[Federal Register Volume 70, Number 194 (Friday, October 7, 2005)]
[Notices]
[Pages 58900-58939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-20008]



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Part VI





Millennium Challenge Corporation





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Notice of Entering Into a Compact With the Government of Georgia; 
Notice

  Federal Register / Vol. 70, No. 194 / Friday, October 7, 2005 / 
Notices  

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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 05-17]


Notice of Entering Into a Compact With the Government of Georgia

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 Georgia. Representatives of the United States Government and the 
Government of Georgia executed the Compact documents on September 12, 
2005.

    Dated: September 29, 2005.
John C. Mantini,
Acting General Counsel, Millennium Challenge Corporation.

Summary of Millennium Challenge Compact With the Government of Georgia

I. Introduction

    Despite positive developments since the Rose Revolution, Georgia 
has had difficulty in building an integrated national economy, reducing 
poverty, and stimulating economic growth in the regions outside of the 
capital, Tbilisi. These regions, home to more than 40 percent of the 
country's total population, have been particularly affected by 
declining economic conditions, with poverty rising nearly 10 percent 
between 1996 and 2003. This makes them home to the poorest and most 
vulnerable segments of Georgia s population. In some regions, more than 
50 percent of rural households live below the official poverty line.
    Based on the results of an extensive consultative process and 
consideration of other donor programs, the Government of Georgia 
focused its Millennium Challenge Account (MCA) Program on two 
impediments to poverty reduction and economic development in the 
regions outside Tbilisi: a lack of reliable infrastructure and the slow 
development of enterprises, particularly in agribusiness. The Program 
will work to achieve two main objectives, as follows:
     Rehabilitate key regional infrastructure, thus improving 
transportation for regional trade, ensuring a reliable supply of 
energy, and regional and municipal service delivery.
     Develop regional enterprises by funding investment and 
technical assistance and by increasing productivity in farms, 
agribusinesses and other enterprises to increase jobs and rural income.

The five-year, $295.3 million MCA Compact will help Georgia achieve 
these objectives, as outlined below.

II. Program Activities, Costs and Performance

1. Regional Infrastructure Rehabilitation Project

    Dilapidated infrastructure, especially the poor condition of roads, 
unreliable gas and electricity supply, and deteriorating municipal 
services, was consistently indicated as a major impediment to economic 
growth during Georgia's consultative process. Georgia recognizes the 
importance of adequate and reliable infrastructure for manufacturing, 
commerce, improved health services and economic development in general.
    The Regional Infrastructure Rehabilitation Project is designed to 
address chronic infrastructure challenges, with a particular focus on 
rehabilitating key regional transport routes, natural gas transport and 
distribution, and regional and municipal services. Activities under 
this project include:
     Samtskhe-Javakheti Road Rehabilitation activity ($102.2 
million) for the rehabilitation and construction of approximately 245 
kilometers of a main road traversing the isolated Samtskhe-Javakheti 
region, including technical assistance for a road master plan, 
operations and maintenance planning and contracting.
     Energy Rehabilitation activity ($49. 5 million) for the 
rehabilitation of the North-South Gas Pipeline that fuels electric 
power generation and provides commercial and residential gas and 
heating services to the entire country, and for the provision of 
advisory services to support implementation of Georgia's energy sector 
strategy.
     Regional Infrastructure Development activity ($60.0 
million) to fund regional and municipal physical infrastructure for 
water supply, sanitation, irrigation, municipal gasification, roads and 
solid waste in the regions outside Tbilisi.

2. Enterprise Development Project

    Although Georgia has witnessed a significant economic expansion in 
recent years, growth has been concentrated in and around the capital 
city, Tbilisi, while economic conditions in the regions remain 
stagnant. Small and medium enterprises (SMEs) could be a powerful 
driver for economic growth in these areas. However, the performance of 
SMEs has been disappointing. Of particular concern is the agriculture 
sector, which accounts for 16 percent of Georgia's economic output and 
an even larger share of employment. Georgia's diverse climactic zones 
and rich natural resources provide the potential for future development 
of the agriculture and agribusiness sectors, particularly in the 
regions. With increased quantity and quality, Georgian agricultural 
products could better compete with imported food products, thereby 
improving the living standards of the rural poor. Yet businesses face 
problems with poor technology, processing, marketing, management 
skills, and credit access.
    The Enterprise Development Project is designed to address two of 
the key constraints faced by SMEs in agribusiness and other sectors in 
the regions, namely the need for additional long-term risk capital and 
the need for improved skills and capacity in enterprises to recognize 
and take advantage of market opportunities. Activities under this 
project include:
     Georgia Regional Development Fund activity ($32.5 million) 
for a professionally and independently managed investment fund to 
provide long-term risk capital and technical assistance to SMEs, 
primarily in the regions outside Tbilisi, and for activities to 
identify and encourage legal and policy reforms needed to improve the 
investment environment.
     Agribusiness Development activity ($15.0 million) for 
technical assistance and grants to farmers and agribusinesses that 
supply products to the domestic market and the provision of services 
for disseminating information on regional market prices and volumes.

3. Measuring Outcome and Impact

    The Monitoring and Evaluation (M&E) Plan provides the 
methodological approach, management structures, tasks and timelines, 
and performance indicators for monitoring progress toward achieving the 
Compact goal, project objectives, activity outcomes and sub-activity 
outputs. It also provides the framework for evaluating the impact of 
the program on beneficiaries, disaggregated by gender and age, where 
appropriate. The M&E Plan will be complemented by an Activity 
Monitoring Plan to track activity and sub-activity outputs and process 
benchmarks.

[[Page 58901]]

    The overall objective of Georgia's MCA Program is to increase 
economic growth and reduce poverty in the regions of Georgia, with a 
particular emphasis on the Samtskhe-Javakheti region. The Program's 
success will be measured by the incremental increase in financial 
benefits from each activity, as well as reductions in both the poverty 
incidence and the poverty gap in the Samtske-Javakheti region.
    Within five years, it is estimated that the Program will benefit 
nearly half a million Georgians and could indirectly impact the lives 
of a quarter of the population. The Program is also expected to reduce 
the incidence of poverty in the Samtskhe-Javakheti region by 12 
percent. Other benefits include an expected increase of about $37 
million in annual income to households and $27 million in business 
revenue nationwide through the Enterprise Development Project, as well 
as a reduction in technical losses from the gas pipeline from five 
percent to approximately two percent, with a significantly reduced risk 
that a major pipeline accident could cut off critical winter heat to 
hundreds of thousands of households.

4. Program Administration and Control

    The MCA program will be administered by MCG, an independent legal 
entity ultimately accountable for the success of the Program. A 
Supervisory Board consisting of members of Government, parliament, the 
private sector, and civil society will oversee MCG's professional 
management unit. The management unit will also be advised by a 
Stakeholders' Committee consisting of representatives from municipal 
government, the private sector and civil society. MCC will retain 
approval rights at a number of key decision points during 
implementation, including key procurements, project budgets, major re-
disbursements and key personnel decisions, in addition to its observer 
status on the MCG Supervisory Board.
    For the Road Rehabilitation activity, an international project 
management firm will work in conjunction with the Road Department of 
the Ministry of Economic Development in Georgia. For the Energy 
Rehabilitation activity, a project management consultant with 
experience in rehabilitating pipelines will manage the pipeline 
rehabilitation work, in conjunction with the Georgia Gas International 
Company (GGIC). The Municipal Development Fund, the project 
implementation unit for an existing World Bank project, will implement 
the Regional Infrastructure Development activity, with support from the 
World Bank. Independent project managers selected through open and 
transparent international tenders will manage each of the remaining 
projects. A professional firm with substantial prior experience 
conducting non-asset based financing and investment in transitional 
economies or similar business environments will manage the Georgia 
Regional Development Fund activity. The Agribusiness Development 
activity will be managed by a development organization selected 
according to detailed selection criteria developed by MCG, with MCC 
support.
    Fiscal and procurement management will be managed by an 
internationally recognized, private sector accounting firm chosen in a 
competitive process. The Fiscal/Procurement Agent will provide 
professional services for (1) funds control, disbursement documentation 
and management, cash management and accounting; and (2) the planning, 
management and supervision of the procurement processes contemplated 
under the MCA Program. World Bank procurement guidelines, as modified 
by MCC, will serve as the basis of a procurement agreement that will 
govern all procurements under the Compact.

III. Assessment

1. Economic Analysis

    Georgia's MCA Program has an overall economic rate of return (ERR) 
of 17 percent, calculated as a weighted average of each component. The 
base case return on the Samtskhe-Javakheti Road activity is estimated 
to be 20 percent, based on enhanced agricultural surplus and reduced 
vehicle operating costs. The base case return on the Energy 
Rehabilitation activity is estimated to be 11 percent. By 
rehabilitating the North-South Gas Pipeline, it was assumed that 
Georgia could avoid additional expenditures on gas purchases and reap 
returns from selling carbon credits for the reduction of greenhouse gas 
emissions under the United Nations Framework Convention on Climate 
Change. The base case return on the Regional Infrastructure Development 
activity is estimated to be 12 percent, on the assumption that 
improvements in regional and municipal services resulting from improved 
infrastructure would ease bottlenecks that constrain economic activity, 
perpetuate market fragmentation, impose numerous transaction costs on 
business, and lower productivity. The base case return on the Georgia 
Regional Development Fund activity was calculated to be 24 percent. 
This ERR captures economic benefits that include anticipated net 
profit, wages, taxes and payments to local suppliers from the 
enterprises in which the Fund is expected to invest. The base case 
return on the Agribusiness Development activity is estimated to be 12 
percent. The activity's efforts to identify, introduce, and anchor 
appropriate innovations in primary agriculture and agribusiness is 
expected to (1) mitigate problems of incomplete information, credit 
constraints, and risk perceptions and management, leading in turn to 
increased productivity, profitability, and incomes, and (2) facilitate 
and increase meaningful coordination among stakeholders in key 
agricultural value chains, permitting them to take advantage of larger, 
more integrated vertical economies.

2. Consultative Process

    In developing the MCA Program, Georgia engaged in a broad, 
meaningful and participatory consultative process that was unique in 
its recent history. When Georgia was notified of MCA eligibility in May 
2004, the government formed a Millennium Challenge working group, 
representing key Government ministries, parliament, civil society, NGOs 
and private business, to discuss and agree on the priority areas for 
MCA support. This working group identified infrastructure 
rehabilitation and investment in selected industry sectors as priority 
areas, initiated a broad outreach program, and solicited feedback from 
the general public. The working group conducted five regional forums, 
initiated extensive media coverage, and conducted roundtables as part 
of the consultative process. Its outreach effort resulted in more than 
500 specific proposals being submitted to the government, many of them 
reiterating the need for infrastructure rehabilitation and promotion of 
agriculture development.
    More recently, MCG has hired a public outreach officer and has 
begun holding weekly outreach events to keep stakeholders and citizens 
informed. Regular updates of meetings and events are placed on the MCG 
website. Prior to initiating formal negotiations with MCC in June 2005, 
MCG held several all-day forums for stakeholders, NGOs, civil society 
and donor organizations to review and elicit additional feedback on 
each of the proposed activities.

3. Demonstration of Government Commitment

    The MCA Program has received a high degree of financial and other 
support from Georgia's President and Prime

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Minister, the Ministers of Economy, Energy, and Agriculture, and 
members of Parliament. Continued high-level Government involvement is 
assured with the governance structure of the Supervisory Board of MCG, 
chaired by the Prime Minister, and composed of high-level cabinet and 
parliament members and a representative from the President's 
administration.

4. Sustainability

    In the Regional Infrastructure Rehabilitation Project, the key 
issue for sustainability across all the Project Activities will be the 
ability of national and local authorities to provide long term 
maintenance on capital investments. These concerns have been addressed 
in the design of each Project activity through the provision of 
technical assistance, where necessary, to aid local institutions in 
planning and budgeting for the maintenance of roads and municipal 
infrastructure and to enhance their ability to sustain a supportive 
policy environment in the energy sector.
    For the Road, Georgia committed to funding road maintenance in an 
amount appropriate for the existing road network. For the Energy 
Rehabilitation activity, Georgia committed to certain measures to 
address past liabilities and current collection problems of the GGIC, 
the pipeline owner and operator, to help ensure improved cash flow for 
pipeline maintenance once rehabilitation is complete. It has also 
committed not to sell, transfer or pledge the Pipeline and/or a 
controlling interest in GGIC during the Compact's five-year term 
without prior consent from MCC. For the Regional Infrastructure 
Development activity, the operations manual requires that all proposals 
for investment be submitted with a plan for funding operations and 
maintenance (based on a combination of user charges and local and 
national Government budget support). The Government of Georgia will, in 
certain cases, provide a commitment letter evidencing financial support 
in whole or in part for certain projects in certain cities.
    In the Enterprise Development Project, neither the Georgia Regional 
Development Fund (GRDF) activity nor the Agribusiness Development 
activity (ADA) is intended to be fully sustainable beyond Compact 
completion. When the Compact ends, the GRDF will enter a five-year 
``wind down'' phase of asset management and liquidation, with its 
distributions used to support approved charitable, educational or 
social development programs in Georgia. The ADA will cease direct 
operations when the Compact ends. Nonetheless, both Activities are 
expected to enhance business expertise and build successful companies. 
This contributes to sustainability at the individual enterprise level 
and strengthens market mechanisms that will remain long after the 
Compact concludes. In addition, the Activities are expected to increase 
the level of financial investment in the regions, thereby perpetuating 
competitive economic growth.

5. Environmental and Social Impacts

    The Road Rehabilitation activity is a ``Category A'' project. One 
section consists of a significant rehabilitation that will upgrade a 
lightly traveled seasonal road for inter-regional cargo traffic and 
other transport, which may introduce potentially significant negative 
impacts following construction. In addition, there are two new road 
sections, including one that will pass an environmentally-sensitive 
wetland area. MCC has provided 609(g) funding for the development of a 
full Environmental and Social Impact Assessment.
    The Energy Rehabilitation activity is a ``Category B'' project. It 
is expected to impact the environment positively through a significant 
reduction in greenhouse gas emissions and an increase in energy 
reliability that should reduce use of less clean and less safe 
alternative fuels, such as biomass and kerosene. Nevertheless, the 
works would present both an occupational and a public health risk if 
safety precautions are not followed, and some resettlement may be 
required for public safety and rehabilitation needs where encroachment 
onto the pipeline right-of-way has occurred. The Compact requires an 
environmental audit of GGIC, a focused project Environmental Assessment 
to include a resettlement plan framework, and an Environmental 
Management Plan that incorporates health and safety procedures.
    The Regional Infrastructure Development activity is a ``Category 
B'' project although it may fund ``Category A'' activities, In addition 
to the requirement that all funding from the activity be consistent 
with World Bank safeguards and MCC environmental guidelines, the 
Compact requires that the Municipal Development Fund, which will be the 
implementing entity and currently implements a similar World Bank 
project, include an environmental and social impact assessment expert 
on staff.
    Due to the nature of the GRDF, it is not possible to assess 
potential environmental and social impacts at this point. The Compact 
requires that GRDF investments comply with MCC environmental 
guidelines. To help compliance the GRDF manager will be required to 
develop investment guidelines and an environmental review process and 
monitoring check-list. The ADA is a ``Category C'' project. It is not 
likely to have adverse environmental or social impacts. The Compact 
will specify the environmental review criteria for the ADA and describe 
the environmental sustainability principles to be used for agricultural 
and agribusiness technical assistance.

6. Donor Coordination

    The MCA Program complements efforts by other donors currently 
active in Georgia, The MCA Program envisions direct collaboration with 
the World Bank's Municipal Development Fund for the implementation of 
the Infrastructure Facility. Its proposed infrastructure rehabilitation 
activities will complement efforts by the World Bank, EBRD, USAID, KfW 
and other donors that are currently active in road transport, energy, 
and municipal services.
    The Compact's proposed Enterprise Development activities would 
complement the efforts of the World Bank, EBRD, UNDP, USAID, USDA, FAO, 
IFAD DFID, KfW and other donors that are currently active in 
agriculture, financing and business development.

IV. Summary and Conclusion

    The Georgia Program focuses on the rehabilitation of critical 
regional infrastructure and the provision of grants, long-term capital 
and technical assistance to spur the development of enterprises, 
particularly in agribusiness. The Program enjoys broad support from 
civil society and is well coordinated with the goals of the Government 
of Georgia and of other donors.
    The Regional Infrastructure Rehabilitation Project has the 
potential to improve living conditions and the business environment by 
dramatically improving basic services in the regions outside Tbilisi. 
In addition, the Samtskhe-Javakheti Road is intended to integrate more 
fully an isolated ethnic minority population into the greater Georgian 
economy and society. The Enterprise Development Project complements 
these efforts by significantly expanding the reach of advanced training 
in agricultural production, processing, and agribusiness and increasing 
the availability of longer term risk capital to entrepreneurs.
    This Program will have a positive impact on economic growth and 
will

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contribute to the reduction of poverty in Georgia.

