[Federal Register Volume 70, Number 141 (Monday, July 25, 2005)]
[Notices]
[Pages 42624-42671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-14195]



[[Page 42623]]

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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 Cape Verde; Notice

  Federal Register / Vol. 70, No. 141 / Monday, July 25, 2005 / 
Notices  

[[Page 42624]]


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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 05-12]


Notice of Entering Into a Compact With the Government of the 
Republic of Cape Verde

AGENCY: Millennium Challenge Corporation.

ACTION: Notice.

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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 is publishing a detailed summary and 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 Cape Verde. Representatives of the United States 
Government and the Republic of Cape Verde executed the Compact 
documents on July 4, 2005.

    Dated: July 14, 2005.
Jon A. Dyck,
Vice President & General Counsel, Millennium Challenge Corporation.

Summary of the Millennium Challenge Compact With the Republic of Cape 
Verde

I. Introduction

    Since gaining its independence from Portugal in 1975, Cape Verde 
has achieved an annual growth rate of approximately 6%. In addition, a 
major asset of Cape Verde is its strong record in terms of democratic 
governance, stability, transparency, and lack of corruption. Cape 
Verde, however, relies heavily on large inflows of foreign assistance 
and remittances, which together represent roughly 25% of GDP. 
Recognizing that reliance on such flows is not sustainable, Cape Verde 
has created a long-term development strategy predicated on moving from 
aid-dependency to self-sustaining, private-sector led economic growth, 
focused around services. Meanwhile, Cape Verde continues to have high 
levels of poverty and unemployment, which are partly attributable to a 
lack of obvious economic growth opportunities and a scarcity of 
resources, particularly water. Only 10% of the land is arable and 
roughly 83% of rainfall is lost through evaporation and runoff. 
Agricultural productivity is low and approximately 85% of the country's 
food is imported--70% in the form of food aid.
    Cape Verde conducted a comprehensive consultative process that 
identified key impediments to economic growth: severe water scarcity, 
lack of adequate infrastructure, weak institutional support for the 
private sector, and an insufficiently trained work force. To address 
these impediments, Cape Verde requested MCC support to:
     Increase agricultural productivity on the islands of Santo 
Ant[atilde]o, Fogo, and S[atilde]o Nicolau by (i) improving water 
management, (ii) improving agribusiness development services, and (iii) 
increasing access to credit and capacity of financial institutions;
     Integrate internal markets and reduce transportation costs 
by: (i) improving road infrastructure on the islands of Santiago and 
Santo Ant[atilde]o, and (ii) upgrading the Port of Praia; and
     Develop the private sector by improving the investment 
climate and reforming the financial sector.
    This MCC-funded program in Cape Verde (the ``Cape Verde MCA 
Program'') comprises a solid investment in a country that has 
relatively limited opportunities. The expected impact of the three 
projects in the program is an increase in annual income to $10 million 
in Year 5 and over $22 million in Year 10. This corresponds to 
approximately 1.2% and 2.2% of annual GDP respectively, assuming a real 
GDP growth rate of 4% per annum.
    The product of a strong consultative process, the MCA Program will 
complement the efforts of various multinational and bilateral donors 
working in Cape Verde. This program conforms with MCC's goal to be a 
major donor and have a large economic impact in Cape Verde.

II. Program Activities, Costs and Performance

    The proposed program is summarized in the table below:

                              Program Costs
                              [$ millions]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
1. Watershed Management and           ................              10.8
 Agricultural Support...............
    (a) Water Management............               6.8  ................
    (b) Agribusiness Development....               3.6  ................
    (c) Credit......................               0.4  ................
2. Infrastructure...................  ................              78.7
    (a) Port........................              53.7  ................
    (b) Roads and Bridges...........              25.0  ................
3. Private Sector Development.......  ................               7.2
    (a) Partnership to Mobilize                    5.0  ................
     Investment.....................
    (b) Financial Sector Reform.....               2.2  ................
4. Monitoring and Evaluation........  ................               4.9
5. Program Administration and         ................               8.4
 Control............................
    (a) Program administration......               5.8  ................
    (b) Fiscal control and                         1.0  ................
     procurement management.........
    (c) Enhanced transparency                      1.1  ................
     initiative.....................
    (d) Audits......................               0.5  ................
                                     -------------------
        Total.......................  ................               110
------------------------------------------------------------------------

1. Watershed Management and Agriculture Support ($10.8 million)

    Cape Verde forms part of the semi-desert Sahelian ecology, with its 
erratic, low rainfall and degraded soils. MCC will fund investments 
that increase the capture, storage and distribution of rainfall water, 
thus enabling poor farmers to irrigate their fields and increase 
agricultural productivity. Increases in irrigated land and reliability 
of water supply will facilitate a shift from low-value, rain-fed 
agriculture to higher value-added crops that are grown more intensively 
(e.g., from two to three annual crop cycles). This project includes the 
following:
     Water Management and Soil Conservation (``Water 
Management''): Construction of reservoirs, dikes, terraces, check dams 
and other

[[Page 42625]]

structures to capture water and recharge water tables.
     Agribusiness Development Services (``Agribusiness 
Development''): Applied technical and field research; training for 
farmers and extension agents; improvements in agricultural extension 
centers and farm demonstration sites; building capacity in export 
requirements; packing sheds; and centers for inspection and 
certification.
     Access to Credit (``Credit''): Provision of credit for 
drip irrigation, working capital, and agribusiness investment in the 
three watershed areas and technical assistance to increase capacity of 
financial institutions in the provision of financial services.
    Improved watershed management will reduce or in some cases reverse 
erosion, thus preserving the value of land and water. Increased 
economic vitality in rural areas will create opportunities and reduce 
migration to urban centers. Continued growth in the tourism industry 
should provide a strong demand pull for the agricultural production by 
the project.

2. Infrastructure ($78.7 million)

    Cape Verde consists of ten separate islands, which inhibits the 
development of a common national market, increases the costs of 
production, and hinders the flow of resources between the more 
prosperous islands and the more rural, poorer islands. Economic 
activities such as tourism, manufacturing, and agricultural production 
are severely constrained by inadequate roads, ports, and inter-island 
transportation services. The following projects will be supported:
     Upgrade and Expansion of the Port of Praia (``Port''): Due 
to the complexity and scope of the port expansion plan, this project is 
intended to be done in two phases. Phase I involves improving quayside 
and off-terminal container handling facilities; providing for a second 
access road and breakwater; and initiating certain preparatory 
activities--geotechnical studies, cargo/passenger market studies, 
feasibility studies, and environmental impact assessments--that are 
needed for long-term expansion. Phase II will include extending the 
quay and creating space for a new two-berth specialized terminal 
container storage area.
     Roads and Bridges (``Roads and Bridges''): This project is 
designed to achieve basic connectivity and improve mobility on two 
targeted island networks. This will be done by: (i) Rehabilitating two 
heavily traveled east-west axes on Santiago; (ii) reconstructing three 
rural roads linking isolated agricultural and fishing communities to 
the main network; and (iii) ensuring all-weather and reliable access to 
two major towns by constructing a series of bridges in Santo 
Ant[atilde]o.
    Improvements to the Port of Praia, which handles half of the island 
nation's cargo and facilitates the movement of people to and from the 
population center of Cape Verde, are intended to maximize the existing 
operational capacity and productivity, given the existing constraints, 
followed by longer-term investments to create new infrastructure and 
facilities to alleviate the Port's inherent berth, space, and geometry 
problems. The prime objective of the road investments is to ensure a 
continuous network linking the population with social services, 
employment opportunities, local markets, and ports and airports.

3. Private Sector Development ($7.2 million)

    The primary goal of Cape Verde's long-term economic transformation 
strategy is to become less dependent on remittances and donor aid by 
developing a competitive, private-sector driven economy through a focus 
on priority sectors such as tourism, financial services, transportation 
services, and fisheries. Successfully implementing the economic 
transformation strategy will require cross-cutting investments to 
strengthen human capital; promote financial sector reform; upgrade 
capacity within the private sector and the policy-making apparatus; and 
improve infrastructure. In addition, financial institution competition 
is weak and depositors have few options to hold savings. Accordingly, 
this project includes the following:
     Partnership to Mobilize Investment (``Partnership to 
Mobilize Investment''): The International Finance Corporation (``IFC'') 
and the Government of Cape Verde will finance an analysis of the 
priority sectors to identify the constraints to private sector 
investments and the design of potential interventions to eliminate 
those constraints. Based on this analysis, MCC will fund the selected 
interventions such as policy reforms and/or projects (including 
physical infrastructure and other tangible assets) to address 
vocational training and education, human resource development, 
infrastructure, access to financial services, and entrepreneurship 
development. MCC will fund these interventions based on specific 
investment criteria, including meeting an economic rate of return 
(``ERR'') hurdle rate of 10%, having clearly identified target 
outcomes, and being consistent with MCC's Environmental Guidelines.
     Financial Sector Reform (``Financial Sector Reform''): MCC 
funding will support microfinance institutions by providing technical 
assistance that will allow them to take advantage of expanded deposit-
taking powers and to ease the transition to a new regulatory 
environment. In addition, technical assistance will be provided to help 
the Ministry of Finance and Planning design new auction procedures for 
the government securities market and the necessary supporting 
infrastructure, e.g., a registry of security ownership.

4. Program Monitoring and Evaluation ($4.9 million)

    A monitoring and evaluation plan (``M&E Plan'') is being developed 
for the Cape Verde MCA Program to measure progress toward achieving the 
program objectives. A series of indicators will be used to track 
implementation, improve program management, and evaluate the impact of 
the Program on increasing economic growth and reducing poverty. 
Indicators will be disaggregated by gender, income level and age, to 
the extent practicable.
    The key indicators and expected results for each Project are listed 
below:

     Watershed Management and Agriculture Support Project: Increase
           Agricultural Productivity in the Intervention Areas
------------------------------------------------------------------------
                                      Baseline              Year 5
------------------------------------------------------------------------
Increase in profits and wages    0.................  1.5
 for farmers and agribusinesses
 (million dollars).
 Productivity of horticulture    9.................  24
 crops (tons per hectare).
Area irrigated with drip         9.................  121
 irrigation (cumulative
 hectares).
 Aquifer level.................  To be determined    >Baseline.
                                  by the National
                                  Water Institute
                                  before
                                  implementation
                                  begins.
------------------------------------------------------------------------


[[Page 42626]]


  Infrastructure Project: Increase Integration of Internal Markets and
                       Reduce Transportation Costs
------------------------------------------------------------------------
                                             Baseline         Year 5
------------------------------------------------------------------------
Port:
    Volume of goods shipped between              137,995         220,741
     Praia and other islands (tons).....
    Tons of general cargo handled per                 20              35
     hour...............................
Containers handled per hour.............            8.66              11
Roads and Bridges:
    Savings on transport costs from                    0             1.9
     asphalt roads and bridge
     improvements (million dollars).....
    Percentage of beneficiary population             52%             65%
     who take at least 5 trips per month
    Kilometers of roads rehabilitated                  0              63
     (cumulative).......................
------------------------------------------------------------------------


       Private Sector Development Project: Develop Private Sector
------------------------------------------------------------------------
                                       Baseline            Year 5
------------------------------------------------------------------------
Partnership to Mobilize
 Investment:
    GDP contribution from priority               0  To be determined
     sectors--tourism, financial                     after specific
     services, transport,                            activities have
     fisheries (escudos).                            been identified.
    Increase of public and private               0  To be determined
     investment in priority                          after specific
     sectors (escudos).                              activities have
                                                     been identified.
Financial Sector Reform:
    Volume of deposits in micro-                0%  3%.
     finance institutions as
     percentage of total deposits.
    Percentage of government                    0%  8%.
     securities held outside of
     financial institutions and
     government agencies.
------------------------------------------------------------------------

5. Program Administration and Control ($8.4 million)

    MCA-Cape Verde will be an independent entity, responsible for 
management and oversight of the implementation of the program, the 
legal form of the entity to be agreed upon by the MCC and GOCV. It will 
be overseen by a Steering Committee composed of (i) voting 
representatives from government, the private sector, and non-
governmental organizations (``NGOs'') that will make key strategic 
decisions, provide oversight to management, and monitor progress and 
(ii) non-voting observers including a MCC representative and 
representatives from the private sector or NGOs. A Stakeholders' 
Committee comprised of representatives from central and municipal 
government as well as the private sector and civil society will provide 
feedback and recommendations to the Steering Committee in an advisory 
capacity.
    The Government of Cape Verde has very strong financial management 
and procurement practices and will take the lead on these issues. 
Procurement and contract management will be carried out under the broad 
oversight and authority of the Steering Committee, through a 
Procurement Review Commission using World Bank guidelines. Cape Verde's 
Ministry of Finance and Planning will serve as the fiscal agent and as 
an independent control mechanism, and will be the sole signatory to the 
permitted bank account. While the Ministry of Finance and Planning will 
not charge a fee for services rendered, MCC will help build its 
institutional capacity by covering the cost of additional equipment and 
software necessary to provide these fiscal agent services as well as to 
improve program management and the reporting capacity for the 
monitoring and evaluation of the program. This support will help 
improve the government's existing financial management system.
    As another element of capacity building, MCC will work with Cape 
Verde to establish a transparent e-procurement system for all levels of 
government. Extending this system government-wide will allow suppliers, 
government officials, and the public to have access to the rules 
governing procurement; insight into the procurement transactions 
themselves; and a transparent record of competition and results of 
solicitations. In addition, the Government of Cape Verde has undertaken 
a process to enact and implement unified procurement legislation that 
will consolidate existing procurement rules into a single transparent 
system. Funding for technical assistance to support this effort will 
help draft appropriate legislation and regulations as well as to train 
individuals involved in the procurement system at all levels of 
government. The combination of unified procurement procedures and the 
establishment of completely electronic procurement transactions and 
documentation will result in one of the most transparent and efficient 
procurement systems in the developing world.

III. Other Highlights

1. Consultative Process

    Cape Verde has a strong history of consultation, and the ideas in 
the MCC proposal build on previous priority-setting efforts and 
development strategies that have been evolving since 1996, including 
the ``Grand Options'' Plan, the National Development Strategy, the 
Economic Transformation Strategy, the Agricultural Development 
Strategy, and the Growth and Poverty Reduction Strategy Paper. An 
extensive series of consultations was held regarding the MCC proposal, 
which has led to widespread support in the relevant communities 
including the opposition political party's support. Cape Verde was the 
first MCC-eligible country to post its Proposal on the Internet (http://www.virtualcapeverde.net).

2. Economic Analysis

    A summary of the estimated economic rates of return is included in 
the table below:

------------------------------------------------------------------------
                                                              ERR  (per
                          Project                               annum)
------------------------------------------------------------------------
Watershed Management and Agriculture Support...............          10%
Roads and Bridges..........................................           14
Port.......................................................           23
Financial Sector Reform....................................           11
------------------------------------------------------------------------

    These ERRs were arrived at through the following methodologies. The 
Watershed Management and Agriculture Support Project considers the 
increase in income that results from the

[[Page 42627]]

horticulture and fruit production made possible by the investments in 
watershed management. The ERR of the Roads and Bridges project measures 
the reduction in vehicle operating costs from improving existing roads 
and laying new ones, as well as the increased earnings resulting from 
new bridges connecting areas previously cut-off during rainy periods. 
For the Port project ERR, improvements to the port infrastructure are 
assumed to prevent a slowdown in growth in the tourism sector that 
would otherwise result from congestion and higher transportation costs 
at the port; additionally, benefits from the concession paid by the 
private operator, and tax collections, are included. The Partnership to 
Mobilize Investment project will require among the investment criteria 
that the intervention meet an ERR hurdle rate of at least 10%. Finally, 
the ERR of the Financial Sector Reform project is based on published 
econometric estimates of the impact of an improved financial sector on 
GDP growth. These estimates are conservative, as there are several 
potential positive externalities that have not been included in the 
calculations.

3. Government Commitment and Effectiveness

    The Government of Cape Verde has exhibited a high degree of 
commitment to and ownership of this program, culminating in the fact 
that the MCA-Cape Verde Steering Committee's will have four cabinet 
members and the Chief Advisor to the Prime Minister. As part of the 
program, the Government of Cape Verde is taking such concrete steps as 
establishing a Road Maintenance Fund to ensure sustainable maintenance 
financing; committing to privatize the operations of the country's 
ports by the first half of 2006; and funding $500,000 for the design/
evaluation phase of the Partnership to Mobilize Investment project.

4. Sustainability

Watershed Management and Agriculture Support Project
    The Ministry of Agriculture, Environment and Fisheries, the 
National Water Institute, and municipalities will receive technical 
assistance to build their capacity to improve soil and water 
management, through appropriate water pricing. The Government of Cape 
Verde has committed to establishing a water fee policy that reflects 
the economic cost (i.e., scarcity) of the resource, in consultation 
with the local communities. This commitment is a major policy 
breakthrough that no other donor has been able to achieve. In the first 
year of implementation, training and technical assistance centering on 
best practices will facilitate the establishment of realistic fee 
protocols and lead to actual collection and more rational water usage. 
The water user fees will be established as the farmers participating in 
the program realize the benefits of improved access to water and new 
technologies, allowing for higher value-added crops and resulting in 
higher incomes. As part of a national strategy, higher value crops will 
primarily meet growing tourism demand and related domestic markets.
    Services will be demand-driven and designed to meet specific needs 
of the targeted beneficiaries in the watersheds. As farmers in the 
watershed areas increase their commercial activities, their ability to 
pay for services will increase. This will enable the Ministry of 
Agriculture, Environment and Fisheries to maintain the training and 
extension services provided to agricultural producers. The Ministry 
will implement a ``fee for services'' policy, charging fees for 
training, quality inspections and certifications. Through the life of 
the Compact, farmers who adopt drip irrigation will receive both the 
training and credit necessary for successful adoption and sustained use 
of the new technology.
Infrastructure Project
    Port: The introduction of private sector participation in 
operations is a critical element to the sustainability of the Port 
activities. The Government has agreed to pursue privatization and 
commence the process to bring in private sector operators. Improved 
operating margins resulting from more efficient operations and the 
privatization of port operations, together with the institutional 
reorganization supported by the World Bank, will also improve the long-
term sustainability for port services.
    Roads and Bridges: The creation and ongoing funding of a Road 
Maintenance Fund is designed to address long-term maintenance and, 
hence, sustainability of the roads sector. It will finance maintenance 
with the proceeds of a fuel levy (and potentially other charges on 
heavy vehicles) the Government has agreed to introduce. In the first 
year, the amount committed to be collected will be approximately $3.75 
million. This amount will increase annually in subsequent years.
Private Sector Development Project
    The Private Sector Development Project is oriented toward local 
capacity building. Technical assistance by its nature is provided to 
enhance institutional sustainability of the recipient institutions. 
MCC's support for the Partnership to Mobilize Investment project is 
designed to complement the Government of Cape Verde's efforts to 
strengthen economic policy-making capabilities of Cape Verdean 
officials. In the case of the Financial Sector Reform project, the 
technical support directed to the microfinance institutions will assist 
them to reduce their reliance on donor funds for growth, while allowing 
them to offer new financial products. Technical support provided to the 
Ministry of Finance and Planning to help develop the primary market for 
Government securities will lay the groundwork for developing new 
financial institutions and products.

5. Environment and Social

Watershed Management and Agriculture Support Project Screening 
Category: B
    Overall, this project is expected to be environmentally beneficial. 
The development of watershed management plans to include re-
forestation, soil stabilization, livestock management, and water 
management will improve the overall quality of the environment and 
reduce runoff and soil erosion. Possible negative impacts could come 
from unsustainable water usage leading to depletion of reservoirs due 
to inadequate water pricing. Conditions to disbursements will be 
designed to ensure sustainable management of the watersheds.
Roads and Bridges Screening Category: B
    This project is assessed a ``Category B'' with potentially adverse 
environmental impacts that are site-specific and largely mitigable. The 
improvements are all planned on existing alignments and do not directly 
affect protected areas or identified sensitive natural habitats. An 
Environmental Impact Study was completed for the World Bank, for which 
MCC contracted the U.S. Army Corps of Engineers to perform a technical 
review. In accordance with World Bank guidelines, contractors will be 
required to carry out an HIV/AIDS Awareness Program developed by the 
Cape Verde Committee to Fight HIV/AIDS. The Compact will also require 
adherence to road-specific environmental management plans.
Port Screening Category: A
    The environmental impacts of most of the short-term upgrade 
activities should be mainly positive; the development and 
implementation of an Environmental Management and

[[Page 42628]]

Monitoring Plan should reduce the environmental impacts of the current 
port operations. However, there are potentially significant negative 
impacts from the new access road and breakwater at the Port of Praia, 
and the longer term upgrade activities including the quay extension, 
dredging, and reclamation. An Environmental Impact Assessment (``EIA'') 
of the Port Master Plan was conducted in 2004. MCC Disbursements under 
this project will be conditioned upon the development of an 
environmental management and monitoring plan and a full EIA--to include 
gathering of environmental baseline data and public consultation--
before disbursements for major civil works. The Compact budget includes 
funds to put in place an environmental management and monitoring plan, 
as well as completing the EIA.
Partnership To Mobilize Investment
    While it is not possible in advance to assess the potential 
environmental impacts of possible follow-on investments under this 
project, the Compact requires that projects funded will have to adhere 
to MCC environmental guidelines, which require screening and 
appropriate analysis in advance of any funding decision.

6. Donor Coordination

    Donor coordination has been particularly strong in Cape Verde, and 
includes parallel financing and policy reform harmonization. MCC is 
working on projects that leverage off many donors, particularly the 
World Bank, IFC, and other U.S. Government agencies. While all of the 
projects benefit from the expertise of other donors, some particular 
highlights include:
     The proposed MCC investment in transportation 
infrastructure benefits from the project-preparation activities funded 
by the World Bank. MCC was able to leverage off the World Bank's 
institutional-sustainability and capacity strengthening efforts for the 
road sector and its support for the privatization of port operations.
     The Partnership to Mobilize Investment project will use 
the expertise of the IFC to identify specific obstacles to investment 
at the sectoral level. This project will leverage existing support from 
the U.S. Trade and Development Agency in transportation services, and 
may also involve investment by other multilateral and bilateral donors. 
It is also designed to help investors to take advantage of 
opportunities under AGOA.
     The Financial Sector Reform project complements the 
efforts of the World Bank to strengthen the capacity of the Bank of 
Cape Verde to improve bank supervision, including for microfinance 
institutions.

7. Summary

    The Cape Verde MCA Program will:
     Increase access to water and agribusiness development 
services for 70,000 people in farm households on the islands of Santo 
Ant[atilde]o, Fogo, and S[atilde]o Nicolau.
     Institute an appropriate water fee policy, a major 
breakthrough that no other donor has been able to achieve.
     Reduce transportation costs and improve access to markets, 
schools, and health facilities to over 60,000 people on the islands of 
Santiago and Santo Ant[atilde]o.
     Increase efficiency of container handling by 130% in the 
Port of Praia.
     Improve business climate nation-wide and increase 
investment in priority sectors.
     Establish a completely electronic procurement transaction 
and documentation system, resulting in one of the most transparent and 
efficient procurement systems in the developing world.
    The Cape Verde MCA Program will assist Cape Verde in achieving its 
overall development goal of transforming its economy from one of aid-
dependency to one of competitive, private sector-led growth.

Millennium Challenge Compact Between the Government of the Republic of 
Cape Verde and the United States of America Acting Through the 
Millennium Challenge Corporation

Table of Contents

Article I. Purpose and Term
    Section 1.1 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
Article III. Implementation
    Section 3.1 Implementation Framework
    Section 3.2 Government Responsibilities
    Section 3.3 Government Deliveries
    Section 3.4 Government Assurances
    Section 3.5 Implementation Letters; Supplemental Agreements
    Section 3.6 Procurement; Awards of Assistance
    Section 3.7 Policy Performance; Policy Reforms
    Section 3.8 Records and Information; Access; Audits; Reviews
    Section 3.9 Insurance; Performance Guarantees
    Section 3.10 Domestic Requirements
    Section 3.11 No Conflict
    Section 3.12 Reports
Article IV. Conditions Precedent; Deliveries
    Section 4.1 Conditions Prior to the Entry into Force and 
Deliveries
    Section 4.2 Conditions Precedent to MCC Disbursements 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; Definitions
    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
Annex I: Program Description
    Schedule 1--Watershed Management and Agricultural Support 
Project
    Schedule 2--Infrastructure Project
    Schedule 3--Private Sector Development 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 Cape Verde (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 Cape Verde as eligible to present to MCC a proposal for 
the use of 2004 Millennium Challenge Account (``MCA'') assistance to 
help facilitate poverty reduction through economic growth in Cape 
Verde;
    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 on August 10, 2004 (the ``Proposal'');

[[Page 42629]]

    Whereas, the Proposal focused on, among other things, social 
empowerment, poverty reduction and economic competitiveness;
    Whereas, MCC has evaluated the Proposal and related documents to 
determine whether the Proposal is consistent with core MCA principles 
and includes proposed activities and projects that will advance the 
progress of Cape Verde towards achieving economic growth and poverty 
reduction; and
    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 Cape Verde's 
progress towards economic growth and poverty reduction (the 
``Program'');
    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 Objectives

    The Parties have identified the following objectives (each, an 
``Objective'' and together, the ``Objectives'') of this Compact, each 
of which is (i) key to advancing the goal of economic growth and 
poverty reduction in Cape Verde (the ``Compact Goal'') and (ii) 
described in more detail in the Annexes attached hereto:
    (a) Increase agricultural production in the intervention zones (the 
``Watershed Management and Agricultural Support Objective'');
    (b) Increase integration of the internal market and reduce 
transportation costs (the ``Infrastructure Objective''); and
    (c) Develop the private sector (the ``Private Sector Development 
Objective'').
    The Government expects to achieve, and shall use its best efforts 
to ensure the achievement of, these Objectives during the Compact Term.

