[Federal Register Volume 71, Number 71 (Thursday, April 13, 2006)]
[Notices]
[Pages 19392-19425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-3459]



[[Page 19391]]

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Part IV





Millennium Challenge Corporation





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

  Federal Register / Vol. 71, No. 71 / Thursday, April 13, 2006 / 
Notices  

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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 06-07]


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

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 Armenia. Representatives of the United 
States Government and the Government of the Republic of Armenia 
executed the Compact documents on March, 27, 2006.

    Dated: April 6, 2006.
Jon A. Dyck,
Vice President & General Counsel, Millennium Challenge Corporation.

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

I. Introduction

    A small, landlocked country in the Caucasus region, Armenia is 
struggling to recover from the severe economic setbacks caused by the 
collapse of the Soviet Union in the early 1990s. In 1994, Armenia 
adopted a comprehensive stabilization and reform program that 
transformed it into a liberal market economy and launched a period of 
uninterrupted growth that saw its GDP increase at an average annual 
rate of 8% over the next decade. Today, the per-capita GDP of Armenia's 
3.2 million inhabitants is estimated at $1,100. Economic growth to date 
has disproportionately benefited inhabitants of the capital, Yerevan, 
and the rural poverty rate remains above 30%. More than one million 
Armenians, or about 35% of the population, live in rural areas and are 
dependant on semi-subsistence agriculture. These farmers are operating 
on small, fragmented parcels of land and are constrained by poor 
infrastructure and an underdeveloped agricultural economy.
    The $235 million Millennium Challenge Compact with the Republic of 
Armenia is focused on the reduction of rural poverty through a 
sustainable increase in the economic performance of the agricultural 
sector. The Program to be funded under the Compact will advance this 
goal through a five-year program of strategic investments in rural 
roads, irrigation infrastructure and technical assistance, and 
financial support to water supply entities, farmers, and commercial 
agribusinesses (the ``Program'').

II. Program Overview and Budget

    To transform the economic performance of Armenia's agricultural 
sector and reduce rural poverty, the Program will undertake a Rural 
Road Rehabilitation Project and an Irrigated Agriculture Project.
    A. Rural Road Rehabilitation Project ($67 million): This project 
will rehabilitate up to 943 km of rural roads, or 35% of the 
government-proposed lifeline road network. When complete, the lifeline 
network will ensure that every rural community has essential road 
access to markets, social services and the main road/interstate 
network. In addition, funding will be provided to the Armenian Road 
Directorate for a technical audit of the ongoing maintenance contracts 
and for a road maintenance strategic plan.
    B. Irrigated Agriculture Project ($146 million): This project 
includes two activities:
     The Infrastructure Activity ($113 million) will 
rehabilitate up to 21 targeted irrigation infrastructure schemes across 
the country, expanding the total area under irrigated production and 
improving the overall efficiency of sourcing and delivery of water to 
farmers.
     The Water-to-Market Activity ($33 million) will build the 
management capacities of the local and national water supply entities 
and support the transition to higher-value agricultural systems of some 
60,000 farmers by providing technical and rural credit assistance. This 
will ensure the sustainable management of the improved irrigation 
infrastructure and enable the emergence of profitable farming 
operations.
    The following table outlines the MCA contribution to the Program by 
year and category.

----------------------------------------------------------------------------------------------------------------
                                                                Timeline
                                   -----------------------------------------------------------------
            Description               CY1 ($US     CY2 ($US     CY3 ($US     CY4 ($US     CY5 ($US      Total
                                        mil)         mil)         mil)         mil)         mil)
----------------------------------------------------------------------------------------------------------------
Rural Road Rehabilitation Project.         0.89        18.32        23.32        14.16        10.40        67.10
Irrigated Agriculture Project.....         8.24        37.24        41.23        34.20        24.77       145.67
Program Administration and Audits.         2.06         4.12         4.69         3.81         3.11        17.79
Monitoring and Evaluation.........         1.44         0.92         0.95         0.97         0.81         5.08
                                   -----------------------------------------------------------------------------
    Total*........................        12.63        60.61        70.20        53.13        39.09      235.65
----------------------------------------------------------------------------------------------------------------
* Total amounts may not sum due to rounding.

III. Impact

    The Program will directly impact approximately 750,000 people, or 
75% of the rural population, increasing their annual income by an 
estimated $36 million in 2010 and over $113 million in 2015. This 
corresponds to agricultural value-added gains of 4% and 11% over the 
same periods. By 2013, the rural poverty rate is projected to fall by 5 
percentage points as a result of the Program. Continued reductions in 
rural poverty are expected with a sustained transformation of the 
agricultural sector.
    The Rural Road Rehabilitation Project will reduce transport costs 
for the greater rural community, including farmers and processors, by 
an estimated $20 million annually beginning five years after material 
project benefits are realized. The principal beneficiaries of this 
project will be approximately 360,000 rural Armenians living in 265 
communities connected by the portion of the road network to be 
rehabilitated with MCC funds.
    The Irrigated Agriculture Project will benefit approximately 
250,000 farmer households, 34% of which are headed by women. The 
Infrastructure Activity improvements will extend irrigation to an 
additional 46,000 hectares (114,000 acres) of new and recovered 
farmland, expanding the total area under irrigated production by more 
than 40%.

[[Page 19393]]

Technical support provided under the Water-to-Market Activity will 
enable over 60,000 participating farmers to increase their average net 
incomes by approximately 25% through the adoption of improved on-farm 
water management techniques and the cultivation of higher-value 
agriculture. The Water-to-Market Activity will also boost the 
development of small- and medium-sized agribusinesses by expanding 
rural access to credit and providing training in post-harvest 
processing and marketing.

IV. Program Management

    The GOA will create a legal entity, MCA-Armenia, to manage and 
oversee the Program. MCA-Armenia will consist of a Governing Council 
and a Management Unit. The Governing Council, responsible for making 
key strategic and management decisions, will be chaired by the Prime 
Minister and include voting representatives from both government and 
civil society. The Management Unit will include technical experts and 
be responsible for the day-to-day management of the Program.
    Project implementation will be carried out by three separate 
entities reporting to the Management Unit. The Rural Road 
Rehabilitation Project will be implemented by the Armenian Road 
Directorate, and the Infrastructure Activity of the Irrigated 
Agriculture Project will be implemented by the Irrigation Project 
Implementation Unit previously established by the World Bank. 
Implementation of the Water-to-Market Activity of the Irrigated 
Agriculture Project will be contracted out to a private firm or non-
governmental organization (``NGO'').
    A third-party non-government entity will be engaged to provide 
fiscal agent services to MCA-Armenia, including funds control, 
disbursement documentation and management, cash management and 
accounting. The fiscal agent will have sole signatory authority to 
authorize re-disbursements from the MCA-Armenia bank account into which 
MCC funds will be disbursed.
    The World Bank procurement guidelines--modified as necessary to 
conform to MCC policies--will be used for procurement of the works, 
goods and consulting services needed under the Program. MCC will review 
and approve procurement plans on a periodic basis, as well as quarterly 
reports of all completed procurement actions. Independent auditors will 
also audit the procurement activity quarterly for compliance with MCC 
requirements.

V. Assessment

A. Economic Analysis

    The projects included in the Program represent sound investments 
that will alleviate key constraints to economic growth and poverty 
reduction in rural Armenia. Economic rates of return (``ERRs'') were 
calculated for each infrastructure investment and technical assistance 
activity to select the highest return projects. These returns, which 
were modeled by the GOA's transaction team and reviewed by MCC, 
quantify the expected incremental increase in income from each 
individual activity. For the Rural Road Rehabilitation Project, savings 
in transport costs were estimated. For the Irrigated Agriculture 
Project, quantified benefits include additional income from newly 
irrigated land, the increase in high value-added crop cultivation, 
higher yields, lower production costs, and energy and water savings. 
The economic rates of return of each of the activities were compared to 
a benchmark of 12.5%, the average real growth rate for the past three 
years. The overall economic rate of return of the Compact is estimated 
at 25%.

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                                                                                                    ERR for the
               Scenario                      Key underlying            Project ERR (percent)          Armenia
                                               assumptions                                            Compact
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Base case.............................  Base traffic estimates    Roads--26.....................              25
                                         and cost estimates.      Irrigation--25................
                                        Base benefit and cost
                                         estimates.
Low return case 1.....................  Cost increase of 30%....  Roads--21.....................              20
                                                                  Irrigation--20................
Low return case 2.....................  Current traffic is only   Roads--18.....................              18
                                         50% of estimated value.  Irrigation--18................
                                        Benefits are delayed by
                                         two years.
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B. Consultative Process

    The GOA based its Program proposal on a comprehensive consultative 
process that was initiated in 2003 for the development of its Poverty 
Reduction Strategy Paper (``PRSP''). The opportunity to apply for MCC 
funding led to further review and dissemination of the PRSP through 
electronic and printed media. In the initial priority-setting stage, 
the GOA engaged a broad cross-section of civil society--including rural 
community members, NGOs, and the private sector--through public 
meetings and regional roundtables focused specifically on MCA proposal 
development. The NGO community contributed substantially to the 
proposal development and due diligence processes by electing its own 
representatives to participate in meetings of the inter-governmental 
board of trustees (``Board of Trustees'').
    Issues raised will continue to be addressed through an ongoing 
consultative process that incorporates feedback mechanisms reaching out 
to stakeholders, particularly those involved in irrigation, 
agriculture, rural road, policy development and advocacy, and groups 
that specialize in monitoring and evaluation. In order to provide an 
Internet-based resource and information portal, MCA-Armenia maintains 
an interactive website that provides up-to-date information on the 
Program, all meeting minutes, a forum page on which to post and debate 
issues related to proposal development and implementation, and an e-
mail address for sending inquiries and concerns.
    To ensure meaningful stakeholder participation in Compact 
implementation, the MCA-Armenia Governing Council will include five 
voting representatives of civil society. These representatives will be 
appointed by a Stakeholders' Committee consisting of eight to twelve 
individuals who represent Water User Associations (``WUAs''), farmer 
groups, NGOs involved in the PRSP and MCA consultative processes, and 
regional stakeholder committees. The Stakeholders' Committee will also 
consult with the chairman of the Board of Trustees on its views and 
recommendations regarding the performance and progress of the Program, 
project and sub-project activities, components of the Implementation 
Plan, procurement, and financial management. The minutes of these 
meetings and discussions will be posted on the MCA-Armenia Web site.

C. Government Commitment and Effectiveness

    The GOA has exhibited a high degree of commitment to the Program, 
and will take the following measures to ensure

[[Page 19394]]

the effectiveness of the MCA investment:
     Adopting into legislation policies that will ensure the 
sustainability of the infrastructure investments, including user fee-
based cost recovery mechanisms for irrigation systems and assigning 
maintenance responsibilities of the lifeline network to the Armenian 
Road Directorate.
     Developing and implementing a plan to restructure the 
Water Supply Agency and transferring certain operations and maintenance 
responsibilities to developing federations of WUAs.
     Identifying and contributing to financing for the 
rehabilitation of the rest of the lifeline network, in addition to the 
roads rehabilitated with MCC funding.
     Meeting the co-financing requirements of the WUAs for 
tertiary canals consistent with the ongoing World Bank Irrigation 
Development Project.

D. Sustainability

    Currently, the GOA expends approximately $9 million per year for 
routine maintenance on the entire road network. As rehabilitation of 
the lifeline network proceeds, the GOA will commit additional resources 
for future financing of routine maintenance on the lifeline network. 
The Rural Road Rehabilitation Project will further help to 
institutionalize performance-based contracts, which were instituted by 
the Armenian Road Directorate in 2005.
    The management of Armenia's irrigation network has recently been 
decentralized to 53 WUAs, and the GOA has enhanced water management 
efficiency by merging responsibilities for irrigation and drainage. The 
Irrigated Agriculture Project will benefit from an extensive Water-to-
Market Activity that will provide technical and organizational support 
to ensure WUAs and federations of WUAs have systems to effectively 
manage and finance their operations. In addition, credit organizations 
will receive training and capital to expand financing opportunities to 
WUA member farmers and enterprises. The resulting transition to more 
profitable operations by member farmers will enhance the financial 
sustainability of the irrigation system, as will the replacement of 
pumping systems with more energy-efficient gravity irrigation and the 
increased capacity of the WUAs to finance themselves through member 
contributions.

E. Environmental and Social Impacts

    The Program is unlikely to cause significant environmental, health, 
or safety hazards, and immitigable impacts on sensitive areas are not 
expected. The Rural Road Rehabilitation Project is classified as a 
``Category B'' according to MCC guidelines, requiring environmental and 
social analyses due to potentially adverse site-specific environmental 
impacts. The Irrigated Agriculture Project is classified as a 
``Category A,'' requiring environmental and social impact assessments 
due to potentially adverse environmental impacts resulting from the 
construction of reservoirs, gravity schemes, and the Ararat Valley 
drainage scheme. A baseline study will be required for the Ararat 
Valley drainage scheme prior to initiating the required environmental 
and social impact assessment, and a land compensation framework may be 
required for certain reservoirs. Environmental management plans will be 
developed for both projects. The environmental benefits expected from 
the Irrigated Agriculture Project include reduced water losses through 
increased efficiency, improved energy conservation and more sustainable 
agricultural practices. After reviewing an initial environmental 
assessment, the Armenian Ministry of Nature Protection issued a 
positive evaluation of the overall Program, a prerequisite for further 
environmental assessment and project design.

F. Donor Coordination

    The Program builds upon an extensive body of work by several 
international donors, particularly the World Bank, which produced much 
of the research upon which the Program is based. In transportation, the 
main donors have been the World Bank and the Lincy Foundation. The 
Rural Road Rehabilitation Project complements the rehabilitation and 
construction of larger roads, and serves as a catalyst for 
contributions of future donors to the completion of the lifeline 
network. In irrigation, the main donors have been the World Bank and 
the International Fund for Agricultural Development. Other significant 
donor projects include the USDA Marketing Assistance Project, the USAID 
Micro Enterprise Development Initiative, and the USAID Armenia 
Agribusiness Small and Medium Enterprise Market Development Project. 
The Irrigated Agriculture Project will work closely with and build on 
the contributions of these donors.

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

Table of Contents

Article I. Purpose and Term
    Section 1.1 Objectives
    Section 1.2 Projects
    Section 1.3 Entry into Force; Compact Term
Article II. Funding and Resources
    Section 2.1 MCC Funding
    Section 2.2 Government Resources
    Section 2.3 Limitations on the Use or Treatment of MCC Funding
    Section 2.4 Incorporation; Notice; Clarification
    Section 2.5 Refunds; Violation
Article III. Implementation
    Section 3.1 Implementation Framework
    Section 3.2 Government Responsibilities
    Section 3.3 Government Deliveries
    Section 3.4 Government Assurances
    Section 3.5 Implementation Letters; Supplemental Agreements
    Section 3.6 Procurement; Awards of Assistance
    Section 3.7 Policy Performance; Policy Reforms
    Section 3.8 Records and Information; Access; Audits; Reviews
    Section 3.9 Insurance
    Section 3.10 Domestic Requirements
    Section 3.11 No Conflict
    Section 3.12 Reports
Article IV. Conditions Precedent; Deliveries
    Section 4.1 Conditions Prior to the Entry into Force and 
Deliveries
    Section 4.2 Conditions Precedent to MCC Disbursements or Re-
Disbursements
Article V. Final Clauses
    Section 5.1 Communications
    Section 5.2 Representatives
    Section 5.3 Amendments
    Section 5.4 Termination; Suspension
    Section 5.5 Privileges and Immunities
    Section 5.6 Attachments
    Section 5.7 Inconsistencies
    Section 5.8 Indemnification
    Section 5.9 Headings
    Section 5.10 Interpretation; Definitions
    Section 5.11 Signatures
    Section 5.12 Designation
    Section 5.13 Survival
    Section 5.14 Consultation
    Section 5.15 MCC Status
    Section 5.16 Language
    Section 5.17 Publicity; Information and Marking
Exhibit A: Definitions
Exhibit B: List of Certain Supplemental Agreements
    Schedule 2.1(a)(iii): Description of Compact Implementation 
Funding
Annex I: Program Description
    Schedule 1 `` Rural Road Rehabilitation Project
    Schedule 2 `` Irrigated Agriculture 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

[[Page 19395]]

United States of America, acting through the Millennium Challenge 
Corporation, a United States Government corporation (``MCC''), and the 
Government of the Republic of Armenia (the ``Government'') (referred to 
herein individually as a ``Party'' and collectively, the ``Parties''). 
A compendium of capitalized terms defined herein is included in Exhibit 
A attached hereto.

