or cause a
substantial displacement of production outside the United States;
(v) Training workers for firms that intend to relocate a
substantial number of United States jobs or cause a substantial
displacement of production outside the United States;
(vi) Supporting a United States office of an organization that
offers incentives for United States firms to relocate a substantial
number of United States jobs or cause a substantial displacement of
production outside the United States; or
(vii) Providing general budget support for an organization that
engages in any activity prohibited above.
(c) Military Assistance and Training. The Government shall ensure
that MCC Funding shall not be used to undertake, fund or otherwise
support the purchase or use of goods or services for military purposes,
including military training, or to provide any assistance to the
military, police, militia, national guard or other quasi-military
organization or unit.
(d) Prohibition of Assistance Relating to Environmental, Health or
Safety Hazards. The Government shall ensure that MCC Funding shall not
be used to undertake, fund or otherwise support any activity that is
likely to cause a significant environmental, health, or safety hazard.
Unless MCC and the Government agree otherwise in writing, the
Government shall ensure that activities undertaken, funded or otherwise
supported in whole or in part (directly or indirectly) by MCC Funding
comply with environmental guidelines delivered by MCC to the Government
or posted by MCC on its Web site or otherwise publicly made available,
as such guidelines may be amended from time to time (the
``Environmental Guidelines''), including any definition of ``likely to
cause a significant environmental, health, or safety hazard'' as may be
set forth in such Environmental Guidelines.
(e) Taxation.
(i) Taxes. The Government shall ensure that the Program, MCC
Funding, Accrued Interest, and any other Program Asset shall be free
from any taxes imposed under the laws currently or hereafter in effect
in the Republic of El Salvador during the Compact Term. This exemption
shall apply to any use of MCC Funding, Accrued Interest, and any other
Program Asset, including any Exempt Uses, and to any work performed
under or activities undertaken in furtherance of this Compact by any
person or entity (including contractors and grantees) funded by MCC
Funding, and shall apply to all taxes, tariffs, duties, withholdings
and other levies (each, a ``Tax'' and collectively, ``Taxes''),
including the following:
(1) To the extent attributable to MCC Funding, income taxes and
other taxes on profit or businesses imposed on organizations or
entities receiving MCC Funding, including taxes on the acquisition,
ownership, rental, disposition or other use of real or personal
property, taxes on investment or deposit requirements and currency
controls in the Republic of El Salvador, municipal or departmental
taxes, or any other tax, duty, charge or fee of whatever nature;
(2) Customs duties, tariffs, import and export taxes, or other
levies on the importation, use and re-exportation of goods, services,
or the personal belongings and effects, including personally owned
automobiles, for Program use or the personal use of individuals who are
neither citizens nor permanent residents of the Republic of El Salvador
and who are present in the Republic of El Salvador for purposes of
carrying out the Program and their family members, including all
charges based on the value of such imported goods;
(3) Taxes on the income or personal property of all individuals who
are neither citizens nor permanent residents of the Republic of El
Salvador, including income and social security taxes of all types and
all taxes on the personal property owned by such individuals, to the
extent such income or property are attributable to MCC Funding; and
(4) Taxes or duties levied for the purchase of goods or services
funded by MCC Funding, including sales taxes, tourism taxes, value-
added taxes (``VAT''), or other similar charges.
(ii) This Section 2.3(e) shall apply to, but is not limited to, (A)
any transaction, service, activity, contract, grant or other
implementing agreement funded in whole or in part by MCC Funding; (B)
any supplies, equipment, materials, property or other goods (referred
to collectively in this Section 2.3(e) as ``goods'') or funds
introduced into, acquired in, used or disposed of in, or imported into
or exported from, the Republic of El Salvador by MCC, or by any person
or entity (including contractors and grantees) as part of, or in
conjunction with, MCC Funding or the Program; (C) any contractor,
grantee, or other organization carrying out activities funded in whole
or in part by MCC Funding; and (D) any employee of such organizations
(the uses set forth in clauses (A) through (D) are collectively
referred to herein as ``Exempt Uses'').
(iii) If a Tax has been levied and paid contrary to the
requirements of this
[[Page 76446]]
Section 2.3(e), then the Government shall refund to MCC, to an account
designated by MCC, the amount of such Tax payment within thirty (30)
days (or such other period as may be agreed in writing by the Parties)
after the date on which the Government is notified in writing, in
accordance with procedures agreed to by the Parties, of such Tax levy
and payment; provided, however, the Government shall apply national
funds to satisfy its obligations under this Section 2.3(e)(iii) and no
MCC Funding, Accrued Interest, or any assets, goods, or property (real,
tangible, or intangible) purchased or financed in whole or in part
(directly or indirectly) by MCC Funding (collectively, the ``Program
Assets'') may be applied by the Government in satisfaction of its
obligations under this paragraph.
(iv) To implement this Section 2.3(e), the Government may, with the
consent of MCC and through Implementation Letters, establish some or
all of the following: (A) A mechanism pursuant to which the Government
will simultaneously pay the VAT portion of any invoices to be paid, in
whole or in part, by FOMILENIO; (B) a mechanism pursuant to which, for
Salvadoran income tax purposes, all payments or transfers made by
FOMILENIO with MCC Funding are not considered as ``income, profits,
receipts or revenues'' for the recipients of such payments or transfers
(renta excluida) and therefore are excluded from the definition of
income and the monthly estimated income tax payments and from the
withholding tax regime applicable to providers of goods and services;
(C) a mechanism pursuant to which the Government will reimburse to MCC
or FOMILENIO, as appropriate, on a regular and timely basis, Taxes paid
contrary to the requirements of this Section 2.3(e) due to the
impracticality of implementing such requirements with respect to
certain types of Taxes or the amount of such Taxes not being
susceptible to precise determination; (D) a mechanism for ensuring the
tax-free importation, use and re-exportation of goods, services or
personal belongings of individuals (including all providers of goods
and services) described in Section 2.3(e)(i)(2); and (E) the provision
by the Government of a tax-exemption certificate to qualified
individuals. At MCC's request, the Parties shall memorialize, in a
mutually acceptable Supplemental Agreement or Implementation Letter or
other suitable document, the foregoing mechanisms and the Government
shall take any other appropriate action to facilitate the
administration of this Section 2.3(e). All payments made pursuant to
this Section 2.3(e)(iv) shall be made with national funds.
(f) Alteration. No MCC Funding, Accrued Interest or other Program
Asset shall be subject to any impoundment, rescission, sequestration or
any provision of law now or hereafter in effect in the Republic of El
Salvador that would have the effect of requiring or allowing any
impoundment, rescission or sequestration of any MCC Funding, Accrued
Interest or other Program Asset. The Government shall ensure the due
compliance and exact application thereof.
(g) Liens or Encumbrances. No MCC Funding, Accrued Interest or
other Program Asset shall be subject to any lien, attachment,
enforcement of judgment, pledge, or encumbrance of any kind (each, a
``Lien''), except with the prior approval of MCC in accordance with
Section 3(c) of Annex I. In the event of the imposition of any Lien not
so approved, the Government shall promptly seek the release of such
Lien and, if the Lien is not released within thirty (30) days of the
imposition thereof, shall pay all amounts owed or take all other
actions necessary to obtain such release; provided, however, that the
Government shall apply national funds to satisfy its obligations under
this Section 2.3(g) and no MCC Funding, Accrued Interest or other
Program Asset may be applied by the Government in satisfaction of its
obligations under this Section 2.3(g). The Government shall ensure the
due compliance and exact application thereof.
(h) Other Limitations. The Government shall ensure that the use or
treatment of MCC Funding, Accrued Interest, and other Program Assets
shall be subject to and in conformity with such other limitations (i)
as required by the applicable law of the United States of America now
or hereafter in effect during the Compact Term, (ii) as advisable under
or required by applicable United States Government policies now or
hereafter in effect during the Compact Term, or (iii) to which the
Parties may otherwise agree in writing.
(i) Utilization of Goods, Services and Works. The Government shall
ensure, unless otherwise agreed by the Parties in writing, that any
Program Assets and any services, facilities or works funded in whole or
in part (directly or indirectly) by MCC Funding shall be used solely in
furtherance of this Compact.
(j) Notification of Applicable Laws and Policies. MCC shall notify
the Government of any applicable United States law or policy affecting
the use or treatment of MCC Funding, whether or not specifically
identified in this Section 2.3, and shall provide to the Government a
copy of the text of any such applicable law and a written explanation
of any such applicable policy.
Section 2.4 Incorporation; Notice; Clarification
(a) The Government shall include, or ensure the inclusion of, all
of the requirements set forth in Section 2.3 in all Supplemental
Agreements (except for Supplemental Agreements with Providers defined
in Section 2.4(b)(ii) below) to which MCC is not a party.
(b) The Government shall ensure notification of all of the
requirements set forth in Section 2.3 to any Provider and to all of
such Provider's relevant officers, directors, employees, agents,
representatives, Affiliates, and to any of such Provider's contractors,
sub-contractors, grantees and sub-grantees of any Provider. The term
``Provider'' shall mean (i) FOMILENIO, (ii) any Government Affiliate or
Permitted Designee (other than FOMILENIO) that receives or utilizes any
Program Assets in carrying out activities in furtherance of this
Compact or (iii) any third party who receives at least US$ 50,000 in
the aggregate of MCC Funding (other than employees of FOMILENIO) during
the Compact Term or such other amount as the Parties may agree in
writing, whether directly from MCC, indirectly through Re-
Disbursements, or otherwise.
(c) In the event the Government or any Provider requires
clarification from MCC as to whether an activity contemplated to be
undertaken in furtherance of this Compact violates or may violate any
provision of Section 2.3, the Government shall notify MCC in writing
and provide in such notification a detailed description of the activity
in question. In such event, the Government shall not proceed, and shall
use its best efforts to ensure that no relevant Provider proceeds, with
such activity, and the Government shall ensure that no Re-Disbursements
shall be made for such activity, until MCC advises the Government or
such Provider in writing that the activity is permissible. MCC shall
use good faith efforts to respond timely to such notification for
clarification.
Section 2.5 Refunds; Violation
(a) Notwithstanding the availability to MCC, or the exercise by
MCC, of any other remedies, including under international law, this
Compact or any Supplemental Agreement:
[[Page 76447]]
(i) If any amount of MCC Funding, Accrued Interest, or any other
Program Asset is used for any purpose prohibited under this Article II
or otherwise in violation of any of the terms and conditions of this
Compact, any guidance in any Implementation Letter or any Supplemental
Agreement, then MCC, upon written notice, may require the Government to
repay promptly to MCC to an account designated by MCC or to others as
MCC may direct the amount of such misused MCC Funding or Accrued
Interest, or the cash equivalent of the value of any other misused
Program Asset, in United States Dollars, plus any interest that accrued
or would have accrued thereon, within thirty (30) days after the
Government is notified, whether by MCC or other duly authorized
representative of the United States Government, of such prohibited use;
provided, however, the Government shall apply national funds to satisfy
its obligations under this Section 2.5(a)(i) and no MCC Funding,
Accrued Interest, or any other Program Asset may be applied by the
Government in satisfaction of its obligations under this Section
2.5(a)(i); and
(ii) Upon the termination or suspension of all or any portion of
this Compact or upon the expiration of this Compact, the Government
shall, subject to the requirements of Sections 5.4(e) and 5.4(f),
refund, or ensure the refund to MCC, to such account designated by MCC,
the amount of any MCC Funding, plus any Accrued Interest, promptly, but
in no event later than thirty (30) days after the Government receives
MCC's request for such refund; provided, however, that if this Compact
is terminated or suspended in part, MCC may request a refund for only
the amount of MCC Funding, plus any Accrued Interest, then allocated to
the terminated or suspended portion.
(b) Notwithstanding any other provision in this Compact or any
other agreement to the contrary, MCC's right under this Section 2.5 for
a refund shall continue during the Compact Term and for a period of (i)
five (5) years thereafter or (ii) one (1) year after MCC receives
actual knowledge of such violation, whichever is later.
(c) If MCC determines that any activity or failure to act violates,
or may violate, any Section in this Article II, then MCC may refuse any
further MCC Disbursements for or conditioned upon such activity, and
may take any action to prevent any Re-Disbursement related to such
activity.
Section 2.6 Bilateral Agreement
All MCC Funding shall be considered United States assistance under
the General Agreement for Economic, Technical and Related Assistance
between the Government of the United States of America and the
Government of the Republic of El Salvador, dated June 16, 1962, as
amended from time to time (the ``Bilateral Agreement''). If there are
conflicts or inconsistencies between any parts of this Compact and the
Bilateral Agreement, as either may be amended from time to time, the
provisions of this Compact shall prevail over those of the Bilateral
Agreement.
Article III. Implementation
Section 3.1 Creation of the ``Fondo del Milenio''
The Government promptly shall take all necessary and appropriate
actions to create, or cause to be created, pursuant to a legislative
decree that develops the provisions of this Article III and is, in form
and substance, mutually agreeable to the Parties (the ``Law Creating
FOMILENIO''), an autonomous public entity, with technical character and
of public interest, named the ``FONDO DEL MILENIO,'' hereinafter also
known as ``FOMILENIO,'' for so long as there are pending activities,
rights or obligations with respect to the Compact. FOMILENIO shall have
legal capacity and with property of its own, with autonomy in the
exercise of its functions, in the financial and administrative aspects
as well as in its budget. Its domicile will be in the city of San
Salvador, Republic of El Salvador but it will be able to establish
branch offices anywhere in the Republic of El Salvador.
Section 3.2 Responsibilities
FOMILENIO shall administer its resources efficiently and comply
with all of the responsibilities and obligations designated and assumed
by it (i) pursuant to this Compact and Supplemental Agreements, (ii)
pursuant to the Governing Documents, (iii) in accordance with all
applicable laws then in effect in El Salvador that do not contravene
the provisions of this Compact, and (iv) in a timely and cost-effective
manner and in conformity with sound technical, financial and management
practices.
Section 3.3 Fundamental Objectives
The fundamental objectives of FOMILENIO shall be the Compact Goal,
the Human Development Objective, the Productive Development Objective
and the Connectivity Objective.
Section 3.4 Board and Management Generally
(a) FOMILENIO shall have: (i) A board of directors (the ``Board'')
that shall be responsible for the oversight and supervision of all
FOMILENIO's activities and shall ensure the execution of FOMILENIO's
responsibilities and obligations set forth in this Compact and the
Governing Documents, as well as the compliance of the obligations of
the Government under this Compact, and (ii) a management unit (the
``Management'') with day-to-day management responsibility for the
implementation of this Compact.
(b) The Board shall appoint, with the approval of MCC, an ad
honorem Advisory Council (the ``Advisory Council''), which shall be
independent from FOMILENIO. The composition, roles and responsibilities
of the Advisory Council shall be those established in Annex I hereto
and in accordance with the provisions of the Governing Documents.
Section 3.5 Board
(a) Formation. The Board shall be formed, constituted, governed and
operated in accordance with the terms set forth in this Compact, the
Governing Documents, and the Supplemental Agreements.
(b) Constitution. The Board shall consist of at least seven (7) but
no more than eleven (11) voting members, and at least two (2) non-
voting observers. The Board members shall be designated in accordance
with Section 3.5(e). One of the voting members designated by the
Government in accordance with the Reglamento shall serve as the
chairman of the Board (the ``Chair'') and legal representative of
FOMILENIO.
(c) Ad-honorem Membership. The Board members will exercise their
functions ad-honorem; therefore, they will not receive any salary,
wages or other compensations for their work relating to their
membership on the Board.
(d) No Delegation; Alternates. The members of the Board shall be
prohibited from delegating their rights and responsibilities as members
of the Board other than to their prior-appointed alternates who shall
be permitted to vote on behalf of such primary member in the case of
such primary member's absence.
(e) Appointment of Board Members. The required minimum seven (7)
voting members of the Board shall be chosen as follows: (i) Four (4) of
the voting members of the Board, and each of their alternates, shall be
designated by the Government, subject to the prior receipt
[[Page 76448]]
of a no-objection notice from MCC; (ii) one (1) of the voting members
shall be a member of the private sector, and such member, and his/her
alternate, shall be selected and appointed in accordance with the
procedure set forth in the Reglamento; and (iii) two (2) of the voting
members shall be representatives of NGOs, and such members, and each of
their alternates, shall be selected and appointed in accordance with a
process agreed upon by the Government and MCC. Initially, the voting
members designated by the Government shall be: (i) The Technical
Secretary of the President of the Republic of El Salvador; (ii) the
Minister of Finance; (iii) the Minister of Foreign Affairs; and (iv)
the Minister of Agriculture. The required minimum two non-voting
observers of the Board shall be (i) a representative designated by MCC
(the ``MCC Representative'') and (ii) the Minister of the Environment
and Natural Resources. In the event that one of the NGO voting members
is not from an environmentally focused NGO, an additional observer from
such an organization, subject to the prior receipt of a no-objection
notice from MCC, shall be appointed. Each non-voting observer shall be
an ``Observer.'' The Reglamento shall set forth the procedures for
selection of any additional Board members and any additional Observers
and the procedures for any change of the Chair and any change in the
composition of the Board.
(f) Roles and Responsibilities of the Board. The Board shall:
(i) Supervise and manage the Program and each of its component
Projects and Project Activities;
(ii) Approve the regulations, manuals, instructions, internal
organization, expenses, budgets and procurements for the execution of
the Program;
(iii) Propose to the Government the Executive Decrees which may be
necessary for the internal organization and operation of FOMILENIO;
(iv) Approve, execute and implement the necessary Supplemental
Agreements for the execution of the Program;
(v) Appoint the Executive Director and define the Executive
Director's role and responsibilities and delegate to the Executive
Director the right to execute any agreement previously approved by the
Board;
(vi) Request MCC Disbursements that are necessary for the execution
of the Program; and
(vii) Carry out any other action that may have been granted by the
Compact and the Executive Decree(s) specially created for the
compliance and execution of the Program.
Section 3.6 Executive Director
The Executive Director of FOMILENIO (the ``Executive Director'')
shall have the power and authority delegated to the Executive Director
by the Board.
Section 3.7 Patrimony and Budget
The patrimony of FOMILENIO will be constituted through the grant of
MCC Funding from the Government of the United States of America acting
through MCC pursuant to this Compact. FOMILENIO will have a multi-
annual budget that will be approved as an extraordinary budget by the
Legislative Assembly of El Salvador (the ``Asamblea Legislativa'').
Section 3.8 Oversight and Control
FOMILENIO will be subject to oversight and control by the
Comptroller of the Republic of El Salvador (Corte de Cuentas de la
Rep[uacute]blica de El Salvador).
Section 3.9 Audits
FOMILENIO will be subject to financial audits to verify the proper
investment of its funds and patrimony. For this purpose, FOMILENIO will
have an internal audit department appointed by the Board. FOMILENIO
will also be subject to external financial controls in accordance with
the Compact.
Section 3.10 Reglamento
The President of the Republic of El Salvador shall issue the
Executive Decree through which the management, operations, and internal
organization, among other rules and regulations of FOMILENIO are
developed and regulated (the ``Reglamento'') consistent with this
Compact, including Annex I, and the Law Creating FOMILENIO.
Notwithstanding anything to the contrary in this Compact, Sections 3.1
through 3.10 shall provisionally apply, prior to Entry into Force, upon
the execution of this Compact by the Parties and the ratification of
this Compact by the Asamblea Legislativa and completion of the
corresponding Publication Period, and this Section 3.10 shall remain in
full force and effect throughout the Compact Term.
Section 3.11 Implementation Framework
This Compact shall be implemented by the Parties in accordance with
this Article III and as further specified in the Annexes and the
Supplemental Agreements.
Section 3.12 Government Responsibilities
(a) The Government shall have principal responsibility for
oversight and management of the implementation of the Program (i) in
accordance with the terms and conditions specified in this Compact and
the Supplemental Agreements, (ii) in accordance with all applicable
laws then in effect in El Salvador, and (iii) in a timely and cost-
effective manner and in conformity with sound technical, financial and
management practices (collectively, the ``Government
Responsibilities''). Unless otherwise expressly provided, any reference
to the Government Responsibilities or any other responsibilities or
obligations of the Government herein shall be deemed to apply to any
Government Affiliate and any of their respective directors, officers,
employees, contractors, sub-contractors, grantees, sub-grantees, agents
or representatives.
(b) The Government shall ensure that no person or entity shall
participate in the selection, award, administration or oversight of a
contract, grant or other benefit or transaction funded in whole or in
part (directly or indirectly) by MCC Funding, in which (i) the entity,
the person, members of the person's family down to the fourth level of
consanguinity or the second level of affinity, or organizations
controlled by or substantially involving such person or entity, has or
have a direct or indirect financial or other interest, or (ii) the
person or entity is negotiating or has any arrangement concerning
prospective employment, unless such person or entity has first
disclosed in writing to the Government the conflict of interest and,
following such disclosure, the Parties agree in writing to proceed
notwithstanding such conflict. The Government shall ensure that no
person or entity involved in the selection, award, administration,
oversight or implementation of any contract, grant or other benefit or
transaction funded in whole or in part (directly or indirectly) by MCC
Funding shall solicit or accept from or offer to a third party or seek
or be promised (directly or indirectly) for itself or for another
person or entity any gift, gratuity, favor or benefit, other than items
of de minimis value and otherwise consistent with such guidance as MCC
may provide from time to time.
(c) The Government shall not designate any person or entity,
including any Government Affiliate, to implement, in whole or in part,
this Compact or any Supplemental Agreement (including any Government
[[Page 76449]]
Responsibilities or any other responsibilities or obligations of the
Government under this Compact or any Supplemental Agreement), or to
exercise any rights of the Government under this Compact or any
Supplemental Agreement, except as expressly provided herein or with the
prior written consent of MCC; provided, however, the Government may
designate FOMILENIO or, with the prior written consent of MCC, such
other mutually acceptable persons or entities (each, a ``Permitted
Designee'') to implement some or all of the Government Responsibilities
or any other responsibilities or obligations of the Government or to
exercise any rights of the Government under this Compact or any
Supplemental Agreement, each in accordance with the terms and
conditions set forth in this Compact, such Supplemental Agreement
(referred to herein collectively as ``Designated Rights and
Responsibilities''). Notwithstanding any provision herein or any other
agreement to the contrary, no such designation shall relieve the
Government of such Designated Rights and Responsibilities, for which
the Government shall retain ultimate responsibility. In the event that
the Government designates any person or entity, including any
Government Affiliate, to implement any portion of the Government
Responsibilities or other responsibilities or obligations of the
Government, or to exercise any rights of the Government under this
Compact and the Supplemental Agreements, in accordance with this
Section 3.12(c), then the Government shall (i) cause such person or
entity to perform such Designated Rights and Responsibilities in the
same manner and to the full extent to which the Government is obligated
to perform such Designated Rights and Responsibilities, (ii) ensure
that such person or entity does not assign, delegate, or contract (or
otherwise transfer) any of such Designated Rights and Responsibilities
to any person or entity, and (iii) cause such person or entity to
certify to MCC in writing that it will so perform such Designated
Rights and Responsibilities and will not assign, delegate, or contract
(or otherwise transfer) any of such Designated Rights and
Responsibilities to any person or entity without the prior written
consent of MCC.
(d) The Government shall, upon a request from MCC, execute, or
ensure the execution of, an assignment to MCC of any cause of action
which may accrue to the benefit of the Government, a Government
Affiliate or any Permitted Designee, including FOMILENIO, in connection
with or arising out of any activities funded in whole or in part
(directly or indirectly) by MCC Funding.
(e) The Government shall ensure that (i) no decision of FOMILENIO
is modified, supplemented, unduly influenced or rescinded by any
governmental authority, except by a non-appealable judicial decision,
and (ii) the authority of FOMILENIO shall not be expanded, restricted,
or otherwise modified, except in accordance with this Compact, any
Governing Document or any other Supplemental Agreement between the
Parties.
(f) The Government shall ensure that all persons and entities that
enter into agreements to provide goods, services or works under the
Program or in furtherance of this Compact shall do so in accordance
with the Procurement Guidelines and shall obtain all necessary
immigration, business and other permits, licenses, consents and
approvals to enable them and their personnel to fully perform under
such agreements.
Section 3.13 Government Deliveries
The Government shall proceed, and cause others to proceed, in a
timely manner to deliver to MCC all reports, notices, certificates,
documents or other deliveries required to be delivered by the
Government under this Compact or any Supplemental Agreement, in form
and substance as set forth in this Compact or in any such Supplemental
Agreement.
Section 3.14 Government Assurances
The Government hereby provides the following assurances to MCC that
as of the date this Compact is signed:
(a) The information contained in the Proposal and any agreement,
report, statement, communication, document or otherwise delivered or
communicated to MCC by or on behalf of the Government on or after the
date of the submission of the Proposal (i) are true, correct and
complete in all material respects and (ii) do not omit any fact known
to the Government that if disclosed would (A) alter in any material
respect the information delivered, (B) likely have a material adverse
effect on the Government's ability to implement effectively, or ensure
the effective implementation of, the Program or any Project or
otherwise to carry out its responsibilities or obligations under or in
furtherance of this Compact, or (C) have likely adversely affected
MCC's determination to enter into this Compact or any Supplemental
Agreement.
(b) Unless otherwise disclosed in writing to MCC, the MCC Funding
made available hereunder is in addition to the normal and expected
resources that the Government usually receives or budgets for the
activities contemplated herein from external or domestic sources.
(c) This Compact does not conflict and will not conflict with any
international agreement or obligation to which the Government is a
party or by which it is bound.
(d) No payments have been (i) received by any official of the
Government or any other Governmental Affiliate in connection with the
procurement of goods, services or works to be undertaken or funded in
whole or in part (directly or indirectly) by MCC Funding, except fees,
taxes, or similar payments legally established in the Republic of El
Salvador (subject to Section 2.3(e)) and consistent with the applicable
requirement of the laws of El Salvador, or (ii) made to any third
party, in connection with or in furtherance of this Compact, in
violation of the United States Foreign Corrupt Practices Act of 1977,
as amended (15 U.S.C. 78a et seq.).
Section 3.15 Implementation Letters; Supplemental Agreements
(a) MCC may, from time to time, issue one or more letters
consistent with this Compact to furnish additional information or
guidance to assist the Government in the implementation of this Compact
(each, an ``Implementation Letter''). The Government shall apply such
guidance in implementing this Compact.
(b) The details of any funding, implementing and other arrangements
in furtherance of this Compact may be memorialized in one or more
agreements or instruments between (i) the Government (or any Government
Affiliate or Permitted Designee) and MCC, (ii) MCC or the Government
(or any Government Affiliate or Permitted Designee) and any Provider or
Permitted Designee, or (iii) Providers where neither MCC nor the
Government is a party, before, on or after Entry into Force (each, a
``Supplemental Agreement''). The Government shall deliver, or cause to
be delivered, to MCC within five (5) days of its request, or such other
period as may be specified in the Disbursement Agreement, the execution
copy of any Supplemental Agreement to which MCC is not a party.
(c) The Government agrees to execute and deliver such further
documents and instruments and to take such further actions as may be
necessary or desirable and reasonably requested by MCC to
[[Page 76450]]
comply with this Compact, including Supplemental Agreements.
Section 3.16 Procurement; Awards of Assistance
(a) Any procurement pursuant to this Compact or any of its
Supplemental Agreements shall be governed by and consistent with the
procurement guidelines (the ``Procurement Guidelines'') set forth in
the Disbursement Agreement. Accordingly, neither the Ley de
Adquisiciones y Contrataciones de la Administraci[oacute]n
P[uacute]blica, its corresponding Executive Decree or any other laws or
regulations of the Republic of El Salvador regarding procurements will
apply thereto. The Government shall ensure that the procurement of all
goods, services and works by the Government or any Provider in
furtherance of this Compact will be conducted in accordance with the
Procurement Guidelines. Such Procurement Guidelines shall include the
following requirements:
(i) Internationally accepted procurement rules with open, fair and
competitive procedures are used in a transparent manner to solicit,
award and administer contracts, grants, and other agreements and to
procure goods, services and works;
(ii) Solicitations for goods, services, and works shall be based
upon a clear and accurate description of the goods, services or works
to be acquired;
(iii) Contracts shall be awarded only to qualified and capable
contractors that have the capability and willingness to perform the
contracts in accordance with the terms and conditions of the applicable
contracts and on a cost effective and timely basis; and
(iv) No more than a commercially reasonable price, as determined,
for example, by a comparison of price quotations and market prices,
shall be paid to procure goods, services, and works.
(b) The Government shall maintain, and shall use its best efforts
to ensure that all Providers maintain, records regarding the receipt
and use of goods, services and works acquired in furtherance of this
Compact, the nature and extent of solicitations of prospective
suppliers of goods, services and works acquired in furtherance of this
Compact, and the basis of award of contracts, grants and other
agreements in furtherance of this Compact.