Millennium Challenge Compact Between the United States of America 
Acting Through the Millennium Challenge Corporation and the Government 
of Georgia

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
    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: Regional Infrastructure Rehabilitation Project
Schedule 2: Enterprise Development Project
Annex II: Financial Plan Summary
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 Georgia (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 
Georgia as eligible to present to MCC a proposal for the use of 2004 
and 2005 Millennium Challenge Account (``MCA'') assistance to help 
facilitate poverty reduction through economic growth in Georgia;
    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 September 24, 2004 (the ``Proposal'');
    Whereas, the Proposal focused on, among other things, 
rehabilitation of key regional infrastructure and development of 
enterprises in the regions of Georgia;
    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 Georgia towards achieving economic growth and poverty 
reduction;
    Whereas, based on MCC's evaluation of the Proposal and related 
documents and subsequent discussions and negotiations between the 
Parties, the Government and MCC determined to enter into this Compact 
to implement a program using MCC Funding to advance Georgia's progress 
towards economic growth and poverty reduction (the ``Program''); and
    Whereas, the Government has established Millennium Challenge 
Georgia Fund, established pursuant to Presidential Decree No 561, dated 
December 3, 2004, and Ministry of Finance Order No. 796, dated December 
8, 2004 (``MCA-Georgia''), to continue the consultative process and 
implement 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 overall objective of this Compact is 
increased economic growth and poverty reduction in the regions of 
Georgia outside of Tbilisi (``Program Objective''), which is key to 
economic growth and poverty reduction in Georgia (``Compact Goal''). 
The Parties have identified the following project-level objectives 
(each a ``Project Objective'' and together the ``Project Objectives'') 
to advance the Program Objective, each of which is described in more 
detail in the Annexes attached hereto:
    (a) Rehabilitation of key regional infrastructure (the ``Key 
Regional Infrastructure Rehabilitated Objective''); and
    (b) Development of enterprises in regions (the ``Enterprises in 
Regions Developed Objective'').
    (The Program Objective and the individual Project Objectives are 
referred to herein collectively as the ``Objectives'' and each 
individually as an ``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.
    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 each Party has completed its domestic requirements for entry into 
force of this Compact and that all conditions set forth in Section 4.1 
have been satisfied by the Government and MCC (such date, the ``Entry 
into Force''). This Compact shall remain in force for five (5) years 
from the date of the entry into force of this Compact, 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 Two Hundred Ninety-Five Million Three Hundred Thousand United 
States Dollars (USD $295,300,000) (``MCC Funding'') during the Compact 
Term to enable the Government to implement the Program and achieve the 
Objectives.

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    (i) Subject to Sections 2.1(a)(ii), 2.2.(b) and 5.4, 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, 
(1) 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 (2) 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 earn 
(collectively, ``Accrued Interest'') shall be held in a Permitted 
Account and accrue or be earned in accordance with the requirements for 
the earning and 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 in the Permitted Account(s) into which MCC Disbursements 
are made is held 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 Georgia prior 
to Re-Disbursement in accordance with the requirements of Annex I and 
any relevant Supplemental Agreement. To the extent that any amount of 
MCC Funding held in United States Dollars must be converted into the 
currency of Georgia 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.
    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 Georgian governmental authority at a departmental, 
municipal, regional or other jurisdictional level materially 
reallocates or reduces the allocation of its respective budget, of the 
normal and expected resources that the Government or such other 
governmental authority, as applicable, would have otherwise received or 
budgeted, from external or domestic sources, for the activities 
contemplated herein, the Government shall notify MCC in writing within 
fifteen (15) days of such reallocation or reduction, such notification 
to contain information regarding the amount of the reallocation or 
reduction, the affected activities, and an explanation for the 
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 Georgia 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, find 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

[[Page 58905]]

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 or funded 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 Georgian law that 
international cooperation assistance shall be exempt from taxes, all 
Program Assets, MCC Funding and Accrued Interest shall be free from any 
taxes imposed under laws currently or hereafter in effect in Georgia 
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 Georgia, 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 Georgia, or any other tax, duty, 
charge or fee of 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 of Georgia, other 
than MCA-Georgia 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 of Georgia;
    (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 Georgia and who are present 
in Georgia 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 Georgia, 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, Georgia 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 Georgia, within thirty (30) days (or such 
other period as may be agreed in writing by the Parties) after the 
Government is notified in writing according to procedures agreed by the 
Parties, whether by MCC or otherwise, of such levy and tax payment; 
provided, however, the Government shall apply national funds to satisfy 
its obligations under this Section 2.3(e)(iii) and no MCC Funding, 
Accrued Interest, or any assets, goods, or property (real, tangible, or 
intangible) purchased or financed in whole or in part (directly or 
indirectly) by MCC Funding (``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 
Supplemental Agreement or other suitable document the mechanisms for 
implementing this Section 2.3(e), including (1) a formula for 
determining refunds for Taxes paid, the amount of which is not 
susceptible to precise determination, (2) 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)

[[Page 58906]]

of this Section 2.3(e), and (3) any other appropriate Government action 
to facilitate the administration of this Section 2.3(e).
    (v) The Government shall ensure that the tax exemptions provided by 
this Section 2.3(e) shall apply throughout the Compact Term.
    (f) Alteration. The Government shall ensure that neither MCC 
Funding nor Accrued Interest or Program Assets shall be subject to any 
impoundment, rescission, sequestration or any provision of law now or 
hereafter in effect in Georgia 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, nor Program Assets shall be subject to any 
lien (each a ``Lien,'' attachment, enforcement of judgment, pledge, or 
encumbrance of any kind, 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 promptly 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, nor 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 shall be subject to 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 any 
Provider. The term ``Provider'' shall mean (i) MCA-Georgia 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-Georgia) during the Compact Term or such other amount as the 
Parties may agree in writing, whether directly from MCC, indirectly 
through Re-Disbursements, or otherwise.
    (c) In the event the Government or any Provider requires 
clarification from MCC as to whether an activity contemplated to be 
undertaken in furtherance of this Compact violates or may violate any 
provision of Section 2.3, the Government shall notify, 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 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 thirty (30) days (or such other period as may 
be agreed in writing by the Parties) 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, nor 
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 to such account(s) designated by 
MCC the amount of any MCC Funding, plus any Accrued Interest, promptly, 
but in no event later than thirty (30) days after the Government 
receives MCC's request for such refund; provided, 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.

[[Page 58907]]

    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 Georgia, 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 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 agreed 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-Georgia 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 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) cause such person or entity to perform such Designated Rights 
and Responsibilities in the same manner and to the full extent to which 
the Government is obligated to perform such Designated Rights and 
Responsibilities, (ii) ensure that such person or entity does not 
assign, delegate, or contract (or otherwise transfer) any of such 
Designated Rights and Responsibilities to any other person or entity 
and (iii) cause such person or entity to certify to MCC in writing that 
it will so perform such Designated Rights and Responsibilities and will 
not assign, delegate, or contract (or otherwise transfer) any of such 
Designated Rights and Responsibilities to any person or entity without 
the prior written consent of MCC.
    (d) The Government shall, upon a request from MCC, execute, or 
ensure the execution of, an assignment to MCC of any cause of action 
which may accrue to the benefit of the Government, a Government 
Affiliate or any Permitted Designee including MCA-Georgia 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-Georgia 
is modified, supplemented, unduly influenced or rescinded by any 
governmental authority, except by a non-appealable judicial decision or 
any judicial decision which MCA-Georgia, with the agreement of MCC, 
decides not to appeal, and (ii) the authority of MCA-Georgia 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 of 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 
Government 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, correct 
and complete in all material respects and (ii) do not omit any fact 
known to the Government that if disclosed would (1) alter in any 
material respect the information delivered, (2) 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 (3) have likely adversely affected 
MCC's determination to enter into this Compact or any

[[Page 58908]]

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, services or works to be undertaken or funded in 
whole or in part (directly or indirectly) by MCC Funding, except fees, 
taxes, or similar payments legally established in Georgia 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 (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 Designee or (iii) any third 
parties where neither MCC nor the Government is a party, before, on or 
after the Entry into Force of this Compact (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) Internationally accepted procurement rules with open, fair and 
competitive procedures are used in a transparent manner to solicit, 
award and administer contracts, grants, and other agreements and to 
procure goods, services and works;
    (ii) Solicitations for goods, services, and works shall be based 
upon a clear and accurate description of the goods, services or works 
to be acquired;
    (iii) Contracts shall be awarded only to qualified and capable 
contractors that have the capability and willingness to perform the 
contracts in accordance with the terms and conditions of the applicable 
contracts and on a cost effective and timely basis; and
    (iv) No more than a commercially reasonable price, as determined, 
for example, by a comparison of price quotations and market prices, 
shall be paid to procure goods, services, and works.
    (b) The Government shall maintain, and shall use its best efforts 
to ensure that all Providers maintain, records regarding the receipt 
and use of goods, services and works acquired in furtherance of this 
Compact, the nature and extent of solicitations of prospective 
suppliers of goods, services and works acquired in furtherance of this 
Compact, and the basis of award of contracts, grants and other 
agreements in furtherance of this Compact.
    (c) The Government shall use its best efforts to ensure that 
information, including solicitations, regarding procurement, grant and 
other agreement actions funded (or to be funded) in whole or in part 
(directly or indirectly) by MCC Funding shall be made publicly 
available in the manner outlined in the Procurement Guidelines or in 
any other manner agreed upon by the Parties in writing.
    (d) 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-Georgia 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-Georgia 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 or 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 
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, acceptance and use of goods, services and works acquired in 
furtherance of this Compact by the Government and the Providers, 
agreed-upon cost sharing requirements, the nature and extent of 
solicitations of prospective suppliers of goods, services and works 
acquired by the Government and the Providers in furtherance of this 
Compact, the basis of award of Government and other contracts and 
orders in furtherance of this Compact,

[[Page 58909]]

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 (i) prescribed by the International 
Accounting Standards Committee (an affiliate of the International 
Federation of Accountants) or (ii) then prevailing in Georgia. 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, at all reasonable times, shall 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, at all reasonable 
times 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, or select, or cause to be selected, an auditor named on the 
approved list of auditors in accordance with the Guidelines for 
Financial Audits Contracted by Foreign Recipients (the ``Audit 
Guidelines'') issued by the Inspector General of the United States 
Agency for International Development (the ``Inspector General''), and 
as approved by MCC, to conduct such annual audits. Such audits shall be 
performed in accordance with such Guidelines and be subject to quality 
assurance oversight by the Inspector General in accordance with such 
Guidelines. An audit shall be completed no later than 90 days after the 
first anniversary of the Entry into Force of this Compact and no later 
than 90 days after each anniversary of the Entry into Force of this 
Compact 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 nonprofit organization, on the other 
hand, state that the United States organization is subject to the 
applicable audit requirements contained in OMB Circular A-133, 
notwithstanding any other provision of this Compact to the contrary. 
The Government shall ensure that Supplemental Agreements between the 
Government or any Provider, on the one hand, and a United States for-
profit Covered Provider, on the other hand, state that the United 
States organization is subject to audit by the cognizant United States 
Government agency, unless the Government and MCC agree otherwise in 
writing.
    (iii) Audit Plan. The Government shall submit, or cause to be 
submitted, to MCC, no later than twenty (20) days prior to the date of 
its adoption, in form and substance satisfactory to MCC, 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 MCA-Georgia, the Government shall adopt, or cause to be 
adopted, no later than sixty (60) days prior to the end of the first 
anniversary of the Entry into Force of this Compact or prior to the end 
of the first period to be audited.
    (iv) Covered Provider. A ``Covered Provider'' is (1) 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-
Georgia 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 other party's fiscal year or (2) 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-Georgia 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 any 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

[[Page 58910]]

Designee or any of their respective directors, officers, employees, 
Affiliates, contractors, sub-contractors, grantees, sub-grantees, 
representatives or agents (each, a ``Government Party''), on the one 
hand, and a Covered Provider that is not a non-profit organization 
domiciled in the United States, on the other hand;
    (ii) Paragraphs (a), (b), (c), (d)(ii), and (d)(viii) of this 
Section 3.8 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 non-profit organization 
domiciled in the United States.
    (f) Reviews or Evaluations. The Government shall conduct, or cause 
to be conducted, such performance reviews, data quality reviews, 
environmental 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 finance 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. 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-Georgia shall be named as the insured party on any such 
insurance and the beneficiary of any 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 or works; provided, 
however, at MCC's election, such proceeds shall be deposited in a 
Permitted Account as designated by MCA-Georgia and acceptable to MCC or 
otherwise as directed by MCC. To the extent MCA-Georgia is held liable 
under any indemnification or other similar provision of any agreement 
between MCA-Georgia, 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-Georgia 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 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 
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 Georgia toward achieving the Compact Goal 
and Objectives;
    (e) A description of the extent to which MCC Funding has been 
effective in helping Georgia 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 written statement as to the 
incumbency and specimen signature of the Principal Representative and 
each Additional Representative 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) The Government shall deliver a letter signed and dated by the 
Principal Representative of the Government certifying:
    (i) That the Government has completed all of its domestic 
requirements for this Compact to be fully enforceable under Georgian 
law; and
    (ii) That attached thereto are true, correct and complete copies of 
any decree, legislation, regulation or other governmental document 
relating to its domestic requirements for this Compact to enter into 
force, which MCC may post

[[Page 58911]]

on its website or otherwise make publicly available.
    (f) The Government shall have amended the Charter of MCA-Georgia to 
the satisfaction of MCC to provide for, among other things, waiver of 
control by the state controlling body over the operations and 
management of MCA-Georgia.
    (g) MCC shall deliver a letter signed and dated by the Principal 
Representative of MCC certifying that MCC has completed its domestic 
requirements for this Compact to enter into force.
    (h) MCC shall deliver a written statement as to the incumbency and 
specimen signature of the Principal Representative and each Additional 
Representative executing any document under this Compact such written 
statement to be signed by a duly authorized officer of MCC 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 Programs (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, Email: 
[email protected] (Vice President for Country Programs); 
[email protected] (Vice President and General Counsel)
    To the Government:
    Office of the Prime Minister, Attention: Prime Minister, 7 Pavle 
Ingorokva Str., Tbilisi, 0134 Tbilisi Georgia, Tel: (995-32) 92-22-43, 
Fax: (995-32) 92-10-69
    With a copy to:
    Chief Executive Officer, Millennium Challenge Georgia Fund, 4 
Sanapiro St.,Tbilisi, 0105 Georgia, Tel: (995-32) 93-91-12; 93-91-13; 
93-91-33, Fax: (995-32) 93-91-44, Email: [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.
    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, Prime Minister of Georgia, and MCC shall be represented by 
the individual holding the position of, or acting as, Vice President 
for Country Programs (each, a ``Principal Representative''), each of 
whom, by written notice, 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 and subject to the domestic approval requirements to which this 
Compact was subject.
    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 Georgia 
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 Georgia 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 any 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 (1) materially 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; (2) fails to contribute or provide the amount, 
level, type and quality of resources

[[Page 58912]]

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 (3) 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, grantees, sub-grantees, representatives or agents, is 
found to have been convicted of a narcotics offense or to have been 
engaged in drug trafficking;
    (ix) Any MCC Funding or Program Assets are applied (directly or 
indirectly) to the provision of resources and support to, individuals 
and organizations associated with terrorism, sex trafficking or 
prostitution;
    (x) An event or condition of any character has occurred that: (1) 
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; (2) makes it improbable that the 
Objectives will be achieved during the Compact Term; (3) materially and 
adversely affects the Program Assets or any Permitted Account; or (4) 
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 thereof;
    (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;
    (xii) There has occurred a failure to meet a condition precedent or 
series of conditions precedent or any other requirements or conditions 
in connection with MCC Disbursement as set out in and in accordance 
with any Supplemental Agreement between the Parties; or (xiii) Any MCC 
Funding, Accrued Interest or Program Asset becomes subject to a Lien 
without the prior approval of MCC, and the Government fails to (i) 
obtain the release of such Lien and (ii) pay solely with national funds 
(and not with MCC Funding, Accrued Interest or Program Assets) any 
amounts owed to obtain such release, all within 30 days after the 
imposition of such Lien.
    (c) MCC may reinstate any suspended or terminated MCC Funding under 
this Compact or any Supplemental Agreement if MCC determines, in its 
sole discretion, that the Government or other relevant party has 
demonstrated a commitment to correcting each condition for which MCC 
Funding was suspended or terminated.
    (d) The authority 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, 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 noncancelable 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 
noncancelable commitments related to the suspended or terminated MCC 
Funding. Any portion of this Compact or any such Supplemental Agreement 
that is not suspended or terminated shall remain in full force and 
effect.
    (g) Upon the full or partial suspension or termination of this 
Compact or any MCC Funding, MCC may, at its expense, direct that title 
to 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).
    (h) Prior to the expiration of this Compact or upon the termination 
of this Compact, the Parties shall consult in good faith with a view to 
reaching an agreement in writing on (i) the post-Compact Term treatment 
of MCA-Georgia, (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 nor 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 Georgia 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, including individuals detailed to or contracted by 
MCC, and the members of the families of such personnel, while such 
personnel are performing duties in Georgia, 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, 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 Georgia.
    Section 5.6 Attachments. Any annex, schedule, exhibit, table, 
appendix or other attachment expressly attached hereto (collectively, 
the ``Attachments'') is incorporated herein by reference and shall 
constitute an integral part of this Compact.
    Section 5.7 Inconsistencies.
    (a) Conflicts or inconsistencies between any parts of this Compact 
shall be resolved by applying the following descending order of 
precedence:
    (i) Articles I through V; and
    (ii) Any Attachments.

[[Page 58913]]

    (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, 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 or 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, for the purposes of this 
Compact, mean any branch, agency, bureau, 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 Georgia.

[[Page 58914]]

    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 Government 
shall give appropriate publicity to this Compact as a program to which 
the United States, through MCC, has contributed, including by posting 
this Compact, and any amendments thereto, on the MCA-Georgia Website, 
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-
Georgia Website.
    In Witness Whereof, the undersigned, duly authorized by their 
respective governments, have signed this Compact this 12th day of 
September, 2005 and this Compact shall enter into force in accordance 
with Section 1.3.
    Done at New York, NY in the English language.
    For the United States of America, acting through the Millennium 
Challenge Corporation, Name: Charles O. Sethness, Title: Vice 
President.
    For the Government of Georgia, Name: Salome Zourabichvili, Title: 
Minister of Foreign Affairs of Georgia.