Recitals

    Whereas, MCC, acting through its Board of Directors, has selected 
the Republic of Armenia 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 Armenia;
    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 28, 2005 (the ``Proposal'');
    Whereas, the Proposal focused on increasing agricultural production 
in poor, rural areas of the country through investments in irrigation 
and rural roads;
    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 Armenia towards achieving economic growth and poverty 
reduction;
    Whereas, based on MCC's evaluation of the Proposal and related 
documents and subsequent discussions and negotiations between the 
Parties, the Government and MCC determined to enter into this Compact 
to implement a program using MCC Funding to advance Armenia's progress 
towards economic growth and poverty reduction (the ``Program''); and
    Whereas, the Government intends to establish a legal entity, in a 
form mutually agreeable to the Parties, which shall be responsible for 
the oversight and management of the implementation of this Compact on 
behalf of the Government (``MCA-Armenia'').
    Now, Therefore, in consideration of the foregoing and the mutual 
covenants and agreements set forth herein, the Parties hereby agree as 
follows:

Article I. Purpose and Term

Section 1.1 Objectives

    The overall objective of this Compact is to reduce rural poverty 
through a sustainable increase in the economic performance of the 
agricultural sector in Armenia (the ``Compact Goal''). The Parties have 
identified the following project-level objectives (the ``Objectives'') 
to advance the Compact Goal, each of which is described in more detail 
in the Annexes attached hereto:
    Expand the access of rural communities to agricultural markets, 
non-farm income opportunities and social infrastructure by improving 
the condition of rural roads (the ``Rural Road Rehabilitation 
Objective''); and
    Increase the productivity of the agricultural sector by extending 
and improving the quality of the irrigation system, strengthening the 
entities that manage the system and enabling farmers to commercialize 
their products (the ``Irrigated Agriculture Objective'').
    The Government expects to achieve, and shall use its best efforts 
to ensure the achievement of, these Objectives during the Compact Term.

Section 1.2 Projects

    The Annexes attached hereto describe the specific projects and the 
policy reforms and other activities related thereto (each, a 
``Project'') that the Government will carry out, or cause to be carried 
out, in furtherance of this Compact to achieve the Objectives.

Section 1.3 Entry into Force; Compact Term

    This Compact shall enter into force on the date of the last letter 
in an exchange of letters between the Principal Representatives of each 
Party confirming that each Party has completed its domestic 
requirements for entry into force of this Compact and that all 
conditions set forth in Section 4.1 have been satisfied by the 
Government and MCC (such date, the ``Entry into Force''). This Compact 
shall remain in force for five (5) years from the Entry into Force of 
this Compact, unless earlier terminated in accordance with Section 5.4 
(the ``Compact Term'').

Article II. Funding and Resources

Section 2.1 MCC Funding

    (a) MCC's Contribution. MCC hereby grants to the Government, 
subject to the terms and conditions of this Compact, an amount not to 
exceed Two Hundred Thirty-Five Million Six Hundred Fifty Thousand 
United States Dollars (USD $235,650,000) (``MCC Funding'') during the 
Compact Term to enable the Government to implement the Program and 
achieve the Objectives.
    (i) Subject to Sections 2.1(a)(ii), 2.2(b) and 5.4, 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, Project 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).
    (iii) Notwithstanding any other provision of this Compact and 
pursuant to the authority of section 609(g) of the Millennium Challenge 
Act of 2003, as amended (the ``Act''), upon the conclusion of this 
Compact (and without regard to the satisfaction of all of the 
conditions for Entry into Force required under Section 1.3), MCC shall 
make available Five Hundred Thousand United States Dollars (USD 
$500,000) (``Compact Implementation Funding'') to facilitate certain 
aspects of Compact implementation as described in Schedule 2.1(a)(iii) 
attached hereto; provided, such Compact Implementation Funding shall be 
subject to (1) the limitations on the use or treatment of MCC Funding 
set forth in Section 2.3, as if such provision were in full force and 
effect, and (2) any other requirements for, and limitations on the use 
of, such Compact Implementation Funding as may be required by MCC in 
writing; provided, further, that any Compact Implementation Funding 
granted in accordance with this Section 2.1(a)(iii) shall be included 
in, and not additional to, the total amount of MCC Funding; and 
provided, further, any obligation to provide such Compact 
Implementation Funding shall expire upon the expiration or termination 
of this Compact or five (5) years from the conclusion of this Compact, 
whichever occurs sooner. Notwithstanding anything to the contrary in 
this Compact, this Section 2.1(a)(iii) shall provisionally apply prior 
to Entry into Force.

[[Page 19396]]

    (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 the Republic of Armenia 
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 Armenia 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 Armenian governmental authority at a departmental, 
municipal, regional or other jurisdictional level materially 
reallocates or reduces the allocation of its respective budget, of the 
normal and expected resources that the Government or such other 
governmental authority, as applicable, would have otherwise received or 
budgeted, from external or domestic sources, for the activities 
contemplated herein, the Government shall notify MCC in writing within 
fifteen (15) days of such reallocation or reduction, such notification 
to contain information regarding the amount of the reallocation or 
reduction, the affected activities, and an explanation for the 
reduction. In the event that MCC independently determines upon review 
of the executed national annual budget that such a material 
reallocation or reduction of resources has occurred, MCC shall notify 
the Government and, following such notification, the Government shall 
provide a written explanation for such reallocation or reduction and 
MCC may (i) reduce, in its sole discretion, the total amount of MCC 
Funding or any MCC Disbursement by an amount equal to the amount 
estimated in the applicable Detailed Financial Plan for the activity 
for which funds were reduced or reallocated or (ii) otherwise suspend 
or terminate MCC Funding in accordance with Section 5.4(b).
    (c) The Government shall use its best efforts to ensure that all 
MCC Funding is fully reflected and accounted for in the annual budget 
of the Republic of Armenia on a multi-year basis.

Section 2.3 Limitations on the Use or Treatment of MCC Funding

    (a) Abortions and Involuntary Sterilizations. The Government shall 
ensure that MCC Funding shall not be used to undertake, fund or 
otherwise support any activity that is subject to prohibitions on use 
of funds contained in (i) paragraphs (1) through (3) of section 104(f) 
of the Foreign Assistance Act of 1961 (22 U.S.C. 2151b(f)(1)-(3), a 
United States statute, which prohibitions shall apply to the same 
extent and in the same manner as such prohibitions apply to funds made 
available to carry out Part I of such Act; or (ii) any provision of law 
comparable to the eleventh and fourteenth provisos under the heading 
``Child Survival and Health Programs Fund'' of division E of Public Law 
108-7 (117 Stat. 162), a United States statute.
    (b) United States Job Loss or Displacement of Production. The 
Government shall ensure that MCC Funding shall not be used to 
undertake, fund or otherwise support any activity that is likely to 
cause a substantial loss of United States jobs or a substantial 
displacement of United States production, including:
    (i) Providing financial incentives to relocate a substantial number 
of United States jobs or cause a substantial displacement of production 
outside the United States;
    (ii) Supporting investment promotion missions or other travel to 
the United States with the intention of inducing United States firms to 
relocate a substantial number of United States jobs or a substantial 
amount of production outside the United States;
    (iii) Conducting feasibility studies, research services, studies, 
travel to or from the United States, or providing insurance or 
technical and management assistance, with the intention of inducing 
United States firms to relocate a substantial number of United States 
jobs or cause a substantial displacement of production outside the 
United States;
    (iv) Advertising in the United States to encourage United States 
firms to relocate a substantial number of United States jobs or cause a 
substantial displacement of production outside the United States;
    (v) Training workers for firms that intend to relocate a 
substantial number of United States jobs or cause a substantial 
displacement of production outside the United States;
    (vi) Supporting a United States office of an organization that 
offers incentives

[[Page 19397]]

for United States firms to relocate a substantial number of United 
States jobs or cause a substantial displacement of production outside 
the United States; or
    (vii) Providing general budget support for an organization that 
engages in any activity prohibited above.
    (c) Military Assistance and Training. The Government shall ensure 
that MCC Funding shall not be used to undertake, fund or otherwise 
support the purchase or use of goods or services for military purposes, 
including military training, or to provide any assistance to the 
military, police, militia, national guard or other quasi-military 
organization or unit.
    (d) Prohibition of Assistance Relating to Environmental, Health or 
Safety Hazards. The Government shall ensure that MCC Funding shall not 
be used to undertake, fund or otherwise support any activity that is 
likely to cause a significant environmental, health, or safety hazard. 
Unless MCC and the Government agree otherwise in writing, the 
Government shall ensure that activities undertaken, funded or otherwise 
supported in whole or in part (directly or indirectly) by MCC Funding 
comply with environmental guidelines delivered by MCC to the Government 
or posted by MCC on its Web site or otherwise publicly made available, 
as such guidelines may be amended from time to time (the 
``Environmental Guidelines''), including any definition of ``likely to 
cause a significant environmental, health, or safety hazard'' as may be 
set forth in such Environmental Guidelines.
    (e) Taxation.
    (i) Taxes. The Government shall ensure that the Program, all 
Program Assets, MCC Funding and Accrued Interest shall be free from any 
taxes imposed under laws currently or hereafter in effect in the 
Republic of Armenia during the Compact Term. This exemption shall apply 
to any use of any Program Asset, MCC Funding and Accrued Interest, 
including any Exempt Uses, and to any work performed under or 
activities undertaken in furtherance of this Compact by any person or 
entity (including contractors and grantees) funded by MCC Funding, and 
shall apply to all taxes, tariffs, duties, and other levies (each a 
``Tax'' and collectively, ``Taxes''), including:
    (1) To the extent attributable to MCC Funding, income taxes and 
other taxes on profit or businesses imposed on organizations or 
entities, other than nationals of the Republic of Armenia, receiving 
MCC Funding, including taxes on the acquisition, ownership, rental, 
disposition or other use of real or personal property, taxes on 
investment or deposit requirements and currency controls in the 
Republic of Armenia, 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 the Republic of Armenia, other than MCA-
Armenia 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 the Republic of Armenia;
    (2) Customs duties, tariffs, import and export taxes, or other 
levies on the importation, use and re-exportation of goods, services, 
or the personal belongings and effects, including personally-owned 
automobiles, for Program use or the personal use of individuals who are 
neither citizens nor permanent residents of the Republic of Armenia and 
who are present in the Republic of Armenia for purposes of carrying out 
the Program or their family members, including all charges based on the 
value of such imported goods;
    (3) Taxes on the income or personal property of all individuals who 
are neither citizens nor permanent residents of the Republic of 
Armenia, 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, the Republic of 
Armenia 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 the Republic of Armenia, 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 Implementation Letter 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).
    (v) The Parties agree that this Section 2.3(e) shall supplement, 
without limiting in any manner, the provisions relating to tariffs, 
dues, customs duties, import taxes and other similar taxes or charges 
contained in the bilateral agreement entered into on December 12, 1992 
between the Government of the United States of America and the 
Government of the Republic of Armenia Regarding Cooperation to 
Facilitate the Provision of Humanitarian and Technical Economic 
Assistance (the ``Bilateral Agreement''), which agreement continues in 
full force and effect. In case of any inconsistency between the 
provisions of this Section 2.3(e) and the provisions relating to 
tariffs, dues, customs duties, import taxes and other similar taxes or 
charges contained in the Bilateral Agreement, the provisions of this 
Section 2.3(e) shall prevail.
    (f) Alteration. The Government shall ensure that no MCC Funding, 
Accrued Interest or Program Assets shall be

[[Page 19398]]

subject to any impoundment, rescission, sequestration or any provision 
of law now or hereafter in effect in the Republic of Armenia 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; 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, Accrued Interest and Program Assets 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-Armenia 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-Armenia) during the Compact Term or such other amount as the 
Parties may agree in writing, whether directly from MCC, indirectly 
through Re-Disbursements, or otherwise.
    (c) In the event the Government or any Provider requires 
clarification from MCC as to whether an activity contemplated to be 
undertaken in furtherance of this Compact violates or may violate any 
provision of Section 2.3, the Government shall notify, or ensure that 
such Provider notifies, MCC in writing and provide in such notification 
a detailed description of the activity in question. In such event, the 
Government shall not proceed, and shall use its best efforts to ensure 
that no relevant Provider proceeds, with such activity, and the 
Government shall ensure that no Re-Disbursements shall be made for such 
activity, until MCC advises the Government or such Provider in writing 
that the activity is permissible.

Section 2.5 Refunds; Violation

    (a) Notwithstanding the availability to MCC, or exercise by MCC of, 
any other remedies, including under international law, this Compact, or 
any Supplemental Agreement:
    (i) If any amount of MCC Funding or Accrued Interest, or any 
Program Asset, is used for any purpose prohibited under this Article II 
or otherwise in violation of any of the terms and conditions of this 
Compact, any guidance in any Implementation Letter, or any Supplemental 
Agreement between the Parties, MCC may require the Government to repay 
promptly to MCC to an account designated by MCC or to others as MCC may 
direct the amount of such misused MCC Funding or Accrued Interest, or 
the cash equivalent of the value of any misused Program Asset, in 
United States Dollars, plus any interest that accrued or would have 
accrued thereon, within thirty (30) days (or such other period as may 
be agreed in writing by the Parties) after the Government is notified, 
whether by MCC or otherwise, of such prohibited use; provided, however, 
the Government shall apply national funds to satisfy its obligations 
under this Section 2.5(a)(i) and no MCC Funding, Accrued Interest or 
Program Assets may be applied by the Government in satisfaction of its 
obligations under this Section 2.5(a)(i); and
    (ii) If all or any portion of this Compact is terminated or 
suspended and upon the expiration of this Compact, the Government 
shall, subject to the requirements of Sections 5.4(e) and 5.4(f), 
refund, or ensure the refund, to MCC 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

[[Page 19399]]

Supplemental Agreements, (ii) in accordance with all applicable laws 
then in effect in the Republic of Armenia, 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 agree in 
writing to proceed notwithstanding such conflict. The Government shall 
ensure that no person or entity involved in the selection, award, 
administration, oversight or implementation of any contract, grant or 
other benefit or transaction funded in whole or in part (directly or 
indirectly) by MCC Funding shall solicit or accept from or offer to a 
third party or seek or be promised (directly or indirectly) for itself 
or for another person or entity any gift, gratuity, favor or benefit, 
other than items of de minimis value and otherwise consistent with such 
guidance as MCC may provide from time to time.
    (c) The Government shall not designate any person or entity, 
including any Government Affiliate, to implement, in whole or in part, 
this Compact or any Supplemental Agreement between the Parties 
(including any Government Responsibilities or any other 
responsibilities or obligations of the Government under this Compact or 
any Supplemental Agreement between the Parties) or to exercise any 
rights of the Government under this Compact or any Supplemental 
Agreement between the Parties, except as expressly provided herein or 
with the prior written consent of MCC; provided, however, the 
Government may designate MCA-Armenia or, with the prior written consent 
of MCC, such other mutually acceptable persons or entities, to 
implement some or all of the Government Responsibilities or any other 
responsibilities or obligations of the Government or to exercise any 
rights of the Government under this Compact or any Supplemental 
Agreement between the Parties (referred to herein collectively as 
``Designated Rights and Responsibilities''), in accordance with the 
terms and conditions set forth in this Compact or such Supplemental 
Agreement (each, a ``Permitted Designee''). Notwithstanding any 
provision herein or any other agreement to the contrary, no such 
designation shall relieve the Government of such Designated Rights and 
Responsibilities, for which the Government shall retain ultimate 
responsibility. In the event that the Government designates any person 
or entity, including any Government Affiliate, to implement any portion 
of the Government Responsibilities or other responsibilities or 
obligations of the Government, or to exercise any rights of the 
Government under this Compact or any Supplemental Agreement between the 
Parties, in accordance with this Section 3.2(c), then the Government 
shall (i) cause such person or entity to perform such Designated Rights 
and Responsibilities in the same manner and to the full extent to which 
the Government is obligated to perform such Designated Rights and 
Responsibilities, (ii) ensure that such person or entity does not 
assign, delegate, or contract (or otherwise transfer) any of such 
Designated Rights and Responsibilities to any other person or entity 
and (iii) cause such person or entity to certify to MCC in writing that 
it will so perform such Designated Rights and Responsibilities and will 
not assign, delegate, or contract (or otherwise transfer) any of such 
Designated Rights and Responsibilities to any person or entity without 
the prior written consent of MCC.
    (d) The Government shall, upon a request from MCC, execute, or 
ensure the execution of, an assignment to MCC of any cause of action 
which may accrue to the benefit of the Government, a Government 
Affiliate or any Permitted Designee, including MCA-Armenia, 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-Armenia 
is modified, supplemented, unduly influenced or rescinded by any 
governmental authority, except by a non-appealable judicial decision or 
any judicial decision which MCA-Armenia, with the agreement of MCC, 
decides not to appeal, and (ii) the authority of MCA-Armenia 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

[[Page 19400]]

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 the Republic of 
Armenia 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 the Government (and/or a mutually acceptable Government 
Affiliate such as MCA-Armenia) and MCC (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-Armenia and any other 
Permitted Designee follows, and uses its best efforts to ensure that 
all Providers follow, the Procurement Guidelines in procuring 
(including soliciting) goods, services and works and in awarding and 
administering contracts, grants and other agreements in furtherance of 
this Compact, and shall furnish MCC evidence of the adoption of the 
Procurement Guidelines by MCA-Armenia 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.
    (g) The Government shall ensure that approvals of the procurement 
of goods, works and services in furtherance of this Compact by the 
Governing Council pursuant to the terms of the Procurement Agreement 
shall not be subject to any additional approval by the Government.