(c) The Government shall use its best efforts to ensure that
information, including solicitations, regarding procurement, grant and
other agreement actions funded (or to be funded) in whole or in part
(directly or indirectly) by MCC Funding shall be made publicly
available in the manner outlined in the Procurement Guidelines or in
any other manner agreed upon by the Parties in writing.
(d) The Government shall ensure that no goods, services or works
that are funded in whole or in part (directly or indirectly) by MCC
Funding are procured pursuant to orders or contracts firmly placed or
entered into prior to Entry into Force, except as the Parties may
otherwise agree in writing.
(e) The Government shall ensure that FOMILENIO and any other
Permitted Designee follows, and uses its best efforts to ensure that
all Providers follow, the Procurement Guidelines in procuring
(including soliciting) goods, services and works and in awarding and
administering contracts, grants and other agreements in furtherance of
this Compact, and shall furnish MCC evidence of the adoption of the
Procurement Guidelines by FOMILENIO no later than the time specified in
the Disbursement Agreement.
(f) The Government shall include, or ensure the inclusion of, the
requirements of this Section 3.16 into all Supplemental Agreements
between the Government, any Government Affiliate or Permitted Designee
or any of their respective directors, officers, employees, Affiliates,
contractors, sub-contractors, grantees, sub-grantees, representatives
or agents, on the one hand, and a Provider, on the other hand.
(g) Notwithstanding anything to the contrary in this Compact, this
Section 3.16 shall provisionally apply, prior to Entry into Force, upon
the execution of this Compact by the Parties and the ratification of
this Compact by the Asamblea Legislativa and completion of the
corresponding Publication Period, and this Section 3.16 shall remain in
full force and effect throughout the Compact Term.
Section 3.17 Policy Performance; Policy Reforms
In addition to the specific policy and legal reform commitments
identified in Annex I and the Schedules thereto, the Government shall
seek to maintain and to improve its level of performance under the
policy criteria identified in Section 607 of the Act, and the MCA
selection criteria and methodology published by MCC pursuant to Section
607 of the Act from time to time (the ``MCA Eligibility Criteria'').
Section 3.18 Records and Information; Access; Audits; Reviews
(a) Reports and Information. The Government shall furnish to MCC,
and shall use its best efforts to ensure that all Providers and any
other third party receiving MCC Funding, as appropriate, furnish to the
Government (and the Government shall provide to MCC), any records and
other information required to be maintained under this Section 3.18 and
such other information, documents and reports as may be necessary or
appropriate for the Government to effectively carry out its obligations
under this Compact, including under Section 3.22.
(b) Government Books and Records. The Government shall maintain,
and shall use its best efforts to ensure that all Providers maintain,
accounting books, records, documents and other evidence relating to
this Compact adequate to show, to the satisfaction of MCC, the use of
all MCC Funding, including all costs incurred by the Government and the
Providers in furtherance of this Compact, the receipt, acceptance and
use of goods, services and works acquired in furtherance of this
Compact by the Government and the Providers, agreed-upon cost sharing
requirements, the nature and extent of solicitations of prospective
suppliers of goods, services and works acquired by the Government and
the Providers in furtherance of this Compact, the basis of award of
Government and other contracts and orders in furtherance of this
Compact, the overall progress of the implementation of the Program, and
any documents required by this Compact or any Supplemental Agreement or
reasonably requested by MCC upon reasonable notice (``Compact
Records''). The Government shall maintain, and shall use its best
efforts to ensure that FOMILENIO and all Covered Providers maintain,
Compact Records in accordance with generally accepted accounting
principles prevailing in the United States, or at the Government's
option and with the prior written approval by MCC, other accounting
principles, such as those (i) prescribed by the International
Accounting Standards Committee (an affiliate of the International
Federation of Accountants) or (ii) then prevailing in El Salvador.
Compact Records shall be maintained for at least five (5) years after
the end of the Compact Term or for such longer period, if any, required
to resolve any then-pending litigation, claims or audit findings or any
statutory requirements.
(c) Access. Upon the request of MCC, the Government, at all
reasonable times, shall provide, or cause to be provided, to authorized
representatives of MCC, the Inspector General, the United States
Government Accountability Office, any auditor responsible for an audit
contemplated herein or otherwise conducted in furtherance of this
[[Page 76451]]
Compact, and any agents or representatives engaged by MCC or a
Permitted Designee to conduct any assessment, review or evaluation of
the Program, the opportunity to audit, review, evaluate or inspect (A)
activities funded in whole or in part (directly or indirectly) by MCC
Funding or undertaken in connection with the Program, the utilization
of goods and services purchased or funded in whole or in part (directly
or indirectly) by MCC Funding, and (B) Compact Records, including those
of the Government or any Provider, relating to activities funded or
undertaken in furtherance of, or otherwise relating to, this Compact.
The Government shall use its best efforts to ensure access by MCC, the
Inspector General, the United States Government Accountability Office
or relevant auditor, reviewer or evaluator or their respective
representatives or agents to all relevant directors, officers,
employees, Affiliates, contractors, representatives and agents of the
Government or any Provider.
(d) Audits.
(i) Government Audits. Except as the Parties may otherwise agree in
writing, the Government, on at least a semi-annual basis, shall
conduct, or cause to be conducted, financial audits of all MCC
Disbursements and Re-Disbursements covering the period from the
execution of the Compact until the earlier of the following December 31
and June 30, and covering each six-month period thereafter ending
December 31 and June 30, through 2012, in accordance with the following
terms. As requested by MCC in writing, the Government shall use, or
cause to be used, or select, or cause to be selected, an auditor named
on the approved list of auditors in accordance with the Guidelines for
Financial Audits Contracted by Foreign Recipients (the ``Audit
Guidelines'') issued by the Inspector General of the United States
Agency for International Development (the ``Inspector General'') and as
approved by MCC, to conduct such annual audits. Such audits shall be
performed in accordance with such Audit Guidelines and be subject to
quality assurance oversight by the Inspector General in accordance with
such Audit Guidelines. Any such audit shall be completed and delivered
to MCC no later than ninety (90) days after the first period to be
audited and no later than ninety (90) days after each anniversary of
Entry into Force thereafter, or such other period as the Parties may
otherwise agree in writing.
(ii) Audits of U.S. Entities. The Government shall ensure that
Supplemental Agreements between the Government or any Provider, on the
one hand, and a United States non-profit organization, on the other
hand, state that the United States organization is subject to the
applicable audit requirements contained in OMB Circular A-133,
notwithstanding any other provision of this Compact to the contrary.
The Government shall ensure that Supplemental Agreements between the
Government or any Provider, on the one hand, and a United States for-
profit Covered Provider, on the other hand, state that the United
States organization is subject to audit by the cognizant United States
Government agency, unless the Government and MCC agree otherwise in
writing.
(iii) Audit Plan. The Government shall submit, or cause to be
submitted, to MCC, no later than twenty (20) days prior to the date of
its adoption, a plan, in accordance with the Audit Guidelines, for the
audit of the expenditures of any Covered Providers, which audit plan,
in the form and substance as approved by MCC, the Government shall
adopt, or cause to be adopted, no later than sixty (60) days prior to
the end of the first period to be audited (such plan, the ``Audit
Plan'').
(iv) Covered Provider. A ``Covered Provider'' is (A) a non-United
States Provider that receives (other than pursuant to a direct contract
or agreement with MCC) US$ 300,000 or more of MCC Funding in any
FOMILENIO fiscal year or any other non-United States person or entity
that receives (directly or indirectly) US$ 300,000 or more of MCC
Funding from any Provider in such fiscal year, or (B) any United States
Provider that receives (other than pursuant to a direct contract or
agreement with MCC) US$ 500,000 or more of MCC Funding in any FOMILENIO
fiscal year or any other United States person or entity that receives
(directly or indirectly) US$ 500,000 or more of MCC Funding from any
Provider in such fiscal year.
(v) Corrective Actions. The Government shall use its best efforts
to ensure that Covered Providers take, where necessary, appropriate and
timely corrective actions in response to audits, consider whether a
Covered Provider's audit necessitates adjustment of its own records,
and require each such Covered Provider to permit independent auditors
to have access to its records and financial statements as necessary.
(vi) Audit Reports. The Government shall furnish, or use its best
efforts to cause to be furnished, to MCC an audit report in a form
satisfactory to MCC for each audit required by this Section 3.18, other
than audits arranged for by MCC, no later than ninety (90) days after
the end of the period under audit, or such other time as may be agreed
by the Parties from time to time.
(vii) Other Providers. For Providers who receive MCC Funding
pursuant to direct contracts or agreements with MCC, MCC shall include
appropriate audit requirements in such contracts or agreements and
shall, on behalf of the Government, unless otherwise agreed by the
Parties, conduct the follow-up activities with regard to the audit
reports furnished pursuant to such requirements.
(viii) Audit by MCC. MCC retains the right to perform, or cause to
be performed, the audits required under this Section 3.18 by utilizing
MCC Funding or other resources available to MCC for this purpose, and
to audit, conduct a financial review, or otherwise ensure
accountability of any Provider or any other third party receiving MCC
Funding, regardless of the requirements of this Section 3.18.
(e) Application to Providers. The Government shall include, or
ensure the inclusion of, at a minimum, the requirements of:
(i) Paragraphs (a), (b), (c), (d)(ii), (d)(iii), (d)(v), (d)(vi),
and (d)(viii) of this Section 3.18 into all Supplemental Agreements
between the Government, any Government Affiliate, any Permitted
Designee or any of their respective directors, officers, employees,
Affiliates, contractors, sub-contractors, grantees, sub-grantees,
representatives or agents (each, a ``Government Party''), on the one
hand, and a Covered Provider that is not a non-profit organization
domiciled in the United States, on the other hand;
(ii) Paragraphs (a), (b), (c), (d)(ii), and (d)(viii) of this
Section 3.18 into all Supplemental Agreements between a Government
Party and a Provider that does not meet the definition of a Covered
Provider; and
(iii) Paragraphs (a), (b), (c), (d)(ii), (d)(v) and (d)(viii) of
this Section 3.18 into all Supplemental Agreements between a Government
Party and a Covered Provider that is a non-profit organization
domiciled in the United States.
(f) Reviews or Evaluations. The Government shall conduct, or cause
to be conducted, such performance reviews, data quality reviews,
environmental and social audits, or program evaluations during the
Compact Term or otherwise and in accordance with the M&E Plan or as
otherwise agreed in writing by the Parties.
(g) Cost of Audits, Reviews or Evaluations. MCC Funding may be used
to fund the costs of any audits, reviews
[[Page 76452]]
or evaluations required under this Compact, including as reflected in
Exhibit A to Annex II, and in no event shall the Government be
responsible for the costs of any such audits, reviews or evaluations
from financial sources other than MCC Funding.
Section 3.19 Insurance; Performance Guarantees
The Government shall, to MCC's satisfaction, insure or, cause to be
insured, all Program Assets and shall obtain, or cause to be obtained,
such other appropriate insurance and other protections to cover against
risks or liabilities associated with the operations of the Program,
including by requiring Providers to obtain adequate insurance and post
adequate performance bonds or other guarantees. FOMILENIO or the
Implementing Entity, as applicable, shall be named as the payee on any
such insurance and the beneficiary of any such guarantee, including
performance bonds to the extent permissible under applicable laws
unless otherwise agreed by the Parties. To the extent it is not named
as the insured party, FOMILENIO shall be named as an additional insured
on any such insurance or other guarantee, to the extent permissible
under applicable laws unless otherwise agreed by the Parties. Upon
MCC's request and to the extent permissible under applicable laws, MCC
shall be named as an additional insured on any such insurance or other
guarantee, to the extent permissible under applicable laws. The
Government shall ensure that any proceeds from claims paid under such
insurance or any other form of guarantee shall be used to replace or
repair any loss of Program Assets or to pursue the procurement of the
covered goods, services, works or otherwise;provided, however, at MCC's
election, such proceeds shall be deposited in a Permitted Account as
designated by FOMILENIO and acceptable to MCC or as otherwise directed
by MCC. To the extent FOMILENIO is held liable under any
indemnification or other similar provision of any agreement between
FOMILENIO, on the one hand, and any other Provider or other third
party, on the other hand, the Government shall pay in full on behalf of
FOMILENIO any such obligation; provided, further, the Government shall
apply national funds to satisfy its obligations under this Section 3.19
and no MCC Funding, Accrued Interest, or other Program Asset may be
applied by the Government in satisfaction of its obligations under this
Section 3.19.
Section 3.20 Domestic Requirements
The Government shall proceed in a timely manner to seek
ratification of this Compact as necessary or required by the laws of El
Salvador, or similar domestic requirement, in order that (a) this
Compact shall be given the status of an international agreement, (b) no
laws of El Salvador (other than the Constitution of El Salvador) now or
hereafter in effect shall take precedence or prevail over this Compact
during the Compact Term (or a longer period to the extent provisions of
this Compact remain in force following the expiration of the Compact
Term pursuant to Section 5.13), and (c) each of the provisions of this
Compact (and each of the provisions of any Supplemental Agreement to
which MCC is a party) is valid, binding and in full force and effect
under the laws of El Salvador. The Government shall initiate such
process promptly after the conclusion of this Compact. Notwithstanding
anything to the contrary in this Compact, this Section 3.20 shall
provisionally apply, prior to Entry into Force, upon the execution of
this Compact by the Parties and the ratification of this Compact by the
Asamblea Legislativa and completion of the corresponding Publication
Period, and this Section 3.20 shall remain in full force and effect
throughout the Compact Term.
Section 3.21 No Conflict
The Government shall undertake not to enter into any agreement in
conflict with this Compact or any Supplemental Agreement during the
Compact Term.
Section 3.22 Reports
The Government shall provide, or cause to be provided, to MCC at
least on each anniversary of Entry into Force (or such other
anniversary agreed by the Parties in writing) and otherwise within
thirty (30) days of any written request by MCC, or as otherwise agreed
in writing by the Parties, the following information:
(a) A description of the Program and each Project funded in
furtherance of this Compact, including a detailed description of the
objectives and measures for results of the Program and the Projects;
(b) The progress made by the Republic of El Salvador toward
achieving the Compact Goal and the Objectives;
(c) A description of the extent to which MCC Funding has been
effective in helping the Republic of El Salvador to achieve the Compact
Goal and the Objectives;
(d) A description of the coordination of MCC Funding with other
United States foreign assistance and other related United States
Government trade policies;
(e) A description of the coordination of MCC Funding with
assistance provided by other donor countries;
(f) Any report, document or filing that the Government, any
Government Affiliate or any Permitted Designee submits to any
government body in connection with this Compact;
(g) Any report or document required to be delivered to MCC under
the Environmental Guidelines, any Audit Plan, or any Implementation
Documents; and
(h) Any other report, document or information requested by MCC or
required by this Compact or any Supplemental Agreement.
Article IV. Conditions Precedent; Deliveries
Section 4.1 Conditions Prior to Entry into Force and Deliveries
As conditions precedent to Entry into Force, the Parties shall
satisfy the conditions set forth in this Section 4.1.
(a) The Government (or a mutually acceptable Government Affiliate),
a Permitted Designee, and MCC shall execute a Disbursement Agreement,
which agreement shall be in full force and effect as of Entry into
Force.
(b) (i) The Government shall deliver one or more of the
Supplemental Agreements or other documents identified in Exhibit B
attached hereto, which agreements or other documents shall be fully
executed by the parties thereto and in full force and effect, or (ii)
the Government (or a mutually acceptable Government Affiliate), a
Permitted Designee, and MCC shall execute one or more term sheets that
set forth the material and principal terms and conditions that will be
included in any such Supplemental Agreement or other documents that
have not been entered into or have not become effective as of Entry
into Force (the ``Supplemental Agreement Term Sheets'').
(c) The Government shall deliver a written statement as to the
incumbency and specimen signature of the Principal Representative and
each Additional Representative of the Government executing any document
under this Compact, such written statement to be signed by a duly
authorized official of the Government other than the Principal
Representative or any such Additional Representative.
(d) The Government shall deliver a certificate signed and dated by
the Principal Representative of the Government, or such other duly
[[Page 76453]]
authorized representative of the Government acceptable to MCC, that:
(i) Certifies the Government has completed all of its domestic
requirements in order that (A) this Compact (and any Supplemental
Agreement to which MCC is a party) shall be given the status of an
international agreement, (B) no laws of El Salvador (other than the
Constitution of El Salvador) now or hereafter in effect shall take
precedence or prevail over this Compact (or any Supplemental Agreement
to which MCC is a party) during the Compact Term (or a longer period to
the extent provisions of this Compact remain in force following the
Compact Term pursuant to Section 5.13), and (C) each of the provisions
of this Compact (and each of the provisions of any Supplemental
Agreement to which MCC is a party) shall be valid, binding and in full
force and effect under the laws of El Salvador;
(ii) Attaches thereto, and certifies that such attachments are,
true, correct and complete, copies of all decrees, legislation,
regulations or other governmental documents relating to its domestic
requirements for this Compact to enter into force and the satisfaction
of Section 3.20, which MCC may post on its web site or otherwise make
publicly available; and
(iii) (1) Certifies that the Asamblea Legislativa has passed the
Law Creating FOMILENIO pursuant to Article III hereof, and that such
law is in full force and effect in accordance with the laws of El
Salvador, and (2) attaches thereto a copy of the Law Creating
FOMILENIO, which MCC may post on its Web site or otherwise make
publicly available.
(e) MCC shall deliver a written statement as to the incumbency and
specimen signature of the Principal Representative and each Additional
Representative of MCC executing any document under this Compact such
written statement to be signed by a duly authorized official of MCC
other than the Principal Representative or any such Additional
Representative.
(f) The Government has not engaged subsequent to the conclusion of
this Compact in any action or omission inconsistent with the MCA
Eligibility Criteria, as determined by MCC in its sole discretion.
Section 4.2 Conditions Precedent to MCC Disbursements or Re-
Disbursements
Prior to, and as condition precedent to, any MCC Disbursement or
Re-Disbursement, the Government shall satisfy, or ensure the
satisfaction of, all applicable conditions precedent in the
Disbursement Agreement.
Article V. Final Clauses
Section 5.1 Communications
Unless otherwise expressly stated in this Compact or otherwise
agreed in writing by the Parties, any notice, certificate, request,
report, document or other communication required, permitted, or
submitted by either Party to the other under this Compact shall be: (a)
In writing; (b) in English; and (c) deemed duly given: (i) Upon
personal delivery to the Party to be notified; (ii) when sent by
confirmed facsimile or electronic mail, if sent during normal business
hours of the recipient Party, if not, then on the next business day; or
(iii) three (3) business days after deposit with an internationally
recognized overnight courier, specifying next day delivery, with
written verification of receipt to the Party to be notified at the
address indicated below, or at such other address as such Party may
designate:
To MCC:
Millennium Challenge Corporation, Attention: Vice President for
Operations (with a copy to the Vice President and General Counsel), 875
Fifteenth Street, NW., Washington, DC 20005, United States of America,
Facsimile: (202) 521-3700, Phone: (202) 521-3600, E-mail:
VPOperations@mcc.gov (Vice President for Operations);
VPGeneralCounsel@mcc.gov (Vice President and General Counsel)
To the Government:
The Government of the Republic of El Salvador, Attention:
Secretar[iacute]a T[eacute]cnica de la Presidencia, Casa Presidencial,
Alameda Manuel Enrique Araujo 5500, San Salvador Republic of
El Salvador, Facsimile: (503) 2248-9270, Phone: (503) 2248-9328, E-
mail: contactenos@mca.gob.sv.
With a copy to FOMILENIO:
At an address, and to the attention of the person, to be designated
in writing to MCC by the Government.
Notwithstanding the foregoing, any audit report delivered pursuant
to Section 3.18, if delivered by facsimile or electronic mail, shall be
followed by an original in overnight express mail. This Section 5.1
shall not apply to the exchange of letters contemplated in Section 1.3
or any amendments under Section 5.3.
Section 5.2 Representatives
Unless otherwise agreed in writing by the Parties, for all purposes
relevant to this Compact, the Government shall be represented by the
individual holding the position of, or acting as, Technical Secretary
of the Presidency, and MCC shall be represented by the individual
holding the position of, or acting as, Vice President for Operations
(each, a ``Principal Representative''), each of whom, by written notice
to the other Party, may designate one or more additional
representatives (each, an ``Additional Representative'') for all
purposes other than signing amendments to this Compact. The names of
the Principal Representative and any Additional Representative of each
of the Parties shall be provided, with specimen signatures, to the
other Party, and the Parties may accept as duly authorized any
instrument signed by such representatives relating to the
implementation of this Compact, until receipt of written notice of
revocation of their authority. A Party may change its Principal
Representative to a new representative of equivalent or higher rank and
may change any Additional Representative, in either case, upon written
notice to the other Party, which notice shall include the specimen
signature of the new Principal Representative or Additional
Representative, as applicable.
Section 5.3 Amendments
The Parties may amend this Compact only by a written agreement
signed by the Principal Representatives of the Parties and subject to
the respective domestic approval requirements to which this Compact was
subject.
Section 5.4 Termination; Suspension
(a) Subject to Section 2.5, either Party may terminate this Compact
in its entirety by giving the other Party thirty (30) days' written
notice.
(b) Notwithstanding any other provision of this Compact, including
Section 2.1, or any Supplemental Agreement, subject to Section 2.5, MCC
may suspend or terminate this Compact or MCC Funding, in whole or in
part, and any obligation or sub-obligation related thereto, upon giving
the Government written notice, if MCC determines, in its sole
discretion that:
(i) Any use or proposed use of MCC Funding or any other Program
Asset or continued implementation of this Compact would be in violation
of applicable law or United States Government policy, whether now or
hereafter in effect;
(ii) The Government, any Provider, or any other third party
receiving MCC Funding or using any Program Asset is engaged in
activities that are contrary to the national security interests of the
United States;
(iii) The Government or any Permitted Designee has committed an act
or omission or an event has occurred that would render El Salvador
ineligible to receive United States economic
[[Page 76454]]
assistance under Part I of the Foreign Assistance Act of 1961, as
amended (22 U.S.C. 2151 et seq.), by reason of the application of any
provision of the Foreign Assistance Act of 1961 or any other provision
of law;
(iv) The Government or any Permitted Designee has engaged in a
pattern of actions or omissions inconsistent with the MCA Eligibility
Criteria, or there has occurred a significant decline in the
performance of the Republic of El Salvador on one or more of the
eligibility indicators contained therein;
(v) The Government or any Provider has materially breached one or
more of its assurances or any covenants, obligations or
responsibilities under this Compact or any Supplemental Agreement;
(vi) An audit, review, report or any other document delivered in
furtherance of this Compact or any Supplemental Agreement or any other
evidence reveals that actual expenditures for the Program or any
Project or any Project Activity were greater than the projected
expenditure for such activities identified in the applicable Detailed
Budget or are projected to be greater than projected expenditures for
such activities;
(vii) If the Government (A) materially reallocates or reduces the
allocation in its national budget or any other Government budget of the
normal and expected resources that the Government would have otherwise
received or budgeted, from external or domestic sources, for the
activities contemplated herein; (B) fails to contribute or provide the
amount, level, type and quality of resources required effectively to
carry out the Government Responsibilities or any other responsibilities
or obligations of the Government under or in furtherance of this
Compact; or (C) fails to pay any of its obligations as required under
this Compact or any Supplemental Agreement, including such obligations
which shall be paid solely out of national funds;
(viii) If the Government, any Provider, or any other third party
receiving MCC Funding or using any other Program Asset, or any of their
respective directors, officers, employees, Affiliates, contractors,
sub-contractors, grantees, sub-grantees, representatives or agents, is
found to have been convicted of a narcotics offense or to have been
engaged in drug trafficking;
(ix) Any MCC Funding or Program Assets are applied (directly or
indirectly) to the provision of resources and support to, individuals
and organizations associated with terrorism, sex trafficking or
prostitution;
(x) An event or condition of any character has occurred that: (A)
materially and adversely affects, or is likely to materially and
adversely affect, the ability of the Government or any other party to
effectively implement, or ensure the effective implementation of, the
Program or any Project or otherwise to carry out its responsibilities
or obligations under or in furtherance of this Compact or any
Supplemental Agreement or to perform its obligations under or in
furtherance of this Compact or any Supplemental Agreement or to
exercise its rights thereunder; (B) makes it improbable that any of the
Objectives will be achieved during the Compact Term; (C) materially and
adversely affects any Program Asset or any Permitted Account; or (D)
constitutes misconduct injurious to MCC, or constitutes a fraud or a
felony, by the Government, any Government Affiliate, Permitted Designee
or Provider, or any officer, director, employee, agent, representative,
Affiliate, contractor, grantee, subcontractor or sub-grantee of any of
the foregoing;
(xi) The Government, any Permitted Designee or any Provider has
taken any action or omission or engaged in any activity in violation
of, or inconsistent with, the requirements of this Compact or any
Supplemental Agreement to which the Government or any Permitted
Designee or Provider is a party;
(xii) There has occurred a failure to meet a condition precedent or
series of conditions precedent or any other requirements or conditions
in connection with MCC Disbursement as set out in and in accordance
with any Supplemental Agreement; or
(xiii) Any MCC Funding, Accrued Interest or other Program Asset
becomes subject to a Lien without the prior approval of MCC, and the
Government fails to obtain the release of such Lien (utilizing national
funds and not with MCC Funding, Accrued Interest or any other Program
Asset) within thirty (30) days after the imposition of such Lien.
(c) MCC may reinstate any suspended or terminated MCC Funding under
this Compact or any Supplemental Agreement if MCC determines, in its
sole discretion that the Government or other relevant party has
demonstrated a commitment to correcting each condition for which MCC
Funding was suspended or terminated.
(d) The authority under this Section 5.4 to suspend or terminate
this Compact or any MCC Funding includes the authority to suspend or
terminate any obligations or sub-obligations relating to MCC Funding
under any Supplemental Agreement without any liability to MCC
whatsoever.
(e) All MCC Disbursements and Re-Disbursements shall cease upon
expiration, suspension, or termination of this Compact; provided,
however, (i) reasonable expenditures for goods, services and works that
are properly incurred under or in furtherance of this Compact before
such expiration, suspension or termination of this Compact, and (ii)
reasonable expenditures for goods and services (including certain
administrative expenses) properly incurred in connection with the
winding up of the Program within one hundred and twenty (120) days
after such expiration, suspension or termination of this Compact may be
paid from MCC Funding if (A) the request for such payment is properly
submitted within ninety (90) days after such expiration, suspension or
termination of this Compact, and (B) MCC had approved the making of
such expenditure in writing in advance thereof.
(f) Other than the payments permitted pursuant to Section 5.4(e),
in the event of the suspension or termination of this Compact or any
Supplemental Agreement, in whole or in part, the Government, shall
suspend, at MCC's sole discretion, for the period of the suspension, or
terminate, or ensure the suspension or termination of, as applicable,
any obligation or sub-obligation of the Parties to provide financial or
other resources under this Compact or any Supplemental Agreement, or to
the suspended or terminated portion of this Compact or such
Supplemental Agreement, as applicable. In the event of such suspension
or termination, the Government shall use its best efforts to suspend or
terminate, or ensure the suspension or termination of, as applicable,
all such noncancelable commitments related to the suspended or
terminated MCC Funding. Any portion of this Compact or any such
Supplemental Agreement that is not suspended or terminated shall remain
in full force and effect.
(g) Upon the full or partial suspension or termination of this
Compact or any MCC Funding, MCC may, at its expense, direct that title
to any Program Assets be transferred to MCC if such Program Assets are
in a deliverable state; provided, however, for any Program Asset
partially purchased or funded (directly or indirectly) by MCC Funding,
the Government shall reimburse to a United States Government account
designated by MCC the cash equivalent of the portion of the value of
such Program Asset, such value as determined by MCC.
[[Page 76455]]
(h) Prior to the expiration of this Compact or upon the termination
of this Compact, the Parties shall consult in good faith with a view to
reaching an agreement in writing on (i) the post-Compact Term treatment
of FOMILENIO, (ii) the process for ensuring the refunds of MCC
Disbursements that have not yet been released from a Permitted Account
through a valid Re-Disbursement or otherwise committed in accordance
with Section 5.4(e), and (iii) any other matter related to the winding
up of the Program and this Compact.
Section 5.5 Privileges and Immunities
MCC is an agency of the Government of the United States of America
and its personnel assigned to the Republic of El Salvador will be
notified pursuant to the Vienna Convention on Diplomatic Relations as
members of the mission of the Embassy of the United States of America.
The Government shall ensure that any personnel of MCC so notified,
including individuals detailed to or contracted by MCC, and the members
of the families of such personnel, while such personnel are performing
duties in the Republic of El Salvador, shall enjoy the privileges and
immunities that are enjoyed by a member of the United States Foreign
Service, or the family of a member of the United States Foreign Service
so notified, as appropriate, of comparable rank and salary of such
personnel, if such personnel or the members of the families of such
personnel are not a national of, or permanently resident in the
Republic of El Salvador.