Exhibit A--Compendium of Defined Terms

    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.
    ADA means the Agribusiness Development Activity, a Project Activity 
under the Enterprise Development Project described in Section 2(b) of 
Schedule 2 of Annex I.
    ADA Manager means the manager who will be selected to set up and 
manage the Agribusiness Development Activity.
    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, officers, employees, 
affiliates, contractors, sub-contractors, grantees, sub-grantees, 
representatives, and agents.
    Agreed Standards shall have the meaning set forth in Section 
6(a)(ii)(4)(A) of Schedule 1 of Annex I.
    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.
    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-Georgia 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 audit, 
review or evaluation and other appropriate terms and conditions such as 
payment of the Auditor or Reviewer.
    Bank(s) means each individually and collectively, any bank holding 
an account referenced in Section 4(d) of Annex I.
    Bank Agreement means an agreement between MCA-Georgia 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.
    Chair means the Chair of the Supervisory Board.
    Chief Executive Officer means the Chief Executive Officer of MCA-
Georgia.
    Civil Observer is a representative of civil society nominated by 
the Stakeholders' Committee (as described in Section 3(d)(ii)(2)(B)(ii) 
of Annex I) to serve as a non-voting Observer on the Supervisory Board.
    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 Georgia.
    Compact Goal means advancing economic growth and poverty reduction 
in Georgia.
    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 shall have the meaning set forth in Section 
3.8(d)(iv).
    Designated Rights and Responsibilities shall have the meaning set 
forth in Section 3.2(c).
    Detailed Financial Plan means the financial plans that detail the 
annual and quarterly budget and projected cash requirements for the 
Program (including 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-
Georgia 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-Georgia.
    EBRD means European Bank for Reconstruction and Development.
    Eligible Governmental Entity means each regional government, local 
government, local self-government, municipal utility or the central 
government (to the extent that it owns or operates assets in the 
Regions) that

[[Page 58915]]

will receive RID Grants under a sub-activity of the Regional 
Infrastructure Development Activity as described in Section 2(c)(i) of 
Schedule 2 of Annex I.
    Energy Advisorsmeans the firm(s) that will be engaged to support 
the Ministry of Energy under a sub-activity of the Energy 
Rehabilitation Activity described in Section 2(b) of Schedule 1of Annex 
I.
    Energy Rehabilitation Activity is the Project Activity related to 
energy rehabilitation described in Section 2(b) of Schedule 1 of Annex 
I.
    Enterprise Development Project is the project described in Schedule 
2 of Annex I, that the Parties intend to implement in furtherance of 
the Enterprises in Regions Developed Objective.
    Enterprises in Regions Developed Objective is the Project Objective 
of the Enterprise Development Project.
    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.
    ESI Manager means the environmental and social impact manager 
described in Section 5 of Schedule 1 of Annex 1.
    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 shall have the meaning set forth in Section 2.3(e)(ii).
    Final Evaluation shall have the meaning set forth in Section 3(a) 
of Annex III.
    Final Fund Documents shall have the meaning set forth in Section 
2(a)(i) of Schedule 2 of Annex I.
    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.
    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-Georgia 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.
    GEL means Georgian Lari.
    Georgia Regional Development Fund is an independently managed 
investment fund that will be created under the Investment Fund Activity 
of the Enterprise Development Project.
    GGIC means Georgia Gas International Corporation.
    Governance Regulations means the governance regulations promulgated 
in furtherance of the Compact and applicable law, which shall be in a 
form and substance satisfactory to MCC and which specify how MCA-
Georgia shall be organized and what its roles and responsibilities are.
    Government means the Government of Georgia.
    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 Board Members are the government members identified in 
Section 3(d)(ii)(2)(A)(i-ii) of Annex I serving as voting members on 
the Supervisory Board, and any replacements thereof in accordance with 
Section 3(d)(ii)(2)(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).
    GRDF means the Georgia Regional Development Fund as described in 
Section 2 of Schedule 2 of Annex I.
    GRDF Governing Board means the governing board of the GRDF.
    IFAD means the International Fund for Agricultural Development.
    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 Financial Plan, (ii) a Fiscal 
Accountability Plan, (iii) a Procurement Plan, (iv) Program and Project 
Work Plans, and (v) an M&E Plan.
    Implementing Entity means a Government agency, nongovernmental 
organization or other public-or private-sector entity or persons to 
which MCA-Georgia 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-Georgia 
(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.
    Indicative Term Sheet is a term sheet containing the indicative 
proposed terms of the GRDF as described in Section 2 of Schedule 2 of 
Annex I.
    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.
    Inspector General means the Inspector General of the United States 
Agency for International Development.
    Investment Committee is a committee of the GRDF as described in 
Section 2 of Schedule 2 of Annex I.
    Investment Manager is the manager that will manage the GRDF as 
described in Section 2 of Schedule 2 of Annex I.
    Investment Period means the investment period of the GRDF, which 
shall run for five years from the Entry into Force, subject to an 
earlier termination upon termination of the Compact as described in 
Section 2 of Schedule 2 of Annex I.
    Key Regional Infrastructure Rehabilitated Objective is the Project 
Objective of the Regional Infrastructure Rehabilitation Project.
    KfW means Kreditanstalt fur Wiederaufbau.
    Lien means any lien, attachment, enforcement of judgment, pledge, 
or encumbrance of any kind.

[[Page 58916]]

    Local Account is an interest-bearing local currency of Georgia 
account at the commercial 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 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 Team means the management team of MCA-Georgia to have 
overall management responsibility for the implementation of this 
Compact and further described in Section 3(d)(iii) of Annex I.
    Material Agreement shall have the meaning set forth in Section 
3(c)(i)(3) of Annex I.
    Material Re-Disbursement means any Re-Disbursement that requires 
MCC approval under applicable law, the Governance Regulations, the 
Procurement Agreement, Procurement Guidelines, or any Supplemental 
Agreement.
    Material Terms of Reference means any terms of reference for the 
procurement of goods, services or works that require MCC approval under 
applicable law, the Governance Regulations, the Procurement Agreement, 
Procurement Guidelines, or any Supplemental Agreement.
    MCA means the 2004 and 2005 Millennium Challenge Account.
    MCA-Georgia shall have the meaning set forth in the Recitals.
    MCA-Georgia Website means the website operated by MCA-Georgia.
    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) of this Compact.
    MCC Disbursement Request means the applicable request that the 
Government and MCA-Georgia will jointly submit for an MCC Disbursement 
as may be specified in the Disbursement Agreement.
    MCC Funding shall have the meaning set forth in Section 2.1(a).
    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 Supervisory Board.
    MDDPII means the World Bank's Municipal Development and 
Decentralization Project II.
    MDF means the Municipal Development Fund, an entity that will 
implement the Regional Infrastructure Development Activity and further 
described in Section 2(c)(iv) of Schedule 1 of Annex I.
    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.
    Multi-Year Financial Plan Summary means a multi-year Financial plan 
summary attached to this Compact as Exhibit A of Annex II.
    Non-Transfer Condition shall have the meaning set forth in Section 
6(a)(ii)(3) of Schedule 1 of Annex I.
    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 Key Regional Infrastructure Rehabilitated 
Objective and (b) the Enterprises in Regions Developed 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 Supervisory Board.
    OPIC means the Overseas Private Investment Corporation.
    Outside Project Manager means the qualified persons or entities 
engaged by MCA-Georgia, to serve as outside project managers in 
accordance with Section 3(e) of Annex I.
    Parliament Board Member is the member of Parliament identified in 
Section 3(d)(ii)(2)(A)(iii) of Annex I serving as voting members on the 
Supervisory Board, and any replacements thereof in accordance with 
Section 3(d)(ii)(A) 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.
    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).
    Permitted SMEs shall have the meaning set forth in Section 
2(a)(i)(3) of Schedule 2 of Annex I.
    Pipeline means the north-south gas pipeline which is Georgia's main 
trunkline for the transmission of natural gas.
    Pledge means any pledge of any MCC Funding or any Program Assets, 
or any guarantee (directly or indirectly) of any indebtedness.
    Portfolio Company TA Facility means the Portfolio Company Technical 
Assistance Facility and further described in Section 2(a)(ii) of 
Schedule 2 of Annex I.
    Principal Representative means (i) for the Government, the 
individual holding the position of, or acting as, the Prime Minister of 
Georgia, and (ii) for MCC, the individual holding the position of, or 
acting as, the Vice President for Country Programs.
    Procurement Agent(s) are the procurement agents that MCA-Georgia 
will engage to carry out and/or certify specified procurement 
activities in furtherance of this Compact on behalf of the Government, 
MCA-Georgia, any Outside Project Manager or Implementing Entity.
    Procurement Agent Agreement is the agreement that MCA-Georgia 
enters into with the Procurement Agent, in form and substance 
satisfactory to MCC, that sets forth the roles and responsibilities of 
the Procurement Agent with respect to the conduct, monitoring and 
review of procurements and other appropriate terms and conditions, such 
as payment of the Procurement Agent.
    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-Georgia, 
which plan shall forecast the upcoming six month procurement activities 
and be updated every six months.
    Program means a program, to be implemented under this Compact, 
using MCC Funding to advance Georgia'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

[[Page 58917]]

in Georgia during the Compact Term and the results to be achieved from 
the investment of MCC Funding.
    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.
    Program Objective means the overall objective of this Compact, 
which is to increase economic growth and poverty reduction in the 
regions of Georgia outside of Tbilisi, which is key to advancing the 
Compact Goal.
    Project(s) are the Regional Infrastructure Rehabilitation Project 
and the Enterprise Development Project, 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 the outcomes of each Project 
Activity, which are described in more detail in Annex III.
    Project Activity Outcome Indicator is an indicator that will 
measure the intermediate results achieved under each of the Project 
Activities, each of which is described in more detail Annex III.
    Project Objective(s) means the project-level objectives that will 
advance the program objective, each of which is described in more 
detail in Annex III.
    Project Road means each of several sub-activities of the Road 
Rehabilitation Activity described in Section 2(a) of Schedule 1 of 
Annex I.
    Proposal is the proposal for use of MCA assistance submitted to MCC 
by the Government on September 24, 2004.
    Provider shall have the meaning set forth in Section 2.4(b).
    PRSP is the Poverty Reduction Strategy that Georgia developed in 
2003 that describes the macroeconomic, structural and social policies 
and programs needed to boost economic growth and reduce rates of 
extreme poverty.
    RDMED means the Road Department of the Ministry of Economic 
Development.
    Re-Disbursement is the release of MCC Funding from a Permitted 
Account.
    Regional Infrastructure Development Activity is the Project 
Activity described in Section 2(c) of Schedule 1 of Annex I under the 
Regional Infrastructure Rehabilitation Project.
    Regional Infrastructure Rehabilitation Project is the Project 
described in Schedule 1 of Annex I, that the Parties intend to 
implement in furtherance of the Key Regional Infrastructure 
Rehabilitated Objective.
    Regions means regions outside the capital city of Tbilisi.
    Reviewer shall have the meaning set forth in Section 3(h) of Annex 
I.
    RID Grants are the grants that will be made to Eligible 
Governmental Entities under a sub-activity of the Regional 
Infrastructure Development Activity, as described in Section 2(c)(i) of 
Schedule 1 of Annex I.
    RID Operations Manual is an operations manual of the Regional 
Infrastructure Development Activity and further described in Section 
2(c)(iii) of Schedule 1 of Annex I.
    RID Projects are projects of the Regional Infrastructure 
Development Activity and described in Section 2(c)(i) of Schedule 1 to 
Annex I.
    Road Rehabilitation Activity is the Samtskhe-Javakheti Road Project 
Activity described in Section 2(a) of Schedule 1 of Annex I.
    Rural Enterprise Grants are grants that will be given to groups of 
farmers and to private enterprises under the Agribusiness Development 
Activity as described in Section 2(b)(iii) of Schedule 2 of Annex I.
    Service Providers are third-party consultants and other service 
providers.
    SMEs means small and medium enterprises.
    Special Account means a single, completely separate U.S. Dollar 
interest-bearing account at a commercial bank to receive MCC 
Disbursements.
    Stakeholders' Committee means the committee of MCA-Georgia to 
provide feedback on Program activities to the Supervisory Board and the 
Management Team and further described in Section 3(d)(iv) of Annex I.
    Strategic Vision means the Government's Strategic Vision and Urgent 
Financing priorities, 2004-2006.
    Supervisory Board means the independent board of directors of MCA-
Georgia to oversee MCA-Georgia's responsibilities and obligations under 
this Compact and further described in Section 3(d)(ii) of Annex I.
    Supplemental Agreement shall have the meaning set forth in Section 
3.5(b).
    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).
    UNDP means the United Nations Development Programme.
    USAID means the United States Agency for International Development.
    USDA means the United States Department of Agriculture.
    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.
    Voting Members are the voting members on the Supervisory Board 
described in Section 3(d)(ii)(2) of Annex I.
    Work Plans means work plans for the overall administration of the 
Program and for each Project.

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 Georgia during 
the Compact Term and the results to be achieved from the investment of 
MCC Funding. Prior to any MCC Disbursement or Re-Disbursement, 
including for the Projects described herein, MCC, the Government (or a 
mutually acceptable Government Affiliate) and MCA-Georgia 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-Georgia (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

[[Page 58918]]

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; Consultative Process

    (a) Background and Georgia Development Strategy. Since the collapse 
of the Soviet Union, Georgia has faced regional instability, civil 
conflict, deterioration of infrastructure, decline of enterprises and 
investments, and a decrease in human productivity. Since the Rose 
Revolution in November 2003, the Government has taken decisive steps to 
promote stability, good government and private enterprise development. 
Georgia is working to build a stronger, more integrated national 
economy and to stimulate economic growth in the regions outside the 
capital city of Tbilisi (the ``Regions''), where poor infrastructure 
and a poor business environment represent major obstacles to 
development. Rural Georgia has been affected by rising poverty and weak 
economic growth. More than 2 million people, or about 40% of the 
country's total population, live in the Regions, and poverty in rural 
Georgia grew by 16% per year, rising from 13.4% in 1997 to 20.9% in 
2000. In some parts of the Regions, more than 50% of rural households 
live below the official poverty line.
    Georgia's 2003 Poverty Reduction Strategy Paper (``PRSP'') 
describes the macroeconomic, structural and social policies and 
programs needed to boost economic growth and reduce rates of extreme 
poverty. Among its priorities, the PRSP specifically targets the 
development of priority sectors of the economy, namely energy, 
transport, communications, agriculture and tourism. These sectors are 
vital to the functioning of a sound economy. The PRSP notes that 
poverty in the Regions is closely tied to the lack of financial 
resources and the underdevelopment of infrastructure, which together 
reduce the ability of the poor to access jobs and services such as 
energy, healthcare, and education. In June 2004, the Government 
presented its Strategic Vision and Urgent Financing Priorities, 2004-
2006 (``Strategic Vision'') to the Donor's Conference in Brussels. The 
Strategic Vision reinforces the priorities set out in the PRSP, with 
five main areas of action. Of particular note among them are efforts to 
rehabilitate the energy sector, stimulate private sector development, 
and promote sustainable development in the Regions through a focus on 
infrastructure, trade and transport and agriculture.
    The PRSP and the Strategic Vision served as the foundation from 
which the Government launched a broad consultative effort to develop 
the MCC Proposal.
    (b) Consultative Process. Building on the PRSP process, the 
consultative process for developing the MCC Proposal involved several 
steps. Shortly after being informed of its eligibility for MCA funding, 
the Government developed a list of priority areas for economic 
development and began soliciting feedback from a wide variety of civil 
society actors. MCA-Georgia organized eight community roundtable 
sessions, including one in each of Georgia's five regions, one with the 
country's business community, and two with a cross-section of non-
governmental organizations (NGOs). MCA-Georgia also sponsored public 
comment boxes, television advertisements, radio and television talk 
show programs, brochures and a documentary film. This public outreach 
generated 2,100 calls, 1,500 web hits, 500 walk-ins, and 400 e-mails 
and ultimately resulted in 531 specific proposals and more than 140 
written inquiries. Following initial outreach, MCA-Georgia staff 
prioritized specific proposals on the basis of their likely economic 
impact, role in reducing poverty and connection to policy reform goals. 
MCA-Georgia found a strong consensus in favor of interventions in 
agriculture and food processing, infrastructure and tourism, areas 
around which an initial Proposal was then developed. MCA-Georgia posted 
an abridged proposal on its website, appointed a public outreach 
officer and continued to hold public outreach sessions. In March 2005, 
MCA-Georgia held a public meeting for small and medium enterprises with 
the Georgian Federation of Businesses, then reached out in April to 
explain its proposal for the Samtskhe-Javakheti road, gas supply 
pipeline, and the regional infrastructure development facility directly 
to stakeholders in those project activities.

2. Overview

    (a) Program Objectives. The Program involves a series of specific 
and complementary interventions that the Parties expect will achieve 
the Program Objective of increased economic growth and poverty 
reduction in the regions of Georgia and the Project Objectives of 
rehabilitating key regional infrastructure and developing enterprises 
in the Regions.
    (b) Projects. The Parties have identified, for each Objective, 
Projects that they intend for the Government to implement, or cause to 
be implemented, using MCC Funding, each of which 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''). Notwithstanding anything to the 
contrary in this Compact, the Parties may agree to amend, terminate or 
suspend these Projects or Project Activities or create a new project by 
written agreement signed by the Principal Representative of each Party 
without amending this Compact; provided, however, any such amendment of 
a Project or Project Activity 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.
    (c) Beneficiaries. The intended beneficiaries of each Project are 
described in the respective Schedule to this Program Annex 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 Parties shall agree upon the 
description of the intended beneficiaries of the Program, including 
publishing such description on the website operated by MCA-Georgia.
    (d) Civil Society. Civil society will participate in overseeing the 
implementation of the Program through its representation through an 
Observer to the Supervisory Board and through the role of the 
Stakeholders' Committee, as provided in Section 3(d) of this Program 
Annex. In addition, the Work Plans and/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 Activity.
    (e) Monitoring and Evaluation. Annex III of this Compact generally 
describes the plan to measure and evaluate progress toward achievement 
of the Objectives of this Compact (the ``M&E Plan''). As outlined in 
the Disbursement Agreement and other Supplemental Agreements, continued 
payment of MCC Funding under this Compact will be contingent on 
successful achievement of targets set forth in the M&E Plan.