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 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,

[[Page 19401]]

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 the Republic of Armenia. 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. Upon 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 (the ``Inspector 
General'') of the United States Agency for International Development 
(``USAID'') 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 thereafter, or such other period as the Parties may 
otherwise agree in writing.
    (ii) Audits of U.S. Entities. The Government shall ensure that 
Supplemental Agreements between the Government or any Provider, on the 
one hand, and a United States nonprofit organization, on the other 
hand, state that the United States organization is subject to the 
applicable audit requirements contained in OMB Circular A-133, 
notwithstanding any other provision of this Compact to the contrary. 
The Government shall ensure that Supplemental Agreements between the 
Government or any Provider, on the one hand, and a United States for-
profit Covered Provider, on the other hand, state that the United 
States organization is subject to audit by the cognizant United States 
Government agency, unless the Government and MCC agree otherwise in 
writing.
    (iii) Audit Plan. The Government shall submit, or cause to be 
submitted, to MCC, no later than twenty (20) days prior to the date of 
its adoption, in form and substance satisfactory to MCC, a plan, in 
accordance with the Audit Guidelines, for the audit of the expenditures 
of any Covered Providers, which audit plan, in the form and substance 
as approved by MCA-Armenia, 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-
Armenia 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-
Armenia 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

[[Page 19402]]

Funding, regardless of the requirements of this Section 3.8.
    (e) Application to Providers. The Government shall include, or 
ensure the inclusion of, at a minimum, the requirements of:
    (i) Paragraphs (a), (b), (c), (d)(ii), (d)(iii), (d)(v), (d)(vi), 
and (d)(viii) of this Section 3.8 into all Supplemental Agreements 
between the Government, any Government Affiliate, any Permitted 
Designee or any of their respective directors, officers, employees, 
Affiliates, contractors, sub-contractors, grantees, sub-grantees, 
representatives or agents (each, a ``Government Party''), on the one 
hand, and a Covered Provider that is not a 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 and social audits, or program evaluations during the 
Compact Term or otherwise and in accordance with the M&E Plan or as 
otherwise agreed in writing by the Parties.
    (g) Cost of Audits, Reviews or Evaluations. MCC Funding may be used 
to fund the costs of any Audits, reviews 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-Armenia 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 payee, 
MCA-Armenia shall be named as additional insureds 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-Armenia and acceptable to MCC or otherwise as 
directed by MCC. To the extent MCA-Armenia is held liable under any 
indemnification or other similar provision of any agreement between 
MCA-Armenia, 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-Armenia any such obligation; provided, further, the Government 
shall apply national funds to satisfy its obligations under this 
Section 3.9 and no MCC Funding, Accrued Interest, or Program Asset may 
be applied by the Government in satisfaction of its obligations under 
this Section 3.9.

Section 3.10 Domestic Requirements

    The Government shall proceed in a timely manner to seek any 
required ratification of this Compact or similar domestic requirement, 
which process the Government shall initiate promptly after the 
conclusion of this Compact. Notwithstanding anything to the contrary in 
this Compact, this Section 3.10 shall provisionally apply prior to the 
Entry into Force.

Section 3.11 No Conflict

    The Government shall undertake not to enter into any agreement in 
conflict with this Compact or any Supplemental Agreement during the 
Compact Term.

Section 3.12 Reports

    The Government shall provide, or cause to be provided, to MCC at 
least on each anniversary of the Entry into Force and otherwise within 
thirty (30) days of any written request by MCC, or as otherwise agreed 
in writing by the Parties, the following information:
    (a) The name of each entity to which MCC Funding has been provided;
    (b) The amount of MCC Funding provided to such entity;
    (c) A description of the Program and each Project funded in 
furtherance of this Compact, including:
    (i) A statement of whether the Program or any Project was solicited 
or unsolicited; and
    (ii) A detailed description of the objectives and measures for 
results of the Program or Project;
    (d) The progress made by the Republic of Armenia toward achieving 
the Compact Goal and Objectives;
    (e) A description of the extent to which MCC Funding has been 
effective in helping the Republic of Armenia to achieve the Compact 
Goal and Objectives;
    (f) A description of the coordination of MCC Funding with other 
United States foreign assistance and other related trade policies;
    (g) A description of the coordination of MCC Funding with 
assistance provided by other donor countries;
    (h) Any report, document or filing that the Government, any 
Government Affiliate or any Permitted Designee submits to any 
government body in connection with this Compact;
    (i) Any report or document required to be delivered to MCC under 
the Environmental Guidelines, any Audit Plan, or any component of the 
Implementation Plan; and
    (j) Any other report, document or information requested by MCC or 
required by this Compact or any Supplemental Agreement between the 
Parties.

Article IV. Conditions Precedent; Deliveries

Section 4.1 Conditions Prior to the Entry Into Force and Deliveries

    As conditions precedent to the Entry into Force, the Parties shall 
satisfy the conditions set forth in this Section 4.1.
    (a) The Government (acting through a mutually acceptable Government 
Affiliate and/or MCA-Armenia) and MCC shall execute a Disbursement 
Agreement, which agreement shall be in full force and effect and, if 
required, ratified in Armenia as of the Entry into Force.
    (b)(i) The Government (acting through a mutually acceptable 
Government Affiliate and/or MCA-Armenia) shall deliver one or more of 
the Supplemental Agreements identified in Exhibit B attached hereto, 
which agreements shall be duly executed by the parties thereto and in 
full force and effect and, if required, ratified in Armenia as of the 
Entry into Force, or (ii) the Government (acting through a mutually 
acceptable Government Affiliate and/or MCA-Armenia) and MCC execute one 
or more term sheets that set forth the material and principal terms and 
conditions that will be included in any such

[[Page 19403]]

Supplemental Agreement that has not been entered into as of the Entry 
into Force (the ``Supplemental Agreement Term Sheets'').
    (c) The Government (acting through a mutually acceptable Government 
Affiliate and/or MCA-Armenia) and MCC shall execute a Procurement 
Agreement, which agreement shall be in full force and effect and, if 
required, ratified in Armenia 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 the Prime Minister or a 
duly authorized official of the Government other than the Principal 
Representative or any such Additional Representative.
    (e) The Government shall deliver a letter signed and dated by the 
Minister of Justice of the Government certifying:
    (i) That the Government has completed all of its domestic 
requirements for this Compact to be fully enforceable under Armenian 
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 letter signed and dated by the Principal 
Representative of MCC certifying that MCC has completed its domestic 
requirements for this Compact to enter into force.
    (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, Phone: (202) 521-3600, E-mail: 
[email protected] (Vice President of Operations); 
[email protected] (Vice President and General Counsel).
    To the Government:
    Ministry of Finance and Economy, Attention: Minister of Finance and 
Economy, 1, Melik-Adamyan Str., Yerevan 375010, Republic of Armenia, 
Facsimile: +374 (10) 59-53-28, Phone: +374 (10) 59-52-22 or 23, E-mail: 
[email protected].
    Notwithstanding the foregoing, any audit report delivered pursuant 
to Section 3.8, if delivered by facsimile or electronic mail, shall be 
followed by an original in overnight express mail. This Section 5.1 
shall not apply to the exchange of letters contemplated in Section 1.3 
or any amendments under Section 5.3.

Section 5.2 Representatives

    Unless otherwise agreed in writing by the Parties, for all purposes 
relevant to this Compact, the Government shall be represented by the 
individual holding the position of, or acting as, Minister of Finance 
and Economy, and MCC shall be represented by the individual holding the 
position of, or acting as, Vice President 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. A Party may change its 
Principal Representative to a new representative of equivalent or 
higher rank upon written notice to the other Party, which notice shall 
include the specimen signature of the new Principal Representative.

Section 5.3 Amendments

    The Parties may amend this Compact only by a written agreement 
signed by the Principal Representatives of the Parties and subject to 
the 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 Armenia 
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

[[Page 19404]]

actions or omissions inconsistent with the MCA Eligibility Criteria, or 
there has occurred a significant decline in the performance of the 
Republic of Armenia 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 
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 obtain the release of such Lien (at its own expense and not 
with MCC Funding, Accrued Interest or Program Assets) 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 this Compact and (ii) 
reasonable expenditures for goods and services (including certain 
administrative expenses) properly incurred within one hundred and 
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 (1) properly submitted within 
ninety (90) days after the expiration, suspension or termination of the 
Compact and (2) subject to the prior written consent of MCC.
    (f) Other than payments permitted pursuant to Section 5.4(e), in 
the event of the suspension or termination of this Compact or any 
Supplemental Agreement, in whole or in part, each Party, 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-Armenia, (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

[[Page 19405]]

winding up of the Program and this Compact.

Section 5.5 Privileges and Immunities

    MCC is an agency of the Government of the United States of America 
and its personnel assigned to the Republic of Armenia 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 the Republic of Armenia, 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 the Republic of Armenia.

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, MCA-
Armenia 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, MCA-Armenia, any Permitted 
Designee, any Provider or any other third party receiving MCC Funding 
involved in carrying out the purposes of this Compact or any 
Supplemental Agreement, including their respective directors, officers, 
employees, Affiliates, contractors, sub-contractors, grantees, sub-
grantees, representatives or agents, whether pursuant to the terms of 
this Compact, any Supplemental Agreement or otherwise.
    (c) References to ``day'' or ``days'' shall be calendar days unless 
provided otherwise.
    (d) The term ``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 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

[[Page 19406]]

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 120 days), 5.4(f), 5.4(g), 
5.4(h), 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 5.11, 5.12, this Section 5.13, 
5.14, and 5.15.

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 the 
Republic of Armenia or any other jurisdiction.

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-Armenia 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-Armenia Web site.
    In Witness Whereof, the undersigned, duly authorized by their 
respective governments, have signed this Compact this 27th day of 
March, 2006 and this Compact shall enter into force in accordance with 
Section 1.3.
    Done at Washington, DC in the English language.
    For the United States of America, acting through the Millennium 
Challenge Corporation, Name: John J. Danilovich, Title: Chief Executive 
Officer.
    For the Government of the Republic of Armenia, Name: Vardan 
Khachatryan, Title: Minister of Finance and Economy.

Exhibit A--Definitions

    The following compendium of capitalized terms that are used in this 
Compact is provided for the convenience of the reader. To the extent 
that there is a conflict or inconsistency between the definitions in 
this Exhibit A and the definitions elsewhere in the text of this 
Compact, the definition elsewhere in this Compact shall prevail over 
the definition in this Exhibit A. Defined terms importing the singular 
also include the plural and vice versa.
    Accrued Interest is any interest or other earnings on MCC Funding 
that accrues as specified in Section 2.1(c).
    Act means the Millennium Challenge Act of 2003, as amended.
    Ad Hoc Evaluation shall have the meaning set forth in Section 3(b) 
of Annex III.
    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.
    AMD means Armenian Drams, the currency of the Republic of Armenia.
    Annex means any annex to this Compact.
    ARD means the Armenian Road Directorate that manages the main and 
republican roads.
    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 an auditor 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-Armenia and 
each Auditor or Reviewer, in form and substance satisfactory to MCC, 
that sets forth the roles and responsibilities of the Auditor or 
Reviewer with respect to the audit, review or evaluation, including 
access rights, required form and content of the applicable audit, 
review or evaluation and other appropriate terms and conditions such as 
payment of the Auditor or Reviewer.
    Bank(s) means any bank holding a Permitted Account referenced in 
Section 4(d) of Annex I.
    Bank Agreement means an agreement between MCA-Armenia 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 a Permitted Account.
    Beneficiaries means the intended beneficiaries identified in 
accordance with Annex I.
    Bilateral Agreement means the bilateral agreement entered into on 
December 12, 1992 between the Government of the United States of 
America and the Government of the Republic of Armenia Regarding 
Cooperation to Facilitate the Provision of Humanitarian and Technical 
Economic Assistance.
    Chair means the Chair of the Governing Council.
    Chief Executive Officer means the Chief Executive Officer of MCA-
Armenia.
    Civil Society Members are the five members of civil society 
appointed by

[[Page 19407]]

the Stakeholders' Committee as described in Section 3(d)(ii)(2)(A)(vii) 
of Annex I, to serve as voting members on the Governing Council.
    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 Armenia.
    Compact Goal means reducing rural poverty through a sustainable 
increase in the economic performance of the agricultural sector in 
Armenia.
    Compact Goal Indicator(s) means the Indicators in the M&E Plan that 
will measure the results for the overall Program. A table of Compact 
Goal Indicators with their definitions is set forth at Section 2(a)(i) 
of Annex III.
    Compact Implementation Funding shall have the meaning set forth in 
Section 2.1(a)(iii).
    Compact Records shall have the meaning set forth in Section 3.8(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 each Project, projected 
both on a commitment and cash requirement basis.
    Disbursement Agreement is a Supplemental Agreement that MCC, the 
Government (or a mutually acceptable Government Affiliate) and MCA-
Armenia 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-Armenia.
    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.
    Environmental Observer is a representative of an environmentally 
focused NGO appointed by the Stakeholders' Committee to serve as an 
Observer on the Governing Council.
    ESI Officer means the Environmental and Social Impact Officer 
within the Management Unit of MCA-Armenia who will ensure that 
environmental and social mitigation measures are followed for all 
Project Activities in accordance with the provisions set forth in this 
Compact and in relevant Supplemental Agreements.
    ESIAs means environmental and social impact assessments.
    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 Projects and 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 meaning set forth in Section 3(g) of 
Annex I.
    Fiscal Agent Agreement is an agreement between MCA-Armenia 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.
    Governance Agreement is an agency agreement to be entered into by 
the Government, MCC and MCA-Armenia, that, in addition to the Governing 
Documents, sets forth the terms and conditions that govern MCA-Armenia 
and as is further described in Section 3(d)(i) of Annex I.
    Governing Council means an independent governing council of MCA-
Armenia to oversee MCA-Armenia's responsibilities and obligations under 
this Compact.
    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 Armenia.
    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-vi) of Annex I serving as voting members on the 
Governing Council, 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).
    HVA means high value added.
    IDP means the Irrigation Development Project of the World Bank.
    IFAD means the International Fund for Agricultural Development.
    Implementation Letter is a letter that may be issued by MCC from 
time to time to furnish additional information or guidance to assist 
the Government in the implementation of this Compact.
    Implementation Plan is a detailed plan for the implementation of 
the Program and each Project, which will be memorialized in one or more 
documents and shall consist of: (i) A Financial Plan; (ii) a Fiscal 
Accountability Plan; (iii) Procurement Plans; (iv) Program and Project 
Work Plans; and (v) an M&E Plan.
    Implementing Entity means a Government Affiliate, nongovernmental 
organization or other public- or private-sector entity or persons to 
which MCA-Armenia may provide MCC Funding to implement and carry out 
the Projects or any other activities to be carried out in furtherance 
of this Compact.
    Implementing Entity Agreement is an agreement between MCA-Armenia 
and