Section 5.6 Attachments
Any annex, schedule, exhibit, table, appendix or other attachment
expressly attached hereto (collectively, the ``Attachments'') is
incorporated herein by reference and shall constitute an integral part
of this Compact.
Section 5.7 Inconsistencies
(a) Conflicts or inconsistencies between any parts of this Compact
shall be resolved by applying the following descending order of
precedence:
(i) Articles I through V; and
(ii) Any Attachments.
(b) In the event of any conflict or inconsistency between this
Compact and any Supplemental Agreement, the terms of this Compact shall
prevail. In the event of any conflict or inconsistency between any
Supplemental Agreement between the Parties and any other Supplemental
Agreement, the terms of the Supplemental Agreement between the Parties
shall prevail. In the event of any conflict or inconsistency between
Supplemental Agreements between any parties, the terms of a more
recently executed Supplemental Agreement shall take precedence over a
previously executed Supplemental Agreement. In the event of any
inconsistency between a Supplemental Agreement and any component of the
Implementation Documents, the terms of the relevant Supplemental
Agreement shall prevail.
Section 5.8 Indemnification
The Government shall indemnify and hold MCC and any MCC officer,
director, employee, Affiliate, contractor, agent or representative
(each of MCC and any such persons, an ``MCC Indemnified Party'')
harmless from and against, and shall compensate, reimburse and pay such
MCC Indemnified Party for, any liability or other damages which (a) are
(directly or indirectly) suffered or incurred by such MCC Indemnified
Party, or to which any MCC Indemnified Party may otherwise become
subject, regardless of whether or not such damages relate to any third-
party claim, and (b) arise from or as a result of the negligence or
willful misconduct of the Government, any Government Affiliate,
FOMILENIO or any Permitted Designee, (directly or indirectly) connected
with, any activities (including acts or omissions) undertaken in
furtherance of this Compact; provided, however, the Government shall
apply national funds to satisfy its obligations under this Section 5.8
and no MCC Funding, Accrued Interest, or other Program Asset may be
applied by the Government in satisfaction of its obligations under this
Section 5.8.
Section 5.9 Headings
The Section and Subsection headings used in this Compact are
included for convenience only and are not to be considered in
construing or interpreting this Compact.
Section 5.10 Interpretation
(a) Any reference to the term ``including'' in this Compact shall
be deemed to mean ``including without limitation'' except as expressly
provided otherwise.
(b) Any reference to activities undertaken ``in furtherance of this
Compact'' or similar language shall include activities undertaken by
the Government, any Government Affiliate, FOMILENIO, any Permitted
Designee, any Provider or any other third party receiving MCC Funding
involved in carrying out the purposes of this Compact or any
Supplemental Agreement, including their respective directors, officers,
employees, Affiliates, contractors, sub-contractors, grantees, sub-
grantees, representatives or agents, whether pursuant to the terms of
this Compact, any Supplemental Agreement or otherwise.
(c) References to ``day'' or ``days'' shall be calendar days unless
provided otherwise.
(d) Defined terms importing the singular also include the plural,
and vice versa.
Section 5.11 Signatures
A signature to this Compact or an amendment to this Compact
pursuant to Section 5.3 shall be delivered only as an original
signature. With respect to all other signatures, a signature delivered
by facsimile or electronic mail in accordance with Section 5.1 shall be
deemed an original signature and shall be binding on the Party
delivering such signature, and the Parties hereby waive any objection
to such signature or to the validity of the underlying document,
certificate, notice, instrument or agreement on the basis of the
signature's legal effect, validity or enforceability solely because it
is in facsimile or electronic form. Without limiting the foregoing, a
signature on an audit report or a signature evidencing any modification
identified in Section 2(a) and Section 4(a)(iv) of Annex I, Section 4
of Annex II, or Section 5(d) of Annex III shall be followed by an
original in overnight express mail.
Section 5.12 Designation
MCC may designate any Affiliate, agent, or representative to
implement, in whole or in part, its obligations, and exercise any of
its rights, under this Compact or any Supplemental Agreement. MCC shall
inform the Government of any such designation.
Section 5.13 Survival
Any Government Responsibilities, covenants, or obligations or other
responsibilities to be performed by the Government after the Compact
Term shall survive the termination or expiration of this Compact and
expire in accordance with their respective terms. Notwithstanding the
termination or expiration of this Compact, the following provisions
shall remain in force: Sections 2.2, 2.3, 2.5, 3.2 to 3.9 (the
expiration of which shall be governed by the Law Creating FOMILENIO and
the Reglamento), 3.12, 3.13, 3.14, 3.15, 3.18, 3.19 (for one year),
3.22, 5.1, 5.2, 5.4(d), 5.4(e) (for one-hundred and twenty (120) days),
5.4(f), 5.4(g), 5.4(h), 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 5.11, 5.12, this
Section 5.13, 5.14, and 5.15.
[[Page 76456]]
Section 5.14 Consultation
Either Party may, at any time, request consultations relating to
the interpretation or implementation of this Compact or any
Supplemental Agreement between the Parties. Such consultations shall
begin at the earliest possible date. The request for consultations
shall designate a representative for the requesting Party with the
authority to enter consultations and the other Party shall endeavor to
designate a representative of equal or comparable rank. If such
representatives are unable to resolve the matter within twenty (20)
days from the commencement of the consultations, then each Party shall
forward the consultation to the Principal Representative or such other
representative of comparable or higher rank. The consultations shall
last no longer than forty-five (45) days from date of commencement. If
the matter is not resolved within such time period, either Party may
terminate this Compact pursuant to Section 5.4(a). The Parties shall
enter any such consultations guided by the principle of achieving the
Compact Goal in a timely and cost-effective manner and by the
principles of international law. Any dispute arising under or related
to this Compact shall be determined exclusively through the
consultation mechanism set forth in this Section 5.14.
Section 5.15 MCC Status
MCC is a United States Government corporation acting on behalf of
the United States Government in the implementation of this Compact. As
such, MCC has no liability under this Compact and is immune from any
action or proceeding arising under or relating to this Compact, and the
Government hereby waives and releases all claims related to any such
liability. In matters arising under or relating to this Compact, MCC is
not subject to the jurisdiction of the courts or other body of the
Republic of El Salvador or any other jurisdiction and all disputes
arising under or relating to this Compact shall be determined in
accordance with Section 5.14.
Section 5.16 Language
This Compact is prepared in English and in Spanish and both
versions shall have equal validity.
Section 5.17 Publicity; Information and Marking
The Government shall give appropriate publicity to this Compact as
a program to which the United States, through MCC, has contributed,
including by posting this Compact, and any amendments thereto, on the
Web site operated by FOMILENIO (the ``FOMILENIO Web site''),
identifying Program activity sites, and marking Program Assets;
provided, however, any announcement, press release or statement
regarding MCC or the fact that MCC is funding the Program or any other
publicity materials referencing MCC, including the publicity described
in this Section 5.17, shall be subject to prior approval by MCC and
shall be consistent with any instructions provided by MCC from time to
time in relevant Implementation Letters. Upon the termination or
expiration of this Compact, MCC may request the removal of, and the
Government shall, upon such request, remove, or cause the removal of,
any such markings and any references to MCC in any publicity materials
or on the FOMILENIO Web site. MCC may post this Compact, and any
amendments thereto, on the web site of MCC. MCC shall have the right to
use any information or data provided in any report or document provided
to MCC for the purpose of satisfying MCC reporting requirements or in
any other manner.
In Witness Whereof, the undersigned, duly authorized by their
respective governments, have signed this Compact this 29th day of
November, 2006 and this Compact shall enter into force in accordance
with Section 1.3.
Done at Washington, D.C. in English and Spanish.
For the United States of America, acting through the Millennium
Challenge Corporation, Name: John J. Danilovich, Title: Chief Executive
Officer.
For the Government of the Republic of El Salvador, Name: Eduardo
Zablah Touche, Title: Technical Secretary to the Presidency of the
Republic of El Salvador.
Exhibit A--Definitions
The following compendium of capitalized terms that are used in this
Compact is provided for the convenience of the reader. To the extent
that there is a conflict or inconsistency between the definitions in
this Exhibit A and the definitions elsewhere in the text of this
Compact, the definition elsewhere in this Compact shall prevail over
the definition in this Exhibit A.
Accrued Interest shall have the meaning set forth in Section
2.1(c).
Act shall have the meaning set forth in Section 2.1(a)(iii).
Ad Hoc Evaluation shall have the meaning set forth in Section 3(b)
of Annex III.
Additional Representative shall have the meaning set forth in
Section 5.2.
Advisory Council shall have the meaning set forth in Section
3.4(b).
Affiliate means the affiliate of a party, which is a person or
entity that controls, is controlled by, or is under the same control as
the party in question, whether by ownership or by voting, financial or
other power or means of influence. References to Affiliate herein shall
include any of their respective directors, officers, employees,
affiliates, contractors, sub-contractors, grantees, sub-grantees,
representatives, and agents.
Asamblea Legislativa shall have the meaning set forth in Section
3.7.
Attachments shall have the meaning set forth in Section 5.6.
Audit Guidelines shall have the meaning set forth in Section
3.18(d)(i).
Audit Plan shall have the meaning set forth in Section
3.18(d)(iii).
Auditor shall have the meaning set forth in Section 3(h) of Annex
I.
Auditor/Reviewer Agreement shall have the meaning set forth in
Section 3(h) of Annex I.
Bank means any bank holding a Permitted Account.
Bank Agreement shall have the meaning set forth in Section 4(d) of
Annex I.
Beneficiaries shall have the meaning set forth in Section 2(a) of
Annex III.
Bilateral Agreement shall have the meaning set forth in Section
2.6.
BMI shall have the meaning set forth in Section 2 of Schedule 2 to
Annex I.
Board shall have the meaning set forth in Section 3.4(a).
Chair shall have the meaning set forth in Section 3.5(b).
Chalatenango Center shall have the meaning set forth in Section
2(a)(ii)(1) of Schedule 1 to Annex I.
Civil Members shall have the meaning set forth in Section
3(d)(ii)(2)(A) of Annex I.
Civil Society Stakeholders shall have the meaning set forth in
Section 3(e)(iv) of Annex I.
CND shall have the meaning set forth in Section 1(a) of Annex I.
Compact shall have the meaning set forth in the Preamble.
Compact Goal shall have the meaning set forth in Section 1.1.
Compact Implementation Funding shall have the meaning set forth in
Section 2.1(a)(iii).
Compact Records shall have the meaning set forth in Section
3.18(b).
Compact Reports shall have the meaning set forth in Section
3(d)(ii)(3)(C) of Annex I.
Compact Term shall have the meaning set forth in Section 1.3.
Community Development Activity shall have the meaning set forth in
Section 2(b) of Schedule 1 to Annex I.
[[Page 76457]]
Community Infrastructure Sub-Activity shall have the meaning set
forth in Section 2(b)(iii) of Schedule 1 to Annex I.
Connecting Roads Activity shall have the meaning set forth in
Section 2(b) of Schedule 3 to Annex I.
Connectivity Objective shall have the meaning set forth in Section
1.1(c).
Connectivity Project shall have the meaning set forth in the
Preamble of Schedule 3 to Annex I.
Covered Provider shall have the meaning set forth in Section
3.18(d)(iv).
DCA shall have the meaning set forth in Section 5 of Schedule 2 to
Annex I.
Designated Rights and Responsibilities shall have the meaning set
forth in Section 3.12(c).
Detailed Budget shall have the meaning set forth in Section
4(a)(ii) of Annex I.
DIGESTYC shall have the meaning set forth in Section 2(a) of Annex
III.
Disbursement Agreement shall have the meaning set forth Section
2.1(b)(i).
Education and Training Activity shall have the meaning set forth in
Section 2(a) of Schedule 1 to Annex I.
Education and Training Advisory Committee shall have the meaning
set forth in Section 2(a) of Schedule 1 to Annex I.
EHPM shall have the meaning set forth in Section 2(b) of Annex III.
EIA shall have the meaning set forth in Section 6(b) of Annex I.
EMP shall have the meaning set forth in Section 6(b) of Annex I.
Entry into Force shall have the meaning set forth in Section 1.3.
Environmental Guidelines shall have the meaning set forth in
Section 2.3(d).
Evaluation Component shall have the meaning set forth in Section 1
of Annex III.
Executive Decree means an executive decree issued by the President
of El Salvador.
Executive Director shall have the meaning set forth in Section 3.6.
Exempt Uses shall have the meaning set forth in Section 2.3(e)(ii).
Final Evaluation shall have the meaning set forth in Section 3(a)
of Annex III.
Financial Plan means collectively, the Multi-Year Financial Plan,
each Detailed Budget and each amendment, supplement or other change
thereto.
Financial Plan Annex shall have the meaning set forth in the
Preamble of Annex II.
Financial Services Activity shall have the meaning set forth in
Section 2(c) of Schedule 2 to Annex I.
Fiscal Accountability Plan shall have the meaning set forth in
Section 4(c) of Annex I.
Fiscal Agent shall have the meaning set forth in Section 3(g)(i) of
Annex I.
Fiscal Agent Agreement shall have the meaning set forth in Section
3(g)(i) of Annex I.
Fiscal Oversight Agent shall have the meaning set forth in Section
3(g)(ii) of Annex I.
Fiscal Oversight Agreement shall have the meaning set forth in
Section 3(g)(ii) of Annex I.
FISDL shall have the meaning set forth in Section 2(b)(i) of
Schedule 1 to Annex I.
FOMILENIO shall have the meaning set forth in the Recitals.
FOMILENIO Web site shall have the meaning set forth in Section
5.17.
Formal Technical Education Sub-Activity shall have the meaning set
forth in Section 2(a)(ii) of Schedule 1 to Annex I.
FOVIAL shall have the meaning set forth in Section 6 of Schedule 3
to Annex I.
GDP means gross domestic product.
Goal Indicator shall have the meaning set forth in Section 2(a) of
Annex III.
Governing Documents shall have the meaning set forth in Section
3(d)(i) of Annex I.
Government shall have the meaning set forth in the Preamble.
Government Affiliate means an Affiliate, ministry, bureau,
department, agency, government corporation or any other entity
chartered or established by the Government or any local government in
El Salvador. References to Government Affiliate shall include any of
their respective directors, officers, employees, affiliates,
contractors, sub-contractors, grantees, sub-grantees, representatives,
and agents.
Government Members shall have the meaning set forth in Section
3(d)(ii)(2)(A) of Annex I.
Government Party shall have the meaning set forth in Section
3.18(e)(i).
Government Responsibilities shall have the meaning set forth in
Section 3.12(a).
Human Development Objective shall have the meaning set forth in
Section 1.1(a).
Human Development Project shall have the meaning set forth in the
Preamble of Schedule 1 to Annex I.
IADB shall have the meaning set forth in Section 4 of Schedule 1 to
Annex I.
Implementation Document shall have the meaning set forth in Section
3(a) of Annex I.
Implementation Letter shall have the meaning set forth in Section
3.15(a).
Implementing Entity shall have the meaning set forth in Section
3(f) of Annex I.
Implementing Entity Agreement shall have the meaning set forth in
Section 3(f) of Annex I.
Indicators shall have the meaning set forth in Section 2(a) of
Annex III.
Inspector General shall have the meaning set forth in Section
3.18(d)(i).
Investment Support Activity shall have the meaning set forth in
Section 2(b) of Schedule 2 to Annex I.
Law Creating FOMILENIO shall have the meaning set forth in Section
3.1.
Lien shall have the meaning set forth in Section 2.3(g).
Local Account shall have the meaning set forth in Section 4(d)(ii)
of Annex I.
M&E shall have the meaning set forth in Section 3 of Annex I.
M&E Annex shall have the meaning set forth in the Preamble of Annex
III.
M&E Plan shall have the meaning set forth in Section 2(d) of Annex
I.
Management shall have the meaning set forth in Section 3.4(a).
MARN shall have the meaning set forth in Section 6(d) of Annex I.
MARN Program Requirements shall have the meaning set forth in
Section 6(g) of Annex I.
Material Agreement shall have the meaning set forth in Section
3(c)(i)(4) of Annex I.
Material Re-Disbursement shall have the meaning set forth in
Section 3(c)(i)(7) of Annex I.
MCA shall have the meaning set forth in the Recitals.
MCA Eligibility Criteria shall have the meaning set forth in
Section 3.17.
MCC shall have the meaning set forth in the Preamble.
MCC Disbursement shall have the meaning set forth in Section
2.1(b)(i).
MCC Disbursement Request shall have the meaning set forth in
Section 4(b) of Annex I.
MCC Funding shall have the meaning set forth in Section 2.1(a).
MCC Indemnified Party shall have the meaning set forth in Section
5.8.
MCC Representative shall have the meaning set forth in Section
3.5(e).
MEGATEC shall have the meaning set forth in Section 2(a) of Annex
III.
Monitoring Component shall have the meaning set forth in Section 1
of Annex III.
MOP shall have the meaning set forth in Section 4 of Schedule 3 to
Annex I.
Multi-Year Financial Plan shall have the meaning set forth in
Section 4(a)(i) of Annex I.
Multi-Year Financial Plan Summary shall have the meaning set forth
in Section 1 of Annex II.
Network of Connecting Roads or NCR shall have the meaning set forth
in Section 2 of Schedule 3 to Annex I.
NGOs means non-governmental organizations.
[[Page 76458]]
Non-Formal Skills Development Sub-Activity shall have the meaning
set forth in Section 2(a)(iii) of Schedule 1 to Annex I.
Northern Transnational Highway or NTH shall have the meaning set
forth in Section 2 of Schedule 3 to Annex I.
Northern Transnational Highway Activity shall have the meaning set
forth in Section 2(a) of Schedule 3 to Annex I.
Northern Zone shall have the meaning set forth in the Recitals.
Northern Zone Investment Plan shall have the meaning set forth in
Section 1(a) of Annex I.
O&M shall have the meaning set forth in Section 2(b)(i) of Schedule
1 to Annex I.
Objective Indicator shall have the meaning set forth in Section
2(a) of Annex III.
Objectives shall have the meaning set forth in Section 1.1.
Observer shall have the meaning set forth in Section 3.5(e).
Officer shall have the meaning set forth in Section 3(d)(iii)(1) of
Annex I.
Outcome Indicator shall have the meaning set forth in Section 2(a)
of Annex III.
Outcomes shall have the meaning set forth in Section 1 of Annex
III.
Output Indicator shall have the meaning set forth in Section 2(a)
of Annex III.
Party or Parties shall have the meaning set forth in the Preamble.
PD Investment Committee shall have the meaning set forth in Section
2 of Schedule 2 to Annex I.
PD Operations Manual shall have the meaning set forth in Section 2
of Schedule 2 to Annex I.
Permitted Account(s) shall have the meaning set forth in Section
4(d) of Annex I.
Permitted Designee shall have the meaning set forth in Section
3.12(c).
Plan of the Nation shall have the meaning set forth in Section 1(a)
of Annex I.
Pledge shall have the meaning set forth in Section 3(c)(i)(8) of
Annex I.
Principal Representative shall have the meaning set forth in
Section 5.2.
Procurement Agent shall have the meaning set forth in Section 3(i)
of Annex I.
Procurement Agent Agreement shall have the meaning set forth in
Section 3(i) of Annex I.
Procurement Guidelines shall have the meaning set forth in Section
3.16(a).
Procurement Plan shall have the meaning set forth in Section 3(i)
of Annex I.
Production and Business Services Activity shall have the meaning
set forth in Section 2(a) of Schedule 2 to Annex I.
Productive Development Objective shall have the meaning set forth
in Section 1.1(b).
Productive Development Project shall have the meaning set forth in
the Preamble of Schedule 2 to Annex I.
PROGARA shall have the meaning set forth in Section 2(c)(i)(1) of
Schedule 2 to Annex I.
Program shall have the meaning set forth in the Recitals.
Program Annex shall have the meaning set forth in the Preamble of
Annex I.
Program Assets shall have the meaning set forth in Section
2.3(e)(iii).
Project shall have the meaning set forth in Section 1.2.
Project Activity shall have the meaning set forth in Section 2(a)
of Annex I.
PRONORTE Service Providers shall have the meaning set forth in
Section 2(a) of Schedule 2 to Annex I.
Proposal shall have the meaning set forth in the Recitals.
Provider shall have the meaning set forth in Section 2.4(b).
Publication Period (Vacatio Legis) means the period of time
commencing on the date of publication of the Compact in the Official
Gazette of El Salvador and terminating on the eighth day thereafter.
RAP shall have the meaning set forth in Section 6(b) of Annex I.
Re-Disbursement shall have the meaning set forth in Section
2.1(b)(ii).
Reglamento shall have the meaning set forth in Section 3.10.
Reviewer shall have the meaning set forth in Section 3(h) of Annex
I.
Rural Electrification Sub-Activity shall have the meaning set forth
in Section 2(b)(ii) of Schedule 1 to Annex I.
SEA shall have the meaning set forth in Section 6(a) of Annex I.
SGR shall have the meaning set forth in Section 2(c)(i)(2) of
Schedule 2 to Annex I.
SIGET shall have the meaning set forth in Section 6 of Schedule 1
to Annex I.
SINAMA shall have the meaning set forth in Section 6(f) of Annex I.
Special Account shall have the meaning set forth in Section 4(d)(i)
of Annex I.
Supplemental Agreement shall have the meaning set forth in Section
3.15(b).
Supplemental Agreement between the Parties means any agreement
between MCC on the one hand, and the Government, any Government
Affiliate or any Permitted Designee on the other hand.
Supplemental Agreement Term Sheets shall have the meaning set forth
in Section 4.1(b).
Target shall have the meaning set forth in Section 2(a) of Annex
III.
Tax(es) shall have the meaning set forth in Section 2.3(e)(i).
Technical Assistance Sub-Activity shall have the meaning set forth
in Section 2(a)(i) of Schedule 1 to Annex I.
UFI shall have the meaning set forth in Section 3(g)(i) of Annex I.
USAID means the United States Agency for International Development.
United States Dollars (US$ or $) shall have the meaning set forth
in Section 2.1(d).
United States Government means any branch, agency, bureau,
government corporation, government chartered entity or other body of
the Federal government of the United States.
VAT shall have the meaning set forth in Section 2.3(e)(i)(4).
Voting Members shall have the meaning set forth in Section
3(d)(ii)(2)(A) of Annex I.
Water and Sanitation Sub-Activity shall have the meaning set forth
in Section 2(b)(i) of Schedule 1 to Annex I.
Work Plan shall have the meaning set forth in Section 3(a) of Annex
I.
Exhibit B--List of Certain Supplemental Agreements
1. Procurement Agent Agreement.
2. Implementing Entity Agreements.
3. Bank Agreements.
4. Fiscal Oversight Agreement.
Schedule 2.1(a)(iii)--Description of Compact Implementation Funding
Compact Implementation Funding
The Compact Implementation Funding provided pursuant to Section
2.1(a)(iii) shall support the following activities and expenditures in
an amount not to exceed the amount specified in Section 2.1(a)(iii):
(a) Payments for reasonable and normal staff salaries and
administrative expenses of FOMILENIO (or mutually acceptable Government
Affiliate) such as rent, equipment, information technology expenses and
furniture;
(b) Conduct fiscal and procurement administration activities;
(c) A gender assessment in connection with the Human Development
Project under Section 2(a) of Schedule 1 to Annex I;
(d) Any design and supplemental environmental assessment (EIA, EMP
or RAP studies) determined necessary by MCC in connection with the
Connectivity Project;
[[Page 76459]]
(e) Data collection in connection with M&E activities; and
(f) Other Compact implementation expenses approved by MCC.
Annex I--Program Description
This Annex I to the Compact (this ``Program Annex'') generally
describes the Program that MCC Funding will support in El Salvador
during the Compact Term and the results to be achieved from the
investment of MCC Funding. Prior to any MCC Disbursement or Re-
Disbursement, including for the Projects described herein, MCC, the
Government (or a mutually acceptable Government Affiliate) and
FOMILENIO shall enter into the Disbursement Agreement, which agreement
shall be in form and substance mutually satisfactory to the Parties,
and signed by the Principal Representative of each Party (or in the
case of a Government Affiliate, the principal representative of such
Government Affiliate) and of FOMILENIO.
Except as specifically provided herein, the Parties may amend this
Program Annex only by written agreement signed by the Principal
Representative of each Party. Each capitalized term used but not
defined in this Program Annex shall have the same meaning given such
term elsewhere in this Compact. Unless otherwise expressly stated, each
Section reference herein is to the relevant Section of the main body of
this Compact.
1. Background; Consultative Process
(a) Background. Located in Central America, bordering the North
Pacific Ocean, between Guatemala and Honduras, El Salvador is a country
of approximately 6.9 million people. Approximately 35 percent of its
population lives in poverty, with a high incidence of extreme poverty
in rural areas. El Salvador's civil conflict of the 1980s cost the
lives of over 70,000 Salvadorans and destroyed much of the country's
infrastructure. The rural areas, particularly in the northern region of
the country, were most affected. During those war years, human capital
formation lagged, GDP declined, public investment was deferred,
deterioration of the natural resource base accelerated, and migration
to the United States increased. By the end of the 1980s, about two-
thirds of the Salvadoran population was living in poverty. In 1989, a
new government embarked on a major stabilization and structural
adjustment program and initiated peace negotiations, reaching a Peace
Accord in early 1992. El Salvador has made substantial progress in
improving its economic and social conditions and building its
democratic institutions in the last 20 years; nonetheless, a
significant portion of its population remains in poverty, without
access to good jobs or basic social services, and continuing
environmental deterioration poses risks for sustainable development.
The Program focuses on the Northern Zone, a region that includes
one-half of El Salvador's poorest municipalities, that suffered more
than any other from the 1980s civil conflict, and that has substantial
unrealized potential for sustainable development. The Northern Zone is
also an important source of water, energy, biodiversity and
environmental resources of El Salvador and Central America. The
Objectives were designed to advance El Salvador's fulfillment of the
broadly shared aspiration to unite the northern third of the national
territory with the rest of the country and lift this isolated region's
people out of poverty.
During the past eight years, the non-partisan Commission for
National Development (``CND'') has been leading a public dialogue on a
new vision for El Salvador's development. CND was created by an
Executive Decree in 1996, to foster such a new vision through a process
of citizen participation. CND has produced a shared national
development strategy setting forth a vision for development of each of
the five regions of El Salvador, including the Northern Zone (the
``Plan of the Nation''). In response to the Plan of the Nation and
based on consultation with local governments, private enterprise and
civil society, the Government developed a plan for developing the
Northern Zone (the ``Northern Zone Investment Plan''), encompassing
three major themes: (i) Strengthening human development; (ii)
developing productive potential; and (iii) increasing physical
connectivity. These three themes formulated the basis for the Proposal,
with MCC Funding comprising a major portion of the funds necessary to
achieve the goals of the Northern Zone Investment Plan.
(b) Consultative Process. The Government's broad development
strategy for the Northern Zone and the Northern Zone Investment Plan
were a direct result of the extensive consultation process led by CND
while developing the Plan of the Nation. To develop their Proposal, the
Government refined the Northern Zone Investment Plan based on input
received in a series of consultations with various stakeholders and
interested parties, both within the Northern Zone and throughout the
country, including with local mayors, private sector representatives,
academic experts, international donors, multilateral development
organizations, sector specialists and the general public. Building on
the strong record of public participation in national development
planning, CND utilized five different approaches to ensure fulfillment
of MCC's requirements for a publicly-driven and widely-consulted
development program: (i) General--town hall meetings held in major
cities around the nation; (ii) Specialized--roundtable discussions with
experts on gender, environment, connectivity, and other key topics;
(iii) Territorial--consultations with municipal officials, community
leaders, small producers, local NGOs, and other residents of the
northern corridor of El Salvador; (iv) Interest Groups--consultations
with private sector representatives, women, Salvadorans abroad, and
entrepreneurs; and (v) Institutional--consultations with mayors,
government officials, NGOs, and international cooperation agencies.
The MCC-specific consultative process began in January 2006, and
included more than 50 formal workshops and informal discussions with
over 2,200 Salvadorans. The comments, concerns and suggestions of
participants in these consultations are documented in the ``Final
Report on the Consultative Process'' prepared by CND (available on the
FOMILENIO Web site).
The Government's consultative efforts regarding the Program are
ongoing and will continue throughout the Compact Term. CND is
responsible for executing the Government's consultation plan, which
includes both formal and informal interaction with various stakeholders
and interested parties, both within the Northern Zone and throughout
the rest of the country. Following submission of the Proposal to MCC,
the Government, with the assistance of CND, engaged in outreach efforts
focused on disseminating information on Program goals and objectives
and on the implementation process. Such outreach efforts are undertaken
through consultation events as well as through the FOMILENIO Web site.
Participants in such consultations are encouraged to remain actively
engaged in oversight and implementation of the Program by defining
their roles and responsibilities as stakeholders and coordinating a
long-term schedule for future interaction.