Section 1.2 Projects

    The Annexes attached hereto describe the specific projects and 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 all conditions set forth in Section 4.1 have been 
satisfied by the Government and MCC (the ``Entry into Force''). This 
Compact shall remain in force for five (5) years from the Entry into 
Force, unless earlier terminated in accordance with Section 5.4 (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 One Hundred Ten Million Seventy-Eight Thousand and Four Hundred 
Eighty-Eight United States Dollars (USD $110,078,488) (``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 the MCC Funding within the Program and among and within 
the 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 Financial Plan 
for the Program or Project activity for which such condition precedent 
has not been met. Upon the expiration or termination of this Compact, 
(A) any amounts 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).
    (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 Annex I, the Disbursement Agreement or as 
otherwise provided in any other relevant Supplemental 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 Annex I, the Disbursement Agreement or as otherwise provided 
in any other relevant Supplemental Agreement.
    (c) Interest. Unless the Parties agree otherwise in writing, any 
interest or other earnings on MCC Funding that accrue or are earned 
(collectively, ``Accrued Interest'') shall be held in a Permitted 
Account and accrue or be earned in accordance with the requirements for 
the treatment of Accrued Interest as specified in Annex I or any 
relevant Supplemental Agreement. On 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) Conversion; Exchange Rate. The Government shall ensure that all 
MCC Funding that is held in the Permitted Account(s) shall be 
denominated in the currency of the United States of America (``United 
States Dollars'') prior to Re-Disbursement; provided, that a certain 
portion of MCC Funding may be transferred to a Local Account and may be 
held in such Local Account in the currency of the Republic of Cape 
Verde prior to Re-Disbursement in accordance with the requirements of 
Annex I and any relevant Supplemental Agreement between the Parties. To 
the extent that any amount of MCC Funding held in United States Dollars 
must be converted into the currency of the Republic of Cape Verde for 
any purpose, including for any Re-Disbursement or any transfer of MCC 
Funding into a Local Account, the Government shall ensure that such 
amount is converted consistent with Annex I, including the rate and 
manner set forth in Annex I, and the requirements of the Disbursement 
Agreement or any other Supplemental Agreement between the Parties.
    (e) Guidance. From time to time, MCC may provide guidance to the 
Government through Implementation Letters on the frequency, form and 
content of requests for MCC Disbursements and Re-Disbursements or any 
other matter relating to MCC Funding. The Government shall apply such 
guidance in implementing this Compact.

[[Page 42630]]

Section 2.2 Government Resources

    (a) 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 to effectively 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.
    (b) If at any time during the Compact Term, the Government 
materially reallocates or reduces the allocation in its national budget 
or any other Cape Verdean governmental authority at a departmental, 
municipal, regional or other jurisdictional level materially 
reallocates or reduces the respective budget allocation 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 Disbursement by an amount equal to the amount 
estimated in the applicable Detailed Financial Plan 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).
    (c) 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 Cape Verde 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 website 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. As required by applicable United States law and 
consistent with the applicable requirement of Cape Verdean law that 
international cooperation assistance shall be exempt from taxes, the 
Government shall ensure that the Program, any Program Assets, MCC 
Funding and Accrued Interest shall be free from any taxes imposed under 
the laws currently or hereafter in effect in the Republic of Cape Verde 
during the Compact Term. This exemption shall apply to any use of any 
Program Asset, MCC Funding and Accrued Interest, 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, and other levies (each a ``Tax'' and 
collectively, ``Taxes''), including:
    (1) To the extent attributable to MCC Funding, income taxes and 
other taxes on profit or businesses imposed on organizations or 
entities, other than nationals of the Republic of Cape Verde, 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 Cape Verde, or any other tax, duty, charge or fee of

[[Page 42631]]

whatever nature, except fees for specific services rendered; for 
purposes of this Section 2.3(e), the term ``national'' refers to 
organizations established under the laws currently or hereafter in 
effect in the Republic of Cape Verde, other than MCA-Cape Verde or any 
other entity established solely for purposes of managing or overseeing 
the implementation of the Program or any wholly-owned subsidiaries, 
divisions, or Affiliates of entities not registered or established 
under the laws currently or hereafter in effect in the Republic of Cape 
Verde;
    (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 Cape Verde 
and who are present in the Republic of Cape Verde for purposes of 
carrying out the Program or 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 Cape 
Verde, 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 on 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, 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 herein 
collectively as ``goods'') or funds introduced into, acquired in, used 
or disposed of in, or imported into or exported from, the Republic of 
Cape Verde 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 Section 2.3(e), whether inadvertently, due to the 
impracticality of implementation of this provision with respect to 
certain types or amounts of taxes, or otherwise, the Government shall 
refund promptly to MCC to an account designated by MCC the amount of 
such Tax in the currency of the Republic of Cape Verde, within thirty 
(30) days (or such other period as may be agreed in writing by the 
Parties) after the Government is notified of such levy and tax payment; 
provided, however, the Government shall apply national funds to satisfy 
its obligations under this paragraph and no MCC Funding, Accrued 
Interest, or any assets, goods, or property (real, tangible, or 
intangible) purchased or financed in whole or in part by MCC Funding 
(``Program Assets'') may be applied by the Government in satisfaction 
of its obligations under this paragraph.
    (iv) The Parties shall memorialize in a mutually acceptable 
Implementation Letter or Supplemental Agreement or other suitable 
document the mechanisms for implementing this Section 2.3(e), including 
(A) a formula for determining refunds for Taxes paid, the amount of 
which is not susceptible to precise determination, (B) a mechanism for 
ensuring the tax-free importation, use, and re-exportation of goods, 
services, or the personal belongings of individuals (including all 
Providers) described in paragraph (i)(2) of this Section 2.3(e), and 
(C) any other appropriate Government action to facilitate the 
administration of this Section 2.3(e).
    (f) Alteration. The Government shall ensure that no MCC Funding, 
Accrued Interest or Program Assets shall be subject to any impoundment, 
rescission, sequestration or any provision of law now or hereafter in 
effect in the Republic of Cape Verde that would have the effect of 
requiring or allowing any impoundment, rescission or sequestration of 
any MCC Funding, Accrued Interest or Program Asset.
    (g) Liens or Encumbrances. The Government shall ensure that no MCC 
Funding, Accrued Interest, or Program Assets 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, and in the event of the 
imposition of any Lien not so approved, the Government shall promptly 
seek the release of such Lien and shall pay any amounts owed to obtain 
such release; provided, however, the Government shall apply national 
funds to satisfy its obligations under this Section 2.3(g) and no MCC 
Funding, Accrued Interest, or Program Assets may be applied by the 
Government in satisfaction of its obligations under this Section 
2.3(g).
    (h) Other Limitations. The Government shall ensure that the use or 
treatment of MCC Funding, Accrued Interest, and 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 that any Program Assets, services, facilities or works funded in 
whole or in part (directly or indirectly) by MCC Funding, unless 
otherwise agreed by the Parties in writing, 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 to which MCC is not a party and shall use its best efforts 
to ensure that no such Supplemental Agreement is implemented in 
violation of the prohibitions set forth in Section 2.3.
    (b) The Government shall ensure notification of all of the 
requirements set forth in Section 2.3 to any Provider and all relevant 
officers, directors, employees, agents, representatives, Affiliates, 
contractors, sub-contractors, grantees and sub-grantees of the 
Government or any Provider. The term ``Provider'' shall mean (i) MCA-
Cape Verde and any Government Affiliate or Permitted Designee involved 
in any activities in furtherance of this Compact or (ii) any third 
party who receives at least USD $50,000 in the aggregate of MCC Funding 
(other than employees of MCA-Cape Verde) 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.

[[Page 42632]]

    (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, or ensure that 
such Provider notifies, 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.

Section 2.5 Refunds; Violation

    (a) Notwithstanding the availability to MCC, or exercise by MCC of, 
any other remedies, including under international law, this Compact, or 
any Supplemental Agreement:
    (i) If any amount of MCC Funding or Accrued Interest, or any 
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 between the Parties, MCC may, upon written notice, 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 misused 
Program Asset, in United States Dollars, plus any interest that accrued 
or would have accrued thereon, within fifteen (15) days after the 
Government is notified, whether by MCC or otherwise, 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 Program Assets may be applied by the 
Government in satisfaction of its obligations under this Section 
2.5(a)(i); and
    (ii) If all or any portion of this Compact is terminated or 
suspended and 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 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, 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; provided, further, that any refund of MCC Funding or Accrued 
Interest shall be to such account(s) as designated by MCC.
    (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, 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.

Article III. Implementation

Section 3.1 Implementation Framework

    This Compact shall be implemented by the Parties in accordance with 
this Article III and as further specified in the Annexes and in 
relevant Supplemental Agreements.

Section 3.2 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 
relevant Supplemental Agreements, (ii) in accordance with all 
applicable laws then in effect in Cape Verde, 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 immediate family or household or 
his or her business partners, 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 between the Parties 
(including any Government Responsibilities or any other 
responsibilities or obligations of the Government under this Compact or 
any Supplemental Agreement between the Parties) or to exercise any 
rights of the Government under this Compact or any Supplemental 
Agreement between the Parties, except as expressly provided herein or 
with the prior written consent of MCC; provided, however, the 
Government may designate MCA-Cape Verde or, with the prior written 
consent of MCC, such other mutually acceptable persons or entities, 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 between the Parties (referred to herein collectively as 
``Designated Rights and Responsibilities''), in accordance with the 
terms and conditions set forth in this Compact or such Supplemental 
Agreement (each, a ``Permitted Designee''). 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

[[Page 42633]]

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 or any Supplemental Agreement between the Parties, in 
accordance with this Section 3.2(c), then the Government shall (i) 
ensure that such person or entity performs 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) ensure that such person or entity certifies to MCC in writing 
that it will so perform such Designated Rights and Responsibilities in 
accordance with this Compact and any other relevant Supplemental 
Agreement 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 MCA-Cape Verde, 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 MCA-Cape 
Verde is modified, supplemented, unduly influenced or rescinded by any 
governmental authority, except by a non-appealable judicial decision, 
and (ii) the authority of MCA-Cape Verde shall not be expanded, 
restricted, or otherwise modified, except in accordance with this 
Compact, the Governance Agreement, the Governing Documents or any other 
Supplemental Agreement between the Parties.
    (f) The Government shall ensure that all persons and individuals 
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 3.3 Government Deliveries

    The Government shall proceed, and cause others to proceed, in a 
timely manner to deliver to MCC all reports, documents or other 
deliveries required to be delivered by the Government under this 
Compact or any Supplemental Agreement between the Parties, in form and 
substance as set forth in this Compact or in any such Supplemental 
Agreement.

Section 3.4 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 
otherwise communicated to MCC by or on behalf of the Government on or 
after the date of the submission of the Proposal (i) are true, accurate 
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 effectively implement, or 
ensure the effective implementation of, the Program or any Project or 
to otherwise 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 between the Parties.
    (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 government body in connection with the 
procurement of goods or services 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 Cape Verde 
(subject to Section 2.3(e)) and consistent with the applicable 
requirement of Cape Verdean law 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 3.5 Implementation Letters; Supplemental Agreements

    (a) MCC may, from time to time, issue one or more letters 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 between (A) the Government (or any Government Affiliate or 
Permitted Designee) and MCC, (B) MCC and/or the Government (or any 
Government Affiliate or Permitted Designee) and any third party, 
including any of the Providers or Permitted Designee or (C) any third 
parties where neither MCC nor the Government is a party, before, on or 
after the Entry into Force (each, a ``Supplemental Agreement''). The 
Government shall deliver, or cause to be delivered, to MCC within five 
(5) days of its execution a copy of any Supplemental Agreement to which 
MCC is not a party.

Section 3.6 Procurement; Awards of Assistance

    (a) The Government shall ensure that the procurement of all goods, 
services and works by the Government or any Provider in furtherance of 
this Compact shall be consistent with the procurement guidelines (the 
``Procurement Guidelines'') reflected in a Supplemental Agreement 
between the Parties (the ``Procurement Agreement''), which Procurement 
Guidelines shall include the following requirements:
    (i) 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

[[Page 42634]]

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 and services acquired in furtherance of this Compact, 
the nature and extent of solicitations of prospective suppliers of 
goods and services acquired in furtherance of this Compact, and the 
basis of award of contracts, grants and other agreements in furtherance 
of this Compact, for a period of ten years, or such other period as the 
Parties may otherwise agree in writing.
    (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) No goods, services or works may be funded in whole or in part 
(directly or indirectly) by MCC Funding which are procured pursuant to 
orders or contracts firmly placed or entered into prior to the Entry 
into Force, except as the Parties may otherwise agree in writing.
    (e) The Government shall ensure that MCA-Cape Verde 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 MCA-Cape Verde 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 3.6 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.

Section 3.7 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 use its best efforts to improve, its level of 
performance under the policy criteria identified in Section 607 of the 
Millennium Challenge Act of 2003, as amended (the ``Act''), and the MCA 
selection criteria and methodology published by MCC pursuant to Section 
607 of the Act from time to time (``MCA Eligibility Criteria'').

Section 3.8 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 3.8 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 3.12.
    (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, without 
limitation, the use of all MCC Funding, including all costs incurred by 
the Government and the Providers in furtherance of this Compact, the 
receipt and use of goods and services 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 and services 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 
between the Parties or reasonably requested by MCC upon reasonable 
notice (``Compact Records''). The Government shall maintain, and shall 
use its best efforts to ensure that 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 (1) prescribed by the International 
Accounting Standards Committee (an affiliate of the International 
Federation of Accountants) or (2) then prevailing in Cape Verde. 
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 litigation, claims or audit findings or any statutory 
requirements.
    (c) Access. The Government shall, at all reasonable times, permit, 
or cause to be permitted, 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 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 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 Compact Records, including of the Government or any 
Provider, relating to activities funded or undertaken in furtherance 
of, or otherwise relating to, this Compact, and 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. The Government shall, on at least an annual 
basis and as the Parties may otherwise agree in writing, conduct, or 
cause to be conducted, financial audits of all MCC Disbursements and 
Re-Disbursements during the year since the Entry into Force or since 
the prior anniversary of the Entry into Force in accordance with the 
following terms, except as the Parties may otherwise agree in writing. 
As requested by MCC in writing, the Government shall use, or cause to 
be used, an auditor named on the approved list of auditors in 
accordance with the ``Guidelines for Financial Audits Contracted by 
Foreign Recipients'' (``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 
Guidelines and be subject to quality assurance oversight by the 
Inspector General in accordance with such Guidelines. An audit shall be 
completed and delivered to MCC no later than 90

[[Page 42635]]

days after the first period to be audited and no later than 90 days 
after each anniversary of the 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 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) USD $300,000 or more of MCC Funding in any MCA-
Cape Verde fiscal year or any other non-United States person or entity 
that receives, directly or indirectly, USD $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) USD $500,000 or more of MCC Funding in any MCA-Cape 
Verde fiscal year or any other United States person or entity that 
receives, directly or indirectly, USD $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 3.8, other 
than audits arranged for by MCC, no later than 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 under 
this Compact 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 3.8 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 3.8.
    (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 3.8 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 U.S. non-profit 
organization, on the other hand;
    (ii) Paragraphs (a), (b), (c), (d)(ii), and (d)(viii) of this 
Section 3.8 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 3.8 into all Supplemental Agreements between a Government 
Party and a Covered Provider that is a U.S. non-profit organization.
    (f) Reviews or Evaluations. The Government shall conduct, or cause 
to be conducted, such performance reviews, data quality reviews, 
environmental 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 or evaluations required under 
this Compact, including as reflected on 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 3.9 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. MCA-Cape Verde shall be 
named as the insured party on any such insurance and the beneficiary of 
any other such guarantee, including performance bonds. MCC shall be 
named as 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 MCA-Cape Verde and acceptable to MCC or as otherwise directed by 
MCC. To the extent MCA-Cape Verde is held liable under any 
indemnification or other similar provision of any agreement between 
MCA-Cape Verde, 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 
MCA-Cape Verde any such obligation; provided, further, the Government 
shall apply national funds to satisfy its obligations under this 
Section 3.9 and no MCC Funding, Accrued Interest, or Program Asset may 
be applied by the Government in satisfaction of its obligations under 
this Section 3.9.

Section 3.10 Domestic Requirements

    The Government shall proceed in a timely manner to seek any 
required ratification of this Compact or similar domestic requirement, 
which process the Government shall initiate promptly

[[Page 42636]]

after the conclusion of this Compact. Notwithstanding anything to the 
contrary in this Compact, this Section 3.10 shall provisionally apply 
prior to the Entry into Force.

Section 3.11 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 3.12 Reports

    The Government shall provide, or cause to be provided, to MCC at 
least on each anniversary of the Entry into Force of this Compact (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) The name of each entity to which MCC Funding has been provided;
    (b) The amount of MCC Funding provided to such entity;
    (c) A description of the Program and each Project funded in 
furtherance of this Compact, including:
    (i) A statement of whether the Program or any Project was solicited 
or unsolicited; and
    (ii) A detailed description of the objectives and measures for 
results of the Program or Project;
    (d) The progress made by Cape Verde toward achieving the Compact 
Goal and Objectives;
    (e) A description of the extent to which MCC Funding has been 
effective in helping Cape Verde to achieve the Compact Goal and 
Objectives;
    (f) A description of the coordination of MCC Funding with other 
United States foreign assistance and other related trade policies;
    (g) A description of the coordination of MCC Funding with 
assistance provided by other donor countries;
    (h) 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;
    (i) Any report or document required to be delivered to MCC under 
the Environmental Guidelines, any Audit Plan, or any component of the 
Implementation Plan; and
    (j) Any other report, document or information requested by MCC or 
required by this Compact or any Supplemental Agreement between the 
Parties.

Article IV. Conditions Precedent; Deliveries

Section 4.1 Conditions Prior to the Entry Into Force and Deliveries

    As conditions precedent to the 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) 
and MCC shall execute a Disbursement Agreement, which agreement shall 
be in full force and effect as of the Entry into Force.
    (b) The Government (or a mutually acceptable Government Affiliate) 
and MCC shall execute one or more term sheets that set forth the 
material and principal terms and conditions of each of the Supplemental 
Agreements identified in Exhibit B attached hereto (the ``Supplemental 
Agreement Term Sheets'').
    (c) The Government (or mutually acceptable Government Affiliate) 
and MCC shall execute a Procurement Agreement, which agreement shall be 
in full force and effect as of the Entry into Force.
    (d) The Government shall deliver a certificate signed and dated by 
the Principal Representative of the Government that:
    (i) Certifies the Government has completed all of its domestic 
requirements for this Compact to be fully enforceable under Cape 
Verdean law;
    (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, which MCC may post 
on its Web site or otherwise make publicly available; and
    (iii) Attaches 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.
    (e) MCC shall deliver a certificate signed and dated by the 
Principal Representative of MCC that:
    (i) Certifies that MCC has completed its domestic requirements for 
this Compact to enter into force; and
    (ii) Attaches 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 the 
Government other than the Principal Representative or any such 
Additional Representative.

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) two (2) 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 
Country Relations, (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: [email protected] (Vice President for Country 
Relations); [email protected] (Vice President and General 
Counsel).
    To the Government:
    Ministry of Finance and Planning, Attention: Minister of Finance 
and Planning, Avenida Amilcar Cabral, CP30, Praia, Republic of Cape 
Verde. Facsimile: (238) 261-3897. Phone: (238) 260-7644. E-mail: 
[email protected].
    Notwithstanding the foregoing, any audit report delivered pursuant 
to Section 3.8, 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.

[[Page 42637]]

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, Minister of Finance 
and Planning of the Republic of Cape Verde, and MCC shall be 
represented by the individual holding the position of, or acting as, 
Vice President for Country Relations (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 upon written notice to the other Party, which 
notice shall include the specimen signature of the new Principal 
Representative.

Section 5.3 Amendments

    The Parties may amend this Compact only by a written agreement 
signed by the Principal Representatives of the Parties.

Section 5.4 Termination; Suspension

    (a) Subject to Section 2.5 and paragraphs (e) through (h) of this 
Section 5.4, 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 between the Parties, 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 Program Assets or 
continued implementation of the Compact would be in violation of 
applicable law or U.S. Government policy, whether now or hereafter in 
effect;
    (ii) The Government, any Provider, or any other third party 
receiving MCC Funding or using Program Assets 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 the Republic of 
Cape Verde ineligible to receive United States economic 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 Cape Verde 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 or other 
evidence reveals that actual expenditures for the Program or any 
Project or Project Activity were greater than the projected expenditure 
for such activities identified in the applicable Detailed Financial 
Plan 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 to effectively 
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 Program Assets, or any of their 
respective directors, officers, employees, Affiliates, contractors, 
sub-contractors, grantee, sub-grantee, 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 to otherwise 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 the 
Objectives will be achieved during the Compact Term; (C) materially and 
adversely affects the Program Assets 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 or any Permitted Designee or 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; or
    (xii) There has occurred a failure to meet a condition precedent or 
series of conditions precedent to or any other requirements or 
conditions in connection with MCC Disbursement as set out in and in 
accordance with any Supplemental Agreement between the Parties.
    (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 to suspend or terminate this Compact or any MCC 
Funding under this Section 5.4 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 Funding shall terminate upon expiration or termination 
of the Compact Term; provided, however, reasonable expenditures for 
goods,

[[Page 42638]]

services and works that are properly incurred under or in furtherance 
of this Compact before expiration or termination of the Compact Term 
may be paid from MCC Funding, provided that the request for such 
payment is properly submitted within sixty (60) days after such 
expiration or termination.
    (f) Except for payments which the Parties are committed to make 
under noncancellable commitments entered into with third parties before 
such suspension or termination, the suspension or termination of this 
Compact or any Supplemental Agreement, in whole or in part, shall 
suspend, 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 
noncancellable 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 Program Assets be transferred to MCC if such Program Assets are in a 
deliverable state; provided, for any Program Asset(s) partially 
purchased or funded (directly or indirectly) by MCC Funding, the 
Government shall reimburse to a U.S. Government account designated by 
MCC the cash equivalent of the portion of the value of such Program 
Asset(s), such value as determined by MCC.
    (h) Prior to the expiration of this Compact or upon 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 MCA-Cape Verde, (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), or (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 Cape Verde 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 Cape Verde, 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 Cape Verde.

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.
    (ii) Any Attachments.
    (b) In the event of any conflict or inconsistency between this 
Compact and any Supplemental Agreement between the Parties, 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 
between such parties shall take precedence over a previously executed 
Supplemental Agreement between such parties. In the event of any 
inconsistency between a Supplemental Agreement between the Parties and 
any component of the Implementation Plan, 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 (i) 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 (ii) arise from or as a result of the negligence or 
willful misconduct of the Government, any Government Affiliate, MCA-
Cape Verde 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 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; Definitions

    (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, 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) The term ``U.S. Government'' shall mean any branch, agency, 
bureau,

[[Page 42639]]

government corporation, government chartered entity or other body of 
the Federal government of the United States.
    (e) The term ``Affiliate'' of a party 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.
    (f) The term ``Government Affiliate'' is an Affiliate, ministry, 
bureau, department, agency, government corporation or any other entity 
chartered or established by the Government.
    (g) References to any Affiliate or Government Affiliate herein 
shall include any of their respective directors, officers, employees, 
affiliates, contractors, sub-contractors, grantees, sub-grantees, 
representatives, and agents.
    (h) Any references to ``Supplemental Agreement between the 
Parties'' shall mean any agreement between MCC on the one hand, and the 
Government or any Government Affiliate or Permitted Designee on the 
other hand.

Section 5.11 Signatures

    Other than a signature to this Compact or an amendment to this 
Compact pursuant to Section 5.3, a signature delivered by facsimile or 
electronic mail in accordance with Section 5.1 shall be deemed an 
original 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. Such signature shall be accepted by the receiving 
Party as an original signature and shall be binding on the Party 
delivering such signature.

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 between 
the Parties.
    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, 3.3, 3.4, 3.5, 3.8, 3.9 (for one year), 3.12, 5.1, 5.2, 
5.4(d), 5.4(e) (for sixty 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.

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 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 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.

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, 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 Cape 
Verde.

Section 5.16 Language

    This Compact is prepared in English and in the event of any 
ambiguity or conflict between this official English version and any 
other version translated into any language for the convenience of the 
Parties, this official English version shall prevail.

Section 5.17 Publicity; Information and Marking

    The Parties 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 
MCC Web site and the MCA-Cape Verde Web site, identifying Program 
activity sites, and marking Program Assets; provided, 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 MCA-Cape 
Verde Web site.
    In witness whereof, the undersigned, duly authorized by their 
respective governments, have signed this Compact this 4th day of July, 
2005 and this Compact shall enter into force in accordance with Section 
1.3.

Done at Praia, Cape Verde in the English language.

For Millennium Challenge Corporation, on Behalf of the United States of 
America.
Name: Paul V. Applegarth,
Title: Chief Executive Officer.
For the Government of the Republic of Cape Verde.
Name: Jo[atilde]o Ant[oacute]nio Pinto Coelho Serra,
Title: Minister of Finance and Planning.