[[Page 19408]]

an Implementing Entity, in form and substance satisfactory to MCC, that 
sets forth the roles and responsibilities of such Implementing Entity 
and other appropriate terms and conditions, such as payment of the 
Implementing Entity.
    Indicators means the quantitative, objective and reliable data that 
the M&E Plan will use to measure the results of the Program.
    Infrastructure Activity is the Project Activity described in 
Section 2(a) of Schedule 2 of Annex I under the Irrigated Agriculture 
Project.
    Inspector General means the Inspector General of the United States 
Agency for International Development.
    Irrigated Agriculture Objective is an Objective of this Compact to 
increase the productivity of the agricultural sector by extending and 
improving the quality of the irrigation system, strengthening the 
entities that manage the system and enabling farmers to commercialize 
their products.
    Irrigated Agriculture Project means the Project described and 
summarized in Schedule 2 of Annex I that the Parties intend to 
implement in furtherance of the Irrigated Agriculture Objective.
    Irrigation PIU means the Water Sector Development and Institutional 
Project Implementation Unit under the authority of the State Water 
Committee that will implement the Infrastructure Activity of the 
Irrigated Agriculture Project.
    Lien means any lien, attachment, enforcement of judgment, pledge, 
or encumbrance of any kind.
    LLN means a lifeline network of roads from among the republican and 
local roads in Armenia, the objective of which is to ensure that all 
communities, towns and villages are linked to the main road network, 
either directly or through other communities.
    Local Account is an interest-bearing local currency of Armenia 
account at either the Central Bank of Armenia or at a commercial bank 
that is procured through a competitive process to which the Fiscal 
Agent may authorize transfers from any U.S. Dollar Permitted Account 
for the purpose of making Re-Disbursements payable in local currency.
    M&E Annex means Annex III of this Compact, which generally 
describes the components of the M&E Plan for the Program.
    M&E Plan means the plan to measure and evaluate progress toward 
achievement of the Compact Goal and Objectives of this Compact.
    Management Unit means the management unit of MCA-Armenia that will 
have overall management responsibility for the implementation of this 
Compact.
    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-Armenia shall have the meaning set forth in the Recitals.
    MCA-Armenia Web site means the Web site operated by MCA-Armenia.
    MCA Eligibility Criteria means the MCA selection criteria and 
methodology published by MCC pursuant to section 607 of the Act from 
time to time.
    MCC means the Millennium Challenge Corporation.
    MCC Disbursement means the disbursement of MCC Funding by MCC from 
time to time 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-Armenia 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 officer, director, 
employee, Affiliate, contractor, agent or representative of MCC.
    MCC Representative is a representative appointed by MCC to serve as 
an Observer on the Governing Council.
    Monitoring Component means the component of the M&E Plan that 
specifies how progress toward the Objectives and intermediate results 
of each Project and Project Activity set forth in the M&E Annex will be 
monitored.
    MoTC means the Ministry of Transport and Communications.
    Multi-Year Financial Plan means the multi-year financial plan for 
the Program and for each Project, which is summarized in Annex II.
    Multi-Year Financial Plan Summary means a multi-year Financial plan 
summary attached to this Compact as Exhibit A of Annex II.
    NGOs means non-governmental organizations.
    Objective(s) are the following project-level objectives of this 
Compact that have been identified by the Parties, each of which is (i) 
key to advancing the Compact Goal and (ii) described in more detail in 
the Annexes attached hereto: (a) The Rural Road Rehabilitation 
Objective and (b) the Irrigated Agriculture Objective.
    Objective Indicator means the Indicator for each Objective in the 
M&E Plan that will measure the final results of the Projects to monitor 
their success in meeting each of the 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 Governing Council 
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 
Project Activities. A table of Outcome Indicator definitions is set 
forth at Section 2(a)(ii) of Annex III.
    Outcomes is the progress made toward the Objectives and the 
intermediate results of each Project and Project Activity.
    Output Indicator means the Indicator in the M&E Plan to measure the 
direct outputs of the Project Activities.
    Outside Project Manager means the qualified persons or entities 
engaged by MCA-Armenia, to serve as outside project managers in 
accordance with Section 3(f) of Annex I.
    Parties means the United States, acting through MCC, and the 
Government.
    Party means (i) the United States, acting through MCC or (ii) the 
Government.
    Permitted Account(s) shall have the meaning set forth in Section 
4(d) of Annex I.
    Permitted Designee shall have the meaning set forth in Section 
3.2(c).
    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, or acting as, the Minister of 
Finance and Economy, and (ii) for MCC, the individual holding the 
position of, or acting as, the Vice President of Operations.

[[Page 19409]]

    Procurement Agent(s) are the procurement agents that MCA-Armenia 
will engage to carry out and/or certify specified procurement 
activities in furtherance of this Compact on behalf of the Government, 
MCA-Armenia, any Outside Project Manager or Implementing Entity.
    Procurement Agent Agreement is an agreement between MCA-Armenia and 
each Procurement Agent, in form and substance satisfactory to MCC, that 
sets forth the roles and responsibilities of the Procurement Agent with 
respect to the conduct, monitoring and review of procurements and other 
appropriate terms and conditions, such as payment of the Procurement 
Agent.
    Procurement Agreement is a Supplemental Agreement between the 
Government (and/or a mutually acceptable Government Affiliate such as 
MCA-Armenia) and MCC, which includes the Procurement Guidelines, and 
governs the procurement of all goods, services and works by the 
Government or any Provider in furtherance of this Compact.
    Procurement Guidelines shall have the meaning set forth in Section 
3.6(a).
    Procurement Plan means a procurement plan adopted by MCA-Armenia, 
which forecasts the upcoming six month procurement activities and be 
updated every six months.
    Program means the program to be implemented under this Compact 
using MCC Funding to advance Armenia'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 Armenia during 
the Compact Term and the results to be achieved from the investment of 
MCC Funding.
    Program Assets means (i) MCC Funding, (ii) Accrued Interest, or 
(iii) any assets, goods, or property (real, tangible, or intangible) 
purchased or financed in whole or in part by MCC Funding.
    Project(s) are the specific projects and the policy reforms and 
other activities related thereto that the Government will carry out, or 
cause to be carried out in furtherance of this Compact to achieve the 
Objectives and the Compact Goal, specifically the Rural Road 
Rehabilitation Project and the Irrigated Agriculture Project.
    Project Activity means the activities that will be undertaken in 
furtherance of each Project.
    Proposal is the proposal for use of MCA assistance submitted to MCC 
by the Government on March 28, 2005.
    Provider shall have the meaning set forth in Section 2.4(b).
    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.
    Rural Road Rehabilitation Objective is an Objective of this Compact 
to expand the access of rural communities to agricultural markets, non-
farm income opportunities and social infrastructure by improving the 
condition of rural roads.
    Rural Road Rehabilitation Project means the Project described and 
summarized in Schedule 1 of Annex I that the Parties intend to 
implement in furtherance of the Rural Road Rehabilitation Objective.
    Stakeholders' Committee is a committee that shall be representative 
of the various beneficiaries of the Program and as is further described 
in Section 3(d)(iv)(1) of Annex I.
    Supplemental Agreement shall have the meaning set forth in Section 
3.5(b).
    Supplemental Agreement between the Parties means any agreement 
between MCC on the one hand, and the Government or any Government 
Affiliate or Permitted Designee on the other hand.
    Supplemental Agreement Term Sheets shall have the meaning set forth 
in Section 4.1(b).
    Target means 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.
    Tax(es) shall have the meaning set forth in Section 2.3(e)(i).
    USAID means the United States Agency for International Development.
    USDA means the United States Department of Agriculture.
    United States Dollars or U.S. 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.
    VAT means value-added taxes.
    Voting Members are the voting members on the Governing Council as 
described in Section 3(d)(ii)(2) of Annex I.
    Water-to-Market Activity is the Project Activity described in 
Section 2(b) of Schedule 2 of Annex I under the Irrigated Agriculture 
Project.
    Work Plans means work plans for the overall administration of the 
Program and for each Project.
    WSA means the national Water Supply Agency.
    WUAs means Water User Associations.

Exhibit B--List of Certain Supplemental Agreements

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

Schedule 2.1(a)(iii)--Description of Compact Implementation Funding

Compact Implementation Funding

    The Compact Implementation Funding provided pursuant to Section 
2.1(a)(iii) shall support the following activities and expenditures in 
an amount not to exceed the amounts specified below:
    (a) Payments for reasonable and normal staff salaries and 
administrative expenses of MCA-Armenia (or mutually acceptable 
Government Affiliate) such as rent, computers, and other information 
technology equipment, in an amount not to exceed USD $500,000; * and
    (b) Conduct fiscal and procurement administration activities, in an 
amount not to exceed USD $500,000.*


    [* Note:
    Notwithstanding the amount specified for this activity or 
payment, the total amount of funds disbursed in accordance with 
Section 2.1(a)(iii) shall not exceed the amount set forth in Section 
2.1(a)(iii).]

Annex I--Program Description

    This Annex I to the Compact (the ``Program Annex'') generally 
describes the Program that MCC Funding will support in Armenia during 
the Compact Term and the results to be achieved from the investment of 
MCC Funding. Prior to any MCC Disbursement or Re-Disbursement, 
including for the Projects described herein, MCC, the Government (or a 
mutually acceptable Government Affiliate) and MCA-Armenia 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-Armenia (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

[[Page 19410]]

reference herein is to the relevant Section of the main body of the 
Compact.

1. Background; Consultative Process

    (a) Background. Economic development in Armenia suffered a severe 
setback in the early 1990s following the collapse of the Soviet Union. 
In 1994, Armenia adopted a comprehensive stabilization and reform 
program that transformed it into a liberal market economy and launched 
a period of uninterrupted growth with an average increase of eight 
percent of gross domestic product (``GDP'') per year. In recent years, 
the Government has continued to focus on improving the business 
investment climate by pursuing macroeconomic stability, low inflation, 
strong fiscal discipline, and the privatization of state-owned 
enterprises.
    Armenia's economic growth, however, has mainly benefited 
inhabitants of the capital Yerevan and a few other cities, and poverty 
remains widespread among the rural population. In 2004, per capita GDP 
was estimated at USD $1,100, with 35 percent of the population 
classified as poor. Data from household surveys show that the impact of 
agricultural sector growth on reducing rural poverty in Armenia has 
been much stronger than that of GDP growth. Consequently, specific 
policies and investments aimed at promoting sustainable growth in the 
agricultural sector are central to bringing about a reduction in rural 
poverty.
    There are two important preconditions for growth in the Armenian 
agricultural sector: (i) Investment in the rural road network, which is 
essential for improving access to markets and communities and (ii) 
investment in irrigated agriculture to increasing productivity. Only 10 
percent of Armenia's rural road network is in good condition and there 
has been minimal investment in, or maintenance of, the network over the 
past decade. Currently, less than ten percent of total agricultural 
land is irrigated, while nearly 85 percent of total crop production is 
produced with irrigation.
    (b) Consultative Process. In connection with the Program, Armenia 
engaged in a comprehensive consultative process based on the Poverty 
Reduction Strategy Paper initiated in 2003. In the initial priority-
setting stage, the Government engaged a broad cross-section of the 
public, specifically civil society and rural communities, in a 
consultative process focused on MCA compact development. Issues were 
addressed through a continuous process that incorporated a feedback 
mechanism reaching out to stakeholders, particularly those involved in 
irrigation, rural road, policy development and advocacy, and groups 
that specialize in monitoring and evaluation.
    The Government engaged in rounds of regional, municipal, and local 
village level meetings to seek input and feedback on potential Proposal 
components. Meetings were held outside of city centers with 
announcements published beforehand. In addition to face-to-face 
meetings, the Government utilized various forms of mass media to reach 
more remote areas of Armenia, including radio and television 
announcements and programs, electronic mailing lists that are managed 
by non-governmental organizations (``NGOs'') throughout Armenia, and 
the printing of information brochures.
    The selection of the irrigation and rural roads components of the 
Program also introduced new challenges that focused on issues ranging 
from communal land rights and responsibilities, sustainability of the 
investments and involvement of civil society in compact development and 
implementation. To address concerns of the NGO community, the 
Government offered to have the NGOs elect their own representatives to 
participate in the meetings of the MCA-Armenia Board of Trustees--an 
inter-governmental body, chaired by the Prime Minister that was 
established to oversee the MCC Proposal and Compact development 
process. Using existing NGO electronic mailing lists and a self-
regulated selection process, NGOs voted to select three representatives 
to participate in the meetings.
    The Government has created and maintains an interactive Web site 
(http://www.mca.am) (the ``MCA-Armenia Web site'') that provides access 
to up-to-date information and a forum page on which to post and debate 
issues related to the Proposal process. The MCA-Armenia Web site also 
makes publicly available the Board of Trustees meeting minutes and the 
minutes of all meetings convened to discuss the Proposal.

2. Overview

    (a) Program. The Program involves a series of specific and 
complementary interventions that the Parties expect will achieve the 
Irrigated Agriculture Objective and the Rural Road Rehabilitation 
Objective and advance the progress of Armenia toward the Compact Goal.
    (b) Projects. To achieve the Objectives, the Parties have 
identified Projects that the Government will implement, or cause to be 
implemented, using MCC Funding, each of which is described in the 
Schedules to this Program Annex. The Schedules to this Program Annex 
identify the activities that will be undertaken in furtherance of each 
Project (each, a ``Project Activity''). Notwithstanding anything to the 
contrary in this Compact, the Parties may agree to amend, terminate or 
suspend these Projects or Project Activities or create a new project by 
written agreement signed by the Principal Representative of each Party 
without amending this Compact; provided, however, any such amendment of 
a Project or Project Activity or creation of a new project is (i) 
consistent with the Objectives; (ii) does not cause the amount of MCC 
Funding to exceed the aggregate amount specified in Section 2.1(a) of 
this Compact; (iii) does not cause the Government's responsibilities or 
contribution of resources to be less than specified in Section 2.2 of 
this Compact or elsewhere in this Compact; and (iv) does not extend the 
Compact Term.
    (c) Beneficiaries. The intended beneficiaries of each Project are 
described in the respective Schedule to this Program Annex and Annex 
III to the extent identified as of the date hereof. The intended 
beneficiaries shall be identified more precisely during the initial 
phases of the implementation of the Program. The Parties shall agree 
upon the description of the intended beneficiaries of the Program, 
including publishing such description on the MCA-Armenia Web site.
    (d) Civil Society. Civil society will participate in overseeing the 
implementation of the Program through its representation on the 
Stakeholders' Committee as further described in Section 3(d)(iv) of 
this Program Annex. In addition, the Work Plans for each Project shall 
note the extent to which civil society will have a role in the 
implementation of a particular Project Activity. Finally, members of 
civil society may be recipients of training or other public awareness 
programs that are related to the Project Activities.
    (e) Monitoring and Evaluation. Annex III of this Compact generally 
describes the plan to measure and evaluate progress toward achievement 
of the Compact Goal and Objectives of this Compact (the ``M&E Plan''). 
As outlined in the Disbursement Agreement and other Supplemental 
Agreements, continued payment of MCC Funding under this Compact will be 
contingent on successful achievement of targets set forth in the M&E 
Plan.

[[Page 19411]]

3. Implementation Framework

    The implementation framework and the plan for ensuring adequate 
governance, oversight, management, monitoring, evaluation and fiscal 
accountability for the use of MCC Funding is summarized below and in 
the Schedules attached to this Program Annex, or as may otherwise be 
agreed in writing by the Parties.
    (a) General. The elements of the implementation framework will be 
further described in relevant Supplemental Agreements and in a detailed 
plan for the implementation of the Program and each Project (the 
``Implementation Plan''), which will be memorialized in one or more 
documents and shall consist of a Financial Plan, a Fiscal 
Accountability Plan, Procurement Plans, Program and Project Work Plans, 
and an M&E Plan. MCA-Armenia 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-
Armenia 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-Armenia shall adopt one 
or more work plans for the overall administration of the Program and 
for each Project (collectively, the ``Work Plans''). The Work Plan(s) 
shall set forth the details of each activity to be undertaken or funded 
by MCC Funding as well as the allocation of roles and responsibilities 
for specific Project activities, or other programmatic guidelines, 
performance requirements, targets, or other expectations for a Project.
    (b) Government.
    (i) The Government shall promptly take all necessary and 
appropriate actions to carry out the Government Responsibilities under 
and in furtherance of this Compact, including undertaking or pursuing 
such legal, legislative or regulatory actions, procedural changes and 
contractual arrangements as may be necessary or appropriate to achieve 
the Objectives, to successfully implement the Program, and to establish 
MCA-Armenia. The Government shall promptly deliver to MCC certified 
copies of any documents, orders, decrees, laws or regulations 
evidencing such legal, legislative, regulatory, procedural, contractual 
or other actions.
    (ii) During the Compact Term, the Government shall ensure that MCA-
Armenia is duly authorized and organized and sufficiently staffed and 
empowered to fully carry out the Designated Rights and 
Responsibilities. Without limiting the generality of the preceding 
sentence, MCA-Armenia 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; 
provided, however, the Government may, subject to MCC approval, carry 
out any of the roles and responsibilities designated to be carried out 
by MCA-Armenia and described in Section 3(d) of this Program Annex or 
elsewhere in this Program Annex, applicable law, the Governing 
Documents, or any Supplemental Agreement prior to and during the 
initial period of the establishment and staffing of MCA-Armenia, but in 
no event longer than the earlier of (i) the formation of the Management 
Unit and the engagement of each of the officers and (ii) six months 
from the Entry into Force, unless otherwise agreed by the Parties in 
writing.
    (c) MCC.
    (i) Notwithstanding Section 3.1 of this Compact or any provision in 
this Program Annex to the contrary, and except as may be otherwise 
agreed upon by the Parties from time to time, MCC must approve in 
writing each of the following transactions, activities, agreements and 
documents prior to the execution or carrying out of such transaction, 
activity, agreement or document and prior to MCC Disbursements or Re-
Disbursements in connection therewith:
    (1) MCC Disbursements;
    (2) The Financial Plan and any amendments and supplements thereto;
    (3) Agreements (i) between the Government and MCA-Armenia, (ii) 
between the Government, MCA-Armenia 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 or any other 
Supplemental Agreement, or (iii) in which the Government, MCA-Armenia 
or other Government Affiliate appoints, hires or engages any of the 
following in furtherance of this Compact:
    (A) Auditor or Reviewer;
    (B) Fiscal Agent;
    (C) Bank;
    (D) Procurement Agent;
    (E) Outside Project Manager;
    (F) Implementing Entity; and
    (G) Director, Observer, officer and/or other key employee or 
contractor of MCA-Armenia, 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-Armenia, 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, 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, the Procurement Agreement, Procurement Guidelines 
or any Supplemental Agreement (each, a ``Material Terms of 
Reference'');
    (8) The Implementation Plan, including each component plan thereto, 
and any material amendments and supplements to the Implementation Plan 
or any component thereto;
    (9) Any pledge of any MCC Funding or any Program Assets or any 
guarantee (directly or indirectly) of any indebtedness (each, a 
``Pledge'');
    (10) Any decree, legislation, contractual arrangement or other 
document establishing or governing MCA-Armenia, including the 
Governance Agreement and the charter of MCA-Armenia (the ``Governing 
Documents''), and any disposition (in whole or in part), liquidation, 
dissolution, winding up, reorganization or other change of (A) MCA-
Armenia, including any revocation or modification of, or supplement to, 
any Governing Document, or (B) any subsidiary or Affiliate of MCA-
Armenia;
    (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-Armenia;

