[Federal Register Volume 71, Number 54 (Tuesday, March 21, 2006)]
[Notices]
[Pages 14296-14326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-2553]



[[Page 14295]]

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Part II





Millennium Challenge Corporation





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Notice of Entering Into a Compact With the Government of the Republic 
of Vanuatu; Notice

  Federal Register / Vol. 71, No. 54 / Tuesday, March 21, 2006 / 
Notices  

[[Page 14296]]


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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 06-06]


Notice of Entering Into a Compact With the Government of the 
Republic of Vanuatu

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 (MCC) is publishing a summary and the complete 
text of the Millennium Challenge Compact between the United States of 
America, acting through the Millennium Challenge Corporation, and the 
Government of the Republic of Vanuatu. Representatives of the United 
States Government and the Government of the Republic of Vanuatu 
executed the Compact documents on March, 2, 2006.

    Dated: March 13, 2006.
John C. Mantini,
Assistant General Counsel, Millennium Challenge Corporation.

Summary of Millennium Challenge Compact With the Government of the 
Republic of Vanuatu

I. Introduction

    Vanuatu is a small island nation in the South Pacific comprised of 
83 separate islands, where approximately half of the population lives 
in poverty. As a small, open, island economy, agriculture and tourism 
are central to Vanuatu's growth. These two sectors together employ more 
than 70% of Vanuatu's working population \1\ and represent 
approximately 34% of Vanuatu's GDP.\2\ Vanuatu's poor transportation 
infrastructure, however, continues to hinder formal economic activity 
and investment in the agriculture and tourism sectors, thereby 
constraining private-sector led economic growth. Vanuatu's capital 
outlays, at 7% of national expenditures, are the lowest in the Pacific 
region.\3\
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    \1\ Source: Vanuatu Labor Market Survey (2000).
    \2\ Derived from IMF Article IV Consultation statistics and WTTC 
Satellite Account data.
    \3\ IMF Article IV Consultation (2005).
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    The five-year, $65.69 million Vanuatu Compact provides an in-depth 
focus on one economic development priority: overcoming transport 
infrastructure constraints to poverty reduction and economic growth, 
specifically for rural areas. Consisting of eleven infrastructure 
projects--including roads, wharves, an airstrip, and warehouses, as 
well as institutional strengthening initiatives for enhanced 
maintenance capacity, the program aims to benefit poor, rural 
agricultural producers and providers of tourist-related goods and 
services by reducing transportation costs and improving the reliability 
of access to transportation services (the ``MCA Program'').

II. Program Overview and Budget

    Vanuatu's MCA Program consists of two principal components: (i) 
Civil works for the reconstruction of priority transport infrastructure 
on eight islands, covering roads, wharfs, airstrips, and warehouses 
(the ``Transport Infrastructure Project''); and (ii) institutional 
strengthening efforts in Vanuatu's Public Works Department (``PWD''), 
including the provision of plant and equipment for maintenance, in 
order to facilitate enhanced sustainability and maintenance of 
infrastructure assets (the ``Institutional Strengthening Project''). 
Technical, economic, environmental, and social assessments were 
completed on each of the eleven civil works subprojects and 
institutional strengthening components contained in the MCA Program.
    The following eleven sub-projects are included as part of the U.S. 
$54.47 million Transport Infrastructure Project:
    1. Efate island--Upgrade 90km of the Ring Road;
    2. Santo island--Upgrade 70km of the East Coast Road from 
Luganville to Port Orly;
    3. Santo island--Upgrade South Coast Road Bridges (5);
    4. Malekula island--Reconstruct 11km of the Norsup Lakatoro Lits 
Lits Road;
    5. Malekula island--Upgrade South West Bay Airstrip;
    6. Pentecost island--Construct the Loltong Wharf and Upgrade of 
North-South Road to Wharf;
    7. Tanna island--Reconstruct the Whitesands Road;
    8. Epi island--Upgrade Lamen Bay Wharf;
    9. Ambae island--Reconstruct Creek Crossings on 50km Road section;
    10. Malo island--Upgrade 15km of Roads; and
    11. Warehouses (for produce and freight storage):
    (i) Ambae island (Lolowai).
    (ii) Epi island (Lamen Bay).
    (iii) Pentecost island (Loltong).
    (iv) Malo island (Nunuka).
    (v) Malekula island (South West Bay).
    Recognizing the importance of the maintenance of transport 
infrastructure in meeting program objectives, the Vanuatu Compact will 
provide focused assistance of U.S. $6.22 million to the principal 
institution in the Transport Infrastructure Project, namely PWD, to 
remove key constraints that face the institution in effectively 
delivering maintenance and repair services. The MCA Program also 
provides support for the sustainability and viability of the 
institution through organizational reform and policy changes. (Refer to 
Sections V. C. Government Commitment and Effectiveness and D. 
Sustainability, for further information on these maintenance 
initiatives.) The following table presents the total Compact cost, by 
component:

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                                                                Timeline
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            Description              CY1  ($US    CY2  ($US    CY3  ($US    CY4  ($US    CY5  ($US      Total
                                        mil)         mil)         mil)         mil)         mil)
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Transport Infrastructure Project..         4.00        22.45        25.80         2.21         0.03        54.47
Institutional Strengthening for            5.47         0.48         0.09         0.09         0.09         6.22
 sustainability/Maintenance.......
Program Administration & Audits...         1.67         0.53         0.49         0.49         0.49         3.63
Monitoring & Evaluation...........         0.28         0.06         0.06         0.06         0.91         1.37
                                   -----------------------------------------------------------------------------
    Total.........................        11.42        23.51        26.43         2.85         1.52        65.69
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[[Page 14297]]

III. Impact

    The Transport Infrastructure Project is expected to have a 
transformational impact on Vanuatu's economic development, increasing 
average income per capita (in real terms) by approximately $200, or 15% 
of current income per capita, by 2010. GDP is expected to increase by 
an additional 3% a year as a result of the program.
    Based on the areas covered by the transport assets, the program can 
be expected to benefit approximately 65,000 poor, rural inhabitants 
living nearby and using the roads to access markets and social 
services. The program is also expected to expand the tourism sector by 
approximately 15% once construction is complete. Based on the most 
recent employment data \4\ this translates to the creation of 280 
additional formal sector jobs and 25 new locally-owned businesses each 
year in this sector, impacting the lives of over 1,300 people. The 
total number of beneficiaries would be higher if the spillover impact 
of tourism activities on agriculture, fishery and construction 
sectors--as well as impact of the national maintenance strengthening 
component--could be measured.
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    \4\ National Tourism Development Office (2000) and assuming 2% 
growth rate based on labor force growth.
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IV. Program Management

    The Government of Vanuatu (``GOV'') is creating an independent 
entity, MCA-Vanuatu, housed within the Ministry of Finance and Economic 
Management, with primary responsibility for oversight and management of 
Compact implementation, particularly all monitoring and evaluation 
activities. To oversee MCA-Vanuatu, the GOV has established a Steering 
Committee consisting of five Director General-level and four Director-
level civil servants, one private sector representative (General 
Manager of Vanuatu Chamber of Commerce), and one civil society 
representative (Secretary General of Vanuatu Association of NGOs), with 
all members of the Steering Committee possessing voting rights. 
Observers to the Steering Committee will include two Government 
Directors and an MCC representative.
    The PWD will serve as the project manager, holding responsibility 
for oversight of the specific activities of the Transport 
Infrastructure Project. External professional services (for 
construction supervision) will be contracted through MCA-Vanuatu to 
assist PWD in its functions.
    The Department of Finance in the Ministry of Finance and Economic 
Management will serve as the fiscal agent on behalf of MCA-Vanuatu. For 
procurements, an external procurement agent will be used, and is 
currently being selected through a competitive process. Procurements 
will be conducted in accordance with MCC-modified World Bank 
Procurement Guidelines. A special U.S. Dollar account will be 
established at the Reserve Bank of Vanuatu for receipt of MCC 
disbursements.

V. Assessment

A. Economic Analysis

    The economic internal rate of return (``ERR'') for the overall 
program is estimated to be 25%, calculated over a twenty-year time 
horizon. Expected benefits include: Increased agricultural and 
fisheries production, induced tourism investment and expenditures, 
reduced transport operating costs, reduced infrastructure closures, 
reduced freight spoilage, value-added from storage warehouses, and 
maintenance cost savings.
    In addition to the quantifiable benefits described above, the 
upgraded road network is expected to improve the quality of life of all 
ni-Vanuatu living within the vicinity of the road by improving access 
(via lower costs and shorter travel times) to social services, such as 
health centers and schools.

B. Consultative Process

    Vanuatu engaged in a comprehensive consultative process, consisting 
of: (i) Ongoing national and provincial public forums, such as the 
Comprehensive Reform Program Summit, National Business Forum, Rural 
Economic Development Initiative, and Government Investment Program 
workshops, which included specific discussion on priorities and 
projects for the MCA proposal; and (ii) public outreach meetings in 
four of Vanuatu's six provinces. Consulted groups included Vanuatu's 
council of chiefs, women's group leaders, the private sector, NGOs, 
church leaders, and government officials from Vanuatu's provinces. The 
proposed projects for MCC consideration were derived from each 
province's Rural Economic Development Plan, which included extensive 
local-level stakeholder consultation forums in each of Vanuatu's six 
provinces.
    To sustain public awareness and participation in the Compact 
development process, the GOV held MCA public outreach meetings in 
various provinces and engaged local media regarding proposal due 
diligence, project selection, and Compact development.

C. Government Commitment and Effectiveness

    The GOV is undertaking several major policy changes as a part of 
the MCA Program. These include:
    Policy changes to ensure sufficient budget allocations for road 
maintenance activities by the GOV. This policy change will provide PWD 
with sufficient means to maintain all new and existing transport 
infrastructure.
    The GOV or the respective province will develop a revenue 
collection mechanism and an implementation plan for the collection of 
wharf user fees and their application towards wharf maintenance. This 
policy change would provide sufficient funds for maintenance of the 
wharves, thereby preserving their useful life and ability to contribute 
to economic growth and higher incomes.

D. Sustainability

    In addition to the efforts mentioned above, the program will 
support the following major institutional changes to promote enhanced 
maintenance and sustainability of infrastructure assets:
    Establishment of a service performance contract between the 
Ministry of Infrastructure and Public Utilities and PWD in order to 
make PWD accountable for service delivery against targets set on an 
annual basis (the ``Service Performance Contract''). The Service 
Performance Contract is expected to reduce the overall cost of 
maintenance on an annual basis, and assure proper and timely 
maintenance of infrastructure assets.
    Establishment of maintenance contracts with community 
representatives for various sub-projects to involve local communities 
(users) in maintenance activities.

E. Environment and Social Impacts

    Initial environmental and social assessment of each of the eleven 
proposed projects included in the Transport Infrastructure Project has 
been completed. Impacts associated with these projects, which primarily 
involve the rehabilitation of existing infrastructure, are likely to be 
site-specific and readily mitigable, and are therefore screened as 
Category B activities in accordance with the MCC Environmental 
Guidelines. No significant adverse environmental or social impacts, 
such as the need for resettlement, were identified in the initial 
assessment. However, further environmental and social assessment will 
be required during the design stage

[[Page 14298]]

to confirm the findings of the initial assessment and to address design 
alternatives. Project-specific environmental management plans will be 
completed prior to construction.
    To address environmental and social issues during program 
implementation, MCA-Vanuatu will select in an open and competitive 
process, subject to the approval of MCC, an environmental and social 
impact officer (``ESI Officer''). The ESI Officer will provide MCA-
Vanuatu with expertise in environmental, social, and gender impact 
assessment, and will be responsible for ensuring that the activities 
related to the Transport Infrastructure Project and Institutional 
Strengthening Project are undertaken in accordance with the MCC 
Environmental Guidelines and safeguard policies. The ESI Officer will 
be located within the Environmental Unit of the Government, but will be 
dedicated to the management of environmental and social issues 
associated with implementation of the Transport Infrastructure Project 
and Institutional Strengthening Project. The ESI Officer will convene 
periodic public meetings to provide implementation updates to identify 
and address public concerns.

F. Donor Coordination

    The GOV and MCC have convened various meetings with donor partners 
such as Australia, New Zealand, France, the European Union, Japan, the 
Asian Development Bank (``ADB''), the World Bank, and the IMF to 
discuss potential project-level coordination opportunities and 
collaborative partnerships for implementation and monitoring. It is 
widely accepted among donors that Vanuatu has a substantial need for 
investments in transport infrastructure, particularly for rural areas 
and the outer islands. The MCA Program builds upon analytical work 
previously conducted by the ADB on outer island transport 
infrastructure development in Vanuatu.
    Donors such as Australia and New Zealand have recently committed to 
enlarging their assistance to the productive sectors in response to the 
priorities for growth and poverty reduction outlined in the GOV's 
National Priorities and Action Agenda. MCC's focus on transport 
infrastructure presents a number of mutually beneficial coordination 
opportunities with ongoing and planned donor programs, such as: The EU 
and France's Agricultural Producers Organization Project; the EU and 
ADB's Tourism Training and Education project; ADB's Rural Credit 
Strengthening and Secured Transaction Framework projects; AusAID's 
Business Climate Reform program; the EU and France's International 
Airport upgrading; and the EU and JICA's Institutional Strengthening 
for Infrastructure Maintenance programs. Moreover, AusAID is providing 
funding for key household data surveys (such as the Household Income 
and Expenditure Survey), which will be used in monitoring program 
impacts.