Exhibit A--Definitions

    The following compendium of capitalized terms that are used herein 
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 is any interest or other earnings on MCC Funding 
that accrues or are earned.
    Act means the Millennium Challenge Act of 2003, as amended.
    Additional Representative is a representative as may be designated 
by a Principal Representative, by written notice, for all purposes 
other than signing amendments to this Compact.
    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,

[[Page 42640]]

officers, employees, affiliates, contractors, sub-contractors, 
grantees, sub-grantees, representatives, and agents.
    AGOA means the Africa Growth and Opportunity Act.
    Agribusiness Development Activity is the Project Activity related 
to agribusiness development services under the Watershed Project 
described in Section 2(b) of Section 1 of Annex I.
    Area(s) means wherever the targeted geographic areas of Cape Verde 
where certain activities of the Program will be undertaken.
    ASA means the Airport and Aviation Security Company.
    Attachments are any annex, schedule, exhibit, table, appendix or 
other attachment expressly attached to this Compact.
    Audit Guidelines means the ``Guidelines for Financial Audits 
Contracted by Foreign Recipients'' issued by the Inspector General of 
the United States Agency for International Development.
    Audit Plan means 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.
    Auditor means the auditor(s) as defined in, and engaged pursuant 
to, Section 3(h) of Annex I and as required by Section 3.8(d) of the 
Compact.
    Auditor/Reviewer Agreement is an agreement between MCA-Cape Verde 
and each Auditor or 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 content of 
the applicable audit, review or evaluation and other terms and 
conditions such as payment of the Auditor or Reviewer.
    Bank(s) means the National Bank and any bank holding an account 
referenced in Section 4(d)(iii) of Annex I.
    Bank Agreement means an agreement between MCA-Cape Verde and a 
Bank, satisfactory to MCC, that sets forth the signatory authority, 
access rights, anti-money laundering and anti-terrorist financing 
provisions, and other terms related to the Permitted Account.
    Beneficiaries means the intended beneficiaries identified in 
accordance with Annex I.
    CGAP means the Consultative Group for Assistance to the Poorest.
    Chair means the Chair of the Steering Committee.
    Civil Members means the representatives for the positions 
identified in Sections 3(d)(ii)(2)(A)(vi)-(ix) of Annex I designated to 
serve as voting members on the Steering Committee.
    Compact means the Millennium Challenge Compact made between the 
United States of America, acting through the Millennium Challenge 
Corporation, and the Government of the Republic of Cape Verde.
    Compact Goal means advancing economic growth and poverty reduction 
in Cape Verde.
    Compact Goal Indicators are the Indicators that will measure the 
aggregation of estimated benefits of the three Projects, which is 
indicative of the overall impact from all of the Project Activities, as 
set out in the table at Section 2(a) of Annex III.
    Compact Records shall have the meaning set forth in Section 3.8(b).
    Compact Reports are 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.
    Compact Term means the term for which this Compact shall remain in 
force, which shall be the five (5) year period from the Entry into 
Force, unless earlier terminated in accordance with Section 5.4.
    Covered Provider means (i) a non-United States Provider that 
receives (other than pursuant to a direct contract or agreement with 
MCC) USD $300,000 or more of MCC Funding in any MCA-Cape Verde fiscal 
year or any other non-United States person or entity that receives, 
directly or indirectly, USD $300,000 or more of MCC Funding from any 
Provider in such fiscal year or (ii) any United States Provider that 
receives (other than pursuant to a direct contract or agreement with 
MCC) USD $500,000 or more of MCC Funding in any MCA-Cape Verde fiscal 
year or any other United States person or entity that receives, 
directly or indirectly, USD $500,000 or more of MCC Funding from any 
Provider in such fiscal year.
    Credit Activity is the Project Activity related to access to credit 
under the Watershed Project described in Section 2(c) of Schedule 1 of 
Annex I.
    Designated Rights and Responsibilities shall have the meaning set 
forth in Section 3.2(c).
    Detailed Financial Plan means the financial plans that specify 
respectively the annual and quarterly detailed budget and projected 
cash requirements for the Program (including monitoring and evaluation 
and administrative costs) and each Project, projected both on a 
commitment and cash requirement basis.
    Disbursement Agreement is a Supplemental Agreement that MCC, the 
Government (or a mutually acceptable Government Affiliate and MCA-CV 
shall enter into that (i) further specifies the terms and conditions of 
any MCC Disbursements and Re-Disbursements, (ii) is in a form and 
substance mutually satisfactory to the Parties, and (iii) is signed by 
the Principal Representative of each Party (or in the case of the 
Government, the principal representative of the applicable Government 
Affiliate) and of MCA-Cape Verde.
    EIA means environmental impact assessment.
    EIB means the European Investment Bank.
    Emergency Management Plan means the Emergency Management Plan and 
Responses for Health and Safety (2004).
    EMMP means an environmental management and monitoring plan.
    EMP means the Environmental Management Plans.
    ENAPOR means the current state entity that administers and operates 
the Port.
    Entry into Force means the entry into force of this Compact which 
shall be on the date of the last letter in an exchange of letters 
between the Principal Representatives of each Party confirming that all 
conditions set forth in Section 4.1 have been satisfied by the 
Government and MCC.
    Environmental Guidelines means the environmental guidelines 
delivered by MCC to the Government or posted by MCC on its website or 
otherwise publicly made available, as such guidelines may be amended 
from time to time.
    ERR means economic rate of return.
    ETS means Cape Verde's Economic Transformation Strategy which 
provides a long-term vision of building a globally competitive, 
services-oriented economy.
    EU means the European Union.
    Evaluation Component means the component of the M&E Plan that 
specifies a methodology, process and timeline for the evaluation of 
planned, ongoing, or completed Project Activities to determine their 
efficiency, effectiveness, impact and sustainability.
    Exempt Uses means (i) any transaction, service, activity, contract, 
grant or other implementing agreement funded in whole or in part by MCC 
Funding; (ii) any supplies, equipment, materials, property or other 
goods (referred to herein collectively as ``goods'') or funds 
introduced into,

[[Page 42641]]

acquired in, used or disposed of in, or imported into or exported from, 
the Republic of Cape Verde by MCC, or by any person or entity 
(including contractors and grantees) as part of, or in conjunction 
with, MCC Funding or the Program; (iii) any contractor, grantee, or 
other organization carrying out activities funded in whole or in part 
by MCC Funding; and (iv) any employee of such organizations.
    Final Evaluation shall have the meaning set forth in Section 3(a) 
of Annex III.
    Financial Plan means collectively, the Multi-Year Financial Plan 
and each Detailed Financial Plan, each amendment, supplement or other 
change thereto.
    Financial Plan Annex means Annex II of this Compact, which 
summarizes the Multi-Year Financial Plan for the Program.
    Financial Sector Reform Activity is the Project Activity related to 
financial sector reform under the Private Sector Development Project 
described in Section 2(b) of Schedule 3 of Annex I.
    Fiscal Accountability Plan shall have the meaning set forth in 
Section 4(c) of Annex I.
    Fiscal Agent shall have the mean set forth in Section 3(g) of Annex 
I.
    Fiscal Agent Agreement is an agreement between MCA-Cape Verde and 
each Fiscal Agent, 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. 
goods' refers to any supplies, equipment, materials, property or other 
goods.
    Governance Agreement means the governance agreement entered into by 
the Government and MCA-Cape Verde, and at MCC's option, MCC, in a form 
and substance satisfactory to MCC.
    Governing Document means any decree, legislation, regulation, 
contractual arrangement or other charter document establishing or 
governing MCA-Cape Verde.
    Government means the Government of the Republic of Cape Verde.
    Government Affiliate is an Affiliate, ministry, bureau, department, 
agency, government, corporation or any other entity chartered or 
established by the Government. 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 are the government members identified in Section 
3(d)(ii)(A)(i)-(v) of Annex I serving as voting members on the Steering 
Committee, and any replacements thereof in accordance with Section 
3(d)(ii)(A) of Annex I.
    Government Party means 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.
    Government Responsibilities shall have the meaning set forth in 
Section 3.2(a).
    GPRSP means the Growth and Poverty Reduction Strategy Paper 
published in 2004 by the Government.
    Grand Options Plan means the program of economic development 
embarked upon by the Government in 2001.
    IFC means the International Finance Corporation.
    Implementation Letter is a letter that may be issued by MCC from 
time to time to furnish additional information or guidance to assist 
the Government in the implementation of this Compact.
    Implementation Plan is a detailed plan for the implementation of 
the Program and each Project, which will be memorialized in one or more 
documents and shall consist of: (i) A Multi-Year Financial Plan; (ii) 
Detailed Financial Plans; (iii) Fiscal Accountability Plan; (iv) 
Procurement Plan; (v) Program and Project Work Plans; and (vi) M&E 
Plan.
    Implementing Entity means a Government Affiliate, nongovernmental 
organization or other public- or private-sector entity or persons to 
which MCA-Cape Verde may provide MCC funding, directly or indirectly, 
through an Outside Project Manager, to implement and carry out the 
Projects or any other activities to be carried out in furtherance of 
this Compact.
    Implementing Entity Agreement is an agreement between MCA-Cape 
Verde (or the appropriate Outside Project Manager) and an 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, such as payment of the Implementing 
Entity.
    Indicator Baseline means the value of an Indicator for a Project 
Activity and Objective prior to it being affected by the Program.
    Indicators means the quantitative, objective and reliable data that 
the M&E Plan will use to measure the results of the Program.
    Infrastructure Objective means increase integration of the internal 
market and reduce transportation costs.
    Infrastructure Project is the infrastructure project, and the 
Project described in Schedule 2 of Annex I, that the Parties intend to 
implement in furtherance of the Infrastructure Objective.
    Inspector General means the Inspector General of the United States 
Agency for International Development.
    Investment Guidelines shall have the meaning set forth in Section 
2(a)(iii) of Schedule 3 of Annex I.
    ITP means the Infrastructure and Transport Program.
    Lien means any lien, attachment, enforcement of judgment, pledge, 
or encumbrance of any kind.
    Local Account is an interest-bearing local currency of Cape Verde 
bank account at the National Bank to which the Fiscal Agent may 
authorize transfer from any U.S. Dollar Permitted Account for the 
purpose of making Re-Disbursements payable in local currency.
    M&E means Monitoring and Evaluation.
    M&E Annex means Annex III of this Compact, which generally 
describes the components of the M&E Plan for the Program.
    M&E Plan means the plan to measure and evaluate progress toward 
achievement of the Compact Goal and Objectives of this Compact.
    Management Unit means the management team of MCA-Cape Verde to have 
overall management responsibility for the implementation of this 
Compact and further described in Section 3(d)(iii) of Annex I.
    Managing Director means the Managing Director of MCA-Cape Verde.
    Material Agreement shall have the meaning set forth in Section 
3(c)(i)(5) of Annex I.
    Material Re-Disbursement means any Re-Disbursement that requires 
MCC approval under applicable law, Procurement Agreement, the 
Governance Agreement, any Governing Document, or any Supplemental 
Agreement.
    Material Terms of Reference means any terms of reference for the 
procurement of goods, services or works that requires MCC approval 
under applicable law, the Procurement Agreement, the Governance 
Agreement, any Governing Document, or any Supplemental Agreement.
    MCA means the 2004 Millennium Challenge Account.
    MCA-Cape Verde means the legal entity, in a form mutually agreeable 
to the Parties, which 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.
    MCA-Cape Verde Website means the website operated by MCA-Cape 
Verde.

[[Page 42642]]

    MCA Eligibility Criteria means the MCA selection criteria and 
methodology published by MCC pursuant to Section 607 of the Act from 
time to time.
    MCC means the Millennium Challenge Corporation.
    MCC Disbursement means the disbursement of MCC Funding by MCC to a 
Permitted Account or through such other mechanism agreed by the Parties 
as defined in and in accordance with Section 2.1(b)(i).
    MCC Disbursement Request means the applicable request that the 
Government and MCA-Cape Verde will jointly submit for an MCC 
Disbursement as may be specified in the Disbursement Agreement.
    MCC Funding means an amount not to exceed One Hundred Ten Million 
Seventy-Eight Thousand and Four Hundred Eighty-Eight United States 
Dollars (USD $110,078,488).
    MCC Indemnified Party means MCC and any MCC officer, director, 
employee, Affiliate, contractor, agent or representative.
    MCC Representative is a representative designated by MCC to serve 
as an Observer on the Steering Committee.
    MCC Working Group means the working group selected from the 
participants at a national consultation convened in Praia in May 2004, 
as described in Section 1(b) of Annex I.
    MEAF means the Ministry of Environment, Agriculture and Fisheries.
    MEGC means the Ministry for Economy, Growth and Competitiveness.
    MFIs means micro-finance institutions.
    MIT means the Ministry of Infrastructure and Transport.
    Monitoring Component means the component of the M&E Plan that 
specifies how progress toward the Objectives and Project Activity 
Outcomes will be monitored.
    Multi-Year Financial Plan means the multi-year financial plan for 
the Program and for each Project, which is summarized in Annex II to 
this Compact.
    Multi-Year Financial Plan Summary means a multi-year Financial plan 
summary attached to this Compact as Exhibit A of Annex II. national'' 
means, for purposes of Section 2.3(e), organizations established under 
the laws currently or hereafter in effect in the Republic of Cape 
Verde, other than MCA-Cape Verde or any other entity established solely 
for purposes of managing or overseeing the implementation of the 
Program or any wholly-owned subsidiaries, divisions, or Affiliates of 
entities not registered or established under the laws currently or 
hereafter in effect in the Republic of Cape Verde.
    National Bank means the Bank of Cape Verde.
    Objective(s) are the following objectives of this Compact that have 
been identified by the Parties, each of which is (i) key to advancing 
the Compact Goal and (ii) described in more detail in the Annexes 
attached hereto: (a) the Watershed Management and Agricultural Support 
Objective, (b) the Infrastructure Objective and (c) the Private Sector 
Development Objective.
    Objective Indicator means the Indicator for each Objective that 
will measure the final results of the Projects in order to monitor 
their success in meeting each of the Objectives. A table of Objective 
Indicator definitions is set forth at Section 2(b)(i) of Annex III.
    Observers means the non-voting observers of the Steering Committee.
    Officers shall have the meaning set forth in 3(d)(iii)(3) of Annex 
I.
    Outside Project Manager means the qualified persons or entities 
engaged by the Management Unit, on behalf of MCA-Cape Verde, to serve 
as outside project managers in accordance with Section 3(d)(iii)(5) of 
Annex I.
    Partnership to Mobilize Investment Activity is a Project Activity 
related to the partnership to mobilize investment under the Private 
Sector Development Project described in Section 2(a) of Schedule 3 of 
Annex I.
    Parties means the United States, acting through MCC, and the 
Government.
    Party means (i) the United States, acting through MCC or (ii) the 
Government.
    PCO means the Program Coordination Office attached directly to the 
Office of the Minister, Ministry of Infrastructure and Transport.
    PEP means IFC's Private Enterprise Partnership for Africa program.
    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 
3.2(c).
    PIU means the Government's project implementation unit for the 
World Bank's Growth and Competitiveness Project.
    Pledge means any pledge of any MCC Funding or any Program Assets, 
or any guarantee directly or indirectly of any indebtedness.
    Port means the Porto de Praia.
    Port Activity is the Project Activity related to the upgrade and 
expansion of the Port of Praia under the Infrastructure Project 
described in Section 2(a) of Schedule 2 of Annex I.
    Principal Representative means (i) for the Government, the 
individual holding the position of, or acting as, Minister of Finance 
and Planning of the Republic of Cape Verde, and (ii) for MCC, the 
individual holding the position of, or acting as, the Vice President 
for Country Relations.
    Prioritized Activities are the prioritized IFC and unsolicited 
interventions or activities designed and/or evaluated in Phase II of 
the Partnership to Mobilize Investment Activity under Section 2(a)(iii) 
of Schedule 3 of Annex I.
    Private Sector Development Objective is an Objective of this 
Compact and means to develop the private sector.
    Private Sector Development Project is a private sector development 
project, and the Project described in Schedule 3 of Annex I, that the 
Parties intend to implement in furtherance of the Private Sector 
Development Objective.
    Procurement Agreement is a Supplemental Agreement between the 
Parties, which includes the Procurement Guidelines, and governs the 
procurement of all goods, services and works by the Government or any 
Provider in furtherance of this Compact.
    Procurement Guidelines shall have the meaning set forth in Section 
3.6(a).
    Procurement Plan means a procurement plan adopted by MCA-Cape 
Verde, which plan shall forecast the upcoming six month procurement 
activities and be updated every six months.
    Procurement Review Commission means the procurement review 
commission that reports to MCA-Cape Verde on procurements related to 
the Program and provides oversight of the operational procurement 
activities of MCA-Cape Verde (further described in Section 3(i) of 
Annex I).
    Procurement Review Commission Agreement means the agreement between 
MCA-Cape Verde and Ministry of Finance and Planning, in form and 
substance satisfactory to MCC, that sets forth the roles and 
responsibilities of the Procurement Review Commission with respect to 
the conduct, monitoring and review of procurements and other 
appropriate terms and conditions, such as payment of the Procurement 
Review Commission.
    Program means a program, to be implemented under this Compact, 
using MCC Funding to advance Cape Verde's progress towards economic 
growth and poverty reduction.
    Program Annex means Annex I to this Compact, which generally 
describes the Program that MCC Funding will support in Cape Verde 
during the Compact Term and the results to be achieved from the 
investment of MCC Funding.

[[Page 42643]]

    Program Assets means (i) MCC Funding, (ii) Accrued Interest, or 
(iii) any assets, goods, or property (real, tangible, or intangible) 
purchased or financed in whole or in part by MCC Funding.
    Project(s) are the specific projects and the policy reforms, and 
other activities related thereto 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.
    Project Activity means the activities that will be undertaken in 
furtherance of each Project.
    Project Activity Outcome means outcomes of each Project Activity.
    Project Activity Outcome Indicator means the Indicator for each of 
the Project Activities that will measure the intermediate results 
achieved under each of the Project Activities in order to provide an 
early measure of the likely impact of the Project Activities. A table 
of Project Activity Outcome Indicator definitions is set forth at 
Section 2(b)(ii) of Annex III.
    Project Manager means the following Officers in the Management 
Unit: (i) Watershed Management and Agricultural Support Manager, (ii) 
Infrastructure Manager, and (iii) the Private Sector Development 
Manager.
    Proposal is the proposal for use of MCA assistance submitted to MCC 
by the Government on August 10, 2004.
    Provider means (i) MCA-Cape Verde and any other Government 
Affiliate or Permitted Designee involved in any activities in 
furtherance of this Compact or (ii) any third party who receives at 
least USD $50,000 in the aggregate of MCC Funding (other than employees 
of MCA-Cape Verde) during this Compact Term or such other amount as the 
Parties may agree in writing, whether directly from MCC, indirectly 
through Re-Disbursements, or otherwise.
    Re-Disbursement is the release of MCC Funding from a Permitted 
Account.
    Regional Stakeholders' Committees means all then existing regional 
stakeholders' committees, comprised of non-governmental organizations, 
municipalities, farmers associations, and enterprises in the private 
sector.
    Review Committee is a review committee that will be formed during 
Phase III of the Partnership to Mobilize Investment Activity as 
described in Section 2(a)(iii) of Schedule 3 of Annex I.
    Reviewer shall have the meaning set forth in Section 3(h) of Annex 
I.
    Road Maintenance Fund means the road maintenance fund to be created 
and function in accordance with the Transport Sector Letter, as 
described in Section 6(b)(i) of Schedule 2 of Annex I.
    Roads and Bridges Activity means the Project Activity related to 
roads and bridges under the Infrastructure Project described in Section 
2(b) of Schedule 2 of Annex I.
    Selected Activity shall have the meaning set forth in Section 
2(a)(iii) of Schedule 3 of Annex I.
    SIGOF means the Government's existing government financial 
management system.
    Special Account means a single, completely separate U.S. Dollar 
interest-bearing account at the Bank of Cape Verde to receive MCC 
Disbursements.
    Stakeholders' Committee means a continued stakeholders' committee, 
such as the Stakeholders' Group, or a similar committee established in 
accordance with Section 3(e)(i) of Annex I.
    Stakeholders' Group is a nationally representative committee 
established in October, 2004 to provide additional direction, feedback 
and oversight for the proposed MCA program.
    Steering Committee means an independent steering committee to 
oversee MCA-Cape Verde's responsibilities and obligations under this 
Compact (including any Designated Rights and Responsibilities) and 
further described in Section 3(d)(ii) of Annex I.
    STPC means the Strategic Transformation and Policy Center.
    Strategic Programme is the Priority Strategic Programme for 
Infrastructure and Land Use Management that the Government formulated 
in 2003.
    Supplemental Agreement is an agreement between (i) the Government 
(or any Government Affiliate or Permitted Designee) and MCC, (ii) MCC 
and/or the Government (or any Government Affiliate or Permitted 
Designee) and any third party, including any of the Providers or 
Permitted Designees, or (iii) any third parties where neither MCC nor 
the Government is a party, before, on or after the Entry into Force, 
which agreement memorializes details any funding, implementing and 
other arrangements in furtherance of this Compact.
    Supplemental Agreement between the Parties means any agreement 
between MCC on the one hand, and the Government or any Government 
Affiliate or Permitted Designee on the other hand.
    Supplemental Agreement Term Sheets means one or more term sheets 
that the Government (or mutually acceptable Government Affiliate) and 
MCC shall execute that set forth the material and principal terms and 
conditions of each of the Supplemental Agreements identified in Exhibit 
B attached hereto.
    Target means one or more expected results that specify the expected 
value and the expected time by which that result will be achieved.
    Tax(es) shall have the meaning set forth in Section 2.3(e)(i).
    Transport Sector Letter means the Government's Letter of Transport 
Sector Policy.
    U.S. Government shall mean any branch, agency, bureau, government 
corporation, government chartered entity or other body of the Federal 
government of the United States.
    United States Dollars (USD) means the currency of the United States 
of America.
    Water Management Activity is the Project Activity related to water 
management and soil conservation under the Watershed Project described 
in Section 2(a) of Schedule 1 of Annex I.
    Watershed Areas are the three rural intervention watershed areas: 
(i) Ribeira Paul on the island on Santo Ant[atilde]o; (ii) Mosteiros on 
the island of Fogo; and (iii) Ribeira Faj[atilde] on the island of 
S[atilde]o Nicolau.
    Watershed Management and Agricultural Support Objective is an 
Objective of this Compact and means to increase agricultural production 
in the intervention zones.
    Watershed Project is the watershed management and agricultural 
support project, and the Project described in Schedule 1 of Annex I, 
that the Parties intend to implement in furtherance of the Watershed 
Management and Agricultural Support Objective and a Project.
    Work Plans means work plans for the overall administration of the 
Program and for each Project.
    World Bank Road Sector Support Project is a project where several 
donors, notably the World Bank, Portugal and the EU, are financing 
selected priority investments, with the World Bank playing a leading 
role in supporting institutional reforms in road sector management and 
maintenance.

Exhibit B--List of Certain Supplemental Agreements

1. Governance Agreement.
2. Form of Fiscal Agent Agreement.
3. Form of Implementing Entity Agreement.
4. Form of Bank Agreement.

Annex I--Program Description

    This Annex I to the Compact (the ``Program Annex'') generally 
describes the Program that MCC Funding will support in Cape Verde 
during the

[[Page 42644]]

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 MCA-Cape Verde shall enter into a 
Supplemental Agreement that (i) further specifies the terms and 
conditions of such MCC Disbursements and Re-Disbursements, (ii) is in a 
form and substance mutually satisfactory to the Parties, and (iii) is 
signed by the Principal Representative of each Party (or in the case of 
the Government, the principal representative of the applicable 
Government Affiliate) and of MCA-Cape Verde (the ``Disbursement 
Agreement'').
    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 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 the Compact.

1. Background and Cape Verde Development Strategy; Consultative Process

(a) Background and Cape Verde Development Strategy
    Since gaining its independence from Portugal in 1975, Cape Verde 
has achieved an annual growth rate of approximately six percent. This 
growth has resulted in impressive socio-economic gains in such areas as 
literacy rates, educational attainment, life expectancy, and per-capita 
income (which has increased from USD $200 to USD $1,485). Despite these 
achievements, Cape Verde continues to have high levels of poverty and 
unemployment. Further, income disparities are increasing between men 
and women and between urban and rural populations, as illustrated by 
the fact that approximately 40% of the rural population lives in 
poverty. The persistence of poverty can be partly attributed to the 
fact that Cape Verde is challenged by a relative lack of obvious 
economic growth opportunities and a scarcity of resources, particularly 
water. Only 10% of the land is arable and a short rainy period, marked 
by torrential downpours, results in roughly 83% of rainfall being lost 
through evaporation and runoff. Agricultural productivity is low; 
therefore, approximately 85% of the country's food is imported (70% of 
which is in the form of food aid). In addition, Cape Verde suffers from 
adverse cost competitiveness owing to geographic discontinuity and a 
small population (450,000 people spread over nine inhabited islands), 
which result in redundant capital costs, high factor costs of 
production, and a lack of economies of scale.
    Cape Verde's strong record of democratic governance, stability, 
transparency, and lack of corruption has allowed the country to 
maintain large inflows of foreign assistance and remittances from 
[eacute]migr[eacute]s, which together represent roughly 25% of GDP. 
These financial flows have sustained the country's economic progress 
since independence. However, given that foreign assistance and 
remittances are likely to decline in the future, Cape Verde has 
designed an economic development strategy to move the country from an 
aid-dependency model of development to one of self-sustaining private-
sector led growth. Given the constraints in other sectors resulting 
from the country's geography and small population, sectors such as 
tourism, financial services, transportation and fisheries are expected 
to serve as future engines of Cape Verde's growth. In order to achieve 
the goal of developing these target sectors, large investments must be 
made in strengthening human resources and upgrading infrastructure, 
together with relevant policy reforms to improve the investment 
climate.
    Cape Verde's post-independence history can be divided into three 
periods. The first was characterized by an interventionist state that 
played a dominant role in the productive sectors; the second, by 
economic and political liberalization, marked by pluralism and multi-
party democracy; while the third represents an ongoing attempt to 
develop a sustainable economy, based on a competitive private sector. 
The third phase began in 2001, when the Government--in consultations 
with the civil society and the private sector--embarked on a program of 
economic development (the ``Grand Options Plan''). The outcome of a 
six-month exercise, the Grand Options Plan is based on the principles 
of good governance, private sector-led growth, human capital 
strengthening, and infrastructure development, and was designed to 
provide an overall guiding framework for the more specific national 
development planning efforts in Cape Verde.
    An important achievement in the evolution of Cape Verde's economic 
development strategy occurred in 2004, when the Government published a 
Growth and Poverty Reduction Strategy Paper (``GPRSP''). The GPRSP is 
consistent with the principles articulated in the Grand Options Plan, 
further defines public investment priorities, and is based on the 
following five strategic pillars:
     Promote good governance that reinforces effectiveness and 
guarantees fairness;
     Promote competitiveness to favor economic growth and 
employment creation;
     Develop and upgrade human capital;
     Develop infrastructure, promote land use planning and 
protect the environment; and
     Improve effectiveness and sustainability of the social 
protection system.
    Described as ``fully participatory'' by the IMF/World Bank Joint 
Staff Assessment, the GPRSP is a comprehensive policy for social 
development that is being supported by the World Bank with a Poverty 
Reduction Support Credit.
    Another milestone was Cape Verde's increased focus on private 
sector development through the preparation of an Economic 
Transformation Strategy (``ETS''), which provides a long-term vision of 
building a globally competitive, services-oriented economy. The key 
elements of the ETS include:
     Developing a high value-added tourism/ecotourism sector;
     Building upon Cape Verde's geographic location to become a 
gateway for cargo and passenger transportation and air traffic-control 
services;
     Developing its information technology and services 
industries to provide financial and back-office services to the 
Lusophone and African markets; and
     Processing and marketing of fish and seafood for export.
    In the short term, the ETS seeks to expand upon effective programs 
to enhance the capacity of the poor to invest in drip irrigation and 
other productive activities that have successfully raised agricultural 
outputs and rural incomes.
    The successful implementation of the ETS will require investments 
to strengthen human capital; upgrade capacity within the private sector 
and the policy-making apparatus; and improve infrastructure. To support 
the transformation, the Government also embarked on several policy 
reforms (legal framework, finance, and social security) to deepen 
market-economy reforms, ensure continued macro-economic stability, and 
enhance micro-economic competitiveness.