[[Page 19412]]

    (13) Any (A) change of a Director, Observer, officer or other key 
employee or contractor of MCA-Armenia, or in the composition of the 
Governing Council, including approval of the nominee for Chair, or (B) 
filling of any vacant seat of the Chair, a Director or an Observer or 
vacant position of an officer or other key employee or contractor of 
MCA-Armenia;
    (14) The management information system to be developed and 
maintained by the Management Unit of MCA-Armenia, and any material 
modifications to such system;
    (15) Any decision to amend, supplement, replace, terminate or 
otherwise change any of the foregoing; and
    (16) Any other activity, agreement, document or transaction 
requiring the approval of MCC in this Compact, applicable law, the 
Governing Documents, the Procurement Agreement, Procurement Guidelines, 
the Disbursement Agreement, or any other Supplemental Agreement between 
the Parties.
    The Chair of the Governing Council (the ``Chair'') and/or the Chief 
Executive Officer of MCA-Armenia (the ``Chief Executive Officer'') or 
other designated officer, as provided in applicable law and 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 Governing Council. 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-Armenia.
    (d) MCA-Armenia.
    (i) General. Unless otherwise agreed by the Parties in writing, 
MCA-Armenia shall be responsible for the oversight and management of 
the implementation of this Compact. MCA-Armenia shall be governed by 
the Governing Documents, including the terms and conditions set forth 
in an agency agreement to be entered into by the Government, MCC and 
MCA-Armenia (the ``Governance Agreement'') on or before the Entry into 
Force, and based on the following principles:
    (1) The Government shall ensure that MCA-Armenia shall not assign, 
delegate or contract any of the Designated Rights and Responsibilities 
without the prior written consent of the Government and MCC. MCA-
Armenia shall not establish any Affiliates or subsidiaries (direct or 
indirect) without the prior written consent of the Government and MCC; 
and
    (2) Unless otherwise agreed by the Parties in writing, MCA-Armenia 
shall consist of (a) an independent governing council (the ``Governing 
Council'') to oversee MCA-Armenia's responsibilities and obligations 
under this Compact (including any Designated Rights and 
Responsibilities) and (b) a management unit (the ``Management Unit'') 
to have overall management responsibility for the implementation of 
this Compact.
    (ii) Governing Council.
    (1) Formation. The Government shall ensure that the Governing 
Council 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 relevant 
Supplemental Agreements.
    (2) Composition. Unless otherwise agreed by the Parties in writing, 
the Governing Council shall consist of eleven (11) voting members (the 
``Voting Members'') and two non-voting observers (the ``Observers''), 
each of whom must be acceptable to MCC, taking into consideration 
appropriate gender and ethnic representation.
    (A) The Voting Members shall be as follows, provided, that the 
members identified in subsections (i)-(vi) below (the ``Government 
Members'') may be replaced by another government official of comparable 
rank from a ministry or other government body relevant to the Program 
activities, subject to approval by the Government and MCC (such 
replacement to be referred to thereafter as a Government Member):
    (i) Prime Minister;
    (ii) Chief Economic Advisor to the President;
    (iii) Minister of Finance and Economy;
    (iv) Minister of Transport and Communication;
    (v) Minister of Agriculture;
    (vi) Minister of Territorial Administration; and
    (vii) Five (5) members of civil society appointed by the 
Stakeholders' Committee (the ``Civil Society Members'').
    The following provisions apply to the Voting Members:
    (a) Each Government Member may be replaced by another government 
official, subject to approval by the Government and MCC;
    (b) Subject to the Governing Documents, the Parties contemplate 
that the Prime Minister shall initially fill the seat of Chair;
    (c) Each Government Member position shall be filled by the 
individual then holding the office identified and such individuals 
shall serve in their capacity as the applicable Government official and 
not in their personal capacity. In the event that a Government Member 
is unable to participate in a meeting of the Governing Council such 
member's principal deputy or equivalent may participate in the member's 
stead; and
    (d) Each Civil Society Member may appoint an alternate, approved by 
majority vote of the other Civil Society Members, to serve when he or 
she is unable to participate in a meeting of the Governing Council.
    (B) The Observers shall be:
    (i) A representative appointed by MCC (the ``MCC Representative''); 
and
    (ii) A representative of an environmentally focused NGO appointed 
by the Stakeholders' Committee (the ``Environmental Observer''); 
provided, that if one of the Civil Society Members on the Governing 
Council already represents an environmentally focused NGO, then such 
Civil Society Member shall also act as the Environmental Observer. The 
initial Environmental Observer shall serve for a period of one year 
from the date of the first Governing Council meeting after the Entry 
into Force, and on each anniversary thereof, the Stakeholders' 
Committee shall appoint another representative to serve as the 
Environmental Observer for the subsequent year. The Stakeholders' 
Committee may nominate an alternate to attend one or more meetings of 
the Governing Council in the event that the Environmental Observer is 
unable to attend.
    The Observers shall have the right to attend all meetings of the 
Governing Council, participate in discussions of the Governing Council, 
and receive all information and documents provided to the Governing 
Council, together with any other rights of access to records, employees 
or facilities as would be granted to a member of the Governing Council 
under the Governance Agreement and any Governing Document.
    (3) Voting. Unless otherwise agreed by the Parties, the Governing 
Documents of MCA-Armenia shall include voting and quorum provisions so 
as to require participation by the Civil Society Members in all 
decisions of the Governing Council.
    (4) Roles and Responsibilities.

[[Page 19413]]

    (A) The Governing Council 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-Armenia only upon the 
approval and authorization of the Governing Council 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 Governing Council 
of all Compact Reports or any other documents or reports from time to 
time delivered to MCC by MCA-Armenia (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 Governing Council 
shall have the exclusive authority for all actions defined for the 
Governing Council under applicable law and in the Governing Documents 
and which are expressly designated therein as responsibilities that 
cannot be delegated further.
    (5) Meetings. The Governing Council shall hold at least quarterly 
meetings as well as such other periodic meetings or subcommittee 
meetings as may be necessary from time to time.
    (6) Indemnification of Civil Society Members; MCC Representative. 
The Government shall ensure, at the Government's sole cost and expense, 
that appropriate insurance is obtained and appropriate indemnifications 
and protections are provided, acceptable to MCC, to ensure that Civil 
Society Members shall not be held personally liable for the actions or 
omissions of the Governing Council. Pursuant to Section 5.5 and Section 
5.8 of this Compact, the Government and MCA-Armenia shall hold harmless 
the MCC Representative and the Environmental Observer for any liability 
or action arising out of their roles as non-voting Observers on the 
Governing Council. 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 Armenia.
    (iii) Management Unit. Unless otherwise agreed in writing by the 
Parties, the Management Unit shall report, through the Chief Executive 
Officer or other officer as designated in the Governing Documents, 
directly to the Governing Council, and shall have the composition, 
roles and responsibilities described below and set forth more 
particularly in the Governing Documents.
    (1) Composition. The Government shall ensure that the Management 
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) A 
Chief Executive Officer, (ii) a chief financial officer, (iii) a 
monitoring and evaluation officer, (iv) an environment and social 
impact officer, (v) a rural roads project officer, (vi) an irrigation 
project officer, (vii) a water-to-market project officer and (viii) a 
procurement officer. The Management Unit will be supported by an office 
manager and appropriate administrative and support personnel.
    (2) Appointment of Management Unit. Unless otherwise specified in 
the Governance Agreement or any Governing Documents, the Governing 
Council shall appoint the Chief Executive Officer after an open and 
competitive recruitment and selection process, which appointment shall 
be subject to the approval of MCC. The remaining officers of the 
Management Unit shall be appointed by the Chief Executive Officer after 
an open and competitive recruitment and selection process, which 
appointments shall be subject to the approval of the Governing Council 
and MCC.
    (3) Roles and Responsibilities.
    (A) The Management Unit shall assist the Governing Council in 
overseeing the implementation of the Program and shall have principal 
responsibility (subject to the direction and oversight of the Governing 
Council 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) The Management Unit shall report to and meet with, on a 
quarterly basis, the Stakeholders' Committee, and shall include a 
report on the feedback provided by the Stakeholders' Committee and the 
ways in which that feedback has informed the activities of MCA-Armenia 
in the next following quarterly report to the Governing Council.
    (C) Without limiting the foregoing general responsibilities or the 
generality of Designated Rights and Responsibilities that the 
Government may designate to MCA-Armenia, the Management Unit shall 
develop the components of the Implementation Plan, oversee the 
implementation of the Projects, manage and coordinate monitoring and 
evaluation, maintain internal accounting records, conduct and oversee 
certain procurements, and such other responsibilities as set out in the 
Governing Documents or delegated to the Management Unit by the 
Governing Council from time to time.
    (D) Subject to the provisions of this Compact, the Procurement 
Agreement and the Governing Documents, appropriate officers of the 
Management Unit shall have the authority to contract on behalf of MCA-
Armenia.
    (E) The Management Unit shall have the obligation and right to 
approve certain actions and documents or agreements, including certain 
Re-Disbursements, certain human resources decisions, and certain 
procurement actions, as provided in the Governing Documents. The 
Management Unit shall also prepare MCC Disbursement Requests and 
Compact Reports for approval by the Governing Council.
    (iv) Stakeholders' Committee.
    (1) Formation. The Government shall ensure the establishment of a 
stakeholders' committee (the ``Stakeholders' Committee'') that shall be 
representative of the various beneficiaries of the Program. Unless 
otherwise agreed by the Parties, the Government shall invite members of 
the NGO community, representatives of the WUAs and farmer groups to 
participate in national and regional forums to elect the Stakeholders' 
Committee. The Government will provide adequate notice of such forums 
to ensure widespread participation. Initially, the Stakeholders' 
Committee will consist of eleven (11) members, taking into 
consideration appropriate gender and ethnic representation. The number 
of members of the Stakeholders' Committee may be increased, but in no 
event to more than fifteen (15) members, upon the majority vote of the 
then existing members and the vacancies created by such increase shall 
be filled by the majority vote of the then existing members, subject to 
the approval of MCA-Armenia and MCC. Each Stakeholders' Committee 
member may

[[Page 19414]]

appoint an alternate, approved by majority vote of the other members, 
to serve when he or she is unable to participate in a meeting of the 
Stakeholders' Committee.
    (2) Roles and Responsibilities.
    (A) The Stakeholders' Committee shall be a mechanism to provide 
representatives of the private sector, civil society and local and 
regional communities the opportunity to provide advice and input to 
MCA-Armenia regarding the implementation of the Compact.
    (B) During quarterly meetings of the Stakeholders' Committee, the 
Management Unit shall present an update on the implementation of this 
Compact and progress towards achievement of the Objectives. The 
Management Unit shall provide copies of the M&E Plan, the 
Implementation Plan, and reports on the Projects and Project 
Activities. The Stakeholders' Committee will have an opportunity to 
regularly provide to the Chief Executive Officer and to the Governing 
Council its views and recommendations. The Governing Council may, in 
response to the Stakeholders' Committee, require the Management Unit to 
provide such other information and documents as the Governing Council 
deems advisable.
    (C) The Management Unit shall include in its quarterly reports to 
the Governing Council, a report on the Stakeholders' Committee meetings 
that occurred during the period covered by such report.
    (D) The Stakeholders' Committee shall appoint one of their members 
to be the secretary to, among other things, take official minutes of 
the meetings of the Stakeholders' Committee.
    (3) Meetings. The Stakeholders' Committee shall hold quarterly 
meetings of the full Stakeholders' Committee as well as such other 
periodic meetings of the Stakeholders' Committee or subcommittees 
thereof designated along sectoral, regional, or other lines, as may be 
necessary or appropriate from time to time.
    (4) Accessibility; Transparency. Stakeholders' Committee members 
will be accessible to the beneficiaries they represent to receive the 
beneficiaries' comments or suggestions regarding the Program. The 
minutes of all meetings of the Stakeholders' Committee and any 
subcommittees shall be made public on the MCA-Armenia Web site in a 
timely manner.
    (e) Implementing Entities. Subject to the terms and conditions of 
this Compact and any other Supplemental Agreement between the Parties, 
MCA-Armenia may provide MCC Funding, to one or more Government 
Affiliates or to one or more nongovernmental or other public- or 
private-sector entities or persons to implement and carry out the 
Projects or any other activities to be carried out in furtherance of 
this Compact (each, an ``Implementing Entity''). The Government shall 
ensure that MCA-Armenia 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 toMCA-Armenia as designated in the applicable 
Implementing Entity Agreement or as otherwise agreed by the Parties.
    (f) Outside Project Manager.MCA-Armenia shall have the authority to 
engage qualified persons or entities to serve as outside project 
managers (each, an ``Outside Project Manager'') in the event that it is 
advisable to do so for the proper and efficient day-to-day management 
of a Project; provided, however, that the appointment or engagement of 
any Outside Project Manager after a competitive selection process shall 
be subject to approval by the Governing Council and MCC prior to such 
appointment or engagement. Upon Governing Council approval,MCA-Armenia 
may delegate, assign, or contract to the Outside Project Managers such 
duties and responsibilities as it deems appropriate with respect to the 
management of the Implementing Entities and the implementation of the 
specific Projects; and provided, further, that the Management Unit 
shall remain accountable for those duties and responsibilities and all 
reports delivered by the Outside Project Manager notwithstanding any 
such delegation, assignment or contract and the Outside Project Manager 
shall be subject to the oversight of the Fiscal Agent and Procurement 
Agent. The Governing Council may determine that it is advisable to 
engage one or more Outside Project Managers and instructMCA-Armenia 
and, where appropriate, a Procurement Agent to commence and conduct the 
competitive selection process for such Outside Project Manager.
    (g) Fiscal Agent. The Government shall ensure thatMCA-Armenia 
engages one or more fiscal agents (each, a ``Fiscal Agent''), who shall 
be responsible for, among other things, (i) ensuring and certifying 
that Re-Disbursements are properly authorized and documented in 
accordance with established control procedures set forth in the 
Disbursement Agreement, the Fiscal Agent Agreement and other relevant 
Supplemental Agreements, (ii) instructing a Bank to make Re-
Disbursements from a Permitted Account, following applicable 
certification by the Fiscal Agent, (iii) providing applicable 
certifications for MCC Disbursement Requests, (iv) maintaining proper 
accounting of all MCC Funding financial transactions, and (v) producing 
reports on MCC Disbursements and Re-Disbursements (including any 
requests therefore) in accordance with established procedures set forth 
in the Disbursement Agreement, the Fiscal Agent Agreement or any other 
relevant Supplemental Agreements. Upon the written request of MCC, the 
Government shall ensure thatMCA-Armenia terminates a Fiscal Agent, 
without any liability to MCC, and the Government shall ensure thatMCA-
Armenia engages a new Fiscal Agent, subject to the approval by the 
Governing Council and MCC. The Government shall ensure thatMCA-Armenia 
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 thatMCA-
Armenia 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 thatMCA-Armenia shall also engage an independent (i) reviewer to 
conduct reviews of performance and compliance under this Compact 
pursuant to Section 3.8(f), which reviewer shall have the capacity to 
(1) conduct general reviews of performance or compliance, (2) conduct 
environmental and social audits, and (3) conduct data quality 
assessments in accordance with the M&E Plan, as described more fully in 
Annex III, and/or (ii) evaluator to assess performance as required 
under the M&E Plan (each, a ``Reviewer'').MCA-Armenia shall select the 
Auditor(s) or Reviewers in accordance with the Governing Documents or 
relevant Supplemental Agreement. The Government shall ensure thatMCA-
Armenia 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

[[Page 19415]]

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 in 
writing.
    (i) Procurement Agent. If requested by MCC, the Government shall 
ensure thatMCA-Armenia 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-Armenia, any Outside Project Manager or Implementing 
Entity. The roles 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 thatMCA-Armenia enters into an agreement with 
the Procurement Agent, in form and substance satisfactory to MCC, that 
sets forth the roles and responsibilities of the Procurement Agent with 
respect to the conduct, monitoring and review of procurements and other 
appropriate terms and conditions, such as payment of the Procurement 
Agent (the ``Procurement Agent Agreement''). Any Procurement Agent 
shall adhere to the procurement standards set forth in the Procurement 
Agreement and Procurement Guidelines and ensure procurements are 
consistent with the procurement plan (the ``Procurement Plan'') adopted 
byMCA-Armenia, which plan shall forecast the upcoming six month 
procurement activities and be updated every six months.