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

Table of Contents

Article I. Purpose and Term
    Section 1.1 Project 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 of Treatment of MCC Funding
    Section 2.4 Incorporation; Notice; Clarification
    Section 2.5 Refunds; Violations
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: Transport Infrastructure 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 the Republic of Vanuatu (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 
Vanuatu as eligible to present to MCC a proposal for the use of 
Millennium Challenge Account (``MCA'') assistance to help facilitate 
poverty reduction through economic growth in Vanuatu;
    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 March 31, 2005 (the ``Proposal'');
    Whereas, the Proposal focused on, among other things, increasing 
economic activity and incomes in rural areas through comprehensive 
investments in transport infrastructure, including roads, wharfs, 
airstrips and warehouses;
    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 Vanuatu towards achieving economic growth and poverty 
reduction; and
    Whereas, based on MCC's evaluation of the Proposal and related 
documents and subsequent discussions and negotiations between the 
Parties, the Government and MCC determined to enter into this Compact 
to implement a program using MCC Funding to advance Vanuatu's progress 
towards economic growth and poverty reduction (the ``Program'');
    Now, therefore, in consideration of the foregoing and the mutual 
covenants and agreements set forth herein, the Parties hereby agree as 
follows:

Article I. Purpose and Term

    Section 1.1 Project Objectives. The overall objective of this 
Compact is to

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reduce poverty and increase incomes in rural areas by stimulating 
economic activity in the tourism and agricultural sectors through the 
improvement of transport infrastructure, which is key to economic 
growth and poverty reduction in Vanuatu (the ``Compact Goal''). The 
Parties have identified the following project-level objectives (each a 
``Project Objective'' and together the ``Project Objectives'') to 
advance the Compact Goal, each of which is described in more detail in 
the Annexes attached hereto:
    (a) Provide improved or new priority transport infrastructure in 
rural areas and outer islands, including roads, wharfs, airstrips and 
warehouses (the ``Infrastructure Objective''); and
    (b) Strengthen the ability of the Government, specifically the 
capacity and capability of the Department of Public Works, to maintain 
and sustain Vanuatu's infrastructure assets (the ``Institutional 
Strengthening Objective'').
    The Government expects to achieve, and shall use its best efforts 
to ensure the achievement of, these Project 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 
Project 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 Sixty-Five Million Six Hundred Ninety Thousand United States 
Dollars (USD $65,690,000) ( ``MCC Funding'') during the Compact Term to 
enable the Government to implement the Program and achieve the Project 
Objectives.
    (i) Subject to sections 2.1(a)(ii), 2.2.(b) and 5.4, the allocation 
of 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 (collectively, 
``Accrued Interest'') shall be held in a Permitted Account and accrue 
in accordance with the requirements for the accrual 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 that is held in the Permitted Account(s) shall be 
denominated in the currency of the United States of America (``United 
States Dollars'') prior to Re-Disbursement; provided, that a certain 
portion of MCC Funding may be transferred to a Local Account and may be 
held in such Local Account in the currency of Vanuatu 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 the Republic of Vanuatu 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 ni-Vanuatu 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

[[Page 14300]]

domestic sources, for the activities contemplated herein, the 
Government shall notify MCC in writing within fifteen (15) days of such 
reallocation or reduction, such notification to contain information 
regarding the amount of the reallocation or reduction, the affected 
activities, and an explanation for the reallocation or reduction. In 
the event that MCC independently determines upon review of the executed 
national annual budget that such a material reallocation or reduction 
of resources has occurred, MCC shall notify the Government and, 
following such notification, the Government shall provide a written 
explanation for such reallocation or reduction and MCC may (i) reduce, 
in its sole discretion, the total amount of MCC Funding or any MCC 
Disbursement by an amount equal to the amount estimated in the 
applicable Detailed Financial Plan for the activity for which funds 
were reduced or reallocated or (ii) otherwise suspend or terminate MCC 
Funding in accordance with section 5.4(b).
    (c) The Government shall use its best efforts to ensure that all 
MCC Funding is fully reflected and accounted for in the annual budget 
of Vanuatu on a multi-year basis.
    (d) The Government shall establish an independent unit within the 
Ministry of Finance and Economic Management, or such other entity as 
may be acceptable to MCC, which shall be responsible for the oversight 
and management of the Program as specified in Annex I (``MCA-
Vanuatu''). The Government shall ensure the independent and proper 
administration of MCA-Vanuatu in accordance with the terms of the 
Compact, the Governing Documents of MCA-Vanuatu and any relevant 
Supplemental Agreements.
    Section 2.3 Limitations on the Use or Treatment of MCC Funding.
    (a) Abortions and Involuntary Sterilizations. The Government shall 
ensure that MCC Funding shall not be used to undertake, fund or 
otherwise support any activity that is subject to prohibitions on use 
of funds contained in (i) paragraphs (1) through (3) of section 104(f) 
of the Foreign Assistance Act of 1961 (22 U.S.C. 2151b(f)(1)-(3), a 
United States statute, which prohibitions shall apply to the same 
extent and in the same manner as such prohibitions apply to funds made 
available to carry out Part I of such Act; or (ii) any provision of law 
comparable to the eleventh and fourteenth provisos under the heading 
``Child Survival and Health Programs Fund'' of division E of Public Law 
108-7 (117 Stat. 162), a United States statute.
    (b) United States Job Loss or Displacement of Production. The 
Government shall ensure that MCC Funding shall not be used to 
undertake, fund or otherwise support any activity that is likely to 
cause a substantial loss of United States jobs or a substantial 
displacement of United States production, including:
    (i) Providing financial incentives to relocate a substantial number 
of United States jobs or cause a substantial displacement of production 
outside the United States;
    (ii) Supporting investment promotion missions or other travel to 
the United States with the intention of inducing United States firms to 
relocate a substantial number of United States jobs or a substantial 
amount of production outside the United States;
    (iii) Conducting feasibility studies, research services, studies, 
travel to or from the United States, or providing insurance or 
technical and management assistance, with the intention of inducing 
United States firms to relocate a substantial number of United States 
jobs or cause a substantial displacement of production outside the 
United States;
    (iv) Advertising in the United States to encourage United States 
firms to relocate a substantial number of United States jobs or cause a 
substantial displacement of production outside the United States;
    (v) Training workers for firms that intend to relocate a 
substantial number of United States jobs or cause a substantial 
displacement of production outside the United States;
    (vi) Supporting a United States office of an organization that 
offers incentives for United States firms to relocate a substantial 
number of United States jobs or cause a substantial displacement of 
production outside the United States; or
    (vii) Providing general budget support for an organization that 
engages in any activity prohibited above.
    (c) Military Assistance and Training. The Government shall ensure 
that MCC Funding shall not be used to undertake, fund or otherwise 
support the purchase or use of goods or services for military purposes, 
including military training, or to provide any assistance to the 
military, police, militia, national guard or other quasi-military 
organization or unit.
    (d) Prohibition of Assistance Relating to Environmental, Health or 
Safety Hazards. The Government shall ensure that MCC Funding shall not 
be used to undertake, fund or otherwise support any activity that is 
likely to cause a significant environmental, health, or safety hazard. 
Unless MCC and the Government agree otherwise in writing, the 
Government shall ensure that activities undertaken, funded or otherwise 
supported in whole or in part (directly or indirectly) by MCC Funding 
comply with environmental guidelines delivered by MCC to the Government 
or posted by MCC on its Web-site or otherwise publicly made available, 
as such guidelines may be amended from time to time (the 
``Environmental Guidelines''), including any definition of ``likely to 
cause a significant environmental, health, or safety hazard'' as may be 
set forth in such Environmental Guidelines.
    (e) Taxation.
    (i) Taxes. As required by applicable United States law and 
consistent with the applicable requirement of Vanuatu law that 
international cooperation assistance shall be exempt from taxes, the 
Government shall ensure that the Program, all Program Assets, MCC 
Funding and Accrued Interest shall be free from any taxes imposed under 
laws currently or hereafter in effect in Vanuatu 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 Vanuatu, 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 Vanuatu, 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 Vanuatu, other 
than MCA-Vanuatu 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 Vanuatu;
    (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

[[Page 14301]]

permanent residents of Vanuatu and who are present in Vanuatu 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 Vanuatu, 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 (1) any 
transaction, service, activity, contract, grant or other implementing 
agreement funded in whole or in part by MCC Funding; (2) 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, Vanuatu by MCC, 
or by any person or entity (including contractors and grantees) as part 
of, or in conjunction with, MCC Funding or the Program; (3) any 
contractor, grantee, or other organization carrying out activities 
funded in whole or in part by MCC Funding; and (4) any employee of such 
organizations (the uses set forth in clauses (1) through (4) 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 Vanuatu, 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) of this section 2.3(e), and (3) any other 
appropriate Government action to facilitate the administration of this 
section 2.3(e).
    (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 Vanuatu that would have the effect of requiring 
or allowing any impoundment, rescission or sequestration of any MCC 
Funding, Accrued Interest or Program Asset.
    (g) Liens or Encumbrances. The Government shall ensure that no MCC 
Funding, Accrued Interest or Program Assets shall be subject to any 
lien, attachment, enforcement of judgment, pledge, or encumbrance of 
any kind (each a ``Lien''), except with the prior approval of MCC in 
accordance with section 3(c) of Annex I, and in the event of the 
imposition of any Lien not so approved, the Government shall promptly 
seek the release of such Lien and shall promptly pay any amounts owed 
to obtain such release; provided, however, the Government shall satisfy 
its obligations under this section 2.3(g) at its own expense and no MCC 
Funding, Accrued Interest or Program Assets may be applied by the 
Government in satisfaction of its obligations under this section 
2.3(g).
    (h) Other Limitations. The Government shall ensure that the use or 
treatment of MCC Funding 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-Vanuatu 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-Vanuatu) 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:

[[Page 14302]]

    (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.
    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 the Republic of Vanuatu, 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-Vanuatu 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

[[Page 14303]]

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-Vanuatu 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-Vanuatu 
is modified, supplemented, unduly influenced or rescinded by any 
governmental authority, except by a non-appealable judicial decision or 
any judicial decision which MCA-Vanuatu, with the agreement of MCC, 
decides not to appeal, and (ii) the authority of MCA-Vanuatu shall not 
be expanded, restricted, or otherwise modified, except in accordance 
with this Compact, the Governance Agreement, or any other Supplemental 
Agreement between the Parties.
    (f) The Government shall ensure that all persons and individuals 
that enter into agreements to provide goods, services or works under 
the Program or in furtherance of this Compact shall do so in accordance 
with the Procurement Guidelines and shall obtain all necessary 
immigration, business and other permits, licenses, consents and 
approvals to enable them and their personnel to fully perform under 
such agreements.
    Section 3.3 Government Deliveries. The Government shall proceed, 
and cause others to proceed, in a timely manner to deliver to MCC all 
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 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; and
    (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 Vanuatu 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 (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 MCC and MCA-Vanuatu (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) The Government shall ensure that no goods, services or works 
funded in whole or in part (directly or indirectly) by MCC Funding are 
procured pursuant to orders or contracts firmly placed or entered into 
prior to the Entry into Force, except as the Parties may otherwise 
agree in writing.
    (e) The Government shall ensure that MCA-Vanuatu and any other 
Permitted

[[Page 14304]]

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-Vanuatu 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, 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 Vanuatu. 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. At the request of MCC, 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 Audit Guidelines and be subject to 
quality assurance oversight by the Inspector General in accordance with 
such Audit 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