[[Page 42645]]

    The Program represents the culmination of a process that began in 
2001, with the Grand Options Plan. It addresses three key areas: 
watershed management and agricultural support, infrastructure 
improvement, and private sector development. The Program is consistent 
with the ETS, and adheres to the second, third and fourth pillars of 
the GPRSP. For example, the second pillar of the GPRSP includes 
increasing the country's competitiveness by fostering private sector 
development, particularly oriented to small and medium-size 
enterprises; sustainable growth of agriculture; and developing the 
financial sector, including micro-credit financing mechanisms. With 
respect to the watershed management and agricultural support area, the 
Program will focus on short-to medium-term initiatives to expand 
economic opportunities in rural areas. To improve infrastructure, the 
Program will focus on development and planning for a modern 
infrastructure to reduce the cost of inputs and improve the integration 
of internal markets. To promote private sector development, the Program 
is designed to establish the foundation for transforming Cape Verde's 
economy by focusing on mobilizing investment in the priority sectors 
and further developing the financial sector.
(b) Consultative Process
    Cape Verde's Proposal was the result of a timely, meaningful and 
participatory consultative process for the Proposal that included 
several steps. A series of consultations were held with organizations 
and individuals with experience or links to Cape Verde in the United 
States to receive feedback on the initial program design. In Cape 
Verde, individual consultations were held with each cabinet minister, 
non-governmental organizations, and the various private sector 
associations to brief them about MCC and proposed plans for use of MCA 
funds and to obtain their views on initial program design ideas.
    On May 28-30, 2004, a national consultation was launched with a 
forum convened in Praia that included representatives from civil 
society, the government and municipalities, the private sector, 
chambers of commerce, non-governmental organizations, academia, and 
others. The May 2004 forum determined a process for the formal 
preparation of the MCA proposal and selected from the participants a 
working group (the ``MCC Working Group''). At the May 2004 forum, five 
teams were created with broad stakeholder representation to focus on 
such areas as: growth and competitiveness; human resources; social 
empowerment; infrastructure; and institutions. These five teams shaped 
the initial draft proposal. At a final plenary session of the May 2004 
forum, the participants debated and approved the initial draft 
proposal.
    Following the outcome of the national forum, the MCC Working Group 
prepared recommendations and sectoral reports. A drafting task force, 
composed of representatives of the public administration, association 
of municipal governments, private sector and non-governmental 
organizations, prepared a further draft proposal based on the 
recommendations of the forum. This further draft proposal became the 
basis for a second round of consultations. The second round consisted 
of a series of sectoral consultations with private sector and civil 
society. Selective consultations were also held with Cape Verdean 
communities in the United States to obtain comments. Donors such as the 
World Bank, International Monetary Fund and United Nations Development 
Program also provided additional input. The resulting Proposal was then 
presented to MCC and posted on the Internet at 
www.virtualcapeverde.net.
    In October, 2004, a nationally representative committee (the 
``Stakeholders' Group'') was established to provide additional 
direction, feedback and oversight for the proposed MCA program. Members 
represent various sectors of society including government, private 
sector, municipalities, non-governmental organizations, community 
associations and political parties. The Stakeholders' Group, which is 
chaired by the ``Plataforma das ONG,'' an umbrella association of non-
governmental organizations in Cape Verde, had the responsibility of 
reviewing the proposed MCA program and the Proposal. It is anticipated 
that this Stakeholders' Group may have a continuing role during the 
implementation of the Program as described below. Finally, the 
opposition political party has publicly endorsed the Proposal.
    The objectives, indicators, specific outcomes and targets of the 
Program were reviewed and refined by proposed Program implementing 
agents from the Ministry of Environment, Agriculture and Fisheries 
(``MEAF''), Ministry of Infrastructure and Transport (``MIT''), 
Ministry of Finance and Planning, as well as the National Institute of 
Statistics during a three-day M&E workshop held in S[atilde]o Jorge 
from April 23-25, 2005. They were subsequently presented to a 
conference in S[atilde]o Jorge on April 29, 2005, and agreed upon by 
the key Program stakeholders, including municipalities from various 
islands, non-governmental organizations, civil society and private 
sector, in a continued effort to deepen the consultative process. Many 
of these views are being taken into account in the development of the 
M&E Plan. Once finalized, the M&E Plan will be posted on the website 
operated by MCA-Cape Verde (the ``MCA-Cape Verde Website'') and shared 
with Program stakeholders.
    Following MCC's review of the Proposal and discussions and 
negotiations of the Parties, the Parties have identified certain 
mutually acceptable components of the Proposal and other components 
developed through the discussions of the Parties that together shall 
constitute the Program. The Program is fully consistent with, and 
directly supports, the Grand Options Plan, the GPRSP, and the ETS as 
noted above.

2. Overview

    (a) Program Objectives. The Program involves a series of specific 
and complementary interventions that the Parties expect will achieve 
the Objectives and, thus, advance the progress of Cape Verde towards 
the Compact Goal. Specifically, the Program seeks to (i) increase 
agricultural productivity in three targeted watershed areas on three 
islands, through improved water capture and resource management, 
enhanced agricultural services, marketing, and credit; (ii) increase 
integration of internal markets and reduce transportation costs by 
improving road infrastructure on two islands and upgrading the Port of 
Praia; and (iii) spur private sector development on all islands through 
increased investment in the priority sectors and through financial 
sector reforms designed to increase financial intermediation and 
increase competition in the government securities market.
    (b) Projects. The Parties have identified, for each Objective, 
Projects that the Government will implement, or cause to be 
implemented, using MCC Funding. Each Project is described in the 
Schedules to this Program Annex. The Schedules to this Program Annex 
identify the activities that will be undertaken in furtherance of each 
Project (each, a ``Project Activity'') as well as the various 
activities within a 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

[[Page 42646]]

without amending this Compact; provided, however, any such modification 
or amendment of a Project or creation of a new project is (i) 
Consistent with the Objectives; (ii) does not cause the amount of MCC 
Funding to exceed the aggregate amount specified in Section 2.1(a) of 
this Compact; (iii) does 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) does not extend the 
Compact Term. Certain activities of the Program will be undertaken in 
targeted geographic areas of Cape Verde (referred to herein as ``Area'' 
or ``Areas''). Other activities (e.g., policy reforms) will have an 
impact on the national level. The Areas for the Watershed Management 
and Agricultural Support Project are the watershed management areas 
within each of the three targeted islands of Santo Ant[atilde]o, Fogo 
and S[atilde]o Nicolau. The Areas of the Infrastructure Development 
Project are the two islands of Santiago and Santo Ant[atilde]o. The 
Private Sector Development Project shall be implemented at the national 
level.
    (c) 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 the implementation of the Program. The Government shall 
provide to MCC information on the population of the Areas, 
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 MCA-Cape Verde Website. For each Project, the Government shall 
ensure that MCA-Cape Verde presents to the Stakeholders' Committee 
(described below) (i) a detailed description of the intended 
beneficiaries and (ii) the methodology used to determine the intended 
beneficiaries within sixty (60) days after the commencement of 
implementation and completion of the analysis of the intended 
beneficiaries therein, disaggregated, to the maximum extent 
practicable, by income level, gender, and age.
    (d) Civil Society. Civil society shall participate in overseeing 
the implementation of the Program through its representation on the 
Steering Committee (by non-governmental organizations and private 
sector entities) and the Stakeholders' Committee, as provided in 
Section 3(d) and Section 3(e), respectively, of this Program Annex. 
Local communities, local municipalities, local associations or others 
may be responsible or otherwise involved in the management of the 
infrastructure constructed as a result of the Water Management 
Activity. Water users will be responsible for the maintenance of the 
water infrastructures constructed as a result of the Water Management 
Activity. The Partnership to Mobilize Investment Activity may also 
receive from civil society unsolicited proposals for activities to be 
funded under that Project Activity. In addition, the Work Plans or 
Procurement Plans for each Project shall note the extent to which civil 
society will have a role in the implementation of a particular Project 
or Project Activity. Finally, members of civil society may be 
recipients of training, technical assistance, or other public awareness 
programs that are integral to the Projects. Delivery of financial 
services under the Program will be implemented by micro-finance 
institutions and non-governmental organizations and construction of the 
roads and port will be by private contractors. Local municipalities 
from the various islands will also be involved at various levels of the 
implementation of the program, including: (i) Representation on the 
Steering Committee through the National Municipality Association; (ii) 
representation on the Stakeholders' Committee; and (iii) involvement in 
the planning and procurement processes of the Project Activities on the 
various islands.
    (e) Monitoring and Evaluation (``M&E''). Annex III of this Compact 
generally describes the plan to measure and evaluate progress toward 
achievement of the Compact Goal and Objectives of this Compact (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 and Re-Disbursements) shall 
be contingent, among other things, on successful achievement of targets 
set forth in the M&E Plan.
3. Implementation Framework
    The implementation framework and the plan for ensuring adequate 
governance, oversight, management, monitoring, evaluation and fiscal 
accountability for the use of MCC Funding is summarized below and in 
the Schedules attached to this Program Annex, or as may otherwise be 
agreed in writing by the Parties.
    (a) General. The elements of the implementation framework will be 
further described in relevant Supplemental Agreements and in a detailed 
plan for the implementation of the Program and each Project (the 
``Implementation Plan''), which will be memorialized in one or more 
documents and shall consist of: a Multi-Year Financial Plan, Detailed 
Financial Plans, Fiscal Accountability Plan, Procurement Plan, Program 
and Project Work Plans, and M&E Plan. MCA-Cape Verde shall adopt each 
component of the Implementation Plan in accordance with the 
requirements and timeframe as may be specified in this Program Annex, 
the Disbursement Agreement or as may otherwise be agreed by the Parties 
from time to time. MCA-Cape Verde may amend the Implementation Plan or 
any component thereof without amending this Compact, provided any 
material amendment of the Implementation Plan or any component thereof 
has been approved by MCC and is otherwise consistent with the 
requirements of this Compact and any relevant Supplemental Agreement 
between the Parties. By such time as may be specified in the 
Disbursement Agreement or as may otherwise be agreed by the Parties 
from time to time, MCA-Cape Verde shall adopt one or more work plans 
for the overall administration of the Program and for each Project 
(collectively, the ``Work Plans''). The Work Plan(s) shall set forth 
the details of each activity to be undertaken or funded by MCC Funding 
as well as the allocation of roles and responsibilities for specific 
Project activities, or other programmatic guidelines, performance 
requirements, targets, or other expectations for a Project.
    (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, and to establish 
a legal entity, in a form mutually agreeable to the Parties, the form, 
structure and other features of such legal entity to be determined and 
agreed upon by the Parties on or before the time specified in the 
Disbursement Agreement (``MCA-Cape Verde''), which shall be a

[[Page 42647]]

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 MCA-Cape Verde is duly 
authorized and organized, sufficiently staffed and empowered to fully 
carry out the Designated Rights and Responsibilities. Without limiting 
the generality of the preceding sentence, MCA-Cape Verde shall be 
organized, and have such roles and responsibilities, as described in 
Section 3(d) of this Program Annex and as provided in the Governance 
Agreement and any Governing Documents; provided, however, the 
Government or another Permitted Designee may, subject to MCC approval, 
carry out any of the roles and responsibilities designated to be 
carried out by MCA-Cape Verde and described in Section 3(d) of this 
Program Annex or elsewhere in this Program Annex, the Governance 
Agreement, or any other Supplemental Agreement prior to and during the 
initial period of the establishment and staffing of MCA-Cape Verde, but 
in no event longer than the earlier of (i) the formation of the 
Steering Committee, establishment of MCA-Cape Verde (including the 
Management Unit), and engagement of each of the Officers and (ii) six 
months from the Entry into Force, unless otherwise agreed by the 
Parties in writing.
    (iii) Various ministries, bureaus and agencies of the Government 
may serve as Implementing Entities. In addition, within the MEAF, MIT, 
and Ministry of Economic Growth and Competitiveness, the Office of 
Studies and Planning will be responsible for the management of the 
Projects, consolidation of reports, and development of budgets.
    (c) MCC.
    (i) Notwithstanding Section 3.1 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 Detailed Financial Plan, and any amendments thereto;
    (3) The Multi-Year Financial Plan and any amendments and annual 
supplements thereto;
    (4) Any Audit Plan;
    (5) Agreements (i) between the Government and MCA-Cape Verde, (ii) 
between the Government, a Government Affiliate, MCA-Cape Verde or any 
other Permitted Designee on the one hand, and any Provider or Affiliate 
of a Provider, on the other hand, (A) which require such MCC approval 
under applicable law, the Procurement Agreement, the Governance 
Agreement, any other Governing Document, or any other Supplemental 
Agreement or (iii) in which the Government, a Government Affiliate, 
MCA-Cape Verde 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) Procurement Review Commission;
    (E) Each Bank;
    (F) Outside Project Manager;
    (G) Implementing Entity; and
    (H) Steering Committee member, Observer, Officer, and other key 
employee of MCA-Cape Verde (including any compensation for such 
person).
    (Any agreement described in clause (i) through (iii) of this 
Section 3(c)(i)(5) and any amendments and supplements thereto, each, a 
``Material Agreement'');
    (6) Any 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;
    (7) Any agreement that is (A) not at arm's length or (B) with a 
party related to the Government or MCA-Cape Verde or any of their 
respective Affiliates;
    (8) Any Re-Disbursement (each, a ``Material Re-Disbursement'') that 
requires such MCC approval under applicable law, the Procurement 
Agreement, the Governance Agreement, any Governing Document, or any 
Supplemental Agreement;
    (9) Any terms of reference (each, a ``Material Terms of 
Reference'') for the procurement of goods, services or works that 
requires such MCC approval under applicable law, the Procurement 
Agreement, the Governance Agreement, any Governing Document, or any 
Supplemental Agreement;
    (10) The Implementation Plan, including each component plan 
thereto, and any material amendments and supplements to the 
Implementation Plan or any component thereto;
    (11) Any pledge of any MCC Funding or any Program Assets or any 
guarantee directly or indirectly of any indebtedness (each, a 
``Pledge'');
    (12) Any decree, legislation, regulation, contractual arrangement 
or other charter document establishing or governing MCA-Cape Verde 
(``Governing Document'');
    (13) Any disposition (in whole or in part), liquidation, 
dissolution, winding up, reorganization or other change of (A) MCA-Cape 
Verde, including any revocation or modification of or supplement to any 
Governing Document related thereto, or (B) any subsidiary or Affiliate 
of MCA-Cape Verde;
    (14) Any change in character or location of any Permitted Account;
    (15) Formation or acquisition of any subsidiary (direct or 
indirect) or other Affiliate of MCA-Cape Verde;
    (16) Any (A) Change of a Steering Committee member, Observer, 
Officer or other key employee or contractor of MCA-Cape Verde, or 
change in the composition of the Steering Committee of MCA-Cape Verde, 
including approval of the nominee for Chair, (B) filling of any vacant 
seat of the Chair, Steering Committee member, or an Observer or vacant 
position of an Officer, key employee or contractor of MCA-Cape Verde, 
(C) filling of the seats designated as representatives nominated by the 
Stakeholders' Committee, if any, to the Steering Committee, (D) filling 
any vacant seat on the Stakeholders' Committee; and (E) approval of the 
nominee for chair of the Procurement Review Commission;
    (17) The management information system to be developed and 
maintained by the Management Unit of MCA-Cape Verde, and any material 
modifications to such system;
    (18) Any decision to amend, supplement, replace, terminate, or 
otherwise change any of the foregoing; and
    (19) Any other activity, agreement, document or transaction 
requiring the approval of MCC in this Compact, applicable law, the 
Governance Agreement, any Governing Document, the Procurement 
Agreement, the Disbursement Agreement, or any other Supplemental 
Agreement between the Parties.
    The Chair of the Steering Committee (the ``Chair'') and/or the 
Managing Director of MCA-Cape Verde (the ``Managing Director'') or 
other designated Officer, as provided in the Governance Agreement, 
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'').

[[Page 42648]]

    (ii) MCC shall have the authority to exercise its approval rights 
set forth in this Section 3(c) in its sole discretion and independent 
of any participation or position taken by the MCC Representative at a 
meeting of the Steering Committee. 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, MCA-Cape Verde, or any Government Affiliate or Permitted 
Designee. Notwithstanding any provision in this Compact or any 
Supplemental Agreement to the contrary, the exercise by MCC of its 
approval rights under this Compact or any Supplemental Agreement shall 
not (1) diminish or otherwise affect the Government Responsibilities or 
any other obligations or responsibilities of the Government under this 
Compact or any Supplemental Agreement, (2) transfer any such 
obligations or responsibilities of the Government, or (3) otherwise 
subject MCC to any liability.
    (d) MCA-Cape Verde.
    (i) General. Unless otherwise agreed by the Parties in writing, 
MCA-Cape Verde shall, as a Permitted Designee, be responsible for the 
oversight and management of the implementation of this Compact. MCA-
Cape Verde shall be governed by applicable law, any Governing 
Documents, and the terms and conditions set forth in a governance 
agreement to be entered into by the Government and MCA-Cape Verde and 
at MCC's option, MCC, in a form and substance satisfactory to MCC, on 
or before the time specified in the Disbursement Agreement 
(``Governance Agreement''), and based on the following principles:
    (1) The Government shall ensure that MCA-Cape Verde shall not 
assign, delegate or contract any of the Designated Rights and 
Responsibilities without the prior written consent of the Government 
and MCC. MCA-Cape Verde 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, MCA-Cape 
Verde shall consist of (a) an independent steering committee (the 
``Steering Committee'') to oversee MCA-Cape Verde's responsibilities 
and obligations under the this Compact (including any Designated Rights 
and Responsibilities) and (b) a management team (``Management Unit'') 
to have overall management responsibility for the implementation of 
this Compact.
    (ii) Steering Committee.
    (1) Formation. The Government shall ensure that the Steering 
Committee shall be formed, constituted, governed and operated in 
accordance with the terms and conditions set forth in the Governance 
Agreement, any applicable Governing Document, and any other relevant 
Supplemental Agreement.
    (2) Composition. Unless otherwise agreed by the Parties in writing, 
the Steering Committee shall consist of at least nine and no more than 
eleven voting members, one of whom shall be appointed the Chair as 
provided in applicable law, the Governance Agreement or any Governing 
Document and subject to MCC approval, and the non-voting observers 
identified below.
    (A) The Steering Committee shall initially be composed of nine 
voting members as follows, provided that the Government members 
identified in subsections (i)-(v) below (the ``Government Members'') 
may be replaced by another government official of comparable rank from 
a ministry or other government body relevant to the Program activities, 
subject to approval by the Government and MCC (such replacement to be 
referred to thereafter as a Government Member):
    (i) Minister of Finance and Planning;
    (ii) Minister of Infrastructure and Transport;
    (iii) Minister of Economy, Growth, and Competitiveness;
    (iv) Minister of Environment, Agriculture and Fisheries;
    (v) Chief Advisor to the Prime Minister;
    (vi) The President of the National Municipalities Association;
    (vii) The President of the Chamber of Commerce of Sotavento;
    (viii) The President of the Chamber of Commerce and Agriculture of 
Barlavento; and
    (ix) The President of the Non-Governmental Organization 
Association.
    (B) The non-voting observers (each, an ``Observer'') shall be:
    (i) A Representative designated by MCC (the ``MCC 
Representative''); and
    (ii) Representatives-elect for positions identified in Sections 
3(d)(ii)(2)(A)(vi)-(ix) of this Program Annex (such above identified 
positions, the ``Civil Members''), and representatives-elect for any 
additional voting members in the event the Steering Committee size 
expands to eleven, who will be non-voting observers during the one-year 
period prior to the beginning of their respective terms.
    (C) Each Government Member position shall be filled by the 
individual then holding the office identified and such individuals 
shall serve in their capacity as the applicable Government official and 
not in their personal capacity; in the event that such member is unable 
to participate in a meeting of the Steering Committee such member's 
principal deputy may participate in the member's stead.
    (D) Each Civil Member position shall be filled by the individual 
then holding the office identified and such individuals shall serve in 
their capacity as the applicable officer from the specified 
organization and not in their personal capacity.
    (E) The voting members identified in Section 3(d)(ii)(A) by 
majority vote may expand the Steering Committee to a total of eleven 
members; in the event that such action is taken, the additional two 
voting seats of the Steering Committee shall be filled by individuals 
nominated by the Stakeholders' Committee, subject to the approval of 
the Government and MCC. Such individuals may be, but are not required 
to be, members of the Stakeholders' Committee. Each such member serving 
in such additional seat shall be deemed a Civil Member. The term of 
such additional voting members shall be two years and any vacancy to be 
filled by nomination of the Stakeholders' Committee.
    (F) Subject to the Governance Agreement, the Parties contemplate 
that the Minister of Finance and Planning shall initially fill the seat 
of Chair.
    (G) Each Observer shall have rights to attend all meetings of the 
Steering Committee, participate in the discussions of the Steering 
Committee, and receive all information and documents provided to the 
Steering Committee, together with any other rights of access to 
records, employees or facilities as would be granted to a member of the 
Steering Committee under the Governance Agreement and any Governing 
Document.
    (3) Role and Responsibilities.
    (A) The Steering Committee shall oversee the Management Unit, 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 MCA-Cape 
Verde only upon the approval and authorization of the Steering 
Committee provided under applicable law or as set forth in the 
Governance Agreement or any Governing Document, including each MCC 
Disbursement Request, selection or termination of certain Providers, 
any component of the

[[Page 42649]]

Implementation Plan, certain Re-Disbursements and certain terms of 
reference.
    (C) The Chair shall certify the approval by the Steering Committee 
of all Compact Reports or any other documents or reports from time to 
time delivered to MCC by MCA-Cape Verde (whether or not such documents 
or reports are required to be delivered to MCC), and that such 
documents or reports are true, accurate and complete.
    (D) Without limiting the generality of the Designated Rights and 
Responsibilities that the Government may designate to MCA-Cape Verde, 
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 
relevant Supplemental Agreement, the Steering Committee shall have the 
exclusive authority as between the Steering Committee and the 
Management Unit for all actions defined for the Steering Committee in 
the Governance Agreement or any Governing Document and which are 
expressly designated therein as responsibilities that cannot be 
delegated further.
    (4) Indemnification of Non-Government Steering Committee 
Representatives; MCC Representative. 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 the Republic of Cape Verde, to ensure that as Civil Members 
and Observers shall not be held personally liable for the actions or 
omissions of the Steering Committee. Pursuant to Section 5.5 and 
Section 5.8 of this Compact, the Government and MCA-Cape Verde shall 
hold harmless the MCC Representative for any liability or action 
arising out of the MCC Representative's role as a non-voting observer 
on the Steering Committee. The Government hereby waives and releases 
all claims related to any such liability and acknowledges that the MCC 
Representative has no fiduciary duty to MCA-Cape Verde. In matters 
arising under or relating to the Compact, the MCC Representative is not 
subject to the jurisdiction of the courts or any other body of Cape 
Verde. MCA-Cape Verde shall provide a written waiver and 
acknowledgement that no fiduciary duty to MCA-Cape Verde is owed by the 
MCC Representative.
    (iii) Management Unit. Unless otherwise agreed in writing by the 
Parties, the Management Unit shall report, through the Managing 
Director or other Officer as designated in the Governance Agreement, 
directly to the Steering Committee and shall have the composition, 
roles and responsibilities described below and set forth more 
particularly in the Governance Agreement and any Governing Document.
    (1) Appointment of the Managing Director. The Managing Director of 
MCA-Cape Verde shall be selected by the Steering Committee and hired 
after an open and competitive recruitment and selection process, which 
appointment shall be subject to MCC approval.
    (2) Appointment of Other Officers. Unless otherwise specified in 
the Governance Agreement or any Governing Documents, the other Officers 
of MCA-Cape Verde shall be selected and hired by the Managing Director 
after an open and competitive recruitment and selection process, which 
appointment shall be subject to the approval of the Steering Committee 
and MCC.
    (3) Composition. The Government shall ensure that the Management 
Unit 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 Governance Agreement, any 
Governing Document, and from time to time in any Supplemental Agreement 
between the Parties, including without limitation the following: (i) 
Managing Director; (ii) Administration and Finance Director; (iii) 
Senior Economist; (iv) Monitoring and Evaluation Analyst; (v) a 
Watershed Management and Agricultural Support Manager, an 
Infrastructure Manager, and a Private Sector Development Manager (each 
a, ``Project Manager''); (vi) an Environmental and Social Assessment 
Manager; and (vii) a Procurement Manager (the persons holding the 
positions in sub-clauses (i) through (vii) and such other offices as 
may be created and designated in accordance with the Governance 
Agreement and any other Supplemental Agreement between the Parties, 
shall be collectively referred to as ``Officers''). In addition, MCA-
Cape Verde will have a procurement specialist, a communications 
specialist, and an administrative and financial assistant. The Parties 
contemplate that for purposes of the initial period of operations, and 
in no event longer than six months, MCA-Cape Verde may appoint an 
acting Managing Director, subject to the approval of MCC; provided, 
during such period, the Steering Committee shall ratify the actions of 
such acting Managing Director and MCA-Cape Verde shall select a 
permanent Managing Director through a competitive selection process and 
subject to MCC approval in accordance with this Annex I.
    (4) Role and Responsibilities.
    (A) The Management Unit shall assist the Steering Committee in 
overseeing the implementation of the Program and shall have principal 
responsibility (subject to the direction and oversight of the Steering 
Committee 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 relevant Supplemental Agreement) for the overall 
management of the implementation of the Program.
    (B) Without limiting the foregoing general responsibilities or the 
generality of Designated Rights and Responsibilities that the 
Government may designate MCA-Cape Verde, the Management Unit shall 
develop the components of the Implementation Plan, oversee the 
implementation of the Projects, manage and coordinate monitoring and 
evaluation, maintain internal accounting records, conduct and oversee 
certain procurements, and such other responsibilities as set out in the 
Governance Agreement or delegated to the Management Unit by the 
Steering Committee from time to time.
    (C) Appropriate Officers shall have the authority to contract on 
behalf of MCA-Cape Verde under any procurement under the Program.
    (D) The Management Unit 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 procurement actions, as provided 
in the Governance Agreement.
    (5) Additional Resources. The Management Unit, on behalf of MCA-
Cape Verde, shall have the authority to engage qualified persons or 
entities to serve as outside project managers (each, an ``Outside 
Project Manager'') in the event that it is advisable to do so for the 
proper and efficient day-to-day management of a Project; provided, 
however, that the appointment or engagement of any Outside Project 
Manager after a competitive selection process shall be subject to 
approval by the Steering Committee and MCC prior to such appointment or 
engagement. Upon Steering Committee approval, the Management Unit, on 
behalf of MCA-Cape Verde, may delegate, assign, or contract to the 
Outside Project Managers such duties and responsibilities as it deems 
appropriate with respect to the management of the Implementing Entities 
and the implementation of the