[[Page 58919]]

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 Financial Plan, a Fiscal 
Accountability Plan, a Procurement Plan, Program and Project Work 
Plans, and an M&E Plan. MCA-Georgia 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-
Georgia 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-Georgia 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. 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, procedural changes and 
contractual arrangements as may be necessary or appropriate to achieve 
the Objectives, to successfully implement the Program, and to establish 
a legal entity, in a form mutually agreeable to the Parties, MCA-
Georgia, which shall be responsible for the oversight and management of 
the implementation of this Compact on behalf of the Government. The 
Government shall ensure that MCA-Georgia is duly authorized and 
sufficiently organized, staffed and empowered to fully carry out the 
Designated Rights and Responsibilities. Without limiting the generality 
of the preceding sentence, MCA-Georgia 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 and in applicable law and in governance regulations 
promulgated in furtherance thereof (``Governance Regulations''), which 
shall be in a form and substance satisfactory to MCC; provided, 
however, the Government may, subject to MCC approval, carry out any of 
the roles and responsibilities designated to be carried out by MCA-
Georgia and described in Section 3(d) of this Program Annex or 
elsewhere in this Program Annex, applicable law, the Governance 
Regulations, or any Supplemental Agreement prior to and during the 
initial period of the establishment and staffing of MCA-Georgia, but in 
no event longer than the earlier of (i) the formation of the 
Supervisory Board and the engagement of each of the Officers and (ii) 
six months from the Entry into Force, unless otherwise agreed by the 
Parties in writing.
    (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) The Financial Plan and any amendments and supplements thereto;
    (3) Agreements (i) between the Government and MCA-Georgia, (ii) 
between the Government, MCA-Georgia or other Government Affiliate, on 
the one hand, and any Provider or Affiliate of a Provider, on the other 
hand, which require such MCC approval under applicable law, the 
Governance Regulations, the Procurement Agreement, Procurement 
Guidelines or any Supplemental Agreement, or (iii) in which the 
Government, MCA-Georgia or other Government Affiliate appoints, hires 
or engages any of the following in furtherance of this Compact:
    (A) Auditor;
    (B) Fiscal Agent;
    (C) Bank;
    (D) Procurement Agent;
    (E) Outside Project Manager;
    (F) Implementing Entity; and
    (G) Director, Observer, Officer and/or other key employee or 
contractor of MCA-Georgia, including any compensation for such person.

(Any agreement described in clause (i) through (iii) of this Section 
3(c)(i)(3) and any amendments and supplements thereto, each, a 
``Material Agreement'');

    (4) 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;
    (5) Any agreement that is (i) not at arm's length or (ii) with a 
party related to the Government, including MCA-Georgia, or any of their 
respective Affiliates;
    (6) Any Re-Disbursement (each, a ``Material Re-Disbursement'') that 
requires such MCC approval under applicable law, the Governance 
Regulations, the Procurement Agreement, Procurement Guidelines or any 
Supplemental Agreement;
    (7) Terms of reference for the procurement of goods, services or 
works that require such MCC approval under applicable law, the 
Governance Regulations, the Procurement Agreement, Procurement 
Guidelines or any Supplemental Agreement (each, a ``Material Terms of 
Reference'');
    (8) The Implementation Plan, including each component plan thereto, 
and any material amendments and supplements to the Implementation Plan 
or any component thereto;
    (9) Any pledge of any MCC Funding or any Program Assets or any 
guarantee (directly or indirectly) of any indebtedness (each, a 
``Pledge'');
    (10) Any decree, legislation, contractual arrangement or other 
document establishing or governing MCA-Georgia, including the 
Governance Regulations, and any disposition (in whole or in part), 
liquidation, dissolution, winding up, reorganization or other change of 
(A) MCA-Georgia, including any revocation or modification of, or 
supplement to, any decree, legislation, contractual arrangement or 
other document establishing MCA-Georgia, or (B) any subsidiary or 
Affiliate of MCA-Georgia;
    (11) Any change in character or location of any Permitted Account;
    (12) Formation or acquisition of any subsidiary (direct or 
indirect) or other Affiliate of MCA-Georgia;

[[Page 58920]]

    (13) Any (A) change of a Director, Observer, Officer or other key 
employee or contractor of MCA-Georgia, or in the composition of the 
Supervisory Board, including approval of the nominee for Chair, or (B) 
filling of any vacant seat of the Chair, a Director or an Observer or 
vacant position of an Officer or other key employee or contractor of 
MCA-Georgia;
    (14) The management information system to be developed and 
maintained by the Management Team of MCA-Georgia, and any material 
modifications to such system;
    (15) Any decision to amend, supplement, replace, terminate or 
otherwise change any of the foregoing; and
    (16) Any other activity, agreement, document or transaction 
requiring the approval of MCC in this Compact, applicable law, the 
Governance Regulations, the Procurement Agreement, Procurement 
Guidelines, the Disbursement Agreement, or any other Supplemental 
Agreement between the Parties.
    The Chair of the Supervisory Board (the ``Chair'') and/or the Chief 
Executive Officer of MCA-Georgia (the ``Chief Executive Officer'') or 
other designated officer, as provided in applicable law and the 
Governance Regulations, 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'').
    (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 Supervisory Board. MCC retains the right to revoke its 
approval of a matter if MCC concludes that its approval was issued on 
the basis of incomplete, inaccurate or misleading information furnished 
by the Government or MCA-Georgia.
    (d) MCA-Georgia.
    (i) General. Unless otherwise agreed by the Parties in writing, 
MCA-Georgia shall be responsible for the oversight and management of 
the implementation of this Compact. MCA-Georgia shall be governed by 
the terms and conditions set forth in applicable law and in the 
Governance Regulations based on the following principles:
    (1) The Government shall ensure that MCA-Georgia shall not assign, 
delegate or contract any of the Designated Rights and Responsibilities 
without the prior written consent of the Government and MCC. MCA-
Georgia shall not establish any Affiliates or subsidiaries (direct or 
indirect) without the prior written consent of the Government and MCC; 
and
    (2) Unless otherwise agreed by the Parties in writing, MCA-Georgia 
shall consist of (A) an independent board of directors (the 
``Supervisory Board'') to oversee MCA-Georgia's responsibilities and 
obligations under this Compact (including any Designated Rights and 
Responsibilities), (B) a management team (the ``Management Team'') to 
have overall management responsibility for the implementation of this 
Compact, and (C) a Stakeholders' Committee to provide feedback on 
Program activities to the Supervisory Board and the Management Team.
    (ii) Supervisory Board.
    (1) Formation. The Government shall ensure that the Supervisory 
Board shall be formed, constituted, governed, maintained and operated 
in accordance with applicable law and the terms and conditions set 
forth in this Section 3(d), the Governance Regulations and relevant 
Supplemental Agreements. As a condition for Entry into Force, the 
Government shall have amended the charter of MCA-Georgia, to the 
satisfaction of MCC, to provide for waiver of the control of the State 
Controlling Body over the management and operations of MCA-Georgia. The 
charter of MCA-Georgia shall also be amended to reflect the composition 
of the Supervisory Board.
    (2) Composition. Unless otherwise agreed by the Parties in writing, 
the Supervisory Board shall consist of (i) eight (8) voting members 
(the ``Voting Members''), (ii) the Chief Executive of MCA-Georgia, who 
shall be a non-voting member, and (iii) two (2) non-voting observers 
(the ``Observers''), each of which must be acceptable to MCC, taking 
into consideration appropriate gender and ethnic representation.
    (A) The Voting Members shall be as follows:
    (i) Three (3) members of the executive branch of Government 
representing Ministries of the Government (one of whom shall be the 
Prime Minister);
    (ii) One (1) member who shall be the head of the President's 
administration (together with the three members listed in (i) above, 
the ``Government Board Members'');
    (iii) Two (2) members of Parliament (``Parliament Board Member'');
    (iv) One (1) representative of a civil society organization; and
    (v) One (1) representative from the business sector.
    The following provisions apply to the Voting Members:
    a. The Voting Members may, by a majority vote, expand the 
Supervisory Board with the approval of MCC;
    b. Each Government Board Member may be replaced by another 
government official, subject to approval by the Government and MCC;
    c. Subject to the Governance Agreement, the Parties contemplate 
that the Prime Minister shall initially fill the seat of Chair; and
    d. Each Government Board 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 a Government Board 
Member or a Parliament Board Member is unable to participate in a 
meeting of the Supervisory Board such member's principal deputy or 
equivalent (or in the case of a Parliament Board Member, another member 
of Parliament) may participate in the member's stead.
    (B) The Observers shall be:
    (i) A representative (the ``MCC Representative'') appointed by MCC; 
and
    (ii) One representative of civil society nominated by the 
Stakeholders' Committee (the ``Civil Observer''). The initial Civil 
Observer shall serve for a period of one year from the date of the 
first Supervisory Board meeting after the Entry into Force, and on each 
anniversary thereof, the Stakeholders' Committee shall appoint another 
of its members to serve as a Civil Observer for the subsequent year. 
The Civil Observer may nominate an alternate from among the 
Stakeholders' Committee to attend one or more meetings of the 
Supervisory Board in the event that the Civil Observer is unable to 
attend.
    The following provision applies to the Observers:
    a. Each Observer shall have the right to attend all meetings of the 
Supervisory Board, participate in discussions of the Supervisory Board, 
and receive all information and documents provided to the Supervisory 
Board, together with any other rights of access to records, employees 
or facilities as would be granted to a member of the Supervisory Board 
under the Governance Agreement and any Governing Document.
    (3) Role and Responsibilities.
    (A) The Supervisory Board shall oversee the overall implementation 
of the Program and the performance of the Designated Rights and 
Responsibilities.
    (B) Certain actions may be taken, and certain agreements and other 
documents may be executed and delivered, by MCA-Georgia only upon the 
approval and authorization of the Supervisory

[[Page 58921]]

Board as provided under applicable law and in the Governance 
Regulations, including each MCC Disbursement Request, selection or 
termination of certain Providers, any component of the Implementation 
Plan, certain Re-Disbursements and certain terms of reference.
    (C) The Chair shall certify the approval by the Supervisory Board 
of all Compact Reports or any other documents or reports from time to 
time delivered to MCC by MCA-Georgia (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, 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 Supervisory Board 
shall have the exclusive authority for all actions defined for the 
Supervisory Board under applicable law and in the Governance 
Regulations and which are expressly designated therein as 
responsibilities that cannot be delegated further.
    (4) Meetings. The Supervisory Board shall hold at least quarterly 
meetings as well as such other periodic meetings or subcommittee 
meetings as may be necessary from time to time.
    (5) Indemnification of Civil Observer; MCC Representative. The 
Government shall ensure, at the Government's sole cost and expense, 
that appropriate insurance is obtained and appropriate indemnifications 
and protections are provided, acceptable to MCC, to ensure that Civil 
Observers shall not be held personally liable for the actions or 
omissions of the Supervisory Board. Pursuant to Section 5.5 and Section 
5.8 of this Compact, the Government and MCA-Georgia 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 Supervisory 
Board. The Government hereby waives and releases all claims related to 
any such liability. In matters arising under or relating to the 
Compact, the MCC Representative is not subject to the jurisdiction of 
the courts or other body of Georgia.
    (iii) Management Team. Unless otherwise agreed in writing by the 
Parties, the Management Team shall report, through the Chief Executive 
Officer or other Officer as designated in the Governance Agreement, 
directly to the Supervisory Board and to the Stakeholders' 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) Composition. The Government shall ensure that the Management 
Team 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) 
Chief Executive Officer, (ii) a deputy director, (iii) five project 
directors, (iv) an environment and social impact director, (v) chief 
financial officer, (vi) a procurement director, (vii) a public outreach 
director, (viii) a monitoring and evaluation director, and (ix) a 
general counsel. The Management Team will be supported by an office 
manager and appropriate administrative and support personnel.
    (2) Appointment of Management Team. Unless otherwise specified in 
the Governance Agreement or any Governing Documents, the Management 
Team shall be selected and hired by the Chief Executive Officer after 
an open and competitive recruitment and selection process, which 
appointment shall be subject to the approval of the Supervisory Board 
and MCC.
    (3) Role and Responsibilities.
    (A) The Management Team shall assist the Supervisory Board in 
overseeing the implementation of the Program and shall have principal 
responsibility (subject to the direction and oversight of the 
Supervisory Board and subject to MCC's contractual rights of approval 
as set forth in Section 3(c) of this Program Annex or elsewhere in this 
Compact or any relevant Supplemental Agreement) for the overall 
management of the implementation of the Program.
    (B) The Management Team shall report to and meet with, on a 
quarterly basis, the Stakeholders' Committee, and shall include a 
report on the feedback provided by the Stakeholders' Committee and the 
ways in which that feedback has informed the activities of MCA-Georgia 
in the next following quarterly report to the Supervisory Board.
    (C) Without limiting the foregoing general responsibilities or the 
generality of Designated Rights and Responsibilities that the 
Government may designate MCA-Georgia, the Management Team 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 Team by the 
Supervisory Board from time to time.
    (D) Appropriate Officers shall have the authority to contract on 
behalf of MCA-Georgia under any procurement under the Program.
    (E) The Management Team 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.
    (iv) Stakeholders' Committee.
    (1) Composition. The Government shall ensure the establishment of a 
stakeholders' committee (the ``Stakeholders Committee'') consisting of 
at least eight (8) members, taking into consideration appropriate 
gender and ethnic representation, unless otherwise agreed by the 
Parties, and comprised of the following individuals:
    (A) Three (3) representatives of civil societies, (one of whom 
shall come from an organization in the Samtske-Javakheti region and one 
of whom shall come from an environmental organization) identified 
through a process that provides widespread notice of the formation of 
the Stakeholders' Committee;
    (B) The head of the Agrarian Committee of Parliament;
    (C) The head of the Road Department of the Ministry of Economic 
Development;
    (D) One (1) senior representative from the Ministry of the 
Environment; and
    (E) Two (2) senior representatives of the business community, one 
of which should have experience in agribusiness and one of which should 
have experience in the financial sector. Each Stakeholders' Committee 
member may appoint an alternate, approved by majority vote of the other 
members, to serve when he or she is unable to participate in a meeting 
of the Stakeholders' Committee.
    (2) Formation. The Government shall take all action necessary and 
appropriate actions to ensure the Stakeholders' Committee is 
established consistent with this Schedule 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

[[Page 58922]]

representative of the intended beneficiaries. The number of members of 
the Stakeholders' Committee may be increased, but in no event to more 
than twelve (12) members, 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 MCA-Georgia and MCC.
    (3) Role and Responsibilities.
    (A) 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-Georgia regarding the implementation of the Compact.
    (B) During quarterly meetings of the Stakeholders' Committee, the 
Management Team shall present an update on the implementation of this 
Compact and progress towards achievement of the Objectives. The 
Management Team shall provide copies of the M&E Plan, the 
Implementation Plan, and reports on the Projects and Project 
Activities. The Stakeholders' Committee will have an opportunity to 
regularly provide to the Chief Executive Officer and to the Supervisory 
Board its views and recommendations. The Supervisory Board may, in 
response to the Stakeholders' Committee, require the Management Team to 
provide such other information and documents as the Supervisory Board 
deems advisable.
    (C) The Management Team shall include in its quarterly reports to 
the Supervisory Board, a report on the Stakeholders' Committee meetings 
that occurred during the period covered by such report.
    (D) The Stakeholders' Committee shall appoint one of their members 
to be the secretary to, among other things, take official minutes of 
the meetings of the Stakeholders' Committee.
    (4) 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, or other lines, as may be 
necessary or appropriate from time to time.
    (5) 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 the MCA-Georgia Web site in a 
timely manner.
    (e) Outside Project Manager. MCA-Georgia shall have the authority 
to engage qualified 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 Supervisory Board and MCC prior to such 
appointment or engagement. Upon Supervisory Board approval, MCA-Georgia 
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 
specific Projects; and provided, further, that the Management Team 
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 Fiscal Agent and Procurement 
Agent. The Supervisory Board may determine that it is advisable to 
engage one or more Outside Project Managers and instruct MCA-Georgia 
and, where appropriate, a Procurement Agent to commence and conduct the 
competitive selection process for such Outside Project Manager. The key 
provisions relating to Outside Project Managers for certain of the 
Project Activities are set out in the Schedule to this Annex.
    (f) Implementing Entities. Subject to the terms and conditions of 
this Compact and any other Supplemental Agreement between the Parties, 
MCA-Georgia may provide MCC Funding, (directly or indirectly) through 
an Outside Project Manager, to one or more Government Affiliates or to 
one or more nongovernmental 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-Georgia 
(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 MCA-
Georgia or the Outside Project Manager, as designated in the applicable 
Implementing Entity Agreement or as otherwise agreed by the Parties. 
The key provisions relating to Implementing Entity Agreements for 
certain of the Project Activities are set out in the Schedules to this 
Annex.
    (g) Fiscal Agent. The Government shall ensure that MCA-Georgia 
engages one or more fiscal agents (each, a ``Fiscal Agent''), 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) instructing a Bank to make Re-
Disbursements from a Permitted Account, 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 (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. Upon the written request of MCC, the 
Government shall ensure that MCA-Georgia terminates a Fiscal Agent, 
without any liability to MCC, and the Government shall ensure that MCA-
Georgia engages a new Fiscal Agent, subject to the approval by the 
Supervisory Board and MCC. The Government shall ensure that MCA-Georgia 
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 (``Fiscal Agent Agreement'').
    (h) Auditors and Reviewers. The Government shall ensure that MCA-
Georgia carries out the Government's audit responsibilities as provided 
in Sections 3.8(d), (e) and (f), including engaging one or more 
auditors (each, an ``Auditor'') required by Section 3.8(d). As 
requested by MCC in writing from time to time, the Government shall 
ensure that MCA-Georgia shall also engage an independent (i) reviewer 
to conduct reviews of performance and compliance under this Compact 
pursuant to Section 3.8(f), which reviewer shall have the capacity to 
(1) conduct general reviews of performance or compliance, (2) conduct

[[Page 58923]]

environmental audits, and (3) conduct data quality assessments in 
accordance with the M&E Plan, as described more fully in Annex III, 
and/or (ii) evaluator to assess performance as required under the M&E 
Plan (each, a ``Reviewer''). MCA-Georgia shall select the Auditor(s) or 
Reviewers in accordance with the Governance Regulations or relevant 
Supplemental Agreement. The Government shall ensure that MCA-Georgia 
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), 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 a date 
agreed by the Parties.
    (i) Procurement Agent. If requested by MCC, the Government shall 
ensure that MCA-Georgia engages one or more procurement agents (each, a 
``Procurement Agent'') to carry out and/or certify specified 
procurement activities in furtherance of this Compact on behalf of the 
Government, MCA-Georgia, any Outside Project Manager or Implementing 
Entity. The role and responsibilities of such Procurement Agent and the 
criteria for selection of a Procurement Agent shall be as set forth in 
the applicable Implementation Letter or Supplemental Agreement. The 
Government shall ensure that MCA-Georgia enters into an agreement with 
the Procurement Agent, in form and substance satisfactory to MCC, that 
sets forth the roles and responsibilities of the Procurement Agent with 
respect to the conduct, monitoring and review of procurements and other 
appropriate terms and conditions, such as payment of the Procurement 
Agent (the ``Procurement Agent Agreement''). Any Procurement Agent 
shall adhere to the procurement standards set forth in the Procurement 
Agreement and Procurement Guidelines and ensure procurements are 
consistent with the procurement plan (the ``Procurement Plan'') adopted 
by MCA-Georgia, which plan shall forecast the upcoming six month 
procurement activities and be updated every six months.