[[Page 14305]]

substance as approved by MCA-Vanuatu, 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-
Vanuatu fiscal year or any other non-United States person or entity 
that receives (directly or indirectly) USD $300,000 or more of MCC 
Funding from any Provider in such fiscal year or (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-
Vanuatu fiscal year or any other United States person or entity that 
receives (directly or indirectly) USD $500,000 or more of MCC Funding 
from any Provider in such fiscal year.
    (v) Corrective Actions. The Government shall use its best efforts 
to ensure that Covered Providers take, where necessary, appropriate and 
timely corrective actions in response to audits, consider whether a 
Covered Provider's audit necessitates adjustment of its own records, 
and require each such Covered Provider to permit independent auditors 
to have access to its records and financial statements as necessary.
    (vi) Audit Reports. The Government shall furnish, or use its best 
efforts to cause to be furnished, to MCC an audit report in a form 
satisfactory to MCC for each audit required by this section 3.8, other 
than audits arranged for by MCC, no later than 90 days after the end of 
the period under audit, or such other time as may be agreed by the 
Parties from time to time.
    (vii) Other Providers. For Providers who receive MCC Funding under 
this Compact pursuant to direct contracts or agreements with MCC, MCC 
shall include appropriate audit requirements in such contracts or 
agreements and shall, on behalf of the Government, unless otherwise 
agreed by the Parties, conduct the follow-up activities with regard to 
the audit reports furnished pursuant to such requirements.
    (viii) Audit by MCC. MCC retains the right to perform, or cause to 
be performed, the audits required under this section 3.8 by utilizing 
MCC Funding or other resources available to MCC for this purpose, and 
to audit, conduct a financial review, or otherwise ensure 
accountability of any Provider or any other third party receiving MCC 
Funding, regardless of the requirements of this section 3.8. MCC will 
provide notice to the Government of its intent to exercise such right.
    (e) Application to Providers. The Government shall include, or 
ensure the inclusion of, at a minimum, the requirements of:
    (i) Paragraphs (a), (b), (c), (d)(ii), (d)(iii), (d)(v), (d)(vi), 
and (d)(viii) of this section 3.8 into all Supplemental Agreements 
between the Government, any Government Affiliate, any Permitted 
Designee or any of their respective directors, officers, employees, 
Affiliates, contractors, sub-contractors, grantees, sub-grantees, 
representatives or agents (each, a ``Government Party''), on the one 
hand, and a Covered Provider that is not a 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 fund the costs of any Audits, reviews or evaluations required under 
this Compact, including as reflected on Exhibit A to Annex II, and in 
no event shall the Government be responsible for the costs of any such 
Audits, reviews or evaluations from financial sources other than MCC 
Funding.
    Section 3.9 Insurance. 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-Vanuatu or the Implementing Entity, as applicable, 
shall be named as the payee on any such insurance and the beneficiary 
of any such guarantee, including performance bonds. MCC and, to the 
extent it is not named as the insured party, MCA-Vanuatu 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-Vanuatu 
and acceptable to MCC or otherwise as directed by MCC. To the extent 
MCA-Vanuatu is held liable under any indemnification or other similar 
provision of any agreement between MCA-Vanuatu, 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-Vanuatu 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

[[Page 14306]]

    (ii) A detailed description of the objectives and measures for 
results of the Program or Project;
    (d) The progress made by Vanuatu toward achieving the Compact Goal 
and Project Objectives;
    (e) A description of the extent to which MCC Funding has been 
effective in helping Vanuatu to achieve the Compact Goal and Project 
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, subject to the relevant 
protocols governing such assistance;
    (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 of the Supplemental Agreements 
identified in Exhibit B attached hereto, which agreements shall be in 
full force and effect as of the Entry into Force, or execute one or 
more term sheets that set forth the material and principal terms and 
conditions that will be included in any such Supplemental Agreement 
that has not been entered into as of the Entry into Force (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 certificate 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 Vanuatu 
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 on its Web site or otherwise make publicly 
available.
    (f) MCC shall deliver a certificate signed and dated by the 
Principal Representative of MCC certifying that MCC has completed its 
domestic requirements for this Compact to enter into force.
    (g) 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 of 
Operations, (with a copy to the Vice President and General Counsel), 
875 Fifteenth Street, NW., Washington, DC 20005, United States of 
America, Facsimile: (202) 521-3700, E-mail: [email protected] (Vice 
President of Operations); [email protected] (Vice President and 
General Counsel)
To the Government:

    Office of the Prime Minister, Attention: Director-General, Office 
of the Prime Minister, PMB 9053 Port Vila, Republic of Vanuatu, 
Facsimile: (678) 26708.
    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 
MCC, for all purposes relevant to this Compact, the Government shall be 
represented by the Director-General of the Prime Minister's Office, or 
in his absence the relevant designated Additional Representative, and 
MCC shall be represented by the individual holding the position of, or 
acting as, Vice President, Department of Operations (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. MCC may change its 
Principal Representative to a new representative of equivalent or 
higher rank upon written notice to the Government, which notice shall 
include the specimen signature of the new Principal Representative.

[[Page 14307]]

    Section 5.3 Amendments. The Parties may amend this Compact only by 
a written agreement signed by the Principal Representatives of the 
Parties and subject to the respective domestic approval requirements to 
which this Compact was subject.
    Section 5.4 Termination; Suspension.
    (a) Subject to section 2.5 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 United States Government policy, whether now or 
hereafter in effect;
    (ii) The Government, any Provider, or any other third party 
receiving MCC Funding or using 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 Vanuatu 
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 Vanuatu 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 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 
Project 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 Disbursements and Re-Disbursements shall cease upon 
expiration, suspension, or termination of this Compact; provided, 
however, (i) reasonable expenditures for goods, services and works that 
are properly incurred under or in furtherance of this Compact before 
expiration, suspension or termination of the Compact and (ii) 
reasonable expenditures for goods and services (including 
administrative expenses) properly incurred within one hundred twenty 
(120) days after the expiration, suspension or termination of the 
Compact in connection with the winding up of the Program may be paid 
from MCC Funding, provided that in the case of clauses (i) and (ii) the 
request for such payment is (A) properly submitted within ninety (90) 
days after the expiration, suspension or termination of the Compact and 
(B) subject to the prior written consent of MCC.
    (f) Except for payments which the Parties are committed to make 
under noncancelable commitments entered into with third parties before 
such

[[Page 14308]]

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 United States 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-Vanuatu, (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 Vanuatu 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 Vanuatu, 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 Vanuatu.
    Section 5.6 Attachments. Any annex, schedule, exhibit, table, 
appendix or other attachment expressly attached hereto (collectively, 
the ``Attachments'') is incorporated herein by reference and shall 
constitute an integral part of this Compact.
    Section 5.7 Inconsistencies.
    (a) Conflicts or inconsistencies between any parts of this Compact 
shall be resolved by applying the following descending order of 
precedence:
    (i) Articles I through V; and
    (ii) Any Attachments.
    (b) In the event of any conflict or inconsistency between this 
Compact and any Supplemental Agreement 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 ``United States 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

[[Page 14309]]

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 Vanuatu.
    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-Vanuatu Web site, 
identifying Program activity sites, and marking Program Assets; 
provided, any announcement, press release or statement regarding MCC or 
the fact that MCC is funding the Program or any other publicity 
materials referencing MCC, including the publicity described in this 
section 5.17, shall be subject to prior approval by MCC and shall be 
consistent with any instructions provided by MCC from time to time in 
relevant Implementation Letters. Upon the termination or expiration of 
this Compact, MCC may request the removal of, and the Government shall, 
upon such request, remove, or cause the removal of, any such markings 
and any references to MCC in any publicity materials or on the MCA-
Vanuatu Web site.
    In Witness Whereof, the undersigned, duly authorized by their 
respective governments, have signed this Compact this 2nd day of March, 
2006 and this Compact shall enter into force in accordance with section 
1.3.
    Done at Port Vila, Vanuatu in the English language.
    For the United States of America, acting through the Millennium 
Challenge Corporation, Name: Charles O. Sethness, Title: Vice 
President, Accountability.
    For the Government of The Republic of Vanuatu, Name: Ham Lini, 
Title: Prime Minister of the Republic of Vanuatu.

Exhibit A--Definitions

    The following compendium of capitalized terms that are used herein 
is provided for the convenience of the reader. To the extent that there 
is a conflict or inconsistency between the definitions in this Exhibit 
A and the definitions elsewhere in the text of this Compact, the 
definition elsewhere in this Compact shall prevail over the definition 
in this Exhibit A.
    Accrued Interest is any interest or other earnings on MCC Funding 
that accrues or are earned.
    Act means the Millennium Challenge Act of 2003, as amended.
    ADB means the Asian Development Bank.
    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.
    Attachments means any annex, schedule, exhibit, table, appendix or 
other attachment 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-Vanuatu 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.
    AusAID means the Australian Agency for International Development.

[[Page 14310]]

    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-Vanuatu 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 section 3 of Schedule 1 of Annex I.
    Chair means the Chair of the Steering Committee.
    Compact means the Millennium Challenge Compact made between the 
United States of America, acting through the Millennium Challenge 
Corporation, and the Government of the Republic of Vanuatu.
    Compact Goal means reducing poverty and increasing incomes in rural 
areas by stimulating economic activity in the tourism and agricultural 
sectors through the improvement of transport infrastructure in Vanuatu.
    Compact Records shall have the meaning set forth in section 3.8(b).
    Compact Reports means 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 the Transport 
Infrastructure 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-
Vanuatu 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-Vanuatu.
    EMPs means environmental management plans.
    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 Web site or 
otherwise publicly made available, as such guidelines may be amended 
from time to time.
    Equipment Subproject Activity shall have the meaning set forth in 
section 2(b)(i) of Schedule 1 of Annex 1.
    ESI Officer means Environmental and Social Impact Officer.
    EU means the European Union.
    Evaluation Component means the component of the M&E Plan that 
specifies a methodology, process and timeline for the evaluation of 
planned, ongoing, or completed Project Activities to determine their 
efficiency, effectiveness, impact and sustainability.
    Exempt Uses shall have the meaning set forth in section 2.3(e)(ii).
    Final Evaluation shall have the meaning set forth in section 3(a) 
of Annex III.
    Financial Plan means collectively, the Multi-Year Financial Plan, 
each Detailed Financial Plan, and 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-Vanuatu 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.
    GDP means gross domestic product.
    Goal Indicator means the Indicator in the M&E Plan that will 
measure results for the overall Program. A table of Compact Goal 
Indicator definitions is set forth at section 2(a)(i) of Annex III.
    Governance Agreement is the governance agreement to be entered into 
by the Government and MCA-Vanuatu and, at MCC's option, MCC, that, in 
addition to the Governing Documents, sets forth the terms and 
conditions to govern MCA-Vanuatu.
    Governing Documents shall have the meaning set forth in section 
3(c)(i)(10) of Annex I.
    Government means the Government of the Republic of Vanuatu.
    Government Affiliate is an Affiliate, ministry, bureau, department, 
agency, government corporation or any other entity chartered or 
established by the Government. References to Government Affiliate shall 
include any of their respective directors, officers, employees, 
affiliates, contractors, sub-contractors, grantees, sub-grantees, 
representatives, and agents.
    Government Members are the government members identified in section 
3(d)(ii)(2)(A)(i-x) of Annex I serving as voting members on the 
Steering Committee, 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).
    HIES means the Household Income and Expenditure Survey.
    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 activity, 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) 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-Vanuatu may provide MCC Funding, directly or indirectly, 
through the Outside Project Manager to implement and carry out the 
Transport Infrastructure Project or any other activities to be carried 
out in furtherance of this Compact.
    Implementing Entity Agreement is an agreement between MCA-Vanuatu 
and an Implementing Entity, in form and substance satisfactory to MCC, 
that sets forth the roles and responsibilities of such Implementing 
Entity and other

[[Page 14311]]