2. Overview
(a) Projects. The Parties have identified the interrelated,
component Projects that the Government will implement, or cause to be
implemented,
[[Page 76460]]
using MCC Funding to advance each Objective and the Compact Goal. Each
component Project is generally described in the Schedules to this
Program Annex. The Schedules to this Program Annex also identify one or
more of the activities that will be undertaken in furtherance of each
Project (each, a ``Project Activity'') as well as the various
activities within each Project Activity. Notwithstanding anything to
the contrary in this Compact, the Parties may agree to modify, amend,
terminate or suspend these Projects or to create a new project by
written agreement signed by the Principal Representative of each Party
without amending this Compact; provided, however, any such modification
or amendment of a Project or creation of a new project shall (i) be
consistent with the Objectives; (ii) not cause the amount of MCC
Funding to exceed the aggregate amount specified in Section 2.1 of this
Compact; (iii) not cause the Government's responsibilities or
contribution of resources to be less than specified in Section 2.2 of
this Compact or elsewhere in this Compact; and (iv) not extend the
Compact Term.
(b) Beneficiaries. The intended beneficiaries of each Project are
described in the respective Schedule to this Program Annex and Annex
III to the extent identified as of the date hereof. The intended
beneficiaries shall be identified more precisely during the initial
phases of implementation of the Program. The Government shall provide
to MCC information on the population of the areas in which the Projects
will be active, disaggregated by gender, income level and age. The
Parties shall agree upon the description of the intended beneficiaries
and the Parties will make publicly available a more detailed
description of the intended beneficiaries of the Program, including
publishing such description on the FOMILENIO Web site.
(c) Civil Society. Civil society shall participate in overseeing
the implementation of the Program through its representation on the
Board and the Advisory Council, as provided in Section 3(d) and Section
3(e), respectively, of this Program Annex. In addition, ongoing
consultations with civil society regarding the manner in which each
Project is being implemented will take place throughout the Compact
Term.
(d) Monitoring and Evaluation. Annex III generally describes the
plan to measure and evaluate progress toward achievement of the Compact
Goal and the Objectives (the ``M&E Plan''). As outlined in the
Disbursement Agreement and other Supplemental Agreements, continued
disbursement of MCC Funding under this Compact (whether as MCC
Disbursements or Re-Disbursements) shall be contingent on, among other
things, successful achievement of certain Targets as set forth in the
M&E Plan.
3. Implementation Framework
The implementation framework and the plan for ensuring adequate
governance, oversight, management, monitoring and evaluation (``M&E'')
and fiscal accountability for the use of MCC Funding is summarized
below and in the Schedules attached to this Program Annex, and as may
otherwise be agreed in writing by the Parties.
(a) General. The elements of the implementation framework will be
further described in the Supplemental Agreements and in a set of
detailed documents for the implementation of the Program, consisting of
(i) a Multi-Year Financial Plan, (ii) a Fiscal Accountability Plan,
(iii) a Procurement Plan, (iv) an M&E Plan, and (v) a Work Plan (each,
an ``Implementation Document''). FOMILENIO shall adopt each
Implementation Document in accordance with the requirements and
timeframe as may be specified in this Program Annex, Annex II, Annex
III, the Disbursement Agreement or as may otherwise be agreed by the
Parties from time to time. FOMILENIO may amend any Implementation
Document without amending this Compact, provided, however, that any
material amendment of such Implementation Document has been previously
approved by MCC and is otherwise consistent with the requirements of
this Compact and any Supplemental Agreement. By such time as may be
specified in the Disbursement Agreement, or as may otherwise be agreed
by the Parties from time to time, FOMILENIO shall adopt a work plan for
the overall administration of the Program (the ``Work Plan''). The Work
Plan shall set forth, with respect to (i) the administration of the
Program, (ii) the monitoring and evaluation of the Program, and (iii)
the implementation of each Project, the following: (1) Each activity to
be undertaken or funded by MCC Funding (to the level of detail mutually
acceptable to FOMILENIO and MCC), (2) the Detailed Budget, and (3)
where appropriate, the allocation of roles and responsibilities for
specific activities, other programmatic guidelines, performance
requirements, targets, and other expectations related thereto.
(b) Government.
(i) The Government shall promptly take all necessary and
appropriate actions to carry out the Government Responsibilities and
other obligations or responsibilities of the Government under and in
furtherance of this Compact, including undertaking or pursuing such
legal, legislative or regulatory actions or procedural changes and
contractual arrangements as may be necessary or appropriate to achieve
the Objectives, to successfully implement the Program, to designate any
rights or responsibilities to any Permitted Designee, to approve and
promulgate the Law Creating FOMILENIO and to promulgate the Reglamento.
FOMILENIO shall be a Permitted Designee and shall be responsible for
the oversight and management of the implementation of this Compact on
behalf of the Government. The Government shall promptly deliver to MCC
certified copies of any documents, orders, decrees, laws or regulations
evidencing such legal, legislative, regulatory, procedural, contractual
or other actions.
(ii) The Government shall ensure that FOMILENIO is duly authorized
and organized, sufficiently staffed and empowered to carry out fully
the Designated Rights and Responsibilities. Without limiting the
generality of the preceding sentence, FOMILENIO shall be organized, and
have such roles and responsibilities, as described in Section 3(d) of
this Program Annex and Sections 3.1 to 3.10 of this Compact and as
provided in any other Governing Documents.
(c) MCC.
(i) Notwithstanding Section 3.11 of this Compact or any provision
in this Program Annex to the contrary, and except as may be otherwise
agreed upon by the Parties from time to time, MCC must approve in
writing each of the following transactions, activities, agreements and
documents prior to the execution or carrying out of such transaction,
activity, agreement or document and prior to MCC Disbursements or Re-
Disbursements in connection therewith:
(1) MCC Disbursements;
(2) Each Implementation Document (including each component thereto)
and any material amendments and supplements thereto;
(3) Any Audit Plan;
(4) Agreements (i) between the Government and FOMILENIO; (ii)
between the Government, a Government Affiliate, FOMILENIO or any other
Permitted Designee, on the one hand, and any Provider or Affiliate of a
Provider, on the other hand, which require such MCC approval under
applicable law, the Disbursement Agreement, any Governing Document, or
any other Supplemental Agreement;
[[Page 76461]]
or (iii) in which the Government, a Government Affiliate, FOMILENIO or
any other Permitted Designee appoints, hires, or engages any of the
following in furtherance of this Compact:
(A) Auditor;
(B) Reviewer;
(C) Fiscal Agent;
(D) Fiscal Oversight Agent;
(E) Procurement Agent;
(F) Bank;
(G) Implementing Entity; and
(H) A member of the Board (including any Observer), any Officer or
any other key employee of FOMILENIO (including agreements involving the
terms of any compensation for any such person).
(Any agreement described in clause (i) through (iii) of this
Section 3(c)(i)(4) of this Program Annex and any amendments and
supplements thereto, each, a ``Material Agreement'');
(5) Any material modification, termination or suspension of a
Material Agreement, or any action that would have the effect of such a
modification, termination or suspension of a Material Agreement;
(6) Any agreement that is (A) not at arm's length or (B) with a
party related to the Government, FOMILENIO or any of their respective
Affiliates;
(7) Any Re-Disbursement that requires such MCC approval under
applicable law, any Governing Document, or any other Supplemental
Agreement (each, a ``Material Re-Disbursement'');
(8) Any pledge of any MCC Funding or any Program Assets, or any
guarantee, directly or indirectly, of any indebtedness (each, a
``Pledge'');
(9) Any Governing Document;
(10) Any disposition, in whole or in part, liquidation,
dissolution, winding up, reorganization or other change of (A)
FOMILENIO, including any revocation or modification of or supplement to
any Governing Document related thereto, or (B) any subsidiary or
Affiliate of FOMILENIO;
(11) Any change in character or location of any Permitted Account;
(12) Formation or acquisition of any direct or indirect subsidiary,
or other Affiliate, of FOMILENIO;
(13) (A) Any change of any member of the Board (including any
Observer), of the member serving as the Chair or in the composition or
size of the Board, and the filling of any vacant seat of any member of
the Board (including any Observer), (B) any change of any Officer or
other key employee of FOMILENIO (as determined by MCC) or in the
composition or size of the Management, and the filling of any vacant
position of any Officer or other key employee of FOMILENIO (as
determined by MCC), and (C) any material change in the composition or
size of the Advisory Council;
(14) Any decision by FOMILENIO to engage, to accept or to manage
any funds from any donor agencies or organizations in addition to MCC
Funding during the Compact Term;
(15) Any decision to amend, supplement, replace, terminate, or
otherwise change any of the foregoing; and
(16) Any other activity, agreement, document or transaction
requiring the approval of MCC in this Compact, applicable law, any
Governing Document, the Disbursement Agreement, or any other
Supplemental Agreement between the Parties.
(ii) MCC shall have the authority to exercise its approval rights
set forth in this Section 3(c) of this Program Annex in its sole
discretion and independent of any participation or position taken by
the MCC Representative at a meeting of the Board. MCC retains the right
to revoke its approval of any matter, agreement, or action if MCC
concludes, in its sole discretion, that its approval was issued on the
basis of incomplete, inaccurate or misleading information furnished by
the Government, any Government Affiliate, FOMILENIO or any other
Permitted Designee. Notwithstanding any provision in this Compact or
any Supplemental Agreement to the contrary, the exercise by MCC of its
approval or no-objection rights under this Compact or any Supplemental
Agreement shall not (A) diminish or otherwise affect the Government
Responsibilities or any other obligations or responsibilities of the
Government under this Compact or any Supplemental Agreement, (B)
transfer any such obligations or responsibilities of the Government, or
(C) otherwise subject MCC to any liability.
(d) FOMILENIO.
(i) General. FOMILENIO shall, as a Permitted Designee, be
responsible for the oversight and management of the implementation of
this Compact. FOMILENIO shall be governed by the provisions of this
Compact, the Law Creating FOMILENIO, the Reglamento, and any other
decree, legislation or regulation governing FOMILENIO (collectively,
the ``Governing Documents'') and by applicable law. Each Governing
Document shall be in form and substance satisfactory to MCC and the
Government and based on the following principles:
(1) The Government shall ensure that FOMILENIO shall not assign,
delegate or contract any of the Designated Rights and Responsibilities
without the prior written consent of the Government and MCC. FOMILENIO
shall not establish any Affiliates or subsidiaries (direct or indirect)
without the prior written consent of the Government and MCC.
(2) Unless otherwise agreed by the Parties in writing, FOMILENIO
shall consist of (A) a board of directors to oversee FOMILENIO's
responsibilities and obligations under this Compact (including any
Designated Rights and Responsibilities) and (B) a management unit to
have overall management responsibility for the implementation of this
Compact.
(3) The Government shall ensure that the Governing Documents comply
with the requirements set forth in this Program Annex.
(ii) Board.
(1) Formation. The Government shall ensure that the Board shall be
formed, constituted, governed and operated in accordance with the terms
and conditions set forth in the Compact, the Governing Documents and
any Supplemental Agreement.
(2) Composition. Unless otherwise agreed by the Parties in writing,
the Board shall consist of at least seven (7) but no more than eleven
(11) voting members and at least two (2) non-voting Observers.
(A) The Board members designated by the Government shall be
referred to herein as the ``Government Members.'' The other Board
members shall be referred to herein as the ``Civil Members.''
Collectively, the Government Members and the Civil Members shall be
referred to herein as the ``Voting Members.'' The non-voting Observers
of the Board shall be the MCC Representative, and any other non-voting
Observer designated from time to time.
(B) A Government Member may be replaced by another government
official from a ministry or other government body relevant to the
Program activities pursuant to the Governing Documents, subject to the
prior receipt of a no-objection notice from MCC (such replacement to be
referred to thereafter as a Government Member).
(C) Each Government Member position (other than the Chair) shall be
filled by the individual, during the Compact Term, holding the office
identified and all Government Members (including the Chair) shall serve
in their capacity as the applicable Government officials and not in
their personal capacity.
(D) The Voting Members, by majority vote, may alter the size of the
Board in accordance with the Governing Documents so long as the total
does not exceed eleven (11) members.
[[Page 76462]]
(E) Each Observer shall have rights to attend all meetings of the
Board, participate in the discussions of the Board, and receive all
information and documents provided to the Board, together with any
other rights of access to records, employees or facilities as would be
granted to a member of the Board under the Governing Documents.
(F) The Voting Members shall exercise their duties solely in
accordance with the best interests of FOMILENIO, the Program, the
Compact Goal and the Objectives, and shall not undertake any action
that is contrary to those interests or would result in personal gain or
a conflict of interest.
(3) Roles and Responsibilities. The roles and responsibilities of
the Board shall include the following:
(A) The Board shall oversee the Management, the overall
implementation of the Program, and the performance of the Designated
Rights and Responsibilities.
(B) Certain actions may be taken and certain agreements, documents
or instruments executed and delivered, as the case may be, by FOMILENIO
only upon the approval and authorization of the Board as provided under
applicable law or as set forth in any Governing Document, including
each MCC Disbursement Request, selection or termination of certain
Providers and any Implementation Document.
(C) The Chair, unless otherwise provided in the applicable
Governing Documents or Supplemental Agreements, shall certify any
documents or reports delivered to MCC in satisfaction of the
Government's reporting requirements under this Compact or any
Supplemental Agreement between the Parties (the ``Compact Reports'') or
any other documents or reports from time to time delivered to MCC by
FOMILENIO (whether or not such documents or reports are required to be
delivered to MCC), and that such documents or reports are true, correct
and complete.
(D) Without limiting the generality of the Designated Rights and
Responsibilities that the Government may designate to FOMILENIO, and
subject to MCC's contractual rights of approval as set forth in Section
3(c) of this Program Annex, elsewhere in this Compact or any
Supplemental Agreement, the Board shall have the exclusive authority as
between the Board and the Management for all actions defined for the
Board in any Governing Document and which are expressly designated
therein as responsibilities that cannot be delegated further.
(E) Meet with and exchange information with the Advisory Council,
as contemplated in Section 3(e) of this Program Annex. Without limiting
the generality of the foregoing, the Board shall take the Advisory
Council's suggestions into consideration in connection with any
amendment to the M&E Plan, pursuant to Section 5(b) of Annex III.
(4) Indemnification of Observers. The Government shall ensure, at
the Government's sole cost and expense, that appropriate insurance is
obtained and appropriate indemnifications and other protections are
provided, acceptable to MCC and to the fullest extent permitted under
the laws of El Salvador, to ensure that the Observers shall not be held
personally liable for the actions or omissions of the Board or
FOMILENIO. Pursuant to Section 5.5 and Section 5.8 of this Compact, the
Government and FOMILENIO shall hold harmless the MCC Representative for
any liability or action arising out of the MCC Representative's role as
an Observer on the Board. The Government hereby waives and releases all
claims related to any such liability and acknowledges that the MCC
Representative has no fiduciary duty to FOMILENIO. In matters arising
under or relating to this Compact, the MCC Representative is not
subject to the jurisdiction of the courts or any other governmental
body of El Salvador. FOMILENIO shall provide a written waiver and
acknowledgement that no fiduciary duty to FOMILENIO is owed by the MCC
Representative.
(iii) Management. Unless otherwise agreed in writing by the
Parties, the Management shall report, through the Executive Director or
other Officer as designated in any Governing Document, directly to the
Board and shall have the composition, roles and responsibilities
described below and set forth more particularly in the Governing
Documents.
(1) Composition. The Government shall ensure that the Management
shall be composed of qualified experts from the public or private
sectors, including such offices and staff as may be necessary to carry
out effectively its responsibilities, each with such powers and
responsibilities as set forth in the Governing Documents, and from time
to time in any Supplemental Agreement between the Parties, including
the following: (A) Executive Director; (B) Deputy Executive Director;
(C) Internal Auditor; (D) Legal Counsel; (E) Administrative Director;
(F) Director of Technology and Information; (G) Director of Program
Implementation, (H) Coordinator of the Human Development Component; (I)
Coordinator of the Productive Development Component; (J) Coordinator of
the Connectivity Component; (K) Director of the Procurement Program;
(L) Director of Monitoring and Evaluation; (M) Financial and
Institutional Director; (N) Director of Environmental and Social
Impact; and (O) Director of Communications. Each person holding the
position in any of the sub-clauses (A) through (O), and such other
offices as may be created and designated in accordance with any
Governing Document and any Supplemental Agreement, shall be referred to
as an ``Officer.'' The Management shall be supported by appropriate
administrative and support personnel consistent with the Detailed
Budget for Program administration and any Implementation Document.
(2) Appointment of Officers. The Executive Director shall be
selected after an open and competitive recruitment and selection
process, and appointed in accordance with the Governing Documents,
which appointment shall be subject to MCC approval. Such appointment
shall be further evidenced by such document as the Parties may agree.
Unless otherwise specified in the Governing Documents, or any
Supplemental Agreement between the Parties, the Officers of FOMILENIO
other than the Executive Director shall be selected and hired by the
Board after an open and competitive recruitment and selection process,
and appointed in accordance with the Governing Documents, which
appointment shall be subject to MCC approval. Such appointment shall be
further evidenced by such document as the Parties may agree.
(3) Roles and Responsibilities. The roles and responsibilities of
the Management shall include:
(A) The Management shall assist the Board in overseeing the
implementation of the Program and shall have principal responsibility
(subject to the direction and oversight of the Board and subject to
MCC's contractual rights of approval as set forth in Section 3(c) of
this Program Annex or elsewhere in this Compact or any Supplemental
Agreement) for the overall management of the implementation of the
Program.
(B) Without limiting the foregoing general responsibilities or the
generality of the Designated Rights and Responsibilities that the
Government may designate to FOMILENIO, the Management shall develop
each Implementation Document, oversee the implementation of the
Projects, manage and coordinate monitoring and evaluation, ensure
compliance with the
[[Page 76463]]
Fiscal Accountability Plan, and such other responsibilities as set out
in the Governing Documents or otherwise delegated to the Management by
the Board from time to time.
(C) Appropriate Officers as designated in the Governing Documents
shall have the authority to contract on behalf of FOMILENIO under any
procurement undertaken in accordance with the Disbursement Agreement
(including the Procurement Guidelines) in furtherance of the Program.
(D) The Management shall have the obligation and right to approve
certain actions and documents or agreements, including certain Re-
Disbursements, MCC Disbursement Requests, Compact Reports, certain
human resources decisions and certain other actions, as provided in the
Governing Documents.
(e) Advisory Council.
(i) Formation. The Government shall ensure the establishment of the
Advisory Council by the Board, which Advisory Council shall be
independent from FOLIMENIO and shall be established to the satisfaction
of MCC. The Government shall take all steps necessary to establish the
Advisory Council as soon as possible following the execution of this
Compact.
(ii) Composition. The Advisory Council shall be comprised, unless
otherwise agreed by the Parties, of the following members: (A) Five
representatives of CND; (B) three members of the Northern Zone mayoral
council; and (C) a representative of Northern Zone civil society. The
Government shall take all actions necessary and appropriate to ensure
that the Advisory Council is established consistent with this Section
3(e) of this Program Annex and as otherwise specified in the Governing
Documents or otherwise agreed in writing by the Parties. The
composition of the Advisory Council may be adjusted by agreement of the
Parties from time to time to ensure, among other things, an adequate
representation of the intended beneficiaries of the Program. Each
member of the Advisory Council may appoint an alternate, approved by
majority vote of the other members, to serve when the member is unable
to participate in a meeting of the Advisory Council.
(iii) Roles and Responsibilities. The Advisory Council shall be a
mechanism to provide representatives of the private sector, civil
society and local government the opportunity to provide advice and
input to FOMILENIO regarding the implementation of this Compact.
FOMILENIO shall provide to the Advisory Council such information and
documents as it deems advisable, subject to appropriate treatment of
such information and documents by the members of the Advisory Council.
During each meeting of the Advisory Council, FOMILENIO shall present an
update on the implementation of this Compact and progress towards
achievement of the Objectives. The Advisory Council shall have an
opportunity to provide regularly to FOMILENIO its views or
recommendations on the performance and progress on the Projects and
Project Activities, any Implementation Document, procurement, financial
management or such other issues as may be presented from time to time
to the Advisory Council or as otherwise raised by the Advisory Council.
(iv) Meetings. The Advisory Council shall meet with the Board at
least once every three months, as well as at such other periodic
meetings as may be necessary or appropriate from time to time. The
Advisory Council shall hold at least two general meetings per year, as
well as such other periodic meetings as may be necessary or appropriate
from time to time. Representatives of banking organizations,
microfinance institutions, farmer associations, women's associations,
chambers of commerce, anti-corruption associations and environmental
and social organizations (``Civil Society Stakeholders''), among
others, shall be provided timely advance notice of all such general
meetings, invited to participate in all such meetings and afforded an
opportunity during each such meeting to present their views or
recommendations to the Advisory Council.
(v) Accessibility; Transparency. The members of the Advisory
Council shall be accessible to the beneficiaries they represent to
receive the beneficiaries' comments or suggestions regarding the
Program. The notices for, and the minutes (including the views or
recommendations of Civil Society Stakeholders expressed) of all general
meetings of, the Advisory Council shall be made public on the FOMILENIO
Web site or otherwise (including television, radio and print) in a
timely manner.
(f) Implementing Entities. Subject to the terms and conditions of
this Compact and any other Supplemental Agreement between the Parties,
FOMILENIO may engage one or more (i) pre-determined ministries, bureaus
or agencies of the Government based on their sector expertise, or (ii)
government bodies, businesses, NGOs, vendors or contractors, selected
according to the Procurement Guidelines, to implement and carry out any
Project, Project Activity (or a component thereof), or any other
activities to be carried out in furtherance of this Compact (each, an
``Implementing Entity''). The Government shall ensure that FOMILENIO
enters into an agreement with each Implementing Entity, in form and
substance satisfactory to MCC, that sets forth the roles and
responsibilities of such Implementing Entity and other appropriate
terms and conditions (including the payment of the Implementing Entity,
if any) (an ``Implementing Entity Agreement''). An Implementing Entity
shall report directly to the relevant Officer, as designated in the
applicable Implementing Entity Agreement or as otherwise agreed by the
Parties.
(g) Fiscal Matters.
(i) Fiscal Agent. The Government shall ensure that, pursuant to the
Reglamento or any other Governing Document as necessary, FOMILENIO
appoints its financial management unit (Unidad Financiera
Institucional) (``UFI'') as its fiscal agent (a ``Fiscal Agent'') and
grants to UFI all power and rights necessary to perform the function of
the Fiscal Agent, as such are set forth herein, in the Fiscal
Accountability Plan and in any Supplemental Agreement or Implementation
Letter. The Fiscal Agent shall be responsible for, among other things:
(1) Assisting FOMILENIO in preparing the Fiscal Accountability Plan;
(2) ensuring and certifying that Re-Disbursements are properly
authorized and documented in accordance with established control
procedures set forth in the Disbursement Agreement and other
Supplemental Agreements; (3) Re-Disbursement from, and cash management
and account reconciliation of, any Permitted Account established and
maintained for the purpose of receiving MCC Disbursements and making
Re-Disbursements (to which the Fiscal Agent has sole signature
authority); (4) providing applicable certifications for MCC
Disbursement Requests; (5) maintaining and retaining proper accounting,
records and document disaster recovery system of all MCC-funded
financial transactions and certain other accounting functions; (6)
producing reports on MCC Disbursements and Re-Disbursements (including
any requests therefor) in accordance with established procedures set
forth in the Disbursement Agreement, the Fiscal Accountability Plan, or
any other Supplemental Agreements; (7) assisting in the preparation of
budget development procedures; and (8) internal management of the
Fiscal Agent operations. Upon the written request of MCC for UFI to be
replaced as the Fiscal Agent, the Government shall ensure that
FOMILENIO engages a new Fiscal
[[Page 76464]]
Agent, subject to approval by the Board and MCC; provided, however,
that the Government shall ensure that UFI continue to perform its
obligations as the Fiscal Agent until FOMILENIO has engaged a successor
Fiscal Agent. In the event that a party other than UFI is the Fiscal
Agent, upon the written request of MCC, the Government shall ensure
that FOMILENIO terminates the Fiscal Agent, without any liability to
MCC, and the Government shall ensure that FOMILENIO engages a new
Fiscal Agent, subject to approval by the Board and MCC. The Government
shall ensure that FOMILENIO enters into an agreement with each Fiscal
Agent other than UFI, in form and substance satisfactory to MCC, that
sets forth the roles and responsibilities of the Fiscal Agent and other
appropriate terms and conditions, such as payment of the Fiscal Agent
(each, a ``Fiscal Agent Agreement''). Such Fiscal Agent Agreement shall
not be terminated until FOMILENIO has engaged a successor Fiscal Agent
or as otherwise agreed by MCC in writing.
(ii) Fiscal Oversight Agent. The Government shall ensure that
FOMILENIO engages an agent through an international competitive process
(the ``Fiscal Oversight Agent'') to carry out and certify certain
financial management activities in furtherance of this Compact. The
role and responsibilities of such Fiscal Oversight Agent and the
criteria for selection of a Fiscal Oversight Agent shall be as set
forth in the applicable Implementation Letter or Supplemental
Agreement. The Government shall ensure that FOMILENIO enters into an
agreement with the Fiscal Oversight Agent, in form and substance
satisfactory to MCC, that sets forth (1) the roles and responsibilities
of the Fiscal Oversight Agent with respect to the oversight of the
Fiscal Agent and the monitoring and review of the Fiscal Agent's
compliance with the Fiscal Accountability Plan; and (2) other
appropriate terms and conditions, such as payment of the Fiscal
Oversight Agent (the ``Fiscal Oversight Agreement'').
(h) Auditors and Reviewers. The Government shall ensure that
FOMILENIO carries out the Government's audit responsibilities as
provided in sections 3.18(d), (e) and (f) of this Compact, including
engaging one or more auditors (each, an ``Auditor'') required by
section 3.18(d) of this Compact. As requested by MCC in writing from
time to time, the Government shall ensure that FOMILENIO also engages
(i) an independent reviewer to conduct reviews of performance and
compliance under this Compact pursuant to section 3.18(f) of this
Compact, which reviewer shall have the capacity to (1) conduct general
reviews of performance or compliance, (2) conduct environmental audits,
and (3) conduct data quality assessments in accordance with the M&E
Plan, as described more fully in Annex III, and/or (ii) an independent
evaluator to assess performance as required under the M&E Plan (each, a
``Reviewer''). FOMILENIO shall select any such Auditor(s) and
Reviewer(s) in accordance with any Governing Document or other
Supplemental Agreement. The Government shall ensure that FOMILENIO
enters into an agreement with each Auditor and each Reviewer, in form
and substance satisfactory to MCC, that sets forth the roles and
responsibilities of the Auditor or Reviewer with respect to the audit,
review or evaluation, including access rights, required form and
content of the applicable audit, review or evaluation and other
appropriate terms and conditions such as payment of the Auditor or
Reviewer (the ``Auditor/Reviewer Agreement''). In the case of a
financial audit required by section 3.18(d) of this Compact, such
Auditor/Reviewer Agreement shall be effective no later than one hundred
and twenty (120) days prior to the end of the relevant period to be
audited; provided, however, if MCC requires concurrent audits of
financial information or reviews of performance and compliance under
this Compact, then such Auditor/Reviewer Agreement shall be effective
no later than the date agreed by the Parties in writing.
(i) Procurement Agent. The Government shall ensure that FOMILENIO
engages one or more procurement agents through an international
competitive process (each, a ``Procurement Agent'') to carry out and
certify specified procurement activities in furtherance of this Compact
on behalf of the Government, FOMILENIO, or the Implementing Entity. The
roles and responsibilities of each Procurement Agent and the criteria
for selection of a Procurement Agent shall be as set forth in the
applicable Implementation Letter or Supplemental Agreement. The
Government shall ensure that FOMILENIO enters into an agreement with
each Procurement Agent, in form and substance satisfactory to MCC, that
sets forth the roles and responsibilities of the Procurement Agent with
respect to the conduct, monitoring and review of procurements and other
appropriate terms and conditions, such as payment of the Procurement
Agent (each, a ``Procurement Agent Agreement''). Any Procurement Agent
shall adhere to the procurement standards set forth in the Disbursement
Agreement and the Procurement Guidelines and ensure procurements are
consistent with the procurement plan adopted by FOMILENIO pursuant to
the Disbursement Agreement (the ``Procurement Plan''), unless FOMILENIO
and MCC otherwise agree in writing.
4. Finances and Fiscal Accountability
(a) Multi-Year Financial Plan; Detailed Budget.
(i) Multi-Year Financial Plan. The multi-year financial plan for
the Program, showing the estimated amount of MCC Funding allocable to
each Project (and related Project Activities), the administration of
the Program (and its components) and the monitoring and evaluation of
the Program (the ``Multi-Year Financial Plan'') over the Compact Term
on an annual basis, is summarized in Annex II to this Compact.