4. Finances and Fiscal Accountability

    (a) Financial Plan.
    (i) 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-Georgia delivers to MCC for approval 
timely financial plans that detail the annual and quarterly budget and 
projected cash requirements for the Program (including 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 Financial Plan. Notwithstanding anything to 
the contrary in this Compact, MCA-Georgia may amend or supplement the 
Financial Plan or any component thereof 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.
    (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 or waiver of any such terms and conditions. The Government 
and MCA-Georgia 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-
Georgia 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 
Regulations 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 Regulations 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-
Georgia 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:

[[Page 58924]]

    (i) A single, completely separate U.S. Dollar interest-bearing 
account (the ``Special Account'') at a commercial bank that is procured 
through a competitive process to receive MCC Disbursements;
    (ii) If necessary, an interest-bearing local currency of Georgia 
account (the ``Local Account'') at the commercial 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 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-
Georgia 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, any bank holding an 
account referenced in Section 4(d) 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 Georgia at a rate to which the Parties mutually agree with 
the Bank in the Bank Agreement.

5. 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-
Georgia:
    (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-Georgia;
    (b) Considers as a factor in its decision-making the 
recommendations of the Observers;
    (c) Develops and maintains a website (the ``MCA-Georgia Website'') 
in a timely, accurate and appropriately comprehensive manner, such MCA-
Georgia Website to include postings of information and documents in 
English and Georgian and other languages where relevant; and
    (d) Posts on the MCA-Georgia Website and otherwise makes publicly 
available from time to time the following documents or information:
    (i) The Compact and all Compact Reports;
    (ii) All minutes of the meetings of the Supervisory Board and 
Stakeholders' Committee;
    (iii) The M&E Plan, as amended from time to time, along with 
periodic reports on Program performance;
    (iv) All relevant Environmental Impact Assessments and supporting 
documents;
    (v) The Compact and all Compact Reports;
    (vi) All audit reports by an Auditor and any periodic reports or 
evaluations by a Reviewer;
    (vii) Disbursement Agreement, as amended from time to time;
    (viii) All procurement agreements (including policies, standard 
documents, procurement plans, and required procedures), requests for 
proposals, and notices of awarded contracts; and
    (ix) A copy of any legislation and other documents related to the 
formation, organization and governance of MCA-Georgia, including the 
Governance Regulations, and any amendments thereto.

Schedule 1 to Annex I--Regional Infrastructure Rehabilitation Project

    This Schedule 1 describes and summarizes the key elements of a 
regional infrastructure rehabilitation Project that the Parties intend 
to implement in furtherance of the Key Regional Infrastructure 
Rehabilitated Objective (the ``Regional Infrastructure Rehabilitation 
Project''). Additional details regarding the implementation of the 
Regional Infrastructure Rehabilitation Project will be included in the 
Implementation Plan and in relevant Supplemental Agreements.

1. Background

    Dilapidated infrastructure, especially the poor condition of the 
roads, unreliable gas and electricity supply, and deteriorating 
municipal services, has been consistently identified through the 
consultative process as a major impediment to economic growth in 
Georgia. The Government recognizes the importance of adequate and 
reliable infrastructure services to support manufacturing and commerce, 
for improved health and the direct impacts on well-being; hence, for 
economic development more generally.
(a) Samtskhe-Javakheti Road
    The Samtskhe-Javakheti region is one of the poorest regions of 
Georgia, with a per capita income significantly below the national 
average and a high dependency on subsistence agriculture. In southern 
Georgia, deterioration of the roads has cut the region of Samtskhe-
Javakheti off from the rest of the country. With high costs to 
transport produce out of the region, regional farmers are unable to 
compete with farmers from other regions. Moreover, the poor road 
infrastructure also creates significant obstacles to importing high 
quality agricultural inputs and other goods. Rehabilitation of roads in 
the Samtskhe-Javakheti area is expected to foster economic development 
in Samtskhe-Javakheti through (i) increasing exports of agricultural 
products from the region; (ii) increasing social, political and 
economic integration of the local population in Samtskhe-Javakheti, 
including ethnic minorities, with the rest of Georgia; (iii) expanding 
international trade, by providing a more direct transport link from 
Tbilisi and eastern and southern Georgia to Turkey and by 
rehabilitating the existing road from Ninotsminda to Armenia; (iv) 
developing the tourism potential of Vardzia, a World Heritage site; and 
(v) complementing other road development projects.
(b) Energy Rehabilitation
    Georgia's main trunkline for the transmission of natural gas is the 
north-south gas pipeline system (the ``Pipeline''). The Pipeline 
receives gas at Georgia's northern border with Russia, transports gas 
to Georgian wholesale customers and transits gas to Armenia. In order 
to secure additional sources of supply for domestic use in Georgia, 
plans are also underway for the Pipeline to transport gas from 
Azerbaijan.
    Following the break-up of the Soviet Union and with the decline of 
the Georgian economy, the Pipeline has not been properly maintained. As 
a consequence, over the past five years, gas losses have amounted to 5% 
to 9% annually. In addition, the Pipeline suffers from several flaws 
that put it in jeopardy of catastrophic failure, potentially cutting 
off the main source of heating for some 300,000 households and over 
5,000 businesses in 46 cities

[[Page 58925]]

and 230 villages throughout the country, as well as the source of fuel 
to generate approximately 30% to 35% of the electricity consumed in the 
country. The pipeline operating company, Georgia Gas International 
Corporation (``GGIC''), has incurred substantial commercial losses to a 
point where maintenance is no longer financially possible. The Pipeline 
has degraded to such an extent that it no longer provides an acceptable 
level of supply security for Georgia, hindering further economic 
development. The Pipeline requires a comprehensive rehabilitation 
program.
    The Pipeline plays an important but only a partial role in the 
country's overall energy balance. In order to support the Ministry of 
Energy to further develop and implement its energy sector strategy, the 
Government requires immediate and expert advice in a number of areas.
    (c) Regional Infrastructure Development. In the Regions, many 
governing bodies have been unable to deliver safe, reliable, affordable 
and accessible public and utility services. It is estimated that more 
than half the water and sewage systems are beyond their service lives, 
and similar problems face other services. Local and municipal 
governments need funding for improvements in regional infrastructure, 
particularly in water supply, sanitation, irrigation, municipal 
gasification, roads and solid waste.

2. Summary of Project Activities

    The objective of the Regional Infrastructure Rehabilitation Project 
is to rehabilitate key regional infrastructure. The Regional 
Infrastructure Rehabilitation Project includes three Project 
Activities.
     Samtskhe-Javakheti Road Project Activity (the ``Road 
Rehabilitation Activity''). The objective of the Road Rehabilitation 
Activity is improved transportation for regional trade. The Activity 
will rehabilitate or construct approximately 245 km of the main road 
that traverses the Samtskhe-Javakehti region and provide technical 
assistance for development of a road master plan, maintenance planning 
and contracting.
     Energy Rehabilitation Project Activity (the ``Energy 
Rehabilitation Activity''). The objective of the Energy Rehabilitation 
Activity is increased reliability of energy supply and reduced losses. 
The Activity will rehabilitate the Pipeline and provide advisory 
service to the Government to support the Ministry of Energy to further 
develop and implement its energy sector strategy.
     Regional Infrastructure Development Project Activity (the 
``Regional Infrastructure Development Activity''). The objective of the 
Regional Infrastructure Development Activity is improved regional and 
municipal service delivery. The Activity will provide grants to fund 
regional and municipal physical infrastructure such as water supply, 
sanitation, irrigation, municipal gasification, roads and solid waste.
    The M&E Plan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks at the Regional 
Infrastructure Rehabilitation Project level and at each Project 
Activity level that may be used to monitor implementation progress. 
Performance against these benchmarks and the overall impact of the 
Regional Infrastructure Rehabilitation Project and each Project 
Activity will be assessed and reported at regular intervals to be 
specified in the M&E Plan or otherwise agreed by the Parties from time 
to time. The Parties expect that additional benchmarks will be 
identified during implementation of each Project Activity. Estimated 
amounts of MCC Funding for each Project Activity within the Regional 
Infrastructure Rehabilitation Project are identified in Annex II of 
this Compact. Conditions precedent to each Project Activity and 
sequencing of the Project Activities shall be set forth in the 
Disbursement Agreement or other relevant Supplemental Agreements.
    (a) Road Rehabilitation Activity.
    (i) Sub-Activities. MCC Funding will be used to:
    (1) Rehabilitate or construct, as applicable, the road sections set 
out below (the ``Project Road''), as well as (i) Rehabilitate and 
improve existing bridges along the Project Road alignment, (ii) improve 
existing drainage facilities along the road alignment, (iii) provide 
road safety features, and (iv) provide local access and ancillary 
structures:
    (A) Teleti-Koda-Tsalka;
    (B) Tsalka--Ninotsminda;
    (C) Akhalkalaki--Ninotsminda--the Armenian border, and connection 
to the Turkish border; and
    (D) Khertvisi to Vardzia.
    (2) Provide technical assistance to the Road Department of the 
Ministry of Economic Development (``RDMED'') for the formulation of a 
road master plan to prioritize investments in the road sector and for 
maintenance planning and contracting.
    (ii) Outside Project Manager. MCC Funding will be used to engage, 
through a competitive international tender process acceptable to MCC, a 
project management firm as an Outside Project Manager to manage and 
supervise the Road Rehabilitation Activity.
    (b) Activity: Energy Rehabilitation.
    (i) Sub-Activities. MCC Funding will be used to:
    (1) Rehabilitate the Pipeline by:
    (A) Inspecting the Pipeline to identify weaknesses and defects and 
formulate a prioritized rehabilitation plan addressing the security and 
integrity of the Pipeline;
    (B) Repairing the most urgent defects on a priority basis to bring 
the Pipeline back to an acceptable level of technical integrity for the 
required throughput capacity; and
    (C) Repairing leaks in the Pipeline to reduce technical losses.
    (2) Engage one or more firms (the ``Energy Advisors'') to support 
the Ministry of Energy to further develop and implement its energy 
sector strategy, including, but not limited to, providing technical and 
feasibility studies essential for investment in regional transmission, 
gas-fired generation, and hydropower.
    (ii) Outside Project Manager. MCC Funding will be used to engage, 
through a competitive international tender process acceptable to MCC, a 
project management firm as an Outside Project Manager to manage and 
supervise the rehabilitation of the Pipeline.
    (c) Regional Infrastructure Development Activity.
    (i) Sub-Activities. MCC Funding will be used to make grants (``RID 
Grants'') to regional governments, local governments, local self-
government units, municipal utilities and the central government (to 
the extent that it owns or operates assets in the Regions) (each an 
``Eligible Governmental Entity'') for the following types of projects 
(``RID Projects''):
    (1) For investment to improve and/or develop regional and/or 
municipal public infrastructure (including through cooperation with 
international and/or regional financial institutions) primarily in the 
water supply, sanitation, irrigation, municipal gasification, roads and 
solid waste sectors. Other sectors may be considered on a case-by-case 
basis; and
    (2) For technical assistance to ensure sustainability of newly 
improved or installed infrastructure facilities by (A) addressing 
issues including tariff design, tariff collection, metering and general 
utility operations training in order to ensure adequate funding for 
operation and maintenance of the installed/rehabilitated 
infrastructure; and (B) building technical capacity of owners of the 
new or rehabilitated infrastructure assets.
    (ii) RID Grant Size. MCC Funding for each RID Grant will be 
allocated in an amount not to exceed USD $7,000,000, with the exception 
of RID Grants for

[[Page 58926]]

technical assistance for which the maximum amount may not exceed USD 
$500,000, except as may be otherwise agreed by MCC. With the exception 
of grants for technical assistance, the minimum amount of each RID 
Grant will be USD $500,000. Pooling of similar and contiguous projects 
will be allowed to meet the minimum allowable grant value. In instances 
where MCC Funding is used in parallel with other international and 
regional financial institutions, the MCC Funding portion shall not 
exceed the lesser of 35% of the total cost, or USD $7,000,000 per 
project.
    (iii) RID Project Selection Criteria. To be eligible for MCC 
Funding, each proposal for a RID Grant must:
    (1) Be submitted by an Eligible Governmental Entity and clearly 
show contribution to the economic and social development in the 
Regions;
    (2) Be a priority for the Eligible Governmental Entity, the 
targeted area and the local population, as evidenced by citizen input 
through public hearings and/or other appropriate mechanisms for 
identifying needs and priorities;
    (3) Be restricted to rehabilitation and repair of existing service 
infrastructure and/or development of new infrastructure required for 
service delivery. No funding will be provided for commercial 
enterprises, land acquisition, working capital or other operating 
budget support, or operations and maintenance;
    (4) Outline a technically feasible, least cost approach to 
addressing a specific problem or need;
    (5) Be projected to have a minimum real economic rate of return of 
not less than 15% or yield benefits that, using an agreed evaluation 
methodology acceptable to MCC, can be quantified or otherwise 
identified with an acceptable degree of certainty, as in the case of 
technical assistance projects;
    (6) Be supported by an operations and maintenance plan and budget 
for a period of at least five years after completion of such RID 
Project;
    (7) Be accompanied by a funding plan demonstrating that the ongoing 
costs of operations and maintenance for the proposed RID Project will 
be met:
    (A) In whole or in part from user fees or similar charges generated 
by the proposed RID Project; and/or
    (B) In whole or in part by the sponsoring Eligible Governmental 
Entity from its budget; and/or
    (C) In whole or in part by the Government from its budget as set 
out in a commitment letter from the Government to the Eligible 
Governmental Entity or other satisfactory documentation.
    The Eligible Governmental Entity may apply for technical assistance 
to assist it to satisfy this criterion;
    (8) Be in full compliance with all relevant provisions of Georgian 
law and regulations, including environmental legislation;
    (9) Be in compliance with MCC Environmental Guidelines;
    (10) Be in compliance with MCC limitations on the use of funding; 
and
    (11) Be in compliance with the operations manual (the ``RID 
Operations Manual'') acceptable to MCC.
    (iv) Implementing Entity Arrangement. The Municipal Development 
Fund (``MDF''), the entity currently serving as the project 
implementation unit for the World Bank's Municipal Development and 
Decentralization Project II (``MDDPII''), will implement the Regional 
Infrastructure Development Activity. MCA-Georgia will enter into an 
Implementing Entity Agreement, called a Collaboration Agreement, with 
MDF through which it will retain approval rights necessary for it to 
ensure compliance with limitations on the use of MCC Funding, including 
approval of the RID Operations Manual. MCA-Georgia will also enter into 
a separate Service Agreement with the World Bank that sets out certain 
supervisory and technical support services to be provided by the World 
Bank in furtherance of the Collaboration Agreement. MCA-Georgia will 
approve the RID Operations Manual which will provide the MDF 
supervisory board and the management of MDF with the policies and 
procedures to be followed during implementation of the Activity. The 
Government will ensure that MCA-Georgia will obtain and maintain a seat 
on the MDF supervisory board.

3. Beneficiaries

(a) Road Rehabilitation Activity
    The principal beneficiaries of the Road Rehabilitation Activity are 
expected to be the rural/regional population located in and near the 
Samtskhe-Javakheti region through which the majority of the road 
traverses. Specific beneficiaries include (i) farmers who use the road 
to get products to market, (ii) domestic commercial freight transport 
operators, (iii) international shippers, (iv) users of public 
transport, (v) private business and tourist travelers, and (vi) service 
industries supporting transportation and tourism. The population of 
this region is expected to benefit from enhanced agricultural and trade 
opportunities afforded them by an improved road. Other benefits include 
improved access to education, healthcare and employment. The entire 
population is expected to benefit from improved decision-making, 
planning and policy-making that may result from the road master plan 
and RDMED technical assistance.
(b) Energy Rehabilitation Activity
    Beneficiaries include households, businesses and industrial 
enterprises throughout Georgia that consume gas or electricity. 
Rehabilitation will improve a situation which currently endangers the 
environment as well as the health and safety of the population. Another 
benefit may be carbon credit revenue which may be secured as a result 
of reduced greenhouse gas emissions related to Pipeline rehabilitation. 
In addition, the financial condition of GGIC, the Pipeline operating 
company, will be improved through reduced technical losses and improved 
cash flow. All energy consumers located throughout Georgia are expected 
to benefit from implementation of the Government's energy strategy with 
the assistance of the Energy Advisors' services.
(c) Regional Infrastructure Development Activity
    The immediate beneficiaries of the Regional Infrastructure 
Development Activity are expected to be Eligible Governmental Entities, 
which will manage the provision of improved services to their citizens 
through local infrastructure projects such as water supply, sanitation, 
irrigation, municipal gasification, roads and solid waste. The long-
term principal beneficiaries of the Activity include the users of the 
services in localities in which the Activity funds investment.