[[Page 42650]]

specific Projects or Project Activities; and provided, further, that 
the Management Unit and the relevant Project Manager shall remain 
accountable for those duties and responsibilities and all reports 
delivered by the Outside Project Manager notwithstanding any such 
delegation, assignment or contract and the Outside Project Manager 
shall be subject to the oversight of the Procurement Review Commission. 
The Steering Committee may, independent of any request from the 
Management Unit, determine that it is advisable to engage, on behalf of 
MCA-Cape Verde, one or more Outside Project Managers and instruct the 
Management Unit or, where appropriate, a Procurement Review Commission 
to commence and conduct the competitive selection process for such 
Outside Project Manager.
    (e) Stakeholders' Committee.
    (i) Formation and Composition. The Government shall ensure the 
continuation of a stakeholders' committee, such as the Stakeholders' 
Group, or establishment of a similar committee (the ``Stakeholders' 
Committee'') consisting of at least eight (8) and no more than twelve 
(12) members, unless otherwise agreed by the Parties, and comprised of 
the following individuals: (A) Director of the Office of Studies of the 
Planning Office of the Ministry of Finance and Planning; (B) one 
representative nominated by the Regional Stakeholders' Committees; (C) 
two representatives from micro-credit non-governmental organizations; 
(D) two representatives from the private sector (one from the tourism 
sector and one from the transportation sector), selected by trade 
associations from those sectors; and (E) two prominent businesspersons 
appointed by the Prime Minister from a list of individuals recommended 
by the private sector, including the Chambers of Commerce. The 
Government shall take all action necessary and appropriate actions to 
ensure the Stakeholders' Committee is established consistent with this 
Section 3(e) and as otherwise specified in the Governance Agreement or 
otherwise agreed in writing by the Parties. The composition of the 
Stakeholders' Committee may be adjusted by agreement of the Parties 
from time to time to ensure, among other things, a cross-section 
representative of the intended beneficiaries. The number of members of 
the Stakeholders' Committee may be increased, but in no event more than 
twelve (12), upon the majority vote of the then existing members and 
the vacancies created by such increase shall be filled by the majority 
vote of the then existing members, subject to the approval of the 
Government and MCC; provided, however, in the event that the Ministry 
of Planning is separated from the Ministry of Finance, a seat shall be 
added to the Stakeholders' Committee to be filled by a Director 
nominated from the Ministry of Planning.
    (1) The ``Regional Stakeholders' Committees'' shall mean all then 
existing regional stakeholders' committees, comprised of non-
governmental organizations, municipalities, farmers associations, and 
enterprises in the private sector. As of the date hereof, there are 
three Regional Stakeholders' Committees; however, it is contemplated 
that there may be additional Regional Stakeholders' Committees formed 
during the Compact Term. The representative referred to in clause (B) 
above shall be nominated by a vote of all then existing Regional 
Stakeholders' Committees.
    (2) Each member position identified in Sections 3(e)(i) of this 
Program Annex shall be filled by the individual then holding the office 
identified and such individuals shall serve in their capacity as the 
applicable Government official and not in their personal capacity; in 
the event that such member is unable to participate in a meeting of the 
Stakeholders' Committee such member's principal deputy may participate 
in the member's stead.
    (3) In the event of a vacancy in positions identified in Sections 
3(e)(i) (C)-(E) such vacancy to be filled by nomination of the 
organization or group for whom such seat is designated.
    (ii) Role. The Stakeholders' Committee shall be a mechanism to 
provide representatives of the private sector, civil society and local 
and regional governments the opportunity to provide advice and input to 
MCA-Cape Verde regarding the implementation of the Compact. During 
quarterly meetings of the Stakeholders' Committee, the Management Unit 
shall present an update on the implementation of this Compact and 
progress towards achievement of the Objectives. The Stakeholders' 
Committee will have an opportunity to regularly provide to the Chairman 
of the Steering Committee its views or recommendations on the 
performance and progress on the Projects and Project Activities, 
components of the Implementation Plan, procurement, financial 
management or such other issues as may be presented from time to time 
to the Stakeholders' Committee or as otherwise raised by the 
Stakeholders' Committee. The Management Unit shall provide copies of 
the M&E Plan and related reports to the Stakeholders' Committee 
simultaneously with the transmittal to the Steering Committee of such 
documents and reports. The Steering Committee may, in response to the 
Stakeholders' Committee, require the Management Unit to provide such 
other information and documents as the Steering Committee deems 
advisable.
    (iii) Meetings. The Stakeholders' Committee shall hold quarterly 
meetings of the full Stakeholders' Committee as well as such other 
periodic meetings of the Stakeholders' Committee or subcommittees 
thereof designated along sectoral, regional (by Areas), or other lines, 
as may be necessary or appropriate from time to time.
    (iv) Steering Committee Representation. In the event that the 
Steering Committee votes to expand its size to eleven voting members, 
the Stakeholders' Committee shall nominate, by majority decision, two 
(2) individuals, either from the Stakeholders' Committee or otherwise, 
each to serve as a voting member of the Steering Committee for a two-
year term, along with two representatives-elect. A nominee to the 
Steering Committee shall become a member of the Steering Committee upon 
approval by MCC and the Government. The Stakeholders' Committee shall 
rotate its representative every two years. No Stakeholders' Committee 
nominated representative may serve on the Steering Committee for more 
than a single two-year term during the Compact Term. Any vacancy of any 
Stakeholders' Committee nominated seat on the Steering Committee shall 
be filled by the representative-elect designated for such seat; 
provided, that the elevation of any such representative-elect to the 
Steering Committee shall be subject to approval by MCC and the 
Government at the time of such proposed elevation and that, following 
such approval, the Stakeholders' Committee shall appoint a new 
representative-elect for such position; provided, further, that in the 
absence, or if MCC or the Government do not approve the elevation to 
the Steering Committee, of a representative-elect, the vacancy shall be 
filled by a nominee who shall be nominated by the Stakeholders' 
Committee and approved by MCC and the Government.
    (v) Accessibility; Transparency. Stakeholders' Committee members 
will be accessible to the beneficiaries they represent to receive the 
beneficiaries' comments or suggestions regarding the Program. The 
minutes of all meetings of the Stakeholders' Committee and any 
subcommittees shall be made public on

[[Page 42651]]

the MCA-Cape Verde Website in a timely manner.
    (f) Implementing Entities. Subject to the terms and conditions of 
this Compact and any other Supplemental Agreement between the Parties, 
MCA-Cape Verde may provide MCC Funding, directly or indirectly through 
an Outside Project Manager, to one or more Government Affiliate or to 
one or more nongovernmental organization or other public- or private-
sector entities or persons to implement and carry out the Projects or 
any other activities to be carried out in furtherance of this Compact 
(each, an ``Implementing Entity''). The Government shall ensure that 
MCA-Cape Verde (or the appropriate Outside Project Manager) 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, 
such as payment of the Implementing Entity (the ``Implementing Entity 
Agreement''). An Implementing Entity shall report directly to the 
relevant Project Manager or Outside Project Manager, as designated in 
the applicable Implementing Entity Agreement or as otherwise agreed by 
the Parties. The Implementing Entities shall be either (i) pre-
determined ministries, bureaus or agencies of the Government based on 
their sector expertise with respect to certain activities or (ii) 
micro-finance institutions and/or non-governmental organizations, 
vendors and contractors selected according to a competitive 
international bidding process.
    (g) Fiscal Agent. The Government shall ensure that MCA-Cape Verde 
engages one or more fiscal agents (each, a ``Fiscal Agent''), initially 
the Ministry of Finance and Planning, who shall be responsible for, 
among other things: (i) Ensuring and certifying that Re-Disbursements 
are properly authorized and documented in accordance with established 
control procedures set forth in the Disbursement Agreement, the Fiscal 
Agent Agreement and other relevant Supplemental Agreements; (ii) Re-
Disbursement and cash management, including instructing a Bank to make 
Re-Disbursements from a Permitted Account (to which Fiscal Agent has 
sole signature authority), following applicable certification by the 
Fiscal Agent; (iii) providing applicable certifications for MCC 
Disbursement Requests; (iv) maintaining proper accounting of all MCC 
Funding financial transactions and certain other accounting functions; 
(v) producing reports on MCC Disbursements and Re-Disbursements 
(including any requests therefore) in accordance with established 
procedures set forth in the Disbursement Agreement, the Fiscal Agent 
Agreement or any other relevant Supplemental Agreements, (vi) funds 
control, and (vii) procurement functions, as may be specified from time 
to time. Upon the written request of MCC, the Government shall ensure 
that MCA-Cape Verde terminates the Fiscal Agent, without any liability 
to MCC, and the Government shall ensure that MCA-Cape Verde engages a 
new Fiscal Agent, subject to the approval by the Steering Committee and 
MCC. The Government shall ensure that MCA-Cape Verde enters into an 
agreement with each Fiscal Agent, 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''). During the Compact 
Term, subject to MCC's approval, certain Fiscal Agent duties and 
responsibilities may be transferred to the duties and responsibilities 
of the Administration and Finance Officer of MCA-Cape Verde, if any, at 
which time the Fiscal Agent Agreement shall be amended accordingly.
    (h) Auditors and Reviewers. The Government shall ensure that MCA-
Cape Verde carries out the Government's audit responsibilities as 
provided in Sections 3.8(d), (e) and (f) of this Compact, including 
engaging one or more auditors (each, an ``Auditor'') required by 
Section 3.8(d) of this Compact. As requested by MCC in writing from 
time to time, the Government shall ensure that MCA-Cape Verde also 
engages (i) an independent reviewer to conduct reviews of performance 
and compliance under this Compact pursuant to Section 3.8(f) of this 
Compact, which reviewer shall have the capacity to (A) Conduct general 
reviews of performance or compliance, (B) conduct environmental audits, 
(C) 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''). MCA-Cape Verde shall select the Auditor(s) or Reviewers 
in accordance with the Governance Agreement, any Governing Document or 
other relevant Supplemental Agreement. The Government shall ensure that 
MCA-Cape Verde enters into an agreement with each Auditor or 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 3.8(f) of the Compact, such 
Auditor/Reviewer Agreement shall be effective no later than 120 days 
prior to the end of the relevant fiscal year or other 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 Review Commission. The Government shall establish 
or ensure the establishment of a procurement review commission 
(``Procurement Review Commission'') that reports to MCA-Cape Verde on 
procurements related to the Program and provides oversight of the 
operational procurement activities of MCA-Cape Verde. The Government 
shall ensure that MCA-Cape Verde enters into an agreement with the 
Ministry of Finance and Planning, in form and substance satisfactory to 
MCC, that sets forth the roles and responsibilities of the Procurement 
Review Commission with respect to the conduct, monitoring and review of 
procurements and other appropriate terms and conditions, such as 
payment of the Procurement Review Commission (the ``Procurement Review 
Commission Agreement''). The role and responsibilities of such 
Procurement Review Commission may be as further set forth from time to 
time in the applicable Implementation Letter or Supplemental Agreement. 
The costs and expenses associated with the Procurement Review 
Commission in connection with this Program shall be paid out of MCC 
Funding as designated in the Detailed Financial Plan.
    (j) The Procurement Review Commission shall be chaired by a 
representative of the General Inspector of Finance nominated by the 
Head of the General Inspector of Finance, subject to MCC approval, and 
composed of representatives of the Ministries of Environment and 
Agriculture, Ministry of Infrastructure and Transport, and the 
Direc[ccedil][atilde]o Geral do Patrimonio de Estado following the 
Procurement Guidelines. The Procurement Review Commission will 
establish a protest and disputes panel to objectively resolve any 
complaints under the Program procurement transactions. The

[[Page 42652]]

Procurement Review Commission shall be responsible for supervising the 
procurement activities of MCA-Cape Verde, Outside Project Managers, and 
Implementing Entities. The Procurement Review Commission shall adhere 
to the procurement standards set forth in the Procurement Guidelines 
and ensure procurements are consistent with the procurement plan (the 
``Procurement Plan'') adopted by MCA-Cape Verde, which plan shall 
forecast the upcoming six month procurement activities and be updated 
every six months.

4. Finances and Fiscal Accountability

    (a) Financial Plans.
    (i) Multi-Year Financial Plan. The multi-year financial plan for 
the Program and for each Project (the ``Multi-Year Financial Plan'') is 
summarized in Annex II to this Compact.
    (ii) Detailed Financial Plan. During the Compact Term, the 
Government shall ensure that MCA-Cape Verde timely delivers to MCC 
financial plans that specify respectively the annual and quarterly 
detailed budget and projected cash requirements for the Program 
(including monitoring and evaluation and administrative costs) and each 
Project, projected both on a commitment and cash requirement basis 
(each a ``Detailed Financial Plan''). Each Detailed Financial Plan 
shall be delivered by such time as specified in the Disbursement 
Agreement or as may otherwise be agreed by the Parties. The Multi-Year 
Financial Plan and each Detailed Financial Plan and each amendment, 
supplement or other change thereto are collectively, the ``Financial 
Plan.''
    (iii) Expenditures. 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 submitted for 
any activity or expenditure, unless the expense is provided for in the 
Detailed Financial Plan and unless uncommitted funds exist in the 
balance of the Detailed Financial Plan for the relevant period or 
unless the Parties otherwise agree in writing.
    (iv) Modifications to Multi-Year Financial Plan or Detailed 
Financial Plan. Notwithstanding anything to the contrary in this 
Compact, MCA-Cape Verde may amend or supplement the Multi-Year 
Financial Plan, or any component thereof or any Detailed Financial Plan 
without amending this Compact, provided any material amendment or 
supplement has been approved by MCC and is otherwise consistent with 
the requirements of this Compact and any relevant Supplemental 
Agreement between the Parties; provided, however, MCA-Cape Verde may 
modify the Detailed Financial Plan to reallocate MCC Funding without 
MCC prior approval if (A) re-allocating funds within a Project (i) 
would cause a reduction or increase of no more than the lesser of 10% 
of the amount in the Detailed Financial Plan for a Project Activity or 
USD $200,000 and (ii) such reallocation would not be inconsistent with 
the Objectives or (B) re-allocating funds between Projects (i) would 
cause a reduction or increase of no more than the lesser of 20% of the 
amount in the Detailed Financial Plan for a Project Activity or USD 
$300,000 and (ii) such reallocation would not be inconsistent with the 
Objectives, so long as MCA-Cape Verde promptly delivers to MCC any such 
modified Detailed Financial Plan, together with a modified Multi-Year 
Financial Plan to reflect the corresponding modifications.
    (b) Disbursement and Re-Disbursement. The Disbursement Agreement 
(and disbursement schedules thereto), 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 MCA-Cape Verde 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, MCA-Cape Verde 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 
the Governance Agreement 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 
or in the Governance Agreement and 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, MCA-Cape 
Verde shall adopt as part of the Implementation Plan a fiscal 
accountability plan that identifies the principles and mechanisms 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 and services for the accomplishment of the 
Objectives (the ``Fiscal Accountability Plan''). The Fiscal 
Accountability Plan shall set forth, among other things, requirements 
with respect to the following matters: (i) Funds control and 
documentation; (ii) separation of duties and internal controls; (iii) 
accounting standards and systems; (iv) content and timing of reports; 
(v) policies concerning public availability of all financial 
information; (vi) cash management practices; (vii) procurement and 
contracting practices, including timely payment to vendors; (viii) the 
role of independent auditors; and (ix) the roles of fiscal agents and 
procurement agents.
    (d) Permitted Accounts. The Government shall establish, or cause to 
be established, such accounts (each, a ``Permitted Account,'' and 
collectively ``Permitted Accounts'') as may be agreed by the Parties in 
writing from time to time, including:
    (i) A single, completely separate U.S. Dollar interest-bearing 
account (the ``Special Account'') at the Bank of Cape Verde (``National 
Bank'') to receive MCC Disbursements;
    (ii) If necessary, an interest-bearing local currency of Cape Verde 
account (the ``Local Account'') at the National Bank to which the 
Fiscal Agent may authorize transfer from any U.S. Dollar Permitted 
Account for the purpose of making Re-Disbursements payable in local 
currency; and
    (iii) Such other interest-bearing accounts to receive MCC 
Disbursements 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 respective 
Bank Agreement or otherwise. MCC shall have the right, among other 
things, to view any Permitted Account statements and activity directly 
on-line, where feasible,

[[Page 42653]]

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 MCA-
Cape Verde enters into an agreement with each Bank, respectively, 
satisfactory to MCC, that sets forth the signatory authority, access 
rights, anti-money laundering and anti-terrorist financing provisions, 
and other terms related to the Permitted Account, respectively (each, a 
``Bank Agreement''). For purposes of this Compact, the National Bank 
and any bank holding an account referenced in Section 4(d)(iii) of this 
Program Annex are each a ``Bank'' and are collectively referred to as 
the ``Banks.''
    (e) Currency Exchange. The Bank shall convert MCC Funding to the 
currency of Cape Verde at the National Bank prior to the transfer to 
the Local Account. For this purpose, the National Bank will use as a 
standard the announced rate of the National Bank for the day on which 
the currency exchange is made as otherwise may be agreed to by the 
Parties in writing.

5. Institutional Capacity Building

    The Program will use certain Government systems in administration 
and implementation. To enhance those systems, the following Projects 
will be undertaken as part of the Program and funded with MCC Funding:
    (a) To enhance transparency and efficiency of Government systems, 
MCC Funding will support an expansion of systems upgrade in the context 
of a procurement policy reform, including the establishment and 
implementation of unified procurement legislation and regulations. 
Through an electronic procurement system, suppliers, government 
officials, and the public will have access to the rules governing 
procurement, insight into the procurement transactions themselves and a 
transparent record of competition and results of solicitations. As part 
of the Program administration functions, this institutional capacity 
building activity will seek to expand the e-procurement system 
throughout the Government. First, it will establish and implement a 
public e-procurement system for use in procurements undertaken in 
support of this Compact. Second, it will expand the use of that e-
procurement system to all other units of the Government. Finally, the 
adoption and implementation of unified procurement legislation and 
regulations shall be a condition to certain MCC Disbursements and Re-
Disbursements related to this activity as shall be set forth in the 
Disbursement Agreement.
    (b) To develop a Program results reporting and program management 
system in connection with the M&E Plan, MCC Funding will be used to 
fund the augmentation of the existing government financial management 
system (``SIGOF''). This M&E activity will develop improvements to 
SIGOF to capture Program performance and results data, along with 
financial information, from Program implementing government ministries. 
This electronic reporting mechanism will facilitate program management, 
provision of fiscal agent services, and the generation of progress 
reports required under the M&E Plan. This upgrade will be used for the 
Program and indirectly may build capacity and be a benefit to the 
government systems outside the Program.

6. Transparency; Accountability

    Transparency and accountability to MCC and to the beneficiaries are 
important aspects of the Program and Projects. Without limiting the 
generality of the foregoing, in an effort to achieve the goals of 
transparency and accountability, the Government shall ensure that MCA-
Cape Verde:
    (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 MCA-Cape Verde.
    (b) Considers as a factor in its decision-making the 
recommendations of the Stakeholders' Committee, particularly in MCA-
Cape Verde's deliberations over pending key Management Unit decisions 
and key Steering Committee decisions as shall be specified in the 
Governance Agreement and relevant Governing Document.
    (c) Develops and maintains the MCA-Cape Verde Website in a timely, 
accurate and appropriately comprehensive manner, such MCA-Cape Verde 
Website to include postings of information and documents in English and 
Portuguese.
    (d) Posts on the MCA-Cape Verde Website and otherwise makes 
publicly available the following documents or information, including by 
posting on the MCA-Cape Verde Website, with links to and from the 
official website of the Government (www.governo.cv) and the website of 
the Embassy of Cape Verde in the United States 
(www.virtualcapeverde.net), from time to time:
    (i) All minutes of the meetings of the Stakeholders' Committee and 
the meetings of the Steering Committee;
    (ii) The M&E Plan, as amended from time to time, along with 
periodic reports on Program performance;
    (iii) Such financial information as may be required by this Compact 
or as may otherwise be agreed from time to time by the Parties;
    (iv) All Compact Reports;
    (v) All audit reports by an Auditor and any periodic reports or 
evaluations by a Reviewer;
    (vi) A copy of the Disbursement Agreement, as amended from time to 
time;
    (vii) A copy of any documents related to the formation, 
organization and governance of MCA-Cape Verde including any Governing 
Documents, together with any amendments thereto and the Governance 
Agreement and any amendments thereto;
    (viii) A copy of the Procurement Agreement (including Procurement 
Guidelines), as amended from time to time and the any procurement 
policies or procedures and standard documents;
    (ix) A copy of each Procurement Plan and all bid requests and 
awarded contracts.

Schedule 1 to Annex I--Watershed Management and Agriculture Support 
Project

    This Schedule 1 describes and summarizes the key elements of the 
watershed management and agriculture support project (``Watershed 
Project'') that the Parties intend to implement in furtherance of the 
Watershed Management and Agricultural Support Objective. Additional 
details regarding the implementation of the Watershed Project will be 
included in the Implementation Plan and in relevant Supplemental 
Agreements.

1. Background

    The islands of Cape Verde are extremely arid in climate, widely 
dispersed and characterized by geographic isolation, fragile ecosystems 
and a scarcity of natural resources. The lack of water is the dominant 
factor limiting productivity and economic growth in agriculture and the 
rural economy. It is currently estimated that more than 80 percent of 
rainfall is ``lost'' to evaporation and surface water runoff into the 
Atlantic Ocean. Agricultural producers in Cape Verde face numerous 
additional obstacles to increasing their agricultural productivity: 
limited arable land; limited availability of inputs (fertilizer and 
credit); poor physical infrastructure (roads, ports and inter-island 
transportation); low quality of production (no standards and high post 
harvest-losses); limited information on markets and prices; limited 
private

[[Page 42654]]

sector activities; and weak consumer demand. Virtually every point in 
the farm production chain, from seeds to the table, is affected by 
these obstacles. An additional constraint on at least one island is the 
negative impact of insect pests, for which phyto-sanitary regulations 
presently limit exports from this island. The Watershed Project is 
focused on removing these constraints to agricultural productivity and 
is designed to improve the management of critical water resources and 
to mobilize key agricultural support activities (research, extension 
and credit) that will enable rural agricultural producers to improve 
their environment, increase their productivity, and raise their 
incomes.
    The Watershed Project reflects the Government's commitment to 
poverty reduction and improved natural resource management as 
articulated in the Grand Options Plan and the GPRSP. The GPRSP 
identified the enhancement of the following as key to rural economic 
growth and the development of the agricultural sector: Water and 
agrarian resources, agricultural products, and technical and financial 
capacities of farmers and entrepreneurs. Further, the MCA consultative 
process identified increasing agricultural productivity as a high 
priority. The Project Activities in the Watershed Project complement 
the country's strategic goal of developing the tourism sector, which, 
in turn, is expected to create demand for increased production of 
domestic horticulture products. It is expected that the Watershed 
Project will also lead to an increase in food security. The Watershed 
Project is consistent with the approaches set out in GPRSP for 
achieving the goal of sustainable rural economic growth, e.g., 
organization of watersheds and water management, promotion of rural 
financial services, applied research, and dissemination of new 
varieties of agricultural products.