appropriate terms and conditions, such as payment of the Implementing 
Entity.
    Indicator(s) means the quantitative, objective and reliable data 
that the M&E Plan will use to measure the results of the Program.
    Indicator Baseline shall have the meaning set forth in section 2(a) 
of Annex III.
    Infrastructure Activity is the Project Activity described in 
section 2(a) of Schedule 1 of Annex I.
    Infrastructure Objective means the Project Objective to provide 
improved or new priority transport infrastructure in rural areas and 
outer islands, including roads, wharfs, airstrips and warehouses.
    Infrastructure Subproject Activity shall have the meaning set forth 
in section 2(a) of Schedule 1 of Annex 1.
    Inspector General means the Inspector General of the United States 
Agency for International Development.
    Institutional Strengthening Activity shall have the meaning set 
forth in section 2(b) of Schedule 1 of Annex 1.
    Institutional Strengthening Objective means the Project Objective 
to strengthen the ability of the Government, specifically the capacity 
and capability of the Department of Public Works, to maintain and 
sustain Vanuatu's infrastructure assets.
    Institutional Strengthening Subproject Activity shall have the 
meaning set forth in Section 2(b) of Schedule 1 of Annex 1.
    Lien means any lien, attachment, enforcement of judgment, pledge, 
or encumbrance of any kind.
    Local Account shall have the meaning set forth in section 4(d)(ii) 
of Annex I.
    M&E Annex means Annex III of this Compact, which generally 
describes the components of the M&E Plan for the Program.
    M&E Implementation Manual means the implementation manual to be 
developed by MCA-Vanuatu and approved by MCC consistent with the M&E 
Plan.
    M&E Plan means the plan to measure and evaluate progress toward 
achievement of the Compact Goal and Objectives of this Compact.
    Managing Director means the Managing Director of MCA-Vanuatu. 
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 Governing Documents, 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 Governing Documents, the Procurement Agreement, 
Procurement Guidelines, or any Supplemental Agreement.
    MCA means the Millennium Challenge Account.
    MCA Eligibility Criteria means the MCA selection criteria and 
methodology published by MCC pursuant to section 607 of the Act from 
time to time.
    MCA-Vanuatu shall have the meaning set forth in section 2.2(d) of 
this Compact and as is further described in section 3(d) of Annex I.
    MCA-Vanuatu Web site means the Web site operated by MCA-Vanuatu.
    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-Vanuatu 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 appointed by MCC to serve as 
an Observer on the Steering Committee.
    Monitoring Component means the component of the M&E Plan that 
specifies how progress toward the Project Objectives and intermediate 
results of the Transport Infrastructure Project will be monitored and 
as set forth in section 2 of Annex III.
    Multi-Year Financial Plan means the multi-year financial plan for 
the Program and for the Transport Infrastructure 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.
    NGOs means non-governmental organizations.
    Non-Government Members are the General Manager of the Chamber of 
Commerce and the Secretary-General of the Vanuatu Non-Governmental 
Organization serving as Voting Members on the Steering Committee.
    Objective Indicator means the Indicator in the M&E Plan for each 
Project Objective that will measure the final results of the Transport 
Infrastructure Project in order to monitor its success in meeting each 
of the Project Objectives. A table of Objective Indicator definitions 
is set forth at section 2(a)(ii) of Annex III.
    Observers means the non-voting observers of the Steering Committee 
described in section 3(d)(ii)(2) of Annex I.
    Outcome Indicator means the Indicator in the M&E Plan that will 
measure the intermediate results achieved under each of the Project 
Activities to provide an early measure of the likely impact of the 
Transport Infrastructure Project. A table of Outcome Indicator 
definitions is set forth at section 2(a)(ii) of Annex III.
    Outside Project Manager means the qualified persons or entities 
engaged by MCA-Vanuatu, to serve as outside project managers in 
accordance with section 3(e) of Annex I.
    PAA is the Government's National Priorities and Action Agenda.
    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).
    Pledge means any pledge of any MCC Funding or any Program Assets, 
or any guarantee (directly or indirectly) of any indebtedness.
    Principal Representative means (i) for the Government, the 
individual holding the position of the Director-General of the Prime 
Minister's Office, or in his absence the relevant designated Additional 
Representative and (ii) for MCC, the individual holding the position 
of, or acting as, the Vice President of Operations.
    Procurement Agent are the procurement agents that MCA-Vanuatu will 
engage to carry out and/or certify specified procurement activities in 
furtherance of this Compact on behalf of the Government, MCA-Vanuatu, 
the Project Manager or Implementing Entity.
    Procurement Agent Agreement is the agreement that MCA-Vanuatu 
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.

[[Page 14312]]

    Procurement Agreement is a Supplemental Agreement between MCC and 
MCA-Vanuatu, 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 shall have the meaning set forth in section 3(i) 
of Annex I.
    Program means a program, to be implemented under this Compact, 
using MCC Funding to advance Vanuatu's progress towards economic growth 
and poverty reduction.
    Program Annex means Annex I to this Compact, which generally 
describes the Program that MCC Funding will support in Vanuatu 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 (directly or indirectly) by 
MCC Funding.
    Program Management Unit means a management unit of MCA-Vanuatu to 
have overall management responsibility for the implementation of this 
Compact.
    Project means the Transport Infrastructure 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 the Transport Infrastructure Project.
    Project Activity Indicator shall have the meaning set forth in 
section 2(a)(iii) of Annex III.
    Project Activity Outcomes is the progress made toward the Project 
Objectives and the intermediate results of the Transport Infrastructure 
Project and each Project Activity.
    Project Objective(s) means the Infrastructure Objective and the 
Institutional Strengthening Objective.
    Proposal is the proposal for use of MCA assistance submitted to MCC 
by the Government on March 31, 2005.
    Provider shall have the meaning set forth in section 2.4(b).
    PWD means the Public Works Department.
    PWD Project Management Unit shall have the meaning set for in 
section 3(e) of Annex 1.
    REDI means the Rural Economic Development Initiative coordinated by 
the Department of Strategic Management of the Government.
    Re-Disbursement is the release of MCC Funding from a Permitted 
Account.
    Reviewer shall have the meaning set forth in section 3(h) of Annex 
I.
    Road Maintenance Budget Allocation shall have the meaning set forth 
in section 5(b)(i) of Schedule 1 of Annex 1.
    Special Account shall have the meaning set forth in section 4(d(i) 
of Annex I.
    Steering Committee means an independent Steering Committee of MCA-
Vanuatu to oversee MCA-Vanuatu's responsibilities and obligations under 
this Compact.
    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 shall have the meaning set forth 
in section 4.1(b).
    Target means one or more expected results that specify the expected 
value and the expected time by which that result will be achieved.
    Tax(es) shall have the meaning set forth in section 2.3(e)(i).
    Transport Infrastructure Project means the Project and Project 
Activities that the Parties intend to implement in furtherance of the 
Infrastructure Objective and the Institutional Strengthening Objective 
and as further described in Schedule I to Annex I.
    Technical Assistance Subproject Activity shall have the meaning set 
forth in section 2(b)(ii) of Schedule 1 of Annex I.
    United States Dollars (USD) means the currency of the United States 
of America.
    United States Government means any branch, agency, bureau, 
government corporation, government chartered entity or other body of 
the Federal government of the United States.
    Vice Chair means the Vice Chair of the Steering Committee.
    Voting Members are the voting members on the Steering Committee 
described in section 3(d)(ii)(2) of Annex I.
    Work Plans means work plans for the overall administration of the 
Program and for the Transport Infrastructure Project.

Exhibit B--List of Certain Supplemental Agreements

    1. Governance Agreement.
    2. Fiscal Agent Agreement.
    3. Implementing Entity Agreements.
    4. Bank Agreement.
    5. Procurement Agent Agreement.

Annex I--Program Description

    This Annex I to the Compact (the ``Program Annex'') generally 
describes the Program that MCC Funding will support in Vanuatu 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 Transport Infrastructure Project (described in 
Schedule I to this Program Annex), MCC, the Government (or a mutually 
acceptable Government Affiliate) and MCA-Vanuatu 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-Vanuatu (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. Except as defined in this Program Annex, 
each capitalized term in this Program Annex shall have the same meaning 
given such term elsewhere in this Compact. Unless otherwise expressly 
stated, each Section reference herein is to the relevant Section of the 
main body of the Compact.

1. Background; Consultative Process

    (a) Background. Over the past decade, Vanuatu's economic growth has 
fallen short of its population growth. From 1994 to 2003, annual real 
gross domestic product (``GDP'') growth in Vanuatu has averaged 1.0% 
while annual population growth has averaged 2.6% and average per capita 
income in real terms declined by 15.4%. Although the Government has 
fostered macroeconomic stability by reducing fiscal deficits and 
maintaining prudent levels of external debt over the past five years, 
this progress has largely come at the expense of capital expenditures. 
Vanuatu's capital outlays are the lowest in the Pacific region 
(whereas, in contrast, Vanuatu's budget allocation for education from 
2000 to 2003 was significantly higher than most Pacific countries).
    The Government has identified the major constraints to economic 
development as the lack of an attractive investment climate for private 
sector investment, a lack of income earning

[[Page 14313]]

opportunities for a fast growing population due to the high cost of 
doing business, and poor access to basic health and primary education 
services in rural areas. The Government needs to spend considerably 
more on infrastructure in order to reduce business costs and therefore 
improve the environment for private sector-led economic growth.
    The current state of Vanuatu's transportation infrastructure is 
hindering formal economic activity and investment in the agriculture 
and tourism sector--the two primary sources of growth and employment in 
Vanuatu. These two sectors together employ 92% of Vanuatu's working 
population and represent approximately 32% of Vanuatu's GDP. 
Furthermore, small-scale agriculture is the mainstay of Vanuatu's rural 
areas, where 80% of the population resides and 51% of the population in 
such rural areas lives in hardship. Consequently, specific policies and 
investments aimed at reducing the transport cost burden faced by those 
engaged in economic activity within these sectors are key to bringing 
about a reduction in rural hardship.
    (b) National Development Plan. The Government's National Priorities 
and Action Agenda (``PAA'') serves as the country's national 
development strategy and integrates and prioritizes the action plans 
for economic development. The PAA is intended to more effectively link 
these plans with the Government's medium-term investment program and 
annual budget. Moreover, the PAA has been subject to broad stakeholder 
consultation through public consultative workshops with the provincial 
governments, non-governmental organizations (``NGOs''), private sector, 
and civil society.
    The top two priorities in the latest PAA include: (i) ``Improving 
the lives of people in rural areas by improving service delivery, 
expanding market access to rural produce, lowering costs of credit and 
transportation, and ensuring sustainable use of natural resources;'' 
and (ii) ``raising private investment by lowering obstacles to growth 
of private enterprise including lowering costs of doing business, 
facilitating long-term secure access to land, and providing better 
support services to businesses.'' The Program's focus on transport 
infrastructure, with the goals of reducing transport costs of doing 
business and stimulating agricultural and tourism-based economic 
activity in the rural areas, is consistent with the key priorities 
contained in the PAA for reducing poverty and increasing economic 
growth.
    (c) Consultative Process. Vanuatu engaged in a comprehensive 
consultative process, which included: (i) Ongoing national and 
provincial public forums, such as the CRP Summit, National Business 
Forum, and REDI workshops which included specific discussion on 
priorities and projects for the Proposal; (ii) one MCA-specific public 
awareness meeting on the outer island of Ambrym; and (iii) public 
outreach meetings in four of Vanuatu's six provinces. Consulted groups 
included the Republic of Vanuatu's council of chiefs, women's group 
leaders, the private sector, NGOs, church leaders, and provincial 
government officials. During the consultation process, the lack of 
adequate transport infrastructure repeatedly surfaced as a priority 
(and even served as a barrier to meeting attendance). With respect to 
selection of specific transport infrastructure projects for MCC 
consideration, all projects in Vanuatu's Proposal were derived from 
previous local-level stakeholder consultation forums in each of six 
provinces. In these forums, government provincial leaders met with 
representative groups of civil society, NGOs, and private sector to 
identify economic opportunities limited by a lack of adequate 
infrastructure and proposing infrastructure projects. This process 
resulted in a pool of projects from which specific selection criteria 
(such as economic and poverty impact) were used to select a short-list 
of projects to be subjected to detailed feasibility studies. 
Subsequently, in each province's ongoing consultation workshops, it was 
confirmed that a number of the priority infrastructure projects 
remained unfunded.
    The Government recently conducted a significant public outreach 
campaign, in which the short-list of projects subject to MCC due 
diligence were released to local newspaper and radio media, discussed 
in provincial ``public outreach meetings'' (led by the Government's MCA 
transaction team), and sent to civil society, private sector 
organizations, and donors for comment and input. The Government intends 
to continue these modes of outreach in order to sustain public 
awareness and foster stakeholder participation in the design of 
maintenance and monitoring arrangements.

2. Overview

    (a) Program Objectives. The Program involves a series of specific 
and complementary interventions that the Parties expect will achieve 
the Infrastructure Objective and the Institutional Strengthening 
Objective and advance the progress of Vanuatu toward the Compact Goal.
    (b) Project. The Parties have identified the Transport 
Infrastructure Project, which they intend for the Government to 
implement, or cause to be implemented, using MCC Funding. Schedule I to 
this Program Annex identifies the activities that will be undertaken in 
furtherance of the Transport Infrastructure Project (each, a ``Project 
Activity''). Notwithstanding anything to the contrary in this Compact, 
the Parties may agree to amend, terminate or suspend the Transport 
Infrastructure Project or the 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 the Transport Infrastructure Project or any Project 
Activity or creation of a new project is (i) consistent with the 
Project 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 the Transport 
Infrastructure Project are described in Schedule I 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 Web site operated by MCA-
Vanuatu.
    (d) Civil Society. Civil society will participate in overseeing the 
implementation of the Program through its representation on the MCA-
Vanuatu Steering Committee. In addition, the Work Plans for the 
Transport Infrastructure 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 Project 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

[[Page 14314]]

successful achievement of targets set forth in the M&E Plan.