(ii) Detailed Budget. During the Compact Term, the Government shall
ensure that FOMILENIO timely delivers to MCC a detailed budget, at a
level of detail and in a format acceptable to MCC, for the
administration of the Program, the monitoring and evaluation of the
Program, and the implementation of each Project (the ``Detailed
Budget''). The Detailed Budget shall be a component of the Work Plan
and shall be delivered by such time as specified in the Disbursement
Agreement, or as may otherwise be agreed by the Parties.
(iii) Expenditures. Unless the Parties otherwise agree in writing,
no financial commitment involving MCC Funding shall be made, no
obligation of MCC Funding shall be incurred, and no Re-Disbursement
shall be made or MCC Disbursement Request shall be submitted for any
activity or expenditure unless the expense for such activity or
expenditure is provided for in the Detailed Budget, and unless
uncommitted funds exist in the balance of the Detailed Budget for the
relevant period.
(iv) Modifications to Multi-Year Financial Plan or Detailed Budget.
Notwithstanding anything to the contrary in this Compact, FOMILENIO may
amend the Multi-Year Financial Plan, the Detailed Budget, or any
component thereof (including any amendment that would reallocate the
funds among the Projects, the Project Activities, or any activity under
Program administration or M&E as shown in Annex II), without amending
this Compact so long as FOMILENIO requests in writing and receives the
approval of MCC for such amendment
[[Page 76465]]
and such amendment is consistent with the requirements of this Compact
(including section 4 of Annex II), the Disbursement Agreement and any
other Supplemental Agreement between the Parties. Any such amendment
shall (1) be consistent with the Objectives and the Implementation
Documents; (2) shall not materially adversely impact the applicable
Project, Project Activity (or any component thereof), or any activity
under Program administration or M&E as shown in Annex II; (3) shall not
cause the amount of MCC Funding to exceed the aggregate amount
specified in section 2.1(a) of this Compact; and (4) shall not cause
the Government's obligations or responsibilities or overall
contribution of resources to be less than as specified in section
2.2(a) of this Compact, this Annex I or elsewhere in this Compact. Upon
any such amendment, FOMILENIO shall deliver to MCC a revised Detailed
Budget, together with a revised Multi-Year Financial Plan, reflecting
such amendment, along with the next MCC Disbursement Request.
(b) Disbursement and Re-Disbursement. The Disbursement Agreement,
as amended from time to time, shall specify the terms, conditions and
procedures on which MCC Disbursements and Re-Disbursements shall be
made. The obligation of MCC to make MCC Disbursements or approve Re-
Disbursements is subject to the fulfillment, waiver or deferral of any
such terms and conditions. The Government and FOMILENIO shall jointly
submit the applicable request for an MCC Disbursement (the ``MCC
Disbursement Request'') as may be specified in the Disbursement
Agreement. MCC will make MCC Disbursements in tranches to a Permitted
Account from time to time as provided in the Disbursement Agreement or
as may otherwise be agreed by the Parties, subject to Program
requirements and performance by the Government, FOMILENIO and other
relevant parties in furtherance of this Compact. Re-Disbursements will
be made from time to time based on requests by an authorized
representative of the appropriate party designated for the size and
type of Re-Disbursement in accordance with any Governing Document and
Disbursement Agreement; provided, however, unless otherwise agreed by
the Parties in writing, no Re-Disbursement shall be made unless and
until the written approvals specified herein and in any Governing
Document and the Disbursement Agreement for such Re-Disbursement have
been obtained and delivered to the Fiscal Agent.
(c) Fiscal Accountability Plan. By such time as specified in the
Disbursement Agreement or as otherwise agreed by the Parties, FOMILENIO
shall adopt, as part of the Implementation Documents, a plan that
identifies the principles, mechanisms and procedures to ensure
appropriate fiscal accountability for the use of MCC Funding provided
under this Compact, including the process to ensure that open, fair,
and competitive procedures will be used in a transparent manner in the
administration of grants or cooperative agreements and the procurement
of goods, works and services for the accomplishment of the Objectives
(the ``Fiscal Accountability Plan''). The Fiscal Accountability Plan
shall set forth, among others, requirements with respect to the
following matters: (i) Re-Disbursements, timely payment to vendors,
cash management and account reconciliation; (ii) funds control and
documentation; (iii) accounting standards and systems; (iv) content and
timing of reports; (v) preparing budget development procedures and the
Compact implementation budget; (vi) policies concerning records,
document disaster recovery, public availability of all financial
information and asset management; (vii) procurement and contracting
practices; (viii) inventory control; (ix) the role of independent
auditors; (x) the roles of fiscal agents and procurement agents; (xi)
separation of duties and internal controls; and (xii) certifications,
powers, authorities and delegations.
(d) Permitted Accounts. The Government shall establish, or cause to
be established, such accounts (each, a ``Permitted Account'' and,
collectively, the ``Permitted Accounts'') as may be agreed by the
Parties in writing from time to time, including:
(i) A single, completely separate United States Dollar interest-
bearing account (the ``Special Account'') at the Central Reserve Bank
of El Salvador to receive MCC Disbursements;
(ii) An account at a commercial bank in El Salvador (the ``Local
Account'') to which funds deposited in the Special Account will be
transferred for the purpose of making Re-Disbursements; and
(iii) Such other accounts in such banks as the Parties mutually
agree upon in writing.
No other funds shall be commingled in a Permitted Account other
than MCC Funding and Accrued Interest thereon. All MCC Funding held in
an interest-bearing Permitted Account shall earn interest at a rate of
no less than such amount as the Parties may agree in the applicable
Bank Agreement or otherwise. MCC shall have the right, among others, to
view any Permitted Account statements and activity directly on-line,
where feasible, or at such other frequency as the Parties may otherwise
agree. By such time as shall be specified in the Disbursement Agreement
or as otherwise agreed by the Parties, the Government shall ensure
that, for each Permitted Account, FOMILENIO enters into an agreement,
satisfactory to MCC, with the applicable Bank that sets forth the
signatory authority, access rights, anti-money laundering and anti-
terrorist financing provisions, and other terms related to the
Permitted Account (each, a ``Bank Agreement'').
5. Transparency; Accountability
Transparency and accountability to MCC and to the beneficiaries are
important aspects of the Program and the Projects. Without limiting the
generality of the foregoing, and in an effort to achieve the goals of
transparency and accountability, the Government shall ensure that
FOMILENIO:
(a) Establishes an e-mail suggestion box as well as a means for
other written comments that interested persons may use to communicate
ideas, suggestions or feedback to FOMILENIO;
(b) Considers as a factor in its decision-making the
recommendations of the Advisory Council;
(c) Develops and maintains, in a timely, accurate and appropriately
comprehensive manner, the FOMILENIO Web site that includes postings of
information and documents in English and Spanish;
(d) Posts on the FOMILENIO Web site, and otherwise makes publicly
available via appropriate means (including television, radio and
print), in the appropriate language the following documents or
information from time to time:
(i) This Compact;
(ii) All minutes of the meetings of the Board and the meetings of
the Advisory Council, unless otherwise agreed by the Parties;
(iii) The M&E Plan, as amended from time to time, along with
periodic reports on Program performance;
(iv) Such financial information as may be required by this Compact,
the Disbursement Agreement or any other Supplemental Agreement, or as
may otherwise be agreed from time to time by the Parties;
(v) All Compact Reports;
[[Page 76466]]
(vi) All audit reports by an Auditor and any periodic reports or
evaluations by a Reviewer;
(vii) All relevant environmental impact assessments and supporting
documents, and such other environmental documentation as MCC may
request;
(viii) A copy of the Disbursement Agreement, as amended from time
to time;
(ix) A copy of any document relating to the formation, organization
and governance of FOMILENIO, including all Governing Documents,
together with any amendments thereto; and
(x) A copy of the Procurement Guidelines, any procurement policies
or procedures and standard documents, certain information derived from
each Procurement Plan (as specified in the Disbursement Agreement), and
all bid requests and notifications of awarded contracts.
6. Environmental Accountability
(a) The Government shall undertake and complete a strategic
environmental assessment of the Northern Zone (the ``SEA'') as a
condition precedent to certain MCC Disbursements as specified in the
Disbursement Agreement, and in form and substance satisfactory to MCC.
(b) The Government shall ensure that FOMILENIO (or any other
Permitted Designee) (i) undertakes and completes any environmental
impact assessments (each, an ``EIA''), environmental management plans
(each, an ``EMP'') and resettlement action plans (each, a ``RAP''),
each in form and substance satisfactory to MCC, and as required under
the laws of El Salvador, the Environmental Guidelines, this Compact or
any Supplemental Agreement or as otherwise required by MCC; and (ii)
undertakes to implement any environmental and social mitigation
measures identified in such assessments or plans to MCC's satisfaction.
(c) The Government shall commit to fund all necessary costs of
environmental mitigation (including costs of resettlement) not
specifically provided for in the Detailed Budget for any Project.
(d) By the time specified in the Disbursement Agreement, the
Government shall ensure that the Department of Environment and Natural
Resources (Ministerio del Medio Ambiente y Recursos Naturales or
``MARN'') creates and fills at least one additional permanent staff
position in each of the citizen participation, environmental
assessment, and territorial organization units as described in a
staffing plan that shall be acceptable to MCC. The Government shall
provide sufficient resources to implement the staffing plan.
(e) As specified in the Disbursement Agreement, the Government
shall ensure that MARN establishes, and maintains throughout the
Compact Term, an interdepartmental task force concerning the
environmental aspects of the Human Development Project, the Productive
Development Project and the Connectivity Project.
(f) As specified in the Disbursement Agreement, the Government
shall ensure that MARN strengthens the environmental management system
in the Northern Zone as part of the Sistema Nacional de Gesti[oacute]n
Ambiental (``SINAMA''). The municipal environmental units of SINAMA
shall be capable of, among other activities, developing and enforcing
municipal land-use planning ordinances consistent with the departmental
territorial development plans and the Plan Nacional de Ordenamiento y
Desarrollo Territorial. The Government shall provide appropriate
resources to SINAMA as described in a strengthening plan acceptable to
MCC.
(g) The requirement set forth in paragraphs (d), (e) and (f) shall
be referred to as the ``MARN Program Requirements.''
Schedule 1 to Annex I--Human Development Project
This Schedule 1 generally describes and summarizes the key elements
of the project that the Parties intend to implement in furtherance of
the Human Development Objective (the ``Human Development Project'').
Additional details regarding the implementation of the Human
Development Project will be included in the Implementation Documents
and in the relevant Supplemental Agreements.
1. Background
Despite progress made in recent years, significant numbers of El
Salvador's poor still lack basic public services required for human
development. This problem is particularly acute in the Northern Zone,
where an estimated 25 percent of the population (roughly 225,000
people) is not connected to water systems, over 20 percent (nearly
200,000 people) is without improved sanitation services (e.g.,
latrines), and 28 percent (over 235,000 individuals) are without
electricity service. Poor community infrastructure (e.g., impassable
local roads) forces many rural poor to forgo opportunities to seek
education, health care, or employment and thereby improve their
livelihoods.
Human development is also hampered by gaps and constraints in
education and training. The average number of years of formal education
in the Northern Zone stands at 3.7 years, compared to 5.6 years in the
rest of the country. Fewer than one in ten children complete secondary
schooling, and the quality of this education is poor. As a consequence,
many youth opt to migrate to other countries or to large urban centers,
where, lacking skills, they remain in poverty. The Government is
currently implementing a national education development strategy, known
as Plan 2021, intended to improve educational effectiveness, achieve
universal secondary education, strengthen technical and technological
education and promote the development of science and technology. For
this plan to succeed, additional resources are required for the
Northern Zone, especially in the realm of formal secondary technical
schools and non-formal skills development training.
2. Summary of the Human Development Project and Related Projects
Activities
The Human Development Project is designed to increase knowledge and
skills through education and skills development programs and to
increase access to basic services and community infrastructure. MCC
Funding will support the following Project Activities:
Education and Training: To increase the quality and
capacity of formal and non-formal vocational programs to enable these
programs to absorb and train greater numbers of students and expand
access to more at-risk youth and young adults.
Community Development: To increase coverage of water
supply and sanitation facilities and services, to provide near
universal coverage of on and off-grid electricity, and to provide or
improve community infrastructure to ensure local connectivity for poor
communities in the Northern Zone.
The M&E Plan (described in Annex III) will set forth anticipated
results and, where appropriate, regular benchmarks that may be used to
monitor the progress of the implementation of the Human Development
Project. Performance against these benchmarks, as well as the overall
impact of the Human Development Project, will be assessed and reported
at the intervals to be specified in the M&E Plan, or as otherwise
agreed by the Parties, from time to time. The Parties expect that
additional indicators will be identified during implementation of the
Human Development Project. The expected results from, and the key
benchmarks to measure progress on, the Human Development Project, as
well as the
[[Page 76467]]
Project Activities undertaken or funded thereunder, are set forth in
Annex III.
Estimated amounts of MCC Funding for each Project Activity for the
Human Development Project are identified in Annex II. Conditions
precedent to each Project Activity under the Human Development Project,
and the sequencing of such Project Activities, will be set forth in the
Disbursement Agreement, any other Supplemental Agreements and the
relevant Implementation Documents.
The following summarizes each Project Activity under the Human
Development Project:
(a) Project Activity: Education and Training (the ``Education and
Training Activity'')
The Education and Training Activity seeks to increase education and
skill levels of the Northern Zone's poor by expanding the quality of,
and access to, vocational and technical education and training. It is
comprised of three sub-activities: Technical assistance; formal
technical education; and non-formal skills development.
To ensure optimal execution, the Government shall ensure that an
advisory committee, acceptable to MCC, is formed to provide advice,
oversight, and corresponding recommendations to FOMILENIO and
corresponding Implementing Entities regarding the Education and
Training Activity (the ``Education and Training Advisory Committee'').
The Education and Training Advisory Committee will include
representatives from the private sector, NGOs, and local governments.
Key donors supporting the education sector also will be invited to
participate as needed, to ensure strong coordination and collaboration.
Moreover, a gender assessment will be conducted under this Project
Activity to address issues of access and meaningful participation and
to inform Project Activity design and implementation, consistent with
the outcomes of the SEA.
(i) Project Sub-Activity: Technical Assistance (the ``Technical
Assistance Sub-Activity'')
The Technical Assistance Sub-Activity will bolster capacity of
institutions and organizations involved in policy, planning, and
administration of education and training in the Northern Zone. MCC
Funding will be used to procure the services of a long-term technical
assistance provider that will support Implementing Entities in
undertaking the following:
(1) Conduct a diagnostic analysis, including a gender assessment,
of current conditions in formal vocational education and non-formal
training programs in the Northern Zone. The diagnostic will identify
facilities and equipment needs, curricula and program design, criteria
for selecting schools to be improved (which criteria must be approved
by MCC), and other relevant parameters that will frame Compact
interventions. Implementation plans will be developed based on the
results of the diagnostic. MCC must approve implementation plans prior
to commencing execution and effecting associated disbursements, as
detailed in the Disbursement Agreement.
(2) Conduct a study to identify the most appropriate and feasible
measures to financially sustain innovations and programs supported by
MCC under the Education and Training Activity. This study will include
an assessment of augmenting the role of the private sector as
vocational education training providers.
(3) Support the formation, meetings, and activities of the
Education and Training Advisory Committee. The Education and Training
Advisory Committee also will provide support to design and monitor
interventions to be implemented in the Formal Technical Education Sub-
Activity and the Non-Formal Skills Development Sub-Activity.
(ii) Project Sub-Activity: Formal Technical Education (the ``Formal
Technical Education Sub-Activity'')
The Formal Technical Education Sub-Activity aims to strengthen
technical/vocational education institutions in the Northern Zone, so
that more youth can gain marketable skills and thereby increase their
opportunities for employment and income generation. The Ministry of
Education will be the principal Implementing Entity for this Sub-
Activity. Specifically, MCC Funding will support the following:
(1) Strengthen an existing post-secondary institute in Chalatenango
(the ``Chalatenango Center'') to improve teacher skills, facilities,
equipment, and curriculum resources to offer improved secondary and
post-secondary courses to up to 1,100 students annually by the end of
the Compact Term. Strengthening the Chalatenango Center will enable it
to serve as a national hub for advanced technology training and a
repository for instructional resources in thirty (30) or more career
fields.
(2) Support the strengthening of the Chalatenango Center to become
a resource center for in-service and pre-service vocational teacher
training, curriculum experimentation and other forms of resource
development in support of the middle technical schools in the Northern
Zone and throughout El Salvador. More than 5,000 teachers will benefit
from in-service and pre-service training, participate in demonstration
vocational training programs, and share resources and learning
materials with schools throughout El Salvador.
(3) Support the strengthening of approximately twenty (20) middle
technical schools in key municipalities (selected based on the MCC-
approved criteria established under the Technical Assistance Sub-
Activity) with links to the other activities funded under the Program.
This support will include: improving the array of degree granting and
non-degree granting vocational training and skills courses for youth;
training teachers in the use of advanced instructional technologies;
linking formal education with private sector needs; capital
improvements (laboratories and workshops); and purchasing needed
equipment. Where feasible, MCC Funding for capital improvements will
leverage funding from local governments, communities, private parties,
neighborhood associations and other NGOs. It is expected that over
9,000 students will benefit from this vocational training during the
Compact Term and the quality of training delivered will be improved.
(4) Establish a competitive scholarships program to reach
deserving, yet poverty-stricken youth. The Implementing Entity for this
program will be determined on a competitive basis. It is expected that
over 3,600 scholarships will be granted with MCC Funding for post-
secondary and, primarily, middle technical school attendance under the
Formal Technical Education Sub-Activity.
(iii) Project Sub-Activity: Non-Formal Skills Development (the ``Non-
Formal Skills Development Sub-Activity'')
The Non-Formal Skills Development Sub-Activity will complement the
Formal Technical Education Sub-Activity by supporting non-credit, short
term and pre-employment training offerings. The Non-Formal Skills
Development Sub-Activity will expand access to non-formal education and
training activities to the poor, women, at-risk youth, and others who
are unlikely or unable to attend the extended programs of the middle
technical schools, whether because of family responsibilities or
because of inadequate educational foundation. Training will foster
networking and cooperation with area businesses, through internships,
on-the-job training, and mentoring. Where feasible, this training will
be linked with activities in the twenty (20) middle technical
[[Page 76468]]
schools related to the Formal Technical Education Sub-Activity.
The Non-Formal Skills Development Sub-Activity will fund non-formal
training activities throughout the Northern Zone. The Instituto
Salvadore[ntilde]o de Formaci[oacute]n Profesional will manage the Non-
Formal Skills Development Sub-Activity through contracts with
competitively selected service providers including private firms, NGOs,
and other organizations qualified to deliver training services.
Training programs and courses will be determined based on diagnostics
and work plans developed in connection with the Technical Assistance
Sub-Activity. Programs will focus on short-term, pre-employment
training and market-based skills training, and other course modules
that enable participants to obtain skills needed to improve their
access to formal sector employment opportunities and/or contribute to
the more efficient operation of new and existing micro, small and
medium businesses. It is expected that approximately 13,000 at-risk
youth, women and other disadvantaged Northern Zone residents will
benefit from this skills development assistance.
(b) Project Activity: Community Development (the ``Community
Development Activity'')
The Community Development Activity aims to dramatically increase
access of the Northern Zone's poor to basic public services and
infrastructure. It is comprised of three sub-activities: water and
sanitation infrastructure; rural electrification; and community
infrastructure.
For this Project Activity, the Government will ensure that
appropriate environmental permits are obtained and requirements are met
and that any involuntary resettlement issues are addressed according to
the Environmental Guidelines and in compliance with the laws of El
Salvador. This will include the implementation of environmental and
social mitigation measures as identified in environmental assessments,
or as otherwise may be appropriate, to include compensation for
physical and economic displacement of individuals, residences and
businesses affected by such rehabilitation and construction, consistent
with the World Bank's Operational Policy on Involuntary Resettlement
(OP 4.12). Feasibility, design and environmental assessment of Project
Activities will be consistent with the outcomes of the SEA. MCC Funding
will support training in environmental management.
(i) Project Sub-Activity: Water Supply and Sanitation Infrastructure
(the ``Water and Sanitation Sub-Activity'')
MCC Funding will enhance access to water systems for approximately
90,000 and to improved sanitation services for approximately 50,000 of
the poorest inhabitants in the Northern Zone. These services, which
constitute basic human needs essential to supporting human and economic
development, will result in significant benefits in terms of reduced
incidence of disease caused by the currently sub-standard levels of
water and sanitation service in the region. Beyond reduced mortality
and morbidity, specific benefits include reduced expenditures on health
care, increased attendance at school and work, and reduced time and
cost spent seeking or purchasing water. The Water and Sanitation Sub-
Activity will be undertaken using a community-based approach that
integrates infrastructure improvements with local capacity building to
sustain the operation and maintenance of systems constructed, and that
provides important community health education.
Specifically, MCC Funding will support the following:
(1) Feasibility studies, project designs, and environmental
assessments for water supply and sanitation infrastructure, to include
well drilling and pump tests, hydrogeological studies, water quality
tests, appropriate watershed management plans, and site-specific EIAs,
EMPs, and RAPs, as needed;
(2) Construction of potable water systems meeting World Health
Organization standards, or other standards acceptable to MCC, and
sanitation systems (e.g., household latrines) in approximately twenty-
five (25) municipalities of the Northern Zone;
(3) Technical assistance for community capacity building, to ensure
system maintenance and sustainability (e.g., creation and training of
local water management boards); and
(4) Community education related to appropriate health and
sanitation practices.
A transparent and participatory project selection process will be
used to prioritize execution of the water and sanitation projects to be
supported with MCC Funding from among the more than 20 municipalities
already identified by the Social Fund for Local Development
(``FISDL''). Final project selection criteria, to be approved by MCC,
will include: (i) Financial and economic viability; (ii) technical
viability; (iii) environmental and social viability; and (iv) municipal
and community demand and contribution to project development.
Municipalities must contribute at least 10 percent of project cost and
beneficiary communities must contribute at least an additional 10
percent of project cost, in cash and/or in-kind. These criteria will be
explicitly defined and published during final project design, prior to
implementation.
The Water and Sanitation Sub-Activity's development process is
expected to include:
A promotion phase, during which selection criteria will be
developed, working relationships with municipalities will be
established and specific needs will be further detailed, and the terms
of municipality cost-share cash contribution and community cost share
(cash and/or in-kind) will be defined.
A feasibility phase, during which feasibility studies and
environmental analyses will be performed in packages with technical
support from FISDL.
An execution phase, involving the development of design
and bid packages by consultants; the execution of infrastructure and
training components based on design and specifications; and the
formation and training of any local health, environmental, and water
boards.
A post-construction sustainability or monitoring period
including: legalization of water boards; further training and technical
assistance for water boards and municipalities in system operation and
maintenance (``O&M''), administration and financial management;
transfer of the responsibility for the water systems to local water
boards (where applicable); and water quality monitoring by the
Government.
(ii) Project Sub-Activity: Rural Electrification (the ``Rural
Electrification Sub-Activity'')
The Rural Electrification Sub-Activity will extend electricity to
at least 97 percent of the estimated 47,000 households in the Northern
Zone that currently are not connected to local power distribution
networks. Service will be provided to these households through, as
appropriate for the household, investments in the extension of
distribution networks, in individual household connections to the
network, and in the supply of off-grid solar photovoltaic systems. MCC
Funding will cover up to 85 percent of the projected investment in the
electrification efforts, with contributions from the Government and the
executing entities comprising the balance of at
[[Page 76469]]
least 15 percent. Access to electricity will result in immediate and
significant financial savings to the beneficiaries, and is expected to
increase household productivity significantly.
Specifically, MCC Funding will support the following:
(1) Feasibility, design, and environmental assessment to include
site-specific EIAs, EMPs, and RAPs, as needed, for new distribution
lines;
(2) Construction of approximately 1,500 km of new distribution
lines and the corresponding connection of approximately 21,000
households to the expanded network;
(3) Connection of approximately 25,000 households to existing
networks via the construction of necessary low voltage extensions;
(4) Investment in upgrading distribution networks as necessary to
support the anticipated additional load on the system;
(5) Installation of approximately 950 solar power systems and
provision of technical assistance for the creation of community
associations for the management of solar power system operations and
maintenance; and
(6) Contracting of a financial advisor by and at the expense of
FOMILENIO to advise FOMILENIO on financial aspects and implications of
the procurement process associated with the Rural Electrification Sub-
Activity, as needed.
FOMILENIO must ensure that the Rural Electrification Sub-Activity
is executed in a manner acceptable to MCC with the goals of minimizing
capital subsidies while maximizing the number of beneficiaries, the
quality of electric service provided, and the long-term sustainability
of the implemented projects. FOMILENIO also must ensure that assets,
obligations, and rights generated and/or conferred as a result of MCC
Funding are handled in a manner acceptable to MCC, further details of
which shall be defined in an Implementing Entity Agreement approved by
MCC.
FOMILENIO and the respective Implementing Entity will ensure that
open and transparent bidding or auction mechanisms are used in the
process of selecting parties to execute the design and implementation
of rural electrification works. The financial advisor to be hired by
FOMILENIO pursuant to clause (6) above will provide FOMILENIO and the
Implementing Entity with independent third party advice aimed at
optimizing tenders, auctions, or procurements to minimize the cost of
proposed projects while ensuring successful implementation. This
financial analyst will be engaged prior to finalization of procurement/
auction plans and during the execution of procurements/auctions,
including direct participation in associated negotiations. This
financial advisor will report directly to FOMILENIO's assigned key
personnel, to ensure required levels of the advisor's independence and
additional confidence in the integrity of associated transactions.
(iii) Project Sub-Activity: Community Infrastructure (the ``Community
Infrastructure Sub-Activity'')
A significant barrier to increased growth in the Northern Zone is
that communities lack adequate connectivity to access markets,
employment, and health care or education facilities. This lack of local
infrastructure therefore hinders local economic growth and human
development. The Community Infrastructure Sub-Activity will improve the
connection among isolated communities and villages in the Northern Zone
while ensuring sustainable management of natural resources.
Specifically, MCC Funding will support the following:
(1) Feasibility, design, and environmental assessment to include
site-specific EIAs, EMPs, and RAPs, as needed, of community
infrastructure development;
(2) Rehabilitation and construction of community infrastructure
such as small roads and drainage works, retaining walls, pedestrian
crossings and small bridges; and
(3) Technical assistance to communities and municipalities on
infrastructure O&M.
A transparent and participatory project selection process will be
used to prioritize community infrastructure projects to be supported
with MCC Funding from among the 170 or more candidate projects
identified by FISDL in more than twenty (20) of the Northern Zone's
poorest municipalities. Final project selection criteria, to be
approved by MCC, will include: (i) Financial and economic viability;
(ii) technical viability; (iii) environmental and social viability; and
(iv) municipal and community demand and contribution to project
development. The candidate projects/communities will be eligible and
encouraged to apply for funding, through their municipalities. With
regard to municipal and community demand and contribution to project
development, a municipal contribution of at least 10 percent of project
cost will be required as a cash set-aside for infrastructure O&M, along
with a matching contribution from beneficiary communities of at least
an additional 10 percent, in cash and/or in-kind.
The Community Infrastructure Sub-Activity will employ a community-
based approach that integrates infrastructure improvements with local
capacity building to sustain the operation and maintenance of community
infrastructure developed. Projects will be packaged by location and/or
type and contracted based on FISDL-approved design specifications, as
appropriate. The infrastructure developed will become community assets,
to be maintained by the municipalities.
3. Beneficiaries
The Formal Technical Education Sub-Activity is expected to provide
training to over 10,000 participants, and to 5,000 teachers. Priority
groups will include the poor, women, youth at risk of migration or gang
participation, unemployed persons (irrespective of age) and secondary
school age youth. The Formal Technical Education Sub-Activity will
equip these beneficiaries with skills to obtain work or generate more
personal and family income, notably for girls and women.
The flexible and short-term training provided under the Non-Formal
Skills Development Sub-Activity is expected to benefit approximately
13,000 persons. Such training will be industry or job-specific, and is
intended to expand participants' employment opportunities and to
improve participant's earning potential. More and better trained
employees will provide the private and public sector with more
productive workers, meet specific technology needs that are critical
for economic advancement, and offer critical skills training to non-
traditional, at-risk youth and adults.
The Community Development Activity is intended to transform
economic conditions for currently poor households in the Northern Zone.
The investments in the provision of basic services and community
infrastructure will create more economic opportunities and raise
productivity, while lowering the costs of water, sanitation,
electricity, transportation, and other important services essential for
improving the well-being of currently disadvantaged people. Household
incomes of the poor will rise due to improved economic opportunities,
health and reduction in the number of lost working or school days. The
strategic infrastructure and basic services projects will contribute to
increased productivity among the beneficiaries.