4. Finances and Fiscal Accountability

    (a) Financial Plan.
    (i) Financial Plan. The multi-year financial plan for the Program 
and for each Project (the ``Multi-Year Financial Plan'') is summarized 
in Annex II to this Compact.
    (ii) Detailed Financial Plan. During the Compact Term, the 
Government shall ensure thatMCA-Armenia delivers to MCC for approval 
timely financial plans that detail the annual and quarterly budget and 
projected cash requirements for the Program (including administrative 
costs) and each Project, projected both on a commitment and cash 
requirement basis (each a ``Detailed Financial Plan''). Each Detailed 
Financial Plan shall be delivered by such time as specified in the 
Disbursement Agreement or as may otherwise be agreed by the Parties. 
The Multi-Year Financial Plan, 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-Armenia 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-Armenia 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-
Armenia 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 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-
Armenia shall adopt as part of the Implementation Plan a fiscal 
accountability plan that identifies the principles and mechanisms to 
ensure appropriate fiscal accountability for the use of MCC Funding 
provided under this Compact, including the process to ensure that open, 
fair, and competitive procedures will be used in a transparent manner 
in the administration of grants or cooperative agreements and the 
procurement of goods and services for the accomplishment of the 
Objectives (the ``Fiscal Accountability Plan''). The Fiscal 
Accountability Plan shall set forth, among other things, requirements 
with respect to the following matters: (i) Funds control and 
documentation; (ii) separation of duties and internal controls; (iii) 
accounting standards and systems; (iv) content and timing of reports; 
(v) policies concerning public availability of all financial 
information; (vi) cash management practices; (vii) procurement and 
contracting practices, including timely payment to vendors; (viii) the 
role of independent auditors; and (ix) the roles of fiscal agents and 
procurement agents.
    (d) Permitted Accounts. The Government shall establish, or cause to 
be established, such accounts (each, a ``Permitted Account,'' and 
collectively ``Permitted Accounts'') as may be agreed by the Parties in 
writing from time to time, including:
    (i) A single, completely separate U.S. Dollar interest-bearing 
account at either the Central Bank of Armenia or at a commercial bank 
to receive MCC Disbursements;
    (ii) If necessary, an interest-bearing local currency of Armenia 
account (the ``Local Account'') at either the Central Bank of Armenia 
or 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

[[Page 19416]]

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-
Armenia 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 a 
Permitted 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 the Republic of Armenia at a rate to which the Parties 
mutually agree with the Bank in the Bank Agreement.

5. Transparency; Accountability

    Transparency and accountability to MCC and to the beneficiaries are 
important aspects of the Program and Projects. Without limiting the 
generality of the foregoing, in an effort to achieve the goals of 
transparency and accountability, the Government shall ensure that MCA-
Armenia:
    (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-Armenia;
    (b) Considers as a factor in its decision-making the 
recommendations of the Stakeholders' Committee;
    (c) Develops and maintains the MCA-Armenia Web site in a timely, 
accurate and appropriately comprehensive manner, such MCA-Armenia Web 
site to include postings of information and documents in English and 
Armenian and other languages where relevant; and
    (d) Posts on the MCA-Armenia Web site and otherwise makes publicly 
available from time to time the following documents or information:
    (i) The Compact and all Compact Reports;
    (ii) All minutes of the meetings of the Governing Council and 
Stakeholders' Committee;
    (iii) The M&E Plan, as amended from time to time, along with 
periodic reports on Program performance;
    (iv) All Project environmental and social impact assessments 
(``ESIAs'') and supporting documents;
    (v) All audit reports by an Auditor and any periodic reports or 
evaluations by a Reviewer;
    (vi) Disbursement Agreement, as amended from time to time;
    (vii) All procurement policies and procedures (including standard 
documents and procurement plans) and any other documents required to be 
made publicly available pursuant to the Procurement Agreement; and
    (viii) A copy of any legislation and other documents related to the 
formation, organization and governance of MCA-Armenia, including the 
Governing Documents, and any amendments thereto.

Schedule 1 to Annex I--Rural Road Rehabilitation Project

    This Schedule 1 describes and summarizes the key elements of the 
rural road rehabilitation project (``Rural Road Rehabilitation 
Project'') that the Parties intend to implement in furtherance of the 
Rural Road Rehabilitation Objective. Additional details regarding the 
implementation of the Rural Road Rehabilitation Project will be 
included in the Implementation Plan and in relevant Supplemental 
Agreements.

1. Background

    Armenia's public road network consists of 7,703 km of roads, 
including 1,561 km of main roads, 1,800 km of secondary roads (referred 
to in Armenia as ``republican'' roads) and 4,342 km of local roads. 
Main and republican roads are managed by the Armenian Road Directorate 
(``ARD'') and local roads are managed at the regional (Marz) level.
    In 2002, the World Bank financed a rural infrastructure study which 
identified a lifeline network (the ``LLN'') from among the republican 
and local roads. The objective was to ensure all communities, towns and 
villages are linked to the main road network, either directly or 
through other communities. The resulting network comprises 2703 km, of 
which 759 km (28 percent) are republican roads, and 1943 km (72 
percent) are local roads.
    The Government is committed to bringing the entire LLN up to a 
maintainable standard and ensuring sustainable maintenance of this 
network. Moreover, the Government has committed to re-classifying the 
entire LLN as republican roads so that they will come under the 
management and maintenance responsibility of the ARD.

2. Summary of the Project

    (a) Project Description. MCC Funding will be used to rehabilitate 
up to 943 km of high priority LLN roads (45 percent of the LLN), 
consisting of 85 road segments throughout the country and amounting to 
321 km of republican roads and 622 km of local roads. All 
rehabilitation works will be on existing alignments and will include 
pavement rehabilitation, improvements to up to 19 bridges, drainage 
facilities, and road safety features.
    MCA-Armenia will select roads from among the LLN roads described 
above. MCC Funding will be provided to rehabilitate selected roads 
subject to the condition that each road must:
     Have an economic rate of return at least equal to 12.5 
percent, calculated in a manner acceptable to MCC and based on a 
feasibility study and final design;
     Conform to Government requirements and MCC's Environmental 
Guidelines; and
     Conform to the World Bank policy on Involuntary 
Resettlement, where relevant.
    MCC Funding will also be provided to ARD to conduct a technical 
audit of its existing performance based maintenance contracts and for 
technical assistance to create a long-term road maintenance strategic 
plan.
    The M&E Plan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks that may be used to 
monitor implementation progress of the Rural Road Rehabilitation 
Project. Performance against these benchmarks and the overall impact of 
the Rural Road Rehabilitation Project 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 may be identified during implementation of the Project. 
Estimated amounts of MCC Funding for the Rural Road Rehabilitation 
Project are identified in Annex II of this Compact. Conditions 
precedent and sequencing of the Project shall be set forth in the 
Disbursement Agreement or other relevant Supplemental Agreements.
    (b) Project Implementation. The Rural Road Rehabilitation Project 
will be implemented through the ARD, under the authority of the 
Ministry of Transport and Communications (``MoTC''). ARD is responsible 
for planning, design and construction of all

[[Page 19417]]

state owned roads in Armenia and is responsible for the maintenance of 
all main and republican roads. It has departments for design and 
tender, planning (road survey and economic evaluation), construction 
and rehabilitation and routine maintenance, as well as a road safety 
group and an on-site laboratory. ARD was the project implementation 
unit for two World Bank projects in the last 10 years and has a trained 
staff and the basic technical capacity to implement the Project. The 
Government will establish a rural roads coordination unit within the 
ARD, staffed with members of the former project implementation unit 
established by the World Bank for its completed transportation project. 
MCA-Armenia will enter into an Implementing Entity Agreement with the 
ARD that will set out the terms and conditions for the use of MCC 
Funding in implementing the Rural Road Rehabilitation Project.

3. Beneficiaries

    The principal beneficiaries of the Rural Road Rehabilitation 
Project are expected to be approximately 360,000 Armenians living in 
265 rural communities connected by the rehabilitated LLN. Particular 
beneficiaries include: Farmers who use the improved roads to get 
products to market and to get inputs to production; users of public 
transport; and other travelers.

4. Donor Coordination

    The Rural Road Rehabilitation Project will complement the 
rehabilitation and construction of larger roads and other rural roads 
recently undertaken by other donors. In addition, MCC support to the 
redefinition and management of the LLN will require collaboration and 
coordination with other donors active in the road sector. Although the 
World Bank's two transportation projects in Armenia, the Highway 
Project and the Transport Project, are closed, the World Bank takes an 
active interest in the sustainable maintenance arrangements of the 
roads. Coordination will also continue with the Lincy Foundation, which 
has completed several main road rehabilitation projects and is 
considering additional ones. Other donors include: The Japan 
International Cooperation Agency which is currently funding a landslide 
survey; the Kuwait Fund, which is currently considering a request to 
fund the rehabilitation of rural roads leading to places of historical 
and tourist significance; and the Asian Development Bank, which is 
establishing a country office in Armenia and has also expressed 
interest in road sector investments.

5. Sustainability

(a) Institutional Sustainability
    The Government will ensure continued institutional support of the 
Project through the passage of appropriate legislation establishing the 
LLN as republican roads, placing them under the operations and 
maintenance jurisdiction of the ARD. The portion of the LLN to be 
rehabilitated with MCC Funding represents the initial phase of the 
establishment of this network and creates a commitment by the 
Government to build out the rest of the LLN, as well as establish a 
sustainable maintenance program for the LLN and main road network. The 
Rural Road Rehabilitation Project will further help to institutionalize 
performance based contracts, which were instituted by ARD in 2005 and 
provide a mechanism to promote local contractors by establishing a 
competitive and reliable contracting environment.
(b) Financial Sustainability
    Financial sustainability is a function of the Government's 
commitment to finance necessary annual road maintenance programs for 
the rehabilitated roads. Currently, the Government finances 
approximately USD $9 million annually of routine maintenance on the 
entire road network. As rehabilitation on the LLN proceeds, additional 
resources will be committed by the Government to cover routine 
maintenance on the additional roads. Moreover, the Government will 
establish a plan for financing periodic maintenance so as to ensure the 
long term sustainability of the entire road network. In addition, the 
Government agrees to fund any environmental mitigation costs associated 
with the Rural Road Rehabilitation Project in excess of MCC Funding 
allocated to cover such costs.
(c) Environmental and Social Sustainability
    The key to ensuring environmental and social sustainability of the 
Project is ongoing public consultation. The Environment and Social 
Impact Officer (``ESI Officer'') within the Management Unit will ensure 
that environmental and social mitigation measures are followed for all 
Project Activities in accordance with the provisions set forth in this 
Compact and in relevant Supplemental Agreements. The ESI Officer will 
serve as the point of contact for comments and concerns of parties 
affected by the implementation of all Project Activities under the 
Compact and will lead the effort to find feasible resolutions to those 
problems. The ESI Officer will convene periodic public meetings to 
provide implementation updates and to identify and address public 
concerns. The Stakeholders' Committee will also appoint representatives 
of civil society to the Governing Council and provide a link between 
local NGOs and program managers. Environmental and social analyses of 
the roads will be conducted as part of the technical survey and design 
to determine the environmental impacts and existence of economic and 
physical displacement. In addition to the analyses, environmental 
management plans (``EMPs'') satisfactory to MCC will be developed, 
implemented and monitored during project implementation. Disbursement 
of MCC Funding will be contingent upon issuance of environmental 
licenses, as needed, or any other required permits.

6. Policy, Legal and Regulatory Reforms

    The Parties have identified the following policy, legal and 
regulatory reforms and actions that the Government will pursue in 
support of the Rural Road Rehabilitation 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 will define and adopt into legislation the 
concept of a LLN of no less than 2,703 km of roads. LLN roads are to be 
defined as those which ensure road access from each community to the 
main road network. LLN roads should be classified as republican roads 
so that the maintenance of the LLN falls under the jurisdiction of the 
ARD.
    (b) The Government will present an annual plan for the repair and 
routine maintenance of the entire LLN, acceptable to MCC, including the 
roads to be rehabilitated with MCC Funding.
    (c) The Government will allocate sufficient funds in the budget for 
continued rehabilitation of a minimum of 532 km of the LLN over the 
Compact Term, with the following minimum annual km and threshold 
expenditure amounts (actual budgeted in Armenian Drams (``AMD'')):
    (i) Fiscal year 2006: 32 km; 1.01 billion AMD;
    (ii) Fiscal year 2007: 100 km; 3.15 billion AMD;
    (iii) Fiscal year 2008: 100 km; 3.31 billion AMD;
    (iv) Fiscal year 2009: 120 km; 3.97 billion AMD; and

[[Page 19418]]

    (v) Fiscal year 2010: 180 km; 5.95 billion AMD.
    (d) The Government will allocate funds in the budget for routine 
maintenance of the entire Armenian road network in amounts at least 
equal to the amounts set out below for the following fiscal years, will 
expend such amounts for their intended purpose, and will make up any 
budget shortfall from the prior year's road maintenance budget:
    (i) Fiscal year 2006: 5.02 billion AMD;
    (ii) Fiscal year 2007: 5.99 billion AMD;
    (iii) Fiscal year 2008: 6.29 billion AMD;
    (iv) Fiscal year 2009: 6.90 billion AMD; and
    (v) Fiscal year 2010: 7.36 billion AMD.
    (e) The Government will submit a long-term routine and periodic 
maintenance plan for the entire road network by the end of the third 
year of the Compact Term.

Schedule 2 to Annex I--Irrigated Agriculture Project

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

1. Background

    Armenian agricultural productivity and profitability are 
constrained by dilapidated irrigated infrastructure and an outdated 
system characterized by water losses, inefficient operations and high 
costs of electric pumping. Farmers operate on small plots of land and 
are limited by an underdeveloped market economy. In addition, 
agriculture lending in Armenia is at a very low level. Despite this, a 
reformed institutional environment for modern irrigation management and 
agribusiness development is emerging at a critical juncture in the 
post-Soviet era. The Irrigated Agriculture Project will address the 
conditions necessary to achieve higher rural incomes based on irrigated 
agriculture. It includes infrastructure improvements on targeted 
irrigation schemes, as well as technical support and training for key 
actors in the irrigation sector, namely: The national Water Supply 
Agency (the ``WSA''), the Water User Associations (the ``WUAs''), 
federations of WUAs and their member farmers. In addition, the Project 
will provide medium and long-term lending to farmers and enterprises 
participating in the Project through registered credit organizations.