2. Summary of the Project and Activities

    The Watershed Project is designed to increase agricultural 
productivity in three rural intervention watershed areas: Ribeira Paul 
on the island on Santo Ant[atilde]o; Mosteiros on the island of Fogo; 
and Ribeira Faj[atilde] on the island of S[atilde]o Nicolau (the 
``Watershed Areas''). The Watershed Project includes the following 
three Project Activities:
     Water Management and Soil Conservation. Development of 
water management infrastructure to slow runoff, capture water in 
reservoirs, and re-charge aquifers.
     Agribusiness Development Services. Establishment of 
demonstration farms, extension training centers and technical 
assistance targeted to farmers, small agribusinesses and local 
municipalities and support of processing and marketing efforts, 
including addressing the impact of pests by building institutional 
capacity to implement sanitary and phyto-sanitary regulations, and 
establishing an inspection and certification center and an applied 
research center.
     Access to Credit. Provision of credit for drip irrigation, 
working capital and agribusiness investments and technical assistance 
to increase the capacity of financial institutions in the provision of 
financial services.
    The M&E Pan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks that may be used to 
monitor implementation progress. Performance against these benchmarks 
and the overall impact of the Watershed 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 the implementation 
of the Watershed Project. The expected results from, and the key 
benchmarks to measure progress on the Project, Project Activities and 
sub-activities undertaken or funded under this Watershed Project are 
set forth in Annex III.
    Estimated amounts of MCC Funding for each Project Activity for this 
Watershed Project are identified in Annex II of this Compact. 
Conditions precedent to each Watershed Project Activity and sequencing 
of these Project Activities shall be set forth in the Disbursement 
Agreement or other relevant Supplemental Agreements.
    The following summarizes the Watershed Project Activities:
(a) Project Activity: Water Management and Soil Conservation (the 
``Water Management Activity'')
    MCC Funding will be used to increase agricultural productivity by 
supporting the conversion of farm land from traditional dry land 
production to higher-value horticultural production, by improving 
natural resource management, including sustainable use of soil and 
water resources, and by building capacity to support the development 
and implementation of community-based watershed management plans. The 
Water Management Activity is designed to slow surface runoff through 
the construction of walls, terrace, dikes and check dams and the 
capture of water in reservoirs. This will increase the re-charge of 
water into underground aquifers. The Water Management Activity will 
improve on-farm water use by promoting the adoption of drip irrigation 
technology. With an improved supply of water for a longer period of 
time, farmers will be able to switch from producing low-value grains 
and beans to higher-value horticultural products, thereby increasing 
their incomes. Specifically, MCC Funding will be used for the following 
activities in the Watershed Areas:
    (i) Technical assistance to national, municipal and local 
governments to develop community-based watershed management plans, 
including:
    (1) An overall water resource inventory in the Watershed Areas, 
including a measurement of the water table levels;
    (2) The establishment of a water user fee system and a system for 
the collection of such fees and the building of the capacity of 
municipalities to establish such a fee and collection system;
    (3) A public awareness campaign that engages and informs local 
communities on the benefits of sustainable management planning; and
    (4) The design, implementation and management of water 
infrastructure in the Watershed Areas.
    (ii) Construction of physical infrastructure (reservoirs, terraces, 
dikes, contour walls, check dams, vegetative barriers and other 
structures) to capture surface water and replenish water tables, 
including:
    (1) Acquisition of cement and other building materials and 
equipment to construct reservoirs and dikes;
    (2) Cultivation and distribution of plantings for vegetative 
barriers for use on public lands; and
    (3) Construction of cement ``mirrors'' on selected surfaces to 
capture rainwater and channel it to culverts to feed reservoirs.
    The Ministry of Environment, Agriculture and Fisheries will work 
with local communities on the design and implementation of these 
activities with a focus on sustainable, cost-effective, environmentally 
appropriate water management, including management of surface water and 
water table replenishment. In the first year of the Water Management 
Activity, the Parties shall review and agree upon the appropriate roles 
of local communities, local municipalities, local associations or other 
entities for the responsibility of proper management, maintenance, and 
sustainability of the watersheds in each of the Watershed Areas, guided 
by the principle of sustainability. Water users will be responsible for 
the maintenance

[[Page 42655]]

of the water infrastructures in the Watershed Areas.
    (iii) Provision of water to the farm gate, including the 
construction of a series of dikes, culverts and tubes of diminishing 
sizes from the reservoirs to the individual plots of land. Farmers will 
be responsible for obtaining and installing irrigation equipment on 
their own farms.
(b) Project Activity: Agribusiness Development Services (the 
``Agribusiness Development Activity'')
    Training of farmers in the technical and managerial aspects of new 
technology will be critical to the adoption of drip irrigation and is 
the focus of the Agribusiness Development Activity. Building capacity 
of the Ministry of the Environment, Agriculture, and Fisheries is key 
to this training effort. In addition, this Project Activity will 
increase productive capacity and marketing of agricultural products by 
farmers and small agribusinesses. With improved access to water, 
farmers will diversify production towards higher-valued horticultural 
crops. Due to a variety of factors (including poor infrastructure, low 
quality standards, and poor or non-existing packaging), existing 
marketing systems are weak.
    MCC Funding will be used for the following:
    (i) (1) Creation of demonstration farm plots to illustrate the use 
and management of drip irrigation to local farmers and (2) equipping of 
existing extension training and outreach centers operated by local 
representatives of the Ministry of Environment, Agriculture and 
Fisheries for farmers in the Watershed Areas;
    (ii) Training of, and outreach to, farmers by extension workers 
through the extension centers referred to in the previous paragraph, 
including courses in (1) Drip irrigation and environmentally 
sustainable agricultural practices (e.g., proper soil conservation and 
land cultivation), (2) the proper use, application and storage of 
fertilizers, pesticides, herbicides and fungicides, (3) where relevant, 
integrated pest management, (4) vegetable and fruit production, (5) on-
farm water management and (6) down stream marketing;
    (iii) Training of Ministry of Environment, Agriculture and 
Fisheries employees and extension workers to increase technical 
capacity in areas such as water management, fruit development, rural 
engineering, agricultural economics, project planning and management, 
and animal genetics and nutrition;
    (iv) Establishment of a research center in Santo Ant[atilde]o to 
support the institutional research capacity of the Ministry of 
Environment, Agriculture and Fisheries (in particular the National 
Institute of Agriculture Research and Development) with a focus on 
applied research in water management, new varieties of fruits and 
vegetables and integrated pest management;
    (v) Development and distribution by the Ministry of the 
Environment, Agriculture and Fisheries of seedlings and saplings of new 
and improved varieties of fruit and vegetables;
    (vi) Establishment and operation of quality control centers for 
fruit and vegetable production to develop and enforce quality standards 
and separate products by quality;
    (vii) Construction and operation of low-technology packing sheds in 
each of the Watershed Areas to improve the quality and marketing 
conditions of horticultural products and to allow farmers collectively 
to market their produce. These centers are to be managed by the local 
delegation of the Ministry of Environment, Agriculture and Fisheries; 
however, management plans will be developed to allow the transfer of 
operations and management to the private sector during the Compact 
Term;
    (viii) Establishment and operation of an inspection and 
certification center on Santo Ant[atilde]o and the provision of 
technical assistance to the Ministry of the Environment, Agriculture, 
and Fisheries in developing and applying phyto-sanitary standards 
(including a plant inspection and certification system); and
    (ix) Technical assistance for the development of sustainability 
plans by the Ministry of Environment, Agriculture and Fisheries, which 
plans will also identify ways to increase private sector participation 
in the delivery of services and in the entire agricultural value chain.
(c) Project Activity: Access to Credit (the ``Credit Activity'')
    Few, if any, of the financial institutions in the Watershed Areas 
possess the resources to meet the anticipated demands for financing 
drip irrigation, working capital and agribusiness development. Through 
the Credit Activity, credit will be made available to enable farmers to 
finance drip irrigation, promote the conversion to horticultural 
products on newly irrigated land, and support post-harvest 
agribusinesses in the Watershed Areas.
    MCC funding will support the following:
    (i) Loans to farmers through local banks and micro-finance 
institutions (MFIs) for approximately 60% of the cost of new drip 
irrigation equipment and the cost of agricultural inputs (e.g., 
fertilizer) and other working capital needs.
    These loans to farmers will be funded by zero-interest loans from 
MCA-Cape Verde to the local financial institutions. Loans to financial 
institutions can be converted to grants at the end of the Compact Term. 
By providing USD $350,000 in loans-to-grants, this sub-activity is 
expected to provide over USD $700,000 in financing for drip irrigation. 
Loans to financial institutions converted to grants at the end of the 
Compact Term will be used in turn by such financial institutions to 
expand and maintain the supply of credit in the Watershed Areas.
    (ii) Loans to post-harvest and other agribusinesses in the 
Watershed Areas through local banks and MFIs.
    These loans to agribusinesses will be funded by zero-interest loans 
from MCA-Cape Verde to the local financial institutions. Loans to 
financial institutions can be converted to grants at the end of the 
Compact Term. By providing USD $100,000 in loans-to-grants, this sub-
activity is expected to provide over USD $200,000 in financing for 
post-harvest agriculture-related business and other small and medium-
sized rural businesses in the Watershed Areas.
    (iii) Technical assistance to micro-finance and local financial 
institutions participating in the loan programs described above to (1) 
manage the origination, monitoring and collection of these loans, (2) 
inform farmers and others of the existence of these loan programs, and 
(3) strengthen credit-analysis techniques.
    Loans to financial institutions provided under this Credit Activity 
will convert to grants (loans-to-grants) at the end of the Compact Term 
if the financial institutions are able to demonstrate acceptable levels 
of diligence in making loans and success in collecting them. Financial 
institutions that will participate in the Credit Activity will be 
chosen on a competitive basis. Banks and micro-finance institutions 
will be selected by MCA-Cape Verde based on their geographic proximity 
to the Watershed Areas, the financial terms that they propose for each 
type of loan, their financial viability, and their ability to manage 
these loan portfolios. Funds will be disbursed to financial 
institutions in tranches in amounts sufficient to meet only their near-
term loan demand.

[[Page 42656]]

3. Beneficiaries

    The principal intended beneficiaries of the Watershed Project will 
be individual farmers and farm households in the Watershed Areas, 
approximately one-third of which are headed by women. Other 
beneficiaries will include actors along the supply chain, including 
owners and operators of small- and medium-sized farms, agribusiness, 
providers and users of transportation and distribution services, and 
farmers associations and cooperatives in the Watershed Areas. Farmers 
in the Watershed Areas will benefit from increased access to water--
both in volume and for more months of the year--as well as through 
training and extension opportunities and the increased availability of 
credit. Other intended beneficiaries include small agribusinesses and 
cooperatives, which are owned and operated mainly by women. Outside the 
Watershed Areas, additional beneficiaries will be government and 
private sector participants in the capacity building activities 
(training and technical assistance).

4. Coordination With Other Donors; Private Sector; Role of Civil 
Society; USAID

    (a) Donor Coordination. The Parties consulted other donors 
regularly during the design of this Project to ensure that the Project 
Activities complement the efforts of other donors without replacing, 
duplicating or hindering such efforts.
    A number of donors are involved in similar assistance programs 
(watershed management, drip irrigation, credit) in other areas of Cape 
Verde, including The Netherlands, Japan, Germany, the European Union, 
the World Bank and UN agencies.
    For example, the Ministry of Environment, Agriculture and Fisheries 
receives approximately USD $60 million a year in assistance from a 
variety of donors (most European countries, Japan and specialized UN 
agencies) to support a range of projects throughout Cape Verde, 
including water and forest resource management, fisheries, crop 
improvements for bananas and coffee, food safety and inspection, and 
capacity building. Donor coordination within the Ministry of 
Environment, Agriculture and Fisheries is the responsibility of the 
Director General, who participated in the development and design of the 
Watershed Project from the beginning. His participation has ensured 
that the Watershed Project is consistent with the efforts undertaken by 
other donors.
    (b) Private Sector. In the rural areas of Cape Verde, there is 
little commercial activity other than production agriculture. This 
Project will support and promote small-scale agro-based industry 
development through the provision of technical assistance and training 
and increasing the availability of credit. Such potential industries 
include fruit processing, input suppliers and downstream produce 
marketing.
    (c) Civil Society. Various associations, such as the Farmers 
Associations, will play an active role in implementing the Watershed 
Project. The demonstration farm plots and extension centers will also 
serve a critical role in community development and participation.
    (d) USAID. The U.S. Agency of International Development does not 
have a mission in Cape Verde. However, the United States has a program 
supported by USAID P.L. 480 Title II funds and implemented by ACDI/
VOCA, a U.S. based non-governmental organization. The approach adopted 
by ACDI/VOCA focuses on the promotion of drip irrigation, provision of 
technical assistance and training to farmers and small lending 
institutions, and includes a credit program to encourage farmers to 
adopt drip irrigation. The Watershed Project will expand this model, 
building on USAID's experience and lessons learned, to additional 
watersheds, making it available to a greater number of farmers.

5. Sustainability

    (a) Water Management Activity. The Water Management Activity aims 
to establish community-based water management plans in each of the 
watersheds in order to ensure that water remains available for 
continued agricultural production. MCC Funding will assist national, 
municipal and local officials and water users to establish such plans. 
In addition, the price charged to water users will contribute to the 
long term sustainability of the resource. Pursuant to Section 
2(a)(i)(2), technical assistance will also be provided to assist in 
building the capacity of the municipalities to establish a water user 
fee system and a system for the collection of such fees. Water users 
will be responsible for maintaining all water structures constructed 
pursuant to the Water Management Project Activity. Pursuant to Section 
6 below, the Government shall undertake the establishment of water user 
fee system acceptable to MCC.
    (b) Agribusiness Development Activity. Services will be demand-
driven and designed to meet specific needs of the targeted 
beneficiaries in the Watershed Areas. As farmers in the Watershed Areas 
increase their commercial activities, their ability to pay for services 
will increase. This will enable the Ministry of Environment, 
Agriculture and Fisheries to maintain the research and extension 
services provided to agricultural producers. The Ministry of 
Environment, Agriculture and Fisheries will implement a ``fee for 
services'' policy, charging fees for training, quality inspections, and 
certifications. During the Compact Term, farmers who adopt drip 
irrigation will receive both the training and credit necessary for 
successful adoption and sustained use of the new technology. The 
Ministry of Environment, Agriculture and Fisheries will initially 
manage the packing sheds funded by MCC Funding, but management plans 
will be developed with the ownership and management of such entities 
being transferred to the private sector by the end of the Watershed 
Project. The Government shall ensure that the Ministry of Environment, 
Agriculture and Fisheries develops a plan, acceptable to MCC, for the 
sustainability after the Compact Term of the activities undertaken in 
Agribusiness Development Activity, and the development of such plan 
shall be a condition precedent to certain MCC Disbursements. Under this 
Project Activity, technical assistance will be provided to assist in 
the development of such sustainability plans, including mechanisms for 
the collection of fees for services described above and pursuant to 
Section 6 below, which will also identify ways to increase private 
sector participation in the delivery of services and in the entire 
agricultural value chain.
    (c) Credit Activity. Providers of the financial services under the 
Credit Activity will be required to demonstrate their ability not only 
to originate loans but to monitor and collect the loans and, thus, the 
sustainability of their services. Combined with technical assistance 
provided under the Private Sector Development Project, the Credit 
Activity is designed to encourage lending and repayment practices that 
will result in an increased and sustainable supply of rural credit 
after the expiration of the Compact Term. Furthermore, these 
institutions may benefit from the interventions contemplated in the 
Private Sector Development Project.

6. Policy and Legal Reform

    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

[[Page 42657]]

Watershed Project, the satisfactory implementation of which will be 
conditions precedent to certain MCC Disbursements as provided in the 
Disbursement Agreement:
    (a) Establishment of a water fee system. This includes: (i) A fee 
paid by users that (A) covers operating, delivery, and maintenance 
costs and (B) reflects the scarcity of water resources in the country 
and (ii) a formula for an annual adjustment in the fee rate based on 
consistent measurement of changes in the water table, and otherwise 
acceptable to MCC. This water fee system will be implemented according 
to a schedule agreed upon by the Parties for each Watershed Area.
    (b) Build municipal capacity and a regulatory system, including any 
necessary or advisable policy reforms or procedural changes, to 
implement the water fee system and collect the fees described in 
paragraph (a) above.
    (c) Establishment of a fee for services system for agribusiness and 
development of a sustainability plan. The Ministry of Environment, 
Agriculture and Fisheries shall implement a ``fee for services'' 
policy, charging fees for training, quality inspections, and 
certifications and develop a sustainability plan (including a 
management plan for the transfer of ownership and management to the 
private sector of the packing sheds).
    (d) Elimination of key regulatory and legal obstacles to movement 
of inspected and certified horticultural products, including taking all 
necessary regulatory or other actions to lift the embargo on exports of 
horticultural products from Santo Ant[atilde]o.

7. Proposals

    Under the Watershed Project, it is anticipated that there will be 
public solicitations of proposals for: (i) Technical assistance for the 
development of watershed management plans; and (ii) selection of the 
financial institutions to act as intermediaries in supplying credit. 
MCA-Cape Verde will develop, subject to MCC approval, a process for 
consideration of both solicited and unsolicited proposals. With respect 
to solicited proposals, the evaluation process will include, consistent 
as appropriate with the Procurement Guidelines, the issuance of a 
published request for proposals with specific identified evaluation 
criteria and peer reviewers.

Schedule 2 to Annex I--Infrastructure Project

    This Schedule 2 generally describes and summarizes the key elements 
of an infrastructure project (the ``Infrastructure Project'') that the 
Parties intend to implement in furtherance of the Infrastructure 
Objective. Additional details regarding the implementation of the 
Infrastructure Project will be included in the Implementation Plan and 
in relevant Supplemental Agreements.

1. Background

    In the context of the Grand Options planning exercise, the 
Government formulated in 2003 a Priority Strategic Programme for 
Infrastructure and Land Use Management (``Strategic Programme''). The 
underlying principle of the Strategic Programme is to divide 
responsibilities clearly between the public and private sectors in the 
areas of transport, water and basic sanitation, telecommunications, 
land management and energy. In line with these principles, the 
Government supports the private provision of services and public 
ownership and investment in public goods infrastructure. For example, 
road transport and maritime services are now, with few exceptions, 
provided by the private sector and the Government is committed to 
increase the presence of the private sector in the port and aviation 
sectors.
    (a) Port of Praia.
    Being an archipelago, Cape Verde has port facilities on each of the 
country's islands, including two major ports located adjacent to Cape 
Verde's two largest cities: Porto de Praia (the ``Port'') on the island 
of Santiago and Porto Grande on the island of S[atilde]o Vicente. These 
two ports handle most international cargo imported to or exported from 
Cape Verde, in addition to supporting domestic cargo flows to Cape 
Verde's smaller and less populated islands. The Port is the country's 
busiest port, accounting for approximately 50% of the total volume of 
port traffic. An assessment of Port operations has identified a number 
of facilities-design problems that constrain and complicate cargo 
handling activities. The lack of backup space and the inability to 
expand landward impedes the development of container operations. The 
layout of the terminal and the absence of an adequate breakwater 
greatly reduce the operational effectiveness of the quays, particularly 
during the Kalymna (sea swells) months. These built-in shortcomings are 
exacerbated by the rapid growth in cargo traffic. The result is that 
the Port suffers from inefficient cargo handling operations, severe 
terminal congestion, and inadequate services. These inadequacies serve 
as a constraint to economic development and the efficient movement of 
people and goods throughout Cape Verde.
    (b) Roads and Bridges.
    Cape Verde's road network consists of 1,350 km spread among the 
nine inhabited islands. While progress has been made in expanding road 
network coverage, lack of investment has left the basic network 
incomplete and lack of proper maintenance has lead to deterioration of 
sections of the network. Based on the Strategic Programme and a 
Consultation Meeting with Development Partners in Praia April 2003, 
several donors, notably the World Bank, Portugal and the European Union 
(``EU''), are financing selected priority investments, with the World 
Bank playing a leading role in supporting institutional reforms in road 
sector management and maintenance (the ``World Bank Road Sector Support 
Project''). Within this context, the Government identified eleven high 
priority road improvements on five islands aimed at: (i) Filling a gap 
in an incomplete island network through road upgrading on an existing 
earth track or the construction of small bridges; and (ii) 
rehabilitating key links that are in a deteriorated state. The World 
Bank Road Sector Support Project will partially fund these projects. 
The World Bank's sector management efforts will complement these 
improvements by addressing institutional reform and capacity building 
to ensure sustainable maintenance and delivery of road transport 
services.
    The Government has identified the re-design and development of the 
Port and the upgrading of roads and bridges as critical steps in Cape 
Verde's development that is fully consistent with the infrastructure 
development pillar of the GPRSP.

2. Summary of the Project and Activities

    The Infrastructure Project is designed to increase integration of 
the internal market and to reduce transportation costs. The 
Infrastructure Project includes the following two Project Activities:
     Upgrade and Expansion of the Port. Improvements to the 
Port are intended to maximize, in the short term, the Port's existing 
operational capacity and productivity to the extent possible given 
constraints, followed by longer-term investments to create new 
infrastructure and facilities to alleviate the Port's inherent berth, 
space and geometry problems.
     Roads and Bridges. This Project Activity is designed to 
achieve basic connectivity and improve mobility on two targeted island 
networks by: (i) closing network gaps and/or (ii)

[[Page 42658]]

ensuring all-weather and reliable access both to intra-island markets 
and services, as well as transportation linkages on the targeted 
islands.
    The M&E Plan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks that may be used to 
monitor implementation progress. Performance against these benchmarks 
and the overall impact of the Infrastructure 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 benchmarks will be identified during the implementation 
of the Infrastructure Project. The expected results from, and the key 
benchmarks to measure progress on, the Project, Project Activities and 
sub-activities undertaken or funded under this Project are set forth in 
Annex III.
    Estimated amounts of MCC Funding for each Project Activity within 
the Infrastructure Project are identified in Annex II of this Compact. 
Conditions precedent to the Infrastructure Project and each Project 
Activity and sequencing of the Infrastructure Project Activities shall 
be set forth in the Disbursement Agreement or other relevant 
Supplemental Agreements.
    The following summarizes the Infrastructure Project Activities:
(a) Project Activity: Upgrade and Expansion of the Port of Praia (the 
``Port Activity'')
    The Port will require a number of major long-term expansion 
investments to meet Cape Verde's long-term development needs. In order 
to accommodate the growing traffic demand while long-term expansion is 
being completed, changes and upgrades will be required in the existing 
Port facilities. The implementation requirements for the Port Activity 
will require appropriate compliance with applicable international port 
security standards.
    To address both short-term and long-term upgrade needs at the Port, 
MCC Funding will be used to fund the following:
    (i) Short-term upgrade of Port operations to remove non-essential 
container storage, packing and unpacking, and customs impoundment from 
the active port, improve quayside facilities to increase space 
available for active cargo operations and initiate certain preparatory 
activities related to the long-term expansion plan, including:
    (1) Conducting the following studies and assessments as pre-
requisites and conditions precedent to both the short-term upgrade 
activities described in this Section 2(a)(i) (other than this paragraph 
(1)) and long-term expansion activities of the Port described in 
Section 2(a)(ii): (A) cargo and passenger market studies, (B) 
geotechnical studies, (C) feasibility studies, (D) environmental impact 
assessment (``EIA''), and (E) engineering and design of the access road 
described in Section 2(a)(i)(4), the breakwater described in Section 
2(a)(i)(5), and long-term expansion contemplated in Section 2(a)(ii); 
provided, however, these studies and assessments shall not be 
conditions precedent to the off terminal transport services center 
described in Section 2(a)(i)(2) and the quayside improvements described 
in Section 2(a)(i)(3), unless otherwise determined by the relevant 
authorities that such studies or assessments are pre-requisites;
    (2) Development of an off-terminal transport services center on the 
plateau above the Port to include port services and logistics, 
container unpacking and warehouses/storage area, customs impoundment 
area, and associated facilities;
    (3) Quayside improvements, including removal of the quayside 
warehouse and container activities and relocation to the new off-
terminal transport services center, repaving Berth 2 backup area, and 
expansion of the cabotage terminal;
    (4) Construction of second access route in and out of the operating 
Port through extension of a new access road from the Port to the 
industrial park to be located on the plateau above the Port;
    (5) Construction and creation of an effective detached breakwater 
to reduce or eliminate the effects of the Kalymna (sea swells) to 
enable year-round operations, while minimizing deposition of sediments 
in the bay; and
    (6) Development and implementation of an environmental management 
and monitoring plan (``EMMP'') for the Port.
    (ii) Long-term Port expansion through the creation of new usable 
land areas and the development of specialized, high-efficiency 
terminals, including:
    (1) Extension of Quay 1 to an operationally effective length (450 
m) to handle multiple vessels concurrently; and
    (2) Creation of space (over four hectares) for construction of a 
new two-berth specialized terminal container storage area through land 
reclamation behind Quay 1.
(b) Project Activity: Roads and Bridges (the ``Roads and Bridges 
Activity'')
    The Roads and Bridges Activity will focus on improving 
transportation networks on two islands, Santiago and Santo 
Ant[atilde]o. These improvements will link agricultural and fishing 
communities to the main traffic network and improve all-weather traffic 
access.
    To enable basic access and improved mobility on these two islands, 
MCC Funding will support the following:
    (i) Road rehabilitation on Santiago Island, including:
    (1) Rehabilitation of Org'os-Pedra Badejo (10 km) from cobblestone 
to asphalt standard;
    (2) Rehabilitation of Cruz Grand Calhetona (14 km) from cobblestone 
to paved asphalt standard;
    (3) Rehabilitation and reconstruction of Volta Monte-Ribeira Prata 
(15 km) to improved cobblestone standard;
    (4) Rehabilitation and reconstruction of Assomada-Rinc[atilde]o (16 
km) to a mixed cobblestone/asphalt standard--asphalt standard for the 
first 7 km and cobblestone standard for the remaining 9 km; and
    (5) Rehabilitation and reconstruction of Fonte Lima--Jo[atilde]o 
Bernardo (9 km) to improved cobblestone standard.
    (ii) Bridge construction and related works on Santo Ant[atilde]o 
Island, including:
    (1) Construction of two small bridges at Ribeira Grande (200 m) and 
Ribeira Torre (60 m) and construction of protection works along the 
river banks; and
    (2) Construction of bridges at Vila das Pombas and Liaison Vila das 
Pombas--Eito replacing the present access within the riverbed to the 
adjacent side for a length of 1 km and construction of a small bridge 
to assure access into the town of Paul.

3. Beneficiaries

    (a) Port Activity. With respect to the Port Activity, as the 
economy of Cape Verde is import dependent, all consumers of imported 
products will benefit directly or indirectly from efficiency gains in 
Port operations that translate into lower delivered cost of goods or 
increased operating margins for Cape Verde operators and businesses. 
Other beneficiaries include Cape Verdean importers and exporters, 
including individuals and businesses, through improved quality of 
transportation services following the upgrades to and expansion of the 
Port. Direct beneficiaries of the Port Activity include residents of 
the island of Santiago and shippers.
    (b) Roads and Bridges Activity. The principal intended 
beneficiaries of the Roads and Bridges Activity are expected to be 
rural and urban populations in the two islands where the interventions 
will occur. These include Cape Verdean families, farmers, businesses, 
non-governmental organizations, and social-

[[Page 42659]]

service providers and communities located along the roads or bridges 
proposed for improvement and construction. Improved access over 
continuous island road networks is viewed as a prerequisite and 
facilitator of all other development and poverty reduction programs on 
these islands. Other direct benefits of the Roads and Bridges Activity 
investments will include increased employment for men and women, 
particularly where cobblestone technologies will be applied. 
Stakeholders will include local contractors, design engineers, 
consultants, transport service providers and traders. all of whom will 
benefit directly from increased business opportunities resulting from 
the implementation and ongoing maintenance of the overall Roads and 
Bridges Activity.
    The intended beneficiaries of the Infrastructure Project will be 
identified more precisely, including where possible disaggregated by 
gender, age, location and income level, during the initial phases of 
the implementation of the Project.