The investments made under the Water and Sanitation Sub-Activity
are
[[Page 76470]]
expected to benefit 90,000 or more rural residents (18,000 households)
in the Northern Zone. Projects will be located in municipalities
classified by poverty level and lack of coverage in water supply and
sanitation.
The Government estimates that over 47,000 rural households in the
Northern Zone (roughly 25 percent of the population) lack electric
service coverage and could receive service through the Rural
Electrification Sub-Activity. It is proposed that approximately 25,000
households will be connected to existing distribution networks, about
21,000 will be connected to new, extended distribution networks (1,500
km of new lines), and roughly 950 households in isolated communities or
located near protected areas that will receive solar power systems. For
the latter, community beneficiaries will be the association members or
company owners. The associations' functions will include the local
collection and administration of funds dedicated to O&M activities, the
training of users in the use and maintenance of the solar power
systems, and the solicitation of technical support from the Government.
The Community Infrastructure Sub-Activity will benefit over 130,000
residents (over 26,000 households) in over 20 municipalities in the
Northern Zone. The beneficiaries of this effort will include the
poorest households, such as those composed of under represented groups.
4. Donor Coordination; Role of Private Sector and Civil Society
Activities supported under the Education Activity will interface
with the principal strategies of the international donor community, and
is in consonance with the national educational development plan, Plan
2021, that receives support from major donors. Initial coordination
meetings have been held with the World Bank, the Inter-American
Development Bank (``IADB''), the European Union, the Japanese
International Cooperation Agency and donor agencies within El
Salvador's private sector. Private sector organizations are already
intensely involved in the delivery of human resources development in El
Salvador. The private business group FEPADE plays a major role in
overseeing five vocational training facilities, and will be assigned a
critical role in MCC funded operations.
Several donors, including the German Development Bank, IADB, the
European Union, and Luxemburg, support FISDL programs that invest in
providing basic services (including water and sanitation) to
communities throughout El Salvador. FISDL's Red Solidaria is the
largest program, targeting the 100 poorest municipalities of El
Salvador. Current plans across these programs include the investment of
nearly US$ 30 million in the Northern Zone over the 2006 to 2011
period. However, the Community Development Activity has targeted
municipalities (among those deemed the poorest) where currently there
are no plans for funding.
The Community Infrastructure Sub-Activity will constitute an
extension of Red Solidaria. In extending the reach of Red Solidaria
efforts rather than overlapping with them, MCC Funding will be
dedicated to projects and communities (among the poorest) where there
are not existing plans or dedicated funds from other donors.
Japan and the European Union are the primary donors already active
in rural electrification in El Salvador. To ensure there is no overlap
in funding with MCC, the Government, through MINEC, has indicated that
US$ 6.6 millions from these two donors that had initially been planned
for rural electrification programs in the Northern Zone will be
redirected to municipalities outside the Northern Zone.
Several national and international NGOs are active in water and
sanitation in El Salvador, with experience in of the areas of project
development, design, and implementation; these include CARE, Project
Concern International, and Plan International. These organizations are
eligible to submit proposals for and could potentially be selected to
perform projects under the Water and Sanitation Sub-Activity.
The World Bank is providing advisory and financial assistance to
complete the SEA related to the Program, the first of its kind led by
MARN.
5. U.S. Agency for International Development
Education has long been a priority of USAID; however, USAID
projects primarily are focused on primary education, while MCC Funding
will target the secondary, adult and tertiary sectors. The
complementary work of MCC and USAID in support of education
improvements in El Salvador offers strong opportunities for
collaboration, especially in the area of teacher training,
institutional strengthening and learning materials development.
From 1997 to 2005, USAID was active in funding water and sanitation
programs in El Salvador; however, current USAID activities do not focus
specifically on water and sanitation. The specific model presented for
MCC Funding under this Project is very similar to that successfully
previously implemented by USAID through FISDL and local contractors.
FOMILENIO will continue to dialogue with USAID to identify potential
opportunities for coordination and adaptation of best-practices with
respect to the Water and Sanitation Project.
6. Sustainability
All aspects of the Education and Training Activity are being
designed to install permanent capacities in key Salvadoran ministries
and institutions. Investments in school strengthening and education
infrastructure development will continue well after the Compact Term.
All interventions under the Education and Training Activity are
envisioned to serve multiple purposes and to broaden access to skills
training by more vulnerable and at-risk populations. The MCC-supported
program is expected to include strong private sector involvement,
engender local and civil society ownership, and expand the range and
quality of permanent instructional assets. These elements will lead to
more sustainable impact, permitting an ever-growing number of youth and
adults in the Northern Zone to access diverse and quality training
after the Compact Term.
Sustainability of the systems installed under the Water and
Sanitation Sub-Activity will be supported in part by the inclusion of
municipal and community contributions (cash and in-kind) totaling at
least 20 percent of project costs. This requirement will help ensure
that municipalities and communities have allocated resources for the
maintenance of the infrastructure developed under the Community
Development Activity, and that community demand is reflected in project
selection. In addition, system designs will be developed in a manner
that meets community needs and that leads to a tariff (committed to by
user contract) that reflects local willingness to pay. Technical
assistance will also be provided to communities in system use and
management. Finally, the project implementation plan includes a period
of post-construction monitoring and ongoing capacity building,
including the training of newly established water boards in system O&M,
and administration and financial management.
The sustainability of the Rural Electrification Sub-Activity is
largely based on the fact that the distribution companies executing
network investments will, in accordance with Salvadoran law, recuperate
O&M costs through the electricity tariff customers pay. This tariff,
verified by the sector
[[Page 76471]]
regulator, the Superintendencia General de Electricidad y
Telecomunicaciones (``SIGET''), also includes a network charge that
incorporates O&M costs. Any and all capital investments funded by MCC
will be excluded from the rate base used to calculate tariffs. The
sustainability of this Rural Electrification Sub-Activity is further
enhanced by providing MCC Funding for service to be installed between
the extended distribution network and households connecting to it. This
funding, covering part of the service extension costs (with the balance
provided by the executing entities), will be available for the poorest
households, ensuring their connection to the extended distribution
network.
In the case of the solar photovoltaic systems provided to isolated
communities, sustainability is addressed by the feasibility study
conducted before implementation, and by the provision of technical
assistance to local community association or the company created to
coordinate community participation and manage system operations.
Private entities will provide system installation, as well as technical
assistance. The community associations responsible for O&M will be
legal entities registered with SIGET.
The sustainability of projects executed under the Community
Infrastructure Sub-Activity will be supported in part by the inclusion
of municipal and community contributions (cash and in-kind) totaling at
least 20 percent of project costs. This requirement will also help
ensure that municipalities and communities will allocate resources for
the maintenance of the infrastructure developed under the Community
Infrastructure Sub-Activity, and that community demand is reflected in
project selection. In addition, project design standards are to be
developed in a manner that meets community needs and that leads to
feasible O&M costs that reflect local willingness and contractual
commitment to pay, thereby ensuring project sustainability.
The environmental and social sustainability of the Human
Development Project will be ensured through ongoing consultations with
the public regarding the manner in which the Human Development Project
is being implemented. The SEA will include an assessment of the
activities within the Human Development Project. As necessary,
environmental and social analyses (that also include an analysis of the
gender impact) will be conducted, as part of the technical survey and
design of Project Activities to evaluate the environmental and social
impacts, cumulative impacts, and existence of economic and physical
displacement, if any. The Governmental shall ensure that any waste
generated by the Human Development Project is disposed of in accordance
with appropriate waste management plans that conform to the laws of El
Salvador and the Environmental Guidelines.
For the Water and Sanitation Sub-Activity, evaluation of
hydrological resources will be performed in coordination with MARN to
ensure sustainability of the investments. Furthermore, the Government
shall ensure, directly or through FOMILENIO (or other Permitted
Designee), that environmental and social mitigation measures are
developed and implemented for each Project Activity in accordance with
the provisions of this Compact and any relevant Supplemental
Agreements. FOMILENIO shall ensure that environmental and social
assessment responsibilities are included in the bidding documents for
the design or supervisory firms, construction firms, independent
technical auditing firms and any project management advisors, as
needed. In addition, any required EIAs, EMPs, and RAPs, in form and
substance satisfactory to MCC, will be developed and implemented under
the Project and monitored by FOMILENIO as necessary during
implementation. Project Activities, for which MCC disburses funds,
should be consistent with the outcomes of the SEA acceptable to MCC,
must have all required environmental permits, and must be in compliance
with applicable law. The Government shall fund any project-related
environmental mitigation costs (including resettlement costs) that are
not already covered by MCC Funding. The sustainability of the Human
Development Project will be enhanced by institutional capacity building
and training on environmental management.
7. Policy; Legal and Regulatory Reform; Government Actions
The Parties have identified the following policy, legal and
regulatory reforms and actions that the Government shall pursue in
support, and to reach the full benefits, of the Human Development
Project, the satisfactory implementation of which will be conditions
precedent to certain MCC Disbursements as provided in the Disbursement
Agreement:
(a) By the time specified in the Disbursement Agreement, the
Government shall develop an appropriate watershed management plan(s)
acceptable to MCC for the areas targeted by the Water and Sanitation
Sub-Activity.
(b) To the extent that MCC Funding is insufficient to meet the
Outcome Indicator ``Population with electricity in the Northern Zone''
for the Rural Electrification Sub-Activity, the Government shall
provide the necessary resources to meet such Outcome Indicator by the
end of the Compact Term.
(c) By the time specified in the Disbursement Agreement, the
corresponding Implementing Entities shall present a staffing and
equipment plan and implementation schedule, each acceptable to MCC, to
manage the Community Development Activity. The plan shall ensure
sufficient personnel and organizational structures dedicated to
environmental, social, and technical disciplines.
(d) The Government shall ensure that the relevant Implementing
Entities for the Community Development Activity update and implement
throughout the Compact Term their environmental policies, to the
satisfaction of MCC.
(e) The Government shall ensure that property rights in the
Northern Zone will be strengthened by the formal registration of land
rights and the modernization of the property registry and cadastre in
areas affected by the Human Development Project. The Government shall
ensure that land title issues are addressed to the satisfaction of MCC
during the Compact Term.
(f) The Government shall ensure that the MARN Program Requirements
are satisfied as and when specified in Section 6 of Annex I to this
Compact.
(g) Currently, students without a primary school completion
certificate are not permitted to apply for or enroll in middle
technical schools in El Salvador. The Government shall ensure that this
requirement is modified to allow individuals with no primary school
completion certificate to enroll in selected continuing education and
selected professional certificate (non-degree granting) programs.
8. Proposals
Public solicitations for proposals are anticipated to procure
goods, works and services, as appropriate, to implement all Project
Activities under the Human Development Project. FOMILENIO will develop,
subject to MCC approval, a process for consideration of all such
proposals. Notwithstanding the foregoing, FOMILENIO may also consider,
using a process developed subject to MCC approval, any unsolicited
proposals it might receive.
[[Page 76472]]
Schedule 2 to Annex I--Productive Development Project
This Schedule 2 generally describes and summarizes the key elements
of the project that the Parties intend to implement in furtherance of
the Productive Development Objective (the ``Productive Development
Project''). Additional details regarding the implementation of the
Productive Development Project will be included in the Implementation
Documents and in the relevant Supplemental Agreements.
1. Background
Of the 850,000 residents of the Northern Zone (12 percent of the
national population), approximately 263,000 are economically active.
Poverty is a common denominator among families in the region, where
more than half of the households live in poverty and 50,000 households
live in extreme poverty. The per capita monthly income of Northern Zone
residents is 60 percent of the national average. The largely rural
region is composed of 92 municipalities, most encompassing fewer than
2,000 households. Unemployment is pervasive, affecting most age groups.
In particular, the difficulties posed by unemployment among young
people are aggravated by the lack of education resources in the region.
With little hope for increased investment, productivity or employment
in the Northern Zone, residents often see migration to the southern
part of the country or to other countries as their best option to
improve life for themselves and their families.
Approximately 40 percent of the population of the Northern Zone is
engaged in low-productivity activities, including the production of
traditional crops (maize, beans, forage). Limited technical and
business knowledge and limited access to financial resources have
inhibited regional economic growth. Only two percent of loans in El
Salvador are extended to inhabitants of the Northern Zone, of which
only four percent are extended to the agricultural sector.
Studies of El Salvador have found that increased income of rural
households is most often attributable to access to markets for higher
value goods and services, access to infrastructure, and remittances.
The Productive Development Project seeks to increase the incomes of
Northern Zone residents by providing technical assistance, training,
and financial support to alleviate constraints to high quality
production, increased productivity and access to investment capital.
The Productive Development Project is intended to help the region jump-
start investment, particularly in activities that will benefit the poor
and disadvantaged (with special focus on women and youth). Banking
institutions in the Northern Zone also will be strengthened as a result
of this Project.
2. Summary of Productive Development Project and Related Project
Activities
The Productive Development Project will assist with the development
of profitable and sustainable productive business ventures, with a
primary focus on assisting poor farmers shift to the cultivation of
high-value crops, forestry, and animal products. Business development
support for micro, small and medium enterprises in other sectors,
including tourism and artisanry, will also be provided. The Government,
through Banco Multisectorial de Inversiones (``BMI''), will be
responsible for the implementation of all the Project Activities of the
Productive Development Project, consistent with the outcomes of the
SEA. The Government, through BMI, will prepare an operations manual
(the ``PD Operations Manual'') with respect to the Productive
Development Project, which must be approved by MCC and FOMILENIO. The
PD Operations Manual shall include, among other things, the rules
governing the delivery of subsidized in-kind (material inputs) and
technical assistance and environmental and social/gender guidelines.
MCC Funding will support the following Project Activities:
Production and Business Services: To provide technical
assistance to poor farmers to shift to high-value agricultural
production and forestry strategies and to provide pre-investment
studies and technical assistance for the development and implementation
of business plans for Project beneficiaries located in the Northern
Zone or greatly benefiting the Northern Zone population;
Investment Support: To provide investment capital to
competitively selected applicants for business activities located in
and benefiting poor inhabitants of the Northern Zone; and
Financial Services: To provide financial enhancements to
support increased lending activity by banks and non-bank financial
institutions in the Northern Zone.
FOMILENIO will ensure the establishment of an independent
investment committee (the ``PD Investment Committee'') to oversee and
guide activities within the Production and Business Services Activity
and the Investment Support Activity and, to the extent specified in the
PD Operations Manual, the Financial Services Activity. The PD
Investment Committee will be governed by and must adhere to the PD
Operations Manual and will be composed of representatives agreed upon
by MCC, FOMILENIO and BMI. The PD Investment Committee will review and
make recommendations to FOMILENIO regarding the allocation and use of
resources for the Production and Business Services Activity and the
Investment Support Activity at various stages of the implementation
process.
The M&E Plan (described in Annex III) will set forth anticipated
results and, where appropriate, regular benchmarks that may be used to
monitor the progress of the implementation of the Productive
Development Project. Performance against these benchmarks, as well as
the overall impact of the Productive Development Project, will be
assessed and reported at the intervals to be specified in the M&E Plan,
or as otherwise agreed by the Parties, from time to time. The Parties
expect that additional indicators will be identified during
implementation of the Productive Development Project. The expected
results from, and the key benchmarks to measure progress on, the
Productive Development Project, as well as the Project Activities
undertaken or funded thereunder, are set forth in Annex III.
Estimated amounts of MCC Funding for each Project Activity for the
Productive Development Project are identified in Annex II. Conditions
precedent to each Project Activity under the Productive Development
Project, and the sequencing of such Project Activities, shall be set
forth in the Disbursement Agreement, other Supplemental Agreements or
the relevant Implementation Documents.
The following summarizes each Project Activity under the Productive
Development Project:
(a) Project Activity: Production and Business Services (the
``Production and Business Services Activity'')
The programs within the Production and Business Services Activity
are intended to help poor farmers, organizations and micro-, small, and
medium enterprises that benefit poor inhabitants of the Northern Zone
successfully transition to higher-profit activities, generating new
investment, expanding markets and sales, and creating new jobs in ways
that stimulate sustainable economic growth and poverty reduction.
Through an international competitive process, FOMILENIO, with technical
guidance from BMI, will contract with service
[[Page 76473]]
providers (the ``PRONORTE Service Providers'') to carry out the
Production and Business Services Activity.
Specifically, MCC Funding will support the following activities for
poor farmers, organizations and micro, small, and medium enterprises
that benefit poor inhabitants of the Northern Zone:
(i) Investment Planning. The PRONORTE Service Provider will confirm
assessments of high return investments, primarily in the agriculture
sector. Other sectors will be considered, including tourism and
artisanry. These assessments will be used to guide business plan
development and technical assistance. The investment planning will: (a)
Ensure all investments meet economic viability benchmarks; (b)
determine the technical feasibility of the proposed activities; (c)
assess the environmental sensitivity and social impact; and (d) propose
a detailed strategy for outreach to target male and female
beneficiaries in the Northern Zone.
(ii) Assistance to Small Farm Enterprises. The primary focus of
this activity is to transform on-farm productive practices of poor
farmers by effecting a shift to high-value crops, forestry, and animal
products. This objective will be pursued through two related
mechanisms: the delivery of on-farm technical assistance by contracted
extension services and the provision of material assistance. The
outreach plans must be approved by MCC and must incorporate gender
analysis. Technical assistance to farmers will likely include training
in production management, application of best practices in agriculture
(such as complying with sanitary and phytosanitary standards) and
forestry (such as forest certification and reduced impact logging),
post-harvest management, and market access information. In-kind
assistance will include the provision of new crop material and,
possibly, livestock, with a significant cost-share by all participants.
One potential activity will be the development of forestry through
investments in trees as on-farm productive assets for small and medium-
sized farms. This activity has additional benefits of soil
conservation, strengthening natural resource management and providing
potential opportunities for carbon credits. As with other assistance to
farmers, this provision of in-kind assistance will be delivered with a
significant cost-share by participants in the program. All technical
assistance will be in compliance with Salvadoran laws and regulations
and the Environmental Guidelines and will encourage farm enterprises to
employ environmentally sustainable practices and will disseminate
environmental sustainability principles that include guidance on the
proper selection, use, storage, and disposal of pesticides. The
PRONORTE Service Provider will ensure proper practices to minimize and
mitigate the potential negative impacts of any significant land
conversion. Any land acquisition and involuntary resettlement involved
with this activity will be done in compliance with the World Bank's
Operational Policy on Involuntary Resettlement (OP 4.12).
(iii) Business Development Services. Based on PD Investment
Committee guidance of focus areas, the PRONORTE Service Providers will
undertake outreach and technical assistance and training to support the
development of agribusiness and non-agricultural commercial activities,
possibly including tourism and artisan products, as validated by the
investment planning sub-activity. The objective will be to support the
development of efficient, sustainable commercial activities that
generate employment and raise rural incomes in the region. Limited
assistance may be provided to other enterprises to develop valuable
market linkages and networks with target individuals and organizations.
The outreach plans must be approved by MCC and must incorporate gender
analysis. Technical assistance to new or expanded commercial activities
likely will include market access information, business plan
development and legal assistance with land title registration.
Technical assistance will encourage businesses to employ
environmentally sustainable practices and will disseminate
environmental sustainability principles. Support to commercial
establishments will be delivered, to the extent possible, through
private service providers and will include a significant element of
cost-sharing by participating entrepreneurs, both of which are critical
elements of a strategy to develop a sustainable business development
sector.
(b) Project Activity: Investment Support (the ``Investment Support
Activity'')
To attract private investment in and various types of financing for
high-value economic activities in the Northern Zone, the Investment
Support Activity will utilize MCC Funding to support a demand-driven,
competitive process to provide capital to critical investments required
for successful operation of a business activity that is part of a value
chain that will be located in and/or benefit poor inhabitants in the
Northern Zone. The goal of the Investment Support Activity is to make
investment capital available to poor individuals, and organizations
that benefit poor inhabitants of the Northern Zone, who, due to
insufficient collateral and lack of liquid assets, are not able to
finance their investments. This investment support is intended to
reduce poverty by enabling the creation of profitable and sustainable
business activities that generate employment and significantly raise
income.
Specifically, MCC Funding will support the administration and
funding of an investment support program providing investment capital
for the development of competitively selected business proposals. The
Government, through BMI, will implement the investment support program
through a suitable vehicle managed by BMI and funded with grants from
FOMILENIO.
The Investment Support Activity will require potential proponents
to make proposals to compete for support based on transparent criteria,
including, without limitation, a fully developed business plan and the
provision of a significant contribution either of their own or of their
business partners' resources. These elements help ensure that resources
are directed to the most promising business endeavors, encouraging
alliances, joint ventures, and other forms of collaboration between
more established enterprises and smaller/disadvantaged organizations
and individuals in the Northern Zone. This also is expected to lead to
faster start-up and increased chances of success and sustainability.
Beneficiaries assisted in developing a business plan under the
Production and Business Services Activity may submit those business
plans for award consideration under the Investment Support Activity;
however, investment support applications may also be submitted by
candidates that have not received assistance under the Production and
Business Services Activity or otherwise under the Productive
Development Project.
Proposals will be reviewed, ranked and recommended for approval by
the PD Investment Committee. Minimum eligibility (pass/fail) criteria
will be defined subject to MCC approval, including a minimum economic
return threshold (returns must be higher than the rate defined in Annex
III to this Compact), technical feasibility, and financial need.
Proposals will be evaluated according to specified criteria approved by
MCC, including criteria with respect to the following: (i) Financial
rate of return; (ii) economic rate of return; (iii) co-investment
level; (iv) environmental and social
[[Page 76474]]
considerations; (v) technical feasibility; and (vi) employment and
other community impacts.
The Investment Support Activity will be governed by and must adhere
to rules and procedures documented in the PD Operations Manual. The
capital investments made must be designed to be liquidated, whether by
repurchase by the recipient, fulfillment of a note or contract,
purchase by third parties, or in another manner, on terms appropriate
for a capital investment as regards the size of planned liquidation
payments, and as early as reasonably possible consistent with estimated
cash flows of the business activity in which the investment is made,
all according to terms established at the time of the award and in
adherence to the principles outlined in the PD Operations Manual. At
the conclusion of the second year of the Compact Term, an assessment
will be made and appropriate changes enacted, if necessary, in the
structure and funding of the Investment Support Activity.
Prior to the end of the fourth year of the Compact Term, FOMILENIO
and MCC must complete a plan for the disposition of financial assets
generated by the Investment Support Activity. This plan must entail
either a liquidation of assets or a program to be managed by a
fiduciary agent. The selection of the liquidation agent or fiduciary
agent must be completed no later than six months prior to the end of
the Compact Term. No financial asset created under the Investment
Support Activity during the Compact Term can have an original maturity
that is later than the date that is nine years from the date of Entry
Into Force. All financial assets must be liquidated or transferred (as
per the aforementioned plan) prior to the date that is ten years after
the date of Entry Into Force.
(c) Project Activity: Financial Services (the ``Financial Services
Activity'')
Regulated financial institutions in El Salvador have substantial
liquidity, yet only a very small percentage of this liquidity is
directed towards activities in the Northern Zone. The Financial
Services Activity seeks to increase lending and access to credit and
other financial services and to improve the risk profile of micro,
small and medium producers and rural entrepreneurs in the Northern
Zone.
MCC Funding will support the following programs. The specific terms
and conditions of MCC-supported sub-activities under the Financial
Services Activity will be set forth in term sheets and other
documentation relating to implementation, to be agreed upon by
FOMILENIO and MCC.
(i) Guarantee Funds. MCC Funding will support two guarantee
programs, as follows:
(1) FOMILENIO will establish a guarantee program, to be
administered by the Government, through BMI, based upon the model of El
Salvador's Programa de Garanta Agropecuaria (``PROGARA''), a
governmental program managed by BMI which provides guarantees to
farmers to facilitate access to credit and reduce credit risk for the
participating financial institutions. To encourage the participation of
financial intermediaries, MCC Funding will be used to pay commissions
to financial intermediaries that guarantee loans incurred by producers
in the vegetable, fruits and dairy sectors. In addition, MCC Funding
will be used to establish a reserve to cover potential defaults of up
to 50 percent of loan amount of participating medium size farmers and
up to 70 percent of loan amounts for micro and small farmers.\1\ These
levels will be reevaluated and adjusted as appropriate after the second
year of the program.
---------------------------------------------------------------------------
\1\ Micro, small and medium farmers, as defined in official
Government statistics.
---------------------------------------------------------------------------
(2) Sociedad de Garant[iacute]as Rec[iacute]procas (``SGR'') is a
public-private entity providing bank or commercial loan guarantees for
micro, small and medium scale enterprises, such as agroindustries,
commercial entities, light manufacturing, tourism and other services
which have been assessed and approved by SGR. These guarantees enable
enterprises to be eligible to receive loans from participating banks or
commercial lenders. MCC Funding will cover incremental SGR expenses
associated with expanding the SGR guarantee program in the Northern
Zone, as well as a reserve to increase SGR guarantee authority and
cover potential defaults.
With respect to the guarantee-related programs discussed in the
preceding paragraphs (1) and (2), any amounts provided as a reserve
will be transferred to and held in separate reserve accounts in
accordance with a disbursement schedule and procedure agreed upon
between FOMILENIO, MCC and the relevant Implementing Entity.
Prior to the end of the fourth year of the Compact Term, FOMILENIO
and MCC must complete a plan for the disposition of financial assets of
these guarantee-related programs. This plan must entail either a
liquidation of assets or a program to be managed by a fiduciary agent.
The selection of the liquidation agent or fiduciary agent must be
completed no later than six months prior to the end of the Compact
Term. No loan guaranteed by these guarantee-related programs can have
an original maturity that is later than the date that is nine years
from the date of Entry Into Force. All financial assets must be
liquidated or transferred (as per the aforementioned plan) prior to the
date that is ten years after the date of Entry Into Force.
(ii) Agricultural Insurance. MCC Funding will support a crop
insurance program for vegetable farmers based in the Northern Zone.
Term sheets will be developed by the Government, through, BMI with
insurance companies interested in participating in this program. MCC
Funding will cover up to 50 percent of the insurance premiums for
first-time small vegetable farmers who participate directly in the
technical assistance program under the Production and Business Services
Activity or who have received a certification of good growing practices
from the PRONORTE Service Providers. The payment will be phased out
over time. An additional insurance premium support mechanism for small
farmers in other sectors may be implemented but will be subject to the
outcome of pre-investment studies.
(1) Financial Intermediary Technical Assistance. MCC support will
provide specialized, short-term technical assistance to bank, non-bank
and non-governmental financial intermediaries in the Northern Zone that
are working to expand rural finance and improve credit analysis,
introduce new technologies into their service delivery, or develop
specialized products (such as leasing, savings, or specialized
agricultural credit products) that increase beneficiary access to
financial services. Financial intermediaries desiring such assistance
will apply on a competitive basis to the PRONORTE Service Providers.
The PRONORTE Service Providers may also offer short training workshops
on a cost-share basis for financial intermediary staff in order to
strengthen financial services delivery capacity in the Northern Zone.
3. Beneficiaries
The principal beneficiaries of the Productive Development Project
are expected to be the 55,000 poor people employed in agriculture or
non-farm activities including producers, and micro, small and medium
companies. Agribusinesses and other micro, small and medium enterprises
also will benefit from new or expanded market opportunities created
under the Productive Development Project. Underrepresented groups such
as small
[[Page 76475]]
farmers, women and youth will receive preference in the assessment of
potential beneficiaries of the Investment Support Activity.
4. Donor Coordination; Role of Private Sector and Civil Society
Loans and donations programmed by multilateral institutions in 2005
for El Salvador totaled $128.61 million. Out of the planned and on-
going donor assistance to El Salvador, the amount targeted for the
Northern Zone amounts to $43.5 million from multilateral donors: (a)
World Bank--$20.1 million for Land Regularization Program; (b)
International Fund for Agricultural Development--$10.8 million for
agricultural development; (c) the Central American Bank for Economic
Integration--$3.3 million for agricultural development; and (d) IADB--
$3.1 million for Environmental Management of the Lempa River Valley.
MCC has consulted IADB on two projects with relevance to the
Financial Services Activity. First, the IADB is expecting to approve a
micro-finance project of $1.5 million. This IADB project will increase
the resources available for on-lending from qualified intermediaries to
micro and small enterprises. These intermediaries in turn will be
eligible for participating in the PROGARA guarantee program, and
therefore will have a ready source of funds available for lending to
potential guarantees beneficiaries of the Financial Services Activity.
Second, IADB has approved a regional technical assistance program
for improving agricultural insurance programs in Central America. The
program seeks to strengthen the regulatory and legal framework for
agricultural insurance in the region; develop a platform to systematize
climatologic information for risk analysis, and design innovative
insurance products for agriculture. Although the Financial Services
Activity will not be directly affected by this IADB project, the
development of better risk analysis tools will be a positive factor for
the growth of the agricultural insurance market in El Salvador.
The World Bank is providing advisory and financial assistance to
complete the SEA related to the Program, the first of its kind led by
MARN.