3. Implementation Framework

    The implementation framework and the plan for ensuring adequate 
governance, oversight, management, monitoring, evaluation and fiscal 
accountability for the use of MCC Funding is summarized below and in 
Schedule I 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 Activity, 
which will be memorialized in one or more documents and shall consist 
of a Financial Plan, a Fiscal Accountability Plan, a Procurement Plan, 
Work Plans, and an M&E Plan (such documents and plans collectively, the 
``Implementation Plan''). MCA-Vanuatu 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-
Vanuatu 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-Vanuatu shall adopt one 
or more work plans for the overall administration of the Program and 
for the Transport Infrastructure 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 the Transport Infrastructure 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 Project Objectives, to successfully implement the Program, and to 
establish MCA-Vanuatu. The Government shall ensure that MCA-Vanuatu 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-Vanuatu 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, which shall be in a form and 
substance satisfactory to MCC.
    (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-Vanuatu, (ii) 
between the Government, MCA-Vanuatu 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 
Governing Documents, the Procurement Agreement, Procurement Guidelines 
or any Supplemental Agreement, or (iii) in which the Government, MCA-
Vanuatu or other Government Affiliate appoints, hires or engages any of 
the following in furtherance of this Compact:
    (A) Auditor and Reviewer;
    (B) Fiscal Agent;
    (C) Bank;
    (D) Procurement Agent;
    (E) Project Manager;
    (F) Implementing Entity; and
    (G) Director, Observer, analysts and/or other key employee or 
contractor of MCA-Vanuatu, 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-Vanuatu, or any of their 
respective Affiliates;
    (6) Any Re-Disbursement (each, a ``Material Re-Disbursement'') that 
requires such MCC approval under applicable law, the Governing 
Documents (defined below), 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 
Governing Documents (defined below), 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, charter, by-
laws or other document establishing or governing MCA-Vanuatu, including 
the governance agreement to be entered into by the Government, MCA-
Vanuatu, and at MCC's option, MCC (the ``Governance Agreement'') 
(collectively, the ``Governing Documents''), and any disposition (in 
whole or in part), liquidation, dissolution, winding up, reorganization 
or other change of (A) MCA-Vanuatu, including any revocation or 
modification of, or supplement to, any decree, legislation, contractual 
arrangement or other document establishing MCA-Vanuatu, or (B) any 
subsidiary or Affiliate of MCA-Vanuatu;
    (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-Vanuatu;
    (13) Any (A) change of the Director, Observer, officer or other key 
employee or contractor of MCA-Vanuatu, or in the composition of the 
Steering Committee, or (B) filling of any vacant seat of the Chair, the 
Director or an Observer or vacant position of an officer or other key 
employee or contractor of MCA-Vanuatu;
    (14) The selection of the ESI Officer;
    (15) The management information system to be developed and 
maintained by the Program Management Unit of MCA-Vanuatu, and any 
material modifications to such system;

[[Page 14315]]

    (16) Any decision to amend, supplement, replace, terminate or 
otherwise change any of the foregoing; and
    (17) Any other activity, agreement, document or transaction 
requiring the approval of MCC in this Compact, applicable law, the 
Governing Documents, the Procurement Agreement, Procurement Guidelines, 
the Disbursement Agreement, or any other Supplemental Agreement between 
the Parties.
    The Chair of the Steering Committee (the ``Chair''), or in his 
absence the Vice Chair of the Steering Committee (the ``Vice Chair'') 
or other designated voting member of the Steering Committee, as 
provided in the Governing Documents, 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 Steering Committee. 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-Vanuatu.
    (d) MCA-Vanuatu.
    (i) General. Unless otherwise agreed by MCC in writing, MCA-Vanuatu 
shall be responsible for the oversight and management of the 
implementation of this Compact. MCA-Vanuatu shall be governed by the 
terms and conditions set forth in the Governing Documents based on the 
following principles:
    (1) MCA-Vanuatu shall be established by the Government as an 
independent unit within the Ministry of Finance and Economic Management 
and shall report to the Steering Committee. The Government shall ensure 
the independent and proper administration of MCA-Vanuatu in accordance 
with the terms of the Compact, the Governing Documents of MCA-Vanuatu 
and any relevant Supplemental Agreements;
    (2) The Government shall ensure that MCA-Vanuatu shall not assign, 
delegate or contract any of the Designated Rights and Responsibilities 
without the prior written consent of the Government and MCC. MCA-
Vanuatu shall not establish any Affiliates or subsidiaries (direct or 
indirect) without the prior written consent of the Government and MCC; 
and
    (3) Unless otherwise agreed by MCC in writing, MCA-Vanuatu shall 
consist of (a) an independent governing committee (the ``Steering 
Committee'') to oversee MCA-Vanuatu's responsibilities and obligations 
under this Compact (including any Designated Rights and 
Responsibilities) and (b) a management unit (the ``Program Management 
Unit'') to have overall management responsibility for the 
implementation of the Compact.
    (ii) Steering Committee.
    (1) Formation. The Government shall ensure that the Steering 
Committee 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 Governing Documents and the 
relevant Supplemental Agreements.
    (2) Composition. Unless otherwise agreed by MCC in writing, the 
Steering Committee shall consist of twelve (12) voting members (the 
``Voting Members''), three (3) non-voting observers (the 
``Observers''), each of whom must be acceptable to MCC, taking into 
consideration appropriate gender and ethnic representation, and the 
Director of the Program Management Unit, who shall serve as an ex 
officio non-voting member.
    (A) The Voting Members shall be as follows, provided that the 
Government members identified in subsection (i) through (x) (the 
``Government Members'') may be replaced by another government official 
of comparable rank from a ministry or other government body relevant to 
the Program activities, subject to approval by the Government and MCC 
(such replacement to be referred to thereafter as a Government Member):
    (i) Director-General of the Office of the Prime Minister;
    (ii) Director-General of the Ministry of Finance and Economic 
Management;
    (iii) Director-General of the Ministry of Foreign Affairs and 
External Trade;
    (iv) Director-General of the Ministry of Infrastructure & Public 
Utilities;
    (v) Director-General of the Ministry of Lands;
    (vi) Director of the Public Works Department;
    (vii) Director of Finance;
    (viii) Director of the Department of Economics and Social 
Development;
    (ix) Director of the Department of Strategic Management;
    (x) Head of Development Cooperation, Ministry of Foreign Affairs;
    (xi) General Manager of the Chamber of Commerce (representing the 
private sector); and
    (xii)Secretary-General, Vanuatu Non-Governmental Organizations 
(representing non-state actors) (together with the General Manager of 
Chamber of Commerce, the ``Non-Government Members'').
    The following provisions shall apply to the Voting Members:
    (i) Each Government Member may be replaced by another government 
official, subject to approval by the Government and MCC;
    (ii) Subject to the Governing Documents, the Parties contemplate 
that the Director-General of the Office of the Prime Minister shall 
serve as Chair of the Steering Committee and the Director-General, 
Ministry of Finance and Economic Management shall serve as the Vice 
Chair; and
    (iii) Each Government Member position shall be filled by the 
individual then holding the office identified and such individuals 
shall serve in their capacity as the applicable Government official and 
not in their personal capacity.
    (B) The Observers shall be (i) a representative appointed by MCC 
(the ``MCC Representative''); (ii) the Director of Environment Unit, 
Ministry of Lands; and (iii) the General Manager, Vanuatu Tourism 
Office. The Observers shall have the right to attend all meetings of 
the Steering Committee, participate in discussions of the Steering 
Committee, and receive all information and documents provided to the 
Steering Committee, together with any other rights of access to 
records, employees or facilities as would be granted to a member of the 
Steering Committee under the Governance Agreement and any Governing 
Document.
    (C) The Director of the Program Management Unit shall serve as an 
ex officio member of the Steering Committee and shall make reports to 
the Steering Committee as required from time to time.
    (3) Roles and Responsibilities.
    (A) The Steering Committee 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-Vanuatu only upon the 
approval and authorization of the Steering Committee as provided under 
applicable law and in the Governing Documents, 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 Steering Committee 
of all Compact Reports or any other

[[Page 14316]]

documents or reports from time to time delivered to MCC by MCA-Vanuatu 
(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 Steering Committee 
shall have the exclusive authority for all actions defined for the 
Steering Committee under applicable law and in the Governing Documents 
and which are expressly designated therein as responsibilities that 
cannot be delegated further.
    (4) Meetings. The Steering Committee shall hold monthly meetings as 
well as such other periodic meetings or subcommittee meetings as may be 
necessary from time to time.
    (5) Indemnification of the Observers; 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 the 
Observers shall not be held personally liable for the actions or 
omissions of the Steering Committee. Pursuant to section 5.5 and 
section 5.8 of this Compact, the Government and MCA-Vanuatu shall hold 
harmless the MCC Representative for any liability or action arising out 
of the MCC Representative's role as a non-voting observer on the 
Steering Committee. The Government hereby waives and releases all 
claims related to any such liability. 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 Vanuatu.
    (iii) Program Management Unit. Unless otherwise agreed in writing 
by the Parties, the Program Management Unit shall report, through the 
Director or other officer as designated in the Governing Documents, 
directly to the Steering Committee, and shall have the composition, 
roles and responsibilities described below and set forth more 
particularly in the Governing Documents.
    (1) Composition. The Government shall ensure that the Program 
Management Unit shall be composed of qualified experts from the public 
or private sectors, including such officers 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) one Director, (ii) two analysts, and (iii) appropriate 
administrative and support personnel.
    (2) Appointment of Program Management Unit. Unless otherwise 
specified in the Governance Agreement or any Governing Documents, the 
Steering Committee shall appoint the Director after an open and 
competitive recruitment and selection process, which appointment shall 
be subject to the approval of MCC. The remaining officers of the 
Program Management Unit shall be appointed by the Director after an 
open and competitive recruitment and selection process, which 
appointment shall be subject to the approval of the Steering Committee 
and MCC.
    (3) Roles and Responsibilities.
    (A) The Program Management Unit shall assist the Steering Committee 
in overseeing the implementation of the Program and shall have 
principal responsibility (subject to the direction and oversight of the 
Steering Committee and subject to MCC's rights of approval as set forth 
in section 3(c) of this Program Annex or elsewhere in this Compact or 
any relevant Supplemental Agreement) for the overall management of the 
implementation of the Program.
    (B) Without limiting the foregoing general responsibilities or the 
generality of Designated Rights and Responsibilities that the 
Government may designate MCA-Vanuatu, the Program Management Unit shall 
develop the components of the Implementation Plan, oversee the 
implementation of the Transport Infrastructure Project, manage and 
coordinate monitoring and evaluation, maintain internal accounting 
records, conduct and oversee certain procurements, and such other 
responsibilities as set out in the Governing Documents or delegated to 
the Program Management Unit by the Steering Committee from time to 
time.
    (C) Appropriate officers shall have the authority to contract on 
behalf of MCA-Vanuatu for procurement under the Program, as designated 
by the Steering Committee.
    (D) The Program Management Unit shall have the obligation and right 
to approve certain actions and documents or agreements, including 
certain Re-Disbursements, MCC Disbursement Requests, Compact Reports, 
certain human resources decisions, and certain procurement actions, as 
provided in the Governing Documents.
    (e) Project Manager. The Department of Public Works will serve as 
the Project Manager for the Transport Infrastructure Project and will 
be responsible for oversight of the specific activities of the 
Transport Infrastructure Project. The duties of the Project Manager 
will include certification of receipt of goods and services secured for 
the Transport Infrastructure Project. Outside professional services 
will be contracted through MCA-Vanuatu to assist the Project Manager in 
its functions (the ``Outside Project Manager''). The Department of 
Public Works will establish a dedicated unit (the ``PWD Project 
Management Unit'') within its headquarters, and within its regional 
offices, if appropriate, with a minimum of two full-time staff that are 
suitably qualified to support the design and engineering supervision 
professionals that are charged with the responsibility to execute its 
project management responsibilities. The PWD Project Management Unit 
will be guided by the contracted supervision professionals.
    (f) Implementing Entities. Subject to the terms and conditions of 
this Compact and any other Supplemental Agreement between the Parties, 
MCA-Vanuatu may provide MCC Funding (directly or indirectly), through 
the 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 Transport Infrastructure Project 
or any other activities to be carried out in furtherance of this 
Compact (each, an ``Implementing Entity''). The Government shall ensure 
that MCA-Vanuatu (or the 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-Vanuatu or the Project 
Manager, as designated in the applicable Implementing Entity Agreement 
or as otherwise agreed by the Parties.
    (g) Fiscal Agent. The Department of Finance in the Ministry of 
Finance and Economic Management of the Government shall serve as the 
fiscal agent on behalf of MCA-Vanuatu (the ``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

[[Page 14317]]

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-
Vanuatu terminates the Fiscal Agent, without any liability to MCC, and 
the Government shall ensure that MCA-Vanuatu engages a new Fiscal 
Agent, subject to the approval by the Steering Committee and MCC. The 
Government shall ensure that MCA-Vanuatu 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-
Vanuatu 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-Vanuatu 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 (1) conduct general 
reviews of performance or compliance, (2) conduct environmental audits, 
and (3) have the capacity to 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-Vanuatu shall select the Auditor(s) or 
Reviewers in accordance with the Governing Documents or relevant 
Supplemental Agreement. The Government shall ensure that MCA-Vanuatu 
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-Vanuatu 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-Vanuatu, the 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-Vanuatu 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 adopted by MCA-Vanuatu pursuant to 
the Procurement Agreement (the ``Procurement Plan'').