4. Donor Coordination; USAID

    (a) Donor Coordination. The Parties consulted other donors 
regularly during the design of this Project to ensure that the Project 
Activities complement the efforts of other donors without replacing, 
duplicating or hindering such efforts.
    (i) Port Activity. MCC and the World Bank have coordinated on such 
issues as policy reforms and privatization of Port operations. The 
World Bank has been assisting the transport sector in Cape Verde since 
July 1993 through the Infrastructure and Transport Program (``ITP'') 
(multiple IDA credits). The ITP assisted the Government in increasing 
its international competitiveness through port modernization and 
reorganization of shipping. Other donors that co-financed the ITP 
include the Africa Development Bank, Arab Bank for Economic Development 
in Africa, European Investment Bank (``EIB''), Kreditanstalt fur 
Wiederaufbau, Organization for Petroleum Exporting Countries, and 
Portugal. In addition to funding port modernization, the ITP facility 
was used to fund the new Praia airport to increase the airport's 
capacity and security. EIB is financing modernization of air navigation 
operations with the Airport and Aviation Security Company (``ASA''). 
With respect to other port-related donor activities: (i) The U.S. Trade 
and Development Agency has committed over USD $700,000 for 
transportation infrastructure development in Cape Verde, to fund the 
development of studies related to the expansion of the airport on Sal 
and for transshipment port development in Mindelo, S[atilde]o Vicente 
and (ii) the Maritime Administration of the U.S. Department of 
Transportation and the United States Coast Guard of the Department of 
Homeland Security have provided assistance to Cape Verde in matters 
related to maritime safety, container security and inspection, and 
implementation of the International Ship and Port Security Code.
    (ii) Roads and Bridges Activity.
    (1) MCC Funding will be a parallel source of funding to the 
existing World Bank Road Sector Support Project. MCC and the World Bank 
have coordinated on issues such as policy reforms and institutional 
sustainability measures. The MCC--World Bank coordination will continue 
during the implementation of the Roads and Bridges Activity since the 
Implementing Entity for this Project Activity will be the World Bank 
Project Implementation Unit. Other road projects supported by donors 
include: (i) EU co-financing with Luxembourg and Cape Verde of the 
construction of the Janela-Porto Novo road and (ii) Portuguese funding 
in the amount of Euros 30 million for a number of road projects on 
several islands. Donor coordination in the road sector will be assured 
by the Ministry of Infrastructure and Transport, through a Program 
Coordination Office (``PCO''), attached directly to the Minister's 
Office. The responsibility of the PCO will be to ensure overall 
management of this Project Activity and coordination of other related 
donor support for the overall transport sector program. Operational 
costs for the PCO will be supported by the World Bank.
    (2) With respect to the bridge-related sub-activities in Santo 
Ant[atilde]o, an EU-funded project is constructing a road from Porto 
Novo along the west coast to Paul, and the construction of this bridge 
would guarantee continuity along the coast to Ribeira Grande.
    (b) USAID. USAID is not currently active in Cape Verde in the 
infrastructure sector.

5. Sustainability

    (a) Port Activity.
    (i) Improvements to the cargo handling operations and the physical 
layout of the Port will allow the Port to handle its current workload 
and projected traffic in a manner that will likely lead to improved 
financial performance. The introduction of private sector participation 
in operations is a critical element to the sustainability of the Port 
Activity. The Government has agreed to pursue privatization and 
commence the process to bring in private sector operators. MCC will 
monitor these reforms, which are being supported by the World Bank. 
Successful completion of this privatization will be a condition 
precedent to certain MCC Disbursements related to the Port Activity.
    (ii) The implementation of an EMMP, to be undertaken pursuant to 
Section 2(a)(i)(6), is an important element to the environmental 
sustainability of the Port Activity. The Port has developed an 
Emergency Management Plan and Responses for Health and Safety (2004) 
(``Emergency Management Plan''), but an EMMP, which can also be 
critical to an Emergency Management Plan, is not yet in place. 
Successful implementation of the EMMP will be a condition precedent to 
the long-term expansion activities contemplated in Section 2(a)(ii).
    (b) Roads and Bridges Activity. The Government's commitment to and 
ownership of the Road and Bridges Activity are evidenced by the 
concrete steps it has taken to reform road sector institutions, as set 
out in its Letter of Transport Sector Policy (the ``Transport Sector 
Letter''). This includes maintaining a Road Agency and the commitment 
to establish a Road Maintenance Fund to ensure stable and sustainable 
maintenance financing. The Government has also committed significant 
domestic resources to the design of this Project Activity and 
achievement of the overall Strategic Programme.
    (i) Maintainance. Keeping the Road Agency and Road Maintenance Fund 
on a solid footing will be critical to the sustainability of the Roads 
and Bridges Activity. MCC will monitor these reforms, supported by the 
World Bank. It is intended that the Government will undertake with the 
World Bank an early assessment of the efficiency of the institutional 
arrangements conducted pursuant to the World Bank Roads Sector Support 
Program. The satisfactory completion of this capacity building through 
the World Bank program and establishment and adequate funding of the 
Road Maintenance Fund will be conditions precedent to certain MCC 
Disbursements.
    (ii) Environment and Social Sustainability. To ensure environmental 
and social sustainability of the Roads and Bridges Activity, the 
implementation of this Project Activity must be carried out in 
compliance with the road-specific Environmental Management Plans 
(``EMP''). In

[[Page 42660]]

addition, contractors will be required to carry out an HIV/AIDS 
Awareness Program for contractor employees and others. This will be 
based on the standard format for engaging communications specialists 
developed by the Cape Verde Committee to fight HIV/AIDS.

6. Policy and Legal Reform

    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 Infrastructure 
Development Project, the satisfactory implementation of which will be 
conditions precedent to certain MCC Disbursements as provided in the 
Disbursement Agreement:
    (a) Port Activity.
    (i) Reorganization of the current state entity that administers and 
operates the Port (``ENAPOR'') to create a port authority (including 
establishment of a legal entity, a public owned corporation) having 
responsibility for ownership and management of port infrastructure, 
provision of services in areas of port infrastructure, strategic and 
operational planning for the harbor, security maintenance and ports 
environmental protection and provision through concession, licenses, 
contracts, or leasing of participation of private sector operators in 
the operations of the ports;
    (ii) Creation of a regulatory authority which will be responsible 
for the technical and economic regulation of the ports and maritime 
sectors and for establishment and supervision of standards of service 
in terms of price, quality, security, and competition and adoption of 
corresponding legislation to establish this agency;
    (iii) Completion of the ongoing customs modernization program which 
includes simplification of the tax and fee structure, improved access 
control at customs facilities, information technology improvements, and 
improved organizational structure;
    (iv) Further development of the Emergency Management Plan to 
include the establishment and implementation of an EMMP for the 
operation of the Port and full implementation of health and safety 
measures; and
    (v) Satisfactory compliance by the Government with recommended 
environmental and social impact mitigation measures specified in the 
EIA conducted pursuant to Section 2(a)(i)(1).
    (b) Roads and Bridges Activity.
    (i) A road maintenance fund (``Road Maintenance Fund'') is created 
and functions in accordance with the Transport Sector Letter (e.g., 
promotion of commercial management approaches and sustainable 
maintenance based on user fees and progressive establishment of a 
maintainable network through investments on the core and local road 
network), and as necessary adoption of legislation to create the Road 
Maintenance Fund;
    (ii) The Road Maintenance Fund establishes and manages annual road 
maintenance budgets, in accordance with the Transport Sector Letter;
    (iii) Adoption of legislation to establish user fees (e.g. fuel 
levy or tax, levy on heavy vehicles);
    (iv) The Government fully funds the Road Maintenance Fund through 
the collection of user fees (as described above) with a first year 
minimum annual revenue stream of CVE300,000,000, adjusted thereafter to 
meet the maintenance needs of the nation's road network;
    (v) The Road Agency completes the National Road Plan;
    (vi) The Road Agency implements annual road network maintenance 
plans within the planned execution period and within budget; and
    (vii) Pilot performance-based road maintenance and management 
contracts are implemented by the Government.

Schedule 3 to Annex I--Private Sector Development Project

    This Schedule 3 generally describes and summarizes the key elements 
of a private sector development project (the ``Private Sector 
Development Project'') that the Parties intend to implement in 
furtherance of the Private Sector Development Objective. Additional 
details regarding the implementation of the Private Sector Development 
Project will be included in the Implementation Plan and in the relevant 
Supplemental Agreements.

1. Background

    Cape Verde's strong record of democratic governance, stability, 
transparency, and lack of corruption has allowed the country to 
maintain large inflows of foreign assistance and remittances from 
emigres, which together represent roughly 25% of GDP. These financial 
flows have underpinned the country's economic progress since 
independence. In addition, Cape Verde's geography, climatic conditions, 
and small population (450,000 people spread out over nine different 
islands) limit the possibilities for growth based on productive sectors 
such as agriculture and manufacturing. Agriculture is constrained by 
extremely low annual rainfall levels, poor soil quality, and limited 
arability (10%) of land. Cape Verde's manufacturing competitiveness is 
hampered by a lack of economies of scale and high factor costs of 
production.
    Cape Verde's economic development strategy is focused on transition 
from an aid-dependency model of development to one of self-sustaining 
private-sector led growth. Cape Verde, through the ETS, has identified 
as potential engines of economic growth: tourism, financial services, 
transportation services, and fisheries (referred to herein as the 
``priority sectors''). The successful implementation of the ETS will 
require interventions to strengthen human capital, promote financial 
sector reform and increase access to financial services, support 
entrepreneurship development, encourage small and medium-sized 
enterprise linkages, and facilitate infrastructure development. The 
GPRSP complements the goals of the ETS and articulates, among other 
priorities, a focus on promoting the competitiveness of industry to 
facilitate growth and job creation, developing human capital and 
developing infrastructure (including promoting land use planning and 
protecting the environment). The Project Activities in this Private 
Sector Development Project are consistent with the overall orientation 
for Cape Verde's economic development, as articulated in the ETS and 
the GPRSP.

2. Summary of the Project and Activities

    The Private Sector Development Project Activities will support Cape 
Verde's long-term economic transformation strategy of becoming less 
dependent on remittances and donor aid by developing a competitive, 
private-sector driven economy through a focus on the priority sectors. 
The Private Sector Development Project includes the following two 
Project Activities:
     Partnership to Mobilize Investment: To remove constraints 
to investment and stimulate the priority sectors of the economy by 
reducing early-stage project development risks that dissuade both 
domestic and international private investors; and
     Financial Sector Reform: To increase access to financial 
services and improve financial intermediation.
    The M&E Plan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks that may be used to 
monitor implementation progress. Performance against these benchmarks 
and the overall impact of the Private Sector 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

[[Page 42661]]

during the implementation of the Private Sector Development Project. 
The specific expected results from, and the key benchmarks to measure 
progress on, the Project, Project Activities and sub-activities 
undertaken or funded under this Project are set forth in more detail in 
Annex III.
    Estimated amounts of MCC Funding for each Project Activity for the 
Private Sector Development Project are identified in Annex II of this 
Compact. Conditions precedent to, and the sequencing of, each Project 
Activity under the Private Sector Development Project shall be set 
forth in the Disbursement Agreement or other relevant Supplemental 
Agreements.
    The following summarizes the Private Sector Development Project 
Activities:
(a) Project Activity: Partnership To Mobilize Investment (the 
``Partnership to Mobilize Investment Activity'')
    The overall goal of this Project Activity is to increase private 
sector investment in the priority sectors as well as other sectors. In 
order to achieve this goal, the Government wishes to identify (i) those 
segments of the priority sectors where the country has a competitive 
advantage, (ii) the existing constraints (such as human resources, 
infrastructure, entrepreneurship and investment climate policy) to 
private sector investment in such segments, and (iii) the public or 
private interventions that must be undertaken in order to remove such 
constraints. In addition, the identified interventions may have to be 
prioritized given the limited government, donor and private sector 
resources available to address these issues.
    Under this Project Activity, MCA-Cape Verde will collaborate with 
the International Finance Corporation (``IFC'') Private Enterprise 
Partnership for Africa (``PEP'') program, the Government's project 
implementation unit (``PIU'') for the World Bank's Growth and 
Competitiveness Project, and the Ministry for Economy, Growth and 
Competitiveness (``MEGC'') to identify those segments of the priority 
sectors where the country has a competitive advantage and the 
constraints to private investment in those segments and to identify, 
prioritize, design and implement the required interventions.
    MCC Funding will support the activities set forth in paragraph (iv) 
below, provided, however, the four phases shall be carried out 
sequentially and the satisfactory completion of Phases I-III will be a 
condition precedent to Phase IV:
    (i) Phase I: Conduct an analysis to identify those segments of the 
priority sectors where the country has a competitive advantage, the 
constraints to private sector investments in such segments and the 
potential public or private interventions to eliminate such 
constraints.
    This phase will be undertaken and financed by the IFC. At the 
completion of this phase, IFC shall deliver to MEGC its analysis of 
constraints and possible interventions, including whether such 
interventions may be funded by private, public, or public-private 
support. This analysis will be informed by discussions with 
representatives of the government (national and local), private sector, 
non-governmental organizations, and civil society. The IFC will ensure 
that its analysis includes a preliminary estimate of the economic rate 
of return (``ERR'') associated with any proposed interventions. This 
estimate will allow IFC and MEGC to narrow the potential interventions 
for MCC funding to those likely to achieve an ERR hurdle of 10%. The 
methodology to be utilized for determining whether the ERR hurdle of 
10% is met shall be subject to MCC approval.
    (ii) Phase II: Design specific activities to carry out the 
interventions identified in Phase I and determine the potential ERR 
associated with such activities.
    This phase will be financed by the Government and/or other donors. 
Phase II will be implemented in the following manner. After reviewing 
the interventions identified in Phase I, MCA-Cape Verde, working with 
MEGC, will prioritize the proposed interventions based on their 
potential ability to facilitate private sector investment in the 
priority sectors. Then, the MEGC, through the IFC, will hire a local 
and international team to design detailed activities to carry out such 
prioritized interventions. These activities might involve policy 
reforms and/or projects (including physical infrastructure and other 
tangible assets) to address vocational training and education, human 
resource development, infrastructure, access to financial services, 
entrepreneurship development or small and medium-sized enterprises 
linkages. Other stakeholders may, at this stage, present to MCA-Cape 
Verde unsolicited proposals for interventions or activities that were 
not identified or designed by IFC in this Phase II. IFC will evaluate 
and prioritize such proposed interventions and activities as part of 
its responsibilities under this Phase II.
    (iii) Phase III: Evaluation and selection of investment 
mobilization activities.
    This phase will be funded by the Government and/or other donors. 
The MEGC, the Management Committee of the PIU (whose existing members 
include representatives of the MEGC, Ministry of Finance and Planning, 
National Bank, Agencia Caboverdiana de Investimentos, the Chambers of 
Commerce, and labor unions, and to which a representative of the 
Strategic Transformation and Policy Center (``STPC'') will be added), 
the IFC and, as appropriate, other stakeholders, will form a review 
committee (``Review Committee''). IFC will deliver to the Review 
Committee the prioritized IFC and unsolicited interventions or 
activities designed and/or evaluated in Phase II (the ``Prioritized 
Activities'') (as part of the recommendations the IFC will provide a 
list of those unsolicited proposals that it is not recommending to the 
Review Committee). The Review Committee will evaluate the Prioritized 
Activities and recommend to MCA-Cape Verde those specific Prioritized 
Activities the Review Committee believes should be supported by MCC 
Funding. MCA-Cape Verde, in consultation with the Stakeholders' 
Committee, will then evaluate and select from the activities 
recommended by the Review Committee those activities, if any, that 
should receive MCC Funding based on criteria adopted by MCA-Cape Verde 
in its Investment Guidelines (each, a ``Selected Activity''). Prior to 
evaluating and selecting any Selected Activity, MCA-Cape Verde shall 
develop, subject to MCC approval, detailed investment guidelines 
(``Investment Guidelines''), procedures for evaluation and selection of 
Selected Activities, and procedures for determining composition (and 
replacement) of and other matters related to members of the Review 
Committee. The Investment Guidelines shall include the following 
criteria in assessing a proposed activity. The activity must:
    (1) Be consistent with the procedures outlined above for Phases I-
III;
    (2) Be consistent with the Environmental Guidelines;
    (3) Be consistent with the limitations on the use and treatment of 
MCC Funding set forth in Section 2.3 of this Compact;
    (4) Represent a transformational intervention;
    (5) Meet an ERR of no less than ten percent (10%) (calculated based 
on a methodology approved by MCC);
    (6) Have clearly identified target outcomes and indicators;
    (7) Support the Objectives or Project Outcomes as described in 
Annex III; and

[[Page 42662]]

    (8) Have detailed budgets and work plans consistent with 
requirements for the standards for the Detailed Financial Plan and Work 
Plan components of the Implementation Plan.
    Any Selected Activity shall be presented to MCC for its approval 
prior to the implementation of any such Selected Activity in Phase IV, 
no less than 20 days prior to the intended commencement of 
implementation of the Selected Activity. MCA-Cape Verde shall deliver 
to MCC any documentation related to the Selected Activity that MCC may 
request.
    (iv) Phase IV: Implement Selected Activities, subject to MCC 
approval.
    This implementation of Selected Activities shall be funded by MCC 
Funding, with possible parallel or co-financing by IFC or other donors. 
IFC or other donors may finance the implementation of other activities 
considered but not selected in Phase III. To the extent that a Selected 
Activity includes policy reforms, the Government shall take all 
necessary or advisable action to implement such reforms in a timely and 
effective manner.
    The evaluation process for any person or entity that will implement 
a Selected Activity under this Phase IV (whether or not such Selected 
Activity was identified and designed by the IFC) will include, 
consistent as appropriate with the Procurement Guidelines, the issuance 
of a published request for proposals with specific identified 
evaluation criteria and peer reviewers.
(b) Project Activity: Financial Sector Reform (the ``Financial Sector 
Reform Activity'')
    The Financial Sector Reform Activity consists of two sub-activities 
with the following objectives: (i) to increase access to credit by 
supporting the development of micro-finance institutions (``MFIs'') and 
(ii) to increase financial intermediation by expanding access to the 
primary market for government securities.
    To achieve these objectives, MCC Funding will support:
    (i) Development of MFIs.
    The National Bank has drafted new enabling legislation to grant 
expanded deposit-taking powers to MFIs and to authorize the National 
Bank to begin to regulate MFIs and their activities as deposit-takers. 
It is expected that this legislation will be enacted in 2005 after 
allowing the affected institutions to comment on the proposed changes. 
To encourage financial sector development, this sub-activity will focus 
on transitioning MFIs to being both deposit-takers and regulated 
entities and enabling them to become more significant providers of 
credit, savings, and other financial services to both rural residents 
and the urban poor. Specifically, MCC Funding will support:
    (1) Technical assistance to assist MFIs to take advantage of 
expanded deposit-taking powers and to ease the transition to a new 
regulatory environment (e.g., defining governance structure and 
institutional policies, design and pricing of liability products, 
asset-liability management and tracking, marketing, and regulatory 
reporting requirements, among others); and
    (2) Provision of software to support the record-keeping associated 
with those deposit-taking powers.
    (ii) Expansion of access to the primary market for government 
securities.
    The Government currently limits access to its auction of domestic 
debt to banks, insurance companies, and a small number of government 
agencies such as EMPS (the pension system) and ASA (the aviation 
authority). These participants have extraordinary influence over the 
interest rate on these securities and banks have little incentive to 
redistribute them to other investors. This sub-activity will support 
financial sector competitiveness by enabling domestic, non-bank 
investors, including individuals and corporations, to access the 
primary market for government securities. It is expected that this 
activity will assist in creating a more transparent market. 
Specifically, MCC Funding will support:
    (1) Technical assistance to the Ministry of Finance to assist with 
the development of new auction procedures and related matters such as 
the design of a registry of ownership and the role of financial 
intermediaries; and
    (2) Provision of software to support the primary government 
securities market.

3. Beneficiaries

    (a) Partnership to Mobilize Investment Activity. The principal 
intended beneficiaries of the Partnership to Mobilize Investment 
Activity will be: (a) Individuals and companies who will benefit from 
an improved investment climate in the priority sectors, and (b) 
individuals who will benefit from increased availability of jobs and 
enhanced entrepreneurial opportunities resulting from the interventions 
in the priority sectors.
    (b) Financial Sector Reform Activity. The principal intended 
beneficiaries of the Financial Sector Reform Activity will be (a) the 
urban and rural poor who will gain access to a broader menu of 
financial services from stronger financial intermediaries, (b) existing 
MFIs and non-governmental organizations that will receive specialized 
technical assistance for institutional transformation, and (c) all 
investors and borrowers, including the Government, who will gain from a 
more open financial system and who will be better equipped to develop 
new financial products based on market-determined interest rates.

4. Donor Coordination; Private Sector; Role of Civil Society; USAID

    (a) Donors. The Parties consulted other donors regularly during the 
design of this Project to ensure the Project Activities complement the 
efforts of other donors without replacing, duplicating or hindering 
such efforts.
    (i) Partnership to Mobilize Investment Activity:
    (1) The African Capacity Building Foundation awarded a grant to the 
Government to strengthen economic policy-making capabilities for public 
sector officials by supporting the establishment of the STPC. It is 
anticipated over time that the STPC will, among other things, provide 
greater leadership for the Partnership to Mobilize Investment Activity. 
As noted above, MCC will also leverage the expertise and funding of the 
IFC's PEP program as well as possible funding by other multilateral and 
bilateral donors. Through the Growth and Competitiveness Project, 
funding and other credits from the World Bank/IDA are available to the 
Government to support activities that complement the focus of the 
Partnership to Mobilize Investment Activity. The IFC PEP team will be 
working in partnership with the PIU and the Management Committee in 
order to prevent duplication in implementation.
    (2) The U.S. Trade and Development Agency has provided funding for 
the Government to explore investment opportunities for both maritime 
and air-cargo transshipment. MCC will ensure that this analysis is 
provided to the IFC for its work during Phase I. Several donors are 
involved in education and human resource development in Cape Verde. 
When considering potential interventions in this sector, MCA-Cape Verde 
will ensure that other donors are consulted to complement and prevent 
duplication of efforts. The World Bank/IDA has made funding available 
through the Growth and Competitiveness Project as well as other credits 
to the Government to support activities that complement the focus of 
the Partnership to Mobilize Investment Activity. When considering 
potential interventions in priority sectors, MCA-Cape Verde will

[[Page 42663]]

ensure that relevant materials and analyses funded through the Growth 
and Competitiveness Project will be provided to IFC to prevent 
duplication of efforts.
    (ii) Financial Sector Reform Activity: A number of donors support 
financial sector reform efforts targeted at micro-finance. The World 
Bank is supporting a number of projects related to the development of 
skills at the National Bank to improve financial system monitoring, 
including the supervision of MFIs. The World Bank is also providing 
assistance with the development of new financial instruments such as 
factoring and leasing and the introduction of a stock exchange. MCC is 
not aware of donor plans to provide support to MFIs with respect to the 
National Bank's proposed new regulation of MFIs or to provide support 
for expanding access to the primary market for government securities.
    (b) Private Sector and Civil Society.
    (i) Partnership to Mobilize Investment Activity. The private sector 
and civil society will be actively involved in all phases, including 
needs assessment and activity design and selection. Furthermore, the 
Partnership to Mobilize Investment Activity is intended to help Cape 
Verdean and international private sector investors to take advantage of 
opportunities presented by the Africa Growth and Opportunity Act 
(``AGOA'') in the those priority sectors that are also a focus for AGOA 
(e.g., ecotourism and light industry, including fisheries).
    (ii) Financial Sector Reform Activity. Existing micro-finance and 
other non-bank financial institutions in Cape Verde were created as 
informal alliances of citizens in order to support women heads of 
household or small business owners as well as members of other 
community-based associations. A loan from a micro-finance provider is 
often the first interaction that an individual will have with the 
financial system. The Financial Sector Reform Activity will augment 
these efforts and help these financial institutions to grow and to 
offer an expanded menu of products to a broader cross-section of 
potential savers and borrowers.
    (c) USAID. The U.S. Agency for International Development does not 
have a mission in Cape Verde. However, USAID has a PL-480 program that 
has provided technical assistance to several community-based 
associations through ACDI/VOCA in connection with its drip irrigation 
and small- and medium-sized enterprise financing projects. To the 
extent possible, MCC efforts to support MFIs would be structured to 
coordinate with those efforts and to benefit from the relationships 
that ACDI/VOCA has successfully developed and build on USAID's 
experience and lessons learned.

5. Sustainability

    The Partnership to Mobilize Investment Activity will develop 
significant governmental capacity to prioritize and implement business 
climate interventions after the Compact Term without donor technical 
assistance. This will occur through the transfer of considerable 
knowledge and expertise to the local staff of the various participants 
in this Project Activity. At the conclusion of the Growth and 
Competitiveness Project in February 2008, the MEGC shall hire as 
employees of MEGC sufficient relevant PIU staff to continue oversight 
of the Partnership to Mobilize Investment Activity. The Government 
shall provide necessary funding to MEGC prior to and during Phase IV of 
this Project Activity to ensure proper day-to-day operations and 
appropriate oversight and implementation of the Partnership to Mobilize 
Investment Activity. It is anticipated that the MEGC and STPC will 
carry on similar business climate improvement activities after the 
Compact Term.
    The Financial Sector Reform Activity will be accomplished through 
technical assistance that is intended to transfer the requisite 
knowledge that will allow the MFIs to develop into self-sustaining 
deposit-taking institutions.

6. Policy and Legal Reform

    The Parties have identified the following policy, legal and 
regulatory reforms and actions (in addition to those being funded under 
the Private Sector Development Project) that the Government shall 
pursue in support, and to reach the full benefits, of the Private 
Sector Development Project, the satisfactory implementation of which 
will be conditions precedent to certain MCC Disbursements as provided 
in the Disbursement Agreement:
    (a) If the success and implementation of a Selected Activity is 
dependent upon the implementation of policy or legal reforms or 
procedural changes that are not being funded by MCC, the Government 
shall take all necessary or advisable action to adopt or implement such 
reforms and changes in a timely and effective manner.
    (b) The enactment of legislation to regulate MFIs and their 
deposit-taking powers.
    (c) The modification of rules and procedures regarding the auction 
of Government of Cape Verde securities intended to enhance price 
discovery and broaden distribution.

7. Proposals

    With respect to the Partnership to Mobilize Investment Activity, 
unsolicited proposals for activities shall be considered in the manner 
described in Section 2(a)(iii) of this Schedule. There will be no 
solicitation for proposals for activities under this Project Activity.