Bilateral assistance in the Northern Zone amounts to $30 million,
comprised of assistance from the European Union ($24.7 million to
support a bi-national program), GTZ ($800,000 for environmental
management), and China, Japan and USAID ($3.5 million for agricultural
development).
Japan's recent four-year, $90 million loan activity for the Port of
Cutuco is directly relevant to the Productive Development Project, as
this investment will enhance the importance of the Northern Zone as a
logistical corridor and source for labor and agricultural commodities.
The Productive Development Project will complement ongoing donor
activities by significantly increasing the amount of donor assistance
dedicated to economic growth activities in the Northern Zone. Project
implementers will participate in donor coordination through the
existing mechanism and seek to work closely with all donor entities
implementing activities in the Northern Zone.
5. U.S. Agency for International Development
USAID is presently the largest bilateral donor to El Salvador
($34.23 million). MCC coordinated closely with USAID staff in
determining the feasibility of the Productive Development Project and
will continue such collaboration during Compact implementation,
particularly in connection with USAID's work in the following four
strategic areas:
(a) Export Promotion. USAID's ExPro project trains micro, small and
medium enterprises, mostly outside of the Northern Zone, in business
and export management. Collaboration related to certain components of
the Productive Development Project and the ExPro project are likely,
particularly with respect to training efforts, strategic planning,
business venture brokering, and participation in international trade
fairs.
(b) Artisan Development. This USAID program assists artisans, a
significant number of which reside in the Northern Zone, with improved
design techniques, business management training, increased sales
opportunities through international buyer missions and regional sales
promotion events.
(c) Agriculture Diversification. This USAID project encourages
diversification of coffee production to the production of specialty
coffees and horticultural products through technical assistance.
(d) Financial Services. The Financial Services Activity will
benefit from two phases of a USAID project that strengthened micro-
finance institutions in the poorest areas of El Salvador: (i) FOMIR, a
project considered highly successful, contributed to the improvement of
the quality, availability and variety of micro-finance products offered
throughout the country; many of these micro-finance institutions will
be eligible for using the guarantee mechanisms in the MCC-funded
agricultural guarantee program available under the Financial Services
Activity, thereby expanding the reach of the FOMIR program into the
rural areas; and (ii) a recently initiated USAID program to assist
regulated banks in offering better service and products to small and
medium enterprises; this USAID program will improve services provided
by banks to small and medium enterprises; the Financial Services
Activity will benefit from this new interest in small and medium
enterprises, especially in the SGR guarantee program, which utilizes
the regulated banking sector as intermediaries for its guarantees.
In addition, USAID has a newly established, active Development
Credit Authority (``DCA'') guarantee program in El Salvador. The
program will be working with two banks, ProCredit and Banco
Salvadore[ntilde]o. The DCA program is not limited in terms of
geography, so it is expected that most of the guarantees will be
concentrated in the major metropolitan areas of the country. For that
reason, and because of the limited number of banks participating in the
DCA program, it is not expected that the MCC guarantee programs and the
USAID guarantee program of the Financial Services Activity will have
much overlap during project execution.
6. Sustainability
The environmental and social sustainability of the Productive
Development Project will be assured through ongoing consultations with
the public regarding the manner in which the Productive Development
Project is being implemented. The activities funded under the
Productive Development Project will be consistent with the outcomes of
the SEA. Any land acquisition and involuntary resettlement required for
the Productive Development Project will be consistent with the World
Bank's Operational Policy on Involuntary Resettlement (OP 4.12).
Throughout the Compact Term, the Government shall ensure, directly or
through FOMILENIO (or other Permitted Designee), that requisite
environmental, social, and gender analyses are conducted, as needed, as
part of the technical survey and design of the Project Activities and
that environmental and social mitigation measures are developed and
implemented in accordance with the provisions of this Compact and
related Supplemental Agreements. In connection with Productive
[[Page 76476]]
Development Project procurements, FOMILENIO will ensure that
environmental and social assessment responsibilities are included in
the bidding documents for the design or supervisory firms, the
construction firms, the independent technical auditing firms and any
project management advisors. In addition, any required EIAs, EMPs, and
RAPs, in form and substance satisfactory to MCC, will be developed and
implemented under the Project. FOMILENIO will require environmental
monitoring of the subprojects and submittal to MCC of periodic reports
on the implementation of the environmental procedures and environmental
performance. Subprojects, for which MCC disburses funds, must have all
environmental permits required by Salvadoran law. The sustainability of
the Productive Development Project will be enhanced by institutional
capacity building and training on environmental management.
The competitive selection process of Investment Support Activity
incorporates the MCC goal of sustainability. Evaluations based on
business plan feasibility will increase the likelihood of financial
sustainability beyond the Compact Term and will support motivated
entrepreneurs and promising business endeavors. Such evaluations also
will take into consideration (a) competitive co-investment in order to
leverage private investment and ensure commitment on behalf of
beneficiaries; and (b) the environmental and social safeguards to
ensure sustainable use of the natural resource base and consideration
of social dynamics.
Additionally, the recipients under the Investment Support Activity
will receive customized technical assistance to encourage (a) the
adoption of sound technical and business management practices for the
development and operation of the investment; and (b) the establishment
of legal entities and financial mechanisms necessary to provide
maintenance, replacement and improvement of investments over time.
Technical training of producers and technical experts also will improve
the human resource base, thereby improving the quality of local
services provided along targeted value chains.
The Financial Services Activity has been designed to be financially
sustainable at the end of the Compact Term. In the two guarantee
programs, MCC Funding will be used principally to increase the
guarantee authority by creating a reserve that would earn income until
the funds are needed for losses under the program. As long as the
losses are contained at a manageable level, these MCC resources will
remain when the Compact expires, and could be used to capitalize the
guarantee funds permanently or for some other use. The relatively small
amount of MCC Funding that could be considered expenses are the
financial incentives for the intermediaries, in the case of the MCC-
funded agricultural guarantee program, and the incremental expenses for
starting up and promoting the guarantee program in the northern region,
in the case of SGR. In both of these cases, the payments may be
discontinued after three years, when it is expected that the critical
mass will be reached to permit reaching operational break-even for the
guarantee programs. From that point, the normal charges for commissions
and fees would be sufficient to cover the expenses of the guarantee
programs.
The agricultural insurance program will pay up to 50 percent of the
premiums for insuring selected vegetable crops. This program will test
the ability of the producers and insurance companies to reach
appropriate and affordable levels of premiums according to the losses
incurred over a reasonable period of time. This ability will be
assisted by the aforementioned IADB project, which is intended to
strengthen all aspects of the agricultural insurance industry.
7. Policy; Legal and Regulatory Reform; Government Actions
The Parties have identified the following policy, legal and
regulatory reforms and actions that the Government shall pursue in
support, and to reach the full benefits, of the Productive Development
Project, the satisfactory implementation of which will be conditions
precedent to certain MCC Disbursements as provided in the Disbursement
Agreement:
(a) The Government shall ensure that property rights in the
Northern Zone will be strengthened by the formal registration of land
rights and the modernization of the property registry and cadastre in
municipalities and/or departments benefiting directly from the
Productive Development Project. The Government shall ensure, and MCC
will monitor, that land title issues are addressed to the satisfaction
of MCC during the Compact Term.
(b) The Government shall ensure that the MARN Program Requirements
are satisfied as and when specified in Section 6 of Annex I to this
Compact.
(c) The Government shall ensure that BMI creates the proper
financial instruments and mechanisms to implement the Investment
Support Activity.
8. Proposals
Public solicitations for proposals are anticipated to procure
goods, works and services, as appropriate, to implement all Project
Activities under the Productive Development Project. FOMILENIO will
develop, subject to MCC approval, a process for consideration of all
such proposals. Notwithstanding the foregoing, FOMILENIO may also
consider, using a process developed subject to MCC approval, any
unsolicited proposals it might receive.
Schedule 3 to Annex I--Connectivity Project
This Schedule 3 generally describes and summarizes the key elements
of the project that the Parties intend to implement in furtherance of
the Connectivity Objective (the ``Connectivity Project''). Additional
details regarding the implementation of the Connectivity Project will
be included in the Implementation Documents and in relevant
Supplemental Agreements.
1. Background
The Connectivity Project addresses the issue of the Northern Zone's
physical isolation in an attempt to fully integrate this region into
the development plans of El Salvador. The isolation of the Northern
Zone is an impediment to its development and a contributor to the
widespread poverty that affects more than half of households in the
Northern Zone. Improving transportation connectivity in the Northern
Zone will stimulate human and productive development by reducing the
time and cost of travel, facilitating access to markets, encouraging
regional development and productive land use, attracting investment,
and improving access to health and education services.
Current road conditions and, in some places, the lack of roads have
contributed to the isolation of the Northern Zone. With the
Connectivity Project, 57 municipal capitals within El Salvador will be
linked by a reliable, paved road. Currently, 23 of the 57
municipalities have only unpaved dirt roads. During periods of heavy
rain, the current roads--especially unpaved roads--can become
impassable. In the Northern Zone, many neighboring communities do not
have direct, reliable transport routes connecting them, so community
members must travel great distances, or over difficult conditions, to
access services or markets in neighboring communities. The Connectivity
Project will provide
[[Page 76477]]
significantly greater access that will alleviate these difficulties as
well as decrease travel time and vehicle operation and maintenance
costs.
2. Summary of Connectivity Project and Related Project Activities
The Connectivity Project will apply MCC Funding to the completion
of a two-lane transnational highway across the Northern Zone (the
``Northern Transnational Highway'' or ``NTH''), which will serve as a
transport artery within the Northern Zone and will augment
international connectivity through two new border crossings, one with
Honduras in the east and one with Guatemala in the west. In addition,
the Connectivity Project will fund improvements to a strategic network
of connecting roads (the ``Network of Connecting Roads'' or ``NCR'').
The Network of Connecting Roads will provide reliable paved roads to
foster the connection of remote municipalities and rural villages of
the Northern Zone with the NTH and other regional and national traffic
routes.
MCC Funding will support the following Project Activities:
Northern Transnational Highway: To design and construct
openings of approximately 50 km of secondary \1\ roads; to improve
approximately 160 km to secondary road standards; and to rehabilitate
approximately 80 km to secondary road standards;\2\ and
---------------------------------------------------------------------------
\1\ ``Secondary'' roads are composed of a paved traveled way of
two 3.25 m wide lanes (6.50 m traveled way) and 1.5 m wide
shoulders, and include surface drainage.
\2\ The work to be performed on the NTH and the NCR can be
classified by the following standard descriptions: (i)
``improvement'' means that the geometric characteristics of an
existing road are changed to raise the standards of the road; this
type of work implies widening of lanes, adding or widening
shoulders, increasing the minimum radius of curvature, decreasing
maximum slopes and paving unpaved roads; (ii) ``Rehabilitation''
means that the general geometric characteristics, except width, of
an existing paved road are maintained; this work requires improving
pavement surface or pavement structure or drainage; and (iii)
``opening'' a new road means that no road exists; in connection with
such work cuts often occur on the slopes in mountainous zones and
significant modification of the topography often occurs, at least
within the area of influence of the road.
---------------------------------------------------------------------------
Network of Connecting Roads: To improve approximately 240
km to modified tertiary road \3\ standards.
---------------------------------------------------------------------------
\3\ ``Modified tertiary roads'' are roads that have a paved
traveled way of 6.0 m and 1.0 m shoulders, and include drainage
structures. These modified tertiary roads will contribute greatly to
improving mobility in the Northern Zone and to the success of the
Human Development Project and Productive Development Project.
---------------------------------------------------------------------------
The M&E Plan (described in Annex III) will set forth anticipated
results and, where appropriate, regular benchmarks that may be used to
monitor the progress of the implementation of the Connectivity Project.
Performance against these benchmarks, as well as the overall impact of
the Connectivity Project, will be assessed and reported at the
intervals to be specified in the M&E Plan, or as otherwise agreed by
the Parties, from time to time. The Parties expect that additional
indicators will be identified during implementation of the Connectivity
Project. The expected results from, and the key benchmarks to measure
progress on, the Connectivity Project, as well as the Project
Activities undertaken or funded thereunder, are set forth in Annex III.
Estimated amounts of MCC Funding for each Project Activity for the
Connectivity Project are identified in Annex II. Conditions precedent
to each Project Activity under the Connectivity Project, and the
sequencing of such Project Activities, shall be set forth in the
Disbursement Agreement, other Supplemental Agreements or the relevant
Implementation Documents.
The following summarizes each Project Activity under the
Connectivity Project:
(a) Project Activity: Northern Transnational Highway (the ``Northern
Transnational Highway Activity'')
The Northern Transnational Highway will provide contiguous and
reliable access to communities in the Northern Zone, as well as to main
transport corridors, thereby enabling the Northern Zone to participate
more fully in the national and regional economy. When completed, the
NTH will extend across El Salvador from Guatemala in the west to
Honduras in the east, and will connect with roads to southern El
Salvador, to the new Pacific Ocean port at La Union in eastern El
Salvador and to the Caribbean ports in Guatemala (Puerto Barrios) and
Honduras (Puerto Cortez). Primarily, the NTH will follow a course of
existing roads; with only 50 km of new roads needed to connect the
different sections of road to form a continuous transnational paved
surface.
As El Salvador increases its participation in international and
regional markets through the Central America-Dominican Republic-United
States Free Trade Agreement (CAFTA-DR) and Plan Puebla-Panam[aacute]
activities, the NTH will provide valuable access to a wider range of
opportunities for the communities of the Northern Zone. Reliable and
efficient transportation schemes are essential to El Salvador's
participation in international and regional markets, and especially
essential to small, local producers and suppliers. Currently, the
Northern Zone has neither a reliable nor an efficient transport route
for the goods and services of the communities in the Northern Zone. The
Northern Transnational Highway Activity will provide wide-ranging
benefits, including helping produce to arrive at markets undamaged and
in a timely manner, allowing efficient access of public services such
as ambulances and public transportation, and reducing vehicle operation
and maintenance costs.
Subject to modifications based on findings of the feasibility
study, the NTH can be described by road segments, as follows:
------------------------------------------------------------------------
Length
Segments of NTH (km)
------------------------------------------------------------------------
La Virgen (El Salvador--Guatemala border)--Nueva Concepcion.. 56.3
Chalatenango--Nuevo Eden de San Juan......................... 99.3
Nuevo Eden de San Juan--Oscicala............................. 62.9
Oscicala--Concepci[oacute]n de Oriente (El Salvador--Honduras 72.4
border).....................................................
----------
Total.................................................... 290.8
------------------------------------------------------------------------
Specifically, MCC Funding will support the following:
(i) Design; environmental assessment, as needed (to include, if
necessary, supplemental EIAs, EMPs, and RAPs); and construction
activities for the opening, improvement, or rehabilitation of
approximately 290 km of the NTH;
(ii) Implementation of environmental and social mitigation measures
as identified in the EIA, or as otherwise may be appropriate, to
include compensation for physical and economic displacement of
individuals, residences and businesses affected by such rehabilitation
and construction, consistent with the World Bank's Operational Policy
on Involuntary Resettlement (OP 4.12), and implementation of HIV/AIDS
awareness plans satisfactory to MCC;
(iii) Design and construction of drainage structures, as may be
required;
(iv) Design and construction of all necessary new bridges and
rehabilitation of existing bridge structures, as may be required;
(v) Posting of signage and incorporating other safety improvements;
(vi) Project management, supervision and auditing of such
improvements and upgrades; and
(vii) Training in environmental management.
[[Page 76478]]
(b) Project Activity: Strategic Network of Connecting Roads (the
``Connecting Roads Activity'')
Under current conditions, many rural roads in the Northern Zone are
virtually impassable without a four-wheel drive vehicle. In addition,
considering the high rainfall and flooding levels common in the region,
these roads are not only inefficient, but also dangerous.
By improving approximately 240 km of primarily dirt roads to
modified tertiary road status, the Connecting Roads Activity will
connect vast rural areas of the Northern Zone with the NTH and with the
existing paved road network. The improvement of connecting roads will
improve transportation linkage and reduce transportation costs and
time. Northern Zone residents will have mobility within their hometowns
and will have access to territories beyond their usual boundaries.
Subject to modifications based on findings of the feasibility
study, NCR can be described by road segments, as follows:
------------------------------------------------------------------------
Length
Road segments (km)
------------------------------------------------------------------------
VT1: San Jos[eacute] Cancasque--Potonico--Cerr[oacute]n 23.04
Grande--Jutiapa--Tejutepeque y Ramal........................
VT4: Ilobasco--Presa 5 de Noviembre.......................... 32.4
VT8: S. Miguel de Mercedes--S. Antonio Los Ranchos--Potonico. 14.93
VT16: Nombre de Jes[uacute]s--Arcatao........................ 16.87
VT5: Masahuat--Santa Rosa Guachipil[iacute]n................. 12.25
VT6: Nueva Concepci[oacute]n--Texistepeque................... 27.29
VT7: San Fernando--Dulce Nombre de Mar[iacute]a.............. 31
VT11: San Francisco Moraz[aacute]n--Tejutla--El 15.03
Para[iacute]so..............................................
VT2: Sesori--Et. SAM31E (Nuevo Ed[eacute]n de San Juan)...... 15.3
VT3: Anamor[oacute]s--Lislique............................... 8.5
VT13: Perqu[iacute]n--Paso del Mono.......................... 13.17
VT15: CA:7--Arambala--Joateca................................ 17.8
VT17: SAM33, Cant[oacute]n El Carrizal--San Antonio.......... 7.15
VT18: MOR13W, San Sim[oacute]n--San Isidro................... 3.65
----------
Total.................................................... 238.38
------------------------------------------------------------------------
Specifically, MCC Funding will support the following:
(i) Design; environmental assessment, as needed (to include, if
necessary, supplemental EIAs, EMPs, and RAPs); and construction
activities for the improvement of approximately 240 km of the NCR;
(ii) Implementation of environmental and social mitigation measures
as identified in the EIA, or as otherwise may be appropriate, to
include compensation for physical and economic displacement of
individuals, residences and businesses affected by such rehabilitation
and construction, consistent with the World Bank's Operational Policy
on Involuntary Resettlement (OP 4.12), and implementation of HIV/AIDS
awareness plans satisfactory to MCC;
(iii) Design and construction of drainage structures, as may be
required;
(iv) Design and construction of all necessary new bridges and
rehabilitation of existing bridge structures, as may be required;
(v) Posting of signage and incorporating other safety improvements;
(vi) Project management, supervision and auditing of such
improvements and upgrades; and
(vii) Training in environmental management.
3. Beneficiaries
The direct and immediate beneficiaries of the Connectivity Project
will be the inhabitants of the Northern Zone, which covers an area of
7,500 square kilometers, over one-third of the national territory.
Approximately 600,000 inhabitants of the Northern Zone are estimated to
benefit, 52 percent of which are women. In addition, Salvadorans beyond
the Northern Zone's boundaries will benefit from the integration of the
Northern Zone and its people into a sustainable development process for
El Salvador and the Central American region. The improvements to the
road network in the Northern Zone will contribute to improving life in
six departments of the country.
4. Donor Coordination; Role of Civil Society
The Connectivity Project forms an integral part of an international
effort to improve the road network of El Salvador. The total estimated
cost of planned improvements to the network is approximately $331
million. The Government has petitioned the multilateral development
banks and bilateral donor community for cooperation in this effort.
IADB and the European Union are expected to provide substantial
assistance to complement the activities of the Government and the
activities funded by MCC. The World Bank is providing advisory and
financial assistance to complete the SEA related to the Program, the
first of its kind led by MARN.
In developing the Connectivity Project, MCC held coordination
meetings with many in the donor community. MCC provided information on
the proposed projects and gathered important information regarding the
relationship between the Government and the donor organizations, as
well as the planned donor activity. The interventions financed by other
entities do not conflict with the Connectivity Project. Rather, they
contribute to create a more comprehensive road network, by
incorporating roads that connect to the NTH or roads of the NCR to
smaller towns.
The consultations conducted by CND revealed broad interest in
addressing the Northern Zone's isolation and limited connectivity.
Diverse segments of Salvadoran population and institutions agree on the
importance of the Connectivity Project in integrating the Northern Zone
and fostering regional and national development.
Civil society will play a vital role in the overall success and
sustainability of the Connectivity Project. Primarily as independent
agents, NGOs, community organizations, and local environmental units
are expected to aid in the informal monitoring of construction
activities and post-construction activity along the NTH and the NCR.
Ongoing public consultation by the Ministry of Public Works (``MOP'')
and MARN will provide the avenue for public discourse and consultation
regarding the design,
[[Page 76479]]
environmental assessment, and implementation of Project Activities
throughout the Compact Term.
5. U.S. Agency for International Development
USAID currently does not focus specifically on road network
interventions in El Salvador. However, FOMILENIO will continue to
dialogue with USAID to identify potential opportunities for
coordination with respect to the Connectivity Project. MCC has
consulted with USAID throughout the due diligence process on HIV/AIDS-
related concerns. USAID does fund several regional HIV/AIDS prevention
initiatives that have offices and activities in El Salvador. These
include Proyecto AccionSIDA de Centroamerica and the Pan American
Social Marketing Organization. With increased access in the Northern
Zone due to these Project Activities and the inevitable influx of
construction workers to the Northern Zone, these programs may provide
essential services to the communities of the Northern Zone in
conjunction with the activities of the Connectivity Project.
6. Sustainability
MOP is the principal institution responsible for the effective and
sustainable management of the road network in El Salvador. As such, MOP
plays a central role in coordinating and regulating the activities of
Fondo de Conservaci[oacute]n Vial (``FOVIAL''), an autonomous entity
established in 2000 by the Government. FOVIAL will conduct periodic and
routine maintenance on the roads constructed under the Connectivity
Project.
FOVIAL is funded by a mandated surcharge of 20 cents per gallon of
fuel sold. An extensive campaign, which includes distribution of
brochures, newspapers inserts, television and radio announcements, is
continuously conducted to explain to Salvadorans the use and benefits
of this fuel surcharge.
The environmental and social sustainability of the Connectivity
Project will be assured through ongoing consultations with the public
regarding the manner in which the Connectivity Project is being
implemented. In addition, the SEA conducted for the Northern Zone will
include an assessment of the Project Activities within the Connectivity
Project. Throughout the Compact Term, the Government will ensure,
directly or through FOMILENIO (or other Permitted Designee), that
environmental and social mitigation measures are developed and
implemented for the Project in accordance with the provisions of this
Compact and any relevant Supplemental Agreements. FOMILENIO will
monitor the implementation of the mitigation measures, as necessary,
during implementation. In connection with Connectivity Project
procurements, FOMILENIO will ensure that environmental and social
assessment responsibilities are included in the bidding documents for
the design or supervisory firms, the construction firms, the
independent technical auditing firms and any project management
advisors. Any MCC Disbursements for construction related to the
Connectivity Project will be contingent upon completion of the EIA,
EMPs, any required RAPs and HIV/AIDS awareness plans and issuance of
environmental permits, as needed, or any Government statutory
requirements, satisfactory to MCC. The sustainability of the
Connectivity Project will be enhanced by institutional capacity
building and training on environmental management.
7. Policy; Legal and Regulatory Reform; Government Actions
The Parties have identified the following policy, legal and
regulatory reforms and actions that the Government shall pursue in
support, and to reach the full benefits, of the Connectivity Project,
the satisfactory implementation of which will be conditions precedent
to certain MCC Disbursements as provided in the Disbursement Agreement:
(a) The Government shall ensure that MOP prepares and implements a
staffing and equipment plan, acceptable to MCC, to enhance MOP's
capabilities for managing the Connectivity Project. To the extent not
covered by MCC Funding allocated for such purpose in the Financial
Plan, the Government shall provide the resources necessary for MOP to
implement the staffing and equipment plan as further specified in the
Disbursement Agreement.
(b) By the time specified in the Disbursement Agreement, the
Government shall ensure that MOP creates and fills at least three
additional permanent staff positions in MOP's environmental management
sub-unit as described in the staffing plan described in paragraph (a)
above. The environmental management sub-unit shall serve as the MOP
representative concerning environmental aspects of the Connectivity
Project and other environmental management activities of MOP. The
Government shall provide appropriate resources to MOP for such
permanent staff positions.
(c) By the time specified in the Disbursement Agreement, the
Government shall prepare, and shall submit to MCC, a detailed
maintenance plan acceptable to MCC for all roads included in the
Connectivity Project. Such maintenance plan shall set forth, with
respect to all roads included in the Connectivity Project, the schedule
of and the budget requirements for both routine and periodic
maintenance of all such roads during the Compact Term and thereafter
for the life of such roads. All such maintenance shall be undertaken as
part of FOVIAL's general maintenance program for the national road
network. The Government shall provide adequate funding for all such
maintenance of the roads included in the Connectivity Project during
the Compact Term; thereafter, the Government expects to provide
adequate funding for all such maintenance of the roads included in the
Connectivity Project for the remaining life of such roads.
(d) By the time specified in the Disbursement Agreement, the
Government shall ensure that an implementation plan acceptable to MCC
for sustainable border control measures at all new border crossings is
prepared in coordination with the Bureau for International Narcotics
and Law Enforcement Affairs, the Department of Homeland Security and
the Drug Enforcement Agency at the U.S. Embassy.
(e) The Government shall ensure that MOP updates its bridge
management system for the monitoring and maintenance tracking of all
bridge structures included in the national road network. By the time
specified in the Disbursement Agreement, MOP shall provide a bridge
replacement or rehabilitation plan acceptable to MCC for the existing
bridges of the Northern Zone road network that are outside of the NTH
and NCR and are identified as unsafe. The Government shall provide
adequate funding for completion of construction activities to replace
or rehabilitate the unsafe bridges identified in such plan by the end
of the fourth year of this Compact.
(f) The Government shall conduct, at its own expense, an EIA, a
feasibility study, and partial design activities, to include the
development of EMPs, any required RAPs, and HIV/AIDS awareness plans to
be implemented under the Connectivity Project, each to the satisfaction
of MCC. The EIA, which is part of the feasibility and design study,
will determine the environmental, social, and gender impacts;
cumulative and induced impacts; and existence of economic and physical
displacement, if any. Further, to the extent possible, the EIA and
[[Page 76480]]
design activities will be consistent with the outcomes of the SEA. Any
required RAPs will be developed and implemented in compliance with the
World Bank's Operational Policy on Involuntary Resettlement (OP 4.12).
(g) The Government shall provide assurance that all new bridge
projects resulting from the feasibility study and final design of the
NTH and the NCR will receive adequate funding for completion if the
resulting costs exceed the total amount allocated in this Compact for
the Connectivity Project.
(h) The Government shall ensure that property rights in the
Northern Zone will be strengthened by the formal registration of land
rights and the modernization of the property registry and cadastre in
areas adjacent to the corridor of the roads improved under the
Connectivity Project. The Government shall ensure that land title
issues are addressed to the satisfaction of MCC during the Compact
Term.
(i) The Government shall ensure that the MARN Program Requirements
are satisfied as and when specified in Section 6 of Annex I.
Annex II--Summary of Multi-Year Financial Plan
This Annex II to the Compact (the ``Financial Plan Annex'')
summarizes the Multi-Year Financial Plan for the Program. Each
capitalized term in this Financial Plan Annex shall have the same
meaning given such term elsewhere in this Compact. Unless otherwise
expressly stated, each Section reference herein is to the relevant
Section of the main body of this Compact.
1. General
A multi-year financial plan summary (``Multi-Year Financial Plan
Summary'') is attached hereto as Exhibit A. By such time as specified
in the Disbursement Agreement, FOMILENIO will adopt, subject to MCC
approval, a Multi-Year Financial Plan that includes, in addition to the
multi-year summary of estimated MCC Funding and the Government's
contribution of funds and resources, an estimated draw-down rate for
the first year of the Compact Term based on the achievement of
performance milestones, as appropriate, and the satisfaction or waiver
of conditions precedent. Each year, at least thirty (30) days prior to
the anniversary of Entry into Force, the Parties shall mutually agree
in writing to a Detailed Budget for the upcoming year of the Program,
which shall include a more detailed budget for such year, taking into
account the status of the Program at such time and making any necessary
adjustments to the Multi-Year Financial Plan.
2. Implementation and Oversight
The Multi-Year Financial Plan and each Detailed Budget shall be
implemented by FOMILENIO, consistent with the approval and oversight
rights of MCC and the Government as provided in this Compact, the
Governing Documents and the Disbursement Agreement.
3. MCC Contribution
The Multi-Year Financial Plan Summary identifies the estimated
annual contribution of MCC Funding for Program administration, M&E and
each Project.