4. Finances and Fiscal Accountability

    (a) Financial Plan.
    (i) Financial Plan. The multi-year financial plan for the Program 
and for the Transport Infrastructure 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-Vanuatu 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 the Transport Infrastructure 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-Vanuatu 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-Vanuatu 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-
Vanuatu 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 Governing 
Documents and Disbursement

[[Page 14318]]

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 Governing Documents 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-
Vanuatu 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 Project 
Objectives (the ``Fiscal Accountability Plan''). The Fiscal 
Accountability Plan shall set forth, among other things, requirements 
with respect to the following matters: (i) Funds control and 
documentation; (ii) separation of duties and internal controls; (iii) 
accounting standards and systems; (iv) content and timing of reports; 
(v) policies concerning public availability of all financial 
information; (vi) cash management practices; (vii) procurement and 
contracting practices, including timely payment to vendors; (viii) the 
role of independent auditors; and (ix) the roles of fiscal agents and 
procurement agents.
    (d) Permitted Accounts. The Government shall establish, or cause to 
be established, such accounts (each, a ``Permitted Account,'' and 
collectively ``Permitted Accounts'') as may be agreed by the Parties in 
writing from time to time, including:
    (i) A single, completely separate U.S. Dollar interest-bearing 
account (the ``Special Account'') at the Reserve Bank of Vanuatu to 
receive MCC Disbursements;
    (ii) If necessary, an interest-bearing local currency of Vanuatu 
account (the ``Local Account'') at a commercial bank that is procured 
through a competitive process 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-
Vanuatu 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 Vanuatu 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 Transport Infrastructure Project. 
Without limiting the generality of the foregoing, in an effort to 
achieve the goals of transparency and accountability, the Government 
shall ensure that MCA-Vanuatu:
    (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-Vanuatu;
    (b) Considers as a factor in its decision-making the 
recommendations of the Observers;
    (c) Develops and maintains a Web site (the ``MCA-Vanuatu Web 
site'') in a timely, accurate and appropriately comprehensive manner, 
such MCA-Vanuatu Web site to include postings of information and 
documents in English and French, as appropriate; and
    (d) Posts on the MCA-Vanuatu Web site and otherwise makes publicly 
available via appropriate public mediums (including radio and print) in 
the appropriate language, from time to time, the following documents or 
information:
    (i) The Compact and all Compact Reports;
    (ii) All minutes of the meetings of the Steering Committee;
    (iii) The M&E Plan, as amended from time to time, along with 
periodic reports on Program performance;
    (iv) All relevant environmental assessments and supporting 
documents;
    (v) All audit reports by an Auditor and any periodic reports or 
evaluations by a Reviewer;
    (vi) All financial reports provided in accordance with the Compact 
and any relevant Supplemental Agreement;
    (vii) Disbursement Agreement, as amended from time to time, as well 
as the MCC Disbursement Requests submitted thereunder;
    (viii) All procurement agreements (including policies, standard 
documents, procurement plans, and required procedures), solicitations, 
and notices of awarded contracts; and
    (ix) A copy of any legislation and other documents related to the 
formation, organization and governance of MCA-Vanuatu, including the 
Governing Documents, and any amendments thereto.

Schedule 1 to Annex I--Transport Infrastructure Project

    This Schedule 1 describes and summarizes the key elements of the 
transport infrastructure project that the Parties intend to implement 
in furtherance of the Infrastructure Objective and the Institutional 
Strengthening Objective (the ``Transport Infrastructure Project''). 
Additional details regarding the implementation of the Transport 
Infrastructure Project will be included in the Implementation Plan and 
in relevant Supplemental Agreements.

1. Background

    Overcoming transport infrastructure constraints to poverty 
reduction and economic growth, specifically for rural areas, has been 
consistently identified through the consultative process as a major 
impediment to economic growth in Vanuatu. The Government recognizes the 
importance of adequate and reliable transport infrastructure services 
as well as the negative impact Vanuatu's poor transportation 
infrastructure has had on formal economic activity and investment in 
the agriculture and tourism sectors--the two primary sources of growth 
and employment in Vanuatu. The Transport Infrastructure Project is 
intended to reduce transport costs and improve reliability of access to 
prioritized roads, wharfs and airstrips, and thereby, alleviate one of 
the

[[Page 14319]]

principal constraints to private sector development.

2. Summary of the Transport Infrastructure Project and Project 
Activities

    The Transport Infrastructure Project consists of two principal 
project activities: (i) Civil works for the reconstruction or 
construction of priority infrastructure on eight islands, covering 
roads, wharfs, airstrips and warehouses (the ``Infrastructure 
Activity''); and (ii) institutional strengthening efforts in the Public 
Works Department (``PWD''), including the provision of plant and 
equipment for maintenance of the infrastructure (the ``Institutional 
Strengthening Activity'').
    (a) Infrastructure Activity.
    Pursuant to the Infrastructure Activity, MCC Funding will be used 
to rehabilitate or construct priority infrastructure, (each an 
``Infrastructure Subproject Activity''), including:
    (i) Efate--Ring Road. Upgrade 90 km of the Ring Road on Efate, the 
most populous of Vanuatu's islands, to a two-lane bitumen seal 
standard, with improved drainage systems.
    (ii) Santo--East Coast Road. Upgrade the 70 km road from Luganville 
to Port Olry on the island of Santo to a two lane, bitumen seal 
standard, including associated bridges and other drainage structures.
    (iii) Santo--South Coast Road Bridges. Construct an additional five 
bridges along the south coast road on the island of Santo, improving 
access to the commercial center and markets at Luganville, on a 15 km 
section of the road.
    (iv) Malekula--Norsup Lakatoro Lits Lits Road. Reconstruct the 11 
km of the Norsup-Lakatoro-Lits Lits Road, the administrative and 
commercial center of the island of Malekula and the Malampa province, 
linking the three nodes to a two lane bitumen seal standard, with 
associated drainage works.
    (v) Malekula--South West Bay Airstrip. Fill the low lying area 
surrounding the South West Bay airstrip on the island of Malekula and 
provide some subsurface drainage to reduce the frequency of closings of 
the airstrip.
    (vi) Pentecost--Loltong Wharf and N-S Road. Construct a wharf in 
Loltong on the island of Pentecost, suitable for conventional boats and 
barges close to the Loltong village in a sheltered part of the harbor. 
The proposed structure will be sufficiently robust to withstand the 
most severe weather conditions, and is expected to require minimum 
maintenance. Provide a coral pavement over the 8 km length of the new 
section of the North South road and an adequate storm water drainage 
system. In addition, the North South road, following a ridge from the 
north to central Pentecost will be upgraded to significantly improve 
access for the productive southeastern sections of the island to 
Loltong Wharf.
    (vii) Tanna--Whitesands Road. Reconstruct the Whitesands Road on 
the island of Tanna, providing a coral pavement, substantial concrete-
lined drains and floodways and sections of concrete pavement where 
gradients are very steep.
    (viii) Epi--Lamen Bay Wharf. Reinforce the existing causeway of the 
Lamen Bay Wharf on the island of Epi to extend the life of the 
structure and extend the wharf face further into deeper water away from 
the coral reefs to provide a suitable berth for inter island shipping.
    (ix) Ambae--Road Creek Crossings. Reconstruct the creek crossings 
on a 50 km section of road on the island of Ambae to improve the 
overall level of serviceability. Ambae is a relatively populous and 
productive island.
    (x) Malo--Road Upgrade. Provide better drainage and coral surfacing 
of the two roads extending 15 km on the island of Malo to improve the 
overall level of serviceability.
    (xi) Warehouses (Several Locations). Provide five new warehouses at 
various locations throughout the islands for storing outgoing or 
incoming freight for the shipping industry in Vanuatu. These warehouses 
are proposed to be operated under a management or lease contract, 
involving the local private sector.
    (b) Institutional Strengthening Activity.
    Recognizing the importance of maintenance of transport 
infrastructure, the Institutional Strengthening Activity will provide 
focused assistance to the PWD, to remove key constraints that face the 
institution in effectively delivering maintenance and repair services. 
Under the Institutional Strengthening Activity, the Program also 
provides support for the sustainability and viability of the PWD 
through organizational reform and policy changes (each an 
``Institutional Strengthening Subproject Activity'' and together, the 
``Institutional Strengthening Subproject Activities''). MCC Funding 
will be used to:
    (i) Plant and Equipment. Provide essential plant and equipment to 
maintain road and airstrip infrastructure (the ``Equipment Subproject 
Activity''). Supply of equipment will be made in two ways: (i) Certain 
new equipment (value of approximately USD $4.35 million) will be 
mobilized under the civil works contract and used initially by the 
contractor for civil works funded by MCC Funding, and then delivered in 
specified condition for use by PWD at the end of four years; and (ii) 
other equipment (value of approximately USD $1.39 million) will be 
provided through direct procurement for use by PWD.
    (ii) Technical Assistance. Fund the development of the annual PWD 
action plans and annual audits of PWD's performance. PWD will enter 
into a service performance agreement with the Ministry of 
Infrastructure and Public Utilities, by which PWD will be required to 
meet specific performance targets through an annual action plan for 
maintenance and repair (the ``Technical Assistance Subproject 
Activity''). Annual audits will be undertaken to measure PWD's 
performance against the targets, which will form the basis for 
management accountability.
    The M&E Plan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks at the 
Transportation Infrastructure Project and Project Activity levels 
(i.e., the Infrastructure Activity and the Institutional Strengthening 
Activity) that may be used to monitor implementation progress. 
Performance against these benchmarks and the overall impact of the 
Transport Infrastructure 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. Conditions precedent to each 
Project Activity and sequencing of the Infrastructure Subproject 
Activities and the Institutional Strengthening Subproject Activities 
shall be set forth in the Disbursement Agreement or other relevant 
Supplemental Agreements.
    (c) Project Implementation.
    PWD will serve as the Project Manager of the Transport 
Infrastructure Project, responsible for oversight of the specific 
Subproject Activities of the Infrastructure Activity. The duties of PWD 
will include certification of receipt of goods and services procured 
for the Transport Infrastructure Project. Outside professional services 
will be contracted through MCA-Vanuatu to assist the Project Manager.

3. Beneficiaries

    The primary beneficiaries (``Beneficiaries'') of the Transport 
Infrastructure Project fall into the following two broad categories:

[[Page 14320]]

     Providers (and laborers) of tourist-related goods and 
services, including hotels, airlines, tour companies, shops, 
restaurants, and artisans; and
     Local producers (including landowners, lessees, and 
processors of primary produce) and inhabitants of remote communities 
with limited access to social and other services.
    The Transport Infrastructure Project is expected to have a 
transformational impact on Vanuatu's economic development, increasing 
average income per capita (in real terms) by approximately $200 or 15% 
of current income per capita by 2010. GDP is expected to increase by an 
additional 3% each year as a result of the MCA Program.
    The Program is expected to benefit approximately 65,000 poor, rural 
inhabitants living nearby and using the roads to access markets and 
social services. The program is also expected to expand the tourism 
sector by approximately 15% each year once construction is complete. 
Based on the most recent employment data, this translates to the 
creation of an estimated 280 additional formal sectors jobs and 25 new 
locally-owned businesses each year in this sector, impacting over 1,300 
people.

4. Donor Coordination

    The majority of donors in Vanuatu have focused more consistently on 
the social sectors. Donors such as Australia and New Zealand have 
recently committed to enlarging their assistance to the agriculture and 
tourism sectors in response to the priorities for growth and poverty 
reduction outlined in the Government's PAA. MCC's focus on transport 
infrastructure presents a number of mutually beneficial coordination 
opportunities with ongoing and planned donor programs, namely: The 
European Union (the ``EU'') and France's Agricultural Producers 
Organization Project; the EU and the Asian Development Bank's (``ADB'') 
Tourism Training and Education project; ADB's Rural Credit 
Strengthening and Secured Transaction Framework projects; New Zealand 
Agency for International Development's Customary Land Tenure 
initiatives; the Australian Agency for International Development's 
``AusAID'') Business Climate Reform program; and the EU's Institutional 
Strengthening for Infrastructure Maintenance program. Moreover, AusAid 
is providing funding for key household data surveys (such as the 
Household Income and Expenditure Survey (``HIES''), which will be used 
in monitoring Program impacts. The United States Agency for 
International Development does not maintain a mission in Vanuatu and is 
not currently providing any development assistance programs to Vanuatu.