4. Donor Coordination; Private Sector; Civil Society

    (a) Road Rehabilitation Activity.
    (i) World Bank. The World Bank is currently financing a Secondary 
and Local Roads Project for approximately USD $40,000,000 with a USD 
$15,000,000 contribution from the Government focused on rehabilitating 
500-750 kilometers of paved secondary and local roads. Included in the 
current and previous World Bank road sector projects is (1) a component 
to strengthen the management, supervisory and road maintenance capacity 
of the RDMED; (2) institution building, policy reform, and 
restructuring of the Ministry of Transport; (3) improving access on the 
primary road network and (4) institutional strengthening of the 
Georgian transport agencies. The Road Rehabilitation Activity will 
complement

[[Page 58927]]

the World Bank project by further improving the Georgian road network.
    (ii) European Bank for Reconstruction and Development (``EBRD''). 
EBRD is contemplating parallel financing of the rehabilitation of 
certain road segments (such as Akhalkalaki to Lake Tabatskuri and Lake 
Tabatskuri to Bakuriani) in the Samtskhe-Javakheti region that connect 
with segments to be funded under the Road Rehabilitation Activity, 
which would deepen the potential for economic growth in the region. 
EBRD may also provide technical assistance for commercialization of 
operations and maintenance for RDMED.
    (iii) Other Donors. The Kuwait Fund for Arab Economic Development 
has provided Kuwait Dinar 5,000,000 (approximately USD $15,000,000) for 
the upgrade, rehabilitation, and reconstruction of approximately 100 km 
of international roads in Georgia. The Kuwait Fund is currently 
evaluating an additional assistance program for the upgrade of roads in 
Tbilisi, which would complement the Road Rehabilitation Activity 
network outside of Tbilisi.
(b) Energy Rehabilitation Activity
    The possible availability of MCC Funding has raised the interest of 
the donor community in participating in rehabilitation of the Pipeline.
    (i) World Bank. The World Bank is currently implementing an Energy 
Transit Institution Building Project. From this, the World Bank is 
contemplating providing approximately USD $830,000 to the Government 
for project preparation activities related to the Pipeline.
    (ii) EBRD and IFC. In 2003, EBRD and IFC provided upwards of USD 
$220,000,000 each in syndicated loans to the private sector developers 
of the Baku-Tibilisi-Ceyhan Crude Oil Pipeline and the South Caucasus 
Pipeline, both of which traverse Georgia. EBRD has expressed interest 
in providing additional assistance related to the Pipeline 
rehabilitation, if MCC Funding is realized.
    (iii) Other Donors and Sources of Funding. If MCC Funding is 
realized, additional World Bank and/or other funding to support further 
rehabilitation may be available from the purchase of carbon credits 
associated with the reduction of methane leakage resulting from the 
rehabilitation of the Pipeline.
    BP, an international oil and gas company with investments in 
Georgia, is expected to participate in the preparatory surveys for the 
Pipeline rehabilitation under a separate grant (approximately USD 
$500,000).
    In addition to the World Bank and EBRD, many other donors such as 
USAID and KfW have supported the electricity sector for the past 
decade. Assistance has been provided to support sector reform and 
restructuring, creation of a regulatory body, rehabilitation of plant 
and equipment and purchase of emergency energy supply. The engagement 
of Energy Advisors with MCC Funding represents an extension of such 
assistance and is complementary to the ongoing work of a very active 
and energy-focused donor group.
(c) Regional Infrastructure Development Activity
    (i) USAID. USAID/Georgia currently does not undertake large 
infrastructure projects in Georgia. Their efforts in infrastructure 
have been primarily in the energy sector and rehabilitation of small, 
local community infrastructure, such as schools and health care 
facilities, as part of their rural programs.
    (ii) World Bank. The World Bank currently funds small scale 
infrastructure projects proposed by local governments through its 
credit facility, MDDPII. This credit is based on an assessment of the 
creditworthiness of municipalities and thus has limited applicability 
to poorer regions. The Regional Infrastructure Development Activity 
would increase the availability and reach of financing through its 
grant mechanism and also ensure close coordination on local 
infrastructure investments, as the MCC Funding and the World Bank loans 
would be managed by the same administrative unit, the MDF.
    (iii) EBRD. EBRD's main operational objectives in Georgia for 2004-
2005 complement those of the Regional Infrastructure Development 
Activity and EBRD has prepared a number of projects which may be 
candidates for parallel funding under this Activity.
    (iv) Other Donors. The World Bank, USAID, KfW and UNDP are working 
in the water sector through the Georgian Social Investment Fund. 
Efforts will be made to coordinate the Regional Infrastructure 
Development Project Activity and Georgia Social Investment Fund 
activities in the cities where both organizations are working.

5. Sustainability

(a) Institutional Sustainability
    The implementation of the Regional Infrastructure Rehabilitation 
Project is designed to support the development of local capacity by 
providing Georgian professionals and institutions with experience in 
implementing the infrastructure projects, where appropriate, while 
maintaining tight fiduciary risk controls. It is anticipated that 
Georgian construction firms will be competitive as contractors or 
subcontractors in the bidding for construction packages in all three 
Project Activities.
    The RDMED has received and continues to receive technical 
assistance from the World Bank to strengthen its capacity in 
engineering standards and data collection, works monitoring, road 
maintenance, traffic safety, and interaction and responsiveness with 
local communities. Such efforts will ensure the effectiveness of this 
body in overseeing and maintaining the Road as the ultimate owner and 
responsible entity once the Road Rehabilitation Activity is completed. 
MCC will provide technical assistance to the RDMED to build capacity in 
maintenance planning and contracting. The Road Rehabilitation Activity 
will also provide funding for the commissioning and development of a 
road master plan to aid in the prioritization of future road 
investment. The development of GGIC capacity to prioritize and carry 
out Pipeline rehabilitation and maintenance works is an essential 
feature of the design of the Energy Rehabilitation Activity. Close 
coordination between MCC-funded contractors and GGIC staff during the 
Pipeline rehabilitation is expected to enhance capacity through on-the-
job training. Energy sector generation and transmission sustainability 
will also be addressed by the Energy Advisors through supporting the 
Government to further develop and implement its energy sector strategy. 
With respect to the Regional Infrastructure Development Activity, 
institutional capacity may be strengthened through direct technical 
assistance to the Eligible Governmental Entities applying for RID 
Grants. This assistance will allow for the establishment or improvement 
of service provision and could come in the form of assistance in the 
areas of financial management capability, tariff design, tariff 
collection, metering or general utility operations training.
(b) Financial Sustainability
    Proper budgeting and funding of maintenance activities is the key 
to financial sustainability of the Regional Infrastructure 
Rehabilitation Project. Lack of maintenance on the Samtskhe-Javakheti 
Road has resulted in its current dilapidated state and need for major 
rehabilitation; therefore, regular maintenance and a proper drainage 
system will be critical to ensuring the long-term impact and 
realization of

[[Page 58928]]

benefits from the Road Rehabilitation Activity. As a condition 
precedent to the first disbursement for the Road Rehabilitation 
Activity in any fiscal year, MCC will require that a minimum budget be 
approved for the maintenance of all maintainable national roads and 
that prior year budgeted amounts have been spent for the intended 
purpose. Similarly, the present condition of the Pipeline may be 
attributed, in large part, to the lack of maintenance over the last 
decade. The Pipeline rehabilitation and the satisfaction of the 
associated conditions are intended to improve the financial 
sustainability of GGIC through reduced losses, increased revenue and 
improved cash flow. To promote financial sustainability of GGIC, MCC 
requires that: (i) in view of GGIC's outstanding tax liabilities, the 
Georgia Tax Restructuring Committee grant tax relief for past tax 
liabilities accrued through June 30, 2005 in the form of a fifteen year 
restructuring plan for such tax liabilities (including a five-year 
freeze and a ten-year payment period); and (ii) beginning in July 2007, 
the Georgian National Energy Regulatory Commission permits GGIC to 
withhold gas as payment in kind from its non-paying customers for 
transmission charges owed to GGIC, and GGIC will utilize this in-kind 
payment mechanism to the extent needed to ensure that collection rates 
(for all services provided) are at least 95% throughout the remainder 
of the Compact Term.
    A lack of attention to maintenance is also seen at the level of 
local infrastructure where municipalities have consistently been unable 
to fund maintenance. The Regional Infrastructure Development Activity 
is intended to improve the financial sustainability of regional and 
municipal assets through the condition that MCC Funding will be 
provided only once it is evident that the necessary operations and 
maintenance of proposed investments will be funded either through user 
fees or similar charges generated from the RID Project, by the 
applicable Eligible Government Entity or by the Government.
    Funding from MCC for the Regional Infrastructure Rehabilitation 
Project will depend on the satisfaction of all conditions precedent as 
set forth in the Disbursement Agreement for road maintenance, 
maintenance of the Pipeline, and the maintenance of other 
infrastructure assets funded through the Regional Infrastructure 
Development Activity.
(c) Environmental and Social Sustainability
    Overall environmental and social sustainability depend on proper 
implementation of Project safeguards. MCA-Georgia's Management Team 
will include an Environmental and Social Impact Manager (``ESI 
Manager'') whose job will be to ensure that environmental and social 
mitigation measures (including occupational health and safety issues) 
are followed for all Project Activities in accordance with the 
provisions set forth in the Compact and other documents. The ESI 
Manager will serve as the point of contact for comments and concerns of 
Project affected parties regarding the implementation of all Project 
Activities under the Compact and lead the effort to find feasible 
resolutions to those problems. The ESI Manager will convene periodic 
public meetings to provide implementation updates and to identify and 
address public concerns. Should the issue of involuntary resettlement 
arise, the Regional Infrastructure Rehabilitation Project will be 
conducted in compliance with the World Bank Policy on Involuntary 
Resettlement.

6. Policy and Legal Reform; Procedural Changes or Regulatory Actions

    (a) 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 Regional Infrastructure 
Rehabilitation Project, the satisfactory implementation of which will 
be conditions precedent to certain MCC Disbursements as provided in the 
Disbursement Agreement:
    (i) Related to the Road Rehabilitation Activity:
    (1) Authorization of the use of road design and construction 
standards consistent with modern European geometrical and physical 
standards having international applicability, acceptable to MCC;
    (2) Maintenance of the Project Road in accordance with measurable 
performance standards acceptable to MCC and the Government, including 
winter maintenance and snow removal to keep the Project Road open; and
    (3) Prior to the first disbursement in any fiscal year, the 
Government will approve the road maintenance budget for routine and 
periodic maintenance for the maintainable road network the forthcoming 
fiscal year providing for funding of at least the amount set out below, 
and will expend such amounts for the intended purpose and make-up any 
budget shortfall from the prior year's road maintenance budget:
    (A) Fiscal year 2006: Georgian Lari (``GEL'') 60 million;
    (B) Fiscal year 2007: GEL 70 million;
    (C) Fiscal year 2008: GEL 80 million;
    (D) Fiscal year 2009: GEL 90 million; and
    (E) Fiscal year 2010: GEL 100 million.
    (ii) Related to the Energy Rehabilitation Activity:
    (1) Prior to the first disbursement for Pipeline rehabilitation, 
the Ministry of Energy will provide documentation satisfactory to MCC 
outlining the Ministry's plans and strategy for resolving the following 
four issues currently facing GGIC: (A) Kazbegigazi non-payment to GGIC; 
(B) Tbilgazi non-payment to GGIC; (C) Physical gas losses by GGIC; and 
(D) GGIC's tax liabilities;
    (2) Prior to the first disbursement for Pipeline rehabilitation, 
the Georgia Tax Restructuring Committee will have granted tax relief to 
GGIC, acceptable to MCC, for past tax liabilities accrued through June 
30, 2005 in the form of a fifteen year restructuring plan for such tax 
liabilities (including a five-year freeze and a ten-year payment 
period);
    (3) The Government shall not sell or transfer, or permit to be sold 
or transferred, the Pipeline and/or a controlling interest in the GGIC 
group (GGIC and its subsidiaries and affiliates) and shall not place or 
permit to be placed any Lien on the Pipeline, in each case until the 
expiration of the Compact Term, except as may be otherwise agreed by 
MCC in writing (the ``Non-Transfer Condition'');
    (4) Prior to each disbursement for Pipeline rehabilitation on or 
after July 1, 2007:
    (A) GGIC will demonstrate in a form acceptable to MCC that it is 
maintaining the Pipeline in accordance with satisfactory standards 
agreed by MCC and the Government that cover the design and construction 
of gas networks (``Agreed Standards''); and
    (B) GGIC will have obtained authorization, in a form acceptable to 
MCC, from the Georgian National Energy Regulatory Commission that 
allows GGIC, starting from July 1, 2007, to withhold gas as payment in 
kind from its customers for transmission charges owed to GGIC to the 
extent needed to ensure that collection rates (for all services 
provided) are at least 95% throughout the remainder of Compact Term; 
and GGIC will utilize this in-kind payment mechanism to the extent 
needed to ensure that collection rates (for all services provided) are 
at least 95% throughout the remainder of Compact Term;
    (5) In the event that:
    (A) The GGIC collection rate after July 1, 2007 is below 95% for 
two

[[Page 58929]]

consecutive quarters throughout the Compact Term;
    (B) GGIC does not maintain the Pipeline in accordance with the 
Agreed Standards; and/or
    (C) The Government does not comply with the Non-Transfer Condition; 
then:
    (A) Prior to any further disbursement for Pipeline rehabilitation 
or for any other Project Activity, the Government agrees to reimburse 
promptly to MCC, in MCC's discretion, all or a portion of Compact 
Funding disbursed for the Pipeline; and/or
    (B) MCC may suspend all or a portion of further disbursements in 
connection with the Pipeline rehabilitation and/or other Project 
Activities under the Compact.
    (b) To improve its level of performance under the policy criteria 
identified in Section 607 of the Act and the MCA Eligibility Criteria 
and to support the Regional Infrastructure Rehabilitation Project, the 
Government will pursue the following legislative and policy reforms:
    (i) Support GGIC to realize the sale of emission reductions in 
order to fund additional pipeline rehabilitation activities;
    (ii) Undertake policy reform and improve legislation governing the 
infrastructure sectors, including adoption of user fees, as may be 
appropriate to cover the costs of operations and maintenance;
    (iii) Develop, as part of the ongoing decentralization process, 
appropriate policies and/or legislation on local government budgeting;
    (iv) Undertake measures to safeguard the rehabilitated 
infrastructure from any laws, regulations or policies that may 
undermine the results of individual projects, including those that 
adversely restrict local control over budgets for operations and 
maintenance; and
    (v) Such other legal or policy reforms as may be needed to improve 
efficiency of the infrastructure sectors, including those that are 
identified through the ongoing consultative process.

Schedule 2 to Annex I--Enterprise Development Project

    This Schedule 2 describes and summarizes the key elements of a 
regional business investment and development project in furtherance of 
the Enterprises in Regions Developed Objective (the ``Enterprise 
Development Project''). Additional details regarding the implementation 
of the Enterprise Development Project will be included in the 
Implementation Plan and in relevant Supplemental Agreements.

1. Background

    With 53% of Georgia's population living in poverty and a majority 
of these impoverished households living in rural areas, the Government 
is committed to encouraging economic growth and poverty reduction, 
primarily in the Regions. Agribusiness, in particular, is a key driver 
of growth nationally, representing 18% of GDP, and in the Regions where 
farms and small enterprises engaged in agribusiness constitute an 
essential source of livelihoods. Other sectors, including tourism, 
represent substantial growth opportunities in the Regions. However, 
while the economy in Georgia has experienced significant growth during 
the past few years, the performance of the rural economy has stagnated.
    Of particular concern is the agriculture sector, which accounts for 
one-quarter of Georgia's economic output and over 50% of employment. 
Georgia's diverse climatic zones and rich natural resources provide the 
potential for further development of the agriculture and agribusiness 
sectors, particularly in the Regions. With increased quantity and 
quality, Georgian agricultural products will better compete with 
imported food products, thereby improving the living standards of the 
rural poor. Yet businesses face problems with poor technology, 
processing, marketing, management skills, and credit access.
    The lagging performance of the economy in the Regions and past 
political uncertainty have contributed to the reluctance of financial 
institutions and other investors to invest in risk capital. As a 
result, firms, particularly small and medium enterprises (``SMEs''), 
may not be able to obtain the risk capital they need to grow and may 
not generate enough cash-flow in the near-term to pay high interest 
rates on a typical loan (if any long-term loan is available) or may not 
have sufficient collateral to obtain a loan. Experience in other 
countries indicates the importance of SMEs to economic development and 
job creation.
    The consultative process in Georgia identified a number of key 
constraints to growth of small and medium enterprises in the Regions. 
These include (i) insufficient access to long term risk capital on 
viable terms, (ii) lack of sophisticated company and investment 
management skills and corporate governance, (iii) inadequate laws and 
regulations, (iv) poor enforcement and (v) the need for improved 
agribusiness productivity, among other items.