2. Summary of the Project and Project Activities

    The Irrigated Agriculture Project addresses the physical, 
managerial and financial investments needed to generate sustainable 
increases in rural incomes through irrigated agriculture. These 
investments will be implemented through two critical activities:
     Improving dilapidated infrastructure to expand the land 
area under irrigated production and improvements to the overall 
efficiency of sourcing and delivering water to member farmers (the 
``Infrastructure Activity''); and
     Building the management capacities of the WSA and WUAs and 
providing training and access to credit for member farmers to 
transition to more profitable, market-oriented agriculture (the 
``Water-to-Market Activity'').
    The M&E Plan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks that may be used to 
monitor implementation progress. Performance against these benchmarks 
and the overall impact of the Irrigated Agriculture Project will be 
assessed and reported at the intervals to be specified in the M&E Plan 
or as otherwise agreed by the Parties from time to time. The Parties 
expect that additional benchmarks may be identified during the 
implementation of each Project Activity. Estimated amounts of MCC 
Funding for each Project Activity for this Irrigated Agriculture 
Project are identified in Annex II of this Compact. Conditions 
precedent to each Irrigated Agriculture Project Activity and sequencing 
of these Project Activities shall be set forth in the Disbursement 
Agreement or other relevant Supplemental Agreements.
    (a) Infrastructure Activity.
    (i) MCC Funding will be used to increase the land area under 
irrigated production and improve the overall efficiency of sourcing and 
water delivery to member farmers. This will be done by selectively:
    (1) Rehabilitating infrastructure and equipment for up to 21 
regional irrigation schemes, including:
    (A) Conversion of part or all of 15 schemes from pump to gravity 
systems;
    (B) Construction or rehabilitation of 7 reservoirs;
    (C) Rehabilitation of 200 km of main canals;
    (D) Renovation and resizing of 68 pumping stations; and
    (E) Rehabilitation of tertiary canals utilizing a 15 percent 
beneficiary co-investment;
    (2) Rehabilitating additional tertiary canal systems in up to nine 
WUAs utilizing a 15 percent beneficiary co-investment and not included 
in clause (i)(1)(E) above; and
    (3) Renovating the drainage system serving the Ararat Valley 
production systems, including renovating open and closed drains, tube 
wells and artesian wells within 3 sub-regions.MCA-Armenia will select 
individual components or groups of components from among the foregoing 
irrigation schemes for rehabilitation. MCC Funding will be provided to 
rehabilitate such components, subject to the condition that each 
individual component or group of components must:
     Have an economic rate of return at least equal to 12.5 
percent, calculated in a manner acceptable to MCC and based on a 
feasibility study and final design;
     Conform to Government regulations and MCC's Environmental 
Guidelines; and
     Conform to the World Bank policy on Involuntary 
Resettlement, where relevant.
    (ii) The Infrastructure Activity will be implemented through the 
Water Sector Development and Institutional Project Implementation Unit 
under the authority of the State Water Committee (the ``Irrigation 
PIU''). Originally established for the World Bank's irrigation 
projects, the Irrigation PIU has a trained staff and the basic 
technical capacity to implement the Infrastructure Activity. MCC 
Funding will be used to recruit an outside project management advisor 
to assist the Irrigation PIU. MCA-Armenia will enter into an 
Implementing Entity Agreement with the Irrigation PIU that will set out 
the terms and conditions for the use of MCC Funding in implementing the 
Infrastructure Activity.
    (b) Water-to-Market Activity.
    (i) The Water-to-Market Activity will ensure that MCC Funding of 
the Infrastructure Activity is sustained through a combination of 
training, technical assistance, access to credit and essential 
equipment. Under the Water-to-Market Activity, MCC Funding will be used 
to build management capacities within the WSA and 53 WUAs and improve 
the ability of member farmers to convert the improved water supply to 
profitable production and pay for water charges through two sub-
activities:
    (1) Strengthening Irrigation System Entities. MCC Funding will be 
used to:

[[Page 19419]]

    (A) Support organizational reforms and institutional strengthening 
of the WSA;
    (B) Build administrative and operational capacity of the WUAs and 
the developing federations of WUAs; and
    (C) Support the establishment of a professional irrigation 
association.
    (2) Improving the Profitability of WUA Member Farmers. MCC Funding 
will be used to:
    (A) Provide member farmers with access to technology and training 
in on-farm water management and higher value agricultural production;
    (B) Provide training and consulting to individual member farmers, 
farmer groups and small and medium enterprises on post-harvest, 
processing and marketing investments; and
    (C) Build capacity within credit organizations and provide funding 
to such credit organizations which will on-lend to member farmers and 
related enterprises.
    (ii) The sub-activity to strengthen irrigation system entities will 
be managed in the Irrigation PIU. The sub-activity to improve 
profitability of WUA member farmers will be managed by an Outside 
Project Manager to be selected through a competitive international 
tender process.

3. Beneficiaries

    The beneficiaries of the Irrigated Agriculture Project will be the 
53 WUAs and their approximately 250,000 member farmers who will benefit 
from more efficient and reliable irrigation water and intensive 
institutional strengthening. Among these member farmers, an estimated 
60,000 will be reached with on-farm water management techniques. At 
least 30,000 member farmers will be reached with transition to higher 
value agriculture technology. A further subset of an estimated 15,000 
member farmers will be reached with modern post-harvest, processing and 
marketing techniques. Some 300 enterprises involved with post-harvest, 
processing and marketing are expected to benefit leading to significant 
additional job creation.

4. Donor Coordination

    The Irrigated Agriculture Project builds upon and complements an 
extensive body of work by several donors in irrigation and agriculture.
    (a) World Bank and IFAD. The World Bank has contributed to the 
irrigation sector through three operations: the Irrigation Dam Safety 
Projects I and II; the Irrigation Development Project (the ``IDP''); 
and the Irrigation Rehabilitation Project. The International Fund for 
Agricultural Development (``IFAD'') has also contributed to the sector 
under the latter two World Bank projects, as well as its own 
Agriculture Research Project. Regarding improvements in WUA members' 
capacity to pay for water services, the World Bank is initiating a loan 
package to support the agricultural sector called the Rural Enterprise 
and Small-Scale Commercial Agriculture Development Project. IFAD is 
also extending a loan focusing on providing credit, grants and training 
to rural enterprises in communities of mountainous regions. 
Coordination with the World Bank and IFAD programs is advantageous in 
the following areas: (i) The phase-out of the Government's subsidy 
policies and establishment of effective cost recovery mechanisms; (ii) 
the co-financing contributions by the WUAs to capital investments in 
the tertiary canal system; (iii) institutional strengthening; and (iv) 
technical and marketing support programs for member farmers.
    (b) USAID and USDA. USAID is currently funding a Water Management 
Program that focuses on national water policy (including drinking 
water) and the institutional framework for that policy. The Government 
and MCA-Armenia will align policy reform and support to the WSA and 
WUAs through this program's progress and insights. The USAID-supported 
Armenia SME Market Development Project will continue to support 
agribusiness, textiles and stone-work enterprises until September 2006, 
and the Micro Enterprise Development Initiative provides management 
consulting services to financial institutions and business service 
providers also until September, 2006. United States Department of 
Agriculture (``USDA'') funding supports the Center for Agribusiness and 
Rural Development to develop value-adding enterprises producing high 
quality product to meet market demand. The USAID and USDA programs 
represent economic development approaches that will be complemented by 
MCA-Armenia's support to WUA member farmers and related enterprises.

5. Sustainability

(a) Institutional Sustainability
    The Government has taken substantial steps to strengthen the 
institutional framework for rural development. The management of 
Armenia's irrigation system has recently been decentralized to 53 
regional WUAs. The Government has enhanced water management efficiency 
by merging responsibilities for irrigation and drainage. The Irrigated 
Agriculture Project will benefit from an extensive Water-to-Market 
Activity which will provide organizational support for the WSA reforms, 
management capacity building of the WUAs and developing regional 
federations of WUAs, and guidance for the formation of a professional 
irrigation association. Technical assistance will be targeted to ensure 
that the WSA, WUAs and federations of WUAs have systems to effectively 
manage and finance their operations. In addition, credit organizations 
will receive training and capital to expand financial services targeted 
at WUA member farmers.
(b) Financial Sustainability
    Armenia's irrigation system has suffered from a lack of resources 
for maintenance. The Irrigated Agriculture Project aims to address this 
problem, which has led to the degradation of the system over time.
    First, the Irrigated Agriculture Project is designed to rely less 
on pumping systems and more on gravity-based irrigation, which should 
decrease energy costs. However, to the extent pumping systems will be 
rehabilitated, the Government will present an adequate plan for 
coverage of operations and maintenance costs, including depreciation, 
before MCC Funding will be disbursed for civil works on these systems.
    Second, the institutional strengthening of the WUAs under the 
Water-to-Market Activity will also increase the capacity of WUAs to 
finance themselves through member contributions and water charges. 
Investing in human capacities (farmers' technical and management skills 
and approach toward the market) to transform their enterprises to be 
profitable by competing in commercial markets significantly contributes 
to the financial sustainability of the irrigation system. Improved 
capacity of credit organizations to on-lend to rural borrowers will be 
sustained and expanded as new profit opportunities in the value chain 
emerge.
    Third, the Government will continue its policy of WUA co-financing 
of tertiary canals consistent with the World Bank IDP and will 
implement such co-financing in a manner satisfactory to MCC. In 
addition, the Government agrees to fund any environmental mitigation 
costs associated with the Irrigated Agriculture Project in excess of 
MCC Funding allocated to cover such costs.

[[Page 19420]]

(c) Environmental and Social Sustainability
    The key to ensuring environmental and social sustainability of the 
Project is ongoing public consultation. The ESI Officer within the 
Management Unit will ensure that environmental and social mitigation 
measures are followed for all Project Activities in accordance with the 
provisions set forth in this Compact and in relevant Supplemental 
Agreements. The ESI Officer will serve as the point of contact for 
comments and concerns of parties affected by the implementation of all 
Project Activities and will lead the effort to find feasible 
resolutions to those problems. The ESI Officer will convene periodic 
public meetings to provide implementation updates and to identify and 
address public concerns. The Stakeholders' Committee will also appoint 
representatives of civil society to the Governing Council and provide a 
link between local NGOs and program managers.
    ESIAs of the Irrigated Agriculture Project will be conducted as 
part of the technical survey and design. EMPs satisfactory to MCC will 
be developed, implemented and monitored during project implementation. 
Should the issue of involuntary resettlement arise, the Irrigated 
Agriculture Project will be conducted in compliance with the World Bank 
Policy on Involuntary Resettlement. To maximize the positive social 
impacts of the Project, the Implementing Entities for the Water-to-
Market Activity will ensure that women are adequately represented in 
the groups targeted for assistance.

6. Policy Actions; Legislative and Regulatory Reform

    The Parties have identified the following policy actions and 
legislative and regulatory reforms that the Government will pursue in 
support of the Irrigated Agriculture 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 will arrange for 15 percent WUA co-financing of 
investments in tertiary canal systems consistent with the World Bank 
IDP and will implement such co-financing in a manner satisfactory to 
MCC.
    (b) Before the end of the second quarter of the second year of the 
Compact Term, the Government will adopt and implement a plan acceptable 
to MCC for the restructuring of the WSA.
    (c) Before the end of the second year of the Compact Term, the 
Government will adopt appropriate legislation and/or regulations 
required by the Water Code of 2002 to establish a national policy on 
irrigation that will govern the relationships among the State Committee 
of Water Economy, the WSA, WUAs and the federations of WUAs.
    (d) The Government will use its best efforts to ensure that water 
charges collected from WUAs continue towards the goal of full recovery 
of operations and maintenance costs. During the Compact Term, at least 
the following percentages of annual operations and maintenance costs 
will be covered:
    (i) 2006: 46 percent;
    (ii) 2007: 55 percent;
    (iii) 2008: 60 percent;
    (iv) 2009: 66 percent; and
    (v) 2010: 70 percent.
    These percentages will be calculated in a manner acceptable to MCC 
according to the following formula: WC/SC.
    WC = Actual water charges collected during the most recently 
completed fiscal year as reported by the Board of WUAs and federations 
of WUAs pursuant to the Law on Water User Associations and Federations 
of Water User Associations.
    SC = Operations and maintenance costs for the most recently 
completed fiscal year of the WSA and the WUAs as reported by the Board 
of WUAs and federations of WUAs pursuant to the Law on Water User 
Associations and Federations of Water User Associations.
    (e) The Government will allocate funds to cover rehabilitation of 
the irrigation system in at least the amounts specified in the 
recommendation of the Technical Commission on Water System Operation 
and Maintenance, excluding any amounts provided for rehabilitation by 
MCC Funding.
    (f) The Technical Commission on Water System Operation and 
Maintenance will make a recommendation with respect to the overall 
costs to cover depreciation of the irrigation system. The Government 
will ensure that such depreciation costs are reflected in its annual 
budgets throughout the life of the Program Assets.
    (g) Before the end of the 18th month of the Compact Term, the 
Government will develop and adopt legislation and/or regulations, or 
amend existing legislation and regulations, to facilitate the 
establishment of agricultural cooperatives.
    (h) By the end of the first year of the Compact Term, the 
Government will develop and adopt legislation and/or regulations to 
improve statistics on agriculture, including an accounting of the 
sector and data collection procedures.
    (i) The Central Banking Authority will modify the regulatory 
framework for the licensing of MFIs as credit organizations.
    (j) In an effort to ensure that the councils of the Water User 
Associations are more representative of their constituencies, the 
Government will adopt the amendment of Article 16 of the Law on Water 
User Associations and Federations of Water User Associations proposed 
by the Government on September 13, 2005.
    (k) The Government will allocate in its budget and expend amounts 
satisfactory to MCC to fund the activities of the National Statistical 
Service, including conducting the Integrated Survey of Living Standards 
and the Community Survey. These surveys will be used by MCC as a key 
monitoring indicator and for impact evaluations. Funding by the 
Government should increase year-to-year to ensure sustainability post-
Compact.

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-Armenia 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, 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.

[[Page 19421]]

2. Implementation and Oversight

    The Multi-Year Financial Plan and each Detailed Financial Plan 
shall be implemented by MCA-Armenia, 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, and each Project. The Government's 
contribution of resources to Program administration, monitoring and 
evaluation, and each Project shall consist of (i) ``in-kind'' 
contributions in the form of Government Responsibilities and any other 
obligations and responsibilities of the Government identified in this 
Compact, including contributions identified in the notes to the Multi-
Year Financial Plan Summary and (ii) such other contributions or 
amounts as may be identified in relevant Supplemental Agreements 
between the Parties or as may otherwise be agreed by the Parties; 
provided, in no event shall the Government's contribution of resources 
be less than the amount, level, type and quality of resources required 
to effectively carry out the Government Responsibilities or any other 
responsibilities or obligations of the Government under or in 
furtherance of this Compact.

4. Modifications

    The Parties recognize that the anticipated distribution of MCC 
Funding between and among the various Program activities and Project 
and Project Activities will likely require adjustment from time to time 
during the Compact Term. In order to preserve flexibility in the 
administration of the Program, the Parties may, upon agreement of the 
Parties in writing and without amending the Compact, change the 
designations and allocations of funds between Program administration 
and a Project, between one Project and another Project, between 
different activities within a Project, or between a Project identified 
as of the Entry into Force of this Compact and a new Project, without 
amending the Compact; provided, however, that such reallocation (i) is 
consistent with the Objectives, (ii) does not cause the amount of MCC 
Funding to exceed the aggregate amount specified in Section 2.1(a) of 
this Compact, and (iii) does not cause the Government's obligations or 
responsibilities or overall contribution of resources to be less than 
specified in Section 2.2(a) of this Compact, this Annex II or elsewhere 
in the Compact.

5. Conditions Precedent; Sequencing

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

                                  Exhibit A.--Multi-Year Financial Plan Summary
----------------------------------------------------------------------------------------------------------------
                Component                   Year 1      Year 2      Year 3      Year 4      Year 5       Total
----------------------------------------------------------------------------------------------------------------
1. Rural Road Rehabilitation Project:
    A. Infrastructure Improvements......       $0.49      $17.92      $22.62      $13.46      $10.00      $64.50
    B. Technical Audit of Performance     ..........  ..........        0.30  ..........  ..........        0.30
     Based Maintenance Contracts........
    C. Road Maintenance Strategic Plan..  ..........  ..........  ..........        0.30  ..........        0.30
    D. Project Administration...........        0.40        0.40        0.40        0.40        0.40        2.00
                                         -----------------------------------------------------------------------
    Sub-Total...........................        0.89       18.32       23.32       14.16       10.40       67.10
                                         -----------------------------------------------------------------------
2. Irrigated Agriculture Project:
    A. Infrastructure Activity
        Infrastructure*.................        5.31       30.16       32.07       25.17       15.87      108.59
        Project Administration..........        0.93        0.93        0.93        0.93        0.93        4.67
    B. Water-to-Market Activity
        Institutional Strengthening.....        0.53        0.98        1.45        0.69        0.51        4.16
        Improved Profitability of WUA           0.74        4.55        6.14        6.99        7.07       25.50
         Members........................
        Project Administration..........        0.72        0.61        0.64        0.41        0.39        2.76
                                         -----------------------------------------------------------------------
    Sub-Total...........................        8.24       37.24       41.23       34.20       24.77      145.67
                                         -----------------------------------------------------------------------
3. Monitoring and Evaluation............        1.44        0.92        0.95        0.97        0.81        5.08
4. Program Administration and Control:
    A. Program Administration...........        1.41        0.99        1.06        1.06        1.09        5.60
    B. Audit............................        0.17        0.80        0.93        0.71        0.52        3.13
    C. Fiscal Management................        0.49        2.33        2.70        2.04        1.50        9.06
                                         -----------------------------------------------------------------------
    Sub-Total...........................        2.06        4.12        4.69        3.81        3.11       17.79
                                         -----------------------------------------------------------------------
    MCC Contribution....................       12.63       60.61       70.20       53.13       39.09     235.65
----------------------------------------------------------------------------------------------------------------
*Tertiary canals will be subject to a 15% farmer co-financing requirement.

Annex III--Description of the M&E Plan

    This Annex III to the Compact (the ``M&E Annex'') generally 
describes the components of the M&E Plan for the Program. Except as 
defined in this M&E Annex, each capitalized term in this M&E Annex 
shall have the same meaning given such term elsewhere in this Compact.