5. Sustainability

    (a) Institutional Sustainability.
    PWD is the principal institution responsible for the effectiveness 
and sustainability of the Program, including maintenance of the roads, 
and outer island wharfs and airstrips.
    A lack of suitable equipment is the single most important factor 
constraining PWD's road maintenance capacity. Most of the plant is 20 
years old. In most provinces, the equipment fleet lacks at least one 
essential item, seriously reducing the efficiency of the rest. MCC 
Funding will provide equipment that will allow PWD's reformed 
institutional capacity to carry out timely maintenance and repairs on 
all transport infrastructure under its responsibility. MCC Funding will 
expand PWD's capability and capacity in all maintenance and repair 
activities, and is expected to reduce its recurrent direct costs 
(attributable to maintenance of old equipment) by at least 10% of its 
current budget.
    Notwithstanding the past improvements made in strengthening PWD, in 
order to ensure efficient and timely delivery of services by PWD and to 
institute sustainable accountability and management efficiency, MCC 
Funding will provide support for the establishment and maintenance of a 
Service Performance Contract for PWD. Annual action plans will be 
developed by the Government, with the assistance of MCA-Vanuatu, which 
will form the basis for annual assessments against the Service 
Performance Contract.
    (b) Financial Sustainability.
    (i) Roads. The Parties agree that an annual budget of about USD 
$5.7 million, together with the provision of new plant and equipment 
for maintenance (provided by MCC Funding) is considered to be an 
appropriate level of funds for road maintenance (the ``Road Maintenance 
Budget Allocation''). MCC Funding will be contingent upon the 
Government allocating sufficient funds in accordance with the Road 
Maintenance Budget Allocation.
    (ii) Airstrip. PWD is funded through the Government budget process 
for maintenance of airstrips. Two sources of revenue related to 
airstrip maintenance are derived from regular air services: (i) A 
departure tax; and (ii) a landing charge based on aircraft weight. The 
total revenue collected from these two sources is sufficient for 
maintenance of the airstrip.
    (iii) Sea Ports. Under the Decentralisation Act (1994), the 
provincial governments were expected to take over ownership and 
operations and maintenance responsibility for the outer island ports. 
With no budget allocation for maintenance, the provincial governments 
have declined to take such responsibility. As a result, PWD remains as 
the agency to perform maintenance works on wharfs at the request of the 
provincial governments. Historically, no user fees have been collected 
at the port facilities. Shefa Province has announced a tax on 
passengers and cargo departing from sea ports in the province. Although 
the form of construction or rehabilitation proposed for the wharfs is 
robust and requires minimal maintenance, some infrequent maintenance 
will be required. MCC Funding for the wharfs will be contingent upon 
successful introduction of user charges on shipping to provide a source 
of revenue.
    (c) Environmental and Social Sustainability.
    The key to ensuring environmental and social sustainability of the 
Program is ongoing public consultation and attention to environmental 
mitigation measures to ensure optimal design and implementation and to 
ensure full country-ownership of the Program. The Government will 
ensure that environmental and social mitigation measures are followed 
for all Project Activities in accordance with Environmental Guidelines 
and the provisions set forth in this Compact and relevant Supplemental 
Agreements. In agreement with MCC, MCA-Vanuatu will select through an 
open and competitive process, subject to the approval of MCC, an 
environmental and social impact officer (the ``ESI Officer'') to serve 
as the point of contact for comments and concerns of the parties 
affected by the Program and the implementation of all Project 
Activities. The ESI Officer will be located within the Environment Unit 
of the Government. The ESI Officer will lead the effort to find 
feasible resolutions to environmental and social issues in connection 
with the implantation of Project Activities, and will convene periodic 
public meetings to provide implementation updates and to identify and 
address public concerns.
    Other important sustainability issues involve the provision of 
adequate maintenance of infrastructure. Insufficient maintenance of 
assets, such as drainage systems, could lead to environmental 
degradation and poor performance of the asset. Therefore, institutional 
sustainability of PWD and the assurance of management

[[Page 14321]]

effectiveness (through the proposed Service Performance Contract) are 
directly linked to environmental sustainability. The Service 
Performance Contract for PWD will address environmental and social 
impacts. In addition, potential environmental and social impacts of 
Program-induced tourism will be evaluated to ensure that Vanuatu has 
adequate capacity to manage such impacts.

6. Policy, Legal and Regulatory Reforms

    The Parties have identified the following policy actions and 
legislative and regulatory reforms that the Government will pursue in 
support of the Transport Infrastructure Project to reach its full 
benefits. Satisfactory implementation of these reforms may be 
conditions precedent to certain MCC Disbursements as provided in the 
Disbursement Agreement:
    (a) The Government shall, in accordance with World Bank policy on 
involuntary resettlement, undertake consultations with land users in 
the Whitesands Road project area in order to establish appropriate 
locations for drainage lines and shall address any social issues and 
claims arising from such consultations to the satisfaction of MCC. 
Moreover, any required acquisition rights-of-way and any resettlement 
programs shall be amicably settled with compensation in accordance with 
World Bank policy on Involuntary Resettlement;
    (b) The Government shall ensure that an M&E Implementation Manual 
(``M&E Implementation Manual''), describing all data collection, 
reporting, and quality assurance mechanisms, must be submitted to and 
approved by MCC;
    (c) The Government will ensure completion of the Household Income 
and Expenditure Survey and collection of baseline data on all 
monitoring and evaluation indicators;
    (d) PWD shall establish commercially driven maintenance contracts 
with community representatives for basic routine maintenance activities 
for the following Infrastructure Subproject Activities: Efate Ring Road 
(with rural villages), Santo East Coast Road (with rural villages), 
Malekula Norsup Lakatoro Lits Lits Road, Pentecost North South Road, 
Tanna Whitesands Road, and Malo Roads. These maintenance contracts must 
be in effect prior to the commencement of the respective Infrastructure 
Subproject Activities;
    (e) The Government or the respective province shall develop a 
revenue collection mechanism and an implementation plan for the 
collection of wharf user fees and their application towards wharf 
maintenance. This shall be a condition precedent for initial 
disbursement of MCC Funding for the relevant Infrastructure Subproject 
Activity;
    (f) The Government will fund the mitigation and remediation costs 
related to the civil works component of the Transport Infrastructure 
Project as identified in the environmental management plans (``EMPs'') 
in excess of the budgeted amount in the Detailed Financial Plan for 
such costs;
    (g) The Government will ensure that a service performance contract 
is entered into between PWD and Ministry of Infrastructure and Public 
Utilities within six months of Entry into Force. The service 
performance contract shall monitor and assess PWD's performance against 
an action plan. PWD management shall be held accountable for service 
performance in accordance with terms to be specified in the service 
performance contract; and
    (h) The Government will allocate sufficient funds for road 
maintenance activities in accordance with the Road Maintenance Budget 
Allocation.
    Additionally, the Parties agree that the Government will explore 
insurance coverage options to further ensure the sustainability of the 
Program Assets.

Annex II--Financial Plan Summary

    This Annex II to the Compact (the ``Financial Plan Annex'') 
summarizes the Multi-Year Financial Plan for the Program. Except as 
defined in this Financial Plan Annex, 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-Vanuatu 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-Vanuatu, consistent with the approval and 
oversight rights of MCC and the Government as provided in this Compact, 
the Governance Agreement and the Disbursement Agreement.

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, the Transport Infrastructure Project, and 
each Project Activity. The Government's contribution of resources to 
Program administration, monitoring and evaluation, and the Transport 
Infrastructure 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 and 
(ii) such other contributions or amounts as may be identified in 
relevant Supplemental Agreements between the Parties or as may 
otherwise be agreed by the Parties; provided, in no event shall the 
Government's contribution of resources be less than the amount, level, 
type and quality of resources required to effectively carry out the 
Government Responsibilities or any other responsibilities or 
obligations of the Government under or in furtherance of this Compact.

4. Modifications

    The Parties recognize that the anticipated distribution of MCC 
Funding between and among the various Program activities and the 
Project and Project Activities will likely require adjustment from time 
to time during the Compact Term. In order to preserve flexibility in 
the administration of the Program, the Parties may, upon agreement of 
the Parties in writing and without amending the Compact, change the 
designations and allocations of funds between Program administration 
and the Project, between one Project Activity and another Project 
Activity, between different activities within the Project, or between a 
Project Activity identified as of the Entry into Force and a new 
Project Activity, without amending the Compact; provided, however, that 
such reallocation (i) is consistent with the Project Objectives, (ii) 
does not cause the amount of MCC Funding to exceed the aggregate amount 
specified in Section 2.1(a) of this

[[Page 14322]]

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, the Transport Infrastructure Project, and each Project 
Activity is subject to satisfactory progress in achieving the Project 
Objectives and on the fulfillment or waiver of any conditions precedent 
specified in the Disbursement Agreement for the relevant Program 
activity, Project or Project Activity. The sequencing of Project 
Activities and other aspects of how the Parties intend the Transport 
Infrastructure Project to be implemented will be set forth in the 
Implementation Plan, including Work Plans for the applicable Project 
Activities, and MCC Disbursements and Re-Disbursements will be 
disbursed consistent with that sequencing.

                                      Exhibit A--Multi-Year Financial Plan
----------------------------------------------------------------------------------------------------------------
          Component (in US$ millions)             Year 1     Year 2     Year 3     Year 4     Year 5     Total
----------------------------------------------------------------------------------------------------------------
1. Transport Infrastructure Project:
    Infrastructure Activity...................       4.00      22.45      25.80       2.21       0.03      54.47
    Institutional Strengthening Activity......       5.47       0.48       0.09       0.09       0.09       6.22
2. Program Management.........................       0.43       0.32       0.28       0.28       0.28       1.59
3. Monitoring and Evaluation..................       0.28       0.06       0.06       0.06       0.91       1.37
4. Fiscal and Procurement Agents..............       1.17       0.14       0.14       0.14       0.14       1.71
5. Audit......................................       0.07       0.07       0.07       0.07       0.07       0.33
                                               -----------------------------------------------------------------
    Total MCC Investment......................      11.42      23.51      26.43       2.85       1.52     65.69
----------------------------------------------------------------------------------------------------------------
Note: Figures are rounded to second decimal place. Foreign exchange rate: USD = 108 Vatu.

Annex III--Description of the M&E Plan

    This Annex III to the Compact (the ``M&E Annex'') generally 
describes the components of the M&E Plan for the Program. Except as 
defined in this M&E Annex, each capitalized term in this 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 Project Objectives and the 
intermediate results of each Project Activity (the ``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-Vanuatu Web site and elsewhere.

2. Monitoring Component

    To monitor progress toward the achievement of the Project 
Objectives and Project Activity Outcomes, the Monitoring Component of 
the M&E Plan shall identify (i) the Indicators, (ii) the party or 
parties responsible, the timeline, and the instrument for collecting 
data and reporting on each Indicator to MCA-Vanuatu, and (iii) the 
method by which the reported data will be validated.
    (a) Indicators. The M&E Plan shall measure the results of the 
Program using quantitative, objective and reliable data 
(``Indicators''). Each Indicator will have one or more expected results 
that specify the expected value and the expected time by which that 
result will be achieved (each, a ``Target''). The M&E Plan will measure 
and report four types of Indicators. First, Indicators for the Program 
as a whole (each, a ``Goal Indicator'') will measure the impact of the 
Compact on the incomes and poverty of ni-Vanuatu who are directly or 
indirectly affected by the Project Activities anticipated under the 
Transport Infrastructure Project. Second, the Indicators for each 
Objective (each, an ``Objective Indicator'') will measure whether the 
improved infrastructure assets are having the intended impact. Third, 
outcome Indicators, (each, an ``Outcome Indicator'') will signal 
whether the Transport Infrastructure Project is stimulating the 
expected intermediate results. Fourth, Indicators for each Project 
Activity (each, a ``Project Activity Indicator'') will measure 
implementation success. For each Indicator, 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) Goal Indicator. The highest level of results to be achieved by 
the Program, i.e., the Compact Goal, is understood to be the 
aggregation of the estimated benefits of the Transport Infrastructure 
Project 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 Program 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. The M&E Plan shall contain the Goal 
Indicators listed in the table below.

[[Page 14323]]



                          Compact Goal--Increased Economic Growth and Poverty Reduction
----------------------------------------------------------------------------------------------------------------
                                                                             Baseline
             Goal indicator                     Indicator definition           \1\         Year 5      Year 10
----------------------------------------------------------------------------------------------------------------
Increase cash income per capita of        Average cash income per capita        $1,206       $1,411       $1,695
 Beneficiaries.                            of residents living within the
                                           catchment area of the
                                           infrastructure sub-projects
                                           listed below (1).
                                            Efate: Round Island Road              $804       $1,160       $1,633
                                            Santo: Port Olry Road                 $784       $1,156       $1,831
                                            Santo: South Coast Bridges            $784         $821         $853
                                            Tanna: Whitesands Road                $366         $487         $604
                                            Malekula: Lits Lits Road            $1,000       $1,069       $1,150
                                            Malekula: SW Bay Airstrip           $1,000       $1,010       $1,019
                                            Pentecost: Loltong Wharf/N-S          $302         $367         $420
                                          Road
Reduce poverty (as measured by            Fraction of individuals                  TBD          TBD          TBD
 dependence on subsistence activities).    receiving more than X percent
                                           of their income (i.e., poverty
                                           threshold) from subsistence
                                           activities. The ``poverty
                                           threshold'' will be defined
                                           during the first year of the
                                           program based on the results
                                           of the Household Income
                                           Expenditure Survey.
Increase tourism employment.............  Number of additional formal      ...........          560       1,960
                                           tourism jobs created on Efate,
                                           Santo and Tanna.
----------------------------------------------------------------------------------------------------------------
\1\ Baseline cash income estimates are based on 1999 HIES, converted to USD and adjusted to 2005 prices using
  provincial estimates where island data was not available. Statistically representative baseline will be
  updated during the first year of the Compact.