4. Modifications
The Parties recognize that the anticipated distribution of MCC
Funding between and among the various activities for Program
administration, M&E, the Projects and the Project Activities will
likely require adjustment from time to time during the Compact Term. In
order to preserve flexibility in the administration of the Program, as
provided in Section 4(a)(iv) of Annex I, the Parties may, upon
agreement of the Parties in writing and without amending this Compact,
change the designations and allocations of funds among the Projects,
the Project Activities, or any activity under Program administration or
M&E, or between a Project identified as of Entry into Force and a new
project; provided, however, that such reallocation (a) is consistent
with the Objectives and the Implementation Documents, (b) shall not
materially adversely impact the applicable Project, Project Activity
(or any component thereof), or any activity under Program
administration or M&E as specified in this Annex II, (c) shall not
cause the amount of MCC Funding to exceed the aggregate amount
specified in Section 2.1(a) of this Compact, and (d) shall not cause
the Government's obligations or responsibilities or overall
contribution of resources to be less than specified in Section 2.2(a)
of this Compact, this Annex II or elsewhere in the Compact.
5. Conditions Precedent; Sequencing
MCC Funding will be disbursed in tranches. The obligation of MCC to
approve MCC Disbursements for the Program is subject to satisfactory
progress in achieving the Objectives and to the fulfillment or waiver
of any conditions precedent specified in the Disbursement Agreement for
the relevant activity under the Program. The sequencing of Project
Activities or sub-activities and other aspects of how the Parties
intend the Program to be implemented will be set forth in the
Implementation Documents, including the Work Plan for the Program (and
each component thereof), and MCC Disbursements and Re-Disbursements
will be made consistent with such sequencing.
6. Government Contribution
During the Compact Term, the Government shall make an appropriate
contribution, relative to its national budget and taking into account
prevailing economic conditions, toward meeting the Objectives of this
Compact. Such contribution shall be in addition to the Government's
spending allocated toward such Objectives in its budget for the year
immediately preceding the establishment of this Compact. The Government
has developed the Northern Zone Investment Plan, which includes
anticipated contributions from the Government's national budget, as
well as MCC Funding and other international contributions. According to
the Northern Zone Investment Plan, the Government anticipates making
contributions from its national budget of approximately US$ 327 million
over the Compact Term, including: (i) Approximately US$ 100 million
toward the Human Development Objective; (ii) approximately US$ 180
million toward the Productive Development Objective; and (iii) US$ 46
million toward the Connectivity Objective. The Government's
contribution remains subject to any legal requirements in El Salvador
for the budgeting and appropriation of such contribution, including
approval of the Government's annual budget by the Asamblea Legislativa.
The Government's contribution may include in-kind and financial
contributions (including obligations of the Government on any debt
incurred toward meeting the Objectives) that the Government shall make
in the satisfaction of the Government Responsibilities. The Parties may
set forth in appropriate Supplemental Agreements certain requirements
regarding the Government's contribution, which requirements may be
conditions precedent to MCC Disbursements.
[[Page 76481]]
Exhibit A.--Multi-Year Financial Plan Summary
[Millions US$]
----------------------------------------------------------------------------------------------------------------
Component Year 1 Year 2 Year 3 Year 4 Year 5 Total
----------------------------------------------------------------------------------------------------------------
1. Human Development Project..................
A. Education and Training Activity........ $2.91 $9.53 $7.15 $4.24 $3.88 $27.71
B. Community Development Activity......... 2.71 13.65 16.89 16.78 17.34 67.37
-----------------------------------------------------------------
Sub-Total............................. 5.62 23.18 24.04 21.02 21.22 95.07
----------------------------------------------------------------------------------------------------------------
2. Productive Development Project.............
A. Production and Business Services 9.53 11.94 12.04 13.63 9.77 56.92
Activity.................................
B. Investment Support Activity............ ......... 4.20 7.35 7.35 2.10 21.00
C. Financial Services Activity............ 4.02 2.14 1.36 1.02 1.00 9.54
-----------------------------------------------------------------
Sub-Total............................. 13.55 18.28 20.76 22.01 12.87 87.47
----------------------------------------------------------------------------------------------------------------
3. Connectivity Project.......................
A. Northern Transnational Highway Activity 15.09 52.88 57.85 11.93 2.21 139.95
B. Connecting Roads Activity.............. 1.36 29.91 53.73 6.87 1.74 93.61
-----------------------------------------------------------------
Sub-Total............................. 16.44 82.79 111.58 18.80 3.95 233.56
----------------------------------------------------------------------------------------------------------------
4. Accountability.............................
A. Monitoring and Evaluation.............. 1.61 1.38 1.30 2.12 3.47 9.88
B. Audit.................................. 0.45 1.51 1.89 0.77 0.50 5.11
C. Fiscal and Procurement Oversight....... 0.79 2.77 3.48 1.38 0.85 9.27
-----------------------------------------------------------------
Sub-Total............................. 2.85 5.65 6.67 4.27 4.82 24.26
----------------------------------------------------------------------------------------------------------------
5. Program Administration..................... 4.35 4.07 4.18 4.03 3.95 20.59
-----------------------------------------------------------------
Total Estimated Amount of MCC 42.82 133.97 167.22 70.12 46.81 460.94
Funding..........................
----------------------------------------------------------------------------------------------------------------
Annex III--Description of the M&E Plan
This Annex III to the Compact (the ``M&E Annex'') generally
describes the components of the M&E Plan for the Program. Except as
defined in this M&E Annex, each capitalized term in this M&E Annex
shall have the same meaning given such term elsewhere in this Compact.
1. Overview
MCC and the Government (or a mutually acceptable Government
Affiliate or Permitted Designee) shall formulate, agree to and the
Government shall implement, or cause to be implemented, an M&E Plan
that specifies (a) how progress toward the Compact Goal, Objectives,
and the intermediate results of each Project and Project Activity set
forth in this M&E Annex (the ``Outcomes'') will be monitored (the
``Monitoring Component''); (b) a methodology, process and timeline for
the evaluation of planned, ongoing, or completed Projects and Project
Activities to determine their efficiency, effectiveness, impact and
sustainability (the ``Evaluation Component''); and (c) other components
of the M&E Plan described below. Information regarding the Program's
performance, including the M&E Plan, and any amendments or
modifications thereto, as well as periodically generated reports, will
be made publicly available on the FOMILENIO Web site and elsewhere.
2. Monitoring Component
To monitor progress toward the achievement of the Compact Goal,
Objectives, and Outcomes, the Monitoring Component of the M&E Plan
shall identify (a) the Indicators, (b) the party or parties
responsible, the timeline, and the instrument for collecting data and
reporting on each Indicator to FOMILENIO, and (c) the method by which
the reported data will be validated.
(a) Indicators. The M&E Plan shall measure the results of the
Program using quantitative, objective and reliable data
(``Indicators''). Each Indicator will have one or more expected results
that specify the expected value and the expected time by which each
result will be achieved (each, a ``Target''). In addition to the
targets contained in this Annex, annual and quarterly targets will be
included in the M&E Plan, as appropriate. The M&E Plan will measure and
report on Indicators at four levels. First, the Indicators for the
Compact Goal (each, a ``Goal Indicator'') will measure the impact of
the overall Program and each Project. Second, the Indicators for each
Objective (each, an ``Objective Indicator'') will measure the final
results of the Projects to monitor their success in meeting each of the
Objectives, including results for the intended beneficiaries identified
in accordance with Annex I (collectively, the ``Beneficiaries'').
Third, intermediate Indicators (each, an ``Outcome Indicator'') will
measure the intermediate results achieved under each of the Project
Activities to provide an early measure of the likely impact of the
Project Activities. A fourth level of Indicators (each, an ``Output
Indicator'') will be included in the M&E Plan to measure the direct
outputs of the Project Activities. All Indicators will be disaggregated
by gender, income level and age, to the extent practicable. Subject to
prior written approval from MCC, FOMILENIO may add Indicators or refine
the Targets of existing Indicators.
[[Page 76482]]
Goal Indicators and Definitions for the Program
------------------------------------------------------------------------
Goal Indicators
------------------------------------------------------------------------
Poverty rate in the Northern Zone...... Percentage of residents of the
Northern Zone whose income
falls below the poverty line
as calculated by the General
Directorate for Statistics and
Census (``DIGESTYC'').
Annual per capita income of Program Average annual per capita
beneficiaries in the Northern Zone. income of Program
beneficiaries in the Northern
Zone.
Gross domestic product (GDP) of the A special study shall be
Northern Zone. contracted by FOMILENIO to
develop a methodology to
calculate GDP for the Northern
Zone.
------------------------------------------------------------------------
Compact Goal Baselines and Targets for the Program
------------------------------------------------------------------------
Goal Indicators \1\ 2004 Year 5 Year 10
------------------------------------------------------------------------
Poverty rate in the Northern
Zone.
With the Program.......... 53% 41% 34%
Without the Program....... 53% 52% 51%
Annual per capita income of
Program beneficiaries in the
Northern Zone \2\.
With the Program.......... $720 $884 \3\ $978 \4\
Without the Program....... $720 $736 $748
Gross domestic product of the TBD \5\ TBD TBD
Northern Zone.
------------------------------------------------------------------------
\1\ The targets for the Goal Indicators may be revised during
implementation after more data is collected on poverty and income in
the Northern Zone.
\2\ The targets is in constant 2004 prices. The deflator will be the
Consumer Price Index as calculated by DIGESTYC.
\3\ This is a 20% increase in income with the Program compared to the
``without the Program'' scenario.
\4\ This is a 30% increase in income with the Program compared to the
``without the Program'' scenario.
\5\ The baseline and targets for this Goal Indicator will be determined
after the special study to develop a methodology for calculating the
Goal Indicator is conducted and the methodology has been approved by
MCC.
Human Development Project Indicators and Definitions Project Activity:
Education and Training
------------------------------------------------------------------------
------------------------------------------------------------------------
Goal Indicators:
Incremental income of graduates Percentage of increase in yearly
of the Chalatenango Center. income earned by graduates of
the Chalatenango Center compared
to graduates of 12th grade.
Incremental income of graduates Percentage of increase in yearly
of middle technical schools. income earned by graduates of
middle technical schools
compared to graduates of 9th
grade.
Objective Indicators:
Employment rate of graduates of Percentage of graduates of the
the Chalatenango Center. Chalatenango Center (functioning
as a MEGATEC institute) employed
in field of study one year after
graduation.
Employment rate of graduates of Percentage of graduates of middle
middle technical schools. technical schools remodeled by
the Project Activity employed in
field of study one year after
graduation.
Outcome Indicators:
Students of the Chalatenango Total number of students enrolled
Center. in the Chalatenango Center
(functioning as a MEGATEC
institute).
Students of middle technical Total number of students enrolled
schools. in the middle technical schools
included in the Project
Activity.
Students of non-formal training.. Number of students who
participate in non-formal
training as part of the Project
Activity.
------------------------------------------------------------------------
Human Development Project Baselines and Targets Project Activity:
Education and Training
------------------------------------------------------------------------
------------------------------------------------------------------------
Goal Indicators.................... ................. Year 5
Incremental income of graduates of ................. 42%
the Chalatenango Center.
Incremental income of graduates of ................. 37%
middle technical schools.
Objective Indicators............... 2005 Year 5
Employment rate of graduates of the n.a.\6\ 70% \7\
Chalatenango Center.
Employment rate of graduates of 50% 50% \8\
middle technical schools.
Outcome Indicators................. 2005 Year 5
Students of the Chalatenango Center 0 1,100
(not cumulative).
Students of middle technical 6,000 \9\ 9,000
schools (not cumulative).
Students of non-formal training 0 13,000
(cumulative).
------------------------------------------------------------------------
\6\ The baseline is not available because the Chalatenango Center does
not currently function as an institute in the Government's MEGATEC
Network initiative which was established to expand and strengthen
secondary technical education and post-secondary education
(``MEGATEC'').
\7\ The target is to achieve at least the same level of employment as a
similar program in El Salvador.
\8\ The target is to achieve at least the same level of employment as
currently achieved by middle technical schools in El Salvador on
average.
\9\ The baseline is representative of the schools that will be included
in the Project Activity. After the schools have been selected, the
baseline will be updated.
Human Development Project Indicators and Definitions Project Activity:
Community Development
------------------------------------------------------------------------
------------------------------------------------------------------------
Goal Indicators:
[[Page 76483]]
Increase in income of water and Percentage increase in income of
sanitation beneficiaries. households receiving water and
sanitation investments.
Increase in income of Percentage increase in income of
electrification beneficiaries. households who received
connections to the electrical
grid.
Increase in income of community Increase in income of households
infrastructure beneficiaries located close to community
\10\. infrastructure.
Objective Indicators:
Cost of water.................... Price of water per cubic meter
for beneficiaries that buy water
before the Project Activity.
Water consumption................ Number of cubic meters of water
per month paid for by project
beneficiaries.
Time collecting water............ Hours per week spent collecting
water by Project households.
Reduction in the incidence of Number of times a year
water-borne diseases. beneficiaries are sick with
intestinal parasitism, diarrhea
and infectious gastroenteritis.
Reduction in days of school or Reduction of the number of days
work missed as a result of water- of school or work missed per
borne diseases. year as a result of intestinal
parasitism, diarrhea or
infectious gastroenteritis per
beneficiary.
Cost of electricity.............. Price of electricity per kilowatt-
hour for beneficiaries.
Electricity consumption.......... Number of kilowatt-hours per
month consumed on average by
rural households connected to
the electricity network by the
Project Activity.
------------------------------------------------------------------------
\10\ Community infrastructure refers to the construction of small,
strategic projects in the Northern Zone such as feeder roads and
associated drainage systems.
Human Development Project Indicators and Definitions Project Activity:
Community Development
------------------------------------------------------------------------
------------------------------------------------------------------------
Time saved accessing education and Reduction in minutes per working
health centers. day dedicated to accessing
education and health centers by
beneficiaries of the Community
Infrastructure Sub-Activity.
Outcome Indicators:
Population with water in the Number of households with access
Northern Zone. to water (within the household,
outside the household, from a
neighbor, from a public faucet,
or from a well) divided by total
number of households in the
Northern Zone.
Population with basic sanitation Number of households with access
in the Northern Zone. to either private sewage
drainage systems, latrines or
septic tanks divided by total
number of households in the
Northern Zone.
Population with electricity in Number of households with a
the Northern Zone. private electricity connection
divided by the total number of
households in the Northern Zone.
Population benefiting from Number of beneficiaries from the
community infrastructure \11\. Community Infrastructure Sub-
Activity.
------------------------------------------------------------------------
\11\ Community infrastructure refers to the construction of small,
strategic projects in the Northern Zone such as feeder roads and
associated drainage systems.
Human Development Project Baselines and Targets Project Activity:
Community Development
------------------------------------------------------------------------
------------------------------------------------------------------------
Goal Indicators: ................. Year 5 \12\
Increase in income of water and ................. 10%
sanitation beneficiaries.
Increase in income of ................. 15%
electrification beneficiaries.
Increase in income of community ................. 5%
infrastructure beneficiaries.
Objective Indicators: 2004 Year 5 \13\
Cost of water (US$ per m3)\14\. $3.00 $0.43 \15\
Water consumption (m3)......... 3.3 18
Time collecting water (hours 30 14
per week per household).
Reduction in the incidence of 0 1.5
water-borne diseases (times
per year per person).
Reduction in days of school or 0 7
work missed as a result of
water-borne diseases (days per
year per person).
Cost of electricity (per $2.57 $0.20
kilowatt-hour)\16\.
Electricity consumption 3 50
(kilowatt-hours per month).
Time saved accessing education 0 20
and health centers (minutes
per working day per
beneficiary).
Outcome Indicators: 2004 Year 5
Population with water in the 75% 85%
Northern Zone \17\ (%).
Population with basic 74% 80%
sanitation in the Northern
Zone \18\ (%).
------------------------------------------------------------------------
\12\ These targets correspond to one year after a household has received
the Project intervention.
\13\ These targets correspond to one year after a household has received
the Project intervention.
\14\ The target is in constant 2004 prices. The deflator will be the
Consumer Price Index as calculated by DIGESTYC.
\15\ The target is based on the cost of distribution only.
\16\ The target is in constant 2004 prices. The deflator will be the
Consumer Price Index as calculated by DIGESTYC.
\17\ The targets for this indicator may be revised after the completion
of the Population Census in 2007.
\18\ The targets for this indicator may be revised after the completion
of the Population Census in 2007.
Human Development Project Baselines and Targets Project Activity:
Community Development
------------------------------------------------------------------------
------------------------------------------------------------------------
Population with electricity in the 72% 97%
Northern Zone \19\ (%).
Population benefiting from 0 131,000
community infrastructure
(cumulative people).
------------------------------------------------------------------------
\19\ The targets for this indicator may be revised after the completion
of the Population Census in 2007.
[[Page 76484]]
Productive Development Project Indicators and Definitions
------------------------------------------------------------------------
------------------------------------------------------------------------
Goal Indicators:
Increase in income of Productive Average percentage increase in
Development beneficiaries. annual income of project
beneficiaries.
Objective Indicators:
Economic rate of return (ERR).... The definition and methodology
for calculating the ERR will be
set forth in the PD Operations
Manual and will be consistent
with MCC's Guidelines for
Economic Analysis.
Employment created............... Number of full-time equivalent
jobs created as a result of the
Project.
Outcome Indicators:
Investment in productive chains Spending of MCC Funding and
by selected beneficiaries. counterpart contributions on
inputs, equipment and
infrastructure as laid out in
business plans over the Compact
Term.
------------------------------------------------------------------------
Productive Development Project Baselines and Targets
------------------------------------------------------------------------
------------------------------------------------------------------------
Goal Indicators: ................. Year 5
Increase in income of ................. 15% \20\
Productive Development
beneficiaries (%).
Objective Indicators........... 2006 Year 5
Economic rate of return (%) ................. 14% \22\
\21\.
Employment created (number of 0 9,000 \23\
jobs).
Outcome Indicators: 2004 Year 5
Investment in productive chains 0 $80,000 \25\
by selected beneficiaries
(Thousands of US$) \24\.
------------------------------------------------------------------------
\20\ The target is based on the productive sectors that will increase
income within the 5 years of the Compact Term. By year 10 the annual
increase in income is expected to be 50% based on the productive
sectors that will increase income by year 10.
\21\ The economic rate of return will be monitored annually.
\22\ The target, which is based on the sectors included in the pre-
Compact economic analysis, is the same for every year.
\23\ The target is based on the sectors that were included in the pre-
Compact economic analysis.
\24\ The target is in constant 2004 prices. The deflator will be the
Consumer Price Index as calculated by DIGESTYC.
\25\ The target is based on the sectors that were included in the pre-
Compact economic analysis.
Connectivity Project Indicators and Definitions
------------------------------------------------------------------------
------------------------------------------------------------------------
Goal Indicators:
Increase in income of households Increase in income of households
near the Northern Transnational within 2 km of the Northern
Highway. Transnational Highway
Increase in income of households Increase in income of households
near the Network of Connecting within 2 km of the Network of
Roads. Connecting Roads
Land prices along the Northern Average price of land 2 km on
Transnational Highway. either side of the Northern
Transnational Highway (weighted
average of all road sections to
be opened or improved)
Land prices along the Network of Average price of land 2 km on
Connecting Roads. either side of the Network of
Connecting Roads (average of all
road sections to be improved)
Objective Indicators:
Travel time from Guatemala to Number of hours required to
Honduras through the Northern travel from Guatemala to
Zone. Honduras through the Northern
Zone
Vehicle operating costs on the Cost per vehicle (pick-up truck)
Northern Transnational Highway. per km of combustibles,
lubricants, tires, depreciation,
maintenance and repair for
travel on the Northern
Transnational Highway
Vehicle operating costs on the Cost per vehicle (pick-up truck)
Network of Connecting Roads. per km of combustibles,
lubricants, tires, depreciation,
maintenance and repair for
travel in the Network of
Connecting Roads from baseline
Annual average daily traffic on Average number of vehicles that
the Northern Transnational transit the Northern
Highway. Transnational Highway daily
Annual average daily traffic on Average number of vehicles that
the Network of Connecting Roads. transit the Network of
Connecting Roads daily
Outcome Indicators:
Average International road Weighted average IRI of the
Roughness Index (IRI) of the entire Northern Transnational
Northern Transnational Highway. Highway
Average IRI of the Network of Weighted average IRI of the
Connecting Roads. Network of Connecting Roads
------------------------------------------------------------------------
Connectivity Project Baselines and Targets
------------------------------------------------------------------------
Goal Indicators 2006 Year 5
------------------------------------------------------------------------
Increase in income of households near ......... 6%
the Northern Transnational Highway.
Increase in income of households near ......... 5%
the Network of Connecting Roads.
Land prices along the Northern $3.22 $3.40 \28\
Transnational Highway (US$ per m\2\) \27\
\26\.
Land prices along the Network of $1.86 $1.95 \31\
Connecting Roads (US$ per m\2\) \29\. \30\
------------------------------------------------------------------------
\26\ The target is in constant 2006 prices. The deflator will be the
Consumer Price Index as calculated by DIGESTYC.
\27\ The baseline is from 2006. The baseline will be confirmed by the
feasibility study. The target may be revised if there is a revision to
the baseline.
\28\ The target is based on a conservative increase in land prices that
was included in the pre-Compact economic analysis. The projected
increase in price varies by type of road intervention and the target
is a weighted average of all road segments.
\29\ The target is in constant 2006 prices. The deflator will be the
Consumer Price Index as calculated by DIGESTYC.
\30\ The baseline is from 2006. The baseline will be confirmed by the
feasibility study. The target may be revised if there is a revision to
the baseline.
[[Page 76485]]
\31\ The target is based on a conservative increase in land prices that
was included in the pre-Compact economic analysis. The projected
increase in price varies by type of road intervention and the target
is a weighted average of all road segments.
Connectivity Project Baselines and Targets
------------------------------------------------------------------------
Objective indicators 2006 Year 5
------------------------------------------------------------------------
Travel time from Guatemala to 17 hours.......... 8 hours 30 minutes
Honduras through the Northern
Zone (hours).
Vehicle operating costs on the $0.38............. $0.28
Northern Transnational Highway
(US$ per pick-up truck per
km)\32\.
Vehicle operating costs on the $0.42............. $0.24
Network of Connecting Roads
(US$ per pick-up truck per km)
\33\.
Annual average daily traffic on 379............... 436
the Northern Transnational
Highway (vehicles per day).
Annual average daily traffic on 204............... 226
the Network of Connecting Roads
(vehicles per day).
Outcome Indicators.............. 2006.............. Year 5
Average International road 10.2.............. 2.7
Roughness Index (IRI) of the
Northern Transnational Highway
(m/km).
Average IRI of the Network of 12.1.............. 2.7
Connecting Roads (m/km).
------------------------------------------------------------------------
\32\ The target is in constant 2006 prices. The deflator will be the
Consumer Price Index as calculated by DIGESTYC.
\33\ The target is in constant 2006 prices. The deflator will be the
Consumer Price Index as calculated by DIGESTYC.
(b) Data Collection and Reporting. DIGESTYC shall provide
monitoring information to FOMILENIO from the annual Household Survey
for Multiple Purposes (Encuesta de Hogares de Propositos Multiples,
``EHPM''). MCC Funding will increase the number of households included
in the EHPM sample in the Northern Zone; provided, however, that the
Government shall ensure that DIGESTYC continues to include the
necessary number of households in the EHPM sample for the Northern Zone
as required in the M&E Plan. The M&E Plan shall establish guidelines
for additional data collection and a reporting framework, including a
schedule of Program reporting and responsible parties.
The Management shall conduct regular assessments of program
performance to inform FOMILENIO and MCC of progress under the Program
and to alert these parties to any problems. These assessments will
report the actual results compared to the Targets on the Indicators
referenced in the Monitoring Component, explain deviations between
these actual results and Targets, and in general, serve as a management
tool for implementation of the Program. With respect to any data or
reports received by FOMILENIO, FOMILENIO shall promptly deliver such
reports to MCC along with any other related documents, as specified in
the M&E Plan or as may be requested from time to time by MCC.
(c) Data Quality Reviews. From time to time, as determined in the
M&E Plan or as otherwise requested by MCC, the quality of the data
gathered through the M&E Plan shall be reviewed to ensure that data
reported are as valid, reliable, and timely as resources will allow.
The objective of any data quality review will be to verify the quality
and the consistency of performance data across different implementation
units and reporting institutions. Such data quality reviews also will
serve to identify where those levels of quality are not possible, given
the realities of data collection. The data quality reviewer shall enter
into an Auditor/Reviewer Agreement with FOMILENIO in accordance with
Annex I.
3. Evaluation Component
The Program shall be evaluated on the extent to which the
interventions contribute to the Compact Goal. The Evaluation Component
of the M&E Plan shall contain a methodology, process and timeline for
collecting and analyzing data in order to assess planned, ongoing, or
completed Project Activities to determine their efficiency,
effectiveness, impact and sustainability. The evaluations should use
state-of-the-art methods for addressing selection bias. The Government
shall implement, or cause to be implemented, surveys to collect
longitudinal data on both Beneficiary and non-Beneficiary households.
The Evaluation Component shall contain two types of reports, Final
Evaluations and Ad Hoc Evaluations, and shall be finalized before any
MCC Disbursement or Re-Disbursement for specific Program activities or
Project Activities.
(a) Final Evaluation. FOMILENIO, in connection with MCC's request
to the Government pursuant to Section 3(h) of Annex I, shall engage an
independent evaluator to conduct an evaluation at the expiration or
termination of the Compact Term (``Final Evaluation''). The Final
Evaluation must at a minimum (i) evaluate the efficiency and
effectiveness of the Program; (ii) estimate, quantitatively and in a
statistically valid way, the causal relationship between the Compact
Goal (to the extent possible), the Objectives and Outcomes; (iii)
determine if, and analyze the reasons why, the Compact Goal, Objectives
and Outcomes were or were not achieved; (iv) identify positive and
negative unintended results of the Program; (v) provide lessons learned
that may be applied to similar projects; (vi) assess the likelihood
that results will be sustained over time; and (vii) any other guidance
and direction that will be provided in the M&E Plan. To the extent
engaged by FOMILENIO, such independent evaluator shall enter into an
Auditor/Reviewer Agreement with FOMILENIO in accordance with Annex I.
(b) Ad Hoc Evaluations. Either MCC or FOMILENIO may request ad hoc
or interim evaluations or special studies of Projects, Project
Activities, or the Program as a whole prior to the expiration of the
Compact Term (each, an ``Ad Hoc Evaluation''). If FOMILENIO engages an
evaluator for an Ad Hoc Evaluation, the evaluator will be an externally
contracted independent source selected by FOMILENIO, subject to the
prior written approval of MCC, following a tender in accordance with
the Procurement Guidelines, and otherwise in accordance with any
relevant Implementation Letter or Supplemental Agreement. If FOMILENIO
requires an ad hoc independent evaluation or special study at the
request of the Government for any reason, including for the purpose of
contesting an MCC determination with respect to a Project or Project
Activity or seeking funding from other donors, no MCC Funding or
FOMILENIO resources may be applied to such evaluation or
[[Page 76486]]
special study without MCC's prior written approval.
4. Other Components of the M&E Plan
In addition to the Monitoring Component and the Evaluation
Component, the M&E Plan shall include the following components for the
Program, Projects and Project Activities, including, where appropriate,
roles and responsibilities of the relevant parties and Providers:
(a) Costs. A detailed cost estimate for all components of the M&E
Plan.
(b) Assumptions and Risks. Any assumptions and risks external to
the Program that underlie the accomplishment of the Compact Goal,
Objectives, and Outcomes; provided, however, such assumptions and risks
shall not excuse performance of the Parties, unless otherwise expressly
agreed to in writing by the Parties.
5. Implementation of the M&E Plan
(a) Approval and Implementation. The approval and implementation of
the M&E Plan, as amended from time to time, shall be in accordance with
the Program Annex, this M&E Annex, the Governing Documents, and any
relevant Supplemental Agreement.
(b) Advisory Council. The completed portions of the M&E Plan will
be presented to the Advisory Council at the Advisory Council's initial
meetings, and any amendments or modifications thereto or any additional
components of the M&E Plan will be presented to the Advisory Council at
appropriate subsequent meetings of the Advisory Council. The Advisory
Council will have opportunity to present its suggestions to the M&E
Plan, which the Board shall take into consideration in its review of
any amendments to the M&E Plan during the Compact Term.
(c) MCC Disbursement and Re-Disbursement for a Project Activity. As
a condition to each MCC Disbursement or Re-Disbursement there shall be
satisfactory progress on the M&E Plan for the relevant Project or
Project Activity, and substantial compliance with the M&E Plan,
including any reporting requirements.
(d) Modifications. Notwithstanding anything to the contrary in this
Compact, including the requirements of this M&E Annex, MCC and the
Government (or a mutually acceptable Government Affiliate or Permitted
Designee) may modify or amend the M&E Plan or any component thereof,
including those elements described herein, without amending the
Compact; provided, however, that any such modification or amendment of
the M&E Plan has been approved by MCC in writing and is otherwise
consistent with the requirements of this Compact and any relevant
Supplemental Agreement between the Parties.
[FR Doc. E6-21222 Filed 12-19-06; 8:45 am]
BILLING CODE 9211-03-P