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.
    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, MCA-Cape Verde will adopt, 
subject to MCC approval, a Multi-Year Financial Plan that includes, in 
addition to the multi-year summary of anticipated estimated MCC Funding 
and the Government's contribution of funds and resources, an estimated 
draw-down rate for the first year of the Compact based on the 
achievement of performance milestones, as appropriate, and the 
satisfaction or waiver of conditions precedent. Each year, at least 30 
days prior to the anniversary of the entry into force of the Compact, 
the Parties shall mutually agree in writing to a Detailed Financial 
Plan for the upcoming year of the Program, which shall include a more 
detailed plan 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 Financial Plan shall be implemented by MCA-Cape Verde, 
consistent with the approval and oversight rights of MCC and the 
Government as provided in this Compact, the Governance Agreement and 
the Disbursement Agreement.\1\
---------------------------------------------------------------------------

    \1\ The role of civil society in the implementation of the 
Compact (including through participation on the Stakeholders' 
Committee and Steering Committee), the responsibilities of the 
Government and MCC in achieving the Compact Goal and Objectives, and 
the process for the identification of beneficiaries are addressed 
elsewhere in this Compact and therefore are not repeated here.
---------------------------------------------------------------------------

    3. Estimated Contributions of the Parties. The Multi-Year Financial 
Plan Summary identifies the estimated

[[Page 42664]]

annual contribution of MCC Funding for Program administration, 
monitoring and evaluation, and each Project. The Government's 
contribution of resources to Program administration, monitoring and 
evaluation, and each Project shall consist of (i) ``in-kind'' 
contributions in the form of Government Responsibilities and any other 
obligations and responsibilities of the Government identified in this 
Compact, including contributions identified in the notes to the Multi-
Year Financial Plan Summary, (ii) such other contributions or amounts 
as identified in notes to the Multi-Year Financial Plan Summary, and 
(ii) such other contributions or amounts as may be identified in 
relevant Supplemental Agreements between the Parties or as may 
otherwise be agreed by the Parties; provided, in no event shall the 
Government's contribution of resources be less than the amount, level, 
type and quality of resources required to effectively carry out the 
Government Responsibilities or any other responsibilities or 
obligations of the Government under or in furtherance of this Compact.
    4. Modifications. The Parties recognize that the anticipated 
distribution of MCC Funding between and among the various Program 
activities and Project and 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, the Parties 
may, upon agreement of the Parties in writing and without amending the 
Compact, change the designations and allocations of funds between 
Program administration and a Project, between one Project and another 
Project, between different activities within a Project, or between a 
Project identified as of the entry into force of this Compact and a new 
Project, without amending the Compact; provided, however, that such 
reallocation (i) is consistent with the Objectives, (ii) does not cause 
the amount of MCC Funding to exceed the aggregate amount specified in 
Section 2.1(a) of this Compact, and (iii) does 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 and 
Material Re-Disbursements for the Program and each Project is subject 
to satisfactory progress in achieving the Objectives and on the 
fulfillment or waiver of any conditions precedent specified in the 
Disbursement Agreement for the relevant Program activity or Project or 
Project Activity. The sequencing of Project activities or Project 
Activities and other aspects of how the Parties intend the Projects to 
be implemented will be set forth in the Implementation Plan, including 
Work Plans for the applicable Project, and MCC Disbursements and Re-
Disbursements will be disbursed consistent with that sequencing.

BILLING CODE 9210-01-P
[GRAPHIC] [TIFF OMITTED] TN25JY05.000


[[Page 42665]]


[GRAPHIC] [TIFF OMITTED] TN25JY05.001

BILLING CODE 9210-01-C

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. Each 
capitalized term in this Annex III 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 (1) how progress toward the Objectives and Project 
Activity Outcomes will be monitored (the ``Monitoring Component''), (2) 
a methodology, process and timeline for the evaluation of planned, 
ongoing, or completed Project Activities to determine their efficiency, 
effectiveness, impact and sustainability (the ``Evaluation 
Component''), and (3) 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 
MCA-Cape Verde Website and elsewhere.

2. Monitoring Component

    To monitor progress toward the achievement of the Objectives and 
Project Activity Outcomes, the Monitoring Component of the M&E Plan 
shall identify (1) Program levels, (2) the Indicators, (3) the party or 
parties responsible, the timeline, and the instrument for collecting 
data and reporting on each Indicator to MCA-Cape Verde, and (4) the 
method by which the reported data will be validated.
    (a) Program Levels. The M&E Plan in general as well as the 
Performance Monitoring Component in particular shall describe the 
Program at multiple levels of aggregation and shall describe the 
expected Program results at each of those levels. The highest level of 
results to be achieved by the Program, the Compact Goal, is understood 
to be the aggregation of the estimated benefits of the three Projects, 
as shown in the table below (the ``Compact Goal Indicators''), which is 
indicative of the overall impact expected from all of the Project 
Activities. While these benefits can be estimated, it is 
methodologically impossible to attribute with a high degree of 
precision changes in income at the end of the Compact Term specifically 
to interventions undertaken under the or in furtherance of the Compact 
due to the existence of other factors, unrelated to the Program, that 
may affect income changes. However, these estimated benefits may be 
used to inform impact evaluation.

                        Compact Goal: Economic Growth and Poverty Reduction in Cape Verde
----------------------------------------------------------------------------------------------------------------
                                                 Definition of benefit stream         Year 5          Year 10
----------------------------------------------------------------------------------------------------------------
Compact Goal Indicator:
    Increase in annual income (US$           ...................................             $10           $22.3
     millions)\1\.
Measured by:
    Increase in income from the Watershed    Increase in farm profits, farm                  1.5             1.5
     Management and Agricultural Support      wages, retained earnings of
     Project.                                 agribusinesses, and returns to
                                              micro-finance institutions.
    Increase in income from the Roads and    Savings on vehicle operating costs              1.9             2.9
     Bridges Activity.                        from the roads upgraded with
                                              asphalt plus the increase in
                                              income from the construction of
                                              the bridges.
    Increase in income from the Port         Estimated increase of value-added               5.4            16.7
     Activity.                                in the tourism industry and in
                                              government revenue as a result of
                                              increasing the efficiency of the
                                              Port.

[[Page 42666]]

 
    Increase in income from the Financial    Estimated contribution to economic              0.2             0.3
     Sector Reform Activity.                  growth calculated from the
                                              expected elasticity of growth with
                                              respect to the ratio of liquid
                                              liabilities to GDP.
    Increase in income from the Partnership  Imputed benefits based on the                   0.9            0.9
     to Mobilize Investment Activity.         criteria that all investment
                                              projects will have an ERR of at
                                              least 10% over 20 years.
----------------------------------------------------------------------------------------------------------------
\1\ The increase in annual income is approximately 1.2% of annual GDP in Year 5 and 2.3% in Year 10, assuming a
  real GDP growth rate of 4%.

    (i) Project. At the second highest level of the Compact, or the 
Project level, the M&E Plan shall describe Program activities, results 
and measures of results' attainment in three categories which relate to 
the: (1) Watershed Management and Agricultural Support Project; (2) 
Infrastructure Project; and (3) Private Sector Development Project. The 
Objectives to be achieved by the activities under each of these 
Projects shall be understood as being directly and measurably 
attributable to the Program's interventions within the timeframe of the 
Compact.
    (ii) Project Activity. At the third highest level of the Program, 
or the Project Activity level, the M&E Plan shall describe the results 
to be achieved within each Project Activity. The outcomes of each 
Project Activity (``Project Activity Outcome'') shall be understood to 
be directly attributable to the Compact interventions and measurable 
within an intermediate period during the Compact Term.
    (b) 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 that 
result will be achieved (``Target''). The M&E Plan will measure and 
report on Indicators at each of the two levels corresponding to those 
described above. First, the Indicators for each Objective (each, an 
``Objective Indicator'') will measure the final results of the Projects 
in order 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''). Second, 
Indicators for each Project Activity (each, a ``Project Activity 
Outcome Indicator'') will measure the intermediate results achieved 
under each of the Project Activities in order to provide an early 
measure of the likely impact of the Project Activities. For each 
Indicator for a Project Activity Outcome and Objective, the M&E Plan 
shall define a strategy for obtaining and validating the value of such 
Indicator prior to being affected by the Program (``Indicator 
Baseline''). All Indicators will be disaggregated by gender, income 
level and age, to the extent practicable.
    (i) Objective Indicators. The M&E Plan shall contain the Objective 
Indicators listed in the table below, with their definitions. The 
corresponding Indicator Baselines and Targets to be achieved are in the 
following tables. MCA-Cape Verde, subject to prior written approval 
from MCC, may only add Objective Indicators or refine the Targets of 
existing Objective Indicators prior to any MCC Disbursement or Re-
Disbursement for any Project or Project Activity that may influence 
that Indicator, unless the Parties otherwise agree in writing.

                     Objective Indicator Definitions
------------------------------------------------------------------------
          Objective Indicators                     Definitions
------------------------------------------------------------------------
Watershed Management and Agricultural
 Support Objective:
    Productivity: Horticulture (tons     Average yield per production
     per hectare).                        cycle for horticulture
                                          products across the three
                                          intervention areas.
                                          Horticulture includes the
                                          following products: tomato,
                                          cabbage, carrot, pepper,
                                          potato, sweet potato, yucca,
                                          and onion.
    Value-added for farms and            Value-added for farms is
     agribusinesses (million dollars).    defined as ``Farm profits plus
                                          wages from the drip irrigation
                                          activities in the intervention
                                          areas.'' Value-added for
                                          agribusinesses is defined as
                                          ``Retained earnings of
                                          agribusinesses in the
                                          intervention areas.'' This
                                          indicator is measured in 2005
                                          dollars, exchange rate
                                          adjusted.
Infrastructure Objective:
    Volume of goods shipped between      Total annual volume of goods
     Praia and other islands (tons).      shipped from the Port of Praia
                                          to other islands and arriving
                                          at the Port of Praia from the
                                          other islands.
    Mobility Ratio (%).................  Percentage of beneficiary
                                          population who take at least 5
                                          trips per month. Beneficiaries
                                          are those living within 2
                                          kilometers of the road. Trips
                                          include trips to school,
                                          health centers, markets,
                                          workplace, and other locations
                                          as defined in the World Bank's
                                          socio-economic baseline
                                          survey. This indicator is only
                                          relevant for roads (3) Volta
                                          Monte-Ribeira and (5) Fonte
                                          Lima--Joao Bernardo.
    Savings on transport costs from      The savings on vehicle
     asphalt roads and bridge             operating costs are calculated
     improvements.                        using the RED model for roads
                                          (1) Org[atilde]os-Pedra
                                          Badejo, (2) Cruz Grand-
                                          Calhetona, and (4) Assomada-
                                          Rinc[atilde]o. An alternative
                                          methodology is used for bridge
                                          construction, which estimates
                                          the benefit as recouping wages
                                          foregone by bridge closures.
Private Sector Development Objective:

[[Page 42667]]

 
    Value added in priority sectors      Value added in priority sectors
     above current trends (escudos).      (tourism, fisheries, financial
                                          services, transport and
                                          communication) above that
                                          predicted by extrapolating a
                                          linear 1999-2004 trendline.
    Volume of private investment in      Volume of private investment in
     priority sectors above current       priority sectors (tourism,
     trends (escudos).                    fisheries, financial services,
                                          transport and communication)
                                          above that predicted by
                                          extrapolating a linear 1999-
                                          2004 trendline.
------------------------------------------------------------------------


                  Watershed Management and Agricultural Support Objective: Increase Agricultural Productivity in the Intervention Areas
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Baseline         Year 1          Year 2          Year 3          Year 4          Year 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Objective Indicators: \2\ (Metric of Project success
 observable by end of Compact Term)
    Productivity: Horticulture (tons per hectare).......               9              11              14              18              21              24
    Value-added for farms and agribusinesses (million                  0               0             0.4             0.8             1.1            1.5
     dollars)...........................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\2\ Baseline data were obtained for a variety of agricultural products including horticulture, fruits, milk and meat. Horticulture was chosen as the
  most important product group to indicate success of the Project. The indicators are specific to the intervention areas.


                              Infrastructure Objective: Increase Integration of Internal Markets and Reduce Transport Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Baseline \3\       Year 1          Year 2          Year 3          Year 4          Year 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Objective Indicators: (Metric of Project success
 observable by end of Compact Term)
Port Activity:
    Volume of goods shipped between Praia and other              137,995         182,311         192,311         202,063         211,485         220,741
     islands (tons).....................................
Roads and Bridges Activity: \4\
    Mobility Ratio--``Percentage of beneficiary                      52%  ..............  ..............  ..............             65%             65%
     population who take at least 5 trips per month''...
    Savings on transport costs from asphalt roads and                  0               0               0               0             1.6            1.9
     bridge improvements \5\ (million dollars)..........
--------------------------------------------------------------------------------------------------------------------------------------------------------
\3\ Baseline data is from 2004 and Year 1 is January 1 to December 31, 2006 for all Port-related indicators.
\4\ These baselines and targets are averages across the relevant roads and/or bridges.
\5\ This indicator is the benefit stream for the economic rate of return calculations.


                                              Private Sector Development Objective: Develop Private Sector
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Baseline         Year 1          Year 2          Year 3          Year 4          Year 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Objective Indicators: (Metric of Project success
 observable by end of Compact Term)
    Value added in priority sectors above current trends               0             TBD             TBD             TBD             TBD         \6\ TBD
    Volume of private investment in priority sectors                   0             TBD             TBD             TBD             TBD        \7\ TBD
     above current trends...............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\6\ This target will be estimated after the investment opportunities have been identified.
\7\ Ibid.

    (ii) Project Activity Outcome Indicators. The M&E Plan shall 
contain the Project Activity Outcome Indicators listed in the table 
below with their definitions. The baseline and targets to be achieved 
are shown in the subsequent table. MCA-Cape Verde, subject to prior 
approval from MCC, may only add Project Activity Outcome Indicators or 
refine the Targets of existing Project Outcome Indicators prior to any 
MCC Disbursement or Re-Disbursement for any Project Activity that may 
influence that Indicator, unless the Parties otherwise agree in 
writing.

[[Page 42668]]



             Project activity outcome indicator Definitions
------------------------------------------------------------------------
  Project activity outcome indicators              Definitions
------------------------------------------------------------------------
Watershed Management and Agricultural
 Support Objective: Water Management
 Activity
    Volume of available water (m\3\)...  Captured surface water plus
                                          water available through new
                                          wells.
    Area treated with soil conservation  Total number of hectares with
     and water capturing infrastructure   rural infrastructure for soil
     (hectares).                          conservation and water
                                          catchment like terraces,
                                          contour walls, vegetation,
                                          dikes, check dams, etc.
    Aquifer level (m and m\3\).........  Level of the aquifers in each
                                          intervention area.
Agribusiness Development Activity:
    Adoption rate of drip irrigation     Number of farmers using drip
     (%).                                 irrigation divided by the
                                          total number of farmers in the
                                          watershed area.
    Area irrigated with drip irrigation  Total number of hectares
     (hectares).                          irrigated with drip irrigation
                                          in the intervention areas.
    Number of agribusinesses...........  Agribusinesses are defined as:
                                          (1) Formal or informal
                                          transformation units
                                          (production centers for
                                          sweets, marmalade, cheese,
                                          etc) belonging to groups of
                                          producers (2) Formal or
                                          informal transformation units
                                          belonging to individual
                                          producers; and (3) Marketing
                                          units (packaging and storing
                                          centers).
    Sales revenue of agribusinesses      Revenue to agribusinesses of
     (escudos).                           products processed, conserved,
                                          and sold. Agribusinesses are
                                          defined as: (1) Formal or
                                          informal transformation units
                                          (production centers for
                                          sweets, marmalade, cheese,
                                          etc) belonging to groups of
                                          producers (2) Formal or
                                          informal transformation units
                                          belonging to individual
                                          producers; and (3) Marketing
                                          units (packaging and storing
                                          centers).
Credit Activity:
    Volume of new loans disbursed        Volume of new loans disbursed
     (dollars).                           for drip irrigation, inputs,
                                          and agribusiness as part of
                                          the MCA Program.
    Default rate (%)...................  A loan in default is defined to
                                          be any loan on which scheduled
                                          payments of principal are 90
                                          or more days past due. The
                                          default rate is the ratio
                                          expressed as a percentage in
                                          which the numerator is the
                                          principal amount of loans in
                                          default (net of any payments
                                          of principal received on such
                                          loans) and the denominator is
                                          the sum of the principal
                                          amount of all loans
                                          outstanding as of the date for
                                          which the report was prepared.
Infrastructure Objective: Roads and
 Bridges Activity
    Number of days per year that         Estimated number of days per
     bridges are not passable (days).     year that bridges are not
                                          passable.
    Kilometers of roads rehabilitated    Total number of kilometers of
     (kms).                               road rehabilitated.
Port Activity:
    Tons of general cargo handled per    Effective measure of tons of
     hour (tons/hour).                    general cargo handled per
                                          working hour.
    Containers handled per hour          Effective measure of containers
     (containers/hour).                   handled per working hour.
    Tons per year (tons)...............  Total tons handled by the Port
                                          of Praia per year.
    Containers per year (containers)...  Total number of containers
                                          handled by the Port of Praia
                                          per year.
    Berth occupancy for container ships  Standard definition used by
     (days).                              ENAPOR as of the Entry into
                                          Force for berth occupancy for
                                          container ships.
Private Sector Development Objective:
 Partnership to Mobilize Investment
 Activity
    Volume of public investment in       Volume of public investment in
     priority sectors above current       priority sectors (tourism,
     trends (escudos).                    fisheries, financial services,
                                          transport and communication)
                                          above that predicted by
                                          extrapolating a linear 1999-
                                          2004 trendline.
Financial Sector Reform Activity:
    Volume of deposits in micro-finance  Volume of deposits in micro-
     institutions as percentage of        finance institutions supported
     total deposits (%).                  by MCC as percentage of total
                                          deposits in the formal banking
                                          system.
    Percentage of government security    Total value of T-bills held
     stock held outside of financial      outside of financial
     institutions and government          institutions and government
     agencies (%).                        agencies as a percentage of
                                          total value of T-bills
                                          outstanding.
------------------------------------------------------------------------


                  Watershed Management and Agricultural Support Objective: Increase Agricultural Productivity in the Intervention Areas
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                       Baseline             Year 1              Year 2              Year 3              Year 4              Year 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Project Activity Outcome
 Indicators: \8\ Water
 Management Activity:
    Sustainable watershed        ...................  ..................  ..................  ..................  ..................  ..................
     management.
    Volume of available water    126,000............  130,650...........  258,730...........  427,820...........  681,530...........  875,355
     (m\3\).
    Area treated with soil       258................  301...............  357...............  430...............  497...............  497
     conservation and water
     capturing infrastructure
     (hectares).
    Aquifer level..............  \9\ TBD............  > Baseline........  > Baseline........  > Baseline........  > Baseline........  > Baseline
Project Activity Outcome
 Indicators: Agribusiness
 Development Activity
    Increase productive
     capacity
    Adoption rate of drip        10%................  12%...............  17%...............  25%...............  29%...............  30%
     irrigation.

[[Page 42669]]

 
    Area irrigated with drip     9..................  9.................  26................  56................  94................  121
     irrigation (cumulative
     hectares).
    Increase marketing of        ...................  ..................  ..................  ..................  ..................  ..................
     agricultural products.
    Number of agribusinesses...  2..................  2.................  4.................  9.................  10................  11
    Sales revenue of             \10\ TBD...........  TBD...............  TBD...............  TBD...............  TBD...............  TBD
     agribusinesses.
Project Activity Outcome
 Indicators: Credit Activity
    Increase financial capacity  ...................  ..................  ..................  ..................  ..................  ..................
     of participants.
    Volume of new loans          0..................  0.................  113,040...........  169,560...........  184,560...........  153,040
     disbursed.
    Default rate...............  n/a................  n/a...............  \11\ TBD..........  TBD...............  TBD...............  TBD
--------------------------------------------------------------------------------------------------------------------------------------------------------
\8\ All of the following baselines and targets are aggregates or averages across the three intervention areas: Paul on Santo Antao, Faja on Sao Nicolau,
  and Mosteiros on Fogo.
\9\ Technical assistance has been included in the Compact to increase Cape Verde's capacity to monitor the level of the aquifers. The baseline will then
  be determined after Compact signing and prior to any MCC Disbursement or Re-Disbursement of this Project, unless the Parties otherwise agree in
  writing.
\10\ This information is not currently being collected in Cape Verde. A baseline survey is planned for after Compact signing and prior to any MCC
  Disbursement or Re-Disbursement of this Project, unless the Parties otherwise agree in writing. Targets will be set after the baseline survey.
\11\ These targets will be determined after proposals including expected default rates have been submitted by micro-finance providers.


                              Infrastructure Objective: Increase Integration of Internal Markets and Reduce Transport Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Baseline         Year 1          Year 2          Year 3          Year 4          Year 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Project Activity Outcome Indicators: Roads and Bridges
 Activity
    Improve rural transport network.....................  ..............  ..............  ..............  ..............  ..............  ..............
    Number of days per year that bridges are not                       8               8               8               8               0               0
     passable...........................................
    Kms. of roads rehabilitated (cumulative)............               0               0              27              60              63              63
Project Activity Outcome Indicators: \12\ Port Activity
    Increase efficiency of the Port of Praia............  ..............  ..............  ..............  ..............  ..............  ..............
    Tons of general cargo handled per hour..............              20              20              22              25              30              35
    Containers handled per hour.........................            8.66            8.66            8.66               9              10              11
    Tons per year.......................................         482,000         590,911         622,911         652,767         681,428         710,543
    Containers per year.................................          16,379          20,256          21,564          22,589          24,115          25,385
    Berth occupancy for container ships.................       1.41 days            1.41            1.41             1.3            1.15           1.01
--------------------------------------------------------------------------------------------------------------------------------------------------------
\12\ Baseline data is from 2004 and Year 1 is January 1 to December 31, 2006 for all Port-related indicators.


                                              Private Sector Development Objective: Develop Private Sector
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Baseline         Year 1          Year 2          Year 3          Year 4          Year 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Project Activity Outcome Indicators: Partnership to
 Mobilize Investment Activity
    Improve Environment for Business Development in       ..............  ..............  ..............  ..............  ..............  ..............
     Priority Sectors...................................
    Volume of public investment in priority sectors                    0             TBD             TBD             TBD             TBD        \13\ TBD
     above current trends...............................
Project Activity Outcome Indicators: Financial Sector
 Reform Activity
    Increase financial intermediation...................  ..............  ..............  ..............  ..............  ..............  ..............
    Volume of deposits in micro-finance institutions as               0%              0%            0.5%              1%              2%              3%
     percentage of total deposits.......................
    Increase competition in the government securities     ..............  ..............  ..............  ..............  ..............  ..............
     market.............................................
    Percentage of government security stock held outside              0%              0%              2%              4%              6%             8%
     of financial institutions and government agencies..
--------------------------------------------------------------------------------------------------------------------------------------------------------
\13\ This target will be estimated after the investment opportunities have been identified.


[[Page 42670]]

    (c) Data Collection and Reporting. The M&E Plan shall establish 
guidelines for data collection and a reporting framework, including a 
schedule of Program reporting and responsible parties. The Management 
Unit shall conduct regular assessments of program performance to inform 
MCA-Cape Verde, Project Managers and the 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 MCA-Cape Verde, MCA-Cape Verde shall 
promptly deliver such reports to MCC along with any other related 
documents, as specified in this Annex III or as may be requested from 
time to time by MCC.
    (d) 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 MCA-Cape 
Verde 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 
shall contain a methodology, process and timeline for analyzing data in 
order to assess planned, ongoing, or completed Project Activities to 
determine their efficiency, effectiveness, impact and sustainability. 
This component should use state-of-the-art methods for addressing 
selection bias and should make provisions for collecting data from both 
treatment and control groups, where practicable. 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. MCA-Cape Verde, with the prior written 
approval of MCC, may engage an independent evaluator to conduct an 
evaluation at the expiration or termination of the Compact Term 
(``Final Evaluation'') or at MCC's election, MCC may engage such 
independent evaluator. The Final Evaluation must at a minimum (i) 
Evaluate the efficiency and effectiveness of the Program Activities; 
(ii) estimate, quantitatively and in a statistically valid way, the 
causal relationship between the Compact Goal (to the extent possible), 
the Objectives and Project Activity Outcomes; (iii) determine if and 
analyze the reasons why the Compact Goal, Objectives and Project 
Activity 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 MCA-Cape Verde, such independent evaluator shall enter into 
an Auditor / Reviewer Agreement with MCA-Cape Verde in accordance with 
Annex I.
    (b) Ad Hoc Evaluations. Either MCC or MCA-Cape Verde 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. If MCA-Cape Verde engages an evaluator, the evaluator 
will be an externally contracted independent source selected by MCA-
Cape Verde, 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. The cost of an independent evaluation or special study may 
be paid from MCC Funding. If MCA-Cape Verde 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 to 
seek funding from other donors, no MCC Funding or MCA-Cape Verde 
resources may be applied to such evaluation or special study without 
MCC's prior written approval.

4. Other Components of the M&E Plan

    In addition to the Monitoring and Evaluation Components, 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 Objectives and 
Project Activity 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 Governance Agreement, and any 
other relevant Supplemental Agreement.
    (b) Stakeholders' Committee. The completed portions of the M&E Plan 
will be presented to the Stakeholders' Committee at the Stakeholders' 
Committee's initial meetings, and any amendments or modifications 
thereto or any additional components of the M&E Plan will be presented 
to the Stakeholders' Committee at appropriate subsequent meetings of 
the Stakeholders' Committee. The Stakeholders' Committee will have 
opportunity to present its suggestions to the M&E Plan, which the 
Steering Committee will take into consideration, as a factor, in its 
review of any amendments to the M&E Plan during the Compact Term. The 
Stakeholders' Committee shall deliver an acknowledgement following its 
review of the M&E Plan and any amendments thereto.
    (c) MCC Disbursement and Re-Disbursement for a Project Activity. 
Unless the Parties otherwise agree in writing, prior to, and as a 
condition precedent to, the initial MCC Disbursement or Re-Disbursement 
with respect to certain Project Activities, the baseline data or 
report, as applicable and as specified in the Disbursement Agreement, 
with respect to such Project or Project Activity must be completed in 
form and substance satisfactory to MCC. 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 the 
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, any

[[Page 42671]]

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. 05-14195 Filed 7-22-05; 8:45 am]
BILLING CODE 9210-01-P