[[Page 19422]]

1. Overview

    MCC and the Government (or a mutually acceptable Government 
Affiliate or Permitted Designee) shall formulate, agree to and the 
Government shall implement, or cause to be implemented, an M&E Plan 
that specifies (1) how progress toward the Objectives and the 
intermediate results of each Project and Project Activity set forth in 
this M&E Annex (the ``Outcomes'') will be monitored (the ``Monitoring 
Component''), (2) a methodology, process and timeline for the 
evaluation of planned, ongoing, or completed Projects and Project 
Activities to determine their efficiency, effectiveness, impact and 
sustainability (the ``Evaluation Component''), and (3) other components 
of the M&E Plan described below. Information regarding the Program's 
performance, including the M&E Plan, and any amendments or 
modifications thereto, as well as periodically generated reports, will 
be made publicly available on the MCA-Armenia Web site and elsewhere.

2. Monitoring Component

    To monitor progress toward the achievement of the Objectives and 
Outcomes, the Monitoring Component of the M&E Plan shall identify (a) 
the Indicators, (b) the party or parties responsible, the timeline, and 
the instrument for collecting data and reporting on each Indicator to 
MCA-Armenia, and (c) the method by which the reported data will be 
validated.
    (a) Indicators. The M&E Plan shall measure the results of the 
Program using quantitative, objective and reliable data 
(``Indicators''). Each Indicator will have one or more expected results 
that specify the expected value and the expected time by which that 
result will be achieved (each, a ``Target''). The M&E Plan will measure 
and report on Indicators at four levels. First, the Indicators for the 
Compact Goal (each, a ``Compact Goal Indicator'') will measure the 
results for the overall Program. Second, the Indicators for each 
Objective (each, an ``Objective Indicator'') will measure the final 
results of the Projects to monitor their success in meeting each of the 
Objectives, including results for the intended beneficiaries identified 
in accordance with Annex I (collectively, the ``Beneficiaries''). 
Third, intermediate Indicators (each, an ``Outcome Indicator'') will 
measure the intermediate results achieved under each of the Project 
Activities to provide an early measure of the likely impact of the 
Project Activities. A fourth level of Indicators (each, an ``Output 
Indicator'') will be included in the M&E Plan to measure the direct 
outputs of the Project Activities. All Indicators will be disaggregated 
by gender, income level and age, to the extent practicable. Subject to 
prior written approval from MCC, MCA-Armenia may add Indicators or 
refine the Targets of existing Indicators.
    (i) Compact Goal Indicators. The M&E Plan shall contain the Compact 
Goal Indicators listed in the table below with their definitions. The 
corresponding Targets to be achieved are in the following tables.

                         Compact Goal Indicators
------------------------------------------------------------------------
                                                       Definition of
            Purpose                 Indicator            indicator
------------------------------------------------------------------------
Reduced rural poverty.........  Poverty rate in    Poverty rate in rural
                                 rural areas.       areas as measured by
                                                    the National
                                                    Statistical Service
                                                    of Armenia.
Increased economic performance  Change in real     Change in real income
 of the agricultural sector.     income from        from sale of
                                 agriculture in     agricultural produce
                                 rural areas.       per household member
                                                    measured as an
                                                    index.
------------------------------------------------------------------------


                                              Compact Goal Targets
----------------------------------------------------------------------------------------------------------------
                                                    Year 4       Year 5       Year 6       Year 7       Year 8
            Indicators                Baseline       2009         2010         2011         2012         2013
----------------------------------------------------------------------------------------------------------------
Poverty rate in rural areas                  32           31           30           29           28           26
 (percentage).....................
Baseline: 2004....................
Change in real income from                  100          102          105          109          115          123
 agriculture in rural areas
 (Index)..........................
Baseline: 2005 = 100..............
----------------------------------------------------------------------------------------------------------------

    (ii) Objective and Outcome Indicators. The M&E Plan shall contain 
the Objective and Outcome Indicators listed in the tables below, with 
their definitions. The corresponding Targets to be achieved are in the 
tables following the definitions.

              Rural Road Rehabilitation Project Indicators
------------------------------------------------------------------------
                                                         Definition of
             Purpose                   Indicator           indicator
------------------------------------------------------------------------
Objective:
    Better access to economic     Satisfaction with   Percentage
     and social infrastructure.    public              satisfied.
                                   transportation in
                                   rural areas.
Outcomes:
    Reduced transportation costs  International       Weighted index to
                                   Roughness Index     measure road
                                   (IRI) for roads     roughness
                                   in Project area.    (correlated with
                                                       transportation
                                                       costs).
    Increased vehicular activity  Average daily       Average daily
                                   traffic in          number of
                                   Project area.       vehicles on road
                                                       sections in
                                                       Project area
                                                       weighted by
                                                       length of
                                                       corresponding
                                                       road sections.

[[Page 19423]]

 
    Sustained maintenance of      Government          State budget
     road network.                 budgetary           expenditure on
                                   allocations for     rehabilitation of
                                   rehabilitation of   road sections in
                                   road sections in    the road lifeline
                                   the road lifeline   network (AMD in
                                   network.            millions).
                                  Government          State budget
                                   budgetary           expenditures on
                                   allocations for     routine
                                   routine             maintenance of
                                   maintenance of      the entire road
                                   the entire road     network (AMD in
                                   network.            millions).
------------------------------------------------------------------------


                                                        Rural Road Rehabilitation Project Targets
--------------------------------------------------------------------------------------------------------------------------------------------------------
 Objective level indicators  (metric of project success
              observable by end of compact)                  Baseline         Year 1          Year 2          Year 3          Year 4          Year 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Satisfaction with public transportation in rural areas               TBD             TBD             TBD             TBD             TBD             TBD
 (percentage) \1\.......................................
Outcome Level Indicators
(early Indicators of Project Activities impact on
 Objectives)
International Roughness Index (IRI) for roads in Project             9.3             9.9            10.2             7.7             5.7             5.0
 area (m/km)............................................
Average daily traffic in Project area (vehicles)........             380             390             400             410             440             460
Government budgetary allocations for rehabilitation of               n/a           1,010           3,150           3,310           3,970           5,950
 road sections in the road lifeline network (AMD in
 millions)..............................................
Government budgetary allocations for routine maintenance             n/a           5,020           5,990           6,290           6,900          7,360
 of the entire road network (AMD in millions)...........
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The Targets for this Indicator will be calculated using baseline information from the 2007 Integrated Survey of Living Standards (ISLS) to be
  conducted by the National Statistical Service of the Republic of Armenia.


                Irrigated Agriculture Project Indicators
------------------------------------------------------------------------
                                                         Definition of
             Purpose                   Indicator          indicators
------------------------------------------------------------------------
Objectives:
    Increased agricultural        Increase in area    Increase in
     productivity.                 covered by high     hectares covered
                                   value added         by HVA crops
                                   (``HVA'') crops.    (i.e.,
                                                       vegetables,
                                                       potato, fruits,
                                                       grapes).
    Improved quality of           Share of            Percentage of
     irrigation.                   respondents         respondents
                                   satisfied with      satisfied with
                                   irrigation          irrigation
                                   services.           services.
------------------------------------------------------------------------


                   Infrastructure Activity Indicators
------------------------------------------------------------------------
                                                         Definition of
             Purpose                   Indicator          indicators
------------------------------------------------------------------------
Outcomes:
    Increased irrigated land....  Additional land     Annual increase in
                                   irrigated under     irrigated land in
                                   Project.            Project area
                                                       (hectares).
    Maintenance of irrigation     Government          State budget
     system.                       budgetary           expenditures on
                                   allocations for     maintenance of
                                   maintenance of      irrigation system
                                   irrigation system.  (AMD in
                                                       millions).
    Reduced energy costs........  Annual energy       Reduction in
                                   savings under       Kilowatt hours
                                   Project.            used (thousand
                                                       KWh).
    Reduced water losses........  Water losses in     Share of water
                                   primary canals      losses compared
                                   under Project.      to total water
                                                       intake
                                                       (percentage).
                                  Water losses in     Share of water
                                   tertiary canals     losses compared
                                   under Project.      to total water
                                                       intake
                                                       (percentage).
------------------------------------------------------------------------


                   Water-to-Market Activity Indicators
------------------------------------------------------------------------
                                                         Definition of
             Purpose                   Indicator          indicators
------------------------------------------------------------------------
Outcomes:
    Improved WUA cost recovery..  Recovery of WUA     Share of WUA water
                                   operations and      charges compared
                                   maintenance cost    WUA annual
                                   by water charges.   operations and
                                                       maintenance cost
                                                       (percentage).
    Farmers using improved on-    Number of farmers   Number of farmers
     farm water management.        using better on-    using better on-
                                   farm water          farm water
                                   management.         management: Drip
                                                       irrigation; ET
                                                       Gage, and soil
                                                       moisture
                                                       monitoring.

[[Page 19424]]

 
    Access to credit to improve   Loans provided....  Loans provided
     agricultural activities.                          under the Project
                                                       (USD in
                                                       thousands).
------------------------------------------------------------------------


                                                          Irrigated Agriculture Project Targets
--------------------------------------------------------------------------------------------------------------------------------------------------------
   Objective level indicators
   (metric of project success          Baseline             Year 1              Year 2              Year 3              Year 4              Year 5
 observable by end of compact)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Increase in area covered by      0..................  0.................  110...............  1,100.............  4,020.............  2,540.
 high value added (HVA) crops
 (hectares).
Share of respondents satisfied   TBD................  TBD...............  TBD...............  TBD...............  TBD...............  TBD.
 with irrigation services
 (percentage) \1\.
Infrastructure Activity:         Baseline...........  Year 1............  Year 2............  Year 3............  Year 4............  Year 5.
 Outcome Level Indicators.
(Early Indicators of Project
 Activities impact on
 Objectives).
Additional land irrigated under  0..................  0.................  0.................  2,400.............  10,900............  20,340.
 Project (hectares).
Government budgetary             TBD................  TBD...............  TBD...............  TBD...............  TBD...............  TBD.
 allocations for maintenance of
 irrigation system (AMD in
 millions) \2\.
Annual energy savings under      0..................  0.................  0.................  0.................  2,800.............  25,520.
 Project (thousand KWh).
Water losses in primary canals   28%................  30%...............  31%...............  28%...............  23%...............  17%
 under Project (percentage).
Water losses in tertiary canals  TBD................  TBD...............  TBD...............  TBD...............  TBD...............  TBD.
 under Project (percentage) \3\.
Water-to-Market Activity:        Baseline...........  Year 1............  Year 2............  Year 3............  Year 4............  Year 5.
 Outcome Level Indicators.
(Early Indicators of Project
 Activities impact on
 objectives).
Recovery of WUA operations and   n/a................  46%...............  55%...............  60%...............  66%...............  70%.
 maintenance cost by water
 charges (percentage).
Number of farmers using          0..................  0.................  5,390.............  14,300............  24,900............  35,420.
 improved on-farm water
 management (number;
 cumulative).
Loans provided (USD in           0..................  0.................  1,600.............  2,400.............  2,500.............  2,000.
 thousands).
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The Targets for this Indicator will be calculated using baseline information from the 2007 Integrated Survey of Living Standards (ISLS) to be
  conducted by the National Statistical Service of the Republic of Armenia.
\2\ The Targets for this Indicator will be available at the end of the second quarter of 2006, when the recommendations of the Technical Commission on
  Water System Operation and Maintenance are due for Government confirmation.
\3\ The Targets for this Indicator will be incorporated once individual WUAs agree to the 15% co-financing required to proceed with the investments in
  tertiary canals.

    (b) Data Collection and Reporting. The M&E Plan shall establish 
guidelines for data collection and a reporting framework, including a 
schedule of Program reporting and responsible parties. The Management 
Unit shall conduct regular assessments of program performance to inform 
MCA-Armenia 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-Armenia, MCA-Armenia shall promptly deliver such 
reports to MCC along with any other related documents, as specified in 
the M&E Plan or as may be requested from time to time by MCC.
    (c) Data Quality Reviews. From time to time, as determined in the 
M&E Plan or as otherwise requested by MCC, the quality of the data 
gathered through the M&E Plan shall be reviewed to ensure that data 
reported are as valid, reliable, and timely as resources will allow. 
The objective of any data quality review will be to verify the quality 
and the consistency of performance data, across different 
implementation units and reporting institutions. Such data quality 
reviews also will serve to identify where those levels of quality are 
not possible, given the realities of data collection. The data quality 
reviewer shall enter into an Auditor / Reviewer Agreement with MCA-
Armenia in accordance with Annex I.

3. Evaluation Component

    The Program shall be evaluated on the extent to which the 
interventions contribute to the Compact Goal. The Evaluation Component 
shall contain a methodology, process and timeline for analyzing data in 
order to assess planned, ongoing, or completed Project Activities to 
determine their efficiency, effectiveness, impact and sustainability. 
This component should use state-of-the-art methods for addressing 
selection bias and should make provisions for collecting data from both 
treatment and control groups, where practicable. The Evaluation 
Component shall contain two types of reports: Final Evaluations and Ad 
Hoc Evaluations, and shall be finalized before any MCC Disbursement or 
Re-Disbursement for specific Program activities or Project Activities.
    (a) Final Evaluation. MCA-Armenia, with the prior written approval 
of MCC, may engage an independent evaluator to conduct an evaluation at 
the expiration or termination of the Compact Term (``Final 
Evaluation'') or at MCC's election, MCC may engage such independent 
evaluator. The Final Evaluation must at a minimum (i) evaluate the 
efficiency and effectiveness of the Program; (ii) estimate, 
quantitatively and in a statistically valid way, the causal 
relationship between

[[Page 19425]]

the Compact Goal (to the extent possible), the Objectives and Outcomes; 
(iii) determine if, and analyze the reasons why, the Compact Goal, 
Objectives and Outcomes were or were not achieved; (iv) identify 
positive and negative unintended results of the Program; (v) provide 
lessons learned that may be applied to similar projects; (vi) assess 
the likelihood that results will be sustained over time; and (vii) any 
other guidance and direction that will be provided in the M&E Plan. To 
the extent engaged by MCA-Armenia, such independent evaluator shall 
enter into an Auditor/Reviewer Agreement with MCA-Armenia in accordance 
with Annex I.
    (b) Ad Hoc Evaluations. Either MCC or MCA-Armenia may request ad 
hoc or interim evaluations or special studies of Projects, Project 
Activities, or the Program as a whole prior to the expiration of the 
Compact Term (``Ad Hoc Evaluations''). If MCA-Armenia engages an 
evaluator, the evaluator will be an externally contracted independent 
source selected by MCA-Armenia, 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-Armenia requires an ad hoc independent evaluation or special 
study at the request of the Government for any reason, including for 
the purpose of contesting an MCC determination with respect to a 
Project or Project Activity or to seek funding from other donors, no 
MCC Funding or MCA-Armenia resources may be applied to such evaluation 
or special study without MCC's prior written approval.

4. Other Components of the M&E Plan

    In addition to the Monitoring and Evaluation Components, the M&E 
Plan shall include the following components for the Program, Projects 
and Project Activities, including, where appropriate, roles and 
responsibilities of the relevant parties and Providers:
    (a) Costs. A detailed cost estimate for all components of the M&E 
Plan.
    (b) Assumptions and Risks. Any assumptions and risks external to 
the Program that underlie the accomplishment of the Objectives and 
Outcomes; provided, such assumptions and risks shall not excuse 
performance of the Parties, unless otherwise expressly agreed to in 
writing by the Parties.

5. Implementation of the M&E Plan

    (a) Approval and Implementation. The approval and implementation of 
the M&E Plan, as amended from time to time, shall be in accordance with 
the Program Annex, this M&E Annex, the Governance Agreement, and any 
other relevant Supplemental Agreement.
    (b) Stakeholders' Committee. The completed portions of the M&E Plan 
will be presented to the Stakeholders' Committee at the Stakeholders' 
Committee's initial meetings, and any amendments or modifications 
thereto or any additional components of the M&E Plan will be presented 
to the Stakeholders' Committee at appropriate subsequent meetings of 
the Stakeholders' Committee. The Stakeholders' Committee will have 
opportunity to present its suggestions to the M&E Plan, which the 
Governing Council will take into consideration in its review of any 
amendments to the M&E Plan during the Compact Term.
    (c) MCC Disbursement and Re-Disbursement for a Project Activity. As 
a condition to each MCC Disbursement or Re-Disbursement there shall be 
satisfactory progress on the M&E Plan for the relevant Project or 
Project Activity, and substantial compliance with the M&E Plan, 
including any reporting requirements.
    (d) Modifications. Notwithstanding anything to the contrary in 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. 06-3459 Filed 4-12-06; 8:45 am]
BILLING CODE 9210-01-P