2. Summary of Project Activities

    The Enterprise Development Project is designed to provide access to 
capital on viable terms, support policy reforms to improve the business 
environment and improve business and technical skills in farms and 
enterprises.
    The Enterprise Development Project consists of two Project 
Activities:
     The Investment Fund Activity. The objective of the 
Investment Fund Activity is to increase investment in and improve the 
performance of SMEs, primarily in the Regions. The Project Activity 
will create a professionally and independently managed investment fund 
(the ``Georgia Regional Development Fund'' or ``GRDF'' or such other 
name as may be agreed by the Parties) to provide capital to SMEs, 
provide technical assistance for portfolio companies and identify legal 
and policy reforms to encourage further investment in SMEs.
     The Agribusiness Development Activity (the ``ADA''). The 
objective of the ADA is to improve economic performance of 
agribusinesses. The ADA will accelerate the transformation from 
subsistence to commercial agriculture through technical assistance, 
targeted grants and market information. The ADA will provide technical 
assistance and grants to farmers and agribusinesses in critical value 
chains that supply agricultural products to the domestic market, as 
well as disseminate information on regional market prices and volumes.
    The GRDF and the ADA will be managed separately, but they are 
intended to complement one another. For example, GRDF may invest in an 
entity receiving ADA technical assistance, or farmers may need 
technical assistance from ADA to take advantage of opportunities to 
supply products to a GRDF investee company in the processing industry. 
The managers of the GRDF and the ADA will meet on a regular basis to 
discuss potential synergies. Any decision-making by GRDF or ADA with 
respect to business opportunities with the other party will be 
undertaken as if GRDF and ADA were unrelated parties.
    The following summarizes the Enterprise Development Project 
Activities. The M&E Plan (described in Annex III) will set forth 
anticipated results and, where appropriate, regular benchmarks at the 
Enterprise Development Project level and at each Project Activity level 
to monitor implementation progress. Performance against these 
benchmarks and the overall impact of the Enterprise Development Project 
and each Project

[[Page 58930]]

Activity will be assessed and reported at regular intervals as 
specified in the M&E Plan or otherwise agreed by the Parties from time 
to time. The Parties expect that additional benchmarks will be 
identified during implementation of each Project Activity. Estimated 
amounts of MCC Funding for each Project Activity within the Enterprise 
Development Project are identified in Annex II of this Compact. 
Conditions precedent to each Project Activity and sequencing of the 
Project Activities shall be set forth in the Disbursement Agreement or 
other relevant Supplemental Agreements.
(a) Investment Fund Activity
    The Investment Fund Activity involves three sub-activities: (i) 
Creation and capitalization of the GRDF; (ii) portfolio company 
technical assistance; and (iii) legal and policy environment support.
    (i) Creation and Capitalization of GRDF.
    MCC Funding will be used to capitalize a professionally and 
independently managed investment vehicle, to be known as the GRDF.
    MCC and MCA-Georgia have agreed to an indicative term sheet as of 
the date of this Compact (the ``Indicative Term Sheet''), containing 
the proposed terms of the GRDF (including its investment policy 
guidelines and governance structure) and which will form the expected 
basis for preparation of the final investment guidelines, governance 
structure and investment management selection, compensation and 
agreement, and all other terms of the GRDF (the ``Final Fund 
Documents''). Because the Indicative Term Sheet represents indicative 
but non-binding terms, the provisions in the Final Fund Documents may 
differ from, and will supersede, those in the Indicative Term Sheet. As 
a Condition Precedent to Disbursement for the GRDF, the Final Fund 
Documents must be acceptable in form and substance to both MCC and MCA-
Georgia.
    The GRDF will include the following elements:
    (1) Establishment and Term of GRDF.
    (A) Following the satisfaction of conditions precedent contained in 
the Disbursement Agreement and in accordance with the Final Fund 
Documents, MCC Funding will be used to organize and establish the GRDF 
in a legal form and jurisdiction acceptable to MCC. All of the 
ownership interests in the GRDF are expected to be held initially by a 
trust (or similar structure acceptable to MCC and MCA-Georgia), the 
trustee (or similar) of which will be procured through a process 
acceptable to MCC and will be subject to MCC approval. MCC will be a 
third party beneficiary to the appropriate Final Fund Documents.
    (B) The investment period of the GRDF shall run for five years from 
the Entry into Force, subject to an earlier termination upon 
termination of the Compact (the ``Investment Period''). All MCC 
obligations shall terminate at the end of the Investment Period. GRDF 
is expected to exist for ten years, including a five year wind-down 
period after the termination of the Investment Period.
    (C) Any distributions to the GRDF will be held for the benefit of 
beneficiaries to be agreed upon by MCC and MCA-Georgia prior to the end 
of the Investment Period. Any beneficiary or beneficiaries selected by 
MCC and MCA-Georgia must be a charitable, educational or other non-
profit developmental entity in Georgia that benefits, in substantial 
part, citizens working in agribusiness and/or other enterprises outside 
of Tbilisi.
    (2) Investment Objective. The primary objective of the GRDF will be 
to maximize developmental impact, as well as to earn a reasonable and 
positive financial return, from investments in SMEs in agribusiness, 
tourism and other sectors, primarily outside of Tbilisi.
    (3) Permitted and Prohibited Investments. The GRDF will invest in 
equity, quasi-equity and debt (subject to limits specified in the Final 
Fund Documents) issued by enterprises that meet the definition of 
``permitted investments'' (``Permitted SMEs''). The Final Fund 
Documents will have clear criteria for which types of investments are 
permitted and prohibited, as well as the process by which investment 
decisions are approved by the GRDF. These criteria will be set forth in 
the Final Fund Documents. Among the provisions that the Final Fund 
Documents must contain are the following:
    (A) Permitted sectors. The Final Fund Documents will require a 
majority of capital to be invested in agribusiness or tourism, with 
approximately 33% of capital invested in agribusiness, unless otherwise 
agreed by the Parties.
    (B) Location of businesses. The GRDF will invest primarily outside 
of Tbilisi; accordingly, the Final Fund Documents will limit the 
percentage of GRDF capital that can be invested in Tbilisi to 20% 
unless otherwise agreed by the Parties.
    (C) Developmental and financial criteria. The pipeline of potential 
investments by the fund will be determined in accordance with criteria 
used to measure the developmental impact associated with the investment 
as well as financial rate of return.
    (D) Maximum investment size. The Final Fund Documents will limit 
the maximum investment size of any one particular investment to 10% of 
the committed capital of the GRDF unless otherwise agreed by the 
Parties.
    (E) Stage of Development of Portfolio Companies. The GRDF will 
invest primarily in existing businesses but may also invest not more 
than 15% in start-ups, unless otherwise agreed by the Parties.
    (F) Prohibited Investments. The Final Fund Documents will require 
compliance with (1) prohibitions on investments, including those that 
conflict with the limitations on the use of MCC Funding set forth in 
the Compact, and (2) environmental guidelines and environmental 
screening procedures (which will be based on MCC's Environmental 
Guidelines and specified in full in the Final Fund Documents). A full 
list of prohibited types of businesses will be included in the Final 
Fund Documents.
    (4) Implementing Entity Arrangement; Governance Structure.
    (A) Investment Manager. The GRDF will be managed by a professional, 
independent and qualified investment manager selected after a 
competitive tender conducted by the Procurement Agent (``Investment 
Manager''). MCC and MCA-Georgia will each have the right to approve the 
selection of the Investment Manager and the terms of the Investment 
Manager's contract, including auditing, reporting and termination 
provisions.
    (B) GRDF Governing Board. The Investment Manager will report to an 
independent GRDF governing board (``GRDF Governing Board'') comprised 
of individuals with financial and development experience acceptable to 
MCC and MCA-Georgia. MCC will be entitled to appoint one additional 
member of, or a non-voting observer on, the GRDF Governing Board. MCA-
Georgia will also be entitled to appoint a non-voting observer on the 
GRDF Governing Board.
    (C) Investment Committee. An investment committee (``Investment 
Committee'') acceptable to MCC and MCA Georgia will be responsible for 
approving investments suggested by the Investment Manager and 
overseeing the monitoring and evaluation of the performance of those 
investments. MCC will have the right, in its discretion, to appoint one 
member, or one non-voting observer, to the Investment Committee.
    (5) Relationship of GRDF to MCA-Georgia. All investment decisions 
will be made by the GRDF and the

[[Page 58931]]

Investment Manager independently from MCA-Georgia and the Government.
    (6) Operating Policies. The Final Fund Documents will include 
requirements for the GRDF's due diligence/investment process, conflicts 
policy, internal controls and auditing, and reporting, in each case 
acceptable to MCC.
    (ii) Portfolio Company Technical Assistance Facility.
    (1) Establishment. MCC Funding will be used for technical and 
managerial assistance (the ``Portfolio Company TA Facility'') to be 
applied by the Investment Manager to improve the performance of 
portfolio companies following investment or to assist prospective 
portfolio companies that then become qualified for GRDF investments. 
The financial resources of the Portfolio Company TA Facility will not 
be invested in the GRDF or considered part of the management fee or 
fund expenses. The Portfolio Company TA Facility proceeds will be drawn 
down by the Investment Manager through separate disbursement requests.
    (2) Objective. The Portfolio Company TA Facility will complement 
the work of the Investment Manager by assisting in the growth and 
development of the portfolio investees. The Portfolio Company TA 
Facility is intended to pay, on a cost-sharing basis with investees, a 
portion of the costs of third-party consultants and other service 
providers (the ``Service Providers'') that would otherwise have been 
reasonably considered beyond the capacity of the investee or the 
obligation of the Investment Manager to pay.
    (3) Selection Criteria. Each use of the Portfolio Company TA 
Facility funding shall be determined jointly by the investee and the 
Investment Manager on a demand-driven basis according to selection 
criteria acceptable to MCC. The use of the Portfolio Company TA 
Facility will be subject to the same statutory limits on the use of MCC 
Funding as the GRDF. Additional detailed Service Provider selection 
criteria, conflict of interest provisions, cost-sharing criteria, 
disbursement and reporting procedures, and further definitions of 
permitted and prohibited uses of TA Facility resources, shall be 
provided in the Final Fund Documents.
    (iii) Legal and Policy Environment.
    MCC Funding will be used to engage an expert to identify and 
support Georgians advocating for key legal and policy reforms affecting 
the investment environment and to establish and operate a mechanism for 
this analysis and advocacy. This is intended to be similar to venture 
capital industry groups in other countries that work with local, key 
stakeholders and donors to build consensus and advocate for reforms 
needed for successful risk capital investments. The expert would be 
supported by an advisory board of key stakeholders acceptable to MCC, 
such as the Investment Manager, other private equity funds and 
financial institutions, other private sector participants, donors, and 
others.
(b) Agribusiness Development Activity
    (i) ADA Establishment and Implementation.
    The ADA is expected to contribute to poverty alleviation by 
accelerating agriculture sector transformation from subsistence 
production to profitable farms and rural enterprises directly 
participating in commercial value-chains. The ADA includes three 
separate sub-activities intended to support the development of 
Georgia's agriculture and agribusiness sectors. The ADA will be set up 
and managed by a professional, independent and qualified manager, 
acceptable to MCA-Georgia and MCC, selected after a competitive tender 
(the ``ADA Manager''). The competitive tender will be conducted by the 
Procurement Agent, with the assistance of an advisory panel, consisting 
of independent experts. MCC and MCA-Georgia will each have the right to 
approve the selection of the ADA Manager.
    (ii) Access to Modern Technology.
    MCC Funding will be used to provide modern technology to 
agribusiness processors in at least five agribusiness value-chains that 
have domestic market growth potential. For example, this could include 
the following types of activities:
    (1) Developing the dairy industry through set-up of milk collection 
infrastructure to facilitate flow of quality raw product from small 
farms to processing plants that can better compete in the domestic 
market;
    (2) Establishing private sector input supply centers that service 
productive yet hard to reach rural areas in order to increase higher 
value horticulture production for processors and the fresh market;
    (3) Developing livestock production contracts with slaughter 
facilities that will establish the capacity to offer new, high-quality 
meat products into the growing domestic market;
    (4) Facilitating investment in livestock feed processing and sales 
coupled with the beneficiary firm's financed livestock production 
agents to improve farm management; and
    (5) Introducing new varieties and technology into the potato 
industry to produce and process products in direct response to domestic 
market demands.
    (iii) Grants to Rural Enterprises.
    MCC Funding will be used to provide grants (the ``Rural Enterprise 
Grants'') to groups of farmers and to private enterprises to apply 
innovative business solutions and technology to significantly increase 
household and agribusiness net revenue through higher productivity, 
better financing, improved post harvest processing and marketing.
    (1) Selection Criteria. An application for a Rural Enterprise Grant 
must be supported with a sound business plan. Applications should be 
for equipment or supplies and matched with direct grantee investment in 
land, facilities, labor or additional equipment. Rural Enterprise 
Grants will range in value from USD $5,000 to USD $50,000, unless 
otherwise agreed by the Government and MCC. Rural Enterprise Grants 
will be made in three categories:
    (A) Primary production. Innovative agriculture production 
technology and practices and development of business linkages of 
farmers with processors or directly with the market;
    (B) Service providers. Introduction or expansion of input provision 
of seed, feed, fertilizer, new varieties, equipment leasing, best 
practices and better farm management among cooperatives and 
associations; and
    (C) Value adding enterprises. Transfer of technology to add value 
to raw product through small scale processing equipment, quality 
assurance systems, processing, packaging, and competitive domestic 
marketing.
    (2) Selection Procedure. A call for applications for Rural 
Enterprise Grants will be announced by the ADA Manager during the first 
quarter of each year with clear guidelines and evaluation criteria. The 
ADA Manager will be responsible for developing award selection 
criteria, subject to MCA-Georgia and MCC approval. The ADA Manager will 
establish an independent grant award committee acceptable to MCC and 
MCA-Georgia that will review grant applications and make grant awards.
    (iv) Market Information. MCC Funding will support a market 
information campaign that disseminates information to the agriculture 
and food industry. The market information campaign will:
    (1) Inform rural households and stakeholders about ADA objectives 
and guidelines for targeted technical assistance and grants;
    (2) Broadcast information on innovations, best practices, and new 
technology, and highlight ``model'' farmers'' or entrepreneurs' success 
stories; and

[[Page 58932]]

    (3) Produce regular reports on farm gate price and volumes of 
commodity sold from several regional marketing hubs throughout the 
country including market news/trends of business significance.

3. Beneficiaries

    The principal direct beneficiaries of the GRDF are expected to be 
SMEs in agribusiness and other sectors in the Regions (and, to a 
limited extent, Tbilisi) needing risk capital to expand, agricultural 
producers and other local suppliers doing business with those SMEs, and 
farmers and rural households in the Regions employed by SMEs or related 
businesses. Certain activities in the GRDF, such as advocacy for legal 
and policy reform, will have national scope and impact. The objective 
of the ADA is to significantly improve capacities of rural households 
to engage and benefit from direct participation in the commercial 
economy. Therefore, the principal direct ADA beneficiaries are rural 
households that are dependent on agriculture and agribusiness for their 
livelihood. These are primarily small farmers and SMEs that deliver 
services to farmers and process raw product. As a result of ADA, over 
50,000 rural participants are expected to benefit either directly or 
indirectly.

4. Donor Coordination

    The Enterprise Development Project complements other donor 
supported projects, including projects by EBRD, IFC, World Bank, USAID 
and USDA. The goal and structure of the GRDF is significantly different 
from those of other donor-supported investment activities. The GRDF 
will be encouraged to work with other donors' financial institutions to 
attract capital and expertise to the SME sector in the Regions, 
especially to businesses in which such institutions may have been 
reluctant to invest in the absence of the GRDF in Georgia. The ADA is 
uniquely focused on rural household economic growth and will be 
reinforced by current activities that foster economic growth in 
agriculture. Specifically, Enterprise Development Project synergies 
with key U.S. agencies and other donors are as follows:
(a) Investment Fund Activity
    (i) IFC. IFC is conducting a business development project that 
focuses on areas such as strengthening corporate governance and 
encouraging lease financing, as well as an initiative to determine the 
state of SME development in Georgia and significant legal and other 
barriers facing Georgian SMEs. Although IFC has previously sponsored 
investments in businesses in Georgia, the target internal rates of 
return and sizes of investments have exceeded the typical investment 
the GRDF is expected to pursue. The IFC business development efforts 
will complement and reinforce the Investment Fund Activity's efforts to 
improve the business climate.
    (ii) EBRD. EBRD has established several debt and equity investment 
facilities that can invest in Georgia. EBRD has also established 
business consulting services using local consultants that offer their 
services to Georgian businesses at rates partly, and temporarily, 
subsidized by EBRD. The Investment Manager may (but is not required to) 
utilize these consulting services when applying technical assistance to 
one of the portfolio companies. The investment facilities may provide 
another source of capital for the GRDF's portfolio companies.
    (iii) OPIC. There are several OPIC funds that are eligible to 
invest in Georgia, among other countries. However, the sizes and types 
of investments that these funds generally pursue differ from, and are 
larger than, those that the GRDF is expected to pursue. Moreover, OPIC 
guarantees debt issued by these funds, while MCC Funding would be used 
as the source of equity capital for the GRDF.
    (iv) USAID. The GRDF will complement USAID's financial sector and 
agricultural activities. These have included AgVantage, the Georgia 
Enterprise Growth Initiative, the Georgia Microfinance Stabilization 
and Enhancement activity, the Land Market Development Project, and the 
banking infrastructure strengthening program to assist the National 
Bank of Georgia.
(b) Agribusiness Development Activity
    (i) USAID. Of particular relevance to the objectives of the ADA is 
the USAID-funded project called AgVantage. This activity focuses on 
developing agricultural export markets and strategic interventions to 
overcome barriers to increase export sales of agriculture and food 
products. Later this year, AgVantage will also begin work in policy 
analysis, legal drafting, training, and limited administrative support 
to the Ministry of Agriculture and will put in place policies which 
promote and support the development of private sector agribusiness. The 
ADA is interested in supporting these efforts and participating in 
constructive dialogue with the Ministry of Agriculture to create a more 
conducive environment for private business development.
    (ii) USDA. A transition program is underway by USDA/ICD in Georgia. 
Previous project activity provides opportunities for ADA to build upon 
progress made, especially in developing meat slaughterhouses and dairy 
processing in several regional locations. The new focus of USDA's 
program will most likely include assistance to the Ministry of 
Agriculture in seed and plant material certification and 
multiplication, quality assurance capabilities and veterinary 
inspection services, which complements ADA.
(c) Both Project Activities
    (i) World Bank/IFAD. A new Rural Development Loan has been 
approved, with a portion to be used to flow through commercial banks 
and multilateral financial institutions as credit for agribusiness 
investments. This loan will provide a source of debt finance for 
businesses that has terms and characteristics different from many of 
the risk capital investments the GRDF will pursue. Discussions with 
World Bank and IFAD representatives generated collaborative ideas for 
loan preparation training and technical assistance to prospective 
borrowers through the ADA grant program. Also, IFAD has established 
four regional ``Farm Houses'' which support a variety of services to 
farmers including equipment leasing, extension, and input sales. 
Proposals from the leadership of a Farm House to expand to ADA clients 
will be encouraged.