    (ii) Project Objective and Outcome Indicators. The M&E Plan shall 
contain the Objective and Outcome Indicators listed in the table below, 
with definitions (where necessary). The corresponding Indicator 
Baselines and estimated Targets to be achieved are based on the 
assumptions from the economic analysis. MCA-Vanuatu may add Objective 
Indicators or refine the Targets of existing Objective Indicators prior 
to any MCC Disbursement or Re-Disbursement for the Transport 
Infrastructure Project or 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.

                                    Vanuatu Transport Infrastructure Project
             [Objective: Facilitate transportation to increase tourism and business development \1\]
----------------------------------------------------------------------------------------------------------------
  Objective indicators (metric of
 project success observable by end    Baseline    Year 1 \3\   Year 2 \3\   Year 3 \3\   Year 4 \3\     Year 5
            of compact)                 \2\
----------------------------------------------------------------------------------------------------------------
Number of New Hotel Rooms \4\
 Constructed (cumulative):
    Efate.........................            0         n.t.         n.t.         n.t.          200          400
    Santo.........................            0         n.t.         n.t.         n.t.           70          140
Number of Tourists (per annum):
    Vanuatu.......................       61,453       65,755       70,358       75,283       84,170       87,743
    Santo.........................        6,963        7,450        7,972        8,530       11,137       13,744
    Tanna.........................        5,000        5,350        5,725        6,125        6,738        7,412
    Malekula (South-West Bay).....           30           30           30           30           80          130
Number of Hotel & Bungalow Bed-
 nights \5\ occupied (per annum):
    Efate.........................      243,380      260,420      278,650      298,160      377,430      462,250
    Santo.........................       64,500       69,015       73,846       79,015       84,546       90,465
    Tanna.........................       15,000       16,050       17,174       18,376       20,213       22,235
    Malekula (South-West Bay).....           90           90           90           90          240          390
----------------------------------------------------------------------------------------------------------------


                                    Vanuatu Transport Infrastructure Project
                    [Objective: Facilitate transportation to increase agriculture production]
----------------------------------------------------------------------------------------------------------------
  Objective Indicators (metric of
 project success observable by end    Baseline    Year 1 \3\   Year 2 \3\   Year 3 \3\   Year 4 \3\     Year 5
            of compact)                 \2\
----------------------------------------------------------------------------------------------------------------
Airfreight uplifted from South               35           35           35           35           45           50
 West Bay, Malekula (tonnes per
 annum)...........................
Cargo shipped from Loltong wharf,         1,000        1,000        1,000        1,000        1,025        1,056
 Pentecost (tonnes per annum).....
----------------------------------------------------------------------------------------------------------------


                                    Vanuatu Transport Infrastructure Project
----------------------------------------------------------------------------------------------------------------
  Outcome Indicators (indication
  that the project is having the      Baseline    Year 1 \3\   Year 2 \3\   Year 3 \3\   Year 4 \3\     Year 5
         intended impact)               \2\
----------------------------------------------------------------------------------------------------------------
Traffic volume (average annual
 daily traffic): \6\
Santo: South Coast Bridges........           33           33         n.m.           36         n.m.           40

[[Page 14324]]

 
Malekula: Lits Lits Road..........          200          200         n.m.          221         n.m.          244
    Pentecost: N-S Road...........           25           25         n.m.           28         n.m.           31
Days road is closed (number per
 annum):
    Santo: South Coast Bridges....           90           90         n.m.           90            0            0
    Pentecost: North-South Road...           90           90         n.m.           90            0            0
    Number of S-W Bay, Malekula              33           33         n.m.           33            7            7
     flights cancelled due to
     flooding (per annum).........
    Time at wharf (hours/vessel)..            8            8         n.m.            4            4            4
----------------------------------------------------------------------------------------------------------------


                       Vanuatu Transport Infrastructure Project--Road Maintenance Quality
          [Objective: Improved road sustainability through increased funding and improved maintenance]
----------------------------------------------------------------------------------------------------------------
Outcome Indicator (Indication that
the Project is having the intended    Baseline      Year 1       Year 2       Year 3       Year 4       Year 5
              impact)
----------------------------------------------------------------------------------------------------------------
Share of road network in ``Good''           TBD          TBD         n.m.          TBD         n.m.         TBD
 or ``Fair'' condition (%)\7\.....
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ Targets for all tourism projects (except South-West Bay) incorporate an assumed without-project rate of
  growth of tourism (7%) in addition to program's projected incremental impact beginning in Year 4. Tourism in
  South-West Bay, Malekula is not expected to grow until the airstrip is improved.
\2\ The Baseline data presented in these tables was collected during due diligence for the purposes of
  estimating the economic impact. Data will be collected and quality checked on all indicators during the first
  year of the program (during the design phase and prior to construction) to validate these baseline
  assumptions. Hence, Year 1 will become the baseline.
\3\ Targets in intermediate years will depend on precise implementation schedule for specific subprojects.
\4\ Assumes approximately 2 beds per room.
\5\ Based on 40% capacity utilization rate for major hotels. To be updated for all hotels and bungalows during
  initial implementation of the Project. Survey data is to be collected on room-nights of accommodation
  available and used (to give capacity utilization), and person-nights of accommodation used (to indicate
  quantity of tourism), with only the latter to be presented as in Indicator.
\6\ Extent of reduced vehicle operating costs will be a function of the quantity of traffic and delivery of the
  improved road. As the latter will be monitored through an Outcome Indicator and technical supervision reports,
  only the traffic volume need be measured. Traffic volume is reported as the Average Annual Daily Traffic
  (equal to annual traffic divided by 365). Traffic on Round-Island Road (Efate), Port Orly Road (Santo), and
  White Sands Road (Tanna) will be monitored for evaluation purposes in the first and last years of the Compact.
  However, they are not included here because targets cannot be reasonably estimated as they depend on multiple
  factors.
\7\ Based on an audited survey of road conditions conducted as part of the PWD action plan and performance
  review. An independent baseline survey will be conducted during the first year of the program to establish
  current road conditions. Performance targets will be a function of five year performance plan developed during
  the first year of the Compact. Independent audit will be repeated during the third and fifth years of the
  program.
All monetary values are reported in constant U.S. Dollars (2005).
n.t. (not targeted) Indicates that the indicator will not be targeted during that year given that the
  transportation infrastructure will not be complete until the end of year 3. However, the Indicator will be
  monitored for evaluation purposes.
n.m. (not monitored) Signifies that an indicator will not be monitored in a given year due to the lag between
  construction, project completion, and commencement of benefits.

    (iii) Project Activity Indicators. The M&E Plan shall contain the 
Project Activity Outcome Indicators listed in the table below, with 
definitions (where necessary). Indicators have been selected to measure 
the progress of construction and PWD adherence to action plan 
objectives. The Baseline and estimated Targets are notional based on 
anticipated implementation schedule. MCA-Vanuatu may add Project 
Activity Outcome Indicators or refine the Targets of existing Project 
Activity 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.

                                    Vanuatu Transport Infrastructure Project
----------------------------------------------------------------------------------------------------------------
      Activity indicators \1\  (metric of
          implementation performance)               Year 1       Year 2       Year 3       Year 4       Year 5
----------------------------------------------------------------------------------------------------------------
Kilometers of Roads Upgraded...................  ...........           80        213.8  ...........  ...........
    Efate: Round-Island Road...................  ...........           45           90  ...........  ...........
    Malekula: Norsup-Lits Lits Road............  ...........  ...........         10.8  ...........  ...........
    Malo: Multiple Roads.......................  ...........  ...........            5  ...........  ...........
    Pentecost: North-South Road................  ...........  ...........            8  ...........  ...........
    Santo: East Coast Road.....................  ...........           35           70  ...........  ...........
    Tanna: White Sands Road....................  ...........  ...........           30  ...........  ...........
Number of River Crossings Constructed..........  ...........           40            5  ...........  ...........
    Ambae: Creek Crossings Reconstruction......  ...........           40  ...........  ...........  ...........
    Santo: South Coast Road Bridges............  ...........  ...........            5  ...........  ...........
Airstrip Meters Upgraded at S-W Bay, Malekula..  ...........        2,000  ...........  ...........  ...........
Number of maritime wharves reconstructed.......  ...........  ...........            2  ...........  ...........
    Pentecost: Loltong Wharf...................  ...........  ...........            1  ...........  ...........

[[Page 14325]]

 
    Epi: Lamen Bay Wharf.......................  ...........  ...........            1  ...........  ...........
Number of Warehouses Constructed...............  ...........  ...........            5  ...........  ...........
Maintenance Activities: \2\
    Equipment delivered (USD millions).........         1.00         0.39  ...........  ...........         4.35
    Utilization of equipment \3\...............  ...........          50%          75%          80%          80%
    Annual PWD Score \4\.......................  ...........           60           70           80           90
PWD Budget as a percentage of transport revenue          TBD          TBD          TBD          TBD         TBD
 collected (USD millions at, 2005 prices) \5\..
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ Activity Targets are notional and will depend on the specific implementation timeline provided by the
  contractor. These will be finalized during the first year of the Compact.
\2\ Country's performance relative to maintenance activity Targets will be linked to disbursements.
\3\ Time each item of equipment is used relative to work time.
\4\ Audited composite annual score measuring PWD's performance against targets set in the annual action plan.
  Maximum score is 100.
\5\ As reported in Government revenues and budget for road maintenance.

    (b) Data Collection and Reporting. The M&E Plan shall establish 
guidelines for data collection and a reporting framework, including a 
schedule of reporting required under the terms of the Compact and the 
responsible parties. The Program Management Unit shall conduct regular 
assessments of Program performance to inform MCA-Vanuatu, the Project 
Manager and MCC of progress under the Program and to alert these 
parties to any problems. These assessments will report the actual 
results compared to the Targets on the Indicators referenced in the 
Monitoring Component, explain deviations between these actual results 
and Targets, and in general, serve as a management tool for 
implementation of the Program. With respect to any data or reports 
received by MCA-Vanuatu, MCA-Vanuatu 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.
    (c) Data Quality Reviews. From time to time, as determined in the 
M&E Plan or as otherwise requested by MCC, the quality of the data 
gathered through the M&E Plan shall be reviewed to ensure that data 
reported are as valid, reliable, and timely as resources will allow. 
The objective of any data quality review will be to verify the quality 
and the consistency of performance data, across different 
implementation units and reporting institutions. Such data quality 
reviews also will serve to identify where those levels of quality are 
not possible, given the realities of data collection. The data quality 
reviewer shall enter into an Auditor/Reviewer Agreement with MCA-
Vanuatu 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. 
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 related 
activities or Project Activities.
    (a) Final Evaluation. MCA-Vanuatu, 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 and shall provide notification of such engagement to MCA-
Vanuatu. The Final Evaluation must at a minimum (i) evaluate the 
efficiency and effectiveness of the Project Activities (and Subproject 
Activities, as appropriate); (ii) estimate, quantitatively and in a 
statistically valid way, the causal relationship between the Compact 
Goal (to the extent possible), the Project Objectives, Project Outcome 
and Project Activities (and Subproject Activities, as appropriate); 
(iii) determine if and analyze the reasons why the Compact Goal, 
Project Objectives and Project Outcomes and Project Activities 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-Vanuatu, 
such independent evaluator shall enter into an Auditor/Reviewer 
Agreement with MCA-Vanuatu in accordance with Annex I.
    (b) Ad Hoc Evaluations. Either MCC or MCA-Vanuatu may request ad 
hoc or interim evaluations or special studies of the Transport 
Infrastructure Project, Project Activities, or the Program as a whole 
prior to the expiration of the Compact Term. If MCA-Vanuatu engages an 
evaluator, the evaluator will be an externally contracted independent 
source selected by MCA-Vanuatu, 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-Vanuatu 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 the 
Transport Infrastructure Project or any Project Activity or to seek 
funding from other donors, no MCC Funding or MCA-Vanuatu resources may 
be applied to such evaluation or special study without MCC's prior 
written approval.

4. Other Components of the M&E Plan

    In addition to the Monitoring and Evaluation Components, the M&E 
Plan shall include the following components for the 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

[[Page 14326]]

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) Steering Committee. The completed portions of the M&E Plan will 
be presented to the Steering Committee at the Steering Committee's 
initial meeting, and any amendments or modifications thereto or any 
additional components of the M&E Plan will be presented to the Steering 
Committee at appropriate subsequent meetings of the Steering Committee. 
Members of the Steering Committee will have the opportunity to present 
suggestions on the M&E Plan.
    (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 Transport Infrastructure Project or any 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. 06-2553 Filed 3-20-06; 8:45 am]
BILLING CODE 9210-01-P