5. Sustainability

    (a) Financial and Institutional Sustainability.
    The impacts of each of the Project Activities are intended to be 
sustainable, although neither the GRDF nor the ADA is required to be a 
sustainable institution. Sustainability will result from the following 
activities:
    (i) Building, through the GRDF, profitable businesses that have an 
important demonstration effect on similar businesses, as well as 
investment funds or other financial institutions. To the extent these 
businesses are profitable, after the Compact Term they can be expected 
to survive and strengthen key links with other businesses in the value 
chain as well as pave the way for additional entrepreneurs and 
providers of finance considering developing the SME sector or Regional 
enterprises;
    (ii) Establishing profitable farms, rural service providers and 
viable agribusiness that compete in commercial markets and are 
responsive to market forces and trends;

[[Page 58933]]

    (iii) Investing in human capacities (skills, access to information 
and mind-set toward the market) to transform and make their enterprises 
profitable;
    (iv) Building, through each of the Project Activities, sustainable 
and transferable Georgian enterprise management capacity and 
entrepreneurial skills, particularly for:
    (1) Agribusinesses and other SME businesses that have received 
assistance from the GRDF or the ADA;
    (2) Georgian consulting and technical advisory businesses that have 
been engaged as part of the Portfolio Company Technical Assistance 
Facility or the ADA; and
    (3) Georgian investment professionals trained by the GRDF; and 
providing the enterprises and individuals that have acquired these 
skills with the ability to apply them to their businesses or transfer 
them to other businesses in Georgia;
    (v) Attracting, as part of the GRDF, additional long-term capital 
to the agribusiness and other SME sectors in Georgia. Because these 
providers may have been attracted, because of the GRDF, to sectors and 
businesses they would not have otherwise financed, the successful 
performance of these investments will encourage additional investments; 
and
    (vi) Complementing and encouraging reform to remove legal and 
regulatory impediments to investment and growth in the agribusiness and 
SME sectors in the Regions as well as nationally, including encouraging 
best practices for corporate governance.
    (b) Environmental and Social Sustainability. To help ensure that 
investments made through the GRDF are not likely to cause a significant 
environmental health or safety hazard, the GRDF will develop investment 
guidelines acceptable to MCC that will require compliance with MCC 
Environmental Guidelines, and the Investment Manager will develop an 
environmental review process and monitoring check-list. To help ensure 
that investments made through the ADA are not likely to cause a 
significant environmental health or safety hazard, technical assistance 
will be provided to include training and guidance on the proper 
selection, handling, use, storage, and disposal of pesticides and other 
agricultural chemicals.

6. Policy and Legal Reform

    To improve its level of performance under the policy criteria 
identified in Section 607 of the Millennium Challenge Act and the MCA 
Eligibility Criteria and to support the Enterprise Development Project, 
the Government will pursue the following legislative and policy 
reforms:
    (i) Improve the investment climate, particularly for investments in 
the agribusiness and other sectors relevant to the Enterprise 
Development Project, including those reforms identified by working with 
the expert engaged under the Legal and Policy Environment component of 
the Investment Fund Activity. Broadly construe reform to include 
commercial laws, enforcement mechanisms and systematic issues, such as 
problems with payment systems;
    (ii) Provide for effective implementation of the law on additional 
privatization of agricultural land remaining in state ownership 
(providing for privatization of large plots of agricultural land);
    (iii) Pass effective laws on immovable and moveable property pledge 
registration and related secured transaction law reform, and provide 
for implementation; and
    (iv) Undertake policy reform and seek to improve legislation 
governing the agribusiness sector, including:
    (1) Refine the National Agricultural Strategy that outlines 
critical priorities to be undertaken that creates a pro-agribusiness 
growth environment;
    (1) Planning and implementing significant benchmarks for improved 
legislation for seed and plant material law; and
    (3) Planning and implementing significant benchmarks for improved 
legislation for food safety regulations.

Annex II--Financial Plan Summary

    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-Georgia 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-Georgia, 
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 as an observer on the Supervisory Board), 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 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 (iii) 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

[[Page 58934]]

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.

Exhibit A--Multi-Year Financial Plan
[GRAPHIC] [TIFF OMITTED] TN07OC05.004

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 (i) how progress toward the Objectives and Project 
Activity Outcomes will be monitored (the ``Monitoring Component''), 
(ii) 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 (iii) 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-Georgia 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 (i) Program levels, (ii) the Indicators, (iii) the party 
or parties

[[Page 58935]]

responsible, the timeline, and the instrument for collecting data and 
reporting on each Indicator to MCA-Georgia, and (iv) the method by 
which the reported data will be validated.
    (a) Program Levels. The M&E Plan in general, as well as the 
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.
    (i) Compact Goal. 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 two Projects and which are 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 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 future impact 
evaluation.

                      Increased Economic Growth and Poverty Reduction in Regions of Georgia
----------------------------------------------------------------------------------------------------------------
          Goal indicators                Indicator definition               Baseline                 Year 5
----------------------------------------------------------------------------------------------------------------
Reduction in poverty gap in the      The mean distance            23.4% (2002)                 19.90%
 Samtskhe-Javakheti Region.           separating the population
                                      from the poverty line.
Reduction in poverty incidence in    The fraction of population   56.8% (2002)                 50.00%
 the Samtskhe-Javakheti Region.       under the poverty line,
                                      defined by SDS as the
                                      ``subsistence minimum.''
Incremental increase in household    Financial benefits derived   0                            TBD
 incomes from Compact                 from roads, infrastructure
 interventions*.                      investment and pipeline
                                      rehabilitation, and GRDF
                                      and ADA enterprise
                                      development activities.
----------------------------------------------------------------------------------------------------------------
\*\ Setting of targets will be made at the end of Year One, once RID projects have been selected and vehicle
  operating costs on S-J roads have been determined.

    (ii) 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 two categories which relate to: 
(1) The Regional Infrastructure Rehabilitation Project and (2) the 
Enterprise Development Project. The Project Objectives to be achieved 
by the activities under each of these Projects shall be understood, as 
with the Compact level benefits, as being indicative of impact and not 
necessarily measurably attributable to the Program's interventions 
within the timeframe of the Compact.
    (iii). 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: (1) The Road 
Rehabilitation Activity; (2) the Energy Rehabilitation Activity; (3) 
the Regional Infrastructure Development Activity; (4) the Investment 
Fund Activity and (5) the Agribusiness Development 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 its being affected by the Program (``Indicator 
Baseline''). All Indicators will be disaggregated by gender, income 
level and age, to the extent practicable.
    (i) Project 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-Georgia may 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, or at such other times as may be 
agreed with MCC, in each case with prior written approval of MCC.

                      Project Objective Definitions
               [Key Regional Infrastructure Rehabilitated]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Goal Indicators:               Indicator Definition:
Financial benefits stemming    Aggregated data for reduction of vehicle
 from Infrastructure Project    operating costs on rehabilitated roads,
 investments (in 1,000 USD).    increased collection rate of GGIC, and
                                actual operations and maintenance funds
                                from responsible maintaining agencies
                                (local/central government or other
                                agencies).
Enterprises in Regions
 Developed:
Goal Indicators:               Indicator Definition:
Aggregate jobs created by      Portfolio company jobs will be aggregated
 Program interventions.         with ADA jobs in each year.
Aggregate incremental          Absolute annual increase in household
 household incomes and          incomes and revenues to companies in
 business revenues (in 1,000    both GRDF and ADA.
 USD).
------------------------------------------------------------------------


[[Page 58936]]


                                               Project Objectives
----------------------------------------------------------------------------------------------------------------
                                                                                      Year      Year      Year
                                          Unit        Baseline  Year one  Year two    three     four      five
----------------------------------------------------------------------------------------------------------------
                                    Key Regional Infrastructure Rehabilitated
----------------------------------------------------------------------------------------------------------------
Financial benefits stemming from    Number..........         0  ........  ........  ........  ........      TBDs
 Infrastructure Rehabilitation
 Project investments (in 1,000
 USD) \*\.
-----------------------------------
                                        Enterprises in Regions Developed
----------------------------------------------------------------------------------------------------------------
Aggregate jobs created by Program   Number..........         0  ........  ........  ........  ........    23,962
 interventions \**\.
Aggregate incremental household     Number..........         0  ........  ........  ........  ........   59,434
 incomes and business revenues (in
 1,000 USD) \**\.
----------------------------------------------------------------------------------------------------------------
\*\ Setting of targets will be made at the end of Year One, once RID projects have been selected and vehicle
  operating costs on S-J roads have been determined.
\**\ Portfolio company jobs and income will be aggregated with ADA jobs and income, shown here, in each year
  when GRDF investments are made.

    (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-Georgia may 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, or at such other 
times as may be agreed with MCC, in each case with prior written 
approval of MCC.

            Activity Outcome Indicator Definitions for Regional Infrastructure Rehabilitation Project
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                       Improved Transport for Regional Trade: Road Rehabilitation Activity
----------------------------------------------------------------------------------------------------------------
Reduction in journey time: Akhalkalaki-Ninotsminda-
 Teleti (hours)
    Reduction in vehicle operating costs............  These costs comprise the economic value of the running
                                                       costs of the vehicle for the duration of the journey on
                                                       the section of road or road network, the depreciation and
                                                       maintenance costs of the vehicle and the associated costs
                                                       related to the driver/goods transported for the journey.
    Increase in internal regional traffic volumes...  It is expected that this internal traffic will increase
                                                       when the Project roads are improved as journey times will
                                                       be significantly shorter thereby making it more
                                                       attractive/enticing to the local population to make
                                                       journeys that they would have thought too time consuming
                                                       to attempt before the roads were improved.
-----------------------------------------------------
            Increased Reliability of Energy Supply and Reduced Losses: Energy Rehabilitation Activity
----------------------------------------------------------------------------------------------------------------
    Decreased technical losses......................  Decrease of losses occurring between receiving point on
                                                       Georgia-Russian border and delivery points to the
                                                       customers, including Georgia-Armenia border.
Reduction in the production of greenhouse gas
 emissions measured in tons of CO2 equivalent:
    Increased collection rate of GGIC...............  Revenues from Gardabani, industries, gas distribution
                                                       companies, and consumers of gas.
-----------------------------------------------------
         Improved Regional and Municipal Service Delivery: Regional Infrastructure Development Activity
----------------------------------------------------------------------------------------------------------------
    Number of household beneficiaries served by RID   Number of households that benefited from improved water/
     projects (cumulative).                            sanitation, irrigation and/or gas provision.
    Actual operations and maintenance expenditures    Allocated and actual operations and maintenance funds from
     (in 1,000 USD).                                   responsible maintaining agencies (local/central
                                                       government or other agencies) used as a proxy measure of
                                                       revenues and fees from RID investments.
----------------------------------------------------------------------------------------------------------------


                     Sub-Activity Output Indicators
------------------------------------------------------------------------
 
------------------------------------------------------------------------
      Rehabilitation of Local Physical Infrastructure Sub-Activity
------------------------------------------------------------------------
Number of RID projects completed (cumulative)  Number of rehabilitation
                                                projects completed.
Value of RID projects (cumulative, mln. USD).  The cumulative total
                                                capital invested, where
                                                fund size is US $58
                                                million.
------------------------------------------------------------------------


[[Page 58937]]


                                             Activity Outcome Indicators for Regional Rehabilitation Project
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Unit                Baseline      Year 1       Year 2       Year 3       Year 4       Year 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Improved Transport for Regional Trade: Road Rehabilitation Activity
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reduction in journey time: Akhalkalaki-       Number......................          6.5            0            0            1          2.5          2.8
 Ninotsminda-Teleti (hours).
Reduction in vehicle operating costs          %...........................           0%           0%         0.5%           2%           6%          15%
 (cumulative).
Increase in internal regional traffic         %...........................           0%           0%         0.5%           2%           5%           8%
 volumes (cumulative).
---------------------------------------------
                                Increased Reliability of Energy Supply and Reduced Losses: Energy Rehabilitation Activity
--------------------------------------------------------------------------------------------------------------------------------------------------------
Decreased technical losses..................  %...........................           5%           5%           4%           3%           2%           2%
Reduction in the production of greenhouse     Number......................      324,713      696,016    1,117,137    1,195,047    1,247,471    1,278,919
 gas emissions measured in tons of CO2
 equivalent.
Increased collection rate of GGIC...........  %...........................          50%          50%          95%          95%          95%          95%
---------------------------------------------
                             Improved Regional and Municipal Service Delivery: Regional Infrastructure Development Activity
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of household beneficiaries served by   Number......................            0            0        2,000       20,000       46,000       53,000
 RID projects (cumulative).
---------------------------------------------
                                             Activity Outcome Indicators for Regional Rehabilitation Project
--------------------------------------------------------------------------------------------------------------------------------------------------------
Actual operations and maintenance             Number......................            0          TBD          TBD          TBD          TBD          TBD
 expenditures (USD)*.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Setting of targets will be made at the end of Year One, once RID projects have been selected and vehicle operating costs on S-J roads have been
  determined.


                                     Sub-Activity Output Indicators for Regional Infrastructure Development Activity
                                             [Rehabilitation of Local Physical Infrastructure Sub-Activity]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Unit                Baseline      Year 1       Year 2       Year 3       Year 4       Year 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sub-Activity Output Indicators:
    Number of RID projects completed          Number......................            0            0            2            8           13           14
     (cumulative).
    Value of RID projects (cumulative, mln.   Number......................            0            8           28           48           57           58
     USD).
--------------------------------------------------------------------------------------------------------------------------------------------------------


    Activity Outcome Indicator Definitions for Enterprise Development
                                 Project
------------------------------------------------------------------------
 
------------------------------------------------------------------------
    Increased Investment in and Performance of SMEs: Investment Fund
            Activity Georgia Regional Development Fund (GRDF)
------------------------------------------------------------------------
Increase in annual revenue in  Aggregate increase in revenues of
 portfolio companies (in        companies in which GRDF invests.
 1,000 USD).
Increase in number of          Includes additional number of employees
 portfolio company employees    of, as well as additional local
 and number of local            suppliers of inputs or services to,
 suppliers.                     companies in which GRDF invests.
Increase in portfolio
 companies' wages and
 payments to local suppliers
 (in 1,000 USD)
------------------------------
 Improved Economic Performance in Agribusiness: Agribusiness Development
                                Activity
------------------------------------------------------------------------
Jobs created.................  Includes jobs created in on farms, input
                                supply services and agribusiness
                                enterprises.
Increase in aggregate          Aggregate annual increase in Net Revenue
 incremental net revenue to     (NR) of project assisted agribusinesses,
 project assisted firms (in     service providers and value added
 1,000 USD and cumulative       enterprises.
 over five years).
Direct household net income    Includes direct beneficiaries of the
 (in 1,000 USD cumulative       access to modern technology, grants to
 over five years).              rural entrepreneurs initiatives.
Direct household net income
 for market information
 initiative beneficiaries (in
 1,000 USD cumulative over
 five years)
Number of beneficiaries......  Includes population directly employed in
                                and clients of agribusinesses, input
                                supply services and enterprises.
------------------------------------------------------------------------


[[Page 58938]]


                         Activity Outcome Indicators for Enterprise Development Project
----------------------------------------------------------------------------------------------------------------
                                   Unit     Baseline   Year 1    Year 2    Year 3    Year 4    Year 5    Year 10
----------------------------------------------------------------------------------------------------------------
   Increased Investment in and Performance of SMEs: Investment Fund Activity Georgia Regional Development Fund
                                                     (GRDF)
----------------------------------------------------------------------------------------------------------------
Increase in annual revenue in  Number.....         0  ........  ........  ........  ........    22,200    55,000
 portfolio companies (in
 1,000 USD and cumulative).
Increase in number of          Number.....         0  ........  ........  ........  ........     4,400     6,650
 portfolio company employees
 and number of local
 suppliers (cumulative).
Increase in portfolio          Number.....         0  ........  ........  ........  ........     9,450    23,900
 companies' wages and
 payments to local suppliers
 (cumulative).
------------------------------
                Improved Economic Performance in Agribusiness: Agribusiness Development Activity
----------------------------------------------------------------------------------------------------------------
Jobs created from project      Number.....         0       597     1,481     2,375     3,174     3,606        NA
 interventions (cumulative).
Increase in aggregate          Number.....         0        45       287       951     2,277     4,448        NA
 incremental net revenue to
 project assisted firms (in
 1,000 USD and cumulative
 over five years).
Direct household net income    Number.....       250       160     1,035     3,474     8,415    16,605        NA
 (in 1,000 USD cumulative
 over five years).
Direct household net income    Number.....       250       133       713     1,941     3,929     6,731        NA
 for market information
 initiative beneficiaries (in
 1,000 USD cumulative over
 five years).
Number of beneficiaries        Number.....         0     8,584    20,070    36,625    49,423    57,626        NA
 (cumulative).
----------------------------------------------------------------------------------------------------------------

    (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 
Team shall conduct regular assessments of program performance to inform 
MCA-Georgia, 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-Georgia, MCA-Georgia 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-
Georgia 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-Georgia, 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-Georgia, such independent evaluator shall enter into an 
Auditor/Reviewer Agreement with MCA-Georgia in accordance with Annex I.
    (b) Ad Hoc Evaluations. Either MCC or MCA-Georgia 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-Georgia engages an evaluator, the evaluator will 
be an externally contracted independent source selected by MCA-Georgia, 
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-Georgia 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-Georgia 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

[[Page 58939]]

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 on the M&E Plan, which the 
Supervisory Board 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 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. 05-20008 Filed 10-6-05; 8:45 am]
BILLING CODE 9210-01-P